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Yodzis v. Tilak


February 26, 2009


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-874-03.

Per curiam.


Argued: January 30, 2009

Before Judges C.L. Miniman, Baxter and King.

Plaintiff appeals from the summary judgment disposition of his negligence and medical malpractice claims against four defendants -- Walter DePalma, M.D., Michael McNeil, M.D., Health Net of the Northeast, Inc. (HN-NE), and Health Net of New Jersey, Inc. (HN-NJ). These defendants, which we jointly refer to as the Health Net defendants, were plaintiff's group health insurance carriers and the physicians who served as their medical and clinical directors. Plaintiff sued them for damages for personal injuries he suffered as the result of a stroke, alleging that they breached a duty to plaintiff imposed on the medical directors by N.J.S.A. 11:24-4.1 and -4.2 to ensure that plan participants received adequate medical care.

The ground for dismissal was that the claims were preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. §§ 1001 to 1461 (ERISA), as interpreted by the United States Supreme Court, conferring immunity on these defendants for tort liability under state law. We affirm.


This is the procedural background. Plaintiff Steven Yodzis filed an amended complaint in Superior Court, Law Division, Burlington County, against the Health Net defendants, alleging that they were the proximate cause of injuries he suffered as a result of their negligent and reckless denial or delay in approving or providing medically necessary services requested by him and in failing to notify him of same, and that this denial or delay and absence of notice constituted a deviation from the proper standards of medical care. The amended complaint also asserted medical malpractice claims against other defendants: Dr. Samir Tilak (plaintiff's radiologist); Radiology Associates of Burlington County, P.A. (Tilak's employer); Jose A. Escalona, M.D. (plaintiff's vascular surgeon); Krueger and Pascual, M.Ds., P.A. (Escalona's employer); Harry E. Manser, Jr., D.O. (plaintiff's family doctor); Dr. Carolyn M. Cavuto-Carnivale (plaintiff's family doctor); Mitchell J. Rubin, M.D. (plaintiff's neurologist); Neurology Consultants of Burlington County (Rubin's employer); and Kenneth Lewandowski, D.O. (plaintiff's emergency room doctor).

The Health Net defendants answered, denying all liability to plaintiff. In addition, they raised various affirmative defenses, including the preemption by ERISA and the absence of a physician-patient relationship between plaintiff and defendants, DePalma and McNeil.

On July 9, 2004 the Health Net defendants moved for summary judgment. Plaintiff opposed the motion. Judge Baldwin heard argument on September 10, 2004 and granted the motion the same day. On September 13, 2004 he signed an order dismissing the complaint against the Health Net defendants. Plaintiff's motion for leave to appeal was denied by this court on November 12, 2004.

On March 15, 2006, while the case was still pending as to some of the other defendants, plaintiff moved for reconsideration of the grant of summary judgment in favor of the Health Net defendants. Judge Baldwin heard argument on March 31, 2006 and denied the motion the same day. All of plaintiff's claims against all of the other defendants then were resolved either through settlement or voluntary dismissal.

Plaintiff then filed a timely notice of appeal from the order granting summary judgment in favor of the Health Net defendants and the order denying his motion for reconsideration.


These are the pertinent facts. Defendant HN-NJ provided health insurance benefits to plaintiff pursuant to a group agreement with plaintiff's employer, the Occupational Therapy Center of Burlington County. In 2001 HN-NJ did not have its own prior authorization department. Those functions were handled by defendant HN-NE, of which HN-NJ was a wholly owned subsidiary.

In November and December 2001, defendants DePalma and McNeil were medical directors of HN-NJ, which was a health care carrier licensed by the State of New Jersey to provide health care benefits to members and subscribers who lived or worked in New Jersey. It was not a physician-owned health maintenance organization (HMO). Plaintiff's health plan was governed by federal law, ERISA.

Plaintiff was admitted to Burlington County Hospital from July 25 to July 31, 2001. His discharge diagnosis stated that he had suffered a transient ischemic attack and a left carotid artery dissection. He was placed on Coumadin, an anticoagulant, to reduce the risk of another stroke. He received follow-up care from defendant Rubin, a neurologist. On October 29, 2001 Rubin advised him to consult with a vascular surgeon.

Plaintiff saw defendant Escalona, a vascular surgeon, on November 6, 2001. Escalona recommended that plaintiff be admitted to the hospital on November 12 for an arteriogram and started on a Heparin weight-based protocol, which would allow the Coumadin to be reversed in anticipation of an endarterectomy, which was scheduled November 15. Escalona claimed that he never told plaintiff to discontinue his Coumadin.

In anticipation of plaintiff's hospitalization, Kathy Kranz, Escalona's surgery scheduler, attempted to get pre-authorization from HN-NJ. Plaintiff's coverage agreement with HN-NJ provided that hospital services required prior authorization and that any services rendered after a member was notified that prior authorization was denied would be the responsibility of the member. The agreement provided that members would receive benefits only when "[m]edically

[n]ecessary and [a]ppropriate."

The facts then become disputed. Escoalona claims that

Kranz was told, either by DePalma or McNeil, that HN-NJ was denying authorization for the hospitalization and procedure due to plaintiff's heavy alcohol abuse. They wanted to have the patient stabilized from such abuse before the arteriogram. Kranz gave this information to Escalona who called either DePalma or McNeil and told them that plaintiff was in need of the arteriogram and the surgical procedure, neither of which was contraindicated by his alcohol abuse. According to Escalona, HN-NJ nevertheless continued denial of authorization.

Escalona told Kranz to call plaintiff and tell him that his November 12 admission was cancelled due to his insurance company's denial of coverage. Although Kranz did not specifically remember whether she did this, she noted that it was her usual practice to contact a patient whenever surgery was cancelled due to a denial of coverage. In this case, she said that she must have contacted plaintiff because she had scheduled him for another office appointment on December 18, 2001.

A handwritten note from Escalona's office dated November 8, 2001 stated the following: "Phone call from Clinical Director of Health Plan, refuses admission, A-gram due to heavy ETOH abuse. Would like to have patient stabilized from that part prior to A-gram."

Plaintiff claimed that he was never told about the insurance coverage denial or the cancellation of his procedure. On November 13, 2001 he reported to defendant Manser, his family physician, and told him that Escalona had instructed him to cease taking Coumadin in anticipation of his surgery. Manser told plaintiff that he would need to cease the medication at least five days before the procedure. It was Manser's understanding, from plaintiff, that the procedure was scheduled for November 19 or 20. Based on this understanding, Manser took plaintiff off Coumadin on November 13. He said he would not have done so had he known there were problems getting the surgery scheduled.

On November 28, 2001 plaintiff saw defendant CavutoCarnivale, who worked in the same office as Manser, for some cold symptoms. It was Cavuto-Carnivale's understanding that plaintiff was off his Coumadin and that he would be undergoing an arteriogram within the next few days. She believed that he needed the operative procedure and that his use of alcohol was not a reason to preclude it. She never asked plaintiff, and he never told her, exactly why the surgery had not yet taken place.

Rubin, plaintiff's neurologist, saw plaintiff on December 17, 2001. According to his office note, plaintiff had been scheduled for an arteriogram "but for unclear reasons this has been canceled on several occasions." For nearly a month now, plaintiff had been off his Coumadin. Rubin advised plaintiff to start on his Coumadin again as soon as the arteriogram was completed and to have the procedure done as soon as possible. Plaintiff told Rubin that he was scheduled to see Escalona the following day.

Plaintiff never appeared for his appointment with Escalona on December 18. Escalona's office called plaintiff's house and found out that he had suffered a severe stroke upon leaving Rubin's office the previous day. The hospital records for December 17 showed that plaintiff was diagnosed with cerebrovascular disease and carotid stenosis. Plaintiff ultimately underwent the endarterectomy in February 2002. HN-NJ paid for it in accordance with the terms of plaintiff's health plan.

The Health Net defendants denied that they ever told Escalona that they were denying pre-authorization for plaintiff's hospitalization and procedure. Rather, they said on November 7, 2001 McNeil had merely requested additional information from Escalona to determine whether or not to approve the request. On November 8, 2001 Escalona informed DePalma that the surgery had been canceled due to concerns over possible medical complications. Kranz, from Escalona's office, called HN-NJ later that day to officially withdraw the request for pre-authorization. This sequence of events was seemingly corroborated by HN-NJ's contact service forms for November 6 through November 8, 2001. Thus, the Health Net defendants apparently alleged that they never had the opportunity to make a decision one way or the other on plaintiff's pre-authorization request. In any event, there was an unfortunate lack of effective communication.

In their answers to interrogatories, both DePalma and McNeil denied having any professional medical relationship with plaintiff and denied treating or rendering any diagnosis for him. Any determinations they made regarding requests for pre- authorization were based upon the terms of the subscriber's applicable plan and on the information provided to them by plan members and their treating physicians.

At his deposition, DePalma claimed that the limited information he had regarding plaintiff would not have led him to conclude that alcoholism contraindicated the need for the surgical procedure which Escalona proposed. He claimed that plaintiff's alcoholism alone would not have been a reason to deny authorization for the procedure and that this should have been a "slam dunk approval." DePalma adamantly denied that he ever told Escalona that he was denying or delaying authorization for the procedure.

Nevertheless, DePalma admitted that, as the medical director of HN-NJ, he had a duty and responsibility for the quality of medical care for the company's insureds. Somewhat curiously, he also admitted that it was his responsibility and duty to plaintiff in particular to find out when, if ever, he was going to have his surgery and to find out what Escalona's plan of action was to treat plaintiff's medical disorders. He also admitted that if he had denied pre-authorization for the procedure due to plaintiff's alcoholism, that would have been a medical treatment decision.

At his deposition, plaintiff offered yet another reason for why he did not receive the procedure as scheduled. He claimed that a secretary from Escalona's office called him and told him that the surgery had to be postponed because the doctor was going on vacation. Debra Motta, who lived with plaintiff, claimed that this message was left on their answering machine the day before plaintiff's scheduled surgery, some time after Thanksgiving.

According to Stephen Sachs, plaintiff's medical malpractice expert, plaintiff's stroke was preventable. He believed that any decision of the Health Net defendants to deny plaintiff's hospital admission and surgery was not a decision regarding medical benefits, but one regarding medical treatment. He also believed that the medical directors of HN-NJ were practicing medicine when they refused to provide insurance coverage for plaintiff. He believed that because plaintiff's reported alcohol abuse did not represent a medical contraindication for the arteriogram, defendants' refusal to provide coverage for the procedure constituted a deviation from the standard of medical care and that the failure to have the procedure performed was a proximate cause of his stroke on December 17, 2001.


Plaintiff raises two points on this appeal:




We turn first to the claim that federal preemption principles do not confer immunity on the four defendants from liability for malpractice under state tort law. Plaintiff argues that preemption does not apply here because defendants DePalma and McNeil owed a duty to him, under New Jersey law, which was independent of their duty as fiduciaries of the Health Net plan and that ERISA does not preempt medical treatment decisions made by health insurance plans. We disagree with both contentions because of the supremacy of federal law which displaces traditional state tort law with immunity from damage claims against medical defendants for medical malpractice.

"ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries by regulating the creation and administration of employee benefit plans." Goldberg v. Unum Life Ins. Co. of Am., 527 F. Supp. 2d 164, 168 (D. Me. 2007).

ERISA's comprehensive regulation of employee welfare and pension benefit plans extends to those that provide "medical, surgical, or hospital care or benefits" for plan participants or their beneficiaries "through the purchase of insurance or otherwise." . . . The federal statute . . . controls the administration of benefit plans . . . by imposing reporting and disclosure mandates, . . . participation and vesting requirements, . . . funding standards, . . . and fiduciary responsibilities for plan administrators. . . . It envisions administrative oversight, imposes criminal sanctions, and establishes a comprehensive civil enforcement scheme. . . . It also pre-empts some state law. [N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 650-51, 115 S.Ct. 1671, 1674-75, 131 L.Ed. 2d 695, 702 (1995) (citations omitted).]

ERISA includes "expansive" preemption provisions "which are intended to ensure that employee benefit plan regulation would be 'exclusively a federal concern.'" Aetna Health Inc. v. Davila, 542 U.S. 200, 208, 124 S.Ct. 2488, 2495, 159 L.Ed. 2d 312, 326-27 (2004) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed. 2d 402, 416 (1981)) (Davila). Preemption under ERISA may arise under two separate statutory provisions. Feit v. Horizon Blue Cross & Blue Shield of N.J., 385 N.J. Super. 470, 483 (App. Div. 2006).

The first is section 514(a) which provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C.A. § 1144(a). "A rule of law relates to an ERISA plan if it is specifically designed to affect employee benefits plans, if it singles out such plans for special treatment, or if the rights or restrictions it creates are predicated on the existence of such a plan." United Wire, Metal & Mach. Health & Welfare Fund v. Morristown Mem'l Hosp., 995 F.2d 1179, 1192 (3d Cir.) (footnotes omitted), cert. denied sub nom. NYSA-ILA Welfare Fund v. Dunston, 510 U.S. 944, 114 S.Ct. 382, 126 L.Ed. 2d 332 (1993). Section 514(a) "'merely governs the law that will apply to state law claims, regardless of whether the case is brought in state or federal court.'" Feit, supra, 385 N.J. Super. at 484 (quoting Pascack Valley Hosp., Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 398 n.4 (3d Cir. 2004), cert. denied, 546 U.S. 813, 126 S.Ct. 336, 163 L.Ed. 2d 48 (2005)).

The second type of preemption is found in section 502(a) of ERISA, 29 U.S.C.A. § 1132(a), which is ERISA's "integrated enforcement mechanism." Davila, supra, 542 U.S. at 208, 124 S.Ct. at 2495, 159 L.Ed. 2d at 327. Section 502(a) specifies who, and for what purpose, a civil action may be brought. Relevant here, 29 U.S.C.A. 1132(a)(1)(B) provides:

A civil action may be brought . . . by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan[.]

Section 502(a) has been interpreted as follows:

"The policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA. 'The . . . carefully integrated civil enforcement provisions found in § 502(a) of the statute as finally enacted . . . provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'" [Davila, supra, 542 U.S. at 208-09, 124 S.Ct. at 2495, 159 L.Ed. 2d at 327 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549, 1556, 95 L.Ed. 2d 39, 52 (1987) (quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146, 105 S.Ct. 3085, 3092, 87 L.Ed. 2d 96, 106 (1985))).]

Thus, "any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted." Davila, supra, 542 U.S. at 209, 124 S.Ct. at 2495, 159 L.Ed. 2d at 327. Moreover, section 502(a) "'converts an ordinary state common law complaint into one stating a federal claim,'" and causes of action within its scope are removable to federal court. Id. at 209, 124 S.Ct. at 2496, 159 L.Ed. 2d at 327-28 (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65, 107 S.Ct. 1542, 1547, 95 L.Ed. 2d 55, 64 (1987)). For this reason, preemption under section 502(a) is sometimes referred to as "complete preemption." Pascack Valley Hosp., Inc., supra, 388 F.3d at 398 n.4.

The Health Net defendants urge that the present case is governed by the United States Supreme Court decision in Davila. In that case, which involved two consolidated Texas appeals, the participants in employee health benefit plans had both suffered injuries that allegedly arose from their insurance companies' decisions not to provide coverage for certain treatment and services that had been recommended by their treating physicians. Davila, supra, 542 U.S. at 204-05, 124 S.Ct. at 2492-93, 159 L.Ed. 2d at 324-25. Plaintiffs argued that their insurance companies had violated a provision of the Texas Health Care Liability Act, which required HMOs to exercise ordinary care when making health care treatment decisions. Id. at 205, 124 S.Ct. at 2493, 159 L.Ed. 2d at 325.

The federal Supreme Court relied on 29 U.S.C.A. § 502(a)(1)(B) to rule that the actions were preempted. According to the Court:

It follows that if an individual brings suit complaining of a denial of coverage for medical care, where the individual is entitled to such coverage only because of the terms of an ERISA-regulated employee benefit plan, and where no legal duty (state or federal) independent of ERISA or the plan terms is violated, then the suit falls "within the scope of" ERISA § 502(a)(1)(B). In other words, if an individual, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant's actions, then the individual's cause of action is completely pre-empted by ERISA § 502(a)(1)(B). [Id. at 210, 124 S.Ct. at 2496, 159 L.Ed. 2d at 328 (citation omitted).]

In determining whether the members' claims fell within the scope of section 502(a)(1)(B), the Court observed that the only relationships the insurance companies had with their members were as administrators of their health plans. Id. at 211, 124 S.Ct. at 2496-97, 159 L.Ed. 2d at 328-29. Moreover, upon being denied benefits, the members could have paid for the treatments themselves and sought reimbursement or sought a preliminary injunction through an action under section 502(a)(1)(B). Id. at 211-12, 124 S.Ct. at 2497, 159 L.Ed. 2d at 329.

The Court also rejected the members' claims that the Texas Health Care Liability Act imposed duties that arose independently of ERISA or independently of the employee benefit plans, because interpretation of the terms of the benefit plans formed an essential part of their claims under the Texas statute. Id. at 212-13, 124 S.Ct. at 2497-98, 159 L.Ed. 2d at 329-30. That is, the companies' potential liability under the Texas statute "derives entirely from the particular rights and obligations established by the benefit plans." Id. at 213, 124 S.Ct. at 2498, 159 L.Ed. 2d at 330.

[I]f a managed care entity correctly concluded that, under the terms of the relevant plan, a particular treatment was not covered, the managed care entity's denial of coverage would not be a proximate cause of any injuries arising from the denial. Rather, the failure of the plan itself to cover the requested treatment would be the proximate cause. [Id. at 213, 124 S.Ct. at 2497, 159 L.Ed. 2d at 329-30 (footnote omitted).]

Moreover, since the Texas statute did not require a managed care entity to provide treatment to an insured that was not covered by the health plan, the managed care entity could not be subject to liability for denying coverage for any treatment not covered by the plan. Id. at 213, 124 S.Ct. at 2498, 159 L.Ed. 2d at 330. Thus, a state cause of action which provided a remedy not available under the civil enforcement mechanism of ERISA, section 502(a), was preempted. Id. at 214, 124 S.Ct. at 2498, 159 L.Ed. 2d at 330. This was true even if the other preemption mechanism of ERISA, section 514(a), did not apply, that is, even if the state law on which the member relied did not relate to an employee benefit plan. Id. at 214 n.4, 124 S.Ct. at 2498 n.4, 159 L.Ed. 2d at 330 n.4.

Nor did it matter to the Court that the members were asserting a tort claim for damages rather than a contract claim or a claim for reimbursement of benefits, because distinguishing between preempted and non-preempted claims should not depend on these labels. Id. at 214, 124 S.Ct. at 2498, 159 L.Ed. 2d at 330-31. Nor was the preemptive force of ERISA "limited to the situation in which a state cause of action precisely duplicates a cause of action under ERISA § 502(a)." Id. at 216, 124 S.Ct. at 2499, 159 L.Ed. 2d at 331.

Finally, the Court addressed the members' argument that their claims were not preempted because they involved the HMOs' determinations of medical judgment rather than determinations of medical benefits, a distinction made by the Court itself several years earlier in Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed. 2d 164 (2000). In Pegram, the Court had to decide whether treatment decisions made by an HMO, acting through its physician employers, were fiduciary acts under ERISA. Id. at 214, 120 S.Ct. at 2147, 147 L.Ed. 2d at 172.

In that case, the plaintiff had brought an ERISA claim against her doctor-owned-and-operated HMO, alleging that, under the terms of the organization, physician owners were rewarded for limiting medical care and that this entailed an inherent breach of an ERISA fiduciary duty since it created an incentive to make decisions in the doctors' self-interest rather than in the interests of the plan participants. Id. at 216 and n.3, 120 S.Ct. at 2147 and n.3, 147 L.Ed. 2d at 173 and n.3.

In determining whether the HMO was a fiduciary for purposes of ERISA, the Pegram Court first looked at the nature of HMO organizations. Id. at 218, 120 S.Ct. at 2148-49, 147 L.Ed. 2d at 174-75. It noted that HMOs, like traditional insurers, must scrutinize requested services in comparison with the contractual provisions of the plan to make sure that the request falls within the scope of the care promised. Id. at 219, 120 S.Ct. at 2149, 147 L.Ed. 2d at 175.

[HMOs] customarily issue general guidelines for their physicians about appropriate levels of care. And they commonly require utilization review (in which specific treatment decisions are reviewed by a decisionmaker other than the treating physician) and approval in advance (precertification) for many types of care, keyed to standards of medical necessity or the reasonableness of the proposed treatment. . . . Hence, in an HMO system, a physician's financial interest lies in providing less care, not more. The check on this influence . . . is the professional obligation to provide covered services with a reasonable degree of skill and judgment in the patient's interest. [Ibid. (citations omitted).]

After examining the meaning of "fiduciary" under ERISA, id. at 222-26, 120 S.Ct. at 2151-53, 147 L.Ed. 2d at 177-79, the Pegram Court then parsed the plaintiff's pleadings in order to understand what acts undertaken by the physician owners on the HMO's behalf were alleged to be fiduciary in nature:

What we will call pure "eligibility decisions" turn on the plan's coverage of a particular condition or medical procedure for its treatment. "Treatment decisions," by contrast, are choices about how to go about diagnosing and treating a patent's condition: given a patient's constellation of symptoms, what is the appropriate medical response?

These decisions are often practically inextricable from one another, . . . because a great many and possibly most coverage questions are not simple yes-or-no questions . . . . The more common coverage question is a when-and-how question. Although coverage for many conditions will be clear and various treatment options will be indisputably compensable, physicians still must decide what to do in particular cases. The issue may be, say, whether one treatment option is so superior to another under the circumstances, and needed so promptly, that a decision to proceed with it would meet the medical necessity requirement that conditions the HMO's obligation to provide or pay for that particular procedure at that time in that case. . . . In practical terms, these eligibility decisions cannot be untangled from physicians' judgments about reasonable medical treatment[.] [Id. at 228-29, 120 S.Ct. at 2154, 147 L.Ed. 2d at 180-81 (footnote omitted).]

The Court found that the kinds of decisions mentioned in the plaintiff's ERISA claim in fact were mixed eligibility and treatment decisions, and it concluded that Congress did not intend an HMO "to be treated as a fiduciary to the extent that it makes mixed eligibility decisions acting through its physicians." Id. at 231, 120 S.Ct. at 2155, 147 L.Ed. 2d at 182. "Indeed, the physicians through whom HMOs act make just the sorts of decisions made by licensed medical practitioners millions of times every day, in every possible medical setting." Id. at 232, 120 S.Ct. at 2156, 147 L.Ed. 2d at 183.

In refusing to accept the argument that Pegram stood for the broad principle that claims against HMOs based on mixed eligibility decisions are not preempted under ERISA, the Davila Court noted the significant distinction between a treating physician who is employed by an HMO and who makes administrative decisions that also require the exercise of medical judgment (the Pegram scenario) and a non-treating physician who makes such decisions on behalf of an HMO. Davila, supra, 542 U.S. at 219-21, 124 S.Ct. at 2501-02, 159 L.Ed. 2d at 333-35. It held that the reasoning of Pegram made sense only where "'the underlying negligence also plausibly constitutes medical maltreatment by a party who can be deemed to be a treating physician or such a physician's employer.'" Id. at 221, 124 S.Ct. at 2502, 159 L.Ed. 2d at 335 (quoting Cicio v. Does, 321 F.3d 83, 109 (2d Cir. 2003) (Calabresi, J., dissenting in part), vacated and remanded by Vytra Healthcare v. Cicio, 542 U.S. 933, 124 S.Ct. 2902, 159 L.Ed. 2d 808 (2004)).*fn1

In the case of non-treating physicians, the Court held that the ERISA regulations "strongly imply that benefits determinations involving medical judgments are, just as much as any other benefits determinations, actions by plan fiduciaries." 542 U.S. at 220, 124 S.Ct. at 2502, 159 L.Ed. 2d at 334. As such, lawsuits against such non-treating physicians based on those determinations would be preempted under ERISA. Id. at 221, 124 S.Ct. at 2502, 159 L.Ed. 2d at 335. In a concurring opinion, Justice Ginsburg urged Congress to "'revisit what is an unjust and increasingly tangled ERISA regime.'" Davila, supra, 542 U.S. at 222, 124 S.Ct. at 2503, 159 L.Ed. 2d at 335 (Ginsburg, J., concurring; joined by Justice Breyer) (quoting DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 453 (3d Cir. 2003) (Becker, J., concurring). She noted that "persons adversely affected by ERISA-proscribed wrongdoing cannot gain make-whole relief," and that "fresh consideration of the availability of consequential damages under § 502(a)(3) is plainly in order." 542 U.S. at 222-23, 124 S.Ct. at 2503, 159 L.Ed. 2d at 336.

The cases decided after Davila make it clear that there is no longer any viable distinction made between a medical eligibility decision and a medical judgment decision when the decision-maker is not the treating physician. The clear consensus is that the distinction made by the Pegram Court was limited to doctor-owned-and-operated HMOs. See, e.g., Lind v. Aetna Health, Inc., 466 F.3d 1195, 1199 (10th Cir. 2006) (where doctor employed by carrier was not plaintiff's treating physician, and where there was no agency relationship between actual treating physician and carrier, claim alleging negligent care against carrier was preempted under Davila); Land v. Cigna Healthcare of Fla., 381 F.3d 1274, 1276 (11th Cir. 2004) (Pegram is implicated only in circumstances in which healthcare professionals who are sued "are either the injured party's treating physicians or the employers of the injured party's treating physicians"); Mayeaux v. La. Health Serv. & Indem. Co., 376 F.3d 420, 430 (5th Cir. 2004) (Pegram carved out narrow class of state law claims from ERISA preemption, predicated on "the defining feature of the HMO scheme as a combination of both insurer and provider of medical services").

In dismissing plaintiff's claims here, the judge held that Davila was on all fours with the present case, where a plan fiduciary, not a treating physician, made the decision to deny benefits to plaintiff. Although the court was not pleased with the result, nor are we, it found that preemption under ERISA was mandated and that all of plaintiff's claims against the Health Net defendants must be dismissed. We must agree with this result under Davila.

"Whether a state law claim is preempted by ERISA is a question of law which is reviewed de novo." Finderne Mgmt. Co., Inc. v. Barrett, 355 N.J. Super. 170, 185 (App. Div. 2002), certif. denied, 177 N.J. 219 (2003). Here, even viewing all of the evidence presented by plaintiff in light of the Davila holding most favorable to him, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), plaintiff cannot prevail. That is, even though defendant DePalma admitted that, if he had denied authorization benefits to plaintiff, it would have been a medical treatment decision, this admission would be of no legal significance in light of the Davila's holding.

In trying to distinguish his case from Davila, plaintiff points to the language where the Court held that preemption applies only "where no legal duty (state or federal) independent of ERISA or the plan terms is violated . . . and where there is no other independent legal duty that is implicated by a defendant's actions." Davila, supra, 542 U.S. at 210, 124 S.Ct. at 2496, 159 L.Ed. 2d at 328. Plaintiff cites various state statutes and regulations that allegedly created this "independent" legal duty here.

For example, he points to N.J.A.C. 11:24-4.1 and 11:24-4.2, regulations promulgated pursuant to the Health Maintenance Organizations Act, N.J.S.A. 26:2J-1 to -47. According to N.J.A.C. 11:24-4.1(a), an HMO "shall designate a physician to serve as medical director." According to N.J.A.C. 11:24-4.1(b), "[t]his physician shall be licensed to practice medicine in New Jersey." N.J.A.C. 11:24-4.2 sets forth the responsibilities of a medical director. Plaintiff contends that because these regulations do not refer to or implicate the terms of an employee benefit plan, they are distinguishable from the Texas statute in issue in Davila. Plaintiff also points to N.J.S.A. 45:9-18, which sets forth who shall be deemed to be practicing medicine within the meaning of the chapter governing the State Board of Medical Examiners.

In our view, however, none of these statutory or regulatory provisions provided plaintiff with any "independent" basis for suing his health care carrier, or its doctor employees, for medical malpractice. In the absence of a traditional physician-patient relationship, a medical malpractice suit probably would require at the very least that the physician have examined the patient. See Reed v. Bojarski, 166 N.J. 89 (2001) (discussing duty of physician who conducts examination of person that is required as condition of employment and that is paid for by prospective employer).

By contrast, the Health Care Carrier Accountability Act, N.J.S.A. 2A:53A-30 to -36 (HCCAA), which was effective October 28, 2001 (just weeks prior to the events in question here), does provide plaintiff with the basis for a medical malpractice-type action against his health benefits carrier. According to N.J.S.A. 2A:53A-31:

The Legislature hereby finds and declares that:

a. Health and dental carriers, in particular health maintenance organizations and other managed care entities, have become increasingly involved in health care treatment decisions, including, but not limited to, the use of financial incentives to providers and practice guidelines, in an effort to reduce health care costs;

b. As a result, many carriers have been reducing or denying medically necessary health care treatments for their insured patients;

c. Since the carriers are in many instances making medical decisions when they deny, delay, or diminish health care treatments, they should be held to the same level of legal responsibility as physicians and other health care providers who make decisions regarding the necessity and appropriateness of medical care; and

d. It is fair and appropriate that insured patients have the opportunity to dispute carrier or organized delivery system decisions in court, as well as in internal and external appeals procedures, so that these disputes may be quickly and efficiently resolved in ways that best accommodate the needs of the insured patient.

According to N.J.S.A. 2A:53A-33(a):

Notwithstanding the provisions of any other law to the contrary, a carrier or organized delivery system shall be liable to a covered person for economic and non-economic loss that occurs as a result of the carrier's or organized delivery system's negligence with respect to the denial of or delay in approving or providing medically necessary covered services, which denial or delay is the proximate cause of the covered person's: (1) death; (2) serious and protracted or permanent impairment of a bodily function or system; (3) loss of a body organ necessary for normal bodily function; (4) loss of a body member; (5) exacerbation of a serious or life-threatening disease or condition that results in serious or significant harm or requires substantial medical treatment; (6) a physical condition resulting in chronic and significant pain; or (7) substantial physical or mental harm which resulted in further substantial medical treatment made medically necessary by the denial or delay of care.

Under the provisions of this section, a carrier or organized delivery system shall be liable for the health care treatment decisions of its employees, agents or other representatives over whom the carrier or organized delivery system has the right to exercise influence or control, or has actually exercised influence or control.

Notably, plaintiff has conceded that the HCCAA, like the Texas statute discussed in Davila, "depends on the interpretation of the terms of an employee benefit plan." Hence, he does not rely on this statute to provide an independent legal duty required to avoid ERISA preemption.*fn2

This New Jersey statute and these regulations cannot be applied to avoid ERISA preemption in light of the clear holding of the Court in Davila. That is, the "independent legal duty" of which the Davila Court spoke referred to a duty that was implicated by a defendant's actions which arose independently of the terms of the ERISA plan. Although New Jersey may recognize that a doctor employed by an HMO owes a duty of ordinary medical care when deciding whether to authorize health care benefits for a subscriber, the duty does not arise independently of the terms of the health care plan. Hence, the statute cannot provide a cause of action to those plaintiffs who are insured by health care plans subject to ERISA.

In Gallagher v. Cigna Healthcare of Maine, Inc., 538 F. Supp. 2d 286, 290 (D. Me. 2008), a case decided subsequently to Davila, the plaintiff brought suit against her husband's health insurance carrier for its denial of skilled nursing care benefits to her husband, who then suffered from a host of medical complications and died. One of her claims asserted a cause of action based on a Maine statute that required a carrier to exercise ordinary care when making health care treatment decisions and that imposed liability on such carriers for damages "to an enrollee proximately caused by the failure of the carrier or its agents to exercise such ordinary care." Id. at 293.

The federal district court noted that the action complained of was the carrier's denial of benefits under the terms of an ERISA regulated plan and that the statute did not impose any duties outside of ERISA or outside of the health care plan. Ibid. Thus, in order to evaluate the plaintiff's claim, a court would be required to evaluate the health care plan, what it covered, and whether denial of coverage was in accord with the plan. Id. at 293-94. As such, the claim was preempted by section 502(a) of ERISA, for all of the reasons stated by the Court in Davila. Id. at 294.

The same result must apply here. We reject plaintiff's argument that defendants never affirmatively asserted that they applied the terms of his health plan policy when they denied his pre-authorization request. There was no dispute that defendants' only relationship to plaintiff was in administering his health insurance policy. There was also no dispute that the policy required pre-authorization for the services plaintiff requested and that the terms of plaintiff's policy provided that members would receive benefits only when "medically necessary and appropriate."

Although defendants never affirmatively asserted, in support of summary judgment, that they denied plaintiff's procedure because it was not medically necessary or appropriate, this was because they took the position they never in fact denied the procedure. Rather, they asserted that Escalona canceled the request for authorization before defendants could act on it. In opposing summary judgment, and in arguing that defendants acted negligently when they denied or delayed authorization for his procedure, plaintiff did not assert any reason outside of the policy terms that would have caused defendants to have so acted. Indeed, we do not think that any such reason could be postulated on the facts of this case.

We recognize, however, that defendant DePalma admitted to a very broad duty of care that he owed to plaintiff, a duty that seemed to go beyond the terms of the health care plan. That is, he admitted he was responsible for the quality of medical care of the company's insureds and that it was his duty to find out when plaintiff was going to have his surgery and when Escalona planned to treat plaintiff for his medical disorders. Nevertheless, short of a determination that DePalma was acting as plaintiff's treating physician, which he clearly was not, his comments do not change the result here.

We agree with the trial judge, and with Justice Ginsburg in Davila, that this result may be unsatisfactory, especially because our Legislature, by promulgating the HCCAA, has provided a remedy for consequential tort damages where a health insurance company or its doctors negligently deny or delay benefits to an insured. It is troubling that this remedy will be available only to insureds whose plans are not governed by ERISA. In reviewing the legislative history of the HCCAA, we did not discover any reference to ERISA or to the fact that the statute might be limited in its application. In any event, this is a failing that can only be corrected at the federal level. We reject plaintiff's arguments that the court erred in dismissing his claims against the Health Net defendants based on ERISA preemption.


Plaintiff also claims that, because defendants failed to give him written notice of their decision to deny him benefits under the policy, they are estopped from claiming that he should have brought an action under ERISA to enforce his rights under the policy. We disagree. It does not appear to us that plaintiff asserted this argument below.

Plaintiff relies upon N.J.A.C. 11:24A-3.4(f), which requires a carrier "to provide written notice within five days . . . of any determination to deny coverage or authorization of services" and to include an explanation of the appeal process. Plaintiff asserts that these duties arise under state law and are independent of any duties flowing from ERISA. However, for all of the reasons discussed, we do not agree.

Plaintiff's real argument here is that defendants are estopped from asserting that his only remedy lies under the ERISA statute when their own conduct prevented him from taking advantage of such a remedy. Defendants respond that ERISA itself addresses the situation when notice is not provided in connection with a denial of benefits. Section 29 C.F.R. § 2560.503-1(f) sets forth the applicable time requirements for responding to a claim for benefits.*fn3 Moreover, 29 C.F.R. § 2560.503-1(l) provides:

In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

We agree with defendants that plaintiff's estoppel argument must fail. Defendants' alleged failure to provide plaintiff with timely notice of denial of his claim might estop them from asserting that plaintiff cannot bring an enforcement action under ERISA due to his failure to exhaust administrative remedies under his plan. However, that is very different from saying they are estopped from asserting that ERISA preempts his state law claims. This was not a case where plaintiff sought to pursue an ERISA remedy but was precluded from doing so because of the untimeliness of defendants' denial.


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