SUPREME COURT HOLDS A THIRD-PARTY ADMINISTRATOR CAN BE LIABLE TO PARTY PARTICIPANTS IF IT EXCEEDS ITS SCOPE AND ASSUMES THE ROLES OF INSURER.
The Supreme Court of Wyoming. David Peterson (“Mr. Peterson”) began working for Memorial Hospital (“Hospital”) in February 2013 and became insured under the Hospital’s Health Benefit Plain (“Plan”) in August of 2013. The Plan was drafted by Meritain Health (“Meritain”). The Plan describes Meritain as the “Third-Party Administrator” and that the plan will be “administered” by the Hospital and that the Hospital “has retained the services of the Third-Party Administrator [Meritain] to provide certain claims processing and other ministerial services.” In October 2013, Mr. Peterson was diagnosed with congestive heart failure and cardiomyopathy. In November 2013, Mr. Peterson was hospitalized and received treatment, including an implanted defibrillator. Mr. Peterson incurred $247,934.74 in medical bills. Mr. Peterson submitted his medical bills to Meritain. Meritain paid some of the bill but denied coverage for $207,423.67 “determining these charges related to a pre-existing condition, which the Plan excludes from coverage.” Mr. Peterson filed suit which he sought to recover under the theories of breach of Plan contract, breach of Administrative Services Agreement (ASA) between the Hospital and Meritain, and breach of the covenant of good faith and fair dealing. The district court granted summary judgement in favor of Meritain, holding that, “lacking privity of contract, Mr. Peterson had no cause of action for breach of contract against a third-party administrator.” Mr. Peterson had “no cognizable claim under the ASA as he was not an intended third-party beneficiary as a matter of law.” Without a contract, “Mr. Peterson could not assert a cause of action for bad faith against Meritain.” Mr. Peterson appealed. The Supreme Court of Wyoming held that, “so long as Meritain was acting with authority, Mr. Peterson’s claims would be against the Hospital, not Meritain.” However, here Meritain’s scope of authority under the Plan was to be “ministerial” or “administrative,” and “Mr. Peterson was required to submit his claim to Meritain.” Meritain “determined whether claims would be approved or denied.” Meritain “paid approved claims and notified claimants of denied claims.” Meritain decided two levels of appeal, “with no apparent input or approval from the Hospital.” Therefore, Meritain exceeded the scope of its authority and the district court erred in granting summary judgement as to this claim. Regarding Peterson’s claim that he was a third-party beneficiary of the contract, the Court held that the Plan, as a whole, and the circumstances surrounding its execution, created a question of fact as to whether the Hospital and Meritain intended to benefit Plan Participants. In considering whether a plan participant can sue third-party administrators in bad faith the Court first reviewed the Wyoming case Long. However, the Court held that “Long leaves unanswered questions, and the Court did not establish a framework for determining when a third-party administrator could be liable for bad faith.” The Court then considered the out of state cases of Wolf, Cary and Wathor, holding that, in a situation where a plan administrator performs many of the tasks of an insurance company, has a compensation package that is contingent on the approval and denial of claims, and bears some of the financial risk of loss for the claims, the third-party administrator can be liable for bad faith. Therefore, there were genuine issues of material fact precluding summary judgement on Peterson’s claim for breach of the covenant of good faith and fair dealings. The Supreme Court reversed and remanded the lower courts granting of summary judgement on Mr. Peterson’s claims.
Peterson v. Meritain Health, Inc., 2022 WY 54, 2022 Wyo. LEXIS 51
(April 20, 2022).