In this breach of contract action, defendant Group Health Incorporated (GHI) moves for an order granting summary judgment and dismissing the complaint. Plaintiffs oppose the motion, which is granted in part and denied in part.

Plaintiffs Melissa Brown, Joaquin Vincente, Satnam Singh, and Susan McPherson were insured under a group insurance contract between the City of New York and GHI ^[FN1] providing for health insurance benefits to City employees and retirees.^[FN2] The health insurance benefits under the group contract are set forth in a Comprehensive Benefit Plan (the Plan) contained in a booklet furnished to plaintiffs and others insured under the group contract.

Paragraph one of the booklet states, inter alia, that "[t]his booklet is your Certificate of Insurance. It is evidence of your coverage under the Group Contract between GHI and the City of New York. It is not a contract between you and GHI. You should keep this booklet with your other important papers so that is available for your future reference."

Plaintiff Richard Chamorro is covered by a self-funded Employee Retirement Income Security Account (ERISA) plan. It is a welfare benefit plan that is sponsored by the Hotel Employees and Restaurant Employees International Union Welfare Fund (HEREIU).^[FN3] GHI is the contracted claims administrator under the HEREIU welfare plan.

During 2004, plaintiffs received medical care and treatment on separate days from a medical practice group known as NeuroAxis Neurosurgical Assoc., PC (NeuroAxis), and were charged the following amounts: Brown, $32,614.20; Vincente, $74,664.80; Singh, $140,612.85; McPherson, $42,381.40; Chamorro, $28,266.60. Subsequent to their respective treatments, plaintiffs submitted claims for the services to GHI for reimbursement. As NeuroAxis was not a [*2]member of the GHI network, GHI reimbursed Brown, Vincente, Singh, McPherson, and Chamorro according to its non-participating provider schedule, respectively, in the following amounts; $6,743.29, $17,408.40, $54,258.00, $16,000, and $8,400.80, amounts

significantly less than those charged by NeuroAxis. (Exhibit A to Defendant's Motion for Summary Judgment). In an attempt to recover the difference, plaintiffs provided GHI with copies of the invoices and health claims toward the services and supplies they received from NeuroAxis. Despite plaintiffs demands, GHI has not remitted any further payments toward the medical care and services they received (id.).

As a result, plaintiffs commenced this lawsuit, alleging breach of contract for GHI's failure to pay the usual and customary cost of treatment and thereby making plaintiffs liable to NeuroAxis in amounts equal to the difference between the amount charged by NeuroAxis and the amount of reimbursement.^[FN4]

GHI argues that it is entitled to summary judgment because plaintiffs voluntarily chose to utilize the services of non-participating providers, that is physicians who were not members of the GHI network, and that GHI reimbursed each of the plaintiffs in accordance with the terms of their respective Plan benefits for out-of-network providers. GHI points out that under the Plan, each plaintiff's reimbursement is based upon a scheduled amount, as determined by GHI, and not upon a concept of "usual and customary costs" as plaintiffs contend.

GHI further asserts that Chamorro's claims should be dismissed because: (1) Chamorro failed to exhaust his administrative remedies prior to filing this action, and (2) GHI is not the proper defendant in the Chamorro action because GHI was not the insurer under the HEREIU benefits plan, nor was it designated as the "plan sponsor" or "plan administrator.^[FN5]"

Plaintiffs contend that GHI is not entitled to summary judgment because: (1) GHI failed to adjudicate their claims in accordance with the terms of the Plan as amended in July 1999 as the amendment detailed a change in the reimbursement methodology concerning "non-participating" providers from 100% of the "allowed charge" to the new rate of 100% of all "reasonable and customary allowances"; (2) the

terms "reasonable and customary" have been construed in the case law to mean either the usual charge of the provider, or the usual charge of the provider as against the charge made by other providers in the locality; and (3) the terms "reasonable and customary" or "usual and customary" [*3]are ambiguous and must be construed in favor of the plaintiffs.

Plaintiffs contend that Chamorro's claim is properly before this court as: (1) a court has discretion to excuse the failure to exhaust administrative remedies where an appeal would have been futile; (2) that state and federal courts have concurrent jurisdiction over claims involving the recovery of benefits; and (3) GHI acted as a fiduciary under the circumstances herein.

Plaintiffs Insured under the Plan

It is undisputed that at the time the services in question were rendered, plaintiffs Brown, Vincente, Singh, and McPherson were insured in accordance with the terms of the Plan and that they utilized a non-participating provider. The determination of this motion turns on the construction of the Plan.

The Plan provides:

"8. Scope of Coverage. The Plan consists of

two types of benefits. The type of benefit you

receive is dependent on whether or not you use

a Participating Provider. A Participating Provider

is any doctor or other Provider who has agreed

with GHI to accept GHI's payment as payment

in full for covered services, except in cases where

a Co-pay Charge is applicable.... Except for home

and office visits, specialist consultations, diagnostic,

X-ray and laboratory tests which are subject to a Co-pay

Charge, these benefits are paid at 100% of the

CBP Schedule and are not subject to co-insurance,

deductibles, or lifetime maximums. Most, but not

all, of your benefits are available through Participating

Providers.

If you use a non-Participating Provider, payment is

made directly to you. Payment is determined under

the City of New York Non-Participating Provider

Schedule. These benefits are subject to deductibles,

co-insurance and calendar year and lifetime

maximums"

(emphasis supplied)

(Exhibit C, page 5 to Defendant's Motion for Summary Judgment). Section Four of the Plan provides the following:

"1. Non-Participating Providers. You may choose

any Provider you want for covered services. You

may select a non-participating Provider. Non-

Participating Providers do not have an agreement

with GHI to limit fees. You must pay them directly. [*4]

Reimbursement for covered services will be made

directly to you according to the City of New York

Non-Participating Provider Schedule. These benefits

are subject to deductibles, co-insurance, and

maximums"

(emphasis supplied).

(Exhibit C, page 12 to Defendant's Motion for Summary Judgment). Section Four further provides:

"2. Benefits. When you use a non-participating

Provider, benefits are paid under the City of

New York Non-Participating Provider

Schedule in accordance with the Allowed

Charge for all services. (See Section Two,

Paragraph 9)."

(emphasis supplied).

Allowed Charges are also defined in Section Four of the Plan. It provides:

"Allowed Charges are the various scheduled

amounts which GHI will reimburse for covered

services rendered by non-participating providers.

The Allowed Charges schedules may vary

depending upon the type of covered service you

receive, and the applicable level of benefits.

Allowed Charges are based upon data collected

by GHI and agreed to by the City of New York.

Allowed Charges for basic benefits for covered

services which are rendered by non-participating

providers are based upon 1983 procedure

allowances. Some allowances have been

increased from time to time. The allowed charge

may be less than the fee charged by a non-

participating provider. You must pay any

difference between the allowed charge and

the non-participating provider's fee as well as

any applicable cost sharing provision.

. . . There are different Allowed Charge

schedules that apply to excess hospitalization

coverage, catastrophic coverage and ambulance [*5]

coverage"

(emphasis supplied).

(Exhibit C, page 9 to Defendant's Motion for Summary Judgment).

As stated above, GHI calculated and paid plaintiffs benefits based upon GHI's non-participating provider schedule in accordance with the allowed charges for all services provided by NeuroAxis.

While GHI argues that the payments are consistent with the allowed charge in GHI's schedule, plaintiffs rely on an amendment to the Plan evidenced by a letter from GHI to Plan members dated in July 1999. The letter provides in part:

"Dear City of New York Employees or Non-Medicare

Eligible Retirees:

We are pleased to announce a number of significant

improvements to your Empire Blue Cross Blue Shield

and GHI Comprehensive Benefits Plan (CBP).

Through the joint efforts of the City of New York

Office of Labor Relations and The City's unions,

represented by the Municipal Labor Committee,

you and your eligible dependents will enjoy the

following program enhancements: . . .

Catastrophic Deductible Reduction

The catastrophic deductible has been reduced from

$3000 to $1500 per person per calendar year. Once

a member has incurred $1,500 in non-participating

provider out of pocket expenses, GHI's catastrophic

benefit will reimburse a member at 100% of

reasonable and customary allowances, as

determined by GHI"

(emphasis supplied, including bold).

Exhibit D to Defendant's Motion for Summary Judgment).

Here, the parties disagree as to the meaning of the paragraph in the July 1999 letter with the heading "Catastrophic Deductible Reduction." GHI argues that this paragraph must be read in conjunction with the provision of the Plan that NeuroAxis, as an out of network provider, receives payment in accordance with the non-participating provider schedule and contends that the language "reasonable and customary allowance as determined by GHI" conveys the idea that reimbursement will be at "100% of the Allowed Charges after satisfaction of the new lower deductible." Thus, GHI argues, the letter did not constitute a change from a schedule of allowed charges to reimbursement based on the usual and customary costs of such services. GHI also [*6]contends that based on the heading, the benefit from the letter is the reduction in the deductible and not any change in the methodology of reimbursement.

Plaintiffs counter that the language stating they will be reimbursed for 100% of "reasonable and customary allowances" constitutes an amendment to the Plan's provisions that reimbursement for nonparticipating providers in accordance with GHI's schedule of allowed charges.

GHI also argues that the letter "must be read in its entirety and in proper context, and viewed in the manner intended." When viewed in this perspective, GHI contends it is evident that the letter was not intended to change the methodology of reimbursement for non-participating providers as such change would greatly increase the costs of the Plan. In support of this argument, GHI contends that the City adopts the schedule of allowed charges and modifications and changes to benefits under the Plan are agreed to by the City; that the Plan is experience rated ^[FN6] and designed to encourage the use of participating providers, which maximizes benefits and contains costs.^[FN7]

According to GHI, the design of the Plan includes financial incentives for using participating providers, and as they have agreed to be reimbursed by GHI according to a fixed scheduled amount for services, members utilizing their services are only responsible for the co-pay. On the other hand, there are financial disincentives for using non-participating providers, where there are deductibles and out of pocket expenses for the balance of the fee, as non-participating providers are not bound by contract with GHI and therefore are free to set the amount of their fee. Furthermore, GHI points out that although the schedule for reimbursement is higher for non-participating providers, and consequently costs to the Plan are greater, as their fees are often significantly greater than the amount reimbursed, members are responsible for the balance. [*7]

When, as here, the insureds are covered by a group insurance contract between their employer and the insurer, the insureds are a third-party beneficiaries of the insurance contract, and thus may enforce any rights they may have thereunder (Society of the New York Hospital v. Malsky, 86 Misc 2d 221 [Civ Ct. NY Co.], aff'd, 88 Misc 2d 832 (Appellate Term 1st Dept 1976]). The certificate of insurance, in this case the Plan, "appraise[s] the holder of the rights [they] may expect and the obligations [they] may assume" under the group insurance contract (1 Appleman on Insurance, 2D, § 2.7, at 275).

The courts have treated the certificate of insurance issued in connection with a group insurance contract as part of the insurance contract including when, as here, the certificate states that it is not a contract (Simpson v. Phoenix Mut. Ins. Co., 30 AD2d 265, 267 [1st Dept 1968], aff'd, 24 NY2d 262 [1969][holding that although insurance certificate stated that it was not a contract and referred to the group policy the certificate had the effect of conferring on insured applicable benefits of group contract]; see generally, 1A Couch on Ins. § 8.21 ["[c]ertificates of insurance issued to individual insureds under a group policy of insurance are generally held to be part of the policy];1 Appleman on Insurance, 2D, § 2.7, at 276 (there is not "much question that by the present weight of authority the terms of any certificate issued by the insurer to the employee is binding upon it").

Furthermore, when there is a conflict between the terms of the group insurance contract and the certificate of insurance, such conflicts have been construed in favor of the insured, and against the insurer (Id.; see also, Simpson v. Phoenix Mut. Ins. Co., 30 AD2d at 267 [construing conflict between group policy provision and certificate in favor of insured]; Society of the New York Hospital v. Malsky, 86 Misc 2d at 226 [ambiguity in Health and Welfare benefit booklet received by insured describing benefits provided under the Plan must be construed against insurer]; compare Blue Cross of Northeastern New York, Inc. v. Ayotte, 35 AD2d 258 [3d Dept 1970][where certificate of insurance is expressly made subject to terms and conditions of group policy, the beneficiary is bound thereby]; Adrian v. Kemper Group, 159 AD2d 853 [3d Dept], appeal denied, 76 NY2d 706 [1990] [same]).

Additionally, although not treated as part of the insurance contract, informational material sent to insureds under group policies regarding their benefits are considered in determining coverage and have been "construed against the party who prepared it where there are ambiguous or contradictory provisions" (Gillette v. Heinrich Motors, Inc., 55 AD2d 841, 841 [4th Dept 1976], aff'd, 44 NY2d 661 [1978]; see also, Society of the New York Hospital v. Malsky, 86 Misc 2d at 226 [ambiguity in Health and Welfare benefit booklet received by insured describing supplemental benefits provided under the health plan must be construed against insurer]; 1A Couch on Ins. § 8.21 ).

At issue here is the effect of July 1999 letter which gave Plan members notice of an amendment to the Plan. The July 1999 letter states that GHI is pleased to announce "a number of significant improvements to your GHI Comprehensive Benefits Plan...and you ... will enjoy the following program enhancements." It is clear from the language of the letter, that GHI was notifying Plan members of amendments to the Plan. While the heading of the paragraph at issue indicates that it concerns a reduction in the catastrophic deductible, and while the body of the paragraph provides for such reduction, it also provides for reimbursement of 100% of "reasonable and customary allowances." [*8]

Thus, members were notified that reimbursement for non-participating providers would be based on the "reasonable and customary allowance" rather than at the reimbursement rate in the Plan of "allowed charges in the schedule," (i.e. the City of New York's non-participating provider schedule). This is so notwithstanding the additional language "as determined by GHI" which, on its face, indicates that GHI is to determine "the reasonable and customary cost" for services provided.^[FN8]

Furthermore, to the extent it can be said that an ambiguity exists between the paragraph heading, "Comprehensive Deductible Reduction," and the part of the text of the paragraph proving catastrophic benefit reimbursement at 100% of the reasonable and customary allowances, as the paragraph heading references only a change in the deductible and not a change in the methodology of reimbursement, such ambiguity must be construed against GHI, as the insurer, and in favor of plaintiffs, as the insured (Simpson v. Phoenix Mut. Ins. Co., 30 AD2d at 267; Gillette v. Heinrich Motors, Inc., 55 AD2d at 841). For the same reasons, to the extent it can be argued that the reimbursement language in the paragraph in issue is ambiguous when viewed together with the reimbursement schedule for nonparticipating providers in the Plan, any such ambiguity must be construed against GHI (Id).

With respect to GHI's position that a change in methodology for reimbursement of non-participating providers is inconsistent with the Plan, which is experience rated and designed to encourage the use of participating providers, the court notes that members do not negotiate the provisions of the Plan, nor are they privy to the underlying reasons for its terms, but rely on the documentation provided to them in understanding the benefits which the Plan provides (see Gillette v. Heinrich Motors, Inc., 55 AD2d at 841 [plaintiff had a right to rely on the information sent to him by his employer regarding his right to obtain disability benefits when plaintiff did not receive a copy of the group policy and did not have notice of the clause in the group policy prohibiting him from recovering such benefits]).

Moreover, GHI does not point to any bar in the Plan or elsewhere to a change in methodology of reimbursement. Nor does GHI point to any documentation provided to members that conditions a change in the reimbursement schedule must result from negotiations with the City.

Thus, this court rejects GHI's argument based on the design of the Plan that the paragraph in issue in the July 1999 letter did not change the methodology of reimbursement and finds that the subject paragraph notified Plan members of the amendments therein, including an amendment changing the methodology of reimbursement of nonparticipating providers. Accordingly, GHI's motion for summary judgment must be denied with respect to claims of plaintiffs Brown, Vincente, Singh, and McPherson.

Chamorro's Claims

As indicated above, Chamorro is covered by a welfare benefit plan sponsored by HEREIU. The HEREIU plan is self-funded and covered by ERISA. GHI is the contract claims administrator under the HEREIU plan. [*9]

Section 502 (a) of ERISA incorporates a comprehensive scheme of civil remedies to enforce ERISA provisions. It provides:

"(a) . . . A civil action may be brought—

(1) by a participant or beneficiary— (A) for the relief provided for in subsection

(c) of this section, or

(B) 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[.]"

(29 USC § 1132 [a] [1] [B]). It is undisputed that Chamorro's claim against GHI arises from the insurer's denial of benefits under a self-funded ERISA plan. Thus, Chamorro is entitled to bring an action to recover his benefits under the HEREIU plan (id.).

However, before commencing such an action, Chamorro is required to exhaust his administrative remedies as provided in the HEREIU plan (see Kennedy v. Empire Blue Cross and Blue Shield, 989 F2d 588, 594 [2d Cir 1993]). In this case, the HEREIU plan provides for a two level process for appealing a denial of benefits. The first level of appeal is made to GHI, and the second level of appeal is made to the HEREIU Welfare fund. Specifically, the HEREIU plan provides that "[i]f GHI upholds all or a portion of the original denial and [the claimant] still disagrees with the decision, a claimant [or his representative]... must make application within 45 days of the date the denial was withheld to: the Appeals Subcommittee, HEREIU Welfare Fund...." (HEREIU plan, at 92).

In this case, Chamorro maintains that he appealed once and got a form letter dismissing the appeal and that he failed to appeal again since to do so would be futile. In support of the argument that a further appeal would be futile, Chamorro relies wholly on the statements in his attorney's affirmation that there were eight other cases in which GHI failed to pay according to the plan, that GHI has failed to pay the claims of the four other plaintiffs in this action, and that GHI admitted that it failed to conduct an investigation of any of these cases.

As Chamorro concedes that he failed to exhaust the administrative remedies in the HEREIU plan, the only issue is whether he has made a "clear and positive showing that pursuing available administrative remedies would be futile" (Kennedy v. Empire Blue Cross and Blue Shield, 989 F2d at 594 [internal citations and quotations omitted]). "[T]o fall within the futility doctrine, claimants must show that it is certain that their claim will be denied on appeal, not merely that they doubt an appeal will result in a different decision'"(Sibley-Schreiber v. Oxford Health Plans (NY), Inc., 62 FSupp2d 979, 986 [ED NY 1999], quoting, Communications Workers of America v. American Tel. & Tel. Co., 40 F3d 426, 432 [DC Cir 1994]).

Under this standard, Chamorro has not shown with certainty that his claims would be denied on appeal so that the exhaustion of the available administrative remedies would be futile. First, the statements of Chamorro's attorney regarding GHI's failure to conduct an investigation [*10]are wholly unsubstantiated and the denial of other claims does not show that Chamorro's claim will be denied on appeal. In any event, GHI's acts or omissions are irrelevant to the issue of whether Chamorro would have succeeded in the second level of appeal which is made to the Appeals Subcommittee, HEREIU Welfare Fund, and not to GHI. Finally, the cases relied on by Chamorro (Dale v. Chicago Tribune Co, 797 F2d 458 [7th Cir 1986], cert denied, 479 U.S. 1066 (1987); Smith v. Blue Cross & Blue Shield United Wisconsin, 959 F2d 655 [7th Cir 1992]) are not to the contrary and, in fact, the courts in those cases, rejected plaintiffs' arguments that exhaustion of administrative remedies was futile.

Accordingly, Chamorro's claims must be dismissed based on his failure to exhaust the administrative remedies set forth in the HEREIU plan, and the court need not reach the other arguments made in connection with his claims.

Conclusion

In view of the above, it is

ORDERED that GHI's motion for summary judgment is granted to the extent of dismissing the claims asserted by plaintiff Richard Chamorro and is otherwise denied.

DATED: September2007

J.S.C.