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Behavioral Sciences Institute v. Great-West Life

February 3, 1997

BEHAVIORAL SCIENCES INSTITUTE, A WASHINGTON CORPORATION, RESPONDENT,
v.
GREAT-WEST LIFE, A COLORADO CORPORATION, APPELLANT.



Appeal from Superior Court of King County. Docket No: 93-2-24322-7. Date filed: 04/17/95.

Order Denying Motion for Reconsideration April 4, 1997,

Authored by H. Joseph Coleman. Concurring: Faye C. Kennedy, Ann L. Ellington.

The opinion of the court was delivered by: Coleman

COLEMAN, J. -- In 1990 and 1991, Great-West Life contracted to provide administrative services and excess or "stop-loss" coverage to Behavioral Sciences Institute, who self-insured an Employment Retirement Income Security Act of 1974 Plan for its employees. In late 1988, BSI employee Elaine Sonntag-Johnson had discovered that she had a rare blood disorder requiring expensive treatment. GW refused to provide stop-loss coverage, claiming that the employee's condition was not covered under the Plan and that BSI's Plan administrator acted in bad faith by not disclosing the condition. BSI sued GW, alleging breach of contract and bad faith. The court granted BSI summary judgment, holding that BSI had sole authority to determine Plan eligibility. GW argues that ERISA preempts BSI's state law claims. Alternatively, GW argues that the court erred in holding that it had no standing to challenge BSI's eligibility determination. We hold that ERISA does not preempt because this case does not involve the interpretation of an ambiguous ERISA provision or parties or claims covered by ERISA. We further find that GW can challenge Sonntag-Johnson's Plan eligibility insofar as it affects GW's obligation to provide reinsurance because the parties' agreement does not provide BSI with absolute discretion. We thus reverse.

PROCEDURAL HISTORY

In October 1994, BSI moved for summary judgment declaring that GW could not challenge the Plan administrator's determination that Sonntag-Johnson's claims were covered under the ERISA Plan. The court granted BSI's motion. In January 1995, GW moved for summary judgment, declaring that ERISA preempted BSI's state law claims; BSI made a cross motion to dismiss GW's counterclaim. GW's motion was denied and BSI's was granted. In February 1995, GW brought a motion for summary judgment asking the court to reconsider its October ruling based on evidence that BSI acted in bad faith and that no discretion was required to determine Plan eligibility. The court denied the motion as an untimely motion for reconsideration. The case was scheduled for trial on BSI's remaining bad faith claim, but further proceedings were stayed pending the outcome of this appeal.

FACTS

BSI established a self-insured ERISA Plan to provide health and welfare benefits to its employees. It contracted with GW to provide reinsurance coverage for the Plan effective January 1, 1990. Before this date, King County Medical Blue Shield had provided such coverage.

When negotiating coverage from GW, BSI Plan administrator Rhonda Watson informed GW in late 1989 that no BSI employees had claims in excess of $5,000 in the past 12 months, had preexisting conditions or would have medical or surgical treatment in 1990, or were prevented from performing their normal duties for more than two consecutive weeks during the past 12 months.

GW agreed to reimburse BSI for benefit payments made under the Plan provisions. The parties' agreement stated that GW was not a party to the Plan, had no control respecting the Plan's management, and had no obligation to any employee or dependent under the Plan.

The Plan provided that a BSI employee hired before July 1, 1991, was eligible for coverage if he or she paid the required contribution, if any, and was "at work" the day services were needed. If the employee did not satisfy these two requirements, no benefits would be paid for services or supplies received for a Pre-Existing Condition unless they are received after the earlier of:

The last day of a three-month period:

--which ends on or after the date the Covered Person's coverage begins; and--during which time no services or supplies were received for the condition; or--The date on which the Covered Person's coverage has been in effect for 12 consecutive months under this Plan.

BSI employee Elaine Sonntag-Johnson was diagnosed with a rare blood disorder called paroxysmal nocturnal hemoglobinuria (PNH) in November 1988. According to Watson's declaration, Sonntag-Johnson was officially on vacation or sick leave from December 21 until January 1, 1990, when she became ill with PNH. She was admitted to the hospital on January 2, 1990, and did not return to work for several months.

Watson determined that Sonntag-Johnson was actively "at work" at 12:01 a.m. on January 1, 1990, and was thus covered under the Plan as it went into effect for 1990. Watson reasoned that Sonntag-Johnson was merely out with the flu in late December or on vacation and was not disabled with her illness ...


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