Kennedy v. Connecticut General Life Ins. Co.

• Decision Date: 07 February 1991
• Docket Number: No. 90-2283,90-2283
• Citation: 924 F.2d 698
• Parties: , 13 Employee Benefits Ca 1572 T.J. KENNEDY, Plaintiff-Appellant, v. CONNECTICUT GENERAL LIFE INSURANCE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 698

924 F.2d 698

59 USLW 2505, 13 Employee Benefits Ca 1572

T.J. KENNEDY, Plaintiff-Appellant, v. CONNECTICUT GENERAL LIFE INSURANCE CO., Defendant-Appellee.

No. 90-2283.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 15, 1991.

Decided Feb. 7, 1991.

Francis Van Hooreweghe, Van Hooreweghe, Fackel & Thuline, Moline, Ill., for plaintiff-appellant.

Thomas J. Shields, Peter Benson, Lane & Waterman, Davenport, Iowa, David DeDoncker, John DeDoncker, Lane & Waterman, Rock Island, Ill., for defendant-appellee.

Before FLAUM, EASTERBROOK, and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

A.D. Huesing Corp. furnished its employees with medical care under a group health policy issued by Connecticut General Life Insurance Co. (CIGNA). The master policy covers 80% of specified expenses, and the employee must put up the other 20%. Co-payments sensitize employees to the costs of health care, leading them not only to use less but also to seek out providers with lower fees. The combination of less use and lower charges (together with the 20% reduction in insured payments in the event care is furnished) makes medical insurance less expensive and enables employers to furnish broader coverage (or to pay higher wages coupled with the same level of coverage).

Providers of medical care may seek to increase their business by promising to waive the co-payments. Patients prefer the lower outlays, but waivers annul the benefits of the co-payment system. Insurers have trouble policing the rules, because they do not know how much (or even whether) the patient paid the provider directly. Now and again, however, an insurer suspects evasion and demands proof of compliance. CIGNA made such a demand of T.J. Kennedy, a chiropractor who submitted a bill of $1,727 for services furnished to Karla Myers, the wife of one of Huesing's employees. CIGNA wanted Kennedy's assurance that the bill reflected 80% of Kennedy's reasonable and customary charge to patients. When a provider routinely waives co-payments, a fee stated as 80% of the charge is a phantom number. Instead of charging $100, collecting $20 from the patient and $80 from the insurer, the provider may announce a fee of $125, waive the co-payment, and collect $100 from the insurer. The patient who will not be called on to pay doesn't care. Kennedy responded to CIGNA's demand by furnishing a copy of his contract with Myers, which confirmed the insurer's suspicions. Kennedy had agreed to accept as full compensation whatever the insurer would pay. CIGNA then refused to pay Kennedy a dime. He filed suit in state court as assignee of Myers' claim against the insurer; CIGNA removed it to federal court, as it could because the claim necessarily rests on the Employee Retirement Income Security Act (ERISA). Franchise Tax Board of California v. Construction Laborers' Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). See also Ingersoll-Rand Co. v. McClendon, --- U.S. ----, 111 S.Ct. 478, 485-86, 112 L.Ed.2d 474 (1990).

CIGNA contended in the district court that ERISA does not allow providers of medical services to sue insurers. Under 29 U.S.C. Sec. 1132(a)(1)(B) only a "participant" in a plan or a "beneficiary" is entitled to file suit to collect. CIGNA added for good measure that whether someone may transfer benefits to a third party, as Myers tried to do, is a question of contract, and that the master insurance policy allows an assignment to a provider only with CIGNA's consent, which it had withheld. Despite the obligation of every federal court to examine its own jurisdiction before discussing the merits, the district court ignored both of these obstacles. In this court the parties have followed this "lead"--CIGNA because it wants a precedent supporting its position on the merits, Kennedy because he wants the money. At oral argument counsel treated jurisdiction as something the parties had worked out to their own satisfaction. Not so. Lawyers have obligations to the judicial system as well as to their clients, and one of the premier obligations is to ensure that the tribunal has jurisdiction. Sometimes lawyers do not recognize jurisdictional issues lurking in a case; having debated jurisdictional issues in the district court, counsel for CIGNA and Kennedy have no such excuse. Both lawyers failed to fulfill professional duties when they let the jurisdictional issues pass in silence in their briefs to us.

Three courts of appeals have taken three approaches to the question whether an assignee may sue. Northeast Department ILGWU Health & Welfare Fund v. Teamsters Local No. 229 Welfare Fund, 764 F.2d 147, 153-54 & n. 6 (3d Cir.1985), holds that the statutory list is exclusive, and that because Congress did not mention assignees, they may not sue on the authority of Sec. 1132(a)(1)(B). On different theories, the judges went on to hold that an effort to enforce ERISA's substantive rules states a claim under federal common law, for which 28 U.S.C. Sec. 1331 supplies jurisdiction. Misic v. Building Service Employees Health & Welfare Trust, 789 F.2d 1374 (9th Cir.1986), treating the question as one of "standing", concluded that assignees may stand in the shoes of beneficiaries. It relied on United States v. Carter, 353 U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957), which resolved in favor of jurisdiction a similar question under the Miller Act, 40 U.S.C. Sec. 270a. Hermann Hospital v. Meba Medical & Benefits Plan, 845 F.2d 1286, 1289-90 (5th Cir.1988), agrees with Misic that an assignee has standing--it has a personal stake in the outcome--but adds that the plaintiff must be an authorized claim-holder under both ERISA and the contract. Hermann holds that ERISA permits the transfer, for the anti-assignment clause governing pension benefits, 29 U.S.C. Sec. 1056(d)(1), does not apply to welfare benefits. Contractual rights were obscure, and the fifth circuit remanded so that the district judge could explore the validity of the assignment.

As we see things, a combination of statutory text and Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), shows that Sec. 1132(a)(1)(B) supplies jurisdiction when a provider of medical services sues as assignee of a participant. ERISA defines a "beneficiary" as "a person designated by a participant ... who is or may become entitled to a benefit" under the plan. 29 U.S.C. Sec. 1002(8). Myers, unquestionably a "participant" as Sec. 1002(7) uses that term, designated Kennedy as the person to receive her benefits. That makes Kennedy a "beneficiary". To the extent doubt remains, Firestone tells us to treat as a "participant" for jurisdictional purposes anyone with a colorable claim to benefits, 489 U.S. at 117-18, 109 S.Ct. at 957-58, an approach equally applicable when a person claiming to be a "beneficiary" files suit. Kennedy has a colorable claim. Because ERISA instructs courts to enforce strictly the terms of plans, see 29 U.S.C. Sec. 1104(a)(1)(D) and Central States Pension Fund v. Gerber Truck Service, Inc., 870 F.2d 1148 (7th Cir.1989) (in banc), an assignee cannot collect unless he establishes that the assignment comports with the plan. But as Firestone held, subject-matter jurisdiction depends on an arguable claim, not on success. See also Sisters of the Third Order of St. Francis v. Swedish American Group Health Benefit Trust, 901 F.2d 1369, 1370 (7th Cir.1990). Only if the language of the plan is so clear that any claim as an assignee must be frivolous is jurisdiction lacking. Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946); Goosby v. Osser, 409 U.S. 512, 518, 93 S.Ct. 854, 858, 35 L.Ed.2d 36 (1973). Kennedy's claim is colorable. Section 20 of CIGNA's policy provides that "medical benefits are payable to the Employee. However, at the option of the Insurance Company and with the consent of the Policyholder, all or any part of the medical benefits may be paid directly to the person or institution on whose charge the claim is based." The possibility of direct payment is enough to establish subject-matter jurisdiction. Whether CIGNA...