Court: District Court, M.D. Pennsylvania; June 22, 2018; Federal District Court
Plaintiff Steven Plavin has filed a putative class action against Group Health Incorporated, claiming unjust enrichment and violations of New York's General Business Law and Insurance Law. The claims arise from Group Health's marketing statements regarding the benefits of its health insurance plan, which was provided through Plavin's employer, the City of New York. Group Health seeks dismissal of the Complaint, contending that the claims are time-barred and that the General Business Law claims lack allegations of consumer-oriented conduct or material misrepresentations. Additionally, Group Health argues that the Insurance Law claim fails to demonstrate material misrepresentations, and that the unjust enrichment claim is quasi-contractual, duplicative, and inadequately pled.
Group Health, a not-for-profit corporation, offers health insurance plans, including a preferred provider organization (PPO) plan in which Plavin enrolled in 1984. This plan does not require out-of-pocket premiums and covers both in-network and out-of-network services. Plavin asserts that the PPO plan's appeal lies in its comprehensive coverage and absence of premiums, contributing to its popularity among New York City employees. During open enrollment periods, NYC employees and retirees receive a Summary Program Description outlining available plans. Plavin claims this document, along with Group Health's online Summary of Benefits Coverage, misleads members about reimbursement rates for out-of-network services, implying substantial reimbursement while suggesting that actual reimbursements may be less than the fees charged by providers.
Reimbursements for out-of-network services are governed by the 'NYC Non-Participating Provider Schedule of Allowable Charges,' which outlines that reimbursement rates are based on 1983 procedure allowances and may be less than the actual fees charged by non-participating providers. Subscribers are responsible for the difference between the charges and the reimbursement. Plavin claims that the documents did not clearly indicate that reimbursement rates would be significantly lower than actual costs and that the potential for out-of-pocket expenses was presented as uncertain rather than likely. The Complaint also asserts that Group Health failed to disclose the low reimbursement rates compared to typical PPO methodologies and misleadingly characterized adjustments to the 1983 Schedule, noting that only a small number of services had been updated. Furthermore, Plavin alleges that the Schedule was not made accessible to members.
Additionally, the Complaint challenges the portrayal of the 'Catastrophic Coverage' feature, which is described as covering 100% of out-of-network expenses exceeding $1,500 but effectively provides reimbursement at the same rates mandated by the Schedule, adding no real benefit. Misleading examples in the Summary of Benefits Coverage on Group Health's website, including instances showing '0% co-insurance,' are also cited as deceptive.
Plavin claims the coverage calculation was misleading, indicating a 66% reimbursement rate while actual averages were around 23%, with some services as low as 9%. He also criticizes an optional rider, which, for an additional fee, promised to enhance reimbursement rates by an average of 75% over the basic plan's schedule. Plavin has held this rider since joining the Group Health plan in 1984. The Complaint's allegations largely stem from a settlement with the New York Attorney General, who determined that Group Health misrepresented out-of-network reimbursement limits, the frequency of schedule updates, and failed to inform members about potential encounters with out-of-network providers. The Attorney General's findings also indicated that Group Health's materials did not adequately disclose the significant disparity between out-of-network charges and reimbursement, misleadingly suggesting that out-of-pocket expenses were merely a possibility. Plavin specifically details four out-of-network medical services for his wife from February 2013 to July 2014, highlighting a case where payment for a July 2014 procedure was delayed until February 2015, resulting in a reimbursement of only $32 for a $98 bill. He does not specify the reimbursement timeline for the other three services. Consequently, Plavin alleges unjust enrichment (Count I), violations of New York's General Business Law (Counts II and III), and breaches of New York Insurance Law (Count IV), filing on behalf of himself and other Group Health Comprehensive Benefit Plan members from 2011 to 2015. Group Health moved to dismiss all claims on October 6, 2017, contending they are time-barred and that Plavin has failed to adequately state a claim for any cause of action.
A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(6) if it fails to allege sufficient facts to establish a plausible claim for relief. A claim is considered plausible when the plaintiff provides factual content that allows for reasonable inferences of the defendant's liability. While detailed factual allegations are not required, a plaintiff must go beyond mere labels, conclusions, or a formulaic recitation of elements. Courts will accept factual allegations as true but will disregard legal conclusions and conclusory statements. The presumption of truth applies only to allegations with sufficient factual matter to be plausible. Although the plausibility standard does not require a probability showing, it necessitates more than just a possibility of unlawful action. This determination is context-specific, relying on judicial experience and common sense.
Regarding Plavin's claims under the Group Health plan, Group Health contends that all claims are time-barred because they allegedly accrued in 1984 when he first subscribed or in 2004 when he began submitting claims for out-of-network services. Group Health submitted an affidavit to support its argument, asserting that numerous claims were submitted since May 2004. They argue that the court may consider this affidavit as it is integral to the complaint; however, since this is a motion to dismiss, the court generally cannot consider materials outside the pleadings unless they are explicitly relied upon or integral to the complaint.
Plavin's injuries stem from four medical claims he submitted in 2013 and 2014, with no claims referenced from 2004. The affidavit detailing Plavin's medical claims and reimbursement amounts is inappropriate for consideration at this stage, as it is not integral to the Complaint and should be addressed during discovery. For the purpose of the statute of limitations, the Court must determine whether Plavin's claims accrued in 1984, upon his enrollment in the Group Health policy, or in 2014, when specific claims were submitted and lower reimbursements were received. Plavin's Complaint specifies four claims, of which only one may be timely: a July 2014 claim that was not reimbursed until February 2015, within three years of the August 2017 filing of this suit. The statute of limitations for General Business Law (GBL) claims is three years, as established in Gaidon v. Guardian Life Ins. Co. of Am. and consistently applied in New York courts. The accrual of GBL claims is based on when a plaintiff experiences injury from alleged deceptive practices, not necessarily when the deceptive practice is discovered. Plavin contends that his claim did not accrue until February 2015, when he learned of the reimbursement rate, arguing that he suffered injury under the GBL only at that point. The precedent set in Gaidon emphasizes that measurable damage occurs when a plaintiff's expectations, induced by deceptive marketing, are unmet, rather than at the time of enrollment in a policy.
Plavin's claims are not barred by the statute of limitations because he does not allege false guarantees regarding policy terms, but instead asserts that Group Health provided misleading marketing that created unrealistic expectations about out-of-network reimbursement benefits. The Complaint states that Plavin did not receive a copy of the policy and does not allege any false statements within it. Instead, Plavin contends that the marketing descriptions led him to believe reimbursement levels would be higher than they actually were, despite the descriptions being technically accurate. For instance, the policy stated that reimbursement levels might be lower than fees charged, without clarifying that the rates were disproportionately low compared to typical PPO methodologies. Additionally, the claim that the reimbursement schedule would be updated periodically is contradicted by the fact that it had remained largely unchanged since 1983.
Unlike cases involving clear misrepresentations or "vanishing premium" policies where injury occurs at a specific time, Plavin's allegations revolve around unrealistic expectations that only materialize when he submits an out-of-network claim, which may result in lower coverage than expected. This situation aligns more closely with cases of inducing unrealistic expectations rather than false guarantees. Group Health's reliance on Schandler v. New York Life Ins. Co. is misplaced, as that case involved explicit false statements in the policy that contradicted marketing claims, while Plavin's situation lacks such facially misleading statements. Consequently, Plavin's claims did not accrue upon his enrollment in the plan, as he is alleging misrepresentations regarding the benefits rather than false policy terms.
Plavin does not claim he received a policy that contradicted Group Health's marketing, asserting instead that he never received the policy at all. Despite presumably receiving marketing statements since enrolling in 1984, he only realized the limitations of out-of-network coverage after submitting claims. The marketing suggested that reimbursement shortfalls were merely possible, while in reality, they were likely to be significantly less than the actual fees charged by out-of-network providers. Although the marketing materials are not explicitly false, they allegedly created unrealistic expectations regarding coverage.
The Complaint lacks clarity on when Plavin incurred substantial out-of-pocket costs due to reimbursement shortfalls, with only one of four claims detailing when Group Health reimbursed him. This claim, relating to a $98 procedure, was not reimbursed until February 2015, where he received only $32. Courts have determined that injuries arise when representations are proven false, not when plaintiffs could have suspected they were misleading. While there are reservations about whether February 2015 was the first realization of unmet expectations, it remains the only claim with a specific submission and reimbursement timeline. Therefore, the Complaint plausibly presents a timely claim under the GBL.
Plavin's claims under Sections 349 and 350 of the New York General Business Law (GBL) are deemed timely but insufficient due to a failure to allege consumer-oriented conduct by Group Health. Section 349 prohibits deceptive acts in business or service provision, while Section 350 addresses false advertising, with both sections interpreted similarly by the courts. To establish a claim, a plaintiff must show that the defendant engaged in consumer-oriented conduct that is materially misleading and caused injury to the plaintiff. The concept of 'consumer-oriented conduct' is aimed at protecting the public, requiring that alleged deceptive practices have a broader impact beyond private disputes.
In this case, the alleged deception involves a private contract between Group Health and the City of New York, from which Plavin, as a former employee, benefitted. Although the large number of employees affected by Group Health's misrepresentations suggests a public impact, it does not inherently satisfy the requirement for broader consumer-oriented conduct. Plavin's relationship with the health plan arises from his employment, positioning him as a third-party beneficiary rather than a general consumer, thus failing to meet the necessary criteria under GBL.
In New York Univ. v. Cont'l Ins. Co., the Court of Appeals clarified the distinction between complex contractual relationships and transactions that serve the general public. The case involved sophisticated insurance coverage and loss proof, where both parties had expert representation and knowledge, indicating a private contract dispute rather than a consumer-oriented transaction. The court emphasized that the statute's intended scope did not encompass such unique disputes. While Plavin cited cases like Wilner and Riordan, which recognized consumer-oriented conduct involving policies directly available to the public, the court found these distinctions crucial. In Icahn Sch. of Med. at Mount Sinai, the plaintiff's allegations were deemed consumer-oriented due to the broad impact on patients, contrasting with Plavin's case. Krahling v. Merck & Co. further illustrated that significant public interest is a key factor in determining consumer-oriented conduct; however, its context of public health and governmental representation underscored why Plavin's claims did not meet the standard of affecting the public at large.
The Group Health plan in this case is a privately negotiated contract specifically for City of New York employees, and not available to the general public. As a result, Plavin's claims under the General Business Law (GBL) do not demonstrate consumer-oriented conduct, as the situation resembles a private contract dispute rather than a broader consumer issue. The complaint fails to allege material misrepresentation, which is required for GBL claims. To establish a GBL violation, it must be shown that the defendant made materially misleading statements that caused the plaintiff injury; this involves an objective standard regarding what a reasonable consumer would find misleading. The complaint cites four misleading statements by Group Health, including inadequate explanations of out-of-network reimbursement levels and inflated examples of coverage calculations. However, these claims largely mirror those previously addressed by the New York Attorney General's 2014 Assurance of Discontinuance with Group Health, which does not admit to any wrongdoing. Furthermore, the standard for evaluating deception does not align with the protections intended for consumers, particularly the more vulnerable groups. Over-reliance on the Assurance of Discontinuance is cautioned against as it does not constitute an admission of liability by Group Health.
The reasonable consumer standard indicates that Group Health's statements regarding out-of-network coverage did not materially mislead consumers. Plavin claims that out-of-network reimbursement rates were significantly lower than actual costs, averaging only 23%. However, the marketing materials did not specify reimbursement amounts or ranges, instead indicating that reimbursements could be less than the fees charged by nonparticipating providers, leaving subscribers responsible for any cost difference.
Plavin's complaint focuses on the lack of detailed information about out-of-network coverage rather than explicit misrepresentations. He highlights that the reimbursement schedule had remained largely unchanged since 1983, despite being advertised as periodically updated. However, the Description clarifies that reimbursement rates were based on 1983 allowances with periodic increases for some rates.
The Complaint does not specify Plavin's expectations for reimbursement rates, instead, it suggests he believed the plan would cover a significant portion of out-of-network expenses, despite having paid no out-of-pocket premiums since 1984. The Court finds this assumption unreasonable, as no reasonable consumer would expect substantial coverage for out-of-network services under a PPO plan that required no premiums. Prospective members chose the Group Health plan primarily because it was one of only two available PPO options that did not require out-of-pocket premiums, not due to promises of extensive reimbursement for out-of-network claims.
The document evaluates allegations concerning a health plan's enrollment and benefits. It highlights that claims about the plan having the "highest enrollment" due to certain benefits are unreasonable, as the plan's Description indicates reimbursement levels may be lower than fees from non-participating providers and are based on outdated procedure allowances. The Complaint incorrectly interprets the Summary of Benefits, which shows specific medical events with "0% co-insurance" for non-participating providers, while actual reimbursement rates average only 23%, not the hypothetical 66% shown in an example. It clarifies that the Summary does not imply all out-of-network services incur "0% co-insurance," as many treatments are listed as "not covered" or require co-insurance. The document emphasizes that the 66% reimbursement example is hypothetical and not representative of all services, and it states explicitly that the Coverage Examples are not cost estimators. Additionally, it addresses allegations about an optional rider, noting that the Description adequately disclosed that the rider applies to non-participating providers and enhances reimbursement rates. Overall, the document asserts that the Complaint's interpretations are misleading and unsupported by the actual plan documentation.
Certain services, but not all, may see increased reimbursement levels for out-of-network expenses. The Complaint criticizes Group Health for failing to disclose that its "Catastrophic Coverage" added no additional benefits beyond the basic coverage, despite being highlighted as a key benefit. However, this claim is unsubstantiated; the Summary Program Description does not suggest that "Catastrophic Coverage" offers more benefits than integral features of the plan. It specifically applies only to expenses exceeding $1,500 for non-participating providers in predominantly in-hospital care, a limited category. The Complaint does not adequately show how this narrow feature could mislead NYC employees and retirees into selecting the Group Health Plan, leading to unexpected out-of-pocket costs.
Furthermore, the Complaint does not convincingly argue that the statements made were materially misleading to a reasonable prospective member considering the eleven plans available from the City of New York. Misleading representations by an insurer do not automatically imply materiality or harm, as demonstrated in Ross v. AXA Equitable Life Ins. Co., where plaintiffs failed to show that they would not have purchased insurance had they been informed of alleged deceptive practices.
Additionally, the Complaint refers to an Assurance of Discontinuance as evidence that the statements were misleading, detailing changes Group Health made to its marketing materials following a settlement with the Attorney General. These changes include clarifications about fixed reimbursement rates based on 1983 amounts, acknowledgment of minimal increases in reimbursement rates, and explicit examples of low out-of-pocket costs for members utilizing out-of-network services. The Enhanced OON Rider is also specified to apply only to certain surgical and in-hospital services.
GHI implemented new rules for surprise billings and removed misleading descriptions related to Catastrophic Coverage. However, these changes did not significantly alter the original marketing materials' meaning. The Court determined that reasonable consumers would not find the alterations substantial enough to negate their choice of the plan, which was primarily based on the plan's unique features rather than the marketing statements. The Complaint's claims of misleading statements under General Business Law (GBL) fail because the allegations do not demonstrate that consumers were misled materially, particularly since eligibility for the health insurance was based solely on employment with the City. The Court concluded that allowing amendments to the GBL claims would be futile and dismissed them with prejudice.
Additionally, the claim under New York Insurance Law § 4226, which prohibits misrepresentations in insurance communications, was not properly analyzed by either party. Both parties seemed to agree that the standard for misrepresentation under this statute aligns with that of the GBL claims. Consequently, since the Complaint failed to identify materially misleading statements for the GBL claims, the Insurance Law claim also failed. Courts have previously dismissed claims under both statutes on similar grounds, reinforcing the dismissal of this claim.
N.Y. Ins. Law § 4226 mandates the element of scienter, which is absent in the GBL provisions. Insurers knowingly violating this law face penalties that can be pursued by aggrieved individuals for their benefit. The case Brach Family Found. Inc. v. AXA Equitable Life Ins. Co. illustrates that the heightened pleading standard of Rule 9(b) applies, as the statute requires knowledge of the falsity of representations. The complaint lacks allegations indicating that Group Health acted with wrongful intent. Disclosures in marketing materials clarify that reimbursement levels might be lower than charges by non-participating providers and that certain coverage types have specific limitations, undermining claims of knowingly misleading conduct. Consequently, the Insurance Law claim is to be dismissed with prejudice.
Regarding the unjust enrichment claim, it fails because the benefits alleged arise from contractual obligations that Group Health must fulfill under the policy negotiated by the employer. Although the parties did not address potential choice of law issues, New York law clearly governs GBL and Insurance Law claims, while unjust enrichment claims may not necessitate New York law simply due to the other claims. A choice of law analysis begins by determining if there is a conflict between the laws of competing jurisdictions; if no conflict exists, the court may apply either state’s laws interchangeably. To prevail on an unjust enrichment claim in New York, a plaintiff must show that the defendant benefited at their expense and that equity demands restitution. Similarly, under Pennsylvania law, a plaintiff must demonstrate that a benefit was conferred on the defendant by the plaintiff.
An unjust enrichment claim requires three elements: (1) the plaintiff conferred a benefit on the defendant, (2) the defendant appreciated that benefit, and (3) it would be inequitable for the defendant to retain the benefit without compensation to the plaintiff. Both New York and Pennsylvania law state that an unjust enrichment claim cannot prevail if a valid and enforceable written contract governs the subject matter. Since the parties’ relationship is defined by such a contract, claims for unjust enrichment and promissory estoppel cannot succeed. The argument by Plavin, who claims he did not enter into a contract with Group Health, is undermined by his status as a third-party beneficiary of the contract between Group Health and the City of New York. The reference to coverage in the Certificate of Insurance merely confirms Plavin's beneficiary status, rather than establishing a contractual relationship with Group Health. The existence of a valid contract precludes any unjust enrichment claim, even against a non-signatory, as affirmed by relevant case law. Plavin's employment with New York City entitled him to health benefits as a third-party beneficiary, with the City paying all premiums, thus providing him legal recourse without needing to pursue equitable claims.
Plaintiffs, as third-party beneficiaries of an insurance policy, lack grounds for an unjust enrichment claim under Pennsylvania law due to the existing contractual relationship with the insurance company. The court referenced prior rulings indicating that a valid and enforceable contract typically precludes unjust enrichment claims related to the same subject matter. Since the plaintiff, Plavin, was eligible for the insurance plan solely as a New York City employee and the contract was intended to benefit the city's employees, the court determined that allowing an amendment to the complaint would be futile. Consequently, the unjust enrichment claim was dismissed with prejudice. Furthermore, because Plavin is the sole named plaintiff and his claims were dismissed, any potential class action claims must also fail. The court noted that without a viable cause of action from the named plaintiff, the case cannot proceed to class certification. The defendant's motions to dismiss were granted, as the misleading statements central to the plaintiff's claims were clear from the complaint and its exhibits, indicating that further amendments would not change the outcome.
Claim 4226 is deemed time-barred, as Plavin's injury is determined to have occurred in 1984, aligning with the rationale that the injury arose when the marketing representations failed to meet his expectations, rather than at enrollment. This aligns with Gaidon’s analysis, which reversed the earlier Russo decision regarding when the limitations period begins, suggesting that the same accrual principles apply to Insurance Law claims. The Assurance of Discontinuance, heavily referenced in the Complaint, is permissible for consideration at this stage, as the plaintiff had actual notice of it. Allegations state that Group Health misled members about the availability of a reimbursement Schedule, yet the Complaint does not indicate that Plavin sought to inspect it or how access would have altered his actions. The core of the GBL claims focuses on Group Health's implied higher reimbursement rates, despite no specific promises in marketing materials. Group Health's motion to strike requests for treble damages and penalties related to dismissed GBL and Insurance Law claims is rendered moot, as the claims themselves will be dismissed. Additionally, Group Health contends that Plavin's unjust enrichment claim is redundant and lacks necessary elements; however, since the unjust enrichment claim will be dismissed for other reasons, the Court does not address this argument further.
