Samuel R. Jahnke and Sons et al v. Blue Cross and Blue Shield of Kansas, Inc.

Filing 43

MEMORANDUM AND ORDER denying Defendant's 37 Motion to Strike ; granting 37 Motion for Leave to File Exhibit 1 to its motion; granting 40 Motion for Leave; granting in part and denying in part 16 Motion for Summary Judgment. Signed by District Judge J. Thomas Marten on 9/28/2011. (jlw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
SAMUEL R. JAHNKE AND SONS, INC., AND
MARY K. JAHNKE , AS EXECUTOR FOR THE
ESTATE OF SAMUEL R. JAHNKE, DECEASED,
Plaintiff,
vs.

Case No. 10-4098-JTM

BLUE CROSS/BLUE SHIELD OF KANSAS,
Defendant.

MEMORANDUM AND ORDER
This is an action by the plaintiff Samuel R. Jahnke and Sons, Inc., and Mary K. Jahnke, as
executor for the Estate of Samuel R. Jahnke, seeking recovery against defendant Blue Cross, for
medical expenses associated with a 2008 insurance policy issued to Samuel Jahnke. Jahnke & Sons
is a family farming enterprise that employed Samuel Jahnke, his wife Mary, and their sons Matthew
and Eric. The suit arises from Blue Cross’s denial of medical expenses associated with Samuel
Jahnke’s 2009 surgery to remove a brain tumor.
The plaintiffs originally filed their Petition in Geary County, Kansas District Court, alleging
that the policy issued by Blue Cross violated Kansas law, specifically the provisions of K.S.A. 402209 governing policy renewals and restrictions on waiting periods. Blue Cross removed the action
to this court, and has moved for summary judgment, alleging that the state action is precluded by
ERISA, and that in any event K.S.A. 40-2209 is inapplicable to the present action.
Summary judgment is proper where the pleadings, depositions, answers to interrogatories,
and admissions on file, together with affidavits, if any, show there is no genuine issue as to any
material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P.

56(c). In considering a motion for summary judgment, the court must examine all evidence in a
light most favorable to the opposing party. McKenzie v. Mercy Hospital, 854 F.2d 365, 367 (10th
Cir. 1988). The party moving for summary judgment must demonstrate its entitlement to summary
judgment beyond a reasonable doubt. Ellis v. El Paso Natural Gas Co., 754 F.2d 884, 885 (10th Cir.
1985). The moving party need not disprove plaintiff's claim; it need only establish that the factual
allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d
1319, 1323 (10th Cir. 1987).
In resisting a motion for summary judgment, the opposing party may not rely upon mere
allegations or denials contained in its pleadings or briefs. Rather, the nonmoving party must come
forward with specific facts showing the presence of a genuine issue of material fact for trial and
significant probative evidence supporting the allegation. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 256 (1986). Once the moving party has carried its burden under Rule 56(c), the party opposing
summary judgment must do more than simply show there is some metaphysical doubt as to the
material facts. "In the language of the Rule, the nonmoving party must come forward with 'specific
facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita). One
of the principal purposes of the summary judgment rule is to isolate and dispose of factually
unsupported claims or defenses, and the rule should be interpreted in a way that allows it to
accomplish this purpose. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).
The following findings of fact exclude requested factual findings which are merely the
argument of counsel, or which are not supported by particularized reference to the evidentiary
record, as required under D.Kan.R. 56.
In addition, the court notes that, after Blue Cross submitted its Reply in support of its
summary judgment motion, the Jahnkes filed a surreply (Dkt. 36) without prior leave of court,
prompting both a Motion to Strike (Dkt. 37) by Blue Cross, and a belated Motion for Leave (Dkt.
40), seeking permission to file the Surreply.
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Surreplies are of course disfavored, and the court has repeatedly indicated that parties
seeking to submit such pleadings must obtain prior leave of court. However, given the additional
discovery permitted by the United States Magistrate Judge (Dkt. 33), the court finds that a
supplemental pleading is appropriate, and grants the requisite relief. The court also notes Blue
Cross’s request, in its Motion to Strike, for leave to file a responsive pleading in the event that the
surreply is granted. This request is granted, and the defendant is granted leave to file the proposed
Supplemental Brief (Dkt. 37, Exh. 1) as a separate pleading.
Given the submission of what will be five rounds of briefing, the court specifically
discourages any request for reconsideration, and directs that any such motion shall be limited to no
more than five double-spaced pages in length, and shall not reargue any matter which was advanced
in any of the pleadings currently before the court. (Dkt. 16, 17, 32, 35, 36, 37, 40, 41). The nonmovant may submit a Response of equivalent length; no Reply or further briefing shall be submitted.

Findings of Fact
On September 1, 2008, Blue Cross issued Samuel Jahnke an individual medical insurance
policy.
Blue Cross first contends that the payments on the 2008 policy were made by Jahnke and
Sons, not Samuel Jahnke. In support of this contention, Blue Cross cites the interrogatory responses
of the plaintiffs, which indicate that Jahnke & Sons purchased medical insurance for its employees
through Blue Cross, and that the corporation paid the premiums for its employees’ medical insurance
directly to BCBS. In their Response, the plaintiffs deny the requested factual finding. They state that
the original interrogatory responses by the Jahnkes were erroneous, and rely on the affidavit
testimony of the accountant for Jahnke and Sons, Gary T. Edwards.
According to Edwards, although the premiums were sent by the corporation, this merely
occurred at his own request in order to aid in tracking the amount spent on insurance for purposes
of the individual tax returns of the Jahnkes. Edwards further avers that the premiums were all “paid
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with after tax dollars,” and “were treated as distributions by the company and not as an expense.”
((Dkt. 24, Exh. 3, at 2). Edwards states:
The premiums were treated as a distribution for tax purposes. No portion of the
premiums was deducted by the company as an expense. The premiums were
deducted by each individual on their respective individual income tax returns.
....
[T]he individuals [were not] reimbursed for any portion of the premiums as a benefit
by the company. All premiums were used to determine the individual income tax
liability of the shareholder on their personal tax returns.
(Id.)
In its Reply, Blue Cross argues that the admissions by the plaintiffs in their original
interrogatory responses are binding, and that the Edwards affidavit should be disregarded in light
of those earlier statements, and in light of Edwards’ subsequent deposition. In particular, Blue Cross
cites Edwards’ deposition statements that the premium payments were divided equally among the
shareholders (even though the actual premiums to individual shareholders were not equal, the
corporation made payments “out of the corporate cash,” the W-2 Forms of the shareholders did not
separately list the premiums, and because the shareholders did not pay taxes on the premiums
because they took self-employed health insurance deductions of the total amount of premiums paid
during the year, divided equally among the shareholders. (Edwards dep. at 31, 40, 52, 56).
The court finds that a material issue of fact exists as to the source of the premium payment.
While the interrogatory responses and other evidence cited by Blue Cross present substantial, and
potentially compelling, evidence that the premium payments were in fact made by Jahnke & Sons,
they do not compel such a conclusion, and on summary judgment the court may make not any
finding of fact which is not supported beyond a reasonable doubt.
The court will not disregard Edwards’ testimony. See Vesom v. Atchison Hosp. Ass’n, 279
F. App’x 624, 633 (10th Cir. 2008) (court may disregard as affidavit directly contradicting prior
deposition testimony). Here the original interrogatory responses were not submitted by Edwards.
Edwards, a Certified Public Accountant, was the financial advisor of Jahnke family prior to and
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during the events in question. Blue Cross has not demonstrated that Edwards has any financial
interest in the outcome of this litigation.
Edwards’ deposition testimony is consistent: Jahnke & Sons made the premium payments
“as distributions,” and not as “any kind of expense deductions.” (Edwards dep. at 17). The premiums
were not listed as expenses on the corporation’s tax returns. (Id.) Instead, the premium payments
were “recorded as a disbursement in [Janhke & Sons’] books of record.” (Id. at 32). The premium
payments were made to “flow through as a distribution from the corporation to the owners.” (Id.,
at 19). Edwards explained that he specifically asked that premium payments be sent in this way to
aid him in preparing the individual tax returns, by giving him “a way for me to have access to the
information at year-end without them having to delve into their individual checkbooks.” (Id. at 42).
The individual tax returns for the family members included the premium payment distributions. (Id.
at 46-48, 63).
Jahnke & Sons created and maintained records of the payments it made on behalf of its
employees.
According to Blue Cross, Jahnke’s daughter-in-law, Kristel Jahnke, acted as a liaison
between Jahnke & Sons’ employees and BCBS by investigating health insurance plans for Jahnke
& Sons and reporting back the information she received from BCBS. However, it is unclear whether
Kristel Jahnke had a specific or formal role in these communications, other than sometimes speaking
with Blue Cross personnel on the telephone. Blue Cross stresses that the Billing Notices sent to the
corporation identify Kristel Jahnke as “group leader” on the account, but other written
communications were sent to each of the Jahnkes as individuals.
In their Response, the plaintiffs state that they cannot admit to the existence of such a policy
“[u]ntil Defendant explains the existence of [another] insurance policy,” which was also issued to
Jahnke. (Dkt. 24, at 2). However, this policy was cancelled on September 1, 2008, and never went
into effect. While the Jahnkes speculate that such a cancellation might be evidenced by a formal
cancellation document, they have produced no evidence that this would likely be the case. The
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evidence before the court indicates that the September 1, 2008 policy was an individual policy, that
it was issued with an effective date of September 1, 2008, and that it was specifically agreed to by
Samuel Jahnke, as evidenced by his signature.
According to Blue Cross, Samuel Jahnke’s Policy was individually underwritten, meaning
Blue Cross specifically considered Jahnke’s individual health risk. Group policies, on the other
hand, are not individually underwritten; rather, they are issued on the basis of underwriting
assumptions pertaining to the general health of a group of people, and no individual person’s health
risk is evaluated. Therefore, major differences exist between individual and group policies, including
the premiums charged.
The Jahnkes argue, however, that the policy was intended to be a group policy. They note
that the policy, and subsequent Explanation of Benefits forms, were issued under the “group name”
of “Samuel R. Jahnke & Sons,” and assigned “Group No. M008395.” They also cite a Health Route
Sheet indicating that Blue Cross viewed this policy as a health insurance rollover, and the package
code was First Choice Business and not First Choice Individual.
The court finds that the policies issued in 2008 were individual, not group policies. Blue
Cross supplies evidence showing that the group number was used for billing purposes only, and that
evidence clearly shows that policy issued to Samuel Jahnke was an individual policy, with an
effective date of September 1, 2008. (Dkt. 17-4, at 6). The Jahnkes were specifically informed that
the new policies were individual policies, with lower premiums. It is uncontroverted that the
premiums for Samuel Jahnke’s policy were calculated based on an individual policy.
The Policy included a 240-day waiting period for the treatment of tumors or growths:
Waiting Periods. The Insured must have had continuous coverage for 240 days
dating from the date this coverage becomes effective for the conditions named below
before benefits are available.
1. Removal of tonsils and or adenoids.
2. Treatment of tumors or growths.
3. Treatment for a hernia.
4. Treatment for conditions of the gall bladder, rectum, or genito-urinary tract.

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Blue Cross, citing the Enrollment Confirmation Form signed by Samuel Jahnke, contends
that Jahnke expressly agreed to this waiting period on August 22, 2008, before the effective date of
the Policy. The Jahnkes argue that this 2008 policy was a rollover policy, and that the effective date
of the policy should therefore be September 1, 2005, when the original policy took effect.
Under the 2008 policy, benefits are paid “upon receipt of proper written proof of loss.”
On April 19, 2009, Samuel Jahnke underwent an operation to investigate a potential brain
tumor.
Blue Cross denied the claim as excluded under the Policy’s 240-day waiting period for the
treatment of tumors or growths.
On March 8, 2010, after exhausting appeals under the Policy, the Jahnkes filed a Petition
against Blue Cross in the District Court of Geary County, Kansas. As noted above, Blue Cross
removed the action to this court.
In addition to disputing some of the facts presented by Blue Cross, the plaintiffs’ Response
also includes a numbered list of 15 paragraphs which it lists as “[s]ome of the genuine issues of
material fact that will deserve our attention during the remaining discovery.” (Resp. at 5). Blue
Cross correctly observes that, if this list was intended as a Statement of Additional Fact under Rule
56(d), the list is almost entirely without evidentiary support. Rather, in most instances they are
simply argument by counsel.
For example, the Jahnke’s suggest that the surgical procedures performed at Stormont Vail
Hospital in April 2009 were merely diagnostic in nature. Blue Cross appropriately notes that the
plaintiffs supply no competent evidence in support of this conjecture, but it is directly contrary to
the allegations of their own Complaint, which states that Samuel Jahnke had been diagnosed with
a brain tumor prior to the surgery.
The Jahnke’s also cite telephone recordings of some conversations between members of the
Jahnke family and Blue Cross representatives. These include a conversation from April of 2009, in
which a Blue Cross representative stated that the Jahnke’s claims would be duly processed, and a
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conversation from the previous year, in which Kristel Jahnke spoke with a Blue Cross representative
about the effect of switching from a business plan to one involving individual policies. The
representative stated that such a switch would prevent Jahnke & Sons from guaranteeing coverage
to new employees, and that “[y]ou do have to serve the 8 month waiting period though also” (Dkt.
17-8, at 15). The representative stated that this waiting period was “on certain conditions only
though.” (Id.) The Jahke’s also raise questions about the exclusion for obstetrical services when one
of the reasons for the new policy was to end coverage for such services, and note that Blue Cross
actually paid some of the claims submitted by the family, or indicated “$0.00" in some hospital
expense forms.
In its response, Blue Cross supplies evidence that it indeed paid some of the claims, but only
to the extent that these were diagnostic in nature. It also, again correctly, notes that the scope of a
policy issued by ERISA cannot be expanded by estoppel. Palmer v. Metro. Life Ins. Co., No.
10-3171, 2011 WL 892747, at *7 (10th Cir. Mar. 16, 2011). Thus, it is the terms of the policy that
are controlling, not the existence of alleged oral statements suggesting broader coverage. Even
assuming ERISA were not applicable, the evidence as to the 2009 conversation is irrelevant, since
an estoppel cannot arise in the absence of any reliance, and this conversation occurred after the
surgery.
The 2008 policy does include a reference to the potential exclusive for obstetrical services
within the waiting period, but this creates no ambiguity in the terms of the policy, or is it some
anomaly reflecting suspicious circumstances. The policy also clearly stated that such obstetrical
policies “are available upon request at an additional premium,” and that they were subject to the
waiting period “[i]f purchased.” (Id. at 56) (emphasis added). Such coverage was not purchased.
Finally, the insurance forms include a checkmark for “Rollover,” but only as an indication that the
new policies were renewal of an existing group policy, but a rollover of an existing group policy into
new individual policies.

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Finally, the court specifically finds that the expense forms plaintiffs cite lack probative
value. As noted earlier, these forms were generated after the expenses were incurred, and thus
cannot satisfy the reliance element of estoppel. Not only does such evidence fall short of the
hyperbolic status assigned them by plaintiffs (Dkt. 36 at 18-19), the court finds such evidence —
relating simply to an interim, computerized assessment of hospital patient charges or to hypothetical
computer estimations of what Blue Cross might have paid if coverage were not denied — wholly
irrelevant to plaintiff’s claims, as they cannot not alter the specific right advanced in the policy
which allows Blue Cross to conduct a direct and independent review of pre-service and post-service
claims.

Conclusions of Law
ERISA
Blue Cross argues in its motion that the plaintiffs’ claim is precluded by ERISA, and that the
regulatory “safe harbor” exemption of 29 C.F.R. § 2510.3-1(j) does not apply. It also argues that the
2008 policy otherwise falls within the scope of ERISA, as an employee benefit plan. (Dkt. 17, at 1117), and that since ERISA preempts state law under 29 U.S.C. § 1144(a), the plaintiffs’ are asserting
equitable claims for benefits under ERISA Section 504(a), which claims must fail, as the plaintiffs
have failed to demonstrate that Blue Cross’s decision to deny benefits was arbitrary and capricious.
The plaintiffs in their Response present only one substantial argument: that the safe harbor
provision applies, thereby excluding the present action from the scope of ERISA. The plaintiffs do
not persuasively argue that (1) in the absence of the safe harbor exception, ERISA does not
otherwise govern the scope of the rights under the policy, (2) that, if ERISA applies, the case must
be reviewed under an arbitrary and capricious standard, or (3) that Blue Cross’s decision to deny the
claim under the explicit terms of the policy was not arbitrary and capricious under all the
circumstances of the case. See Graham v. Hartford Life & Accident, 589 F.3d 1345, 1358 (10th Cir.
2009).
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The safe harbor of 29 C.F.R. § 2510.3-1(j) has four separate elements, all of which must be
met before a plan may be considered to be excluded from ERISA.
(1)

No contributions are made by an employer or employee organization;

(2)

Participation [in] the program is completely voluntary for employees or
members;

(3)

The sole functions of the employer or employee organization with respect to
the program are, without endorsing the program, to permit the insurer to
publicize the program to employees or members, to collect premiums through
payroll deductions or dues checkoffs and to remit them to the insurer; and

(4)

The employer or employee organization receives no consideration in the form
of cash or otherwise in connection with the program, other than reasonable
compensation, excluding any profit, for administrative services actually
rendered in connection with payroll deductions or dues checkoffs.

The dispute between the parties centers on the first element, whether contributions were
made by the corporate employer, Jahnke & Sons.
Whether premium payments are made by the employer or the beneficiary is an inquiry driven
by objective facts. See Redeaux v. Southern Nat. Life Ins. Co, No. 08-1345, 2008 WL 5427749, at
*5 (W.D. La. Dec. 30, 2008) (discounting plaintiff’s “self-serving affidavit stat[ing] her belief
[expressed amid] unpersuasive conclusory statements,” and finding ERISA preemption where all
“certified documents entered into evidence” showed the safe harbor exception is applicable). On the
other hand, the court is not limited to the mere form of payment. Thus, in Schneider v. Provident Life
& Accident, No. 97-4646, 1999 WL 281206, *4 n. 7. (N.D. Cal. 1999), the court found that the safe
harbor applied, even though the checks for the premium payments were issued to the insurer by the
corporate employer, where other evidence showed that although the corporation issued the checks,
the plaintiff had agreed that the cost of the premiums was charged to him as taxable income. See also
Roberts v. Principal Life Ins., 2009 WL 691872 (E.D. Mich. March 12, 2009) (material question of
fact existed as to intent of parties, where evidence insurer sent invoices to corporate address, and
was paid by corporate checks, was balanced against plaintiff’s evidence that payments were meant
to repay independent loan advanced by the plaintiff to the corporation); Schwartz v. Provident Life
& Accident, 280 F.Supp.2d 937, 941 (D.Ariz.2003) (although use of corporate billing and checks
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are relevant for safe harbor analysis,“dispositive question is whether [the employer] actually
absorb[s] any portion of the cost of those premiums”). Of particular relevance is how the beneficiary
treated the premium payments on contemporary tax statements. See Cowart v. Metropolitan Life
Ins., 444 F.Supp.2d 1282, 1291 (M.D. Ga. 2006).
The court finds that a material issue of fact exists as to whether Jahnke & Sons made
contributions on behalf of Samuel Jahnke’s 2008 policy. The evidence shows that premiums for the
plan were paid on checks in the name of the corporation, out of the corporate account. Despite
plaintiffs’ current position that the payments were made as distributions, the Jahnkes did not list
such distributions separately in the W-2 forms. Moreover, the premium payments were made in a
manner which divided equally among all the employee/shareholders, not in proportion to their actual
shareholder interests. Against this, the plaintiffs have supplied evidence from their accountant
indicating that he intended the premium payments as distributions, and that he indicated the
payments on some individual tax schedules.
The court finds that Blue Cross has not established beyond a reasonable doubt that the
premiums were paid by the corporate employer, given the affidavit and testimony supplied by the
accountant. At the same time, the fact-finder is not compelled to accept the plaintiffs’
characterization of the premium payments, given the relative absence of contemporary
documentation that the parties intended distributions, the clear conflict with the plaintiffs’
unequivocal responses to interrogatories which state that the corporation paid the premiums for the
policy, and the fact that the evidence relating to the alleged distributions was identified on the wake
of Blue Cross’s summary judgment motion.

Kansas Law
Blue Cross contends that, even if ERISA preemption did not exist, the 240-day waiting
period was not contrary to Kansas law. K.S.A. 40-2209f(f), provides for a substantially shorter
waiting period. Under K.S.A. 40-22209(a)(4)(A) and (a)(8)(A), “group policies” may include a 90
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day “preexisting condition exclusion.” However, Blue Cross argues that K.S.A. 40-2209 is not
applicable for two reasons. First, the legislation by its terms is applicable only to group policies, and
the 2008 policy issued to Samuel Jahnke was an individual policy. Second, the Kansas legislation
was only intended to apply to exclusions for preexisting conditions, not waiting periods in the
absence of a claim of a preexisting condition, citing Judge Kelly’s decision in Costello v. Travellers,
1995 WL 643816 (D. Kan. Oct. 26, 1995).
The primary argument of the Jahnkes in their Response (Dkt. 24, at 12-15), and the only
argument in their Surreply (Dkt. 36, at 1-21), is that ERISA does not apply because of the safe
harbor provision. In their Response, they make a brief argument that ERISA does not preempt
Kansas statutes governing small group policies. (Dkt. 24, at 15-17). But plaintiffs never directly
respond to either of Blue Cross’s arguments.
The court finds that Blue Cross’s argument based on Costello is unconvincing. It is correct
that in that case the court indicated (in dicta, the court previously holding that ERISA preemption
applied) that the purpose of K.S.A. 40-2209f is to restrict the ability of medical insurers to prevent
coverage of preexisting illness, but in doing so the court did not suggest that the facial language of
the statute, which clearly restricts all waiting periods, should be ignored. The court explained that
the plaintiff’s state law claim was subject to dismissal for two reasons:
Even assuming that Kansas law is not preempted by ERISA, there are two problems
with this argument. First, the cited statutory restriction applies to pre-existing
condition exclusions contained in health insurance policies. The insurance policy
here provides not health insurance but accident insurance. K.S.A. 40-2209d(n)
expressly exempts accident insurance policies from the coverage of the statute.
Second, the case really does not involve the “pre-existing condition”
frequently contained in medical insurance, because the present case is not about
medical insurance. It is a claim for benefits under an accident policy. Charles
Costello began to work for SRM, and was protected by the group accident insurance
policy, in 1977. He was first diagnosed as suffering from heart disease in 1989, some
12 years later. Thus, this is not a case in which a health insurance provider is seeking
to avoid coverage for a disease on the basis that the medical condition existed before
the time coverage was first provided. Rather, this is a case in which the plaintiff
seeks benefits for a disease-related death under an accident insurance policy which
expressly excludes coverage for a disease, in which the disease was first detected
after the policy was in effect.
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1995 WL 643816 at *4 (emphasis in original).
Blue Cross’s reliance on the penultimate sentence in the quoted passage is misplaced, as the
court was clearly not suggesting that the plain language of the statute should be ignored. Rather, it
was simply indicating the multiple reasons why Costello’s specific claim fell outside the ambit of
K.S.A. 40-2209f. The court finds no basis in Costello for concluding that the statute should not be
applied according to its plain language.
However, the court agrees that the statute only governs group policies, and the policy in
question was an individual policy. As noted earlier, the Jahnkes do not directly respond to this
argument as a legal conclusion, they simply challenge the underlying fact, asserting in their response
to Blue Cross’s statement of uncontroverted facts that the 2008 policy was a group policy.
For the reasons identified in the court’s Findings of Fact, the policy issued in 2008 was
clearly an individual policy. K.S.A. 2209-(a)(1) defines “Group sickness and accident insurance”
as “that form of sickness or accident insurance covering groups of persons.” Typically, “a group
insurance contract is embodied in [a] master policy [coupled with] individual certificates [that] are
merely evidence of coverage.” Simms v. Metropolitan Life Ins., 9. Kan.App.2d 640, 644, 685 P.2d
321, 325 (1984) (citing Boseman v. Insurance Co., 301 U.S. 196, 203).
The uncontroverted facts establish that group policies are not individually underwritten, but
are based on underwriting assumptions pertaining to the general health of a group of people, and no
individual person's health risk is evaluated. Major differences exist between individual and group
policies, including the premiums charged. It is uncontroverted that the policy was issued as an
individual policy and was priced as such. It is uncontroverted that, if the policy was issued as part
of a group policy, it would have been priced differently.
This evidence is consistent with the decisions of the courts. See United States v. Lorefice,
192 F.3d 647 (7th Cir. 1999) (recognizing that risk assessment under group policies is made not on
the basis of health risk of specific individuals, but on other grounds, such as employee status). See
also American Bar Endowment v. United States, 4 Cl.Ct. 404, 416 n. 12 (1984) (noting differences
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between practical and price differences between group and individual policies, including “the
additional security and flexibility afforded by individual policies”), aff’d in part and rev’d in part
on other gds., 761 F.2d 1573 (Fed. Cir. 1985), rev’d, 477 U.S. 105 (1986).
The policy issued to Samuel which took effect on September 1, 2008 Jahnke was specifically
issued in his name, and not issued as merely part of a general group policy. The policy was issued
with the emphatic, large-font title:
NON-GROUP DIRECT-ENROLLED CONTRACT.
(Dkt. 17-4, at 6). The contract further specifies that the policy issued issued under the “NONGROUP CATEGORY: HZ.” (Id.)
As the Jahnkes stress (in the part of their brief where they are attempting to escape the
application of ERISA), Samuel Jahnke paid for the policy individually, with his own funds, from
disbursements from the corporation. The corporation, according to the plaintiffs, did not pay for the
policy, Samuel Jahnke did, as an individual. See Coates v. Metropolitan Life Ins., 515 F.Supp. 647,
649 (D.Kan. 1981) (“K.S.A. 40-2209 addresses the subject of ‘group sickness and accident
insurance’”); Williams v. C.T. Life & Accident Ins., 303 F.Supp. 1208, 1211 (D.Kan. 1968) (noting
that “[s]pecial rules are set out at K.S.A. 40-2209 regarding group sickness and accident insurance”).
In their Petition, the plaintiffs advance two separate theories of relief. First, that Blue Cross
violated K.S.A. 40-2209(a)(8), “which states that when small group insurance is terminated and a
new group plan is issued[,] that the new policy must give credit for credibable coverage on the prior
plan.” (Dkt. 1, Exh. 1, at ¶ 12). Accordingly, the determination that the policy at issue was an
individual rather than a group plan precludes the plaintiff’s first claim.
The plaintiffs’ second allegation in their Petition is that Blue Cross violated K.S.A. 402209[f](f), which “specifically provides for a ninety (90) day waiting period.” (Id. at ¶ 23).
However, a determination that the policy was an individual policy is not determinative of the K.S.A.
40-2209f claim. This provision is a part of more recent amendments to K.S.A. 40-2209 designed to
promote access to insurance for small employers. Unlike 40-2209(a), which governs policies issued
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“covering groups,” the application of K.S.A. 40-2209(a) et seq. is potentially larger. K.S.A. 402209(e) specifically provides that the small employer provisions are applicable to “[a]ny individual
or group health benefit plan issued to a group.” (Emphasis added). By its express terms, the small
employer provisions include individual plans as well as group plans. The focus is not on whether
a policy was issued for a group in terms of coverage, but simply to a group otherwise authorized to
supply coverage:
(a) Any individual or group health benefit plan issued to a group authorized by
subsection (a) of K.S.A. 40-2209 and amendments thereto shall be subject to the
provisions of this act if it provides health care benefits covering employees of
a small employer and if it meets any one of the following conditions:
(1) Any portion of the premium is paid by a small employer, or any covered
individual, whether through wage adjustments, reimbursement, withholding
or otherwise;
(2) the health benefit plan is treated by the employer or any of the covered
individuals as part of a plan or program for the purposes of section 106 or
section 162 of the United States internal revenue code; or
(3) with the permission of the board, the carrier elects to renew or continue a
health benefit plan covering employees of an employer who no longer meets
the definition of a “small employer.”
Any one of the three preconditions is sufficient, and the remaining question of material fact
(whether the premiums for Samuel Jahnke were paid by him or by the corporation) is irrelevant
under the first element. The small employer provisions are applicable if either Jahnke or the
corporate employer paid “[a]ny portion of the premium.”
In addition, the statute provides an exclusion for certain individual policies, but only where
the separation from employment is absolute and unmistakable. Under subsection (d),
Individual policies of accident and sickness insurance issued to individuals and their
dependents totally independent of any group, association or trust arrangement
permitted under K.S.A. 40-2209 and amendments thereto shall not be subject to the
provisions of this act.
Here, there is evidence from which a rational fact-finder could conclude that the Samuel
Jahnke policy, even if it was individual in nature, was not “totally independent” of a group, but was
instead issued to the small employer. As noted earlier, the policy denominates itself as “NON15

GROUP.” But the policy was also prefaced by, and delivered to, Jahnke with the notation that is it
was issued under the “GROUP NAME” of “SAMUEL R JAHNKE & SONS,” with a specified
“GROUP NUMBER.” (Dkt. 17-4, at 4). Further, the facts also establish that Blue Cross sent
premium notices to Jahnke & Sons, not Samuel Jahnke as an individual, and that Blue Cross
engaged in communications with Kristel Jahnke as the “Group Leader.”
Because the evidence fails to establish beyond a reasonable doubt that the Samuel Jahnke
policy was issued totally independent of the small employer group, the court will not issue summary
judgment as to Count 2 of the Petition.

Conclusion
The court accordingly finds (a) the rights between the parties are governed by the September
1, 2008 policy issued by Blue Cross to Samuel Jahnke; (b) provisional or hypothetical indications
of potential coverage do not preclude Blue Cross from relying on express policy language in making
its final decision to grant or deny coverage; (c) a material question of fact exists as to whether
contributions for this policy were made by Samuel Jahnke individually, or by Jahnke & Sons as an
employer; (d) if the payments were made by him individually, the safe harbor provision applies, and
ERISA does not preempt the plaintiffs’ claims (e) if, on the other hand, Janke & Sons contributed
to the policy, the safe harbor provision is inapplicable and ERISA premption applies; (f) Blue Cross
did not act arbitrarily or capriciously within the terms of ERISA in denying the claim; (g) Count 1
of the Petition will be dismissed, as the policy in question is an individual policy and is not subject
to the terms of K.S.A. 40-2209, and (h) the court denies summary judgment as to Count 2 of the
Petition.

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IT IS ACCORDINGLY ORDERED this 28th day of September, 2011, that the defendant’s
Motion for Summary Judgment (Dkt. 16) is granted in part and denied in part, as stated herein;
plaintiffs’ Motion for Leave (Dkt. 40) is granted; defendant’s Motion to Strike (Dkt. 37) is denied,
although defendant’s request for leave to file Exhibit 1 to its motion is hereby granted.

s/ J. Thomas Marten
J. THOMAS MARTEN, JUDGE

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