Leonard S. v. Health Care Serv. Corp.

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LEONARD S., Plaintiff v. HEALTH CARE SERVICE CORPORATION d/b/a BLUE CROSS BLUE SHIELD OF ILLINOIS, Defendant

No. 22 CV 6038

United States District Court, N.D. Illinois, Eastern Division

November 1, 2023

MEMORANDUM OPINION AND ORDER

JEREMY C. DANIEL, UNITED STATES DISTRICT JUDGE

Plaintiff Leonard S. filed this breach of contract suit against Defendant Health Care Service Corporation d/b/a Blue Cross Blue Shield of Illinois (“HCSC”), alleging that he was wrongfully denied coverage for residential behavioral health care treatment. Leonard seeks compensatory damages for the out-of-pocket expenses that he incurred as a result of HCSC's denial of his insurance claims, as well as an award of statutory damages and attorney's fees under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155. HCSC has filed a partial motion to dismiss Leonard's Section 155 claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated below, the Court grants HCSC's motion.

BACKGROUND^[1]

HCSC is a Mutual Legal Reserve Company that provides health insurance coverage to its members in Illinois as Blue Cross and Blue Shield of Illinois (“BCBSIL”). R. 1 ¶ 4. In 2021 and 2022, Leonard purchased individual BCBSIL health insurance policies (collectively, “the Policies”) from HCSC. Id. ¶ 5. At all relevant times Leonard was insured under the Policies.^[2] See generally R. 1.

The Policies covered behavioral health conditions and provided reimbursement for “medically necessary behavioral health treatment . . . including, but not limited to psychotherapy, medication management, intensive outpatient treatment, partial hospitalization treatment, residential treatment, and psychiatric treatment.” Id. ¶ 6. The Policies further provided that the determination as to whether treatment is “medically necessary” belongs to HCSC and is determined based on “generally accepted medical standards.” Id.; see also R. 15-1 at 34-35, 84 (2021 BCBSIL Policy); R. 15-2 at 37, 88 (2022 BCBSIL Policy).^[3]

From August 30, 2021, to October 28, 2022, Leonard was a patient at the Austen Riggs Center (“Austen Riggs”), an “in-network” residential treatment provider in Massachusetts, where he received behavioral health treatment for unspecified “co-morbid psychiatric conditions.” Id. ¶¶ 7-8. During his stay, Leonard's treatment varied in intensity based on the variability of his symptoms. Id. ¶ 8.

Leonard later submitted claims to HCSC seeking payment for the treatment that he received at Austen Riggs. Id. ¶ 9. HCSC provided reimbursement for the care that Leonard received from August 30, 2021, through September 21 2021, but denied his claims for any treatment received thereafter as not medically necessary. Id. ¶¶ 912. According to the complaint, HCSC made this determination based on the Milliman Care Guideline-Residential Acute Behavioral Health Level of Care (Adult), 24th Edition (“MCG Guidelines”). Id. ¶ 12.

Leonard alleges that HCSC's denial of coverage for post-September 21, 2021, treatment was improper. Id. ¶¶ 9-11, 13. Specifically, he alleges that the MCG Guidelines are inapplicable to his case because these guidelines apply to patients receiving “acute care,” and his medical needs were “sub-acute.” Id. ¶ 12. Leonard maintains that all the services that he received during his admission at Austen Riggs were medically necessary and HCSC was therefore obligated to reimburse him for all the charges “less [his] deductible and co-insurance payments up to his out-of-pocket maximum expenses amount.” Id. ¶ 13. As a result of HCSC's denial of his insurance claims, Leonard incurred expenses of over $250,000. Id. ¶ 10.

Leonard filed the instant suit against HCSC for breach of contract. R. 1. In addition to compensatory damages for his out-of-pocket expenses, Leonard seeks an award of statutory damages and attorney's fees under Section 155 of the Illinois Insurance Code, alleging that HCSC engaged in “unreasonable and vexatious” conduct when it relied on the MCG Guidelines in denying his claims as not medically necessary. Id. ¶ 14. HCSC now moves to dismiss Leonard's Section 155 claim under Federal Rule of Civil Procedure 12(b)(6). R. 14.

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a motion to dismiss, the Court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences in the plaintiff's favor. See Berger v. Nat'l Collegiate Athletic Ass'n, 843 F.3d 285, 290 (7th Cir. 2016). Although the plaintiff need not plead “detailed factual allegations” to survive a motion to dismiss, mere “labels and conclusions” or “formulaic recitation[s] of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

ANALYSIS

Section 155 of the Illinois Insurance Code “provides an extracontractual remedy for policyholders who have suffered unreasonable and vexatious conduct by insurers with respect to a claim under [a] policy.” Creation Supply, Inc v. Selective Ins. Co. of the Se., 995 F.3d 576, 579 (7th Cir. 2021) (citing Cramer v. Ins. Exch. Agency, 675 N.E.2d 897, 902 (Ill. 1996)). The statute provides, in relevant part:

In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees [and] other costs

215 ILCS 5/155.

Because Section 155 is “ ‘penal in nature,' its provisions must be strictly construed.” Citizens First Nat. Bank of Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000) (citing Morris v. Auto-Owners Ins. Co., 606 N.E.2d 1299, 1305 (1993)). “Attorneys fees may not be awarded simply because an insurer takes an unsuccessful position in litigation[;]” rather, the evidence must show “that the insurer's behavior was willful and without reasonable cause.” Id. (citing Morris, 606 N.E.2d at 1305). “This means that an insurer's conduct is not vexatious and unreasonable if: (1) there is a bona fide dispute concerning the scope and application of insurance coverage . . .; (2) the insurer asserts a legitimate policy defense . . .; (3) the claim presents a genuine legal or factual issue regarding coverage . . .; or (4) the insurer takes a reasonable legal position on an unsettled issue of law.” Id. (citations omitted).

HCSC argues that Leonard cannot plausibly state a claim for Section 155 fees and costs because he has not sufficiently pleaded that HCSC's conduct was unreasonable and vexatious. R. 15 at 6-9. Alternatively, HCSC moves for dismissal on the ground that Leonard is precluded from asserting a Section 155 claim because the complaint alleges a bona fide dispute regarding coverage. Id. at 9-11. The Court now addresses the merits of these arguments.

I. Sufficiency of Section 155 claim

HCSC first argues that Leonard's Section 155 claim must be dismissed because the complaint is devoid of any factual allegations that would support the assertion that it acted unreasonably and vexatiously in handling his claims. R. 15 at 6-9.

Although the determination as to whether an insurer acted unreasonably or vexatiously presents an issue of fact requiring courts to consider the totality of the circumstances, Medical Protective Co. v. Kim, 507 F.3d 1076, 1087 (7th Cir. 2007), “[c]onclusory allegations that an insurer acted vexatiously or unreasonably, ‘without some modicum of factual support,' are insufficient to state a plausible claim for relief under Section 155.” Bao v. MemberSelect Ins. Co., No. 21 C 4119, 2022 WL 1211509, at *3 (N.D. Ill. Apr. 25, 2022) (quoting Scottsdale Ins. Co. v. City of Waukegan, No. 07 C 64, 2007 WL 2740521, at *2 (N.D. Ill. Sept. 10, 2007)).

In other words, “[t]he statute does not penalize an insurer's denial of coverage, standing alone.” Souza v. Erie Ins. Co., No. 22 C 3744, 2023 WL 4762712, at *6 (N.D. Ill. July 25, 2023). Thus, “[s]imply pleading that [the defendant] knowingly and intentionally refused to provide insurance coverage” is not enough to plausibly state a claim for Section 155 relief. Scottsdale Ins. Co., 2007 WL 2740521, at *2. The plaintiff “must instead point to facts showing that the insurer's behavior was vexatious and unreasonable-that is, willful and without reasonable cause.” Souza, 2023 WL 4762712, at *6 (internal quotation marks and citation omitted). Dismissal of a Section 155 claim is therefore appropriate at the pleadings stage when the plaintiff fails to state a sufficient factual basis for sanctions. Fed. Ins. Co. v. Healthcare Info. & Mgmt. Sys. Soc'y, Inc., 567 F.Supp.3d 893, 901 (N.D. Ill. 2021).

Here the complaint is bereft of any plausible allegations that HCSC's conduct was unreasonable or vexatious. Indeed, Leonard merely appends the statutory element “unreasonable and vexatious” to his claim that he was wrongfully denied coverage based on inapplicable treatment criteria. R. 1 ¶¶ 12, 14. But simply alleging denial of coverage, without more, is not enough. See Bao, 2022 WL 1211509, at *4 (explaining that allegation that insurer did not immediately confirm and pay insurance claim may be “sufficient to state a plausible claim for breach of contract” ... “[b]ut it cannot amount...