Blue Cross Immunity Claim Rejected by 5th Cir.

The Fifth Circuit held that a private insurance carrier providing insurance pursuant to a contract with the federal government has no substantial defense of official immunity. The case involved a suit by a hospital against an insurer for inadequate insurance payments in the context of the federal employees’ health insurance program. The hospital alleged that the insurer made negligent misrepresentations regarding the payments it would make and violated the Texas Deceptive Trade Practices Act. Blue Cross & Blue Shield of Texas (“Blue Cross”) argued that since it was providing health coverage to federal employees under a contract with the federal Office of Personnel Management, Blue Cross was acting as an arm of the federal government vested with governmental immunity. The case went up on appeal after the district court denied Blue Cross’ motion for summary judgment. The Fifth Circuit held that the claim for official immunity was not substantial and the claim of federal sovereign immunity was not subject to immediate review. Houston Community Hospital v. Blue Cross & Blue Shield of Texas, Inc., 481 F.3d 265 (5th Cir. March 9, 2007).

The Fifth Circuit held that a private insurance carrier providing insurance pursuant to a contract with the federal government has no substantial defense of official immunity.  The case involved a suit by a hospital against an insurer for inadequate insurance payments in the context of the federal employees’ health insurance program.  The hospital alleged that the insurer made negligent misrepresentations regarding the payments it would make and violated the Texas Deceptive Trade Practices Act.  Blue Cross & Blue Shield of Texas (“Blue Cross”) argued that since it was providing health coverage to federal employees under a contract with the federal Office of Personnel Management, Blue Cross was acting as an arm of the federal government vested with governmental immunity.  The case went up on appeal after the district court denied Blue Cross’ motion for summary judgment.  The Fifth Circuit held that the claim for official immunity was not substantial and the claim of federal sovereign immunity was not subject to immediate review.  Houston Community Hospital v. Blue Cross & Blue Shield of Texas, Inc., 2007 WL 706895 (5th Cir. March 9, 2007).  Two of the judges on the panel were appointed by Reagan and the third judge was appointed by Bush II.

 

Blue Cross did not seek leave from the district court to file an interlocutory appeal.  Instead, Blue Cross filed a notice of appeal based on jurisdiction under the collateral order doctrine which permits a federal appellate court to review decisions that are conclusive and effectively not reviewable on appeal from the final judgment in the underlying action.  The Fifth Circuit noted that a denial of official immunity is an appealable order, but the claim of immunity must be “substantial” to justify appellate collateral order review.  The Fifth Circuit concluded that a private insurance carrier has no substantial defense of official immunity.

 

The court held that insurance carriers do not perform “official functions” in administering health benefits to federal employees.  The court agreed with the district court that Blue Cross was not performing any of the functions that OPM was charged with performing.  Also, the court found that Congress had relegated to OPM, not Blue Cross, authority to regulate.  The court noted that Blue Cross operates for profit and competes with other carriers for customers within the pool of federal employees.

 

The court distinguished the Medicare line of cases on which Blue Cross relied.  The court noted that under Medicare law, the federal government delegates a portion of its statutory functions to private carriers and under federal regulations, the federal government is the real party of interest in any litigation involving the administration of the program.  The Fifth Circuit stated: “No analogous delegation of authority exists here.” 

 

The court addressed policy considerations underlying immunity doctrines, and found that providing Blue Cross with official immunity would do more harm than good.  The court concluded that “the public policy underlying official immunity for federal officials is not implicated here,” because “unlike the federal government, [Blue Cross] is governed by self interest, not the public interest.” 

 

The Fifth Circuit further held that the claim of federal sovereign immunity was not amenable to interlocutory appeal under the collateral order doctrine.  The court reviewed cases from other circuits and agreed with the Seventh Circuit that federal sovereign immunity protects the federal government from damages in some circumstances but does not insulate it from being sued.  Therefore, even if Blue Cross was entitled to federal sovereign immunity, its claims could be addressed following the final resolution of the case.  The court pointed out that it was not ruling on the merits of Blue Cross’ assertion of federal sovereign immunity, only rejecting its interlocutory appeal.