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Burley v. Prudential Insurance Co.

Decided: November 21, 1991.


On appeal from the Superior Court of New Jersey, Law Division, Essex County.

King, Gruccio and Brochin. The opinion of the court was delivered by King, P.J.A.D.


This is an appeal from a dismissal of an action at law for money damages by a State of New Jersey employee against the Prudential Insurance Company (Prudential).*fn1 Prudential is the administrator of the State Health Benefits Program established to provide health benefits for State employees by N.J.S.A.

52:14-17.25 to -17.45; L. 1961, c. 49; see also N.J.A.C. 17:9-1.1 to -7.4. Judge Stein granted summary judgment in the Law Division in favor of the defendant Prudential on the ground that plaintiff had failed to exhaust her administrative remedies by appealing the denial of her claims to the State Health Benefits Commission (SHBC), the State agency charged with the operation of the program under the aegis of the Treasury Department. See N.J.S.A. 52:14-17.27. We affirm the order of January 25, 1991 dismissing the complaint for damages but modify it: (1) to transfer the matter under R. 1:13-4(b) to the SHBC for an administrative hearing, and (2) to provide that the dismissal is without prejudice on the merits as to any potential action at law by plaintiff against either Prudential or the SHBC.

The suit was brought in the Law Division against Prudential by plaintiff Margaret Burley, a State employee, on behalf of herself and her infant son, Thomas Burley. As part of her benefits package, she receives health insurance under the State Health Benefits Program, specifically the "Traditional Plan." This Plan includes a Blue Cross/Blue Shield component which is not involved in this case.

The State Health Benefits Program is, in effect, the State of New Jersey acting as a self-insurer. Prudential administers the Program and makes payments on claims on behalf of the State. The claims must, however, be authorized by the SHBC, the agency created by N.J.S.A. 52:14-17.27 to operate the Program. In short, the money comes from the State but Prudential runs the claims aspects of the Program.

The SHBC consists of the Commissioner of the Department of Insurance, the President of the Civil Service Commission (now presumably the Commissioner of Personnel of the Merits System Board, N.J.S.A. 11A:2-8 to 11A:2-11), and the State Treasurer. N.J.S.A. 52:14-17.27. The SHBC retains all final authority and financial responsibility for the Plan under its contract with Prudential. Indeed, in their contract the SHBC

has agreed to hold Prudential harmless from any claims, lawsuits, settlements, judgments, costs, penalties and expenses arising out of the administration of the Program except where it has acted in a criminal or fraudulent manner.

Plaintiff Margaret Burley submitted a claim for services performed on August 10, 1989 by Dr. Tager. The procedure was apparently complicated, described as a total left thyroidectomy and isthmusectomy. Plaintiff submitted her doctor's bill to Prudential for the surgery performed by Dr. Tager after Blue Cross/Blue Shield paid their basic $473. Prudential paid only $3,327 and refused to pay the balance of $1,045 because that amount was "determined to be above the range of reasonable and customary fees for this service in your provider's area." Dr. Tager had advised Prudential that his charge for the four-hour operation was "not excessive for this large and difficult procedure and certainly falls within the normal fees within the Northern Bergen County area."

The second claim brought by plaintiff Margaret Burley was on behalf of her son, Thomas, who required a tonsillectomy. Forewarned by her prior disappointment, Margaret Burley wrote to Prudential on March 7, 1990 seeking a predetermination of the "customary fee" for this type of surgery allowed by Prudential so she could shop for a surgeon to operate on him. In a reply dated March 30, 1990 Prudential refused to supply such a proposed fee, presumably because this would constitute bidding against itself. Prudential replied: "In order to inform you if the provider's charge is a customary fee, we must be furnished with the provider's name and address along with the fee amount."

Margaret Burley then sued Prudential for the $1,045 which she presently owes her surgeon, Dr. Tager; for $5,000 general damages for pain and suffering for her son, and $5,000 for her derivative damages on her son's claim plus attorney's fees. She claimed in her complaint that on ...

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