A class action filed on behalf of retired Government of the Virgin Islands employees and their spouses who had reached the age of eligibility for Medicare, and who had coverage under the Blue Cross group policy issued to all government employees and retirees for the period January, 1998 to late 2001.
The action was based upon the refusal of Blue Cross to pay for medical care that would be covered by Medicare Part B, the optional additional coverage available to persons 65 and older who are covered under Medicare Part A automatically by virtue of having made Social Security contributions. Part A basically applies to hospital costs. Part B helps with outpatient medical costs such as doctor visits. A retired person who wants Part B coverage must pay an extra premium for it every month after he qualifies.
Blue Cross had issued a booklet to every covered person under the VI government group health plan which stated that expenses actually paid by Medicare were excluded. The booklet did not state that expenses that would have been paid by Medicare if a person elected to take Part B were excluded, even if they were not actually paid by Medicare because the person did not have Part B coverage.
In the master contract between Blue Cross and the Government, there was language that would exclude coverage for amounts Medicare would have paid if an employee had Part B, even if the employee did not elect to take Part B and nothing was actually paid by Medicare. This provision is referred to in the industry as a "phantom carve out plan". However, that language was not in the booklets given to employees, and employees were not allowed to see the master contract. Even after demand for review of the complete contract, neither the government nor Blue Cross would permit plaintiffs to do so, until after the suit was filed and then only under a written confidentiality order. Before filing suit, plaintiffs had formally brought the claim of improper rejection of benefits to the attention of the carrier, but it had insisted that no payments were due to retired persons who did not take Part B coverage, despite the absence of such an exclusion in the booklet.
The suit included claims under the policy, bad faith claims, and additional requests for relief, including punitive damages. Plaintiffs contended that the booklet was a binding contract, or at least a part of the binding contract, and that any conflict between the terms of the booklet and those in the "master contract" must be resolved in favor of the insured and coverage, and against the insurer. They alleged that the insurer's actions over the years that the policy was in place constituted bad faith. The insurer claimed that the master contract was controlling.
An extensive summary of case law on this point at 63 A.L.R.5th 427 (1998), confirms that the "overwhelming majority of judicial opinion holds or recognizes that the insurer is, or may be under appropriate conditions, bound [by the content of promotional, illustrative, or explanatory materials from insurance companies]..." The only contrary cases noted in that collection involve materials which clearly state that they are not a part of the contract or state that in case of contradiction with the actual policy, the latter controls, a circumstance which does not apply here. There was no such reference in the Blue Cross booklet to a controlling "master contract".
Accordingly, plaintiffs argued that retired government employees could not have understood that a hidden and confidential agreement might supercede the terms of the plan which were provided to them in writing. Moreover, like most jurisdictions, the Virgin Islands follows the rule that ambiguities in an insurance contract are to be construed against the insurer.
The case involving a class of 3,491 persons was settled for $3.4 million, following voluntary mediation, before the motion to certify the class had been filed and before any formal discovery. Both class members with and without Part B coverage received settlement funds, varying from $715 to $1,800. The structure involved guaranteed payments to all class members, all of whom are elderly, without the need to submit documentation to prove actual medical expense during the policy period. In addition, the defendant agreed to pay plaintiffs' counsel fees so that the class was not required to contribute to costs or fees. The settlement was approved by the Territorial Court and settlement proceeds were distributed in December, 2003.