Express Oil Change, LLC v. ANB Ins. Servs., Inc.

• Decision Date: 27 March 2013
• Docket Number: No. CV–10–BE–0263–KOB.,CV–10–BE–0263–KOB.
• Citation: 933 F.Supp.2d 1313
• Parties: EXPRESS OIL CHANGE, LLC, Plaintiff, v. ANB INSURANCE SERVICES, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

933 F.Supp.2d 1313

EXPRESS OIL CHANGE, LLC, Plaintiff,

v.ANB INSURANCE SERVICES, INC., et al., Defendants.

No. CV–10–BE–0263–KOB.

United States District Court,

N.D. Alabama,

Southern Division.

March 27, 2013.

David H. Marsh, Michael K. Beard, Marsh Rickard & Bryan PC, Birmingham, AL, for Plaintiff.

John P. Scott, Jr., Michael T. Scivley, W. Drake Blackmon, Starnes Davis Florie LLP, Grace Robinson Murphy, Edward A. Hosp, Katherine L. Soppet, Maynard Cooper & Gale PC, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

KARON OWEN BOWDRE, District Judge.

This controversy arises from Plaintiff Express Oil's attempt to create a self-funded health benefits plan for its employees while eliminating any uninsured risk for itself by procuring stop-loss insurance. Express Oil employed and relied on Defendants ANB Insurance and Alan Wood to help it transition from a fully-insured to a self-funded health plan, design a suitable self-funded plan, and procure appropriate stop-loss insurance. Express Oil purchased a self-funded plan from Defendant Blue Cross, and Blue Cross administered the plan, which became effective in 2003. Express Oil allegedly believed that the self-funded plan had a $1 million dollar comprehensive lifetime maximum for each covered member and thus procured stop-loss insurance covering any member's claims that exceeded $75,000 up to the $1,000,000 dollar comprehensive lifetime maximum.

The genesis of this specific dispute is the birth of twins by one of Express Oil's employees. One of the twins was born with very serious medical issues and quickly amassed costly medical bills under Express Oil's self-funded plan. During the early years of the child's life, Express Oil paid over $2.8 million dollars in claims on the child. During the 2007–2008 policy year, Express Oil exhausted its $1,000,000 lifetime maximum stop-loss reimbursement benefits. Under the self-funded plan's definition of “lifetime maximum,” however, many of the claims incurred by the child were not subject to the self-funded plan's lifetime maximum, and Express Oil remained liable for the claims that exceeded the $1 million ceiling of the stop-loss insurance policy. Express Oil was exposed to this liability as a result of the misinterpretation of the self-funded plan's definition of “lifetime maximum” and its subsequent procurement of stop-loss insurance that did not fully cover it from the liabilities from which it had intended to protect itself. In the instant lawsuit, Express Oil seeks to hold at least one of the Defendants liable for this costly gap in coverage.

This unusual ERISA case comes before the court on Defendants ANB Insurance Services and Alan L. Wood's Motion for Partial Summary Judgment (doc. 87); Defendant Nesbitt & Co.'s Motion for Summary Judgment (doc. 90); Defendant Blue Cross and Blue Shield of Alabama's Motion for Partial Summary Judgment (doc. 92); and Defendant Blue Cross and Blue Shield of Alabama's Motion to Strike (doc. 113). The parties have fully briefed ANB and Wood's Motion for Partial Summary Judgment and Blue Cross's Motion for Partial Summary Judgment. Plaintiffs Express Oil Change, LLC, and the Express Oil Change Group Health Care Plan (collectively “Express Oil”) did not file a response to Nesbitt's Motion for Summary Judgment. The court has considered the parties' submissions and applicable law, and for the reasons explained below, concludes that Blue Cross's Motion to Strike is due to be granted in part and denied in part; Nesbitt's Motion for Summary Judgment is due to be granted in its entirety; Blue Cross's Motion for Partial Summary Judgment is due to be granted in its entirety; and ANB and Wood's Motion for Partial Summary Judgment is due to be granted as to Count VII for negligent procurement of insurance but due to be denied on Count XII for breach of fiduciary duty.

I. PROCEDURAL HISTORY AND COUNTS ALLEGED IN THE AMENDED AND RECAST COMPLAINT

Express Oil Change, LLC filed this lawsuit on November 10, 2008 in the Circuit Court for Jefferson County, Alabama, against ANB Insurance Services, Inc.; S.S. Nesbitt & Co.; and Alan L. Wood. (Doc. 1–1, at 22). On November 6, 2009, Express Oil Change amended the complaint and added Blue Cross and Unimerica Insurance Company as Defendants. Blue Cross removed the case to this court on February 3, 2010, based on this court's federal question jurisdiction over ERISA claims (doc. 1), and on March 24, 2010, Blue Cross filed a breach of contract counterclaim against Express Oil (doc. 15). On April 20, 2010, Express Oil Change, with the leave of court, filed an “Amended and Recast Complaint” (doc. 24) which added the Express Oil Change Group Health Care Plan as a Plaintiff and added several new claims. On February 16, 2011, Unimerica Insurance Company filed a motion for summary judgment (doc. 43), to which Express Oil elected not to file a responsive brief. The court granted Unimerica's motion for summary judgment and dismissed Unimerica with prejudice on April 20, 2011 (doc. 63), leaving Nesbitt, Blue Cross, ANB, and Wood as the remaining defendants.

The Amended and Recast Complaint alleges sixteen different counts. Counts I, II, III, IV, V, & VI are alleged against Blue Cross; counts VII, VIII, XI, & XII are alleged against Wood, ANB, and Nesbitt; counts IX & X are alleged against Wood only; and counts XIII & XIV are alleged against ANB and Nesbitt only. Counts XV & XVI are no longer in the case because they were alleged only against Unimerica, which this court dismissed, as stated above. (Doc. 63).

A. Counts alleged against Blue Cross and by Blue Cross

The Amended and Recast Complaint alleges the following counts against Blue Cross: Count I—breach of duty as an ERISA fiduciary; Count II—breach of contract; Count III—breach of the implied covenant of good faith and fair dealing; Count IV—negligent or wanton failure to properly design the plan; Count V—negligent or wanton failure to properly administer, handle, process, and pay claims under the plan; and Count VI—fraudulent suppression. In its answer, Blue Cross asserts a breach of contract counterclaim against Express Oil, which is not addressed in this opinion.

B. Counts alleged against Wood, ANB, and Nesbitt

The Amended and Recast Complaint alleges the following counts against Wood, ANB, and Nesbitt: Count VII—negligent or wanton failure to procure sufficient stop-loss insurance for Express Oil; Count VIII—breach of an express or implied contract with Express Oil to provide expertise and guidance regarding Express Oil's self-funded plan; Count XI—fraudulent suppression; and Count XII—breach of fiduciary duties.

C. Counts alleged against Wood only

The Amended and Recast Complaint alleges the following counts against Wood: Count IX—negligent or wanton breach of contract; and Count X—fraud.

D. Counts alleged against ANB and Nesbitt only

The Amended and Recast Complaint alleges the following counts against ANB and S.S. Nesbitt: Count XIII—negligent or wanton failure to properly investigate, hire, train, supervise, and retain Wood; and Count XIV—vicarious liability for the wrongful conduct of Wood.

II. STATEMENT OF FACTS¹A. Background

Before 2003, Express Oil had a fully-insured health plan for its employees. In 2002, Express Oil contemplated changing to a self-funded plan, also known as a self-insured plan. Under a self-funded plan, an employer provides health benefits to its employees out of its own funds, in contrast to a fully-insured plan in which an employer pays fixed premiums to an insurance carrier, which in turn pays the health benefits of the employees. Self-funding has a number of benefits, among them increased flexibility in designing a health care plan and a potential reduction in cost.

That potential reduction in cost, however, is counterbalanced by an increase in risk resulting from unpredictable or catastrophic claims, which may be devastating to a smaller employer that may not have the financial resources to meet those obligations. To protect against these catastrophic claims, most self-funded employers purchase “stop-loss insurance.” Stop-loss insurance is a separate contract between the employer and a stop-loss insurance carrier where the insurance company agrees to reimburse the employer for claims that exceed a certain level. Many of these stop-loss contracts, however, also provide for a ceiling on the amount of reimbursement an employer may receive. In addition to procuring stop-loss insurance, many self-funded employers also contract out the administration of their employees' claims to a third-party administrator.

Blue Cross supplied Express Oil with the self-funded plan that Express Oil ultimately used in administering health benefits to its employees. The plan limited the amount of benefits that Express Oil covered members could receive, a term known as the “lifetime maximum.” A “covered member” is any Express Oil employee who subscribes to the plan and any eligible dependents. Def. Blue Cross Ex. 4, 2007 SPD, at 44. Under the lifetime maximum, Express Oil employees were eligible for up to $1,000,000 in lifetime benefits for every covered member; however, as defined under the plan, this cap applied only to some services, such as out-of-network services, or services not provided by a hospital, physician, or provider with which any Blue Cross and/ or Blue Shield plan has a Preferred Provider Organization (“PPO”) contract for the furnishing of health care services. The plan did not set any limitation on the benefits a member could receive for in-network services, or services provided by a hospital, physician or provider with which any Blue Cross and/or Blue Shield plan has a PPO contract.

Express Oil, however, apparently understood that the plan would provide a comprehensive lifetime maximum of $1,000,000 for all services to its members, an understanding that factored into the way Express Oil procured stop-loss insurance. Because Express Oil believed that it would only be exposed...