No. 86-517 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

JOHN E. NITSCHKE and SUSAN M. 

NITSCHKE, husband and wife, 

Plaintiffs and Appellants, 

-vsBLUE CROSS OF MONTANA, 

Defendant and Respondent. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Robert Holmstrom, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Herndon, Harper & Munro; James G. Edmiston argued, 

Billings, Montana 

For Respondent : 

Church, Harris, Johnson & Williams; Don A LaBar argued, 

Great Falls, Montana 

For Amicus Curiae: 

Dwight G. Rabuse argued, Office of Personnel Management, Dept. of Justice, Washington, D.C. 

Submitted: November 3, 1987 

Decided: March 11, 1988 

Filed: MAR 1 1 ISM 

Clerk 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

Jack Nitschke was a federal employee insured by Blue 

Cross under the Federal Employees Health Benefits Act 

(FEHBA). The Nitschkes sued Blue Cross based upon a denial 

of benefits. The District Court of the Thirteenth Judicial 

District, in and for the County of Yellowstone, granted 

defendant's motion to strike counts I1 and IV of plaintiffs' 

complaint. The motion to strike was denied for counts I and 

I11 for breach of contract and breach of the implied covenant 

of good faith and fair dealing. The defendant then moved to 

dismiss the remaining counts I and 111 for lack of 

jurisdiction on the basis that they stated a cause of action 

based on state law which is preempted by federal law. The 

District Court treated the motion to dismiss as a motion for 

summary judgment. The court denied the motion for lack of 

subject matter jurisdiction and granted the motion for 

summary judgment to defendant as to counts I and III on the 

grounds that those claims were preempted by federal law. The 

plaintiffs appeal the District Court's order granting the 

defendant summary judgment. 

The issues raised on appeal are whether the District 

Court erred in: 

I. determining that there were no issues of contested 

material fact and thus plaintiff's claim for breach of 

contract fails as a matter of law; 

11. holding that plaintiffs' claim for breach of the 

implied covenant of good faith and fair dealing was preempted 

by federal law. 

We affirm issue two and reverse issue one. 

The plaintiff, John E. "Jack" Nitschke, is the 

Postmaster of the Miles City Post Office. As a federal 
employee he may select a health benefits program from either 

Blue Cross or Aetna Insurance Company. For 1981 Nitschke 

selected Blue Cross, and purchased dependent coverage for his 

wife, Susan M. Nitschke. The insurance program, a government 

wide plan sponsored by the Blue Cross and Blue Shield Federal 

Employee Program, was administered on a local basis by the 

defendant Blue Cross of Montana. 

In August 1981, Jack Nitschke became aware that his wife 

had an alcohol dependency problem. He was aware that his 

insurance benefit plan provided benefits for alcoholism 

treatment. The brochure stated: 

Alcoholism Treatment Benefit 

The Plan pays in full for alcoholism treatment 

in a freestanding alcoholism facility approved by 

the local plan. 

Basic Hospital Benefits are also paid in full 

in a member hospital and at 80 percent in a 

nonmember hospital. 

Benefits are available for up to 28 days per 

alcoholism treatment session with a maximum of two 

28-day sessions in a person's lifetime (including 

sessions covered by Supplemental Benefits) . Additional days and the remaining 20 percent are 

not covered by Supplemental Benefits. 

At the recommendation of a friend, he took his wife to the 

Rimrock Foundation in Billings, Montana. The Rimrock 

Foundation was located in Merrilac Hall, a wing of St. 

Vincent's Hospital. The foundation was operating under an 

affiliation agreement with St. Vincent's Hospital which 

provided for St. Vincent's to admit and provide medical care 

for patients at the Rimrock Foundation. Susan Nitschke 

completed the 28 day alcoholism treatment session. 

Midway through the program Jack Nitschke was informed by 

Rimrock personnel. that Blue Cross was inconsistent about 

providing benefits to cover Rimrock programs. Rimrock 
contacted Blue Cross and was told "Blue Cross employees are 

not to discuss benefits as they relate to the Rimrock 

Foundation." Jack Nitschke did not try to transfer his wife 

to another facility because he believed Blue Cross would 

provide benefits and because of the demands of his job. 

Nitschke paid $3,600 for his wife's treatment and 

submitted the claim to Blue Cross for reimbursement. Blue 

Cross denied the claim because Rimrock Foundation was neither 

a hospital nor a facility "approved by the local plan." When 

asked to produce a copy of the "local plan" relied upon, Blue 

Cross first stated that it was the 1981 Service Benefit Plan, 

then they said "local plan" refers to the entity Blue Cross 

of Montana, thus Blue Cross sets the approval criteria. Blue 

Cross stated the approval criteria included licensing of the 

facility by the Department of Health and Environmental 

Sciences. Rimrock was not so licensed. Blue Cross had in 

the past approved alcoholism treatment benefits for employees 

of the State of Montana who were treated at the Rimrock 

Foundation. 

ISSUE I 

The standard for reviewing a grant or denial of summary 

judgment was set forth in Reagan v. Union Oil Company of 

California (Mont. 1984), 675 P.2d 953, 956, 41 St.Rep. 131, 

134. "The standard that an appellate court applies in 

reviewing a grant or denial of a motion for summary judgment 

is the same as that utilized by the trial court initially 

under Rule 56, M.R.Civ.P. -- a summary judgment is proper 

when it appears 'that there is no genuine issue as to any 

material fact and that the moving party is entitled to 

judgment as a matter of law."' This Court must review the 

evidence in a light most favorable to the party opposing 

summary judgment. Downs v. Smyk (Mont. 1982), 651 P.2d 1238, 

39 St.Rep. 1786. 
Blue Cross claims there are no genuine issues of 

material fact, that the Rimrock Foundation is not a hospital 

and that the benefits approved at Rimrock for a state 

employee were under a different contract and have no bearing 

on what benefits are payable under the Nitschkes' contract. 

Blue Cross further claims the "local plan" is not the 

Nitschkes' plan, the 1981 Service Benefit Plan. According to 

Blue Cross the "local plan" is the entity Blue Cross itself. 

So, "approved by the local plan" means approved by Blue Cross 

of Montana. By drawing reasonable inferences in favor of 

Nitschkes, there appears a genuine material issue of fact 

concerning whether Rimrock was "approved by the local plan", 

Blue Cross itself. There is a question of fact concerning 

whether the benefits sought are consistent with the 

provisions of the contract and thus would not be preempted by 

federal law. 5 U.S.C. 8902 (m) (1) . The granting of summary 

judgment on the basis presented to us was in error and we 

reverse on this issue. 

ISSUE I1 

The Ninth Circuit Court of Appeals case, Hayes v. 

Prudential Insurance Co. of America (9th Cir. 1987), 819 F.2d 

921, is dispositive of this issue. In Hayes, the appellants' 

state law claims were: 1) breach of contract, 2) breach of 

the implied covenant of good faith and fair dealing, and 3) 

violations of the California Insurance Code. The Ninth 

Circuit specifically held "Tort claims arising out of the 

manner in which a benefit claim is handled are not separable 

from the terms of the contract . . . Moreover, the claims 

'relate to' the plan under section 8902 (m) (1) as long as they 

have a connection with or refer to the plan. . . . All 

appellants' state law claims refer to the plan, and therefore 

fall under the premption clause." Hayes, 819 F.2d at 926. 

These claims are governed by federal law and not state law. 
Federal law does not provide a cause of action for breach of 

the covenant of good faith and fair dealing in tort. F?e 

affirm issue 11. 

We remand for further proceedings in accordance with 

this opinion. 

We Concur: Justice