Warren Pearl Const. v. Guardian Life Ins.

• Decision Date: 22 July 2009
• Docket Number: No. 08 Civ. 9445(WHP).,08 Civ. 9445(WHP).
• Citation: 639 F.Supp.2d 371
• Parties: WARREN PEARL CONSTRUCTION CORPORATION et al., Plaintiffs, v. GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Southern District of New York

639 F.Supp.2d 371

WARREN PEARL CONSTRUCTION CORPORATION et al., Plaintiffs, v. GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant.

No. 08 Civ. 9445(WHP).

United States District Court, S.D. New York.

July 22, 2009.

COPYRIGHT MATERIAL OMITTED

John Walter Fried, Esq., Fried and Epstein, New York, NY, for Plaintiffs.

Paul Kenneth Stecker, Esq., Phillips Lytle LLP, New York, NY, for Defendant.

MEMORANDUM & ORDER

WILLIAM H. PAULEY III, District Judge:

Plaintiffs Warren Pearl Construction Corporation ("WPC"), Warren Pearl, Susan Pearl, and Warren Pearl and Susan Pearl as next friend of Ian Pearl (collectively "Plaintiffs"), bring this action pursuant to the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. ("ERISA"), against Defendant Guardian Life Insurance Company of America ("Guardian") seeking to prevent Guardian from terminating coverage under a Guardian small group supplemental major medical insurance policy (the "WPC Policy"). On December 9, 2008 2008 WL 5329962, this Court denied Plaintiffs a preliminary injunction on their ERISA, HIPAA, and estoppel claims (the "December 2008 Memorandum & Order"). Defendant moves for summary judgment dismissing this action. For the following reasons, Defendant's motion is granted.

BACKGROUND

From December 1, 1981 to December 1, 2008, the WPC Policy insured the major medical expense portion of the employee welfare benefit plan (the "Plan") of Swim Construction Company, its successor, Courbette Construction, and its successor, WPC. (Plaintiffs Local Rule 56.1 Counterstatement of Material Facts dated June 24, 2009 ("Pl. Counterstatement") ¶ 1.) The Certificate of Coverage outlines the Plan's insurance benefits. It provides that "coverage ends ... on the date [eligible employees] stop being a member of a class of employees eligible for insurance under this plan, or when this plan ends for all employees." (Declaration of John W. Fried dated June 24, 2009 ("Fried Decl.") Ex. 12: Certificate of Coverage at WPC-0457.) (emphasis in original). It also defines "Plan" as "the Guardian plan of group insurance purchased by your employer." (Certificate of Coverage at WPC-0444.) (emphasis in original).

The WPC Policy covered Warren Pearl, his wife Susan Pearl, and their son Ian Pearl. (PI. Counterstatement ¶ 4.) Ian Pearl suffers from Type II Spinal Muscular Atrophy, a form of muscular dystrophy. (PI. Counterstatement ¶ 5.) In 1991, Ian Pearl suffered full respiratory arrest that left him entirely ventilator-dependent. (PI. Counterstatement ¶ 6.) As a result, Ian Pearl receives 24-hour nursing care in his parents' home in Florida. (Pl. Counterstatement ¶ 6.) The WPC Policy has provided WPC employees and their dependents with nursing and home health care benefits without any lifetime or annual benefit limitations. (PI. Counterstatement ¶ 7.)

The WPC Policy, designated form "R0," was the first medical contract sold by Guardian in New York. (PI. Counterstatement ¶ 2.) As of August 1, 1987, Guardian stopped selling health insurance policies designated "R0" to new policyholders in the New York small group market,¹ but continued to renew extant "R0" policies like WPC's. (Pl. Counterstatement ¶¶ 11-12.) Guardian's second medical contract was designated "R1." Guardian also ceased offering that newer "R1" policy to new policyholders in New York as of August 1, 1987, but continued to renew "R1" form policies for existing policyholders. (Fried Decl. Ex. 9: E-mail from Ariel Fernando to Deborah Connolly dated June 8, 2007 ("Fernando E-mail") at GLIC08083.) In May 1992, Guardian discontinued marketing its third small group policy form known as "R2," but continued to renew "R2" form policies for existing policyholder groups. (Fernando E-mail at GLIC08083.) Since 1992, Guardian's "R3" policy form is the only policy it markets to prospective policyholder groups. (Fernando E-mail at GLIC08083.) While the "R1" and "R2" policy forms offer some private duty nursing coverage, the "R3" policy form does not. (PI. Counterstatement ¶ 76.)

In 2006, Guardian commenced an initiative referred to as "Moving Forward," which was designed to increase Guardian's competitive position by reducing what it paid out in claims. (PI. Counterstatement ¶ 29.) As part of its "Risk Management Initiative," Guardian sought to eliminate products or groups of products with high claims experience. (Deposition transcript of Ariel Fernando dated Feb. 20, 2009 ("Fernando Dep. Tr.") at 17.) "Moving Forward" also included the "Discontinuation Project," an evaluation of medical insurance products and health insurance policies to determine whether they should be discontinued to achieve the corporate goals of "Moving Forward." (PI. Counterstatement ¶ 31.) The "Discontinuation Project" involved a state-by-state examination of premiums, claims, and loss ratios of Guardian's older medical policies—the "R0," "R1," and "R2" forms, among others. (PI. Counterstatement ¶ 36.) The loss ratio is the ratio of incurred claims to earned premiums. (PI. Counterstatement ¶ 37.)

In November 2006, Guardian began studying its older policy forms in those states where Guardian's loss ratios were high. (Pl. Counterstatement ¶ 41.) Guardian examined specific plans and groups by claims experience. (Pl. Counterstatement ¶ 84.) That analysis identified incurred claims and loss ratios on a policy-by-policy basis. (Pl. Counterstatement ¶ 50.) Guardian considered such factors as to whether each policy's claims were based on an ongoing medical condition, which was likely to continue, or a terminal illness. (Pl. Counterstatement ¶ 55; Affidavit of Ariel Fernando dated June 10, 2009 ¶ 6.) The WPC Policy was identified as one with significant losses as part of that examination. (PL Counterstatement ¶ 58.) Guardian identified New York, New Jersey, and South Carolina as the states with the greatest losses. (Pl. Counterstatement ¶ 49.) Guardian determined that 29.9% of all medical claims paid in New York under the "R0" policy were for private duty nursing. In New Jersey, 53.3% of all medical claims paid under the "R0" policy were for private duty nursing. (Pl. Counterstatement ¶ 69.)

In January 2007, Guardian decided to discontinue the older policy forms in New York, New Jersey, and South Carolina because policyholders in those states were generating the highest claims. (Pl. Counterstatement ¶ 79.) Subsequently, Guardian also decided to discontinue those policies in Colorado. (PI. Counterstatement ¶ 80.)

By letter dated July 2, 2007, Guardian alerted the New York State Insurance Department ("DOI") that it would discontinue all "R0" policies offered to small groups and "offer [them] the option to purchase one of our actively marketed plans under our R3 contract." (Fried Decl. Ex. 46: Guardian notice of intent of policy discontinuance to DOI dated July 2, 2007 ("Discontinuation Letter") at 1.) Guardian cited three "Reasons for Discontinuance": (1) "[t]hese plans were written under our oldest generation of contract under which the language is vague and obsolete"; (2) "these plans are complex to administer and we hope this discontinuation will reduce the amount of complexity in administering similar plans"; and (3) "the very high loss ratios we've experienced over the last two years." (Discontinuation Letter at 2-3.) In the Discontinuation Letter, Guardian also informed DOI that it "will offer these small employers affected by the discontinuation the option to purchase all other hospital, surgical and medical expense coverage currently being offered," and that "[a]ll new plans sold since 1992 has [sic] been under the R3 contract." (Discontinuation Letter at 1.) At the time, Guardian had approximately 54 "R0" policyholders in New York, including WPC. (Plaintiffs' Local Rule 56.1 Statement ¶ 3.) On September 13, 2007, DOI informed Guardian that "[t]he letters and supporting material regarding your company's product discontinuance are now acceptable." (Affidavit of Paul K. Stecker dated July 2, 2009 Ex. A at 330: E-mail from Stephen Rings to Ariel Fernando.)

On August 20, 2008, Guardian advised WPC that it was discontinuing the WPC Policy effective December 1, 2008 because it was withdrawing "R0" policies from the market. (Pl. Counterstatement ¶ 29.) Guardian did not inform WPC that it could opt to replace the WPC Policy with either the "R1" or "R2" form policies. (Pl. Counterstatement ¶ 103.) With respect to Ian Pearl, Guardian agreed to a year-long extension of benefits provided for disabled dependents under the WPC Policy, which is scheduled to end on December 1, 2009. (Pl. Counterstatement ¶ 122.)

By letter dated August 25, 2008, WPC lodged its objection to Guardian's discontinuation of the WPC Policy with DOI. (Pl. Counterstatement ¶ 114.) In September 2008, DOI responded, concluding that it "found no evidence that [Guardian] violated New York State Insurance Laws or Regulations." (Fried Decl. Ex. 56: DOI response to WPC complaint dated September 19, 2008.) DOI's State Health Bureau representative testified:

I believe we have read [N.Y. Ins. Law § 3221(p)] ... to mean that so long as all insureds covered by the plan are being treated in the same manner as opposed to being selectively treated so that some insureds would not be terminated and other insureds would be, that that not being the case here, we would not have proceeded to look into that matter under our reading of our authority in the statute.

(Deposition transcript of Stephen Rings dated Jan. 23, 2009 at 38-39.)

DISCUSSION

I. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Davis v. Blige, 505 F.3d 90, 97 (2d Cir.2007). The...