Erwin v. Texas Health Choice L.C., Civil Action No. 3:01-CV-380-M (N.D. Tex. 2/22/2002)
| Decision Date | 22 February 2002 |
| Docket Number | Civil Action No. 3:01-CV-380-M. |
| Parties | LINDA ERWIN, Individually and as Representative of the Estate of CHARLES H. ERWIN, Plaintiff, v. TEXAS HEALTH CHOICE, L.C. a/k/a HMO TEXAS, L.C., et al., Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Windle Turley, John T. Kirtley, III, Law Offices of Windle Turley, P.C., Dallas, TX, Quentin Brogdon, Law Offices of Frank L. Branson, Dallas, TX, for Plaintiffs.
Julia J. Dodd, Joseph M. Gregory, Yvette J. Mabbun, Goodwin Gruber, Dallas, TX, for Texas Health Choice LC, The Medical Group of Texas, P.A., TexMed Physicians, P.A., Sierra Health Services, Inc.
John Anthony Scully, Robert A. Gragalone, Derek S. Davis, Aimee L. Guidry, Cooper & Scully, Dallas, TX, for Kaiser Foundation Health Plan of Texas, Permanente Medical Ass'n of Texas.
On October 1, 2001, the Court entered an Order on Defendants' Motions for Judgment on the Pleadings,1 in which it granted Defendants' Motions in regard to Plaintiff's common law fraud claim and denied the Motions as to the Chapter 88, vicarious liability, negligence, and conspiracy claims. The Court reserved its rulings on the remaining claims in Plaintiff's Second Amended Complaint, as Plaintiff's filing of the Complaint after briefing on the Motions for Judgment on the Pleadings had closed prevented the Court from hearing the parties' arguments on the new claims contained within the Second Amended Complaint, which included common law and statutory bad faith claims, third party beneficiary claims, and ERISA violations. The Court ordered Defendants to submit supplemental briefs on the new claims by October 22, 2001, while Plaintiff's Response was due by November 2, 2001. Contemporaneous with the Court's issuance of its October 1, 2001 Order, Plaintiff filed her Third Amended Complaint, which differed from the Second Amended Complaint only in Plaintiff's pleading of its third party beneficiary claims.2 The parties submitted supplemental briefs by the appointed date. After reviewing the parties' submissions, the Court is of the opinion that it should GRANT Defendants' Motions for Judgment on the Pleadings in regard to Plaintiff's common law and statutory bad faith claims and third party claims (including Plaintiff's fraudulent inducement and negligent misrepresentation allegations, which are contained within the third party claims), but DENY the Motions as to Plaintiff's ERISA claim, except insofar as Plaintiff, in her ERISA claim, requests injunctive relief on behalf of other plan participants.
Plaintiff alleges that Defendants are liable for both common law and statutory bad faith "by denying Mr. Erwin's claim for liver transplant services." Defendants urge that since these bad faith claims clearly "relate to" Defendants' coverage decisions, they are preempted by ERISA. Plaintiff responds (a) that the Fifth Circuit has previously held such bad faith claims not ERISA-preempted, and (b) even if the claims are preempted, the ERISA "savings clause," embodied in 29 U.S.C. § 1144 (b)(2)(A), prevents preemption of bad faith claims because the claims arise under laws that "regulate[] insurance." Plaintiff's first argument — that Fifth Circuit precedent precludes a finding of ERISA-preemption of these claims — is inapposite. The cases Plaintiff contends are controlling precedent, Transitional Hospitals Corp. v. Blue Cross & Blue Shield, 164 F.3d 952 (5th Cir. 1999), and Cypress Fairbanks Medical Center, Inc. v. PanAmerican Life Insurance Co., 110 F.3d 280 (5th Cir. 1997), involve third-party providers who leveled bad faith claims against the ERISA plan administrator based on the latter's alleged misrepresentations of whether the plan in question covered a certain procedure the service provider was to render to the beneficiary. In these cases, the Fifth Circuit explicitly limited its holding of non-preemption to bad faith claims brought by third-party health care providers. See Cypress Fairbanks, 110 F.3d at 284; Transitional Hosps., 164 F.3d at 954. In Transitional Hospitals, the Fifth Circuit explained this limitation in the following way:
ERISA does not preempt [a bad faith claim] when the. . . claim is brought by an independent, third-party health care provider (such as a hospital) against an insurer for its negligent misrepresentation regarding the existence of health care coverage. However, a hospital's [bad faith] claims . . . are preempted by ERISA when the hospital seeks to recover benefits owed under the plan to a plan participant who has assigned her right to benefits to the hospital.
164 F.3d at 954. Thus, while a third-party health care provider can bring a bad faith claim for misrepresentation arising out of an ERISA plan administrator's allegedly false statement as to whether a beneficiary is covered by the plan, ERISA preempts bad faith claims relating to "rights of the plan beneficiaries [including third-party assignees, such as hospitals] to recover benefits under the terms of the plan." Id. (quoting Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 249 n. 20 (5th Cir. 1990)). Thus, these cases actually stand for a proposition opposite from what Plaintiff claims, holding that bad faith claims are preempted when they involve allegations of an ERISA entity's wrongful denial of benefits. Because the situation in the case at hand involves a Plaintiff who is attempting "to recover benefits," not a third-party service provider alleging that an ERISA plan administrator misrepresented a beneficiary's coverage, application of this case law requires the Court to find that ERISA preempts the bad faith claims in this case.
Plaintiff urges, however, that ERISA's savings clause, 29 U.S.C. § 1144 (b)(2)(A), which excludes from ERISA preemption "any law of any State which regulates insurance," prevents ERISA preemption of both Plaintiff's common law and statutory bad faith claims. Plaintiff argues that her statutory bad faith claim implicates a state law regulating insurance because the claim arises under Article 21.21 of the Texas Insurance Code, which "[o]n its face" is limited to entities in the insurance industry. Plaintiff also contends that her common law bad faith claim constitutes a state law that regulates insurance because a bad faith claim can only be brought against insurers.
The Court finds, however, that Fifth Circuit precedent has foreclosed Plaintiff's statutory and common law bad faith claims. As to Plaintiff's Article 21.21 claim, the Fifth Circuit has held that an employee's suit is not immune from preemption even though based on Article 21.21. Ramirez v. Inter-Cont'l Hotels, 890 F.2d 760 (5th Cir. 1989); see also Hanson v. Cont'l Ins. Co., 940 F.2d 971 (5th Cir. 1991). The Ramirez court reasoned that "a law regulates insurance when (1) it is specifically directed at the insurance industry; (2) it transfers or spreads policyholder risk; and (3) it affects an integral part of the policy relationship between insurer and insured." 890 F.2d at 763 (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48-49 (1987)). The Court went on to explain that Article 21.21 "plainly fails to satisfy the second and third" criteria, and that therefore application of the Ramirez test weighed against finding that Article 21.21 was a law regulating insurance:
[Article 21.21] does not transfer or spread policyholder risk, and . . . "does not define the terms of the relationship between the insurer and the insured; it declares only that, whatever terms have been agreed upon in the insurance contract, a breach of that contract" may in some cases entitle the policyholder to exemplary damages. At most, therefore, [Article 21.21] satisfies one of three criteria used to interpret the phrase "regulates insurance" in the ERISA savings clause.
Id. Contrary to Plaintiff's assertions, Ramirez and its progeny are still good law, as is evidenced by other district courts' recent applications of the Ramirez line of cases to find that plaintiffs' Article 21.21 and DTPA claims do not fall under ERISA's savings clause. See, e.g., Cristantielli v. Kaiser Found, Health Plan, 113 F. Supp.2d 1055, 1066 (N.D. Tex. 2000) (Solis, J.) ( ; Wise v. Lucent Tech., Inc. Pension Plan, 102 F. Supp.2d 733, 746 (S.D. Tex. 2000) . In accordance with these decisions, the Court finds that Plaintiff's statutory bad faith claim is preempted by ERISA.
Plaintiff's common law bad faith claim must also fail. Plaintiff argues that because "only an insurance company can be subject to" a common law bad faith claim in Texas, the claim is a law regulating insurance and is therefore subject to the ERISA savings provision. The Court finds, however, that the Supreme Court's decision in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), forecloses that result. In Pilot Life, the Court was faced with an issue virtually identical to the one presented here: Did Mississippi's common law bad faith cause of action escape preemption under the ERISA savings clause as a law regulating insurance? Id. The Court determined that it did not. Id. The Court came to this result by applying the same multifactored analysis as that used by the Ramirez court: (1)...
To continue reading
Request your trial