Self Insured Servs. Co. v. Panel Sys., Inc.

• Decision Date: 22 October 2018
• Docket Number: Civil No. 3:18-cv-400 (DJN)
• Citation: 352 F.Supp.3d 540
• Parties: SELF INSURED SERVICES COMPANY, Plaintiff, v. PANEL SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Virginia

352 F.Supp.3d 540

SELF INSURED SERVICES COMPANY, Plaintiff,

v.PANEL SYSTEMS, INC., Defendant.

Civil No. 3:18-cv-400 (DJN)

United States District Court, E.D. Virginia, Richmond Division.

Signed October 22, 2018

Lauren Elizabeth Fisher White, Edwin Ford Stephens, Christian & Barton LLP, Richmond, VA, for Plaintiff.

Steven David Brown, Alison Drew Kewer, Isler Dare PC, Richmond, VA, for Defendant.

MEMORANDUM OPINION

David J. Novak, United States Magistrate Judge

Plaintiff Self Insured Services Company ("SISCO" or "Plaintiff") brings this action against Defendant Panel Systems, Inc. ("Panel Systems" or "Defendant"), alleging that Panel Systems has a contractual duty to indemnify it for all costs, claims and expenses, including damages and attorney's fees, arising out of the litigation styled Virginia Commonwealth University Health System Authority, et al. v. Panel Systems, Inc., et al. , Civil Action Number 3:18-cv-43 (REP). This matter comes before the Court by consent of the parties pursuant to 28 U.S.C. § 636(c)(1) on SISCO's Motion for Judgment on the Pleadings (ECF No. 18), moving pursuant to Federal Rules of Civil Procedure 12(h)(2)(B) and 12(c) to enter judgment in its favor on all five counts of the Counterclaim (ECF No. 14) filed by Panel Systems.

For the reasons set forth below, the Court orders that Plaintiff's Motion for Judgment on the Pleadings (ECF No. 18) be GRANTED in part as to Counts II, III, and IV of Panel Systems' Counterclaim and DENIED in part as to Counts I and V and Panel Systems' requests for attorney's fees in this action.

I. BACKGROUND

A Rule 12(c) motion for judgment on the pleadings utilizes the same standard as a 12(b)(6) motion. Moore v. Franklin Credit Mgmt. Corp. , 2010 WL 1308048, at *1 (E.D. Va. Apr. 2, 2010). Accordingly, in considering SISCO's Motion, the Court will view the facts in the light most favorable to Panel Systems, reserving its own judgment as to legal conclusions or unwarranted inferences. Watkins v. SunTrust Mortg., Inc. , 2010 WL 2812910, at *1 (E.D. Va. July 15, 2010) ; Hudson v. Bank of Am., N.A. , 2010 WL 2365588, at *1 (E.D. Va. June 11, 2010).

A. Panel Systems' Health Plan

Panel Systems designs, fabricates and erects prefabricated steel buildings, employing fewer than eighty people. (Panel Systems, Inc.'s Countercl. ("Countercl.") (ECF No. 14) ¶ 5.) In June 2014, Panel Systems implemented the Panel Systems Health Care Plan (the "Plan") to provide health benefits to its employees. (Countercl. ¶ 6.) Panel Systems "self-funded" the Plan, meaning that the company and its employees contributed to the benefits. (Countercl. ¶ 6.) Panel Systems also obtained excess loss insurance from Transamerica Premier Life Insurance Company ("Transamerica"). (Countercl. ¶ 6.)

On April 30, 2015, Panel Systems and SISCO entered into a Plan Service Agreement, effective June 1, 2015. (Ex. 2 to Compl. ("2015 PSA") (ECF No. 1-3).) A year later, on June 1, 2016, the parties entered into a second Plan Service Agreement, effective immediately. (Ex. 3 to Compl. ("2016 PSA") (ECF No. 1-4) ). Under both Plan Service Agreements (collectively, the "PSAs"), SISCO agreed to process "Plan benefit claims according to the terms and provisions of the [Summary Plan Description], using its established claim adjudication procedures." (2015 PSA at 4; 2016 PSA at 4.) By the terms of the PSAs, SISCO would act in a "ministerial capacity as a third party claims processor." (2015 PSA at 3; 2016 PSA at 3.) The PSAs also empowered Panel Systems to, in its full legal discretion, "construe and interpret the terms and provisions of the Plan" and to "[d]elegate to any person or entity such powers, duties and responsibilities it deems appropriate." (2015 PSA at 4-5; 2016 PSA at 4-5.) And the Plan itself authorized Panel Systems, as the "Named Fiduciary and Plan Administrator," to delegate its "authority and discretion to interpret and construe the terms of the Plan and to determine any and all questions in relation to the administration, interpretation or operation of the Plan." (Ex. 1 to Compl. ("Plan Document") (ECF No. 1-2) at 6.)

Using its delegation power, Panel Systems delegated authority to SISCO to act as the independent fiduciary and plan administrator of the Plan. (Countercl. ¶ 9.) With this authority, SISCO handled all claims made under the Plan, submitted stop-loss claims to Transamerica and processed payments for covered claims. (Countercl. ¶ 10.) SISCO also opened and maintained a checking account in the Plan's name. (Countercl. ¶ 10.)

The PSAs further included two indemnification provisions. The first provision provided that "SISCO will hold [Panel Systems] harmless from all losses and damages incurred as a result of bad faith or intentional wrongful acts committed by SISCO, or its employees while performing its responsibilities under this agreement." (2015 PSA at 6; 2016 PSA at 6.) Under the second provision, Panel Systems agreed:

to defend, indemnify, and save harmless SISCO and its employees from any and all loss, costs, fines, penalties, liability, judgments, claims and expenses, or damages of any kind including attorney's fees arising out of: [1] [Panel Systems'] performance, or lack thereof, of its duties and obligations under the Plan or this Agreement; [2] Stop Loss Carrier or unrelated Business Associate's performance, or lack thereof, of their duties and obligations under the Plan; [3] The good faith performance by SISCO, SISCO's contractors/subcontractors, of their respective duties to [Panel Systems] under this Agreement; [4] Actions taken by SISCO at the direction of [Panel Systems]; [and 6,] Responsibilities performed by SISCO under this agreement.

(2015 PSA at 6; 2016 PSA at 6.)

B. Dispute Over Payment of M.L.'s Medical Benefits

On May 11, 2016, M.L.,¹ a beneficiary of the Plan and dependent of a Panel Systems employee, presented to the Medical College of Virginia Hospital ("MCV Hospital") after asphyxiating on a popcorn kernel. (Countercl. ¶ 12.) On May 17, 2016, MCV Hospital physicians notified M.L.'s parents that M.L. had no brain activity and that they wished to perform an apnea test to confirm their diagnosis. (Countercl. ¶ 13.) On May 19, 2016, M.L.'s parents sought to enjoin the Virginia Commonwealth University Health Systems Authority (the "Authority") from performing the apnea test. (Countercl. ¶ 14.) The Richmond City Circuit Court denied the parents' request for an injunction on June 10, 2016, and M.L.'s parents immediately filed a notice of appeal to the Supreme Court of Virginia. (Countercl. ¶ 15.) The Virginia Supreme Court entered an order on June 14, 2016, prohibiting the Authority from performing the apnea test until that court resolved the appeal. (Countercl. ¶ 16.) The Virginia Supreme Court further denied the Authority's request for an expedited hearing. (Countercl. ¶ 17.) Unable to perform the apnea test, the Authority continued to provide medical care to M.L. until she passed away on November 1, 2016. (Countercl. ¶ 17.)

From her admission to MCV Hospital until her passing, M.L. incurred $1,682,066.77 in treatment costs, which the Authority and MCV Associated Physicians submitted to SISCO for claims processing. (Countercl. ¶ 18.) SISCO's Claims Settlement Manager, Ann Cook, sent an email on October 10, 2016, advising SISCO's Audit Unit to deny all medical expenses accrued in treating M.L. after May 31, 2016. (Countercl. ¶ 19; Ex. A to Countercl. ("Cook Email") (ECF No. 14).) Ms. Cook reasoned that, because doctors officially diagnosed M.L. as brain dead on May 31, any services after that date were either not medically necessary, experimental or court-ordered, none of which the Plan covered. (Cook Email.)

On October 11, 2016, SISCO requested a refund from MCV Associated Physicians for $30,623.20, which reflected amounts that SISCO had already paid for medical services provided to M.L. after May 31, 2016. (Countercl. ¶ 20.) MCV Associated Physicians appealed the refund request and SISCO denied the appeal, though SISCO agreed to review the issue if MCV Associated Physicians submitted additional documents supporting its claims. (Countercl. ¶ 20.)

MCV Associated Physicians submitted all of M.L.'s medical records to SISCO on March 10, 2017. (Countercl. ¶ 21.) The documents confirmed that M.L.'s treating physicians diagnosed her as brain dead on May 31, 2016, rendering any services provided after that date medically unnecessary under the terms of the Plan. (Countercl. ¶ 21.) Accordingly, on April 21, 2017, Ms. Cook reaffirmed that the Plan did not cover expenses incurred after May 31, 2016. (Countercl. ¶ 22.)

However, on May 10, 2017, the Authority and MCV Associated Physicians appealed SISCO's second denial of coverage and, on May 15, 2017, SISCO reversed its previous decision, deciding that the Plan in fact covered M.L.'s post-May 31, 2016 expenses. (Countercl. ¶¶ 23, 27.) This reversal occurred without the presentation of any new evidence. (Countercl. ¶ 24.) Instead, Dick Sigwarth, SISCO's Vice President of Operations, simply overruled the earlier denials. (Countercl. ¶ 24.)

Around the same time that SISCO reversed course and granted coverage of M.L.'s post-May 31 expenses, in April and May 2017, SISCO and Cigna entered into contract negotiations for SISCO to work on Cigna's Open Access Plus and LocalPlus networks. (Countercl. ¶ 25.) MCV Associated Physicians and the Authority are both providers within Cigna's network. (Countercl. ¶ 26.) According to Panel Systems, Cigna had an interest in its providers getting paid, and Cigna delayed approval of the SISCO deal until it received assurances that SISCO would pay the M.L. expenses. (Countercl. ¶ 26.)

Following approval of the M.L. expenses, SISCO submitted a stop-loss claim with Transamerica on Panel Systems' behalf, requesting $1,360,728.96 for expenses relating to M.L.'s treatment. (Countercl. ¶ 28.) Transamerica denied this claim on June 29, 2017, finding that the treatment did not meet the Plan's definition of medically necessary...