Fallick v. Nationwide Mut. Ins. Co.

• Citation: 162 F.3d 410
• Decision Date: 09 December 1998
• Docket Number: No. 97-3939,97-3939
• Parties: 22 Employee Benefits Cas. 2221 Arthur FALLICK, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Life Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 410

162 F.3d 410

22 Employee Benefits Cas. 2221

Arthur FALLICK, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Life

Insurance Company, Defendants-Appellees.

No. 97-3939.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 24, 1998.

Decided Dec. 9, 1998.

Roger W. Van Deusen (briefed), Gaines & Stern, Cleveland, Ohio; Melvyn I. Weiss (briefed), Aaron W. Tandy (briefed), Brad N. Friedman (argued and briefed), Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for Plaintiff-Appellant.

Anne M. Sferra (briefed), Randolph Carson Wiseman (briefed), Diane R. Brey (argued and briefed), Bricker & Eckler, Columbus, Ohio, for Defendants-Appellees.

Before: MERRITT, SILER, and GILMAN, Circuit Judges.

OPINION

MERRITT, Circuit Judge.

Plaintiff-Appellant Arthur Fallick has been an employee of Nationwide Mutual Insurance Company, a subsidiary of Nationwide Life Insurance Company, for more than 25 years. As a Nationwide employee, Fallick was and is both a "participant" and a "beneficiary" of the Nationwide Insurance Companies and Affiliates Employee Health Care Plan, an employee medical benefit plan governed by the Employment Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001 et seq. Nationwide was the fiduciary of that Plan, which was part of a group plan covering employees of other Nationwide entities. Nationwide also acted as the administrator or provided medical benefits through insurance contracts to other ERISA-governed plans of which Fallick is not a member.

Since 1992, Fallick has been on permanent disability leave due to health problems, including a heart condition, which require frequent medical attention, and therefore frequent claims for reimbursement from his medical benefits plan.

Since at least 1990, the Nationwide Plan has included a standard coverage exclusion limiting medical coverage to reimbursement for charges for a given service at a "reasonable and customary" rate. Such a standard is common among medical benefits plans governed by ERISA. On November 22, 1995, Fallick filed a complaint in the Franklin County (Ohio) Court of Common Pleas, alleging in part that Nationwide had breached its insurance contracts by applying the "reasonable and customary" limitations in a manner inconsistent with its contracts. Pursuant to 28 U.S.C. § 1441, Nationwide successfully petitioned to remove the action to the U.S. District Court for the Southern District of Ohio, claiming that Fallick's state court claims necessarily required inquiry into the terms of the employee benefits plan and therefore presented federal questions. See 29 U.S.C. § 1132(a).

Once in federal district court, Nationwide filed a Motion to Dismiss Fallick's complaint for lack of jurisdiction, arguing that ERISA preempted his common law claims. On February 6, 1996, the district court held this motion to be moot, however, because Fallick filed an Amended Complaint alleging multiple causes of action under ERISA. First, under ERISA § 502(a), 29 U.S.C. § 1132(a), Fallick maintains that Nationwide improperly denied benefits to him and others by implementing a methodology for computing reasonable and customary limitations that is at odds with the provisions of the Nationwide Plan itself. Second, Fallick further contends that in approving and implementing this reimbursement methodology, Nationwide violated its fiduciary duties under ERISA § 409, 29 U.S.C. § 1109. Plaintiff seeks injunctive, declaratory and other relief on behalf of himself and a purported class of beneficiaries and participants in ERISA plans covering employees of entities which are not affiliated with Nationwide but whose plans are administered or insured by Nationwide.

On February 27, 1996, Nationwide filed a Motion to Dismiss Fallick's Amended Complaint for lack of standing and failure to exhaust administrative remedies. On March 28, 1996, Nationwide filed a preemptive Motion for an Order to Stay Class Certification. Soon thereafter, on April 22, 1996, Fallick filed a Motion for Class Certification seeking to represent a class of all persons who are or were participants in, and/or beneficiaries of, ERISA-regulated health benefit plans insured, administered or promulgated by Nationwide who were alleged to have been improperly denied reimbursement of medical expenses and/or whose reimbursement payments were misdirected to a provider, thereby delaying reimbursement. ¹

In an Opinion and Order filed on September 30, 1996 ("Opinion and Order"), District Judge Graham granted in part and denied in part Defendant's Motion to Dismiss, holding that Fallick lacked standing under Article III of the U.S. Constitution to represent participants in benefit plans other than his own. Nationwide's motion for an order that the case is not maintainable as a class action was thus denied as moot. The district court also denied Plaintiff's Motion for Class Certification, without prejudice, and ordered Fallick to file a new Amended Complaint and an Amended Motion for Class Certification. In its Opinion and Order, the district court declined to rule on Nationwide's argument regarding Fallick's failure to exhaust his administrative remedies under the Nationwide Plan, and instead converted that part of the motion into one for summary judgment. The parties were given additional time to brief that issue.

Pursuant to the lower court's Opinion and Order, Fallick filed a Second Amended Complaint and an Amended Motion for Class Certification in conformance with the district court's directions. Fallick also filed a Motion for Reconsideration, or in the alternative, for interlocutory appeal, limited to the issue of his standing to represent absent class members who were participants in ERISA plans other than the Nationwide Plan. On November 4, 1996, Nationwide filed a Motion for Summary Judgment on the issue of exhaustion of administrative remedies.

On March 13, 1997, the district court granted Nationwide's Motion for Summary Judgment, entered judgment in Nationwide's favor, and dismissed the action. See Fallick v. Nationwide Mut. Ins. Co., 957 F.Supp. 1442 (S.D.Ohio 1997). The district court then issued an order denying as moot Fallick's Amended Motion for Class Certification given the court's ruling on summary judgment and also denied Plaintiff's Motion for Reconsideration of the court's Opinion and Order with regard to lack of standing to maintain the class action suit. Fallick then moved for reconsideration of the court's order granting summary judgment. The district court denied that motion on July 28, 1997. Plaintiff then appealed to this Court.

The instant matter presents two issues for this Court. First, we must address whether the district court erred in granting the Defendants' Motion for Summary Judgment on the issue of whether Fallick failed to exhaust his administrative remedies under the Nationwide Plan prior to filing suit in federal district court to challenge the Plan's use of a "reasonable and customary" standard to limit medical reimbursement. Second, we must decide whether a potential class representative in an ERISA class action has standing to represent members of a putative class against numerous ERISA-governed benefit plans, even if he is only a member of one of those plans. For the following reasons, we reverse the order of the district court granting summary judgment in favor of the defendants and remand the case for further proceedings consistent with this opinion.

I. BACKGROUND

Many ERISA plans have adopted a "reasonable and customary" standard for coverage of medical reimbursements to ensure that they are not forced to pay in full all medical claims regardless of whether they are commensurate with customary charges for such procedures and are otherwise reasonable. In May 1990, Nationwide announced to its employees that it had adopted such limits. In August of that year, Nationwide printed a reminder in its Benefits Bulletin and declared that such limits were being expanded to cover a wide variety of medical services.

The use of reasonable and customary limits allows Nationwide to increase automatically plan benefits based on rising medical costs. To this end, reasonable and customary limits are reviewed and updated once every six months, based on the charge information from the prior period. To the extent Nationwide determines that charges are in excess of its "reasonable and customary" standard, Nationwide treats the excess amount as if it is not covered by the policy. The plan participant or beneficiary must cover this difference between the reasonable and customary standard and the fee charged by the service provider.

Nationwide must adhere to its own established definition of "reasonable and customary," which appears both in its insurance contracts and Plan booklets. "Reasonable and customary" means:

reasonable in terms of service, care, or treatment provided, and customary in that it is equal to the charge made by those in the same geographical area with similar professional standing.

Nationwide Employee Handbook at 1195. However, the Nationwide Plan does not determine its own reasonable and customary limits. Rather, these limits are based on information supplied to Nationwide by a Nationwide-supported association of commercial insurers, the Health Insurance Association of America ("the Health Insurance Association"), which compiles prevailing health care charge date for each medical and/or surgical procedure performed in a given geographical area. The data is based on charges contributed by hundreds of insurance carriers. Once the information is gathered, the charges over the prior six-month period are ranked from highest to lowest. According to its Benefits Bulletin of August 5, 1991, Nationwide set the reasonable and customary limit at the 85th percentile, which means that 85 percent of the charges in that area are equal to or less than the reasonable and customary limit. In 1993, the 90th...