Employer Stuck with $830k Bill After Delay Results in S-L Claim Denial

The outcome in this case should remind employers that even with stop-loss (S-L) in place, a self-insured health plan is risky business.

Trouble for the Claire’s Stores health plan started in the form of a premature birth, which generated about $1 million in charges.

Under the terms of its S-L contract, the plan had to pay the hospital by April 30 for it to fall into the S-L policy’s time limit.

With time running out, the plan audited the hospital’s bill. In so doing it reduced the bill by about 10 percent. But it missed its April 30 deadline, and instead paid the hospital on May 27 and its claim for S-L reimbursement was rejected.

The S-L policy unambiguously limited reimbursement to claims incurred and paid before the end of the policy period. The policy that ended April 30 simply could not pay a claim that the plan didn’t cover until May 27. The case is Claire’s Stores v. Companion Life, 2012 WL 769729 (N.D. Ill., March 7, 2012).

Don’t Read One Contract Provision in Isolation of the Whole

Taking individual paragraphs in isolation from the overall contract, Claire’s argued that the stop-loss policy did not really require payment during the contract period to constitute a valid reimbursement claim.

But in several other places, the S-L contract stated that a claim would not be covered unless the plan actually paid the full amount triggering a stop-loss claim in the allotted period.

Contract Must Be Viewed in its Totality

The court agreed with Companion’s reading that the contract was not ambiguous, because:

1. The contract must be read in its totality. The plan tried to use “and-or” language in the benefits section to support its position that reimbursement was not conditioned on payment. But the plan ignored paragraphs that explicitly stated that reimbursement was contingent on bills being actually paid.
2. Claire’s stance would lead to an absurd result by allowing it to seek reimbursement for claims it had yet to pay. Given that not all incurred claims were actually paid, Claire’s would receive a windfall if it were reimbursed for unpaid claims, the court said.

Based on the policy read in its totality, and the potential for Claire’s interpretation to lead to an absurd result, Companion’s motion to dismiss was granted.

Renewal Application Doesn’t Equal Coverage

The employer moved to Argument B, which was to say the renewal process (set in motion in the month of April) created a new policy that would cover the claim. But the insurer said, no, we’re not covering you this year.

On May 14, Companion sent an unexecuted renewal application, which the plan signed on May 17 and submitted with its first premium payment. But Companion rejected the application, and it countered on June 15 with a different renewal application with revised rates, deductibles and terms. The plan never signed or accepted that offer, but instead and submitted the second premium payment under the May renewal.

On or around July 6, 2010, Companion returned the plan’s May and June checks and refused to cover the plan, because Claire’s hadn’t accepted the June offer.

The court supported the insurer, saying that a signed application and a check for the first month’s premium was not a guarantee of coverage.

The Renewal that Never Happened

photo: Charles Leeuwenburg

Even though the payer returned those payments, the plan argued that the time delay was an acceptance

Companion argued that it never reached a binding agreement with the plan on renewal; and it did not agree that mere receipt of two premium checks (it returned the funds) bound it to the terms in the May renewal application.

In its renewal applications, Companion reserved for itself the right to turn down coverage, even after the renewal contract had been executed.

The court said it was very rare that silence be interpreted as an acceptance of terms. In fact, Companion rejected Claire’s May application and sent Claire’s an amended application, which Claire’s received but did not sign or accept. That constituted a counter offer by the insurer that terminated the initial offer, the court said.