Opinion
CIVIL ACTION NUMBER 03-1330, SECTION "L" (2)
May 10, 2004
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. PROCEDURAL BACKGROUND
Plaintiff Annie Mae Williams, the insured beneficiary of a health insurance policy issued by Defendant Trustmark, brought suit against the Defendants in the 32nd Judicial District Court for the Parish of Terrebonne, State of Louisiana. The Plaintiff claims that Defendant Trustmark was arbitrary and capricious in its denial of health insurance claims. She seeks statutory penalties and attorney's fees pursuant to Louisiana Revised Statutes § 22:657. Defendant Trustmark removed the matter to this Court on May 9, 2003.
The parties agreed to submit the matter to the Court for trial on the parties' stipulations and briefs. (Rec. Doc. No. 20.) On March 12, 2004, the Court heard oral arguments from counsel and then took the matter under submission for trial on the parties' stipulations and briefs. The Court now issues its findings of facts and conclusions of law.
II. FINDINGS OF FACT
1. Plaintiff Annie Mae Williams is a retiree of the Terrebonne Parish School Board and a citizen of Louisiana. She began working for the School Board in 1963 and retired in 1996.
2. During her employment and during her retirement, Williams was a participant in a group health insurance plan sponsored by the Terrebonne Parish School board. This was an insured plan.
3. The government insurance plan was not covered by ERJSA.
4. Trustmark Insurance Company issued a group policy in 1998 and assumed liability for payment of eligible benefits under the plan.
5. Effective January 1, 1990, Gilsbar, Inc., was the third-party administrator for the group health insurance plan. Gilsbar provided administrative services in connection with the insurance policy.
6. The policy issued by Trustmark provided for a "Maximum Total Benefit" in the amount of $1,000,000.
7. The policy also contained restoration provision stating "as benefits are paid, the Maximum Total Benefit is decreased. If you have been insured for at least 12 months, we will restore the lesser of: 1) the actual benefits paid; or 2) 52,000.00 at the start of each calendar year while your insurance continues in force. This will be done each year until the Maximum Total Benefit is restored to the full amount." (Rec. Doc. No. 23, p. 456.)
8. Ms. Williams' coverage under the plan became effective on January 1, 1990.
9. Third-party administrator Gilsbar changed from one claim paying system to another in 1996, and neither Trustmark nor Gilsbar was able to produce any data from the old system. (Rec. Doc. No. 23, p. 548).
10. Trustmark denied claims commencing on May 2, 2002. (Rec. Doc. No. 23, pp. 416-419.) Trustmark explained that it was denying these claims because "[m]aximum lifetime benefit limit has been reached for this benefit." (Rec. Doc. No. 23, pp. 416-419.)
11. On June 4, 2002, Ms. Williams submitted a complaint against Trustmark and Gilsbar to the Louisiana Insurance Department. (Rec. Doc. No. 23, pp. 409-416.)
12. Trustmark informed the Louisiana Insurance Department that Ms. Williams met her $1,000,000.00 maximum benefit, but that they needed additional time to provide a list of all health insurance charges paid. (Rec. Doc. No. 23, p. 428.)
13. In a letter dated July 31, 2002, Trustmark informed the Louisiana Insurance Department that it had made payments on behalf of Ms. Williams in the amount of $984,288.28. In fact, Trustmark was only able to itemize benefits payments totaling $912,954.48 paid on behalf of Ms. Williams. (Rec. Doc. No. 23, p. 548.) Those payments began in July 1996 and ended prior to May 2, 2002.
14. The accumulator records of the third-party administrator Gilsbar indicated that Trustmark had paid $1,000,000.00 in medical claims, however, neither Gilsbar nor Trustmark subsequently was able to verify the additional $87,045.52 in payments with adequate physical records. (Rec. Doc. No. 23, p. 490.)
15. Trustmark was not able to document any payments made on behalf of Ms. Williams prior to July 1996. In a letter to the Louisiana Insurance Department, Trustmark urged that "[i]t is not unreasonable to assume that benefit payments of $87,045.52 were made on behalf of Ms. Williams from 1991 to July of 1996, a period of over five years." (Rec. Doc. No. 23, p. 548). Trustmark was unable to account for the $87,045.52 that it claimed to have paid.
16. The Louisiana Department of Insurance expressed its opinion that Ms. Williams should be credited with her annual restoration benefit of $2,000.00 from 1990 to 2002. (Rec. Doc. No. 23, p. 551.) It further required the accumulators on Ms. Williams account to be adjusted to reflect the actual amount of benefits that could be verified on Ms. Williams account, namely 5912,954.48. (Rec. Doc. No. 23, p. 551.)
17. A restoration benefit of $24,000.00 was applied toward Ms. Williams claims after September 11, 2002. (Rec. Doc. No. 23, p. 562.)
18. The accumulators on Ms. Williams account were adjusted down to $912,954.48 so that an additional $87,045.52 in benefits could be paid. (Rec. Doc. No. 23, p. 563.)
19. Between January 2002 and early September 2002, Ms. Williams incurred $126,328.16 in medical expenses for which Trustmark initially had refused payment. (Rec. Doc. No. 23, pp. 565, 566.) In mid-October 2002, Trustmark made two payments of these medical expenses totaling $111,045.52. Those two payments reflected one $24,000 payment and one $87,045.52 payment on the outstanding medical bills. (Rec. Doc. No. 23, pp. 565, 566.)
20. The policy required Trustmark to pay a restoration benefit equal to the lesser of $2,000 or the amount actually paid at the start of each calendar year. Trustmark is unable to substantiate any payments made on behalf of Ms. Williams from January 1, 1990, to July 1996. The Court presumes that Trustmark made no benefits payments on behalf of Ms. Williams prior to July 1996. Trustmark was thus required to make no restoration payment prior to January 1, 1997.
21. Pursuant to the insurance policy, Trustmark was obligated to make a total restoration benefit of 512,000. That figure reflects a $2,000 restoration payment in each of 1997, 1998, 1999, 2000, 2001, and 2002.
22. Trustmark's payment of $24,000.00 in restoration benefits exceeded the amount required under the terms of the policy by 512,000.
III. LAW ANALYSIS
Louisiana law requires insurers to make prompt payment of an insured's claims unless the insurer has a reasonable ground for the delay. An insurer that fails to make timely payments of an insured's claims may be required to pay penalty interest and attorney's fees in addition to the required claim payment pursuant to Louisiana Revised Statute § 22:657. The test for awarding penalties and attorney's fees is whether the insurer withheld payment for more than thirty days without such "just and reasonable grounds, such as would put a reasonable and prudent businessman on his guard. . . ." La.Rev.Stat. Ann. § 22:657 (West 1995); Lopez v. Blue Cross of La., 397 So.2d 1343, 1344-45 (La. 1981). Louisiana's courts have stressed that the penalties and fees imposed by § 22:657 are punitive in nature. Consequently, the penalties should be imposed only if the denial of the claim was clearly arbitrary and capricious. Houston v. Blue Cross Blue Shield, 843 So.2d 542, 548 (La.App. 2 Cir. 2003), writ denied, 853 So.2d 641; see also Soniat v. Travelers Ins. Co., 538 So.2d 210, 216 (La. 1989).
In relevant part, the statute provides:
All claims arising under the-terms of health and accident contracts issued in this state, except as provided in Subsection B, shall be paid not more than thirty days from the date upon which written notice and proof of claim, in the form required by the terms of the policy, are furnished to the insurer unless just and reasonable grounds, such as would put a reasonable and prudent businessman on his guard, exist. The insurer shall make payment at least every thirty days to the assured during that part of the period of his disability covered by the policy or contract of insurance during which the insured is entitled to such payments. Failure to comply with the provisions of this Section shall subject the insurer to a penalty payable to the insured of double the amount of the health and accident benefits due under the terms of the policy or contract during the period of delay, together with attorney's fees to be determined by the court. Any court of competent jurisdiction in the parish where the insured lives or has his domicile, excepting a justice of the peace court, shall have jurisdiction to try such cases.
La.Rev.Stat. Ann. § 22:657(A) (West 1995).
The determination of whether an insurer had "just and reasonable grounds" to refuse a claim is a question of fact that must be determined based on the particular facts and circumstances of each case. Schmidt v. Blue Cross Blue Shield of La., Inc., 769 So.2d 179, 181 (La.App. 2 Cir. 2000); Hoffpauir v. Time Ins. Co., 536 So.2d 699, 704 (La.App. 3 Cir. 1988); Cheramie v. Bd. of Trustees, 482 So.2d 742, 748 (La.App. 1 Cir 1985). Once an insurer has notice of a claim, it has a duty to investigate that claim, and the burden "shifts to the insurer to show just and reasonable grounds for the delay." Houston, 843 So.2d at 548. The insurer who "resists its contractual obligation to pay a claim based upon a supposed defense, which a reasonable investigation would have proved without merit" acts at its own peril and risks liability for penalties and fees under § 22:657. Savarino v. Blue Cross and Blue Shield of La., 730 So.2d 1083, 1090 (La.App. 1 Cir. 1999).
Based upon the assurances that Trustmark received from its third-party administrator, Gilsbar, Trustmark believed that Ms. Williams had reached her Maximum Total Benefit and refused to make additional payments. Although it could not adequately substantiate that belief with competent evidence, Trustmark's actions were not arbitrary and capricious. The record indicates that Gilsbar's assurances were based on records that indicate that Trustmark had made 51,000,000 in benefit payments (Rec. Doc. No. 23, pp. 149, 150.) Gilsbar's records did not itemize Trustmark's expenditures, and thus they ultimately proved inadequate to eliminate Trustmark's duty to provide $87,045.52 in additional benefits. Nonetheless, Trustmark's decision was based on some objective evidence and made in good faith. Its determination that Williams had reached her $1,000,000.00 maximum benefit was therefore not arbitrary and capricious.
Unlike its decision regarding the maximum benefit, Trustmark's failure to credit Ms. Williams' account with any restoration benefit was arbitrary and capricious. Trustmark has failed to provide any evidence that it had ever credited Ms. Williams' account with any amount of the required restoration benefit. Trustmark's complete failure to credit Ms. Williams' account with any restoration benefit violated the terms of the insurance policy and was arbitrary and capricious. Ms. Williams is entitled to the penalties and fees provided by § 22:657 for the restoration benefits to which she was entitled.
IV. CONCLUSION
Trustmark's denial of Ms. Williams' restoration benefits was arbitrary and capricious; its determination that she had reached her Maximum Total Benefit of $1,000,000 was not. Accordingly, Trustmark owes Ms. Williams penalty interest in the amount of 512,000.00 under § 22:657. The record indicates that although the terms of the policy required Trustmark to pay Ms. Williams $12,000 in restoration benefits, Trustmark has already paid Ms. Williams 524,000 in restoration benefits. Accordingly, Trustmark's penalty interest obligation to Ms. Williams has been satisfied. Because Trustmark's denial of 512,000 in restoration benefits was wrongful, Trustmark shall pay Ms. Williams $4,000 in attorney's fees. Trustmark shall also pay all court costs.