Opinion
Cause No. IP 00-0695-C-B/S
September 6, 2001
ENTRY GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This matter comes before the Court on Defendant Aetna's Motion for Summary Judgment.
Aetna argues that Plaintiff's state law claims for promissory estoppel, fraud, and negligent misrepresentation are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., based on their relation to a benefits plan underlying the dispute. For the reasons set forth below, the Court grants in part and denies in part Defendant's Motion for Summary Judgment.
Factual Background
Plaintiff Vencor Hospitals-Limited Partnership ("Vencor") operates a hospital facility in Indianapolis. (Complaint ¶ 1.) Defendant Aetna Insurance (named in the Complaint as Aetna U.S. Healthcare, Inc.) ("Aetna") administered the insurance plan covering Woneta Hargis at the time this dispute arose. (Affidavit of Linda Whitman ¶ 1.) Nabisco, Inc., Ms. Hargis's employer, funded the plan. (Complaint ¶ 6.) On or about June 4, 1998, Ms. Hargis sought admission for treatment at Vencor Hospital-Indianapolis. (Id. ¶ 7.) Prior to admitting Ms. Hargis for treatment, Vencor officials attempted to verify with Aetna Ms. Hargis's medical coverage. (Id.) Aetna represented to Vencor that on behalf of Ms. Hargis it would pay out a lifetime maximum benefit of $500,000. (Id. ¶ 8.)
Based on this representation, Vencor admitted Ms. Hargis on June 5, 1998, and began providing medical services. (Id. ¶ 9.) Vencor personnel contacted Aetna several times over the subsequent year, and Aetna verified that Ms. Hargis was eligible for $500,000 in coverage. (Id. ¶ 10.) Acting in reliance on these representations, Vencor provided Ms. Hargis with medical services totaling at least $646,864 over the one-year period. (Id. ¶ 20.) Ms. Hargis's treatment terminated in June 1999. (Id. ¶ 5.) On September 3, 1999, Aetna asserted that, pursuant to Ms. Hargis's benefits plan, she was eligible for a maximum lifetime benefit of only $50,000. (Id. ¶ 12.) Vencor filed suit in federal district court against Aetna for promissory estoppel, fraud, and negligent misrepresentation.
Standard of Review
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A genuine issue of material fact exists if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the particular issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party, and draw all reasonable inferences in favor of that party. Adickes v. S.H. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); King v. Preferred Technical Group, 166 F.3d 887, 890 (7th Cir. 1999). Summary judgment is required only if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish his or her case. Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
Preemption of State Law Claims
Vencor's claims for promissory estoppel, fraud, and negligent misrepresentation arise under state law. Aetna argues that ERISA preempts Vencor's state law claims because the claims "relate to" a benefit plan covered by the statute. Vencor counters that its claims do not qualify for ERISA preemption because they arise from duties owed by Aetna to Vencor independent of Aetna's obligations to Ms. Hargis. Section 514(a) of ERISA provides that the terms of the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(b)." 29 U.S.C. § 1144(a). The Supreme Court has explained that state law "relates to" a benefits plan if the statute expressly refers to ERISA plans, or if the law maintains a connection to the underlying benefits plan. California Div. of Labor Standards Enforcement v. Dillingham Constr. NA, Inc., 519 U.S. 316, 325, 117 S.Ct. 832, 838, 136 L.Ed.2d 791 (1997).
Because we are sitting in diversity, the Court must apply the law of Indiana as interpreted by the highest court of the state. Fidelity and Guaranty Ins. Underwriters, Inc. v. Everett I. Brown Co., L.P., 25 F.3d 484, 486 (7th Cir. 1994) (citations omitted); Standard Mutual Ins. Co. v. Kidd, 136 F. Supp.2d 950, 953 (S.D.Ind. 2001). Therefore, Vencor's claims arising under Indiana law will be evaluated for possible ERISA preemption.
This connection is determined by examining the objectives of the ERISA statute and the nature of the effect of the state law on ERISA plans. Id. Preemption is proper only where courts discern the "clear and manifest" purpose of Congress to supersede state law. Id.; Federation of Advertising Industry Representatives, Inc. v. City of Chicago, 189 F.3d 633, 636 (7th Cir. 1999). Some state law claims may be related to an ERISA plan in "too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n. 21, 103 S.Ct. 2890, 2901 n. 21, 77 L.Ed.2d 490 (1983).
Although the Seventh Circuit has not defined the precise sweep of ERISA's preemption provision with regard to third-party provider claims under state law, a plurality of circuits have found that ERISA does not preempt such claims. In Home Health, Inc. v. The Prudential Ins. Co. of Am., 101 F.3d 600 (8th Cir. 1996) (claim by health care provider against plan administrator for negligent misrepresentation is not preempted under ERISA); The Meadows v. Employers Health Ins., 47 F.3d 1006 (9th Cir. 1995) (claims by third-party health care provider against insurer for misrepresentation and estoppel are not preempted under ERISA); Lordmann Enterp., Inc. v. Equicor, Inc., 32 F.3d 1529 (11th Cir. 1994) (claim by third-party health care provider against plan administrator for negligent misrepresentation is not preempted under ERISA); Hospice of Metro Denver, Inc. v. Group Health Ins. of Oklahoma, Inc., 944 F.2d 752 (10th Cir. 1991) (state law claim by health care provider against insurance provider for promissory estoppel is not preempted by ERISA); Memorial Hospital Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. 1990) (claim by hospital against employer and health insurer for misrepresentation in violation of Texas Insurance Code is not preempted by ERISA); but see Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th Cir. 1991) (claims by health care provider against plan administrator for breach of contract, promissory estoppel, negligence, and breach of good faith relate to a benefit plan and therefore are preempted by ERISA).
Aetna relies primarily on the Sixth Circuit's decision in Cromwell for the proposition that misrepresentations as to the scope of benefits fall within ERISA's preemption provision. In that case, a third-party provider brought suit against a plan administrator to recover benefits owed to and assigned by the beneficiary of an ERISA plan. Id. at 1275. The court found that ERISA preempted the third-party provider's state law claims based on their relation to the underlying plan. Id. at 1276.
Aetna's reliance on the Cromwell decision stands in opposition to a plurality of circuits, however. A number of courts have declined to preempt state law both in cases involving the existence of coverage under an ERISA plan, The Meadows, 47 F.3d at 1009; Memorial Hospital Sys., 904 F.2d at 238, and in cases involving the extent of coverage. In Home Health, Inc., 101 F.3d at 602; Lordmann Enterp., Inc. v. Equicor, 32 F.3d at 1531. Although courts have noted the semantic distinction between the existence and scope of benefits, they have not typically based their preemption decisions on it. The crucial factor is less often the content of the misrepresentation, and more often the way the misrepresentation affects the relationship between the plan agents and the third-party providers. Courts have preempted state law claims in cases where third parties attempt to enforce or expand the rights of beneficiaries under the terms of ERISA plans, or where third parties assert rights as assignees of plan beneficiaries. Cromwell, 944 F.2d 1272; Memorial Hospital Sys., 904 F.2d 236; Coonce v. Aetna Life Ins. Co., 777 F. Supp. 759 (W.D.Mo. 1991). Courts have declined to preempt claims by third-party providers attempting to enforce promises made by plan administrators that do not alter the primary relationship between beneficiary and administrator under a plan. The Meadows, 47 F.3d at 1008; Hospice of Metro Denver, Inc., 944 F.2d at 756. Although such promises and reasonable reliance clearly grow out of the contractual relationship between beneficiary and administrator, they give rise to a separate relationship — between the health care provider and the plan administrator — for which courts have recognized and permitted state law remedies.
Notably, Aetna's descriptions of the Cromwell decision vary within its own brief, alternately characterizing the case as one regarding the existence of coverage (Mem. in Support of Mot. for Summ. J. at 4) and the scope of coverage (id. at 6). Such conflicting characterizations undermine Aetna's arguments on this issue.
Aetna also cites Memorial Hospital System v. Northbrook Life Insurance Company for the principle that misrepresentations as to the existence of coverage are not preempted by ERISA, whereas misrepresentations as to the scope of coverage are preempted. In fact, the court relied on an entirely different distinction — that between assignee and independent party — to reach its result. In Memorial, a hospital, as assignee of benefits under an ERISA plan, sued a plan administrator for both breach of contract and violation of the Texas Insurance Code. 904 F.2d at 238. In evaluating possible ERISA preemption, the Fifth Circuit focused on the congressional intent underlying ERISA and its relationship to the parties. Id. at 245-46. The court found that Congress intended for ERISA to govern disputes between beneficiaries (or their assignees) over benefits available under a plan, but did not intend for the statute to regulate commercial transactions between health care providers and plan administrators that gave rise to the Insurance Code violation. Id. at 247. Based on the hospital's status as assignee, the court dismissed the breach of contract claim, but allowed the hospital's statutory claim because it hinged on duties owed to the hospital other than those arising under the plan. Id. at 250.
Aetna further relies on Coonce v. Aetna Life Insurance Company, 777 F. Supp. 759 (W.D. Mo. 1991), to support its contention that the content of a misrepresentation determines whether ERISA will preempt a state law remedy to enforce the misrepresentation. However, the Coonce case stands on different footing than the present dispute. Tarra Lynne Coonce, mother of a beneficiary covered by an ERISA plan, along with a medical services provider intervening as an assignee, brought suit against plan trustees and agents for misrepresentations made as to rights owed to Tina Coonce, the beneficiary under the plan. Id. at 763-64. Once again, the suit derived from duties owed to the beneficiary. In the present case, Vencor does not seek to enforce any promise made or benefit owed to Ms. Hargis; Vencor seeks instead to enforce the representation made to it by Aetna. Aetna's duty to Vencor based on this representation stands independent of the duties it owes to Ms. Hargis under the plan.
Finally, Aetna contends that the decision in Parkside Lutheran Hospital v. R.J. Zeltner Associates, Inc., 788 F. Supp. 1002 (N.D.Ill. 1992), supports its argument that preemption turns on the nature of the misrepresentation. A close reading reveals, however, that Parkside supports Vencor's argument regarding independent duties between plan administrators and health care providers. The court in Parkside distinguished between such independent duties and representations that modify the terms of the original plan. Id. at 1006. Aetna correctly asserts that the nature of the misrepresentation matters. However, it only matters to the extent that it creates independent duties between administrator and third party, or that it modifies or addresses original duties owed under the plan. Taken together, the cases cited by Aetna illustrate an overarching legal principle: that the relationship of the parties to the misrepresentation and the source of the duties at the heart of the dispute determine whether state law claims fall within ERISA'a preemptive sweep. This principle defeats Aetna's argument for ERISA preemption of Vencor's state law claims.
In routine fashion, Vencor attempted to confirm Ms. Hargis's coverage prior to her admission. Aetna represented to Vencor that, under the plan, it would pay a certain level of benefits on Ms. Hargis's behalf. Vencor reasonably relied on such representations in delivering medial services. Vencor is suing to recover not Ms. Hargis's benefits under the plan, but the extent of Aetna's misrepresentation to Vencor. Accordingly, Aetna's motion for summary judgment as to Vencor's promissory estoppel and fraud claims is denied.
Negligent Misrepresentation
Although the Seventh Circuit has yet to address the scope of ERISA preemption of state law claims, it has directly addressed one issue in the present case. In Decatur Memorial Hospital v. Connecticut General Life Insurance Co., 990 F.2d 925 (7th Cir. 1993), the court declined to address whether ERISA's preemption provision barred a negligent misrepresentation claim, because the applicable state law (Illinois) recognized no such cause of action. The same is true here. Because Indiana does not recognize the tort of negligent misrepresentation, (Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 674 (7th Cir. 2001); Baxter v. I.S.T.A. Ins. Trust, 749 N.E.2d 47, 54 (Ind.Ct.App. 2001), quoting Darst v. Illinois Farmers Ins. Co., 716 N.E.2d 579, 584 (Ind.Ct.App. 1999)) we need not consider whether Vencor's claim for negligent misrepresentation is preempted by ERISA. Accordingly, Aetna's Motion as to the negligent misrepresentation claim is granted.
Conclusion
Aetna has moved for summary judgment, arguing that Plaintiff Vencor's state law claims must be preempted by ERISA. Vencor counters that ERISA does not preempt such claims because they arise independently of the underlying benefits plan and Vencor has not sought to enforce or expand any benefits under the plan. As set forth in our discussion above, we find that (1) Vencor's state law claims are not preempted by ERISA, but (2) Vencor cannot maintain a claim for negligent misrepresentation because Indiana does not recognize such cause of action. Accordingly, we grant in part and deny in part Aetna's motion for summary judgment.