Peterson v. Meritain Health, Inc.

• Decision Date: 20 April 2022
• Docket Number: S-21-0123
• Citation: 2022 WY 54
• Parties: JANET G. PETERSON, Appellant (Plaintiff), v. MERITAIN HEALTH, INC. Appellee (Defendant).
• Court: Wyoming Supreme Court

2022 WY 54

JANET G. PETERSON, Appellant (Plaintiff), v. MERITAIN HEALTH, INC. Appellee (Defendant).

No. S-21-0123

Supreme Court of Wyoming

April 20, 2022

Appeal from the District Court of Natrona County The Honorable Catherine E. Wilking, Judge

Representing Appellant:

Stephen R. Winship, Winship & Winship, P.C., Casper Wyoming. Argument by Mr. Winship.

Representing Appellee:

Timothy M. Stubson and Holly L. Tysse, Crowley Fleck, PLLP, Casper, Wyoming; Daniel A. Platt and Robert J. Catalano, Loeb & Loeb LLP, Los Angeles, California. Argument by Mr. Platt.

Before FOX, C.J., and DAVIS^[*], KAUTZ, and GRAY, JJ., and RUMPKE^[†], D.J.

GRAY JUSTICE

[¶1] After his claims for health insurance coverage were denied, David Peterson, ^[1] an insured under Memorial Hospital of Converse County's (Hospital) Health Benefit Plan (Plan), brought this action against the Hospital^[2] and Meritain Health, Inc. (Meritain), the third-party administrator of the Plan. He sought to recover under theories of breach of the Plan contract, breach of the Administrative Services Agreement (ASA) between the Hospital and Meritain, and breach of the covenant of good faith and fair dealing. After Mr. Peterson filed a third amended complaint, Meritain moved for summary judgment on all claims.

[¶2] The district court granted summary judgment to Meritain, holding that, lacking privity of contract, Mr. Peterson had no cause of action for breach of contract against a third-party administrator. Mr. Peterson had no cognizable claim under the ASA as he was not an intended third-party beneficiary as a matter of law. Without a contract, Mr. Peterson could not assert a cause of action for bad faith against Meritain. The district court also denied Mr. Peterson's motion for sanctions against Meritain on its discovery conduct and his motion to compel production of Meritain's personnel files. Mr. Peterson appeals the summary judgment and discovery rulings. There are genuine issues of material fact regarding Mr. Peterson's breach of contract claim, his third-party beneficiary claim, and his claim for breach of the covenant of good faith and fair dealing. We reverse in part, affirm in part, and remand for further proceedings.

ISSUES

[¶3] The issues are:

I. Does New York law apply?

II. Is Meritain entitled to summary judgment on Mr. Peterson's claim for breach of the Plan?

A. Can plan participants sue third-party administrators for breach of the insurance contract?

B. Does the Plan's use of ERISA language give Mr. Peterson the right to sue Meritain for breach of the Plan?

C. If Meritain was acting as the Hospital's agent, can Mr. Peterson assert a claim against it for breach of the Plan?

D. If Meritain was the Hospital's agent and acted without authority, can it be liable to Mr. Peterson under the Plan?

III. Is Meritain entitled to summary judgment on Mr. Peterson's third-party beneficiary claim for breach of the ASA?

A. Are there questions of fact as to whether Mr. Peterson was a third-party beneficiary of the ASA?

B. Did Meritain's and the Hospital's course of conduct modify the terms of the ASA?

IV. Is Meritain entitled to summary judgment on Mr. Peterson's claim for breach of the covenant of good faith and fair dealing?

A. Can insurance plan participants sue third-party administrators in bad faith, when there is no contract between the participants and the third-party administrator?

B. Are there genuine issues of material fact precluding summary judgment on Mr. Peterson's claim for breach of the covenant of good faith and fair dealing?

V. Can Mr. Peterson recover punitive damages or attorney fees?

VI. Did the district court abuse its discretion when it did not impose sanctions for Meritain's conduct during discovery or when it denied Mr. Peterson's request for personnel files?

FACTS

The Hospital's Health Benefit Plan

[¶4] The Hospital provided a self-funded health insurance plan for its employees. The Plan was drafted by Meritain, and Meritain's name appears on its cover.

[¶5] The Plan was established "for [the] benefit [of the Hospital's employees and dependents]." It defines the Hospital as the "Plan Administrator" and the "Plan Sponsor." It identifies Meritain as the "Third Party Administrator." It states that the Hospital "is a named fiduciary of the Plan with full discretionary authority for the control and management of the operation and administration of the Plan." Finally, the Plan states that it "is administered by" the Hospital and the Hospital "has retained the services of the Third Party Administrator [Meritain] to provide certain claims processing and other ministerial services."

The Administrative Services Agreement

[¶6] Meritain contracted to administer the Plan pursuant to an Administrative Services Agreement (ASA) between Meritain and the Hospital. The ASA was drafted by Meritain and states that "Meritain shall have no discretionary authority to interpret the Plan or to adjudicate Claims." The ASA requires Meritain to "[r]efer to [the Hospital], for its exclusive and final resolution, any questions concerning the meaning of any part of [the Plan]" and "the validity of questionable or disputed Claims." It also requires Meritain to "[r]efer to [the Hospital], for its exclusive and final resolution, any appeals from any denial of any of the Claims."

Mr. Peterson and His Claims for Insurance Coverage

[¶7] Mr. Peterson began working for the Hospital in February 2013 and became insured under the Plan on August 1, 2013. In 2012, prior to his employment with the Hospital, Mr. Peterson had been prescribed medication for "probable viral myocarditis, "^[3] and he received two coronary artery stents to treat blockages in his artery. In October 2013, Mr. Peterson was diagnosed with congestive heart failure and cardiomyopathy. In November 2013, Mr. Peterson was hospitalized and received treatment, including an implanted defibrillator. Mr. Peterson incurred $247, 934.74 in medical bills.

[¶8] Mr. Peterson submitted his medical bills to Meritain. Meritain paid some of the bills but denied coverage for $207, 423.67 determining these charges related to a preexisting condition, which the Plan excludes from coverage. Mr. Peterson appealed Meritain's decision. Meritain reviewed and denied his appeal. The Plan allowed a second appeal, which Mr. Peterson pursued. Meritain reviewed and denied his second appeal. The Hospital was not involved in any of his claims or appeals.

This Lawsuit

[¶9] On March 13, 2017, Mr. Peterson sued the Hospital and Meritain.^[4] Not long after the suit was filed, the Hospital was dismissed. On September 17, 2020, after a series of trial continuances, discovery disputes, and deadline extensions, Mr. Peterson filed a Third Amended Complaint, alleging breach of the Plan contract, breach of the ASA contract as a third-party beneficiary, breach of the implied covenant of good faith and fair dealing, and seeking punitive damages and attorney fees. Mr. Peterson contends that his claims should have been covered by the Plan. He asserts that Meritain, when it administered his claims, stepped into the shoes of the Hospital and improperly denied coverage, thereby breaching the Plan and the ASA. He also contends that the way Meritain investigated and denied his claims constituted bad faith.

Facts in Dispute

[¶10] Meritain filed a motion for summary judgment arguing that because the Plan was an agreement between the Hospital and Mr. Peterson, Mr. Peterson had no privity with Meritain and could not sue for breach of the Plan; Mr. Peterson as a nonparty could not sue for breach of the ASA; Mr. Peterson was not a third-party beneficiary of the ASA; Mr. Peterson could not assert a bad faith claim absent a contract with Meritain; and Meritain could not have acted in bad faith because it had only ministerial functions under the Plan and ASA. In opposition to Meritain's motion for summary judgment, Mr. Peterson's expert, James M. Deren, attested that, as a third-party administrator, and contrary to the terms of the ASA, "Meritain exercised discretionary control in the manner in which it administered Mr Peterson's claims and appeals." He also testified that Meritain did not obtain Mr. Peterson's past medical records to determine whether his prior medication and treatment were in fact pre-existing conditions. He said,

[b]ecause Mr. Peterson was taking Carvedilol in the six months prior [to his enrollment in the Plan], Meritain assumed that he was being "treated" for congestive heart failure and cardiomyopathy. Mr. Peterson's medical records . . . indicate that in early 2012, Mr. Peterson was diagnosed . . . as having "probable viral myocarditis" . . . . This condition was successfully treated by the placement of cardiac stents. Mr. Peterson also had a history of hypertension. A claim should not be denied based on speculation or insufficient information.

[¶11] He opined that Meritain did not follow industry guidelines, and, if it had, it would have conducted a more thorough investigation and would have concluded that Mr. Peterson's claims were covered by the Plan.^[5]

[¶12] He explained that Meritain's internal policies "instruct[] the claim[] examiner to not review any further records" if "there is any indication of a pre-existing condition." In his opinion, this "policy defeat[ed] a full and fair review of a claim." He asserted that Meritain did not request "additional information to fully complete or perfect the claim" and it did not "indicate[] the specific medical treatment that gave rise to the determination that it was a pre-existing condition . . . ." Mr. Deren concluded, "It was improper to deny the claims as pre-existing because . . . a full investigation of the claims . . . would have disclosed that Mr....