Cossey v. Associates' Health and Welfare Plan

363 F.Supp.2d 1115

Karla L. COSSEY and William Cossey, Plaintiffs, v. ASSOCIATES' HEALTH AND WELFARE PLAN; and Administrative Committee, Associates' Health and Welfare Plan, Defendants.

No. 4:02CV661 WKU.

United States District Court, E.D. Arkansas, Western Division.

March 15, 2005.

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Leon Marks, Attorney at Law, Little Rock, AR, Will Bond, Bond & Chamberlin, Jacksonville, AR, for Plaintiffs.

John M. Russell, Edwin L. Rawson, Lawrence & Russell, LLP, Memphis, TN, for Defendants.

MEMORANDUM AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

URBOM, Senior District Judge.

On April 26, 2004, the plaintiffs, Karla and William Cossey, filed their Sixth Amended Complaint against Defendants Associates' Health and Welfare Plan ("the Plan") and Administrative Committee, Associates' Health and Welfare Plan ("the Committee"), alleging violations of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (ERISA). (See filing 121 at 15-16 (citing 29 U.S.C. §§ 1132(a)(1)(B), 1132(a)(2), and 1132(a)(3)).) Now before me are the Plaintiffs' Motion for Summary Judgment, (filing 91), and its associated filings; the Defendants Motion to Affirm the Determination of the Administrative Committee or, Alternatively, Motion for Summary Judgment, (filing 18), and its associated filings; the Defendants' Supplemental Motion to Affirm the Determination of the Administrative Committee or, Alternatively, Motion for Summary Judgment, (filing 105), and its associated filings; and the Defendants' Motion for Summary Judgment on Plaintiffs' Statutory Penalty Claim, (filing 67), and its associated filings. My analysis of these motions is set forth below.

I. BACKGROUND

The Plan, which was created by Wal-Mart Stores, Inc. "to provide medical benefits to its employees," (filing 19 at 2), is an employee welfare benefit plan governed by ERISA. The Committee is the administrator and fiduciary of the Plan.

Plaintiff William Cossey is an employee of Wal-Mart Stores, Inc. Both he and his wife, Plaintiff Karla Cossey, are "covered persons" — that is, they are both eligible for benefits under the Plan. In October 2001, Karla Cossey was injured in a car accident. She retained counsel to represent her in a personal injury action, and a complaint was filed in the Circuit Court of Lonoke County in April 2002.

There appears to be no dispute that, as a general matter, the medical expenses associated with Karla Cossey's injuries are within the Plan's coverage. (See, e.g., Administrative Record (A.R.), filing 32, at 167 42 ("Your medical coverage will pay for a variety of hospital and other medical charges incurred because of ... accidental injury.").) In May 2002, as bills for the treatment of Karla Cossey's injuries began to issue, the "Wal-Mart Claims Administration Reimbursement Department" requested information about Karla Cossey's accident. (See filing 94, Ex. 13 at 002-003.)¹ Karla Cossey's counsel responded with a letter dated May 30, 2002, wherein he invited the Reimbursement Department to contact him via telephone to discuss the accident. (See A.R., filing 32, at 167 201.) A "Reimbursement Specialist" replied via letter dated June 4, 2002. (See id. at 167 202.) This letter states, in pertinent part,

I am in receipt of your letter dated May 30, 2002. Please be advised that before we will be able to process Ms. Cossey's accident related claims, we will need you to fill out the enclosed reimbursement/subrogation forms and have Ms. Cossey sign the form. Additionally we need you to sign the enclosed disbursement agreement and return these items....

If any of this information is not received in our office, we will be unable to process Ms. Cossey's claims.

(A.R., filing 32, at 167 202.)²

Counsel responded via fax dated June 11, 2002, and objected to the Plan's refusal to pay benefits absent his and Karla Cossey's execution of the "reimbursement/subrogation forms" and "disbursement agreements." His response states, inter alia,

You state in your letter that you will be "unable" to continue processing Karla's health care claims unless both she and I sign the subrogation contracts that you provided with your letter. Your subrogation contracts would create a cause of action, which does not presently exist, allowing your Plan to sue both Karla and me for breach of contract if we disagree at the end of the case to the rightful amount of your claim for reimbursement....

This firm and our co-counsel ... are responsible for looking after the best interests of Karla, not those of your Plan. It is possible that we will disagree with you at the end of this case as to how much you are entitled to take away from Karla in the name of subrogation. Thus, you are effectively insisting that we forfeit our ability to pursue Karla's best interests by contractually agreeing to pay you whatever you may demand at the end of this case, no matter whether or not we agree that your demand is fair to Karla....

(A.R., filing 32, at 167 204) (citing Southern Council of Industrial Workers v. Ford, 83 F.3d 966 (8th Cir.1996).) Counsel requested that the Plan provide authority for its position that it could refuse to pay benefits to Karla Cossey absent her and counsel's signatures on the "subrogation contracts." (Id. at 205.)

The Plan responded to counsel's request in a letter dated June 11, 2002. (See A.R., filing 32, at 167 206.) This letter states, in part,

The Plan language includes a Right to Reduction, Reimbursement and Subrogation provision, which clearly states 100% reimbursement is required with no reduction for attorneys' fees. This provision further states 100% reimbursement is required regardless of whether the participant was made whole or not as well as that the Plan has first priority from any judgment, payment or settlement....

Please refer to page 43 of the enclosed Summary Plan Description. There it states, "To aid the Plan in its enforcement of its right of reduction, recovery, reimbursement and subrogation, you and your representative must, at the Plan's request and at its direction: Take any action; give information; and execute documents so required by the Plan. Failure to aid the Plan and to comply with such requests may result in the Plan's withholding or recovering benefits, services, payments or credits due or paid under the Plan." ...

(Id.)

Shortly thereafter, counsel submitted health insurance claim forms to the Plan. (See A.R., filing 32, at 167 10-17.) The Plan responded that the claim forms would be entered into its system, but added that "we will be happy to give further consideration to [Ms. Cossey's] accident-related claims, immediately upon receipt of the information we have previously requested from you." (Id. at 167 18.) On July 29, 2002, counsel wrote to the Plan and reiterated his refusal to sign, or to have Karla Cossey sign, the "additional subrogation contracts." (Id. at 167 211.) Counsel also requested documents from the Plan and asked that certain information be included in the administrative record. (See id. at 167 211-212.)

In a letter dated August 5, 2002, the Plan informed counsel that it had enclosed all documents that it was required to provide and that the other requested documents were already in the possession of Karla Cossey. (A.R., filing 32, at 167 214.) The plan also advised counsel that "all of Ms. Cossey's accident-related claims will be denied until you provide us with both the signed reimbursement agreement from Ms. Cossey and the signed disbursement agreement from yourself." (Id.) Finally, the Plan represented that "all internal and external correspondence as well as claims received, medical records, etc" would be "maintained within the claims system." (Id.)

On September 5, 2002, an appeals coordinator from the Wal-Mart Benefits Administration Appeals Department notified the Cosseys that the Committee denied their request that the Plan "pay Karla's medical claims without a signed Disbursement Agreement." (A.R., filing 32, at 167 225-226.) The plaintiffs' counsel replied on September 16, 2002, with an "appeal and ... request that [the Appeals Department] review the denial of each of the claims...." (Id. at 167 227.) In response to this letter, the appeals coordinator wrote, "according to the Plan I have no authority to overturn the Administrative Committee's decision of denial," and "[y]our only recourse is to pursue litigation." (Id. at 167 425.)

The Cosseys continued to submit medical bills and records to the Plan, but evidence suggests that many of these documents were not included in the administrative record. (Compare filing 95, ¶¶ 84, 150, 209-226 with filing 108, ¶¶ 84, 150, 209-226.) In any event, the Plan did not pay the bills submitted by the plaintiffs' counsel.³ Counsel appealed these benefits denials, but on March 6, 2003, the Plan informed Karla Cossey that the Committee decided to deny her appeals. (See filing 94, Ex. 13 at 056-062; filing 107, Ex. A, Herbaugh Aff. ¶ 2.)

In April 2003, a settlement was reached in Karla Cossey's personal injury action. The amount and terms of this settlement have not been disclosed. On November 4, 2003, the Plan informed the plaintiffs that "Ms. Cossey's medical benefits are now subject to reduction since she has obtained a settlement from the third parties responsible for her injuries." (Filing 107, Ex. A-2 at page 3.) On November 7, 2003, Karla Cossey appealed this determination. (See filing 107, Ex. A-4.) I note parenthetically that while the appeal was pending, the Plan issued dozens of "Explanation of Benefits" forms concerning medical services provided to Ms Cossey between October 11, 2001, and September 29, 2003. (See filing 94, Ex. 14.) Many of these forms indicate that charges for these services would not be covered by the Plan because "[t]he covered person has recovered a settlement because of an accident," and "[t]he covered person's benefits are subject to the Plan's Right to Reduction and...