No. 86-517
IN THE SUPREME COURT OF THE STATE OF MONTANA
JOHN E. NITSCHKE and SUSAN M.
NITSCHKE, husband and wife,
Plaintiffs and Appellants,
-vs-
BLUE CROSS OF MONTANA,
Defendant and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Robert Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Herndon, Harper & Munro; James G. Edmiston argued,
Billings, Montana
For Respondent :
Church, Harris, Johnson & Williams; Don A LaBar argued,
Great Falls, Montana
For Amicus Curiae:
Dwight G. Rabuse argued, Office of Personnel Manage-
ment, Dept. of Justice, Washington, D.C.
Submitted: November 3, 1987
Decided: March 11, 1988
Filed: MAR 1 1 ISM
Clerk
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
Jack Nitschke was a federal employee insured by Blue
Cross under the Federal Employees Health Benefits Act
(FEHBA). The Nitschkes sued Blue Cross based upon a denial
of benefits. The District Court of the Thirteenth Judicial
District, in and for the County of Yellowstone, granted
defendant's motion to strike counts I1 and IV of plaintiffs'
complaint. The motion to strike was denied for counts I and
I11 for breach of contract and breach of the implied covenant
of good faith and fair dealing. The defendant then moved to
dismiss the remaining counts I and 111 for lack of
jurisdiction on the basis that they stated a cause of action
based on state law which is preempted by federal law. The
District Court treated the motion to dismiss as a motion for
summary judgment. The court denied the motion for lack of
subject matter jurisdiction and granted the motion for
summary judgment to defendant as to counts I and III on the
grounds that those claims were preempted by federal law. The
plaintiffs appeal the District Court's order granting the
defendant summary judgment.
The issues raised on appeal are whether the District
Court erred in:
I. determining that there were no issues of contested
material fact and thus plaintiff's claim for breach of
contract fails as a matter of law;
11. holding that plaintiffs' claim for breach of the
implied covenant of good faith and fair dealing was preempted
by federal law.
We affirm issue two and reverse issue one.
The plaintiff, John E. "Jack" Nitschke, is the
Postmaster of the Miles City Post Office. As a federal
employee he may select a health benefits program from either
Blue Cross or Aetna Insurance Company. For 1981 Nitschke
selected Blue Cross, and purchased dependent coverage for his
wife, Susan M. Nitschke. The insurance program, a government
wide plan sponsored by the Blue Cross and Blue Shield Federal
Employee Program, was administered on a local basis by the
defendant Blue Cross of Montana.
In August 1981, Jack Nitschke became aware that his wife
had an alcohol dependency problem. He was aware that his
insurance benefit plan provided benefits for alcoholism
treatment. The brochure stated:
Alcoholism Treatment Benefit
The Plan pays in full for alcoholism treatment
in a freestanding alcoholism facility approved by
the local plan.
Basic Hospital Benefits are also paid in full
in a member hospital and at 80 percent in a
nonmember hospital.
Benefits are available for up to 28 days per
alcoholism treatment session with a maximum of two
28-day sessions in a person's lifetime (including
sessions covered by Supplemental Benefits) .
Additional days and the remaining 20 percent are
not covered by Supplemental Benefits.
At the recommendation of a friend, he took his wife to the
Rimrock Foundation in Billings, Montana. The Rimrock
Foundation was located in Merrilac Hall, a wing of St.
Vincent's Hospital. The foundation was operating under an
affiliation agreement with St. Vincent's Hospital which
provided for St. Vincent's to admit and provide medical care
for patients at the Rimrock Foundation. Susan Nitschke
completed the 28 day alcoholism treatment session.
Midway through the program Jack Nitschke was informed by
Rimrock personnel. that Blue Cross was inconsistent about
providing benefits to cover Rimrock programs. Rimrock
contacted Blue Cross and was told "Blue Cross employees are
not to discuss benefits as they relate to the Rimrock
Foundation." Jack Nitschke did not try to transfer his wife
to another facility because he believed Blue Cross would
provide benefits and because of the demands of his job.
Nitschke paid $3,600 for his wife's treatment and
submitted the claim to Blue Cross for reimbursement. Blue
Cross denied the claim because Rimrock Foundation was neither
a hospital nor a facility "approved by the local plan." When
asked to produce a copy of the "local plan" relied upon, Blue
Cross first stated that it was the 1981 Service Benefit Plan,
then they said "local plan" refers to the entity Blue Cross
of Montana, thus Blue Cross sets the approval criteria. Blue
Cross stated the approval criteria included licensing of the
facility by the Department of Health and Environmental
Sciences. Rimrock was not so licensed. Blue Cross had in
the past approved alcoholism treatment benefits for employees
of the State of Montana who were treated at the Rimrock
Foundation.
ISSUE I
The standard for reviewing a grant or denial of summary
judgment was set forth in Reagan v. Union Oil Company of
California (Mont. 1984), 675 P.2d 953, 956, 41 St.Rep. 131,
134. "The standard that an appellate court applies in
reviewing a grant or denial of a motion for summary judgment
is the same as that utilized by the trial court initially
under Rule 56, M.R.Civ.P. -- a summary judgment is proper
when it appears 'that there is no genuine issue as to any
material fact and that the moving party is entitled to
judgment as a matter of law."' This Court must review the
evidence in a light most favorable to the party opposing
summary judgment. Downs v. Smyk (Mont. 1982), 651 P.2d 1238,
39 St.Rep. 1786.
Blue Cross claims there are no genuine issues of
material fact, that the Rimrock Foundation is not a hospital
and that the benefits approved at Rimrock for a state
employee were under a different contract and have no bearing
on what benefits are payable under the Nitschkes' contract.
Blue Cross further claims the "local plan" is not the
Nitschkes' plan, the 1981 Service Benefit Plan. According to
Blue Cross the "local plan" is the entity Blue Cross itself.
So, "approved by the local plan" means approved by Blue Cross
of Montana. By drawing reasonable inferences in favor of
Nitschkes, there appears a genuine material issue of fact
concerning whether Rimrock was "approved by the local plan",
Blue Cross itself. There is a question of fact concerning
whether the benefits sought are consistent with the
provisions of the contract and thus would not be preempted by
federal law. 5 U.S.C. 8902 (m)(1) . The granting of summary
judgment on the basis presented to us was in error and we
reverse on this issue.
ISSUE I1
The Ninth Circuit Court of Appeals case, Hayes v.
Prudential Insurance Co. of America (9th Cir. 1987), 819 F.2d
921, is dispositive of this issue. In Hayes, the appellants'
state law claims were: 1) breach of contract, 2) breach of
the implied covenant of good faith and fair dealing, and 3)
violations of the California Insurance Code. The Ninth
Circuit specifically held "Tort claims arising out of the
manner in which a benefit claim is handled are not separable
from the terms of the contract . .
. Moreover, the claims
'relate to' the plan under section 8902 (m)(1) as long as they
have a connection with or refer to the plan. . . . All
appellants' state law claims refer to the plan, and therefore
fall under the premption clause." Hayes, 819 F.2d at 926.
These claims are governed by federal law and not state law.
F e d e r a l law d o e s n o t p r o v i d e a c a u s e of a c t i o n f o r b r e a c h o f
the covenant of good faith and f a i r dealing i n t o r t . F?e
a f f i r m i s s u e 11.
We remand for further proceedings in accordance with
t h i s opinion.
W Concur:
e Justice