ERISA does not preempt hospital's state-law claim alleging insurer misrepresented that patient's bills would be covered

Law Reporter, May 1999

Transitional Hosps. Corp. v. Blue Cross and Blue Shield of Texas, Inc.,164 F.3d 952 (5th Cir. 1999).

The Fifth Circuit Court of Appeals held that the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1 1001 et seq., does not preempt a hospital's state-law claim against an insurer for allegedly misrepresenting that it would cover a patient's hospital bills.

Here, Davis, a retired Armco employee, participated in Armco's employee benefit plan, which was subject to ERISA. Davis was a patient at Transitional Hospitals Corporation (THC) and incurred hospital bills in excess of $494,000. Blue Cross and Medicare paid part of the bill, and THC billed Blue Cross and other insurers for the unpaid portion, claiming they had represented that the ERISA plan would reimburse THC for all of Davis's hospital bills after exhaustion of his Medicare benefits. The insurers refused to pay the rest of the bill, finding that THC was a nonparticipating hospital under the ERISA plan.

THC sued Blue Cross, among others, alleging common law misrepresentation and statutory misrepresentation under TEx. INS. CODE ANN. art. 21.21, and other claims. The trial court granted defendants summary judgment.

Reversing in part, the Fifth Circuit noted that 1144(a) of ERISA preempts all state laws insofar as they "relate to any employee benefit plan covered by the Act." The court cited case law establishing a framework for determining whether ERISA preempts state-law claims by hospitals against insurers. Under this framework, when a patient is covered by an ERISA plan, there is no preemption if the hospital's claims are neither dependent on nor derived from the patient's right to recover benefits under the plan.

Here, the court found, plaintiff's state-law claims alleging misrepresentation under common law and the Texas insurance code were neither dependent on nor derived from Davis's right to recover benefits under the Armco plan. Rather, plaintiff alleged that defendants' misrepresentations were actionable under state law "to the extent that Davis was not covered by the policy as represented by Blue Cross." Thus, ERISA did not preempt plaintiff's misrepresentation claims.

Accordingly, the court remanded.

Plaintiff's Counsel:

Joseph Latting, Austin, Tex.

Barbara M. Ellis, Austin, Tex.