Keel v. Group Hospitalization & Medical Services

• Decision Date: 15 September 1988
• Docket Number: Civ. A. No. 88-0203-A.
• Citation: 695 F. Supp. 223
• Parties: Deborah L. KEEL and Stephen A. Keel, Plaintiffs, v. GROUP HOSPITALIZATION MEDICAL SERVICES, INC. d/b/a Blue Cross and Blue Shield of the National Capital Area, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

695 F. Supp. 223

Deborah L. KEEL and Stephen A. Keel, Plaintiffs, v. GROUP HOSPITALIZATION MEDICAL SERVICES, INC. d/b/a Blue Cross and Blue Shield of the National Capital Area, Defendant.

Civ. A. No. 88-0203-A.

United States District Court, E.D. Virginia, Alexandria Division.

September 15, 1988.

Philip H. Jones, Alexandria, Va., for plaintiffs.

David Machanic, Alexandria, Va., for defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

Introduction

This case involves the straightforward application of well-established principles under the Employee Retirement Income Security Act of 1974 (ERISA), codified at 29 U.S.C.A. §§ 1001 et seq. (1985). Plaintiffs seek to enforce alleged benefits under a contract governed by ERISA.¹ The contract in issue, a group hospitalization and medical services group contract (Group Contract) issued by defendant, provided medical benefits for employees of Kay Jewelers, Inc. and their families. Plaintiff, Deborah Keel, a Kay Jewelers employee and her husband, Stephen Keel, were covered under the Group Contract. Plaintiff Stephen Keel was injured in an automobile accident in December 1983, while the Group Contract was in full force and effect. Accordingly, he received benefits under the Group Contract for hospitalization and medical services required for the injuries incurred in the accident. These benefits continued until April 1, 1984, at which time the Group Contract terminated and the benefits ceased.

Plaintiffs sue here, contending that termination of the Group Contract does not justify termination of benefits. The precise question presented under ERISA is whether defendant's refusal to continue payment of benefits after termination of the Group Contract was arbitrary or capricious where those benefits relate to injuries incurred while the Group Contract was in force.

For the reasons stated here, the Court concludes that defendant's decision to withhold payment from Plaintiffs was not arbitrary or capricious; entitlement to Group Contract benefits terminated when the Group Contract terminated.

Facts

The dispositive facts are undisputed and easily stated.² In 1977, Kay Jewelers entered into a Group Contract with defendant, Group Hospitalization and Medical Services, Inc. (GHMSI),³ designed to provide hospitalization coverage and major medical benefits for subscribing employees of Kay Jewelers and their families. The Group Contract was amended from time to time, but remained in effect and essentially unchanged from 1977 to April 1, 1984. Plaintiffs were covered individuals under the Group Contract.

A complete copy of the Group Contract was on file at Kay Jewelers and available for scrutiny by their employees and other covered individuals, including plaintiffs. Plaintiffs were also issued a pamphlet entitled "A Comprehensive Program of Health Protection for the Employees of Kay Jewelers, Inc." This pamphlet generally described the Group Contract's benefits, but cautioned that the rights of the parties were controlled, not by the pamphlet, but by the complete Group Contract on file with the employer.⁴

In December, 1983, while plaintiffs were covered under the Group Contract, plaintiff Stephen Keel was injured in an automobile accident in Fairfax, Virginia. As a result of his injuries, Mr. Keel required hospitalization and a variety of surgical and medical services. Defendant, pursuant to the Group Contract, paid benefits to plaintiffs for the hospitalization and medical and surgical services required by Mr. Keel. Defendant continued to pay benefits to plaintiffs until April 1, 1984, at which time the Group Contract was terminated by Mrs. Keel's Group. No benefits were paid thereafter, defendant taking the position that termination of the Group Contract terminated any entitlement to benefits.

Analysis

1. Jurisdiction and Venue

The Group Contract at issue in this case is governed by the requirements and restrictions of ERISA as an employee benefit plan "maintained by an employer for the purpose of providing for participants or their beneficiaries, through the purchase of insurance or otherwise, ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment...." 29 U.S.C. § 1002(1)(A). Because this case seeks to enforce alleged benefits under an ERISA-regulated employee benefit plan, jurisdiction properly lies before this court pursuant to 29 U.S.C. § 1132(e)(1).⁵ Venue is also appropriate under 29 U.S.C. § 1132(e)(2).⁶

2. Application of ERISA

a. Preemption of State Claims

Plaintiffs assert state statutory⁷ and common law breach of contract claims.⁸ Under the explicit provisions of ERISA, however, those state claims are preempted. See 29 U.S.C. § 1144(a).

In determining whether federal law preempts state law, the Court must first look to the intention of Congress. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987); Shaw v. Delta Air Lines, 463 U.S. 85, 96, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490 (1983); Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, 105 S.Ct. 1904, 1909, 85 L.Ed.2d 206 (1985). ERISA was enacted in 1974 with the explicit goal of

protecting ... the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

29 U.S.C. § 1001(b). To achieve those purposes, Congress carved out a domain of exclusively federal authority in order to "`eliminate the threat of conflicting or inconsistent State and local regulation of employee benefit plans.'"<sup>9</sup> ERISA thus expressly preempts, with narrow exceptions,<sup>10</sup> "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered under ERISA. 29 U.S.C. § 1144(a).<sup>11</sup> In plain terms, "if a state law `relates to ... employee benefit plans,' it is pre-empted." Pilot Life, 107 S.Ct. at 1552. The Fourth Circuit has broadly interpreted this provision to embrace in its preemptive scope all state laws, "insofar as they are invoked by beneficiaries claiming relief for injuries arising out of the administration of employee benefit plans." Powell v. Chesapeake and Potomac Telephone Co. of Va., Inc., 780 F.2d 419, 421 (4th Cir.1985), cert. denied, 476 U.S. 1170, 106 S.Ct. 2892, 90 L.Ed.2d 980 (1986).¹² Such an interpretation comports with Congress' clear intention that courts develop a body of federal common law, "`borrowing state law where appropriate, and guided by the policies expressed in ERISA and other federal labor laws,'" to govern the interpretation of ERISA's requirements for employee benefit plans. Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1147 n. 5 (4th Cir.1985) quoting Scott v. Gulf Oil Co., 754 F.2d 1499, 1501-1502 (9th Cir.1985), cert. denied sub nom., Slack v. Burlington Industries, Inc., 477 U.S. 903, 106 S.Ct. 3271, 91 L.Ed.2d 562 and aff'd mem. sub nom., Brooks v. Burlington Industries, Inc., 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 559 (1986). Otherwise, the ultimate goal of nationally uniform protections under ERISA would be sacrificed to a panoply of conflicting or contradictory state protections.

In the instant case, the plaintiffs' state law claims clearly "relate to" the employee benefit plan at issue; under the Fourth Circuit's interpretation of that phrase, those claims were invoked by plaintiffs in their claims for relief for injuries resulting from the administration of that plan. Thus, the state claims are preempted by ERISA.¹³ The only remedy available to the plaintiffs must, therefore, derive from those provided in ERISA.¹⁴

b. Exhaustion of Administrative Remedies

Section 1132(a)(1)(B) of ERISA specifically empowers employee benefit plan participants and beneficiaries to bring a federal civil action to recover benefits or enforce rights under the plan. There is no explicit requirement that administrative remedies be exhausted before seeking federal court relief; however, it is within the district court's discretion to require that such administrative avenues be pursued before resort is had to any judicial remedy. See Kross v. Western Electric Co., Inc., 701 F.2d 1238, 1244 (7th Cir.1983).¹⁵ In the case at bar, there is evidence that plaintiffs appealed to GHMSI the original denial of benefits for medical services following Contract termination. Their attorney challenged, by letter, the defendant's refusal to pay; he formally requested "that the defendant comply with the terms of the coverage." Defendant responded by affirming and further explaining the benefits denial and by referring plaintiffs to the insurance carrier for further information. It appears to the Court, therefore, that plaintiffs have effectively exhausted their administrative remedies, and there is no reason for this Court to exercise its discretion to require further administrative review.¹⁶

c. Standard of Review

In reviewing the plaintiffs' claim, the Court's focus is narrow: it inquires only to ascertain whether the decision to deny alleged medical benefits to Mr. Keel was "arbitrary and capricious." See Holland, 772 F.2d at 1148; LeFebre v. Westinghouse Electric Corp., 747 F.2d 197, 204 (4th Cir.1984).¹⁷ The adoption of this standard serves Congress' primary goals in enacting ERISA: under ERISA, Congress sought to establish nationally uniform protections for employees, by imposing reporting and disclosure requirements and fiduciary responsibilities on plan administrators,¹⁸ and by providing to all plan employees federal remedies; broad preemption of state causes of action protects that uniformity. As the Pilot Life Court noted, this uniformity is designed to "help administrators, fiduciaries and participants to...