Thomas v. Metropolitan Life Insurance

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1286

BARBARA THOMAS, AS COMMITTEE
FOR FRANCES L. WERNER,

Plaintiff - Appellee,

v.

METROPOLITAN LIFE INSURANCE COMPANY,

Defendant - Appellant.

No. 94-1287

BARBARA THOMAS, AS COMMITTEE
FOR FRANCES L. WERNER,

Plaintiff - Appellant,

v.

METROPOLITAN LIFE INSURANCE COMPANY,

Defendant - Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

[Hon. David S. Nelson, Senior U.S. District Judge]

Before

Torruella, Chief Judge,

Campbell, Senior Circuit Judge,

and Stahl, Circuit Judge.

Joseph Trovato, with whom David J. Larkin, Jr. and Sandra

Parker were on brief for defendant-appellant.

Lawrence J. Casey, with whom Scott E. Bettencourt and Crowe,

Crowe & Vernaglia, P.C. were on brief for plaintiff-appellee.

November 28, 1994

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TORRUELLA, Chief Judge. This case involves a dispute
TORRUELLA, Chief Judge.

arising under an insurance policy, part of the Empire Plan,

issued by defendant-appellant Metropolitan Life Insurance Company

("Met Life") to plaintiff-appellee Frances Werner.1 Because we

agree with the district court that the policy terms mandate

coverage here, and that Met Life acted in good faith and

committed no unfair or deceptive practices, we affirm.

I. BACKGROUND
I. BACKGROUND

McLean Hospital ("McLean") is a psychiatric hospital

located in Belmont, Massachusetts. Its forty-six building campus

consists numerous patient care buildings, as well as buildings

for the hospital's operations, such as offices, laundry, storage,

and garages. McLean primarily provides, on an inpatient basis,

diagnostic and therapeutic facilities for the diagnosis,

treatment and care of mentally ill persons by licensed

physicians. McLean also provides continuous, 24-hour-a-day

nursing services to its patients under the supervision of a

registered graduate nurse.

Through its various facilities and programs, McLean

offers its patients a spectrum of care and treatment that aims to

foster less dependence on institutional support. These programs

range from the psychotic disorders program, in which patients are

constantly supervised and have little responsibility, to the

community residential and treatment programs, which provide

1 Ms. Werner brings suit by and through her Committee, Barbara
Thomas.

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patients with a structured environment, a somewhat independent

living arrangement, and the same 24-hour-a-day professional and

ancillary hospital services that are available in the more

restrictive treatment units. The Hope Cottage and the Mill

Street Lodge are two such residential treatment programs

available at McLean.

All of the programs at McLean, including the

residential treatment programs, are staffed by McLean employees,

and all services provided through these programs are billed

through McLean's central accounting department.

In September 1985, Frances Werner, a diagnosed paranoid

schizophrenic, was admitted to McLean and initially placed in the

psychotic disorders unit. In March 1986, her condition had

improved, and she was transferred to the community residential

and treatment program at McLean. While in the community

residential and treatment program, Werner was assigned a bed in

the Hope Cottage building until March 1989, and in the Mill

Street Lodge building from March 1989 until February 1992.2

Werner was assessed a room and board charge during her stay at

McLean, including the period she spent in the Hope Cottage and

Mill Street Lodge buildings.

Werner is an enrollee under a group health insurance

policy known as the Empire Plan (the "Plan"), which provides

health insurance benefits to New York State Government employees

2 Werner was transferred back into the psychotic disorders
program for approximately one month during September and October
1989.

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and their dependents. Under the Plan, Werner is eligible to

receive benefits for covered medical services that are provided

to her. The Plan provides that Blue Cross pay for covered

services for the first 120 days of care, and that Met Life pay

for such services after the initial 120 days.

Blue Cross paid its liability for the first 120 days

that Werner was in McLean. After the initial 120 days, Met Life

paid for the services received by Werner while she was in the

psychotic disorders program (September 5, 1985 to March 6, 1986,

and September 14 to October 10, 1989). Met Life denied Werner's

claims for services received while she was in McLean's community

residential and treatment program, however, contending that

neither the Hope Cottage nor the Mill Street Lodge are within the

scope of the Plan.

The Plan specifically provides that Met Life will pay

for certain covered medical expenses, including "[s]ervices of

private proprietary hospitals for the treatment of mental and

nervous conditions and alcoholism" (emphasis added). The Plan

further defines "hospital" as "only an institution which meets

fully every one" of three tests. The Plan sets forth these tests

as follows:

1. It is primarily engaged in providing
on an inpatient basis diagnostic and
therapeutic facilities for surgical or
medical diagnosis, treatment and care of
injured and sick persons by or under the
supervision of a staff of physicians who
are duly licensed to practice; and

2. It continuously provides 24-hours-a-
day nursing service by or under the

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supervision of registered graduate
nurses; and

3. It is not a skilled nursing facility
and it is not, other than incidentally, a
place of rest, a place for the aged, a
place for drug addicts, a place for
alcoholics or a nursing home.

The phrase "on an inpatient basis" is defined under the Plan to

mean that the institution assesses a room and board charge.

Met Life received a letter dated October 18, 1990 from

one of Werner's physicians at McLean, Dr. Peter Choras. In his

letter, written on McLean Hospital letterhead, Dr. Choras

explained the urgency of Werner's medical situation, and

entreated Met Life to provide coverage for Werner's treatment at

the Mill Street Lodge, which he called a "half-way house." In

response, Met Life reiterated that no benefits were available,

because residential facilities or programs, including "halfway

houses," were not covered by the Plan. Met Life further

explained that it "must adhere to the plan provisions as

stipulated by the contract holder."

After receiving requests on Werner's behalf from

another physician and an attorney to reconsider its denial of

coverage, Met Life apparently looked for the Mill Street Lodge in

the American Hospital Association accreditation manual. Although

McLean Hospital was listed, the Mill Street Lodge was not. Met

Life responded to these appeals on March 5, 1991, requesting

additional information about the Mill Street Lodge to aid its

reconsideration. According to Met Life, it never received any

information that changed its determination that the Mill Street

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Lodge was not a covered facility.

Werner brought suit against Met Life in August 1991,

alleging breach of contract, breach of the implied covenant of

good faith and fair dealing, unfair and deceptive practices in

violation of Mass. Gen. L. ch. 93A and 176D, and infliction of

emotional distress.3

Werner moved for declaratory relief, for summary

judgment on her breach of contract claim, and requested a jury

trial on her other claims. Met Life cross-moved for summary

judgment on all Werner's claims, contending that Mill Street

Lodge and the Hope Cottage were not hospitals under the Plan, and

that it had not engaged in any unfair or deceptive practices.

After a hearing on the motions, the district court

granted judgment in Werner's favor on her request for declaratory

relief and her claim of breach of contract, and in Met Life's

favor on the remaining claims. Both Met Life and Werner

appealed.

II. ANALYSIS
II. ANALYSIS

A. Standard of Review
A. Standard of Review

Because the district court granted summary judgment in

Werner's favor regarding the breach of contract claim, we review

that decision de novo. Serrano-P rez v. FMC Corp., 985 F.2d 625,

626 (1st Cir. 1993); Pagano v. Frank, 983 F.2d 343, 347 (1st Cir.

1993). We must determine whether the record, viewed in the light

3 Werner has voluntarily withdrawn her claim for emotional
distress on appeal, but preserves her right to seek emotional
distress damages under Mass. Gen. L. ch. 93A.

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most favorable to Met Life and drawing all reasonable inferences

in Met Life's favor, presents any genuine issues of material

fact, and whether Werner is entitled to judgment as a matter of

law. Summary judgment may not be granted if the evidence is such

that a reasonable jury could return a verdict for Met Life.

Serrano-P rez, 985 F.2d at 626. Mere allegations, or conjecture

unsupported in the record, are insufficient to raise a genuine

issue of material fact. Wynne v. Tufts Univ. Sch. of Med., 976

F.2d 791, 794 (1st Cir. 1992), cert. denied, 113 S. Ct. 1845

(1993).

Regarding Werner's other claims, conversely, because

the district court granted summary judgment in favor of Met Life,

we review this decision de novo, and are required to view the

record in the light most favorable to Werner, the non-moving

party. Serrano-P rez, 985 F.2d at 626.

B. Werner's Claims for Breach of Contract
B. Werner's Claims for Breach of Contract

Werner claims that the Mill Street Lodge and Hope

Cottage fully meet each of the Plan's tests, and therefore all

services rendered are fully covered expenses. Met Life, on the

other hand, claims that the facilities fail to meet the first two

of the three tests set forth in the Plan's definition of

"hospital," arguing that they are not "inpatient" facilities and

do not provide 24-hour nursing service.4

4 Werner claims, and Met Life does not disagree, that the
facilities fully meet the third test of the Plan, i.e., they are
not skilled nursing facilities, a place of rest, a place for the
aged, a place for drug addicts or alcoholics, or a nursing home.
As the record fully supports this claim, we need not address it

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We first address a preliminary matter. While the

rights and obligations of parties under insurance contracts are

determined by the language contained in the policy, New York

law5 requires that the court determine, in the first instance,

whether language in a contract is ambiguous and susceptible to

two or more reasonable interpretations. Newin Corp. v. Hartford

Accident and Indem. Co., 467 N.E.2d 887, 889 (N.Y. 1984);

Hartford Accident and Indem. Co. v. Wesolowski, 305 N.E.2d 907

(N.Y. 1973). We agree with the parties that there are no

ambiguities in the relevant language of the Plan. The issue at

the heart of this case is whether the residential treatment

facilities at McLean meet the Plan's three-part definition of

"hospital." Although the dispute arises under the Plan, there is

no dispute over the meaning of the terms contained within.

Specifically, the parties do not disagree as to the Plan's

definition of the term "hospital," nor do they offer differing

constructions of that three-part definition. Rather, they

disagree over whether the facts presented by Werner's case -- the

treatment she received in the residential facilities -- fit that

unambiguous definition. In other words, this is not a dispute

over the construction of ambiguous terms; rather, it is a dispute

over the application of clear terms to somewhat unusual

circumstances. Therefore, because "the words in the paragraphs

here, and assume it true for purposes of this opinion.

5 The parties do not dispute that we are bound to apply New
York law to the construction and interpretation of the Plan.

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of the policy under examination have a definite and precise

meaning, unattended by danger of misconception in the purport of

the policy itself, and concerning which there is no reasonable

basis for a difference of opinion," Breed v. Insurance Co. of

North America, 413 N.E.2d 1280, 1282 (N.Y. 1978), we find as a

matter of law that there is no ambiguity in the relevant Plan

terms here.

In the absence of ambiguity, well-settled New York law

requires courts to enforce provisions of an insurance policy

according to their plain and ordinary meaning. Lavanant v.

General Accident Ins. Co. of America, 595 N.E.2d 819, 822 (N.Y.

1992) (citations omitted); American Home Prods. Corp. v. Liberty

Mut. Ins. Co., 565 F. Supp. 1485, 1491-92 (S.D.N.Y. 1983)

(discussing New York contracts law). Courts may not vary the

terms of a policy to accomplish "notions of abstract justice or

moral obligation." Breed, 385 N.E.2d at 1283. Applying these

principles, our task is to determine whether the Mill Street

Lodge and Hope Cottage fully meet each of the unambiguous tests

set forth in the Plan's definition of "hospital." Met Life

argues first that the Mill Street Lodge and Hope Cottage fail the

first test. It contends that these facilities do not operate "on

an inpatient basis" and do not provide "surgical or medical

diagnosis, treatment and care . . . by or under the supervision

of a staff or physicians who are duly licensed to practice."

Instead, Met Life contends that the two facilities are merely

"community or group residences."

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Under the plain terms of the Plan, however, these

facilities do operate on an "inpatient" basis. The Plan defines

"inpatient" to mean simply that a room and board charge is

assessed to the patient. The record establishes that Werner was

assessed such charges for each night of her stay at both the Mill

Street Lodge and Hope Cottage. Thus, this requirement is clearly

met, and Met Life's contentions to the contrary have no merit.

Met Life further insists that the residential

facilities are not primarily engaged in "surgical or medical

diagnosis, treatment, or care" as the Plan requires. Met Life's

counsel conceded in oral argument before this court that the

facilities are staffed and operated by McLean personnel, are on

the same campus as McLean, and all operational and treatment

decisions are made by McLean doctors and staff. Met Life

nevertheless contends that the facilities are completely separate

and independent entities from McLean, and have different, non-

covered functions. In support of this argument, Met Life points

to the fact that they are licensed separately by the state of

Massachusetts as either a "community residence" or "group

residence."

We do not see the relevance of the state's licensing

scheme to the Plan's definition of covered facilities.

Presumably, a state has its own purposes and criteria for

licensing and regulating mental health facilities, far different

than the intentions of parties to an insurance contract. This

case involves the application of contractual terms. The label

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that state officials may place on a particular facility or

treatment program is not part of the Plan's definition of

"hospital," and we see no reason to add any other elements,

including licensing nomenclature, to the Plan's unambiguous

three-part definition of covered facilities.6

Furthermore, we do not agree that the facts in the

record show that the facilities are separate and distinct from

McLean Hospital. McLean provides comprehensive, individualized

treatment plans for mentally ill people, with the aim of

developing independent living skills. In order to meet its

patients' diverse medical needs, McLean necessarily offers a

continuum of programs with varying degrees of supervision and

responsibility. When a McLean patient commences a treatment

scheme at the hospital, the programs and services provided will

naturally depend on the patient's condition, and as part of her

ongoing treatment, a McLean patient may be transferred from one

program to another. Not all of these programs are in the same

building, although they are on the same campus. They are all,

however, operated and staffed by the same McLean personnel.

6 Even if we were to consider the residential facilities'
licenses, they nevertheless do not necessarily prove that the
facilities are "separate and distinct" from McLean. In a sworn
affidavit explaining the licenses, the Director of the
Massachusetts Department of Mental Health, Michael H. Weeks,
stated that McLean Hospital Corporation is "licensed to conduct
residential programs at McLean Hospital . . . in its Hope Cottage
and Mill Street Lodge buildings." This characterization by the
head licensing official of the state actually contradicts Met
Life's arguments, and supports the finding that the residential
facilities are not distinct entities, but are integral components
of McLean, two of the several treatment programs McLean offers.

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While the Mill Street Lodge and Hope Cottage exist in separate

buildings from the main hospital building, their function and

services are not separate from the hospital. On the contrary,

they constitute just two of these various treatment programs

developed and administered by McLean physicians and staff. Thus,

they are two of the integral components that comprise the overall

institution of McLean Hospital.

This is not to say that any or all facilities owned or

even operated by a hospital are necessarily covered by the Plan.

Modern hospitals are frequently owned by corporations that also

own other healthcare entities, such as laboratories, nursing

homes, or outpatient facilities. These entities clearly would

not meet the Plan's coverage terms. The programs at issue here,

however, are part and parcel of McLean's various medical

diagnosis and treatment programs, and thus are covered by the

Plan.

Met Life also contends that because nurses are not

physically present 24 hours a day at the Mill Street Lodge or

Hope Cottage, these facilities fail the second prong of the

Plan's definition of "hospital." We agree with the district

court, however, that the Plan's terms do not require that nurses

be physically present 24 hours a day, but merely that nursing

services be available 24 hours a day. The record establishes

that all of the hospital's nursing and ancillary services are

provided in the residential programs. Although those nurses are

not physically present in those buildings and must be summoned if

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needed, the patients in the residential programs nonetheless have

the benefit of the nursing services that are available 24 hours a

day in the main building. Thus, the Mill Street Lodge and Hope

Cottage fully meet this element of the Plan, and the district

court's ruling on Werner's breach of contract claims must be

affirmed.

C. Werner's other claims
C. Werner's other claims

Werner contends that the district court erred in

granting summary judgment in Met Life's favor as to her claims

for breach of the implied covenant of good faith and for

violations of the Massachusetts unfair and deceptive practices

statutes, Mass. Gen. L. ch. 93A and 176D. Werner argues that the

record contains sufficient evidence giving rise to genuine issues

of material fact suitable for a jury trial on these claims.

1. Breach of the covenant of good faith
1. Breach of the covenant of good faith

Under New York law, a plaintiff may recover punitive

damages for "bad faith" breach of contract where there is

evidence of morally reprehensible conduct directed at the general

public, Halpin v. Prudential Ins. Co., 401 N.E.2d 171 (N.Y.

1979), or an extraordinary showing of a disingenuous or dishonest

failure to carry out a contract. Gordon v. Nationwide Mut. Ins.

Co., 285 N.E.2d 849, 854 (N.Y. 1972), cert. denied, 410 U.S. 942

(1973).

Regarding her allegations of Met Life's bad faith,

Werner simply has not shown that Met Life's conduct in the

instant case rises to the level of morally reprehensible conduct

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or extraordinary dishonesty. To avoid summary judgment, a

nonmoving party must be able to point to some specific, competent

evidence in support of its claim. Wynne, 976 F.2d at 794. Mere

allegations or conjecture are insufficient to raise a genuine

issue of material fact. Id. Although Werner heatedly accuses

Met Life of callous indifference to Werner's predicament, the

record contains no evidence of any bad faith by Met Life. True,

Met Life denied Werner's claims. Contrary to Werner's

contention, however, Met Life did state the basis for its denial

-- it concluded that the charges were not covered by the Plan.

Although this conclusion was erroneous, it was not unreasonable,

particularly in light of Dr. Choras' own characterization of the

Mill Street Lodge as a "half-way house." Certainly, an insurance

company may deny claims if it honestly and reasonably believes

that it is not obligated to pay them.7 Werner also claims that

Met Life conducted no investigation of the relationship between

McLean and the Mill Street Lodge. If true, this failure to

investigate may constitute ordinary negligence, but it does not

rise to the level of extraordinary dishonesty or morally

reprehensible conduct directed at the general public. A claims

adjuster in a large insurance company is usually not a doctor or

an attorney, and cannot be expected to compile and analyze

extensive information for every claim. We refuse to issue a

7 We also note that Werner's dire medical and financial
situation does not transform Met Life's denial of coverage into a
bad faith act. Met Life honestly and reasonably believed that it
was not legally bound to pay Werner's claims.

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directive to insurance companies requiring such lengthy

procedures.

Moreover, the record does contain evidence that after

receiving letters on Werner's behalf, Met Life did investigate

Werner's claims, and requested additional information to that

effect, which it never received. We therefore find that as a

matter of law, Werner has not shown any specific evidence

supporting its claims of bad faith sufficient to avoid summary

judgment, and the district court's judgment in Met Life's favor

on this claim must be affirmed.

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2. Violation of the Massachusetts unfair practices
2. Violation of the Massachusetts unfair practices
statute
statute

Werner also claims that Met Life has violated Mass.

Gen. L. ch. 93A and 176D, which prohibit unfair or deceptive acts

or practices in the business of insurance. It is questionable

whether, under choice-of-law analysis, these statutes can fairly

be applied to Met Life in this context, in light of the fact that

the claims arise under a contract governed by the laws of New

York. We need not address this issue, however, because assuming

arguendo that chapters 93A and 176D can properly be applied,

Werner has failed to point to sufficient evidence supporting her

claims to avoid summary judgment. Wynne, 976 F.2d at 794.

Chapters 93A and 176D together prohibit unfair or

deceptive practices in the business of insurance, and allow one

injured by such unlawful acts to bring an action for damages and

equitable relief. Section 3 of chapter 176D sets forth several

unfair claim settlement practices, including "[r]efusing to pay

claims without conducting a reasonable investigation based upon

all available information." Mass. Gen. L. ch. 176D 3(9)(d).8

The Massachusettts Supreme Judicial Court has held that

a plaintiff may recover under chapters 93A and 176D for a

deceptive act that is the result of the insurance company's

8 Section 3 of chapter 176D lists eleven unfair claim settlement
practices. In her brief, Werner states that Met Life committed
"several" of these, but she does not specify which ones, much
less how they were committed. The only violation that Werner
specifically alleges is a failure to conduct a reasonable
investigation. Because we find no hint in the record of any
other possible violations, we only analyze Werner's specific
allegation.

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negligence. Swanson v. Bankers Life Co., 450 N.E.2d 577, 580

(Mass. 1983). The plaintiff need not show any actual intent to

deceive, and an act may be deceptive even absent any showing of

negligence. Id. at 580. The court warned, however, that "not

every negligent act is unfair or deceptive" and thus unlawful

under chapter 93A. Id. To determine whether an insurer's

negligence constitutes "unfairness" for 93A purposes, a court

must look to several factors, including what the insurer "knew or

should have known" about the circumstances of a particular claim.

Id. (citations omitted).

Werner argues that, on the facts presented, a trier of

fact could reasonably find that Met Life's failure to call

McLean, look into the hospital's accreditation, or examine the

letterhead on which correspondence was sent, was "sufficiently

egregious" to incur liability under 93A. These facts constitute,

according to Werner, a blanket denial of coverage without any

reasonable investigation.

As we noted above, the record does contain evidence

that after receiving several letters on Werner's behalf, Met Life

investigated Werner's claims, and requested additional

information. We therefore cannot agree with Werner that Met Life

failed altogether to investigate her claim. Perhaps the Met Life

employees could have been more thorough; perhaps they should have

taken more initiative after receiving Dr. Choras' letter on

McLean letterhead and inquired after the specifics of McLean's

residential programs. As we have noted, however, hospital

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corporations often own and operate healthcare entities that would

not come within the Plan's coverage. This reality, combined with

the fact that the Mill Street Lodge was not listed in a hospital

accreditation manual, and that Dr. Choras himself labelled the

facility as a "half-way house," compels us to find that their

failure to inquire further, and their decision to deny Werner's

claims, was not unreasonable, and certainly does not constitute

"unfairness" in violation of 93A and 176D.

III. CONCLUSION
III. CONCLUSION

For the foregoing reasons, the district court's

judgment as to each of Werner's claims is hereby affirmed.

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