Court addresses complicated interaction between no fault PIP benefits and ERISA health plan

The Hillsdale Community Health Center provided physical therapy to a 16 year-old who was injured in a motor vehicle collision.  She was driving a car insured with Pioneer State Mutual Insurance Company, and she had health insurance with Empire Blue Cross Blue Shield through her father's employer.  The two insurers responsible for her medical care both claimed that  the other had priority and should be paying the bills, leaving HCHC [and many other providers] unpaid.  Ultimately, the court determined that Empire Blue Cross should have been paying and it assessed attorneys fees in favor of HCHC.  Empire Blue Cross appealed.  Among many other arguments, it claimed that its denial of payment was justified by the fact that the insured did not secure its consent after 20 therapy sessions, that HCHC lacked standing to sue for the payments and that under ERISA, HCHC and the insured had failed to exhaust their administrative remedies prior to suit.

The appellate judges rejected all of Empire Blue Cross's arguments, finding that it had been acting in bad faith.  The judges unanimously agreed that Empire Blue Cross had "clearly" acted with the "willful and deliberate intent of avoiding its contractual obligation," had "fought priority, even though its internal memos show that its employees knew that Empire had primary coverage;" that it "used a shotgun approach to deny claims and the majority of the reasons...were completely without merit."  Under the circumstances, the court ruled that HCHC and the insured were right to conclude that administrative appeals would be futile, thus waiving the insureds' obligation to pursue administrative remedies.

In this situation, Empire Blue Cross did not enjoy the ERISA privilege it wrote into its coverage contract giving it discretion in payment of benefits.  That contract provision is allowable and it requires courts to uphold the ERISA insurer's decisions, unless they are found to be "arbitrary and capricious."  Empire Blue Cross's bad faith relieved the insured and HCHC of the duty to secure approval of therapy in advance, given that Empire offered "a myriad of reasons for denying the claims," including the arguments that the patient "was not covered," that the "policy ended prior to the time care was provided," that the auto carrier "is primary," that the services "were not a [covered] benefit" and the insured "was not a member."  In short, the court concluded that the Explanation of Benefits forms issued by Empire Blue Cross did not demonstratte a "deliberate and principled reasoning process."  Therefore, its decisions were afforded no procedural weight.