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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