State Law Claim For Non-payment of Coverage Not ERISA Preempted

June 13, 2003 ( - A hospital's state law claim alleging a health plan negligently represented that it would provide coverage for a plan participant's medical care is not preempted by ERISA.

US District Judge Sidney Fitzwater of the US District Court the Northern District of Texas rejected the ERISA preemption argument against a self-funded health plan operated by Wal-Mart Stores Inc. That was due to questions of fact surrounding a pre-recorded telephone message left by Wal-Mart and its sufficiency to put the hospital on notice that a pre-authorization for medical benefits was not a guarantee of payment, according to Washington-based legal publisher BNA.

Further additional issues of fact were found by Fitzwater as to whether Wal-Mart represented that its health plan would pay the hospital for services rendered to the participant regardless of any limitations and exclusions contained in the plan, such as the exclusion for accidents caused by the use of drugs or alcohol.   Despite initially verifying coverage, Wal-Mart reversed course after determining that the participant was under the influence of marijuana at the time of the injury.

“Wal-Mart stated that [the participant] was covered and, critically, it pre-certified [the participant] for three days of hospitalization,” the court said.   However, despite the court’s finding that ERISA would not preempt the hospital’s separate state law breach of contract claim against the plan, the claim was dismissed on the determination that the hospital lacked standing as a third-party beneficiary.

Hopped Up

A participant in the health plan, Preston Cave, was injured in an automobile accident on November 2000 and was admitted to Methodist Hospital of Dallas.   After being admitted, the hospital contacted Wal-Mart to pre-certify Cave’s hospital stay. However, in lieu of a live operator, Wal-Mart’s “benefits hotline” contained a recorded message informing callers that a pre-authorization for services was not a “guarantee of payment.”

Later, Wal-Mart pre-certified Cave’s hospital stay, only refusing to pay for his medical expenses after it was discovered he was under the influence at the time of his accident. The hospital sued Wal-Mart for breach of contract and negligent misrepresentation. Wal-Mart filed a motion to dismiss the claims as preempted by ERISA.

Addressing the breach of contract claim, the court found that such claim was not preempted by ERISA because the hospital sued Wal-Mart as a third-party beneficiary of the Wal-Mart plan, not as Cave’s assignee. “That Methodist could have sued, but opted not to, as Cave’s assignee is not dispositive. Accordingly, Methodist’s claim is neither dependent upon nor derived from Cave’s right to recover benefits under the Plan, and its breach of contract cause of action is not preempted under ERISA,” the court said

However, the court went on to dismiss the breach of contract claim after finding that the hospital failed to demonstrate that it was a third-party beneficiary of the health plan. The plan did not specifically identify Methodist as a provider whom Wal-Mart promised to pay, the court said.

The case is Methodist Hospitals of Dallas v. Wal-Mart Stores Inc., N.D. Texas, No. 3:02-CV-0656-D, 5/30/03.