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Lisa O. v. Blue Cross of Idaho Health Service Inc.

United States District Court, D. Idaho

May 28, 2015

LISA O., individually and as guardian of H. H., a minor, Plaintiffs,
v.
BLUE CROSS OF IDAHO HEALTH SERVICE INC., and HEALTHWISE, INC., Defendants.

ORDER ON REPORT AND RECOMMENDATION

EDWARD J. LODGE, District Judge.

On February 24, 2015, United States Magistrate Ronald E. Bush issued a Report and Recommendation ("Report"), recommending that each of the Defendants' Motions for Summary Judgement be denied and that Plaintiffs' Motion for Summary Judgment be granted. (Dkt. 132.) Any party may challenge the Magistrate Judge's proposed recommendation by filing written objections within fourteen days after being served with a copy of the Report. 28 U.S.C. § 636(b)(1)(C). The district court must then "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id. The district court may accept, reject, or modify in whole or in part, the findings and recommendations made by the Magistrate Judge. Id.; see also Fed.R.Civ.P. 72(b).

Both Defendants filed objections to the Report arguing it erred in its conclusions and findings. (Dkt. 134, 135, 136.) Plaintiffs filed responses to those objections. (Dkt. 139, 140.) The Court has considered the parties' contentions and finds as follows.

STANDARD OF REVIEW

Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court "may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge." Where the parties object to a report and recommendation, this Court "shall make a de novo determination of those portions of the report which objection is made." Id. Where, however, no objections are filed the district court need not conduct a de novo review. To the extent that no objections are made, arguments to the contrary are waived. See Fed.R.Civ.P. 72; 28 U.S.C. § 636(b)(1) (objections are waived if they are not filed within fourteen days of service of the Report and Recommendation). "When no timely objection is filed, the Court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation." Advisory Committee Notes to Fed.R.Civ.P. 72 (citing Campbell v. United States Dist. Court, 501 F.2d 196, 206 (9th Cir.1974)).

In this case, both parties have filed objections and, therefore, the Court has conducted a de novo review of those portions of the Report. The Court has also reviewed the entire Report as well as the record in this matter for clear error on the face of the record and finds as follows.

DISCUSSION

The factual and procedural background of this case are well stated in the Report and not objected to by the parties. As such, the Court adopts the Report's recitation of the general background of the case. (Dkt. 132.) In short, this dispute concerns Plaintiff Lisa O.'s claim seeking reimbursement for expenses she incurred for her minor daughter's, Plaintiff H.H., attendance at two boarding schools under a health benefits plan (the "Plan") provided by her then employer Defendant Healthwise, Inc. ("Healthwise"). The Plan was administered by Defendant Blue Cross of Idaho Health Service Inc. ("BCI"). Defendants denied the Plaintiffs' requests for coverage as well as her appeals. Defendants maintain the Plaintiffs' claim was waived or released by virtue of the December 19, 2011 General Release of Claims ("Release") and/or was specifically excluded from the Plan. As a result, Plaintiffs brought the action now before this Court.[1] Each of the parties filed Motions for Summary Judgment which were ruled upon in the Report to which the Defendants have filed the objections taken up in this Order.

1. Defendant Blue Cross of Idaho's Objections

BCI objects to the Report's conclusion that the term "vested right" as used in the Release is ambiguous and could be interpreted to encompass Lisa O.'s ERISA appeal of the denial of her claim for benefits under the Plan. (Dkt. 134.) BCI argues "the right to appeal a disputed denied claim is not a vested right under any logical contract interpretation" and that claim could, and was, released under the terms of the Release signed by Lisa O. in this case. In response, Lisa O. maintains she should have been granted summary judgment on this issue because the treatment provided had concluded by the time the Separation Agreement became effective and, therefore, her right to payment under the Plan had vested. (Dkt. 140 at 2.) Alternatively, Lisa O. asserts that the Court should find that the Report correctly concluded that the term "vested rights" is ambiguous and appropriately denied summary judgment to both sides.

The Report found ambiguity in the Release's "vested rights... for benefits" language concluding that language "could be understood to possibly mean Lisa O.'s right to payment for H.H.'s medical expenses" and that "an ambiguity exists in how the Release applies, if at all, to Plaintiffs' claims against [Defendants]." (Dkt. 132 at 8.) In analyzing this issue, the Report noted the importance of the lack of any definition of the terms "vested right" and "vested" and the Release's language speaking of maintaining vested rights; in other words, the fact that the Release does not exclude all claims makes it possible that Plaintiffs' claims, if they are "vested, " are not waived by the Release. (Dkt. 132 at 8-11.) In considering this issue, the Report ultimately concluded that it was ambiguous whether Lisa O.'s claim had "vested" at the time the expenses were incurred - before the Release was signed - and therefore was excluded from the Release's waiver or whether her claim was not a "vested right" and, therefore, subject to the Release's waiver provision. (Dkt. 132 at 10-11.) That ambiguity, the Report concluded, precludes summary judgment for both sides.

The relevant portion of the Release states:

In consideration of the payments, benefits and promises contained in the Separation Agreement... between myself and Healthwise, Incorporated and to the fullest extent permitted under applicable law, I, Lisa O... hereby forever release, discharge and promise not to sue Healthwise and its... "Releasees"... whether known or unknown to me as of December 30, 2011... with respect to any and all claims, liabilities, obligations, debts, damages, demands, losses, judgments, costs and expenses of any kind arising out of or in connection with my employment, compensation, or my separation from employment with Healthwise... that existed or may have existed as of December 30, 2011... including without limitation any Claim under... [ERISA]. This General Release of Claims, however, does not affect any vested rights I might have for benefits under any group medical insurance, disability, workers' compensation, unemployment compensation, or retirement program.
Additionally, as part of this General Release of Claims, I agree, to the extent permitted by applicable law, that I will not voluntarily aid, assist or cooperate with any (i) claimants against Healthwise and/or the Releases or (ii) employees (former or current) of Healthwise and the Releases in bringing or pursuing any claims or lawsuits or other proceedings against Healthwise and/or Releases.

(Dkt. 39-4, Ex. A) (emphasis added.)

In support of its objection, BCI points to Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580 (1st Cir. 1993) where the court held that an employee was not entitled to long-term disability benefits because he had waived the same when he agreed to a voluntary severance plan. (Dkt. 134 at 5.) Plaintiffs argue that this case is distinguishable from Rodriguez-Abreu. (Dkt. 140 at 5.) The Report concluded that while the parties understanding and intent concerning the waiver of rights were ascertainable in Rodriguez-Abreu, the same is not true in this case. (Dkt. 132 at 9-10 n. 4.) This Court agrees with the Report's conclusion in this regard. The findings in Rodriguez-Abreu turned on the understanding and intent of the parties that were known to the court whereas the facts going to the parties understanding and intent in this case are not similarly known and/or are in dispute. Further, the Court does not agree with BCI's broad assertion that the Rodriguez-Abreu case stands for the proposition that "under any interpretation, a disputed denied claim cannot be a vested right under a health plan." (Dkt. 134 at 5.) Making such a determination in this case requires resolution of the factual disputes surrounding the understanding and intent of the parties.

BCI also contends that Plaintiffs' claim is not a "vested right" because a vested right is an entitlement to benefit that cannot be unilaterally terminated whereas a denied and disputed ERISA claim, such as Plaintiffs' claim here, can be so terminated. (Dkt. 134 at 2-4.) BCI challenges the Report's interpretation of the Release - that concludes the denial of a disputed claim could be a vested right - arguing such a reading is not reasonable because it renders the Release's waiver of ERISA claims meaningless. (Dkt. 134 at 7.) Instead, BCI asserts that Lisa O.'s ERISA claim is one that can be, and was, released. Plaintiffs counter that once the medical services have been provided obligating the Plan to pay, those benefits are vested under ERISA. (Dkt. 140 at 3.)

The Court has reviewed this issue de novo in light of the arguments made by the parties both in their objections to the Report as well as in their initial briefing on the summary judgment motions. Having done so, this Court agrees with the Report's conclusion that the "vested rights" language of the Release is ambiguous and there are disputed facts which preclude entry of summary judgment for either side on this question. On the facts currently before the Court, it is impossible to ascertain whether the claims sought to be recovered in this case are "vested" as defined and/or intended in the Release and whether Plaintiffs knowingly and voluntarily waived those claims as a matter of law. See Gonda v. The Permanente Medical Group, Case No. 11-cv-01363-SC, 2015 WL 678969, at *3 (N.D. Cal. Feb. 17, 2015) (Waivers must be made knowingly and voluntarily.); and Rodriguez-Abreu, 986 F.2d at 587. What was known, intended, and understood by the parties at the time they entered into the Release as to Plaintiffs' claim for the benefits payments sought here is unknown and/or disputed in this case. Accordingly, the Court will adopt the Report's conclusions in this regard.

2. Defendant Healthwise's Objections

The Motions for Summary Judgment filed by Plaintiffs and Healthwise go to the question of whether BCI properly denied coverage to Plaintiffs' claim for benefits. In the Fall of 2010, BCI denied Plaintiffs' claim for coverage for H.H.'s treatment citing General Exclusion P of the Plan which states that no ...


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