• New Life Homecare, Inc. v. Blue Cross of Northeastern Pennsylvania
  • July 18, 2012 | Authors: Justin Gundlach; Arthur N. Lerner
  • Law Firm: Crowell & Moring LLP - Washington Office
  • Blue Cross of Northeastern Pennsylvania / Highmark Blue Shield ("Blue Cross" or "Defendants") and New Life Homecare's ("New Life" or "Plaintiffs") agreement for group insurance coverage included underwriting requirements that limited how many New Life employees could reside outside Defendants' licensed service area. New Life exceeded that limitation with the enrollment of a new employee in September of 2006, which led to a dispute that the parties temporarily and partially resolved through a stop-gap settlement agreement. That settlement provided in relevant part that Blue Cross would provide New Life employees with group coverage through March 2007, but would then transition those employees to individual coverage starting in April of 2007.

    The Federal District Court for the Middle District of Pennsylvania disposed of the case based on its substantial - but not complete - agreement with arguments presented by Defendants. To begin, the court rejected Defendants' contention that the terms of the partial settlement agreement eliminated Plaintiffs' standing to bring ERISA claims by effectively terminating the group coverage policy at issue. The court explained that, because the settlement did not provide for the release or dismissal of Plaintiffs' claims, it did not preclude Plaintiffs from seeking relief for Defendants' alleged breach of contract.

    However, the court agreed with Defendants about all the claims at issue in their motion for summary judgment. First, looking to Pennsylvania contract law, the court determined that Defendants had not breached, but had rightfully terminated the agreement after Plaintiffs violated its underwriting requirements. The court was not persuaded by Plaintiffs' contention that Defendants should have given Plaintiffs a chance to cure that violation before terminating.

    As to Plaintiffs' point that Defendants had breached a fiduciary duty by failing to offer a waiver of the plan's underwriting requirements, the court again agreed with Defendants that the plan's coverage policy documents imposed no such requirement, and that Defendants' decision to terminate was consistent with what those policy documents required. The court noted that Plaintiffs had supplied no evidence either that this fact could be disputed or that Defendants' decision was motivated by something other than a desire to comply with the policies stipulated by the parties.

    Similarly, the court rejected for lack of evidence Plaintiffs' contention that Defendants' termination and refusal to waive underwriting requirements constituted impermissible retaliation. Plaintiffs argued that Defendants had treated Plaintiffs differently than other parties in similar circumstances, but, the court explained, Plaintiffs offered no evidence - either direct or circumstantial - showing that Defendants had "placed substantial negative reliance on an illegitimate criterion in reaching their decision." Because Defendants presented a valid basis for terminating the policy, which Plaintiffs could not impugn, the court agreed that the retaliation claim should also be dismissed.