Community Ins. Co. v. Ohayon, 5:98-CV-2387.
| Decision Date | 02 November 1999 |
| Docket Number | No. 5:98-CV-2387.,5:98-CV-2387. |
| Citation | 73 F.Supp.2d 862 |
| Parties | COMMUNITY INSURANCE COMPANY, et al., Plaintiffs, v. Jacob OHAYON, et al., Defendants. |
| Court | U.S. District Court — Northern District of Ohio |
Paul J. Schumacher, Jr., Gallagher, Sharp, Fulton & Norman, Cleveland, OH, Daran P. Kiefer, Kreiner & Peters, Cleveland, OH, for Community Insurance Company dba Anthem Blue Cross & Blue Shield, plaintiffs.
Kenneth L. Gibson, Weick, Gibson & Lowry, Cuyahoga Falls, OH, for defendants.
On June 1, 1999, Plaintiff Community Insurance Company ("Community Insurance") and Defendant Jacob Ohayon, individually and as parent and guardian for Defendant Jonathan Ohayon, a minor child ("the Ohayons"), filed briefs stating their positions with regard to Brilliance LDD Corporation's employee benefit plan arising under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. [Docs 28-31.] With this opinion and order, the Court resolves both Community Insurance's claim for reimbursement as well as the Ohayons' counterclaim for breach of fiduciary duty.
In bringing this action, Community Insurance seeks to recover $115,756.21 it paid in medical expenses after Jonathan Ohayon was injured in an automobile accident. Community Insurance says the medical insurance policy certificate unambiguously requires the Ohayons to reimburse Community Insurance from any settlement or recovery from third parties.
In response, the Ohayons argue, inter alia, that they should not reimburse Community Insurance because the policy certificate was not part of the insurance contract between the parties. Further, the Ohayons argue that Community Insurance is not entitled to reimbursement in light of the "make-whole" rule adopted by the United States Court of Appeals for the Sixth Circuit.
The Ohayons also assert a counterclaim against Community Insurance. With this claim, the Ohayons allege that Community Insurance breached its fiduciary duty under ERISA by failing to provide proper plan documents, most notably a summary plan description.1
For the reasons that follow, the Court finds that Community Insurance is not entitled to reimbursement for medical expenses paid on behalf of Jonathan Ohayon. The Court also enjoins Community Insurance from continuing to provide summary plan descriptions that fail to comply with ERISA requirements.
Defendant Jacob Ohayon is president of Brilliance LDD, Inc. ("Brilliance"). Brilliance is a small family-owned company that imports diamonds. In December 1995, Brilliance entered a Small Group Trust Agreement with Community Mutual Insurance to provide health insurance benefits for Defendant Jacob Ohayon, his brother, and their respective dependents. Community Insurance is the insurer and administrator for the medical benefit plan.
On August 6, 1996, a motor vehicle struck and injured Defendant Jacob Ohayon's minor child, Jonathan Ohayon. Jonathan suffered serious physical injuries, including tendon damage to his limbs, requiring nine surgeries. From August 6, 1996 through January 1999, Community Insurance paid medical claims totaling $115,755.71.
After the accident, Jonathan and his parents made a claim against the tortfeasor's insurance company. The insurance policy limit was $100,000. On August 29, 1997, an offer of settlement for $99,935 was presented to the Summit County Probate Court. On June 26, 1997, the court approved the settlement agreement. Under the agreement, the court awarded Jonathan Ohayon $66,613 for his injuries, payable through a structured settlement. Huntington Trust Company holds all settlement payments in trust until Jonathan Ohayon reaches age 18. The court further approved $33,322 for attorney fees and expenses. The court deducted the fees from Jonathan Ohayon's total recovery. No portion of the settlement was awarded to Jacob Ohayon.
Community Insurance now sues the Ohayons for reimbursement of the medical expenses it paid under the policy. Although the Ohayons stipulate that Community Insurance made the payments claimed, they dispute Community Insurance's right to reimbursement.
The parties stipulate that the terms describing Brilliance's health benefits are set forth in plan documents, including (1) a Trust Agreement dated January 1, 1991; (2) certain addendums to the Trust Agreement, including a Master Group Contract; (3) two Small Group Trust Enrollment Applications dated January 5, 1994 and December 29, 1995; and (4) an insurance policy certificate.
The parties acknowledge that Defendant Jacob Ohayon will testify that he received a copy of the above-referenced policy certificate in January 1996, but did not receive copies of the Trust Agreement or the Master Group Contract. The parties stipulate that Community Insurance will offer no document other than the policy certificate as the summary plan description. However, the parties dispute the policy certificate's effect and whether it qualifies as an adequate summary plan description under ERISA.
The parties agree that ERISA governs Brilliance's employee benefit welfare plan. See 29 U.S.C. § 1003(a)(1). ERISA does not provide a standard for reviewing benefit decisions. Accordingly, courts look to the plan documents to determine the appropriate standard of review.
The United States Supreme Court has held that de novo review applies in cases where the benefit plan fails on its face to clearly give the administrator or fiduciary discretionary authority to decide eligibility for benefits or to construe the terms of the plan. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 983 (6th Cir.1991). By comparison, the highly deferential arbitrary and capricious standard of review applies where a benefit plan unambiguously grants the administrator discretionary authority to decide eligibility.2
Here, the parties agree that Community Insurance has discretionary authority to determine benefit eligibility.3 Thus, the Court applies the arbitrary and capricious standard of review in considering Community Insurance's interpretation of the plan. A plan administrator's decisions regarding employee benefits are not arbitrary and capricious if they are "rational in light of the plan's provisions." Miller, 925 F.2d at 984.
Community Insurance argues that its discretionary interpretation of the benefit plan policy certificate requires the Ohayons to reimburse it $115,571.04 for medical expenses paid under the plan. The Court finds that the Ohayons are not required to reimburse Community Insurance. Reimbursement is not required because the policy certificate is not part of the insurance contract between Community Insurance and Brilliance. Further, even if the certificate was part of the insurance contract, reimbursement under the circumstances of this case would violate the "make-whole" rule.4
The record lacks sufficient evidence proving the policy certificate, as revised in January 1996, was in fact part the Group Contract between the Community Insurance and Brilliance. First, Jacob Ohayon, as owner of Brilliance, signed two Small Group Trust Application/Participant Agreements, dated January 4, 1994 and December 29, 1995. Neither application refers to a summary plan description, ERISA, or the policy certificate.
Further, Community Insurance provides no evidence showing that Defendant Jacob Ohayon received a copy of the policy certificate before he signed the enrollment applications. Though the Master Group Policy, attached as an addendum to the Trust Agreement, does reference the policy certificate, Community Insurance does not give evidence rebutting Defendant Jacob Ohayon's contention that he never received a copy of the Trust Agreement.
The policy certificate is the only document containing a right to reimbursement within the insurance contract. Because the policy certificate was not included in the insurance contract, there is no reimbursement clause in the contract. Therefore, Community Insurance is not entitled to reimbursement.
Even if the Court had found that the policy certificate at issue controlled, the certificate's subrogation and reimbursement provisions are sufficiently ambiguous to warrant defaulting to the "make-whole" rule adopted in this circuit.
The make-whole rule requires that an insured be made whole before an insurer can enforce its right to reimbursement or subrogation under ERISA. The rule applies unless the plan contains a clear contractual provision to the contrary. See Marshall v. Employers Health Ins. Co., 927 F.Supp. 1068, 1074 (M.D.Tenn.1996). As the Sixth Circuit has explained, the make-whole rule is a default rule:
We adopt the make-whole rule as a default rule in this circuit. Such a rule is consistent with the equitable principle that insurer [sic] does not have a right of subrogation until the insured has been fully compensated, unless this agreement itself provides to the contrary. Also, the make-whole rule is merely a default rule. If a plan sets out the extent of the subrogation right or states that the participant's right to be made whole is superseded by the plan's subrogation right no silence or ambiguity exists.
Marshall v. Employers Health Ins. Co., No. 96-6063, 1997 WL 809997, at *4 (6th Cir.1997) (unpublished). Thus, if the plan documents are silent or ambiguous regarding the extent or priority of an insurer's right to subrogation or reimbursement, courts will apply the make-whole rule.
In the instant case, the policy certificate states, in pertinent part:
Subrogation and Right of Reimbursement
This provision applies when we pay benefits for personal injuries and you have a right to recover damages from another.
* If we pay benefits under this Certificate, and you...
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