Court Opinion

ID: 998441
Source: CourtListenerOpinion
Date Created: 2013-07-04 17:11:23.112444+00
Date Added: 2024-06-11T15:36:03.378169
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

GEORGETOWN UNIVERSITY HOSPITAL;
GEORGETOWN PEDIATRIC ASSOCIATES,
P.A.,
Plaintiffs-Appellants,

v.

RELIANCE STANDARD LIFE INSURANCE
COMPANY; SELF FUNDING
ADMINISTRATORS CORPORATION,
                                                                   No. 97-1912
Defendants-Appellees,

and

LEVENACK CORPORATION EMPLOYEE
MEDICAL PLAN; WILLIAM E. BEIGHE;
STEVE GRANEK; JOHN WILSON; N.
CORPORATION; LEVENACK
CORPORATION,
Defendants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Deborah K. Chasanow, District Judge;
Catherine C. Blake, District Judge.
(CA-94-2339-CCB)

Argued: January 27, 1998

Decided: April 22, 1999

Before RUSSELL,* WIDENER, and WILKINS, Circuit Judges.
_________________________________________________________________
*Judge Russell heard oral argument in this case but died prior to the
time the decision was filed. The decision is filed by a quorum of the
panel. 28 U.S.C. § 46(d).
Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Ronald Scott Canter, WOLPOFF & ABRAMSON,
L.L.P., Bethesda, Maryland, for Appellants. S. Kennon Scott, Annap-
olis, Maryland; Charles Henry Carpenter, PEPPER HAMILTON,
L.L.P., Washington, D.C., for Appellees. ON BRIEF: Ronald M.
Abramson, WOLPOFF & ABRAMSON, L.L.P., Bethesda, Maryland,
for Appellants. Deborah F. Cohen, PEPPER HAMILTON, L.L.P.,
Washington, D.C., for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Plaintiffs, Georgetown University Hospital and Georgetown Pedi-
atric Associates, P.A. (collectively, Georgetown), as assignees of the
rights of Brian Ward, brought suit against Reliance Standard Life
Insurance Company (Reliance) and Self-Funding Administrators Cor-
poration (Self-Funding), amongst others, for unpaid medical bills in
excess of $330,000. The district court dismissed plaintiffs' claims
against Reliance pursuant to Fed. R. Civ. Proc. 12(b)(6). Subse-
quently, the district court also granted Self-Funding's motion for sum-
mary judgment.

Between April and September 1993, Tyler Ward incurred substan-
tial medical bills at Georgetown for treatment of a congenital heart
condition. Until April 16, 1993, Brian Ward, Tyler's father, was
insured through his employer, Levenack. Tyler, an infant, was a cov-
ered dependent under the Levenack Corporation Employee Medical
Plan (Health Plan), a self-funded group health insurance plan gov-

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erned by the Employee Retirement Income Security Act, 29 U.S.C.
§ 1001 et seq. (ERISA). Reliance issued an excess loss indemnity pol-
icy to the Health Plan that provided for payment of catastrophic medi-
cal expenses incurred by members of the Health Plan.* Under the
policy, Reliance was required to pay all claims exceeding $15,000 per
covered person, up to a maximum limit of $985,000. However, an
addendum to the policy set the deductible for Tyler Ward at $40,000,
with a maximum limit of $960,000. The policy provided that the
Health Plan would first pay any specific losses under its own plan and
then request reimbursement from Reliance whereupon Reliance
would pay that percentage of those losses which exceeded the deduct-
ible and which was satisfactorily proven.

As required by the policy issued by Reliance, Levenack entered
into an Administrative Services Agreement (Services Agreement)
with Self-Funding for claims administration. Under the Services
Agreement, Levenack delegated the administrative responsibilities of
the Health Plan to Self-Funding. Self-Funding received a monthly fee
for its services.

On April 16, 1993, Levenack sold all of its assets to N. Corpora-
tion. Because its liabilities exceeded its assets, Levenack became
insolvent and ceased to function at this time. However, Levenack's
president attempted to arrange for the continuance of the Health Plan,
and the $40,000 deductible for Tyler Ward's coverage was paid to
Self-Funding. In addition, following notification by Self-Funding
concerning eligibility under the Consolidated Omnibus Budget Rec-
onciliation Act (COBRA) for continuation of benefits, Brian Ward
accepted continued coverage on Tyler's behalf and made a series of
premium payments to Self-Funding. Nevertheless, to date, Tyler's
medical bills remain unpaid.

Georgetown argues several points on appeal. While we find the
equities of the case greatly in favor of Georgetown given the evidence
indicating that Levenack paid Tyler's $40,000 deductible to Self-
Funding and that Reliance and Self-Funding continued to accept pre-
_________________________________________________________________
*Reliance is actually the excess loss insurer of the Reliance Standard
Group and Blanket Insurance Trust, and the Health Plan is a participating
unit in the Trust.

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miums from Levenack and Brian Ward only to refuse payment on
what amounts to no more than a technicality, we are bound by prece-
dent to agree with the district court that Georgetown's claims against
Self-Funding are preempted by ERISA and, further, that George-
town's claims against Reliance are invalid given that, under the facts
of this case, it fails to qualify for third party beneficiary status.

In American Medical Security Inc. v. Bartlett , 111 F.3d 358, 360
(4th Cir. 1997), we held a Maryland insurance regulation fixing mini-
mum attachment points applicable to self-funded plans' stop-loss
insurance policies to be preempted by § 514(a) of ERISA, 29 U.S.C.
§ 1144(a). In doing so, we noted that

          [u]nder a self-funded plan, the employer who promises the
          benefit incurs the liability defined by the plan's terms. That
          liability remains the employer's even if it has purchased
          stop-loss insurance and even if the stop-loss insurer
          becomes insolvent. Conversely, if the employer becomes
          insolvent, the solvency of the stop-loss insurer may not ben-
          efit plan participants and beneficiaries. This is because their
          claims against the insurer would be derivative of the plan's
          claim against the insurer, which arises only after the plan
          actually makes benefit payments beyond the attachment
          point. In contrast, when a plan buys health insurance for par-
          ticipants and beneficiaries, the plan participants and benefi-
          ciaries have a legal claim directly against the insurance
          company, thereby securing benefits even in the event of the
          plan's insolvency. Participants and beneficiaries in self-
          funded plans may not have the security of the insurance
          company's assets because stop-loss insurance insures the
          plan and not the participants.

American Medical Security, 111 F.3d at 364.

Accordingly, we affirm the judgment of the district court for the
reasons substantially expressed in its opinions.

AFFIRMED

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