|Galion Community Hospital v. Hartford Life & Accident Ins. Co.|
Ohio Federal Court Construes Advance Funding Endorsement; Certain Bad Faith Claims Survive (Galion Community Hospital v. Hartford Life & Accident Ins. Co,, No. 1:08-cv-1635, in the United States District Court for the Northern District of Ohio, Eastern Division, May 7, 2010).
Comment: This case involves two arguably conflicting provisions in an advance funding endorsement concerning the timing of submission of requests for advance funding:
· To be eligible for advance reimbursement with respect to an Agreement year, Your request must be received by Us no later than the 10th calendar day following the end of that Agreement Year, provided the agreement is in force on the date we receive the request.
· If the agreement terminates, Your request for advance reimbursement must be received by Us prior to 14 days before the date the agreement terminates.
The group, Galion Community Hospital, was insured under a stop loss contract issued by Hartford effective January 1, 2004, and renewed by amendatory endorsements annually on January 1, 2005, 2006 and 2007. The terms of the advance funding endorsement remained unchanged throughout the renewed terms of the policy, which expired by its own terms on December 31, 2007.
In late December 2006, the Hospital’s TPA submitted approximately $600,000 in claims. The Court’s opinion does not reveal what portion of this amount was for stop loss reimbursements versus what portion represented requests for advance funding, but it is clear that some of each were involved. [We are hampered in our analysis of this case because the parties filed their summary judgment briefs “under seal,” meaning that they are not accessible by the public. This is a highly unusual circumstance; typically, a court will require that redacted versions be publically filed deleting PHI only.]
In any event, according to the Court’s opinion, Hartford denied both types of claims based on the 14-day provision quoted in the second bullet point above. The Hospital sued Hartford and several other entities, some or all of which apparently served as MGU for Hartford and allegedly participated in the adjudication of the stop loss claims at issue.[i]
At some point after the filing of suit, Hartford paid the non-advance funding portion of the claims along with pre-judgment interest. This appears to have been a prudent move, since the one would think that only the claims involving advance funding would be subject to the limitations quoted above. Following discovery, comprehensive cross-motions for summary judgment were filed by the parties.
The Court dismissed the Hospital’s breach of contract claims based on the non-advance funding portion of the claims, since they had been paid in full, with interest, and thus the Hospital no longer had any damages with respect to those. Significantly, however, the Court denied all Defendants’ motions for summary judgment as to the Hospital’s claims for bad faith denial of these same claims, observing that “this Court has been presented with no evidence offering a reasonable justification for the denial of [these] stop loss claims.” Because of our inability to access the briefs, it is unknown whether the Defendants proffered any reason for their denial or not. Note also that, without any discussion of the issue, the Court preserved for trial claims for bad faith against the MGU Defendants, despite the fact that none were parties to the insurance contract. Again, whether this defense was briefed and argued or simply overlooked cannot be determined from the publically available record.[ii]
The issues as to the advance-funding portion of the claims are more interesting. The Hospital argued that the “14-day rule” in the second bullet point above only applied if the stop loss contract “terminated” early, and that the “10-day rule” applied in all other circumstances, including where the stop loss contract simply expired by its own terms at the end of the contract period. Hartford, on the other hand, argued that the terms of the endorsement only granted a 10-day window following the expiration of a contract year if the contract was renewed; otherwise, it claimed, no advance funding requests were timely unless received 14 days prior to contract expiration or termination.
The Court sided with Hartford, and held as a matter of law that the 14-day rule, not the 10-day rule, applied in these circumstances. The Court emphasized that “the agreement must be in force” for the 10-day rule to apply, and since it was not renewed for the 2008 calendar year, the 14-day rule applied.
While the Court’s resolution of this issue is defensible under one interpretation of the language, it is not necessarily correct in my view. The stop loss policy’s termination provisions listed several events which would authorize the carrier to terminate the contract: e.g., fewer than 50 covered persons, participation of less than 20% of eligible employees, and “for any other reason, on the first day of any Agreement Year after the agreement has been in force for 12 months.” Significantly, the policy states that the carrier may terminate the agreement under these circumstances “by giving You 31 days prior written notice.” Paragraph 19 of the Hospital’s Amended Complaint (which was not filed under seal) alleges that Defendants failed to give written notice of termination of the stop loss contract prior to January 1, 2008. If that is so, or if there is a factual dispute as to that issue, then arguably “the agreement was in force” as of the date of the advance funding requests such that the 10-day rule—and not the 14 day rule—applied.
Again, we do not know if the Hospital made this argument to the Court and it was ignored, or whether it was never made. However, given the separate allegation in the Amended Complaint concerning the lack of notice of non-renewal, the former seems more likely.
Read the Court’s Opinion HERE
[i] The role of the other entities is not expressly described in the Court’s opinion or in the Hospital’s Amended Complaint, so their function is merely my inference.
[ii] Generally, only an insurer can be liable for bad faith under state law. Because MGUs are not parties to the stop loss contract, they are not insurers, only agents for a disclosed principal in the transaction. Nevertheless, a minority of states have made exceptions to this rule.