Reg'l Care Servs. Corp. v. Companion Life Ins. Co.

• Decision Date: 24 April 2012
• Docket Number: No. CV–10–2597–PHX–LOA.,CV–10–2597–PHX–LOA.
• Citation: 869 F.Supp.2d 1079
• Parties: REGIONAL CARE SERVICES CORPORATION, an Arizona corporation; Regional Care Services Corporation Health and Welfare Employee Benefit Plan, Plaintiffs, v. COMPANION LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Arizona

869 F.Supp.2d 1079

REGIONAL CARE SERVICES CORPORATION, an Arizona corporation; Regional Care Services Corporation Health and Welfare Employee Benefit Plan, Plaintiffs,

v.COMPANION LIFE INSURANCE COMPANY, Defendant.

No. CV–10–2597–PHX–LOA.

United States District Court, D. Arizona.

April 24, 2012.

John C. West, Brownstein Hyatt Farber Schreck LLP, Phoenix, AZ, for Plaintiffs.

Paige Ann Martin, Philip Ashley Overcash, S. David Childers, Kutak Rock LLP, Scottsdale, AZ, for Defendant.

ORDER

LAWRENCE O. ANDERSON, United States Magistrate Judge.

This matter is before the Court on the motion of Plaintiffs Regional Care Services Corporation and Regional Care Services Corporation Health and Welfare Employee Benefit Plan (the “Employee Benefit Plan”) for summary judgment pursuant to Fed.R. Civ.P. 56, doc. 85, and on the motion of Defendant Companion Life Insurance Company (“Defendant” or “Companion”) for summary judgment pursuant to Fed.R.Civ.P. 56, doc. 87. Both motions are fully briefed and ripe for review. Each side requests oral argument. Because oral argument would not aid the court's decisional process, the request is denied. Mahon v. Credit Bur. of Placer County, Inc., 171 F.3d 1197, 1200 (9th Cir.1999) (explaining that if the parties provided the district court with complete memoranda of the law and evidence in support of their positions, ordinarily, oral argument is not required).

All parties have consented to magistrate-judge jurisdiction pursuant to 28 U.S.C. § 636(c). (Docs. 10–11) After considering the briefing and applicable law, the Court will grant summary judgment in favor of Plaintiffs, deny Defendant's Motion for Summary Judgment, and enter related orders.

I. Background and Factual Findings

This is a diversity action, pursuant to 28 U.S.C. § 1332, involving the Employee Benefit Plan's payment of medical expenses incurred by the adopted daughter, M.F.G., a minor,¹ of Dr. John and Jessica Gietzen. Plaintiffs assert that they should be reimbursed under a stop-loss insurance contract in an amount in excess of $274,000 for medical claims above the $150,000 deductible which were incurred during the 2009 calendar year on behalf of M.F.G. Companion Life argues that it is not contractually obligated to reimburse Plaintiffs for claims paid on M.F.G.'s behalf because M.F.G. did not qualify as an eligible dependent under the Employee Benefit Plan, and because the Plan Administrator did not have substantial evidence to support M.F.G.'s plan eligibility as of March 30, 2009, the date of the eligibility determination.

Regional Care is an Arizona corporation with its principal place of business in Casa Grande, Arizona. It provides health care benefits to its employees through Regional Care Services Corporation Health and Welfare Employee Benefit Plan, a self-funded employee benefit plan under the Employee Retirement Income Security Act (“ERISA”). (PSOF ¶¶ 1–2 ²) Regional Care contracted with Companion, a South Carolina corporation, to issue a medical stop-loss insurance policy (the “Stop–Loss Contract” or the “Policy”) for the period January 1, 2009 through December 31, 2009. (Doc. 2; doc. 86–3 at 2,7 ³) Under the Policy, Companion pays for covered medical expenses of eligible employees that exceed $150,000 up to a maximum of $1,850,000. ( Id. at 3)

The Stop–Loss Contract provides coverage to “plan participants” defined as “an employee, dependent or any other person who is eligible and who is covered under the Employee Benefit Plan.” ( Id. at 11) The Stop–Loss Contract specifies that dependents are defined “as a dependent under the Employee Benefit Plan.” ( Id. at 9) The Employee Benefit Plan is defined as “the master plan document of the Contractholder to provide medical expenses to the Contractholder's covered plan participants and dependents of such plan participants in effect on the Effective Date of this Contract, a copy of which is attached to this Contract.” (Doc. 86–3 at 10) The Contractholder is identified as Regional Care Services Employee Benefit Plan. ( Id. at 7, 9) The Contract is defined as “the entire agreement between the Contractholder and the Company, specifically including the Contract Application, the Contract Form, the Contract Addenda (if any), and a copy of the Contractholder's Employee Benefit Plan.” ( Id. at 9)

Regional Care's Employee Benefit Plan describes the coverage and eligibility requirements for its employees who receive medical benefits. The Employee Benefit Plan includes, in pertinent part, the following definition of dependent:

Eligible Classes of Dependents: A dependent is any one of the following persons:

1. A covered employee's spouse, life partner, and unmarried children from birth to the limiting age of nineteen (19) years ....

The dependent children must rely on the covered employee for over one-half of their support (as described in Section 152 of the Internal Revenue Code).

* * * The term “children” shall include natural children living in the same household as the employee, adopted children or children placed with a covered employee in anticipation of adoption. Step-children who reside in the employee's household may also be included as long as a natural parent remains married to the employee and also resides in the employee's household.

* * *

The phrase “child placed with a covered employee in anticipation of adoption” refers to a child whom the employee intends to adopt, whether or not the adoption has become final, who has not attainted the age of eighteen (18) as of the date of such placement for adoption. The term “placed” means the assumption and retention by such employee of a legal obligation for total or partial support of the child in anticipation of adoption of the child. The child must be available for adoption and the legal process must have commenced.

Any child of a participant who is an alternate recipient under a qualified medical child support order shall also be considered as having a right to dependent coverage under this Plan.

A participant of this Plan may obtain, without charge, a copy of the procedures governing qualified medical child support order (QMCSO) determinations from the plan administrator.

The plan administrator may require documentation proving dependency, including birth certificates, tax records or initiation of legal proceedings severing parental rights.

(Doc. 86–1 at 17 ⁴)

During the relevant period, Dr. John Gietzen was a participant in the Employee Benefit Plan. Companion argues that Dr. Gietzen was not a covered employee under the Employee Benefit Plan, and therefore, his adopted daughter was not an eligible dependent. (Docs. 87 at 16–17; 102 at 14) On January 26, 2011, however, Companion made a binding admission, under Fed.R.Civ.P. 36(b), that Dr. Gietzen was an eligible Plan participant. (Doc. 86–2, PSOF, Exh. 2, No. 1 at 3) A matter admitted under Rule 36(b) is “conclusively established unless the court, on motion, permits the admission to be withdrawn.” Fed.R.Civ. P. 36(b) (emphasis added). Rule 36(b) is permissive, not mandatory, with respect to the withdrawal of admissions. See Asea, Inc. v. S. Pac. Transp. Co., 669 F.2d 1242, 1248 (9th Cir.1981). Rule 36(b) permits the district court to exercise its discretion to grant relief from an admission made under Rule 36(a) only when (1) “the presentation of the merits of the action will be subserved,” and (2) “the party who obtained the admission fails to satisfy the court that withdrawal or amendment will prejudice that party in maintaining the action or defense on the merits.” Conlon v. United States, 474 F.3d 616, 621 (9th Cir.2007) (citing Fed.R.Civ. P. 36(b)); see also Carney v. IRS ( In re Carney ), 258 F.3d 415, 419 (5th Cir.2001) (“[A] deemed admission can only be withdrawn or amended by motion in accordance with Rule 36(b).”). The district court is directed to exercise caution in permitting the withdrawal of an admission. Conlon, 474 F.3d at 621.

Companion raised the issue of Dr. Gietzen's eligibility under the Employee Benefit Plan for the first time in its Motion for Summary Judgment, filed December 30, 2011. (Doc. 87 at 16) (“Maria Gietzen was not covered under the Plan because Dr. Gietzen himself was not a covered employee under the Plan....”). Companion revisited that issue in its Reply in Support of its Motion for Summary Judgment, doc. 107 at 9, and in its Response to Plaintiffs' Motion for Summary Judgment, doc. 102 at 14. Inexplicably, Companion has never filed a motion to withdraw its admission regarding Dr. Gietzen. Companion inserts a footnote on the second to last page of its Reply in Support of its Motion for Summary Judgment, requesting the Court “consider this argument as a motion that the Court allow [Companion] to amend its earlier admission to conform to the new evidence.” (Doc. 107 at 11, n. 6) (The complete footnote states: “To the extent that a motion is required, Companion respectfully requests this Court consider this argument as a motion that the Court allow it to amend its earlier admission to conform to the evidence.”) Clearly, a footnote buried in a reply in support of a dispositive motion does not constitute a separate motion. As a practical matter, Companion asks the Court to rule on a footnote, which it declines to do. Had Companion wanted to file a motion to withdraw its admission about Dr. Gietzen, it easily could have done so. Companion states that Dr. Gietzen produced his tax return to Companion in June 2011. (Doc. 107 at 10) Companion further states that “[i]t was not until Companion's counsel began preparing for Defendant's expert disclosures due in September 2011 that it became apparent from the 2009 tax return that Dr. Gietzen was actually employed by the Physician's Group, a separate corporate entity, was not an employee of Regional Care, and was therefore not a covered Plan Participant.” (Doc. 107 at 10) Although Companion's counsel does not identify the date on which he became aware of the possibility that Dr....