Behavioral Sciences Institute v. Great-West Life

• Decision Date: 03 February 1997
• Docket Number: No. 36652-1-I,GREAT-WEST,36652-1-I
• Citation: 930 P.2d 933,84 Wn.App. 863
• Court: Washington Court of Appeals
• Parties: , Pens. Plan Guide (CCH) P 23931M BEHAVIORAL SCIENCES INSTITUTE, a Washington corporation, Respondent, v.LIFE, a Colorado corporation, Appellant.

Page 863

84 Wn.App. 863

930 P.2d 933, Pens. Plan Guide (CCH) P 23931M

BEHAVIORAL SCIENCES INSTITUTE, a Washington corporation, Respondent, v. GREAT-WEST LIFE, a Colorado corporation, Appellant.

No. 36652-1-I.

Court of Appeals of Washington Division 1.

Feb. 3, 1997.

Michael Barr King, Lane Powell Spears Lubersky, Seattle, for appellant.

Scott A. Milburn, Preston Thorgrimson Ellis & Holman, Seattle, for respondent.

COLEMAN, Judge.

In 1990 and 1991, Great-West Life contracted to provide administrative services and excess or "stop-loss" coverage to Behavioral Sciences Institute, who self-insured an Employment Retirement Income Security Act of 1974 Plan for its employees. In late 1988, BSI employee Elaine Sonntag-Johnson had discovered that she had a rare blood disorder requiring expensive treatment. GW refused to provide stop-loss coverage, claiming that the employee's condition was not covered under the Plan and that BSI's Plan administrator acted in bad faith by not disclosing the condition. BSI sued GW, alleging breach of contract and bad faith. The court granted BSI summary judgment, holding that BSI had sole authority to determine Plan eligibility. GW argues that ERISA preempts BSI's state law claims. Alternatively, GW argues that the court erred in holding that it had no standing to challenge BSI's eligibility determination. We hold that ERISA does not preempt because this case does not involve the interpretation of an ambiguous ERISA provision or parties or claims covered by ERISA. We further find that GW can challenge Sonntag-Johnson's Plan eligibility insofar as it affects GW's obligation to provide reinsurance because the parties' agreement does not provide BSI with absolute discretion. We thus reverse.

PROCEDURAL HISTORY

In October 1994, BSI moved for summary judgment declaring that GW could not challenge the Plan administrator's determination that Sonntag-Johnson's claims were covered under the ERISA Plan. The court granted BSI's motion. In January 1995, GW moved for summary judgment, declaring that ERISA preempted BSI's state law claims; BSI made a cross motion to dismiss GW's counterclaim. GW's motion was denied and BSI's was granted. In February 1995, GW brought a motion for summary judgment asking the court to reconsider its October ruling based on evidence that BSI acted in bad faith and that no discretion was required to determine Plan eligibility. The court denied the motion as an untimely motion for reconsideration. The case was scheduled for trial on BSI's remaining bad faith claim, but further proceedings were stayed pending the outcome of this appeal.

FACTS

BSI established a self-insured ERISA Plan to provide health and welfare benefits to its employees. It contracted with GW to provide reinsurance coverage for the Plan effective January 1, 1990. Before this date, King County Medical Blue Shield had provided such coverage.

When negotiating coverage from GW, BSI Plan administrator Rhonda Watson informed GW in late 1989 that no BSI employees had claims in excess of $5,000 in the past 12 months, had preexisting conditions or would have medical or surgical treatment in 1990, or were prevented from performing their normal duties for more than two consecutive weeks during the past 12 months.

GW agreed to reimburse BSI for benefit payments made under the Plan provisions. The parties' agreement stated that GW was not a party to the Plan, had no control respecting the Plan's management, and had no obligation to any employee or dependent under the Plan.

The Plan provided that a BSI employee hired before July 1, 1991, was eligible for coverage if he or she paid the required contribution, if any, and was "at work" the day services were needed. If the employee did not satisfy these two requirements, no benefits would be paid for

[s]ervices or supplies received for a Pre-Existing Condition unless they are received after the earlier of:

The last day of a three-month period:

-- which ends on or after the date the Covered Person's coverage begins; and

--during which time no services or supplies were received for the condition; or

--The date on which the Covered Person's coverage has been in effect for 12 consecutive months under this Plan.

BSI employee Elaine Sonntag-Johnson was diagnosed with a rare blood disorder called paroxysmal nocturnal hemoglobinuria (PNH) in November 1988. According to Watson's declaration, Sonntag-Johnson was officially on vacation or sick leave from December 21 until January 1, 1990, when she became ill with PNH. She was admitted to the hospital on January 2, 1990, and did not return to work for several months.

Watson determined that Sonntag-Johnson was actively "at work" at 12:01 A.M. on January 1, 1990, and was thus covered under the Plan as it went into effect for 1990. Watson reasoned that Sonntag-Johnson was merely out with the flu in late December or on vacation and was not disabled with her illness until January 1, the day that GW began providing stop loss coverage to BSI.

GW received extensive claims for Sonntag-Johnson in early 1990. GW's senior customer service supervisor Cindy Nelson became suspicious and initiated an investigation. GW disputed whether Sonntag-Johnson's expenses were covered under the Plan and subsequently refused to reimburse BSI. In particular, GW questioned whether Sonntag-Johnson was in fact "at work" on January 1, 1990, and whether BSI had concealed her preexisting condition.

BSI's prior reinsurer, King County Medical, granted a 12-month extension of benefits when it learned of Sonntag-Johnson's diagnosis based on a finding that she was disabled on January 1, 1990. The extension expired on January 1, 1991, at which time Sonntag-Johnson was enrolled in the GW Plan, having met the actively at work requirement. Thus, benefits for 1990 are not in dispute. The parties further agree that Sonntag-Johnson became generally eligible for GW coverage when she returned to work full-time on January 1, 1991, but dispute whether the coverage excluded her preexisting PNH condition.

Sonntag-Johnson sued GW and BSI in Superior Court, seeking $27,028.62 in unpaid PNH-related medical expenses for 1991. Because the suit alleged a claim for benefits under ERISA, GW removed the case to federal district court and moved to dismiss. The federal court determined that because ultimate authority for determining coverage rested with BSI's Plan administrator, GW was not a fiduciary. The court thus dismissed Sonntag-Johnson's claim against GW. Sonntag-Johnson subsequently dropped her suit against BSI, and BSI reimbursed her for PNH-related expenses incurred in 1991.

BSI next sued GW in Superior Court, seeking to recover the money it had paid to Sonntag-Johnson. GW asserted affirmative defenses, including bad faith and failure to comply with the contract. GW also counterclaimed for an equitable adjustment in administrative service fees and stop-loss coverage premiums based on BSI's failure to disclose Sonntag-Johnson's condition when it applied for coverage.

BSI then moved for partial summary judgment, arguing that GW could not challenge Watson's determination that Sonntag-Johnson's claims were covered under the Plan. BSI argued that the alleged misrepresentations related to the premium adjustment issue, not the finality of Watson's determination. The court granted BSI's motion, reasoning that GW had no authority to challenge whether a claim was covered under BSI's ERISA Plan and, thus, GW was obligated to reimburse BSI for payments made to Sonntag-Johnson. The court permitted discovery to continue to resolve the remaining issues.

BSI then moved for summary judgment to dismiss GW's counterclaim, which sought to increase the 1991 premium retroactively. BSI argued that GW had extensive information on Sonntag-Johnson's condition when it set the premium for 1991. The court granted BSI's motion. The court reasoned that BSI informed GW of Sonntag-Johnson's medical problems by February 10, 1990, and since the 1991--not the 1990--contract was at issue, GW could have increased the contract rates for 1991 based on their knowledge of Sonntag-Johnson's condition.

GW subsequently moved for summary judgment on two issues. First, GW argued that even if the Plan administrator had discretion, the PNH-related coverage was outside the scope of the contract and, thus, no deference should be given to the Plan administrator; second, GW argued that the plan administrator failed to exercise good faith. The court struck GW's motion as an untimely motion for reconsideration of the court's October 14, 1994, decision.

In its notice of appeal, GW cited only the final partial judgment order granting BSI $85,000 against GW for breach of contract. This was the first order certified as final. Further proceedings on BSI's claim for breach of the duty of good faith were stayed pending any appeal by GW from this judgment.

NOTICE OF APPEAL

BSI argues that GW has failed to appeal properly because it did not include the October 14 original summary judgment order or the February 27 order striking its motion for reconsideration in its notice of appeal. The appellate court will review the lower court's order when it is not designated in the notice of appeal if the order prejudicially affects the decision designated in the notice and if the order is entered before the appellate court accepts review. RAP 2.4(b). We interpret the rules liberally to promote justice and facilitate the decision of cases on the merits. RAP 1.2(a); State v. Olson, 126 Wash.2d 315, 323, 893 P.2d 629 (1995). An appeal from a final judgment brings up most pretrial orders. Wlasiuk v. Whirlpool Corp., 76 Wash.App. 250, 884 P.2d 13 (1994). Here, the previous orders were prejudicially affected by the final order because BSI's entitlement to relief under the final order was based on these earlier rulings. Thus, review of all orders is proper.

ERISA PREEMPTION

GW argues that ERISA preempts BSI's claims because the...