National Companies Health Ben. Plan v. St. Joseph's Hosp. of Atlanta, Inc., No. 89-8932

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Writing for the Court: Before TJOFLAT, Chief Judge, FAY; TJOFLAT
• Citation: 929 F.2d 1558
• Parties: , 13 Employee Benefits Ca 2041 NATIONAL COMPANIES HEALTH BENEFIT PLAN, Trust Agreement for the National Companies Health Benefit Plan, Alfred A. Davis, in his capacity as Trustee, Michael C. Carlos, in his capacity as Trustee, Plaintiffs-Counterclaim defendants-Appellants, v. ST. JOSEPH'S HOSPITAL OF ATLANTA, INC., Defendant-Crossclaim defendant-Appellee, Medical and Dental Plan, for employees of St. Joseph's Hospital of Atlanta, Inc., Defendant-Crossclaim defendant-Counterclaim plaintiff-Crossclaim plaintiff-Appellee, Robert S. Hersh, Janet Hersh, individually and in their capacities as parents and legal guardians of Caitlyn Hersh, Jonathan Hersh, and Amanda Hersh, Amanda Hersh, Jonathan Hersh, and Caitlyn Hersh, Defendants-Counterclaim plaintiffs-Crossclaim plaintiffs-Crossclaim defendants-Appellees. Robert S. HERSH, Janet Hersh, individually and in their capacities as parents and legal guardians of Caitlyn Hersh, Jonathan Hersh, and Amanda Hersh, Amanda Hersh, Jonathan Hersh, and Caitlyn Hersh, Plaintiffs-Appellees, v. NATIONAL DISTRIBUTING COMPANY, Defendant-Appellant.
• Decision Date: 30 April 1991
• Docket Number: No. 89-8932

Page 1558

929 F.2d 1558 59 USLW 2688, 13 Employee Benefits Ca 2041 NATIONAL COMPANIES HEALTH BENEFIT PLAN, Trust Agreement for
the National Companies Health Benefit Plan, Alfred A. Davis,
in his capacity as Trustee, Michael C. Carlos, in his
capacity as Trustee, Plaintiffs-Counterclaim defendants-Appellants,
v.
ST. JOSEPH'S HOSPITAL OF ATLANTA, INC., Defendant-Crossclaim
defendant-Appellee,
Medical and Dental Plan, for employees of St. Joseph's
Hospital of Atlanta, Inc., Defendant-Crossclaim
defendant-Counterclaim
plaintiff-Crossclaim plaintiff-Appellee,
Robert S. Hersh, Janet Hersh, individually and in their
capacities as parents and legal guardians of Caitlyn Hersh,
Jonathan Hersh, and Amanda Hersh, Amanda Hersh, Jonathan
Hersh, and Caitlyn Hersh, Defendants-Counterclaim
plaintiffs-Crossclaim plaintiffs-Crossclaim defendants-Appellees.
Robert S. HERSH, Janet Hersh, individually and in their
capacities as parents and legal guardians of Caitlyn Hersh,
Jonathan Hersh, and Amanda Hersh, Amanda Hersh, Jonathan
Hersh, and Caitlyn Hersh, Plaintiffs-Appellees,
v.
NATIONAL DISTRIBUTING COMPANY, Defendant-Appellant. No. 89-8932. United States Court of Appeals,
Eleventh Circuit. April 30, 1991.

Page 1561

William H. Kitchens, Debra G. Buster, Arnall Golden & Gregory, Atlanta, Ga., for National Distributing Co.

Frederick L. Warren, William K. Carmichael, Stokes Lazarus & Carmichael, Atlanta, Ga., for Hersh.

William A. Clineburg, Jr., Michael E. Ross, King & Spalding, Atlanta, Ga., for St. Joseph's.

Appeal from the United States District Court for the Northern District of Georgia.

Before TJOFLAT, Chief Judge, FAY, Circuit Judge, and HOFFMAN ^*, Senior District Judge.

TJOFLAT, Chief Judge:

This appeal involves the continuation coverage provisions of the Employee Retirement Income Security Act of 1974 (ERISA) ¹ and the principle of equitable estoppel. Robert Hersh, following his resignation from the National Distributing Company (NDC), elected to continue receiving group health coverage under NDC's ERISA plan; Mr. Hersh, before and after his resignation, was also covered under the ERISA group health plan of his wife's employer, St. Joseph's Hospital of Atlanta, Inc. (St. Joseph's). Several months after Mr. Hersh's resignation, Mrs. Hersh gave birth prematurely to twins; these babies required expensive medical care. Mr. Hersh submitted medical claims arising from the birth and care of the twins to NDC's ERISA plan. At that time, NDC informed Mr. Hersh that he was ineligible for continuation coverage under its plan, and his claims were denied; Mrs. Hersh's group health plan, claiming it was only a secondary insurer for Mr. Hersh and his dependents, also refused to compensate the Hershes fully for expenses arising from the birth and subsequent care of the twins.

To determine which group health plan was responsible for these medical claims, NDC's ERISA plan and its trustees (collectively, National) filed a declaratory judgment action against Robert and Janet Hersh, their children, and St. Joseph's and its group health plan; the Hershes also filed a separate suit against both group health plans. The district court, after consolidating the two actions, granted the Hershes' and St. Joseph's motions for summary judgment; the court denied National's motion for summary judgment. The court held that National was estopped from disclaiming an obligation to provide continuing group health coverage to the Hershes for a period of thirty-six months; the court also awarded the Hershes and St. Joseph's damages, attorneys' fees, and costs. National appeals from this summary judgment. We affirm.

I.

In 1982, NDC established the National Companies Health Benefit Plan (the National Plan). Penn General Services of Georgia, Inc. (Penn General) helped NDC supervise and administer the National Plan. Under the National Plan, NDC functioned as a self-insurer by offering medical benefits directly to its employees and their dependents, rather than contracting with an insurance company to provide the benefits

Page 1562

under a group insurance policy. The National Plan is governed by ERISA.

Robert Hersh began working as a sales representative for NDC in January 1982. At that time, he enrolled in the National Plan and obtained individual coverage. In 1984, before the birth of his first child, Caitlyn, he acquired family health coverage for his wife and their future dependents. Janet Hersh, Robert's wife, was employed by St. Joseph's as a nurse; she was enrolled in the Medical and Dental Plan for Employees of St. Joseph's Hospital of Atlanta, Inc. (the St. Joseph's Plan), also an ERISA plan. Like her husband, Janet Hersh had individual coverage under her employer's plan until shortly before the birth of their first child, when she acquired family coverage. After Robert and Janet Hersh both had obtained family coverage, the National Plan served as the primary insurer for Mr. Hersh and their dependents, with the St. Joseph's Plan providing secondary coverage; the St. Joseph's Plan was the primary insurer for Mrs. Hersh only. ²

In April 1986, Congress enacted the Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA), Pub.L. No. 99-272, 100 Stat. 82, ³ which amended, inter alia, ERISA, the Public Health Service Act, and the Internal Revenue Code. COBRA, as explained fully infra pp. 1567-1568, required employers operating ERISA plans to offer "continuation coverage" under these plans to most of their employees after they left their jobs. COBRA provided that an employer must offer continuation coverage to most ex-employees for eighteen months; such coverage, however, could be terminated if the ex-employee became "a covered employee under any other group health plan." Id. Sec. 10,002(a), 100 Stat. at 228 (codified at 29 U.S.C. Sec. 1162). In October 1986, this provision of ERISA was amended to provide that employers could terminate an ex-employee's continuation coverage before the eighteen-month period expired if the ex-employee became "covered under any other group health plan (as an employee or otherwise)." Tax Reform Act of 1986 (Tax Reform Act), Pub.L. No. 99-514, Sec. 1895(d)(4)(B)(ii), 100 Stat. 2085, 2938 (amending 29 U.S.C. Sec. 1162). ERISA requires employers to notify employees of their rights to continuation coverage. 29 U.S.C. Sec. 1166(a)(1).

In November 1986, NDC distributed a memorandum to its employees setting forth, in summary fashion, what it believed to be the employees' rights to continuation coverage under the National Plan. ⁴ This memorandum notified NDC employees and their families that COBRA applied to the National Plan beginning on November 1, 1986. The memorandum--summarizing the April 1986 version of ERISA, as amended by COBRA, rather than the October 1986 version of ERISA, as amended by the Tax Reform Act--explained the prerequisites for eligibility for continuation coverage and the events that might terminate such coverage. The terminating events, according to the memorandum, were

(1) The Company [NDC] ceases to provide any group health coverage to any of its employees;

(2) Your failure to pay the premium for your continuation coverage;

(3) You become an employee covered under another group health plan;

(4) You become eligible for Medicare;

(5) You are the widow of or are legally separated or divorced from a covered employee and subsequently remarry and are covered under your new spouse's group health plan.

(Emphasis added.) This memorandum instructed NDC employees to contact their managers if they had any questions about continuation coverage.

In the fall of 1986, Janet Hersh became pregnant with twins and, in December 1986, complications began to develop. Medical tests indicated that her pregnancy

Page 1563

was likely to be a difficult one. During that time, Mr. Hersh was looking into the possibility of leaving NDC and starting his own business. Due to the problems they anticipated with Mrs. Hersh's pregnancy, the Hershes wanted to retain dual family health coverage. The Hershes contacted several insurance companies and inquired about rates, benefits, and whether these companies' programs would cover Mrs. Hersh's existing pregnancy. One insurance company stated that it would cover her pregnancy.

In January 1987, Robert Hersh informed NDC that he intended to resign and start his own business. He spoke with NDC's operations manager, Jerry Friedel, about continuing his insurance coverage under the National Plan; he informed Friedel of his desire to maintain dual family coverage. Friedel consulted with Kathy Boland (an NDC office clerk who handled benefit claims and forms and who was aware that Mr. Hersh was covered under the St. Joseph's Plan) and then told Mr. Hersh that he would be eligible for continuation coverage under the National Plan. The Hershes decided to continue their coverage under the National Plan after Mr. Hersh left NDC's employment.

On Robert Hersh's last day of work at NDC, January 30, 1987, he completed the National Plan's "Election and Terms Continuation Coverage Agreement." This agreement provided, in part:

I understand I am eligible to continue health coverage as presently provided under the [National Plan] for up to 36 months subject to the following provisions:

....

3. Coverage will be terminated prior to the 36 month period for any of the following reasons:

a) Non-payment of premium by the covered person.

b) Becoming eligible for Medicare.

c) Becoming covered under another group health plan because of either employment or remarriage.

d) Termination of the Plan.

(Emphasis added.) An NDC employee filled out the form and Mr. Hersh signed and dated it; Mr. Hersh also tendered the first monthly premium payment at that time to Friedel.

Mr. Hersh continued to pay his monthly premium payments to the National Plan for several months; National accepted and deposited these checks. During this time, the Hershes submitted small claims for medical expenses to the National Plan for...