Logan v. EMPIRE BLUE CROSS

• Decision Date: 10 October 2000
• Court: New York Supreme Court — Appellate Division
• Parties: VICKI LOGAN et al., Appellants,<BR>v.<BR>EMPIRE BLUE CROSS AND BLUE SHIELD, Respondent.

275 A.D.2d 187

714 N.Y.S.2d 119

VICKI LOGAN et al., Appellants,

v.EMPIRE BLUE CROSS AND BLUE SHIELD, Respondent.

FRIEDMANN, J.

October 10, 2000.

Elkind, Flynn & Maurer, P. C., White Plains (Ira M. Maurer and Marc Wietzke of counsel), for appellants.

Plunkett & Jaffe, New York City (Justin E. Driscoll, III, and Gary I. Selinger of counsel), for respondent.

SULLIVAN, J.P., S. MILLER and SCHMIDT, JJ., concur.

OPINION OF THE COURT

FRIEDMANN, J.

The defendant, Empire Blue Cross and Blue Shield (hereinafter Empire), provided health insurance to each of the appellants.^[*] The instant action arises out of Empire's denial of the appellants' respective claims to provide coverage for intravenous antibiotic treatment of Lyme disease. The amended complaint asserted multiple causes of action on behalf of each appellant, including causes of action to recover damages for breach of contract, and on the ground that Empire acted in bad faith in denying the appellants' respective claims. The appellants also sought punitive damages. The instant appeal presents two issues for our determination: (1) whether Empire's denial of the appellants' claims constitutes a tort independent of its alleged breach of contract, and (2) whether the causes of action asserted by the appellants Vicki Logan and Danny Licul are preempted by the Employee Retirement Income Security Act of 1974 (hereinafter ERISA; see, 29 USC 1001 et seq.).

The appellants have several things in common. Each allegedly suffers from chronic Lyme disease, which his or her treating physician sought to treat with an extended course of intravenous antibiotics. Further, at all relevant times, each appellant was covered by health insurance policies issued by Empire and each appellant had requested that Empire approve payment for the treatment prescribed by his or her physician. In each instance, Empire denied those requests, leading to the instant action.

Although the exact language contained in the respective policies issued to the appellants is not identical, all of the policies effectively provide the same coverage. That is, Empire agreed to cover "medically necessary" services, but expressly excluded from coverage, inter alia, treatments or drugs which are "not medically necessary." The phrase "not medically necessary" included "experimental" treatments. A treatment is deemed experimental if it is (1) "not of proven benefit for the particular diagnosis or treatment of the covered person's condition" or (2) "not generally recognized by the medical community (as reflected in the published peer-reviewed medical literature) as effective or appropriate for the particular diagnosis of the covered person's particular condition."

Sometime in 1989 employees of Empire realized that Empire had no established policy with respect to whether it covered intravenous antibiotic therapy for the treatment of Lyme disease. That is, some physicians who reviewed claims for such treatment denied coverage as experimental, while others approved coverage. Several years later, when the volume of claims related to Lyme disease increased, Empire decided that this lack of established policy with respect to such claims was "a significant problem," and in 1992, it embarked on a plan to establish a medical policy governing the circumstances under which Empire would pay for intravenous antibiotic therapy for Lyme disease.

Empire instituted a policy, effective October 1, 1993, concerning its coverage of Lyme disease treatment. Essentially, this policy required treatment to be preauthorized and set forth specific standards to confirm the diagnosis of the disease. The policy also provided for two different treatments: acute (or early stage) Lyme disease was to be treated with oral antibiotics, while chronic (or late stage) Lyme disease was to be treated with intravenous antibiotics. Intravenous antibiotic treatment was limited to 28 days, but Empire would approve payment for extended treatment upon a proper showing of medical necessity.

Periodically, Empire revised its policy with respect to its coverage for Lyme disease treatment in response to the latest research studies on the disease. Particularly, in December 1995 Empire amended its policy by revising the circumstances under which it would pay for intravenous antibiotic therapy. In proper cases, such treatment was covered for up to 30 days. This new policy also expressly stated that "[t]here is no medical/scientific basis for prolonged courses of antibiotic therapy" exceeding 30 days. Yet it also outlined the circumstances under which Empire would pay for intravenous antibiotic therapy in excess of 30 days.

Empire revised its policy with respect to Lyme disease again in 1998. This revised policy recognized the necessity of treating some instances of early-stage and late-stage infection with intravenous antibiotics, but required documentation of objective evidence of certain Lyme disease manifestations. Preauthorization for such treatment was also required, and treatment was limited to 30 days.

At various times between 1993 and 1996, each of the appellants submitted claims to Empire for extended intravenous antibiotic treatment of Lyme disease. In some instances, Empire approved coverage of such treatment. Eventually, however, Empire refused to provide further coverage for each appellant.

Empire's denial of the appellants' claims led to the instant action. The amended complaint asserted a total of 30 causes of action. Insofar as is relevant to the instant appeal, the appellants (1) sought a judgment declaring that they are entitled to have the treatment prescribed by their physicians approved by Empire, (2) alleged that Empire's refusal to authorize and pay for such treatment constituted a breach of contract, and (3) sought to recover damages on the ground that Empire had refused to authorize and pay for such treatment in bad faith. The appellants also asserted causes of action to recover damages for the intentional infliction of emotional distress and fraud, and sought punitive damages. In its amended answer, Empire denied the essential allegations of the complaint.

Following discovery, Empire moved for partial summary judgment dismissing: (1) all of the causes of action sounding in tort, (2) the demand for punitive damages, and (3) all causes of action asserted by the appellants Vicki Logan, Deborah A. Scheid, and Danny Licul on the ground that those causes of action were preempted by ERISA. By order entered May 4, 1999, the Supreme Court granted Empire's motion in its entirety with respect to all of the appellants except George Nijboer. Because George Nijboer died while Empire's motion was pending and a representative of his estate had not yet been appointed, the action had been stayed as to him. Subsequently, after the appointment of the administratrix of his estate, the Supreme Court, by order entered May 10, 1999, granted Empire's motion to dismiss the causes of action sounding in tort asserted on behalf of Nijboer as well as any demand on his behalf for punitive damages.

Initially, we note that the appellants do not seek review of those portions of the order entered May 4, 1999, which dismissed the complaint insofar as asserted on behalf of the appellant Deborah A. Scheid, or dismissed the causes of action to recover damages for the intentional infliction of emotional distress. Similarly, the appellants do not seek review of that portion of the order entered May 10, 1999, which dismissed Nijboer's cause of action to recover damages for the intentional infliction of emotional distress.

The appellants argue that the nature of Empire's contractual obligation to them and the public interest in seeing those obligations performed with reasonable care imposes a duty on Empire to perform the contract with reasonable care. Empire's breach of that duty gives rise to an independent tort actionable by the appellants. To support this claim, they assert that the "health insurance contracts at issue are so affected with the public interest" that Empire's failure to perform its contractual obligations competently can have catastrophic consequences.

In New York Univ. v Continental Ins. Co. (87 NY2d 308, 316), the Court of Appeals stated as a general principle: "A tort obligation is a duty imposed by law to avoid causing injury to others. It is `apart from and independent of promises made and therefore apart from the manifested intention of the parties' to a contract (Prosser and Keeton, Torts § 92, at 655 [5th ed]). Thus, defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. The very nature of a contractual obligation, and the public interest in seeing it performed with reasonable care, may give rise to a duty of reasonable care in performance of the contract obligations, and the breach of that independent duty will give rise to a tort claim (see, Sommer v Federal Signal Corp., 79 NY2d 540). * * * [W]here a party engages in conduct outside the contract but intended to defeat the contract, its extraneous conduct may support an independent tort claim (see, North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171, 179; Rich v New York Cent. & Hudson Riv. R. R. Co., 87 NY 382). Conversely, where a party is merely seeking to enforce its bargain, a tort claim will not lie (see, Sommer v Federal Signal Corp., 79 NY2d, at 552, supra; Bellevue S. Assocs. v HRH Constr. Corp., 78 NY2d 282, 293-295)."

The Court of Appeals stated: "In Sommer we held that a fire alarm company owed its customer a duty of reasonable care independent of its contractual obligations," and that the fire alarm company "could be held liable in tort for its gross failure to properly perform its contractual services" (New York Univ. v Continental Ins. Co., supra, at 317, citing Sommer v Federal Signal Corp., supra). The...