RUSSO v. ABINGTON MEMORIAL HOSPITAL, (E.D.Pa. 2002)

POLLAK, Judge

This ERISA litigation presents a triangular dispute arising out of the hospitalization of Eric Fountain, who was stabbed in the heart early in the morning of January 22, 1990, fell into a coma, and died in a nursing facility on September 25, 1990. The disputants are: (1) Albert Einstein Medical Center (AEMC), the hospital to which Fountain was brought immediately after being stabbed and where he remained until March 23, 1990; (2) Abington Memorial Hospital (AMH), the hospital at which Fountain was employed, and the Abington Memorial Healthcare Plan (AMH Plan), a health insurance plan established and managed by AMH to provide medical insurance coverage for AMH employees; and (3) United States Healthcare Systems of Pennsylvania (USH), a health insurance system that provided health insurance coverage for AMH employees who elected not to be covered by the AMH Plan. The dispute centers on which entity is to pay the $291,233.05 hospital bill that Fountain, an AMH employee, incurred at AEMC: AEMC, which has up to now absorbed the charges; the AMH Plan or AMH itself; or USH.

Plaintiff Samuel A. Russo is administrator of Fountain's estate and, as a formal matter, brings suit in that capacity. But in fact Russo, who is a financial officer of AEMC, is suing on AEMC's behalf to recover charges for Fountain's care. His suit against USH and the AMH Plan arises under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA" or "the Act"). USH has cross-claimed against the AMH Plan and filed a third-party complaint against AMH. The case was tried without a jury. This opinion constitutes the court's findings of fact and conclusions of law.

I. Findings of Fact

In a typical bench trial, the district court undertakes at the close of evidence to find a single coherent set of facts; the judicial objective is to select, from among two (or sometimes, more than two) proffered versions of history, the one accurate (or, at least, most probably accurate) scenario. That is not so here. In the peculiar circumstances of this case, the applicable procedural rules require this court to give its imprimatur to multiple sets of facts, which, in certain important respects, are not entirely consistent with one another: (1) a set of facts as between plaintiff Russo and defendant USH; (2) a set of facts as between plaintiff Russo and defendant AMH Plan; and (3) sets of facts as between (a) third-party plaintiff USH and third-party defendant AMH, and (b) cross-claimant USH and cross-claim defendant AMH Plan.

A review of the procedural history will reveal how this has come to be.

Plaintiff Samuel Russo is the director of finance for patient accounts at AEMC. In August 1993, Russo was appointed administrator of Fountain's estate in order to seek reimbursement for AEMC of Fountain's AEMC bill by filing suit against the two entities that may have insured Fountain at the time of his hospitalization: USH and the AMH Plan. (The suit did not name AMH, which is not an insurer.) The AMH Plan answered, then amended its answer. Following the AMH Plan's amendment of its answer, Russo filed an amended complaint. USH then filed an answer to Russo's amended complaint. USH's answer contained a cross-claim against the AMH Plan and a third-party complaint against AMH (until then not a party to the case).

Several summary judgment motions ensued. On June 30, 1997, I issued an order accompanying a memorandum which analyzed the pending motions for summary judgment.

Because (a) the AMH Plan had not filed a response to Russo's amended complaint or to USH's cross-claim, and (b) AMH had not filed a response to USH's third-party claim, I ruled that (1) the AMH Plan would be deemed to have admitted all averments in Russo's complaint and USH's cross-claim adverse to its interests, and (2) AMH would be deemed to have admitted all averments in USH's third-party claim adverse to its interests. Nevertheless, Russo's motion for summary judgment against the AMH Plan was not granted, since he had not "set forth the legal claims upon which his case against the [AMH] Plan rests," leaving this court no way to determine whether the facts deemed admitted required an entry of summary judgment. On the other hand, USH's legal claims against the AMH defendants seemed to be fully established by the facts deemed admitted, and summary judgment on liability was therefore granted in favor of USH on its cross-claim against the AMH Plan and its third-party claim against AMH. However, in the portion of the memorandum granting summary judgment, I noted that it was not altogether clear that the AMH Plan — as distinct from AMH had been a party to the USH contract, which I found to have been breached, and I thus invited the AMH Plan to file a submission explaining why summary judgment should not be entered against the AMH Plan. The AMH Plan filed such an explanation, and I thereafter vacated the grant of summary judgment in favor of USH and against the AMH Plan and granted summary judgment in favor of the AMH Plan with respect to USH's cross-claim. The AMH Plan remained a defendant with respect to Russo.

After the June 30, 1997, order, the AMH defendants moved more than once for permission to file responsive pleadings, but those motions were denied by this court in orders dated March 31, 1998, and September 15, 1998. The AMH defendants' motion for reconsideration of the September 15 order was denied on November 13, 1998.

The order of June 30, 1997 specifically noted that the facts deemed admitted might ultimately conflict with those established at trial:

The admission of the facts as pleaded against the [AMH] Plan creates the anomalous situation of a certain factual scenario being admitted as to one defendant while another, inconsistent factual scenario is alleged — and may conceivably be established at trial — against a second defendant. Awkward though this situation may be, it is the natural consequence of a system that permits pleadings to be stated in the alternative, see Fed.R.Civ.P. 8(e), and that provides that allegations in the complaint that are not denied are considered admitted. See Fed.R.Civ.P. 8(d).

What was foreseen has now come to pass. Section I(A) of this opinion sets forth the facts found by this court independent of the deemed admissions — facts which underlie the court's legal analysis of the Russo-USH controversy. The next two sections — I(B) and I(C) — set forth those facts deemed admitted which, while conflicting in some respects with the facts found in section I(A), inform major portions of the Russo-AMH Plan controversy (section I(B)) and the controversy between USH and AMH (section I(C)). Where facts found do not differ across controversies, they are not restated; sections I(B) and I(C) merely record those deemed facts which differ from the facts found in section I(A).

A. Russo v. USH: Findings of Fact

In January 1990, USH and AMH were parties to a contract in which USH agreed to provide health care services and benefits to AMH employees. The contract stated that "[t]o be eligible to enroll as a [s]ubscriber, a person must be . . . eligible to participate in or currently enrolled in a health care plan offered by" AMH to its employees. AMH originated and administered the entity called the AMH Plan in order to offer to its employees the option of subscribing to insurance through USH or through ALTA, a self-funded insurance plan offered by the AMH Plan. The USH-AMH contract thus made eligibility for USH insurance dependent on eligibility for the AMH Plan. The AMH Plan was governed by a "Master Plan Document." The Master Plan Document postponed the effective date of coverage of an employee who enrolled while not actively employed to the date of that employee's return to work.

In order to enroll in USH, an employee was required to submit a completed "Group Enrollment Application." The Master Plan Document did not contain a requirement that an employee personally sign an enrollment form. The AMH benefits department customarily permitted a family member to submit an application on behalf of an employee; it did not require an employee to fill out and sign an application personally. USH never informed AMH that it expected AMH to ensure that only applicants themselves signed enrollment forms, and AMH never informed USH that it permitted any other practice. The AMH benefits department did not require that applications be filled out or signed in the presence of a witness or notary. The AMH benefits department did not consider a comatose employee to be actively employed.

On January 1, 1990, Eric Fountain was an active part-time employee working at least 20 hours per week and had completed his introductory period of employment with AMH, making him eligible for coverage under one of the health insurance plans offered by AMH. Savoria Price — Fountain's sister, and herself an AMH employee went to the AMH benefits office at Fountain's request sometime between November 1989 and early January 1990 in order to sign Fountain up for health insurance. Price was given information on available health insurance plans. She later selected USH and completed an application for USH enrollment on Fountain's behalf and signed his name to it. Precisely when she completed the USH application is a significant question in this case, and I shall leave it unanswered until the recitation of other evidence makes the likely answer more clear. On whatever day Price did complete the application, she either left the application at the benefits office or sent it to the benefits office through intra-hospital mail.

When Lillian Flaherty (a full-time AMH employee who performed certain administrative tasks on behalf of the AMH Plan) later saw the completed enrollment form, she put it in a pile of forms awaiting processing; she did not look over the enrollment form at that time. The application had been completed and submitted soon after a period of "open enrollment" — an annual period during which AMH employees could change their insurance plans. The open enrollment period generated more than a thousand applications, all of which were processed by Flaherty and Frank Cummings (another full-time AMH employee charged with certain administrative duties on behalf of the AMH Plan), creating an abundance of paperwork. It took Flaherty at least several days — perhaps longer — to begin working on Fountain's application.

While AMH and the AMH Plan were (and may still be) different legal entities, it is not easy to determine whether, at the time the events giving rise to this litigation took place, a given person was acting on behalf of AMH or on behalf of the AMH Plan. That is so, in part, because there were no employees of the AMH Plan and the AMH Plan had no separate physical existence. In January 1990, only Frank Cummings and Lillian Flaherty performed administrative tasks for the AMH Plan. Cummings was responsible for preparing and administering the governing Master Plan Document and had the authority to act on behalf of ALTA. No other persons at AMH were responsible for day-to-day administration of the Plan. The AMH finance department paid the premiums for insurance offered to AMH employees through the AMH Plan, and AMH itself funded the AMH Plan with an initial investment of several million dollars in the early 1990's.

When Flaherty began work on Fountain's application, she noticed that the applicant's signature was undated; Flaherty entered a date of January 12, 1990, which was her best estimate of the date on which Price had filled out Fountain's form. Flaherty signed Cummings's name on the application, as she often did. The insurance was intended to be retroactive to January 1, 1990.

The AMH benefits department did not require an enrollment application to be submitted prior to the effective date of coverage. And AMH customarily submitted applications for which the effective date of coverage was retroactive to a date prior to the date of the submission of the enrollment form. USH routinely accepted late or retroactive enrollments of AMH employees, including applications received late due to delays in processing by the AMH benefits office, and even accepted a number of applications which were not dated at all. The billing form created and used by USH contained columns entitled "retroactive charges" and "retroactive credits," suggesting that USH routinely allowed retroactive enrollment, charged retroactive premiums, and provided retroactive coverage for AMH subscribers. Moreover, the USH-AMH contract stated that "in no case will adjustments be made effective more than two premium due dates prior to the date [USH] is notified in writing . . . of the requested addition, deletion or change in coverage."

On January 22, 1990, Fountain was taken by ambulance to AEMC and admitted on an emergency basis at 1:20 in the morning. AEMC was then what USH called a "non-participating" hospital, which meant that it did not belong to USH's "network" of affiliated health care providers. When a patient was admitted to AEMC without being able to provide insurance information, AEMC's financial counselors subsequently met with the patient or his family to determine what insurance (if any) the patient had. If a patient or member of the patient's family identified insurance coverage, an AEMC financial counselor would contact the insurance carrier to verify the information provided. The insurance information obtained and verified by the AEMC financial counselor was then recorded in AEMC's "Medi-Pac" computer system.

The Medi-Pac notes concerning Fountain's admission were entered on January 23, 1990, the day after Fountain's admission to AEMC, by an AEMC financial counselor named Charlotte Lipow, who is now deceased. Lipow's notes were embodied in four separate paragraphs, each of which appears to have been written at a different point during the day of January 23:

This court considered the admissibility of AEMC's computer and paper records and of USH's internal records in a ruling dated February 11, 2000.

P[ATIENT] WORKED AT ABINGTON HOSP[ITAL] AND WAS ELIGIBLE FOR THEIR INS[URANCE] PLAN AS OF 1/1/90; HE DID NOT SIGN UP AT PERSONNEL; HIS SISTER SAVORIA PRICE WHO IS ALSO ABINGTON EMPLOYEE IS GOING TO PERSONNEL TO SIGN FOR INSUR[ANCE] BENEFITS THERE, MRS FLAUGHERTY, SAID IT WILL BE RETRO[ACTIVE] TO 1/1/90 W/ ALTA, INS CARRIER ABING[TON]

I AM WRITING SPEED LETTER TO P[ATIENT]'S FAMILY TO EXPLAIN THAT INS[URANCE] PAYS 80% OF 1ST 10,000 AFT 200 DED[UCTIBLE]; (100 BASIC, 100 MAJ[OR] MED[ICAL]) AND THAT THEY MUST FILL OUT CLAIM FORM FOR THE ALTA GROUP PLAN; PERSONNEL TOLD ME HE IS IN GROUP 1849 AND TO BILL W[ITH] HIS SS# FOR ID; P[ATIENT] IS IN COMA, HIS FAMILY TO TAKE CARE OF THIS

ALTA PLAN "SCRATCHED"; P[ATIENT] AND FAMILY CANNOT AFFORD 20% PLUS DED[UCTIBLE]; SO ABINGTON PERSONNEL ALLOWED SISTER OF P[ATIENT] TO SIGN ERIC UP FOR [USH]; [USH] IS THE ASSIGNED HMO FOR ABINGTON HOSP[ITAL] AND APRIL IN OUR [UTILIZATION REVIEW DEPARTMENT] MADE AWARE TO HALL [USH] TO PRECERT[IFY]; I ALSO CALLED [USH] AND EXPLAINED P[ATIENT] IS NEW ENROLLEE AS OF 1/1/90, ABINGTON SENDING THEM THE PAPERWORK; SISTER OF P[ATIENT] SIGNED FORMS NEEDED IN PERSONNEL AT WORK; THEY PICKED HMO BECAUSE ALTA HAS CH[AR]G[E]S NOT COV[ERED] AND P[ATIENT] CANNOT AFFORD THAT PLAN; BILL [USH]; [UTILIZATION REVIEW DEPARTMENT], APRIL, IN TOUCH RE DAILY CARE

DEBBY AT [USH], TEL[EPHONE NUMBER] 2836850, AWARE OF RETRO[ACTIVE] EFF[ECTIVE] DATE OF 1/1/90, GAVE P[ATIENT] TEMP[ORARY] ID NUMBER IN THEIR SYSTEM AND TOLD ME WE SHOULD USE SOC[IAL] SEC[URITY]# AND GROUP A018-00 FOR BILLING PURPOSES; SISTER OF P[ATIENT] TO BRING IN ID AND SIGN OUR FORMS TODAY.

It is not entirely clear from whom Lipow received the information whose sources are not expressly identified, though the likely candidates are someone in Fountain's family (perhaps Price) and Flaherty (the AMH benefits office employee) (name rendered as "Flaugherty" in first paragraph of Fountain's Medi-Pac notes, supra).

Lipow entered notes on Fountain's paper admission record that are consistent with her January 23, 1990 entries into the Medi-Pac record. The bottom left corner of Fountain's AEMC admission record has a typed entry under the heading "INSURANCE," that reads "SELF PAY UNKNOWN IF HAS INS 1/21/90 TN." Lipow crossed out the typed "SELF PAY" and handwrote underneath it the words "Abington — Alta". She later crossed out that entry as well, inserting the word "NOT" above it. To the immediate right she wrote "Flaugherty — Personnel Benefits," along with Flaherty's phone number. Below the crossed-out word "Alta," Lipow wrote that she was using the USH group number for AMH employees for Fountain's file; she also wrote that she had asked April Martin (the AEMC utilization review nurse) to call USH.

"TN" appear to be the initials utilized by admissions officer Tom O'Neill. "SELF PAY" is a designation indicating that a patient has no insurance.

USH's computer records contain information similar to that contained in the AEMC records. In 1990, USH precertification personnel received patient information by phone and keyed the information into USH's computer system. Records of insured persons within the USH computer system were kept in several layers, or screens. The first was the primary admissions screen. Information from the primary admissions screen flowed down into secondary screens called "comment" and "justification" screens. Carol Delark, a USH nurse who reviewed the medical appropriateness of admitting USH members to non-participating hospitals, was responsible for entering information into Fountain's comment screen. On January 24, 1990, Delark recorded in the comment screen information about Fountain which she received during a telephone conversation with Deidre Cleff (an employee in AEMC's utilization review department). The words Delark typed were:

PER UR 1/23 . . . CALLED IN BY DEIDRE . . . P[ATIENT] WORKS FOR AMH AND HAD ALTA INSURANCE WHICH ONLY COVERS 80% . . . PER DEIDRE . . . INSURANCE CHANGED TODAY 1/23 TO [USH's] HMO ! ! ! ! ! ! PER DEIDRE P[ATIENT] IN OPEN HEART UNIT ON VENT.

Fountain's justification screen contains an entry written by Margaret Evans, a USH precertification representative who received the phone call from Lipow noted in the third of Lipow's AEMC Medi-Pac entries. Evans's comments state that Lipow called USH to tell it that Fountain's USH insurance was "Effective 1/1/90 as per Mr. Flaugherty in personnel at Abington."

What sequence of underlying events best explains the notes in AEMC's paper and computer records and USH's internal records summarized in the foregoing four paragraphs? The most probable sequence of underlying events appears to be the following, which I incorporate into the findings of fact: Lipow contacted Fountain's family and spoke with Price. Lipow told Price that she needed documentary proof of any insurance coverage that Fountain had. Price told Lipow that Fountain worked at AMH and she thought that he had insurance through AMH. Lipow then contacted AMH. Flaherty, perhaps finding no insurance information in Fountain's employment file but noting the date on which he began work, told Lipow that Fountain was eligible for insurance but was not yet enrolled, though he could apply retroactively to ALTA. Price then went to the AMH benefits office.

Price testified that she believed that if her brother was not yet insured he would be able to apply for state medical assistance and AEMC could not discontinue its treatment.

Determining which of two possible scenarios followed requires, as a predicate, a brief description of a USH "Group Enrollment" form — the form by which Price (for Fountain) applied for USH insurance coverage. The Group Enrollment form is a document in four carbon parts: the top copy is the "USH copy," which AMH would send to USH; the second copy is the "employee copy," which AMH would give to the employee; the third copy is the "employer copy"; and the fourth copy is the "office copy," which the AMH benefits office would keep in its files.

There is a discrepancy among the dates on the three extant copies of Fountain's enrollment form. The "USH copy" (the topmost of the four) is dated "1/12/90" next to the line for the applicant's signature. The "employee copy" (directly below the USH copy) is dated "1/1/90." The "employer copy" (third of the four) has been lost. The "office copy" (the bottom copy) does not have a date next to the line for the applicant's signature. The discrepancy among these dates significantly affects determining what happened when Price visited the AMH benefits office soon after Fountain was hospitalized.

First Scenario

There appear to be two possible sequences of events that might explain the evidence presented by Russo and USH. In the first scenario — a scenario I will reject for reasons stated below Price might not have signed Fountain up for insurance prior to his hospitalization. When Price visited the benefits office after Fountain's hospitalization, Flaherty might then have permitted Price retroactively to enroll Fountain in USH — perhaps after a brief flirtation with the possibility of ALTA coverage. In this scenario, the discrepancy in the dates on the copies of the Group Enrollment forms would be explained by the fact that Price would have filled out the enrollment form at her post-hospitalization visit, after which Flaherty would have separated the forms and given Price the employee copy to provide to AEMC. Some time after Price left the office, both Flaherty and Price might have noticed that Price had not dated her signature; Flaherty would then have randomly chosen the date of January 12, 1990, and Price would have chosen the date by which the written USH-AMH contract required Fountain's form to have been received (which was also the earliest date of coverage for which Fountain would have been eligible) January 1, 1990.

That scenario has four major drawbacks. First, it would have made little sense for Flaherty to choose to write "1/12/90" on the USH copy of the enrollment form. Had Flaherty intended to write in the date by which the written USH-AMH contract required Fountain's form to have been received, she would have chosen January 1, 1990. Had Flaherty intended to collude with Price to predate the application form, it would not have been difficult for her to contact Price (either at Price's shift at the hospital or at her home). Second, the scenario conflicts with Price's trial testimony, in which she stated that she filled out and signed the USH form "around November [or] December" of 1989 — weeks before her brother's hospitalization. Third and fourth, the scenario conflicts with the testimony of Flaherty and Cummings, both of whom swore that they never backdated an application and would not have permitted Price to fill out an application for Fountain knowing that he had been hospitalized.

Second Scenario

Because I have found Price, Flaherty, and Cummings credible and because the discrepant dates strongly suggest some sort of sloppiness rather than the deliberate chicanery suggested by USH — I conclude that a second scenario comports better with the evidence. In this scenario, Price's visit to the AMH benefits office after Fountain's hospitalization caused that office to discover that contrary to Flaherty's telephonic report to Lipow — Price had, in fact, previously enrolled Fountain in USH, though the paperwork had not yet been processed. At Price's urging, Cummings (who was assisting Price, perhaps because his more junior colleague Flaherty was out of the office) then looked for evidence of Fountain's insurance coverage. Finding none in Fountain's file, Cummings explained to Price that the application must not have been received, but that Price could still sign up her brother retroactively for ALTA, which would provide 80% of the costs of the hospitalization. Price told Cummings that their family couldn't afford 20% of the hospitalization costs, and urged Cummings to look for the form that she claimed to have submitted. Turning from the employee files, Cummings investigated the paperwork on and around Flaherty's desk that had accumulated during the open enrollment period — the annual period during which AMH employees could change their insurance plans. Since Flaherty had recently begun processing the applications — separating the USH copies, office copies, and employee copies — Cummings found several relevant piles. In one pile, Flaherty had put together the USH copies and a partially completed "Group Control Form" — a document on which AMH provided USH with information regarding enrollment of new members, termination of members, and other changes; while assembling the pile, Flaherty had noticed that the signature on Fountain's application was not dated, had estimated the date on which Price had submitted the application herself, and had then written that date — January 12, 1990 — on the now-separated USH copy. Thumbing through the pile, Cummings located the (undated) employee copy of the application that Price had filled out for Fountain sometime between November 1989 and early January 1990 and gave it to Price. After leaving Flaherty's office, Price noticed that no date had been listed next to the signature she had written when she filled out the application. Price then filled in the date of January 1, 1990, the date on which she thought her brother's insurance coverage had begun — and the date by which she might have thought that her brother's enrollment form should have been received. She then took the copy to the AEMC financial counselor as proof of Fountain's insurance.

AMH routinely provided USH with a Group Control Form, along with completed Group Enrollment Applications.

There is yet a third scenario that would provide an explanation for the discrepancy in dates: in order to provide coverage for Fountain but spare the AMH Plan the inevitably large expenses of a comatose patient, Flaherty might have decided to lead Price to enroll Fountain in USH after he was hospitalized. Perhaps because she determined that colluding with Price to backdate the enrollment form would entail too great a risk of the fraud being discovered, Flaherty might have led Price to believe that a post-hospitalization enrollment in USH was permissible and instructed her to sign the enrollment form — making no mention of the line for the date. Flaherty might then have dated the USH copy in a deliberate attempt to mislead USH, thinking that the employee copy (in Price's possession) would remain undated. In this version, Price's subsequent decision to enter the date of January 1, 1990 would have foiled the plan. While this explanation is internally consistent, it conflicts with the testimony of Price, Flaherty, and Cummings, and I therefore reject it.

Events after the filing of Fountain's USH application

Flaherty soon completed processing Fountain's enrollment applications and the Group Control Form and submitted them to USH; the packet contained Fountain's application as well as several others, including that of Kathleen Mays, another AMH employee who was retroactively enrolled from the time of her application to January 1, 1990. (The USH billing form for March 1990 also listed thirty-five other AMH employees who were first being billed in March for retroactive coverage to January 1990.) Once USH received the paperwork from AMH, it billed AMH for Fountain's insurance coverage from January 1, 1990, designating the charges as "retroactive" on the bill. That designation was consistent with USH's practice: USH never disclaimed coverage for Kathleen Mays, for instance, and regularly accepted retroactive applications. Indeed, USH accepted applications for coverage from AMH employees without any signature date at all, and never returned an application to AMH where the signature date was later than the effective date. Prior to Fountain's application, USH appears never to have rejected an AMH employee who signed up for retroactive coverage.

Fountain was designated on the Group Control Form prepared by Flaherty as an open enrollee instead of a new hire. Evidence adduced at trial does not conclusively demonstrate either that the designation was erroneous (i.e. Flaherty intended to designate Fountain a new hire) or that AMH had extended the open enrollment period (as it often did) and Flaherty, knowing Fountain's application to have been received beyond Fountain's new hire deadline, characterized him as an open enrollee. Kathleen Mays was likewise designated as an open enrollee, though she too had been recently hired.

When USH received Fountain's application form in late January or early February, USH personnel noted that the application form was dated January 12, 1990 — a date that preceded Fountain's hospitalization but that was inconsistent with the information entered into the USH computer by a USH employee relying on information provided by AEMC. By February 6, 1990, at the latest, USH's Medical Director, Arthur Leibowitz, had been told that Fountain's insurance coverage had been "changed" to USH on the day of Fountain's admission. Moreover, USH regarded an enrollment on the 23rd or 24th of the month — dates of enrollment consistent with the information in the USH computer — as highly unusual. Nevertheless, the AEMC bill was the only one of Fountain's bills to be reviewed and then denied due to putatively invalid enrollment. USH's own procedures called for it to review all bills in excess of $10,000.00, but, for reasons unknown, USH did not review all such bills in Fountain's case. USH also did not follow its usual procedure of "pending" claims submitted by providers other than AEMC on Fountain's behalf or performing "hospital reconciliation" on those claims. Similarly, with respect to those claims USH did not follow its own procedure of forwarding questions raised by the comment screen to its enrollment department — again for unknown reasons.

"Pending" refers to delaying payment until an investigation is completed.

"Hospital reconciliation" was a practice whereby, by contract or course of dealing, USH recovered monies already paid to participating providers for treatment of individuals who USH subsequently determined were not covered at the time of treatment. USH recovered the monies by subtracting the amount of earlier erroneous (in USH's belief) disbursements from future payments legitimately owed.

USH Vice President Lawrence Geary spoke with Chris Boyer, Manager of Patient Accounts at AEMC, on several occasions during the first quarter of 1990 in an attempt to negotiate a 15% to 25% discount on the charges that Fountain was incurring at AEMC. (Of the bills paid by USH for Fountain's care, USH in every instance contested the amount billed and tendered less than the stated amount due, and in every instance the provider accepted the amount tendered as payment in full.) While Boyer and Geary reached a tacit agreement on a discount, Boyer alerted Geary in late March 1990 that he had information available to him which raised a question whether USH was actually Fountain's insurer.

AEMC appears to have submitted a number of bills on Fountain's behalf, and USH appears to have paid all but the one at issue in this case. AEMC would discount its hospital bills upon request by an insurer, but a condition of the discount was prompt payment of the bill.

On March 23, 1990, Fountain was transferred from AEMC to a nursing facility. AEMC's bill for Fountain's hospital stay totaled $291,233.05. The charges on the bill were usual and customary charges for the services rendered; AEMC customarily prepared a hospital bill from a listing of fixed prices for services, and Fountain's bill was prepared in the ordinary course of business. USH received AEMC's first prepared bill for Fountain on April 4, 1990. USH "pended" the bill because it was over $10,000.00 and was from a non-participating provider — factors that, under USH policy, automatically triggered USH review. A medical review of the bill in April 1990 determined that Fountain's admission was a valid medical emergency and therefore proper. The utilization review department determined that Fountain's treatment was medically necessary and that the charges were consistent with medical care rendered.

On May 21, 1990, Boyer sent Geary a print-out of Fountain's January 23, 1990, AEMC Medi-Pac screens and informed Geary, in an accompanying letter, that he had independent information corroborating the Medi-Pac screens. After the receipt of Boyer's letter, USH began an investigation into Fountain's coverage. At the time, several USH departments were already reviewing or investigating the Fountain claim. In the course of its investigation, USH contacted Thomas Mallon, AMH Vice President for Finance, to relay USH's concern about Fountain's enrollment. Mallon conveyed to Geary his belief that the AMH Plan was not responsible for Fountain's coverage. Geary and Mallon had some further conversations about the matter, but Mallon eventually broke off discussions.

Fountain died on September 25, 1990. USH contacted Price shortly afterwards and asked her if she had completed Fountain's Group Enrollment Application. Price told Cummings (of the AMH benefits department) of the call. USH did not ask AMH about the circumstances of Fountain's enrollment until approximately six months later, after USH had concluded that Fountain had not been validly enrolled. AMH continued to pay — and USH continued to accept — premiums for Fountain's coverage from March 1990 through September 1990. Those premiums paid for coverage from January 1, 1990 through September 30, 1990. USH has never refunded Fountain's premiums.

USH paid several health care providers other than AEMC that had provided care for Fountain, despite its prior conclusion that Fountain was not validly enrolled. USH first paid a bill for Fountain in May 1990; it last paid a bill for Fountain in November 1991. In all, USH paid $97,056.26 in claims for Fountain.

As AMH Benefits Manager, Cummings often contacted insurers to intervene in coverage disputes between AMH employees and an insurer when requested to do so by the employee or the employee's family. Cummings viewed his attempts to resolve such disputes in favor of the AMH employee as a responsibility of administering the AMH Plan. Prior to Russo's filing of this lawsuit, Cummings had learned that USH was denying coverage for Fountain but he did not contact USH on Fountain's behalf because he was not asked to do so by Fountain or his family.

The Commonwealth of Pennsylvania has established a "Medical Assistance" program that would have paid for some portion of Fountain's care had medical assistance benefits been sought. See 62 P.S. § 441.1. Such benefits would have paid less than half of AEMC's charges, but AEMC would have been obliged to accept that amount as payment in full for services rendered to Fountain. See 62 P.S. § 444.1. Medical assistance benefits can be applied retroactively to charges incurred within ninety days of the date of application. See 62 P.S. § 442.1(c). In order to take full advantage of these benefits, AEMC and Fountain's family therefore had ninety days from the time of Fountain's admission within which to apply for them.

As of November 16, 1998, the AEMC bill remained unpaid. AEMC has classified the account as uncollectible.

B. Russo v. AMH Plan: Findings of Fact

In the order of June 30, 1997, I found that, by failing to respond to Russo's amended complaint, the AMH Plan was deemed to have admitted the factual averments of that complaint. Paragraph 18 of the complaint contains one averment that differs from the above recitation of events:

[A]fter Fountain's admission to AEMC on January 22, 1990, employees of AMH directed, encouraged, assisted and/or aided a family member of Fountain's to sign and backdate a USH enrollment form so that the effective date of the USH enrollment would be January 1, 1990.

C. USH v. AMH: Findings of Fact

In the order of June 30, 1997, I found that, by failing to respond to USH's cross-claim and third-party claim, the AMH defendants were deemed to have admitted the factual averments of those claims. Two of those averments differ from the facts found in section I(A). Paragraph 3 of the cross-claim states that the USH-AMH "contract required that allapplicants seeking to enroll with . . . US Healthcare must complete an application." (emphasis in original). And Paragraph 5 of the USH cross-claim, recapitulating Paragraph 18 of Russo's amended complaint, averred that AMH employees "directed, encouraged, assisted and/or aided a family member of Eric Fountain's to sign and backdate a USHC enrollment form so that the effective date of the USHC enrollment would be January 1, 1990."

II. Conclusions of Law

As with the findings of fact, I divide the conclusions of law into three separate sections, one for each of the controversies.

A. Russo v. USH: Liability

I conclude that Russo has established, as a matter of law, that Fountain was insured by USH at the time of his accident and subsequent hospitalization. Such a conclusion requires two precedent legal conclusions: (1) that the signature executed by Fountain's sister, Savoria Price, on the application form satisfied the requirements of the USH-AMH contract and had legal effect; and (2) that the retroactive nature of Fountain's enrollment did not make the enrollment void.

As the findings of facts indicate, Fountain's sister signed his application form for him at his express request. Price was therefore serving as Fountain's agent and, absent contractual or other bar, her signature of Fountain's name had the same effect that his own signature would have had. It is well settled that "[a] person privileged . . . to perform an act or accomplish a result can properly appoint an agent to perform the act or accomplish the result, unless public policy or the agreement with another requires personal performance. . . ." Restatement (Second) of Agency § 17 (1957). Fountain was entitled to apply for insurance coverage offered by AMH by virtue of the amount of time he had spent on the job. As such, he had the power to appoint Price to select coverage and apply on his behalf for such coverage, "unless . . . the agreement [with another] require[d] personal performance." Nothing in the USH-AMH contract required personal performance.

Section V(A) of the contract states that "[a]ny person who satisfies the membership eligibility requirements described in Section IV is eligible to enroll in HMO . . . by submitting a completed HMO enrollment application form to HMO." Nothing in that phrase suggests that an applicant is limited to completing and signing the application form himself, rather than relying on his general right to "appoint an agent to perform the act." Section XIII(B) states that "[m]embers represent that all information contained in such applications, forms or statements . . . shall be true, correct and complete." While these words suggest that a principal, by appointing an agent to complete and submit a USH insurance application form, risks liability for false, incorrect, or incomplete representations made by the agent in the application form, this language also does not require personal performance.

As the signature had legal effect, it is necessary to determine whether Fountain's enrollment was void because it was retroactive. As the findings of fact indicate, Fountain's enrollment form was received by the AMH benefits office on or about January 12, 1990, approximately eleven days after Fountain became eligible for benefits (and therefore approximately eleven days after his enrollment application form had to have been received in the AMH benefits office under the written terms of the USH-AMH contract), and nearly a month after open enrollment had ended. Fountain's enrollment application therefore sought coverage for a period of time prior to its execution. I have noted in a prior order that the terms of the USH-AMH contract provide that:

While the open enrollment period may have been extended beyond the original closing date, Russo has not provided any proof that it was in fact extended.

the "effective date of coverage" is the date on which the member became eligible to enroll — in Mr. Fountain's case January 1, 1990 — but only if "his or her completed . . . enrollment application form is received . . . prior to the Member's [Enrollment Eligibility Date]."

Order of June 30, 1997, at 12 (referring to Section VI.A of the USH-AMH Contract). The contract provides further that enrollment applications submitted after the Enrollment Eligibility Date are to be deferred until the next open enrollment period. Specifically, it states:

If a completed HMO enrollment application form is not received by HMO prior to the Member's Enrollment Eligibility Date . . . the effective date of the Member's coverage is the next Open Enrollment Period during which Member's completed HMO enrollment application form is received by HMO.

USH-AMH Contract at VI.A. 2.

Based on the foregoing language, I conclude that the USH-AMH contract does not permit retroactive enrollment by an AMH employee; according to the terms of Section VI.A, applications submitted after the Eligibility Enrollment Date have no effect until the succeeding open enrollment period. I note, however, that USH did not attempt to take advantage of Section VI.A until well after it was aware that Fountain's application was retroactive. As discussed earlier, USH instead continued to accept Fountain's premiums, including those paid for coverage preceding the date of his application. Indeed, it never returned those premiums, even when it first asserted — at the time of trial that the terms of Section VI.A made Fountain's application invalid. Such conduct, especially when combined with evidence that USH routinely accepted retroactive enrollments, suggests that USH waived its right to reject Fountain's application as retroactive. See Black's Law Dictionary 1580 (6th ed. 1990) (defining waiver as, inter alia, the "renunciation . . . of the opportunity to take advantage of some defect, irregularity, or wrong").

Evidence adduced at trial shows that USH accepted retroactive enrollments with sufficient regularity that the AMH employees who processed USH enrollments expected that USH would not insist on strict compliance with the terms of Section VI.A of the USH-AMH contract. Lillian Flaherty testified that in the ten-year period during which she was employed, from 1983 to 1993, it was a "common practice" to send retroactive enrollments to USH, as long as they were submitted to her office "within a reasonable time" (a period she described as "maybe fifteen days") from the effective date of the policy (a date that was itself roughly fifteen days after the close of the open enrollment period). In her experience, USH never rejected such enrollments. Frank Cummings similarly testified that AMH regularly submitted retroactive applications to USH, and that USH never denied such an application unless the application was not dated at all — and on more than a dozen occasions even accepted undated applications. A particularly pertinent example of this practice was USH's acceptance of the enrollment of Kathleen Mays, whose coverage began on January 1, 1990, and whose name was submitted to USH on the same Group Control Form as Fountain's (dated January 23, 1990) and was therefore retroactive. Fountain's application appears to have been the first one that USH attempted to reject pursuant to Section VI.A of the USH-AMH contract.

The concept of waiver is firmly entrenched in the insurance law of Pennsylvania. See Hoffman v. Neshannock Mut. Fire Ins. Co., 39 A.2d 145, 147 (Pa.Super. 1944) (finding waiver where insurer accepted premium coupled with request to alter policy, even though policy itself stipulated a different process for policy alteration). But it would seem that Pennsylvania law does not govern the issue since ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan," 29 U.S.C. § 1144(a), and the provision prohibiting retroactive enrollments is found within the AMH-USH contract. It is, of course, arguable that the AMH-USH contract is not itself part of Fountain's "employee benefit plan" since it is a contract to which Fountain was not a signatory but rather a third-party beneficiary. Nevertheless, applying Pennsylvania's waiver principle to USH's conduct would seem to involve the application of "State law" in a manner that "relate[s] to" Fountain's employee benefit plan. It appears, therefore, that, if a waiver principle is to be applicable in this case, it must find its source not in the law of Pennsylvania, but in ERISA, or, more precisely, the federal common law of ERISA. See Bollman Hat Co. v. Root, 112 F.3d 113, 118 (3d Cir. 1997) (development of federal common law under ERISA is appropriate when "necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted . . . by Congress"); see also Bruce v. Alianz Life Ins. Co., 247 F.3d 1133, 1148 (11th Cir. 2000). While the Third Circuit has incorporated the related principle of equitable estoppel into that common law, see In re Unisys Corp. Retiree Medical Benefit ERISA Lit., 58 F.3d 896, 907 (3d Cir. 1995), it has not considered the question of whether the waiver principle is also part of ERISA.

Pennsylvania's law reflects generally accepted principles of insurance law. See Phoenix Mutual Life Ins. Co. v. Raddin, 120 U.S. 183, 196 (1887) (when an insurer "accept[s] payment of a premium [knowing] that there has been a breach of a condition of the policy, [its] acceptance of the premium is a waiver of the right to avoid the policy for that breach"); Williams v. First Government Mortgage and Investors Corp., 225 F.3d 738, 750 (D.C. Cir. 2000) (same); 17 Lee R. Russ, Couch on Insurance § 239:121, at 239-138 (3d ed. 2000) ("Acceptance and retention of premiums with knowledge of the facts may serve to create a waiver or estoppel as to defenses inconsistent with such retention.").

The first federal appellate court to examine the issue of whether waiver is part of the common law of ERISA was the Fifth Circuit. In 1991, that court decided Pitts v. American Security Life Ins. Co., 931 F.2d 351 (5th Cir. 1991), a case whose facts were quite similar to those at issue here: an insurer attempted to disclaim health insurance coverage because of a breach of the policy, which was governed by ERISA, despite having accepted premiums from the insured after learning of the breach. The Fifth Circuit held that the insurer's knowing acceptance of premiums waived its right to assert the defense to liability. See id. at 356-57.

Six years later, the Fourth Circuit resolved the waiver issue in a manner different from the Fifth. In White v. Provident Life Acc. Ins. Co., 114 F.3d 26 (4th Cir. 1997), plaintiff Willis White asserted that he was entitled to life insurance benefits under both a group policy and an individual "conversion policy" offered by the same insurer, despite the fact that the group policy expressly provided that individuals could not simultaneously hold both forms of coverage. The insurer had issued the conversion policy by mistake. When it realized its error, it informed Mr. White of the problem and tried to refund the premiums he had paid for the conversion policy. White refused to accept repayment and sought declaratory relief. The Fourth Circuit, however, rejected White's argument that the insurer had waived the provision preventing double coverage by accepting his double premiums. Without mentioning the decision in Pitts, it noted that "ERISA simply does not recognize the validity of oral or non-conforming written modifications to ERISA plans." Id. at 29 (quoting HealthSouth Rehabilitation Hospital v. American National Red Cross, 101 F.3d 1005, 1010 (4th Cir. 1996)).

Most recently, the Second Circuit decided Lauder v. First Unum Life Ins. Co., 284 F.3d 375 (2d Cir. 2002), in which it described the disagreement between Pitts and White and sided with the Fifth Circuit. See id. at 381 (describing circuit split on waiver issue). Prior to Lauder, the Second Circuit had rejected a waiver claim in one ERISA case but did not rule that waiver could not apply in ERISA cases presenting different facts. See Juliano v. Health Maintenance Organization of New Jersey, Inc., 221 F.3d 279 (2d Cir. 2000). Juliano examined whether an insurer's failure to deny that a particular treatment was "medically necessary" when rejecting a claim thereby waived that defense in ensuing litigation. The court gave two reasons for its ruling in favor of the insurer. First, it noted that it was undisputed that the Julianos could not show medical necessity and that medical necessity was a required element for coverage; waiver therefore could not apply because it is inapplicable to cases where "the issue is the existence or nonexistence of coverage (e.g. the insuring clause and exclusions)." See id. at 288 (quoting Albert J. Schiff Assocs. Inc. v. Flack, 417 N.E.2d 84, 87 (N.Y. 1980)). And second, a contrary ruling would encourage insurers to issue claim denials with "meaningless catalogs of every conceivable reason that the cost in question might not be reimbursable." Id. at 288. In Lauder, two years later, the Second Circuit sustained an ERISA-based claim of waiver, noting that neither of the Juliano concerns was present. As for the first concern, the insured had presented evidence of a disabling injury to her disability insurer, which had chosen not to investigate further before litigation commenced. See Lauder, 284 F.3d at 381-82. There was no doubt that Ms. Lauder's asserted disability was of a type covered by her insurance — the question was only whether she presented evidence sufficient to establish the disability. Waiver therefore did not expand the scope of coverage, but instead prevented the insurer from questioning the evidence Ms. Lauder had previously presented. As for the second concern — that claim denials would become unwieldy, meaningless documents — the Lauder court pointed out that the insurer in that case "was not in the position of having to imagine every conceivable basis for denying Lauder's claim"; a timely investigation would have identified any defects in the evidence she presented. See id. at 382. Preventing the insurer from questioning the existence of the disability for the first time during litigation kept it from getting "another . . . bite at the apple" in denying claims by the "easiest and least expensive means" at first, only to use "another, perhaps stronger, defense should the first one fail." Id.

At present, two other circuits share the position articulated in Juliano: they have rejected waiver arguments in the context of particular ERISA cases while leaving open the question of whether the principle might be a part of the federal common law of ERISA. See Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1348 (11th Cir. 1994); Thomason v. Aetna Life Ins. Co., 9 F.3d 645, 650 (7th Cir. 1993).

The opinions in Lauder and Pitts, along with the Third Circuit's acceptance of estoppel principles in prior ERISA cases, counsel that the case before this court is one in which the principle of waiver should be applied. As in Lauder, waiver does not here operate to expand the scope of USH's coverage; there is no doubt that Fountain was eligible for USH coverage and that the medical care he received was of the sort normally covered by USH. The principle merely operates to prevent USH from accepting the benefit of Fountain's enrollment — that is, his premiums — without simultaneously accepting the burdens; it establishes Fountain as having been validly enrolled in the USH plan without modifying the plan's terms. See Lauder, 284 F.3d at 381 (distinguishing between "policy conditions," which can be waived, and the "parameters of the underlying insurance coverage," which cannot be). Moreover, unlike the insurer in White v. Provident Life Acc. Ins. Co., USH did not assert that it had mistakenly accepted Fountain's premiums until after he had died and litigation had commenced. (It is also difficult to see USH's acceptance of a retroactive enrollment and its associated premiums as "mistaken" in light of the evidence showing that this was USH's routine practice. See note 17, supra.) I therefore conclude that USH has waived its ability to deny coverage to Fountain on the ground that his enrollment was retroactive under Section VI.A of the USH-AMH contract. Finding otherwise "would be to maintain that the contract of insurance requires good faith of the insured only, and not of the insurers, and to permit insurers, knowing all the facts, to continue to receive new benefits from the contract while they decline to bear its burdens." Phoenix, 120 U.S. at 196.

The remaining question in the dispute between Russo and USH is the amount of damages. AEMC billed USH $291,233.05 for hospitalization services rendered to Fountain. Russo seeks that amount plus prejudgment interest (from the time of the billing) and attorneys' fees. Russo's post-trial memorandum does not, however, present this court with a legal argument supporting its claim to an entitlement to prejudgment interest or attorney's fees under ERISA, contenting itself with mere mention of the Act. Accordingly, this court confines its analysis to the amount due under the bill itself.

USH introduced evidence at trial suggesting that, in 1990, it customarily received discounts of 15% to 25% for bills submitted to USH by nonparticipating hospital providers. However, Russo introduced evidence that, at least at AEMC, prompt payment of the discounted amount due was a predicate for such discounts. That is to say that the discount was negotiated in exchange for prompt payment — not because the amount billed represented more than the usual and customary cost of such services. Needless to say, a 1990 bill that is still due cannot be described as promptly paid.

USH is contractually liable for the full cost of usual and customary charges of medically appropriate services rendered to an insured person. As USH itself determined that the services rendered by AEMC for Fountain were medically necessary, and as I have found that the amount billed represents AEMC's usual and customary charges for the services rendered, I find that USH is liable to Russo for the sum of $291,233.05.

B. Russo v. AMH Plan: Conclusions of Law

In his amended complaint, Russo alleged several forms of misconduct by the AMH Plan that led to the nonpayment of Fountain's AEMC bill. His chief claim appeared to be for the recovery of AMH Plan benefits that were withheld improperly under 29 U.S.C. § 1132(a)(1)(B). In the order of June 30, 1997, I noted that the plaintiff had not

I explained in the order of June 30, 1997, that Russo had not stated a claim for which relief could be granted under 29 U.S.C. § 1132(c).

set forth the legal claims upon which his case against the [AMH] Plan rests. Without such an explication by the plaintiff, the court cannot — despite its determination that the factual allegations in the amended complaint must, as to the claims against the [AMH] Plan, be taken as true — determine whether judgment as a matter of law is appropriate or what the contours of such a judgment might be.

Russo's post-trial brief explains more clearly his claim against the AMH Plan. Russo does not claim that Fountain was due any benefits under that plan — sensibly so, because neither the facts deemed admitted by the AMH Plan nor the facts that I have found independent of the deemed admissions establish that Fountain was enrolled in ALTA, AMH's self-funded insurance plan. Russo instead presses a claim, advanced in the amended complaint, that the AMH Plan breached its fiduciary duty to Fountain by delaying the submission of Fountain's enrollment form to USH and by failing to intercede with USH on Fountain's behalf to ensure that the AEMC hospital bill was paid. According to Russo, these fiduciary breaches caused Fountain not to receive a benefit due him under his contract of insurance with USH — namely, the payment of his AEMC hospital bills. Accordingly, he now clarifies that he seeks equitable relief under 29 U.S.C. § 1132(a)(3)(B)(ii).

Caught as it is between conflicting sets of facts, Russo's claim is somewhat fragile. Fountain was not due any benefits from USH prior to enrolling with USH. If one follows the set of facts that I have found independent of any deemed admissions — i.e., the set of facts applicable to the Russo-USH controversy — then Russo has stated a proper claim against the AMH Plan, since USH owed Fountain benefits upon his January 12, 1990, enrollment, but (according to Russo) fiduciary breaches by the AMH Plan caused USH to deny Fountain those benefits. However, in the set of facts applicable to the Russo-AMH Plan controversy — facts altered by the AMH Plan's deemed admissions — AMH Plan agents "directed, encouraged, assisted and/or aided a family member of Fountain's to sign and backdate a USH enrollment form" after Fountain's admission to AEMC, making a claim for "benefits due to [Fountain] under the terms of his plan" of value only if such backdated enrollment was proper under the contract. On this latter set of facts, it is less apparent that the AMH Plan breached a duty to Fountain.

Which set of facts to follow here? The most direct course would appear to be to use the facts alleged by Russo and deemed admitted by the AMH Plan as the predicate for the legal analysis of the controversy between those two parties. However, that course leads the analysis astray. The AMH Plan was deemed to have admitted certain facts as a sanction for its failure to respond to opposing parties' pleadings: the deeming was not designed to penalize Russo, an adversary of the AMH Plan. In this context, then, the facts that I have found independent of the deemed admissions should be displaced by the deemed admissions where, but only where, such displacement works against, rather than in favor of, the AMH Plan. It is thus proper at this stage of the analysis to use the facts that I have found, independent of the deemed admissions. Under those facts, Fountain enrolled in USH more than a week before the stabbing. The AMH Plan's failure to forward the necessary documents prior to Fountain's stabbing may well have contributed significantly to USH's denial of benefits, since USH would very likely not have questioned Fountain's enrollment status if it had received Fountain's enrollment form before his hospitalization.

See note 1, supra.

Finding that the AMH Plan's delay in forwarding documents in some way contributed to USH's denial of benefits does not, however, necessarily compel the conclusion that the AMH Plan breached its fiduciary duty to Fountain. Russo has not come forward with any explanation of why the several-day delay constitutes a fiduciary breach. On the evidence before me, I conclude that it does not. As set forth in the findings of fact, see section I(A) and note 17, supra, retroactive enrollment was a common feature of the AMH-USH relationship; moreover, USH was accustomed to receiving enrollment applications of AMH employees several days (at least) after those employees filled out enrollment application forms — particularly when such forms were filled out during or soon after the open enrollment period. In this context, the AMH Plan's brief delay in submitting Fountain's application to USH cannot be said to constitute a fiduciary breach.

In tort terms, one might say that the existence of damages and causation does not suffice to establish liability; a plaintiff must also prove a breach of duty.

Russo also claims that the AMH Plan breached its fiduciary duties to Fountain by failing to press Fountain's case with USH to the extent Russo believes was warranted; Russo argues that the AMH Plan failed to do so because settling the claim would have required the AMH Plan to pay part of the AEMC bill, since USH contended then (as it does now) that Fountain was enrolled, if at all, in ALTA — not USH — at the time of his accident. In support of this claim, Russo cites several unobjectionable maxims of the law of trusts, most notably that a "trustee should not without sufficient reason fail to take steps to enforce a claim." McMahon v. McDowell, 794 F.2d 100, 110 (3d Cir. 1986) (citation omitted).

While Russo cites sound case law, he gives short shrift to the central question: whether the AMH Plan decided to end conversations with USH regarding Fountain's AEMC bill "without sufficient reason." Russo may be correct in alleging that the AMH Plan decided to break off discussions with USH because USH was unwilling to pay any part of the AEMC bill. But the question here is whether such a motivation is legally inappropriate for a fiduciary. Russo thinks it is inappropriate, claiming that a fiduciary's action in his own self-interest is per se violative of his duty where that action redounds to the detriment of the insured. That proposition sweeps too broadly; while it is theoretically possible for a fiduciary to resolve any dispute between an insured and an insurer by paying all or part of the disputed amount out of the fiduciary's own pocket, a fiduciary is under no obligation to do so. The complication in this case arises because the AMH Plan was not only the fiduciary, but also an insurer (through its ALTA insurance plan) — in particular, an insurer who, according to USH, was Fountain's insurer at the time of his hospitalization. Because of its asserted dual role as fiduciary and alleged insurer, the decision by the AMH Plan not to agree with USH to pay some part of Fountain's AEMC bill could, arguably, open the AMH Plan to allegations of a conflict of interest.

The facts that have been found provide a quick path out of this thicket. Notwithstanding USH's allegation, I have found that Fountain was never enrolled in ALTA. The AMH Plan, then, was Fountain's fiduciary in his relationship to USH, but was not Fountain's insurer. As the AMH Plan was therefore operating solely as a fiduciary, it was under no obligation to expend its own funds in order to induce USH to pay some part of a bill that so the AMH Plan may reasonably have believed — USH was contractually obligated to pay in full. The decision by the AMH Plan to break off conversations with USH over such a settlement, then, was undertaken with "sufficient reason," and the action cannot be said to constitute a breach of fiduciary duty.

The AMH Plan's deemed admissions do not affect that finding, since they merely require it to acknowledge that its agents assisted Price in enrolling Fountain in USH after his hospitalization.

In sum, Russo has failed to establish that the AMH Plan breached any fiduciary duty to Fountain, and has, accordingly, failed in his claim against the Plan for improper withholding of benefits under 29 U.S.C. § 1132(a)(1)(B) or for equitable relief under § 1132(a)(3)(B)(ii).

The AMH Plan contends that Russo's claim of fiduciary breach also fails because of a defect in his amended complaint specifically, the fact that the complaint does not allege that AMH employees acted as agents of the AMH Plan. Because the court has found that Russo's claim against the AMH Plan fails for other reasons, it need not reach this issue.

C. USH v. AMH: Conclusions of Law

In the order of June 30, 1997, I found that the AMH defendants had breached their contract with USH and therefore granted summary judgment in favor of USH against the AMH defendants. The order was subsequently modified to set aside the grant of summary judgment against the AMH Plan, and instead to grant summary judgment in the AMH Plan's favor. AMH remained summarily adjudged as liable. An explanation of the rationale behind the grant of summary judgment may be found in some detail in my order of June 30, 1997. In short, I determined that AMH had breached its contractual obligation to provide USH with "such information as may reasonably be required for the purpose of enrolling members." Because AMH did not provide such information to USH, USH treated Fountain — who, on the set of facts applicable to the USH-AMH controversy, was not enrolled until he was comatose and therefore no longer actively employed — as having been validly enrolled. In consequence, USH now finds itself adjudged liable (to Russo) for the hospitalization costs that Fountain incurred at AEMC. AMH must therefore indemnify USH for that liability.

AMH claims, however, that USH failed to mitigate its damages with regard to Fountain's hospitalization. AMH alleges that USH knew enough about Fountain's enrollment to question his eligibility on the day of his admission to AEMC, and that USH should have informed Fountain's family and AEMC that it regarded his enrollment as questionable. If USH had done so, AMH contends, Fountain's family or AEMC could have applied for Pennsylvania's medical assistance benefits. See section I(A), penultimate paragraph, supra. AMH points out that such benefits can be awarded retroactively, but not for charges incurred more than ninety days before the application. Therefore, to obtain full benefits, an application would have to have been made within ninety days of Fountain's admission to AEMC. If such an application had been submitted, so AMH argues, the medical assistance program would have paid a portion of Fountain's AEMC bill and, by accepting that money, AEMC would have been obliged to consider the bill fully paid. In that case, USH would not have been obliged to pay any money to AEMC at all, and AMH should not now be liable to USH.

There is some evidentiary support for the claim that USH failed to mitigate its damages. As noted in the findings of fact, USH personnel were aware of the reputed post-hospitalization change in insurance coverage within a day of Fountain's admission. Indeed, USH's own procedures required questions raised by comments in an insured's "comment screen" to be forwarded to USH's enrollment department for investigation; unfortunately, USH did not follow its own procedures in Fountain's case. Moreover, USH's Medical Director, Arthur Leibowitz, had been told, by February 6, 1990, at the latest, that Fountain's insurance coverage had been changed to USH concurrently with Fountain's admission. USH's copy of Fountain's enrollment form, which USH received no later than early February, contained a date contrasting with the information in USH's computer records, another fact that should have raised suspicions about Fountain's coverage. And it certainly is arguable that, as an insurer actively covering employees in Pennsylvania in 1990, USH should have known that uninsured persons could not apply for medical assistance benefits to defray medical expenses incurred more than ninety days before the application. USH nevertheless waited until April 1990 to complete its initial investigation, and did not ask the AMH defendants about the circumstances of Fountain's enrollment until after Fountain's death.

In this context, I find that the duty to mitigate damages entailed a responsibility to launch a prompt investigation into Fountain's enrollment, with a view to concluding such an investigation promptly enough that Fountain's family or AEMC could have applied for medical assistance, if necessary. AMH claims that if USH had launched such an investigation, USH would not be liable at all because USH would have rejected Fountain's application, and AEMC's subsequent acceptance of medical assistance payments would have obliged AEMC to consider Fountain's bill fully paid. However, this finding would conflict with the factual conclusions reached by this court in section I(A), supra. Those conclusions require the court to assume that if USH had conducted a prompt investigation, it would have determined — just as this court has determined — that Savoria Price enrolled Fountain with USH prior to his hospitalization. USH might well have recognized at that time that the application came after the enrollment deadline and was therefore an attempt to obtain retroactive coverage. And because it had not yet accepted Fountain's premiums in knowing disregard of this defect, USH might also have been legally justified in rejecting the application as a result. Nevertheless, the court concludes that, given USH's established practice of accepting retroactive enrollments, see note17, supra, and the fact that it did not assert the retroactivity defense until well after Fountain had died, USH would not immediately have rejected Fountain's application if it had conducted a prompt investigation.

In this scenario, neither Fountain's family nor AEMC would have applied for medical assistance benefits, and USH's liability to Russo would still be $291,233.05. The court understands that this conclusion conflicts with the facts deemed admitted in this court's order of June 30, 1997. Under those admissions, Fountain's application would have been invalid because, among other things, he did not sign it himself. However, AMH cannot reduce its liability by relying upon facts deemed admitted as a sanction for its own failings. See section II(B), supra. Where the facts found by this court are adverse to AMH, those facts must displace the admissions. Accordingly, AMH must indemnify USH for the full amount — $291,233.05 — of USH's liability to Russo.

Specifically, it conflicts with the facts described in Section I(C), facts which would otherwise lead to the conclusion that Fountain's USH application was invalid.

IV. Conclusion

A brief summary of this court's rulings may be helpful to the reader:

Section I(A) concerns the dispute between Russo and USH. That section finds that, no later than January 12, 1990, Savoria Price filled out an application for USH insurance on behalf of her brother, Eric Fountain. On January 22, 1990, Fountain was hospitalized at AEMC for a stab wound. Russo, as plaintiff, seeks to recover for AEMC the substantial costs associated with Fountain's care. Sections I(B) and I(C) concern, respectively, disputes between Russo and the AMH Plan, and between USH and AMH. Those two sections describe certain allegations which the AMH defendants are deemed to have admitted but which differ from the facts found in Section I(A).

Section II(A) resolves the dispute between Russo and USH in favor of Russo. It concludes that (1) it was not inconsistent with the AMH-USH contract for Price to apply for USH insurance on her brother's behalf, and (2) by accepting (and never undertaking to refund) Fountain's premiums, USH waived any other objections to liability; accordingly, USH is adjudged liable to Russo for $291,233.05 in charges arising from Fountain's hospitalization. Section II(B), by contrast, finds against Russo in his claim against the AMH Plan. It concludes that the AMH Plan did not breach its duties as Fountain's fiduciary under ERISA either by delaying its processing of his USH application or by failing to press USH for payment of his AEMC bill. Section II(C) resolves the third-party claim by USH against AMH in favor of USH. It concludes that AMH, Fountain's employer, breached its contract with USH by failing to provide USH with all the information USH needed to process Fountain's enrollment properly, and that AMH must therefore indemnify USH for the $291,233.05 that USH must pay to Russo.

Judgment will be entered in favor of plaintiff Samuel Russo against defendant USH in the amount of $291,233.05, and judgment of indemnity will be entered in favor of third-party plaintiff USH against AMH for $291.233.05.

ORDER

For the reasons set forth in the opinion accompanying this order, it is hereby ORDERED that (1) judgment is entered in favor of plaintiff Samuel Russo against defendant USH in the amount of $291,233.05, and (2) judgment of indemnity is entered in favor of third-party plaintiff USH against AMH for $291,233.05.