Principal Mut. Life Ins. Co. v. Charter Barclay Hosp., Inc., 95-2786

• Citation: 81 F.3d 53
• Decision Date: 03 April 1996
• Docket Number: No. 95-2786,95-2786
• Parties: 20 Employee Benefits Cas. 1033, Pens. Plan Guide P 23924D PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. CHARTER BARCLAY HOSPITAL, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 53

81 F.3d 53

20 Employee Benefits Cas. 1033, Pens. Plan Guide P 23924D

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. CHARTER BARCLAY HOSPITAL, INCORPORATED, Defendant-Appellant.

No. 95-2786.

United States Court of Appeals Seventh Circuit.

Argued Jan. 19, 1996.

Decided April 3, 1996.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 93 C 4308--Ruben Castillo, Judge.

Louis C. Roberts, Daniel J. McMahon, Noelle Swanson Berg (argued), Wilson, Elser, Moskowitz, Edelman & Dicker, Chicago, IL, for plaintiff-appellee.

Ronald S. Mangum, David R. Louthan, Joshua A. Stein, Marian C. Nealon (argued), Mangum, Smietanka & Johnson, Chicago, IL, for defendant-appellant.

Before POSNER, Chief Judge, and KANNE and ROVNER, Circuit Judges.

POSNER, Chief Judge.

Principal Mutual Life Insurance Company issued a group insurance policy to Eady's Scale Corporation, a small family business. Robert Eady, the son of the corporation's owner, ran up a bill for almost $50,000 at a psychiatric hospital owned by Charter Barclay Hospital, Inc. After Principal denied Eady's claim for reimbursement, on the ground that Eady was not in fact an employee of his father's firm, Charter billed Principal. Principal responded with this suit, naming Eady's Scale Corporation and Robert Eady as defendants along with the hospital and seeking a declaration that it has no liability for the hospital bill. After settling with Eady's Scale Corporation and obtaining a default judgment against Robert Eady, Principal moved successfully for summary judgment against Charter, precipitating this appeal. Charter argues that, as assignee of Robert Eady's rights as a participant in the employee benefits plan, it was entitled to notice of Principal's denial of his claim and that the district court should have allowed it to amend its answer to file a counterclaim charging Principal with fraud and related torts. Charter presented no evidence of any assignment and no evidence that it notified Principal of the "assignment" before it filed its answer to Principal's suit. The suit is governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq., because the policy that Principal issued to Eady's Scale Corporation was an employee welfare plan within the meaning of the Act.

When Eady's Scale Corporation joined the plan in November 1991, Robert Eady was one of those who submitted an application to Principal for coverage under the plan, representing that he was a full-time employee of the corporation regularly scheduled to work at least 30 hours a week, these being the conditions of eligibility. (We shall refer to the conditions as "full-time employment.") Shortly after Eady was admitted to the hospital on March 27, 1992, complaining of constant ringing in the ears, depression, and other distress, Charter called Principal to verify that Robert Eady was indeed covered by the plan, and was told that he was. Principal in turn requested Charter to submit the records of Eady's hospital stay, which it did. The records cast serious doubt on whether Eady was employed full time, or for that matter part time, by his father's corporation. Eady described himself in these records as a heavy user of alcohol, cocaine (including crack cocaine), heroin, and marijuana; as a male stripper and pimp facing criminal charges for these activities; as a taxi driver; and said that he was sleeping on the floor of his father's shop but not working there. Principal investigated, concluded that Eady was indeed not a full-time employee of Eady's Scale Corporation, and on December 28, 1992, wrote him that his claim for reimbursement of his hospital expenses was denied and that if he wished to appeal the denial to a higher level within the insurance company he had 60 days in which to do so. We do not understand any of the parties to contend that this deadline was unreasonable. See 29 C.F.R. § 2560.503-1(g)(3); Tiger v. AT & T Technologies Plan, 633 F.Supp. 532, 534 (E.D.N.Y.1986); cf. North Memorial Medical Center v. Gomez, 59 F.3d 735, 739 (8th Cir.1995).

Probably by this time Eady was back in California; in any event he did not appeal the denial or otherwise respond to the letter informing him of it. He didn't pay his hospital bill either, which in May 1993 Charter submitted to Principal, precipitating this suit. Principal argues that Eady has no rights under the insurance policy both because he was not a full-time employee and because he failed to exhaust, within the time allowed, the internal remedies that the policy gave applicants.

Eady's Scale Corporation audaciously moved for summary judgment on the ground that Robert Eady had been employed by the corporation full time between December 1, 1991, and his hospitalization in March of the following year. The motion was weakly supported by an affidavit from dad, who while asserting that he had paid workers' compensation taxes for his son attached no documentation, other than an informal and unverified "individual payroll record," substantiating an employment relation. Principal entered into a stipulation with the scale corporation in which the corporation agreed that Robert Eady had not been a full-time employee, withdrew its motion for summary judgment, and agreed to the entry of a final judgment in favor of Principal.

The district judge's ground for dismissing Charter's claim for the reimbursement of Robert Eady's hospital expenses was that an assignee of a claim for benefits under ERISA is never entitled to notice of the denial of the claim. In defense of the district judge's ground (for which we cannot find any support in the case law), Principal acknowledges both that an assignee is a beneficiary within the meaning of ERISA, Decatur Memorial Hospital v. Connecticut General Life Ins. Co., 990 F.2d 925, 927 (7th Cir.1993); Kennedy v. Connecticut General Life Ins. Co., 924 F.2d 698, 700 (7th Cir.1991); Lutheran Medical Center v. Contractors, Laborers, Teamsters & Engineers Health & Welfare Plan, 25 F.3d 616, 619 (8th Cir.1994); Misic v. Building Service Employees Health & Welfare Trust, 789 F.2d 1374, 1378 n. 4 (9th Cir.1986) (per curiam), and that ERISA authorizes plan beneficiaries as well as plan participants to sue for benefits due. 29 U.S.C. § 1132(a)(1)(B). But it argues that since the statute requires only that notice of the denial of a claim of benefits be sent to "any participant or beneficiary whose claim for benefits under the Plan has been denied," § 1133, it complied by sending notice to Robert Eady, a participant (more precisely, a claimed participant). This is a weak argument. Had Eady assigned the claim to Charter, making the latter a beneficiary, then the claim that Principal denied, though submitted by Eady, was actually the claim of the beneficiary, Charter. Principal further argues, a little more practically, that it is impossible for plan administrators to notify unknown assignees. This is certainly true, but we do not understand Charter to be arguing that it was entitled to notice even if Principal did not know that it was an assignee; that would be a preposterous argument. The Department of Labor's regulations under ERISA appear to say that notice is required to be provided only to the claimant, 29 C.F.R. § 2560.503-1(e), (f). But once again we point out that if there is a valid assignment the hospital becomes the only claimant, Allianz Life Ins Co. v. Riedl, 264 Ga. 395, 444 S.E.2d 736 (1994), the original claimant having given up his claim by the assignment.

For reasons well illustrated by this case, medical providers--perhaps especially providers of medical services to psychiatric patients--who take assignments of their patients' rights to reimbursement from insurers (or other payment sources) cannot protect those rights unless the insurer notifies them when the patients' claims are denied. Robert Eady submitted a claim and by the time it was denied he was in another state, had no interest in the payment of his hospital bill, and in all likelihood could not, as a practical matter, be made to pay it.

We suspect, while acknowledging a surprising vacuum of case law or of other authority, that an assignee is entitled to notice of the denial of a claim of benefits submitted by the assignor. We recognize the potential burden on insurance companies but point out that they can protect themselves by requiring that hospitals...