2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-15-2002

Glatthorn v. Ind Blue Cross

Precedential or Non-Precedential:

Docket No. 01-2846

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Recommended Citation

"Glatthorn v. Ind Blue Cross" (2002). 2002 Decisions. Paper 274.

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 NOT-PRECEDENTIAL 

 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 NO. 01-2846 

 JOAN D. GLATTHORN; JOSEPH LASENSKY, H/W, 

Appellants, 

 v. 

 INDEPENDENCE BLUE CROSS 

 

Appellee. 

 On Appeal from the United States District Court 

 For the Eastern District of Pennsylvania 

 D.C. Civil No. 00-cv-3177 

 District Judge: Hon. James T. Giles 

 Submitted Pursuant to Third Circuit LAR 34.1(a) 

 April 8, 2002 

 Before: McKee, Barry, & Alarcon, Circuit Judges 

 OPINION OF THE COURT 

 ( Filed: April 15, 2002) 

McKee, Circuit Judge. 

Joan Glatthorn and Joseph Lasensky appeal from the order of the United States 

District Court for the Eastern District of Pennsylvania granting judgment on all counts in 

favor of defendant, Independence Blue Cross, at the conclusion of a bench trial. For the 

reasons that follow, we will affirm. 

 I. 

As we write only for the parties, we need not reiterate the facts relevant to this 

appeal. We review the district court’s interpretation of the Medicare as Secondary Payer 

statute de novo. See Kapral v. United States, 166 F.3d 565, 567 (3d Cir. 1999) (issues of 

statutory interpretation are reviewed de novo). We also review the district court’s 

interpretation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 

as well as appellants’ common law fraud and breach of contract claims de novo. See 

Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Surety Co., 89 F.3d 976, 983 (3d 

Cir. 1996) (a district court’s interpretation of state law is reviewed de novo). However, 

the district court’s findings of fact are reviewed for clear error. See Beta Spawn, Inc. v. 

Fee Transp. Serv., Inc., 250 F.3d 218, 223 (3d Cir. 2001). 

 II. 

Appellants argue that the district court misinterpreted the Medicare as Secondary 

Payer statute ("MSP"), when it found that the MSP required proof of intentional efforts 

by the primary insurer (Blue Cross) to avoid paying appellants’ claims, and that 

appellants had not presented such proof. Further, appellants argue that the district court 

misinterpreted state law when it found that the evidence did not establish fraud under 

either the Pennsylvania Unfair Trade Practices and Consumer Protection Law 

("UTPCPL") or common law fraud. Finally, appellants argue that the district court 

erroneously found that Blue Cross’ actions did not amount to a breach of contract. 

The MSP is a series of amendments to Social Security Act. The MSP provides 

that even where a subscriber is eligible for Medicare, under certain circumstances, a 

group health plan is the "primary payer" and primarily responsible for the subscriber’s 

medical bills. See 42 U.S.C. 1395y(b)(1)(A)(i) (1997). Medicare will then pay any 

remaining amount not covered by the primary payer. See New York Life Ins. Co. v. 
United States, 190 F.3d 1372, 1374 (Fed. Cir. 1999). If Medicare makes a payment on a 

subscriber’s medical bills, the primary payer must reimburse Medicare for the expense. 

See 42 U.S.C. 1395y(b)(2)(B)(i). There are a few exceptions where the MSP does not 

apply. Most importantly for our purposes, the MSP does not apply to group health plans 

used by employers with fewer than 20 employees. See 42 U.S.C. 1395y(b)(1)(A)(ii). 

The MSP provides for a private cause of action as follows: 

 There is established a private cause of action for 

 damages (which shall be in an amount double the amount 

 otherwise provided) in the case of a primary plan which fails 

 to provide for primary payment (or appropriate 

 reimbursement) in accordance with such paragraphs (1) and 

 (2)(A). 

 

42 U.S.C. 1395y(b)(3)(A). 

 However, this must be interpreted in a manner that is consistent with the overall 

purpose of the statute. Congress enacted the MSP to cut costs in the Medicare program 

by providing that, under certain circumstances, group health plans are primary to 

Medicare. See United States v. Travelers Ins. Co., 815 F. Supp. 521, 522 (D. Conn. 

1992). Where Medicare is not a party to a case, there is no risk to Medicare’s financial 

health. Where Medicare is not involved in the dispute, "[Medicare’s] fiscal integrity is 

not threatened, and the MSP statute does not apply." Perry v. United Food and 

Commercial Workers Dist. Unions 405 and 442, 64 F.3d 238, 243 (6th Cir. 1995). We are 

persuaded by the reasoning of the Sixth Circuit Court of Appeals, and agree that the MSP 

is only applicable in situations where Medicare’s financial integrity is at issue. 

 This is not such a case as Medicare is not a party to the dispute. Appellants do not 

even allege that Medicare paid any amount toward their medical bills, let alone an amount 

requiring reimbursement by Blue Cross. It is also undisputed that Blue Cross paid all of 

appellants’ claims before the Complaint was filed. Thus, there is no claim left unpaid 

which Medicare could potentially be asked to pay. Consequently, appellants have not 

alleged facts sufficient to bring their case within the ambit of the MSP, and thus the MSP 

does not apply here. 

 Appellants further argue that the district court erred in finding that there was no 

fraud under either the UTPCPL, 73 P.S. 201-1, et seq., or common law. A claim under 

the UTPCPL has the same elements as a common law fraud claim. See Booze v. Allstate 

Ins. Co., 750 A.2d 877, 880 (Pa. Super. 2000). These include material misrepresentation 

of an existing fact, scienter, justifiable reliance, and damages. See id. A cause of action 

can arise from the breach of a contractual duty, but liability must be supported by more 

than nonfeasance, or the failure to perform a contractual duty. Rather, a plaintiff must 

allege misfeasance, or the improper performance of a contractual obligation. See Gordon 

v. Pennsylvania Blue Shield, 548 A.2d 600, 604 (Pa. Super. 1988). An insurer’s mere 

refusal to pay a claim is nonfeasance, which is not actionable in tort. See Horowitz v. 

Fed. Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995) (applying Pennsylvania 

law). 

 The district court found that appellants did not prove the elements of fraud, and we 

agree. Appellants did not prove that Blue Cross made any material misrepresentations. 

Appellants received the medical services from the providers at the contract price. 

Appellants also allege that Blue Cross refused to pay primary to Medicare on their bills. 

However, by the time the Complaint was filed, Blue Cross had paid all of appellants 

medical bills. At best, Blue Cross’ initial refusal to pay the insurance claims is 

nonfeasance. The district court further found that appellants had not shown that they had 

paid any amount in deductibles to Blue Cross over that which they were already required 

to pay under their plan. Appellants never presented a check or any other proof at trial to 

verify the amount they claimed they over-paid. Therefore, appellants did not show that 

Blue Cross made any material misrepresentations. 

 Moreover, appellants have not established scienter. They did not present sufficient 

evidence at trial that Blue Cross’ initial refusal to pay was a knowing abrogation of its 

contractual duty. All appellants can demonstrate is that there were a number of 

administrative errors in processing and paying their claims. However, Blue Cross was 

not necessarily the cause of these administrative errors. Rather, the fault could just as 

easily have been in the hands of the providers who may have submitted erroneous 
information. It was just as likely that Blue Cross received misinformation from 

Lasensky’s company, Accurate Recycling, that Accurate had fewer than 20 employees. 

Therefore, we can not find that Blue Cross knowingly eluded its obligation to pay 

primary. 

 We certainly understand appellants’ frustration. There is evidence of mistake and 

possibly incompetence on the part of Blue Cross in its failure to change appellants’ 

records after Glatthorn notified the customer service bank of the misinformation. But 

mistake and incompetence are not actionable under either the UTPCPL or common law 

fraud. Therefore, we find that the district court did not err when it held that appellants’ 

claims failed under the UTPCPL and under common law fraud. 

 Lastly, appellants argue that the district court erroneously found that Blue Cross 

had not breached the contract. Under Pennsylvania law, the three elements necessary to 

establish a cause of action for breach of contract are: (1) the existence of a contract, 

including its essential terms, (2) a breach of a duty imposed by the contract and (3) 

resulting damages. See Williams v. Nationwide Mutual Ins. Co., 750 A.2d 881, 884 (Pa. 

Super. 2000). 

 As noted above, appellants did not carry their burden of proving that Blue Cross 

was responsible for the misinformation in their files. Appellants also did not establish 

any monetary loss. Blue Cross paid all of appellants’ claims before the Complaint was 

filed. Therefore, the district court did not err in finding that appellants’ breach of contrac

claim fails. 

 For the reasons outlined above, we will affirm the district court’s order granting 

judgment in favor of Blue Cross. 

TO THE CLERK: 

Please file the foregoing opinion. 

By the Court 

 /s/ Theodore A. McKee 

 Circuit Judge