Petruzzo v. National Union Fire Insurance Company of Pittsburgh, P.A., et al

Filing 109

ORDER regarding 88 Motion to Amend Class Action Complaint, 104 Motion to Dismiss HealthExtras Insurance Agency, Inc., 105 Motion to Dismiss HealthExtras Benefits Administrators, Inc., 106 Motion to Dismiss Allian t Insurance Services Houston, LLC, and 107 Supplemental Motion to Amend Class Action Complaint - Plaintiff's motions to dismiss (DE 104, 105, 106) provisionally are ALLOWED, where three defendants have been requested to be dismissed with prejudice, and their anticipated dismissals are reflected on the face of the newly proposed amended complaint. Should no cause be offered why the court's provisional allowance of the motions to dismiss is in error, within fourteen (14) days as herein ordered, then those motions finally will be ALLOWED. In its discretion, the court ALLOWS plaintiff's supplemental motion for leave to file his newly proposed first amended complaint, (DE 107), to the extent of his request now to have the court consider this proposed amended complaint in ruling on his motion to amend. The court allows uncontested parts of plaintiff's motion to amend (DE 88) as follows: (a) Plaintiff's motion to amend (DE 88) is ALLOWED in thos e uncontested parts where plaintiff seeks to join Jeffrey and Jeffrey and Kimberley Bush as plaintiffs, join Virginia Surety and HealthExtras, LLC as defendants, and correct errors regarding defendants names, to the extent these changes also are re flected in the proposed amended complaint filed June 20, 2014; (b) Plaintiff's motion to amend (DE 88) is ALLOWED in those uncontested parts where plaintiff seeks to identify National Union Fire InsuranceCompany as a "member," rather t han as a "division," of American International Group, Inc. (AIG), and change the name of defendant identified as Catalyst Health Solutions, Inc. to reflect its post-merger entity name, "Catamaran Health Solutions, LLC, f/k/a Catalyst H ealth Solutions, Inc." The court holds in abeyance decision on remaining, contested parts of plaintiff's motion, where defendants have twenty-one (21) days within which to supplement their arguments of record with respect to plaintiff&# 039;s sought-after amendment of complaint, as now reflected in the form of proposed amended complaint filed June 20, 2014. Plaintiffs have fourteen (14) days within which to respond. No reply will be permitted. The STAY on class discovery and other deadlines REMAINS IN EFFECT. Counsel should read attached order in its entirety for additional critical information and deadlines. Signed by District Judge Louise Wood Flanagan on 6/24/2014. (Tripp, S.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:12-CV-113-FL

MARIO PETRUZZO,

)
)
Plaintiff,
)
)
v.
)
)
HEALTHEXTRAS, INC.;
)
HEALTHEXTRAS BENEFITS
)
ADMINISTRATORS, INC.;
)
CATALYST HEALTH SOLUTIONS,
)
INC; HEALTHEXTRAS INSURANCE )
AGENCY, INC.; ALLIANT
)
INSURANCE SERVICES, INC., f/k/a
)
Driver Alliant Insurance Services, Inc.;
)
ALLIANT SERVICES HOUSTON,
)
INC., f/k/a JLT Services Corporation;
)
ALLIANT INSURANCE SERVICES
)
HOUSTON, INC., f/k/a Capital Risk,
)
LLC, f/k/a Jardine Lloyd Thompson,
)
LLC; NATIONAL UNION FIRE
)
INSURANCE COMPANY, d/b/a
)
National Union Fire Insurance Company )
of Pittsburg, PA, a division of American )
International Group, Inc. (AIG);
)
)
Defendants.
)
)

ORDER

This matter is before the court on plaintiff’s motion to amend complaint (DE 88).
Defendants responded in opposition, plaintiff replied, and defendants filed sur-reply. Accordingly,
the issues raised are ripe for ruling, but for the fact of several related motions being filed by plaintiff
June 19, 2014, which muddy the waters somewhat.

Most particularly, plaintiff now seeks leave to file in place of the first proposed amended
complaint, a more specific one, clarifying more particularly the identities of the necessary parties.
(DE 107). In essence, plaintiff seeks to supplant the proposed amended complaint filed back on
November 22, 2013, with this new one, and rely on the grounds originally articulated in supporting
memorandum lodged on the docket at entry number 89 and reply at entry number 96, in furtherance
of his motion now to proceed on that proposed complaint lodged at entry number 107. Also on June
19, 2014, plaintiff sought leave to dismiss defendants HealthExtras Insurance Agency, Inc. (DE 104),
HealthExtras Benefits Administrators, Inc. (DE 105), and Alliant Insurance Services Houston, LLC
(DE 106), with prejudice, on grounds that his further investigation has revealed that none of these
defendants is a necessary party to the action.
STATEMENT OF THE CASE
Plaintiff, a resident of Ocean Isle, North Carolina, commenced this action on March 6, 2012,
with the filing of a complaint on behalf of himself and all similarly-situated North Carolina residents
concerning blanket group disability and health insurance policies. Plaintiff alleges that the policies
are illegal and void, and seeks to recover compensatory and punitive damages based on claims of
unfair and deceptive trade practices pursuant to N.C. Gen. Stat. § 75-1.1, et seq., breach of good faith
and fair dealing, unjust enrichment, and civil conspiracy. The complaint requests class action status
and asserts subject matter jurisdiction pursuant to the Class Action Fairness Act, 28 U.S.C. §
1332(d), alleging over one hundred (100) class members with an aggregate amount in controversy
over five million dollars ($5,000,000.00).
On August 7, 2012, the court dismissed the action as to one defendant, Group Insurance
Trust, without prejudice, for failure to obtain service. Remaining defendants filed motions to
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dismiss on a number of grounds, including (1) that plaintiff’s claims were barred by the statute of
limitations, (2) the complaint alleged insufficient facts against defendants Alliant Services Houston,
Inc. (“Alliant Services Houston”); Alliant Insurance Services Houston, Inc.; and Alliance Insurance
Services, Inc. (collectively, “Alliant”), (3) that plaintiff had failed to plead a cognizable injury, and
(4) that plaintiff had failed to plead sufficient facts to support his claims. The court denied these
motions by order entered August 23, 2013. Subsequently, defendants filed three separate answers
on September 16, 2013. One answer was filed by Alliant defendants. A second answer was filed
by defendants Catalyst Health Solutions, Inc.; HealthExtras, Inc.; HealthExtras Benefits
Administrators, Inc.; and HealthExtras Insurance Agency, Inc. (collectively, “HealthExtras”).
Finally, defendant National Union Fire Insurance Company (“National Union”) filed an answer of
its own. On November 22, 2013, plaintiff filed his first motion to amend. Five days later, the court
granted joint motion to stay class discovery, pending resolution of the motion to amend.
Plaintiff’s proposed amended complaint filed last year1 alleges the same general scheme as
the original complaint, and asserts the same claims for unfair and deceptive trade practices, breach
of the duty of good faith and fair dealing, unjust enrichment, civil conspiracy, and punitive damages.
However, the amended complaint proposes the addition of new plaintiffs and defendants and
includes many new details of the allegedly unlawful activity.
STATEMENT OF FACTS
The court sets out here plaintiff’s allegations in the proposed amended complaint. In the late
1990s, HealthExtras defendants established marketing partnerships with six of the nation’s largest

1

Unless otherwise noted, all references to the proposed amended complaint refer to the one filed November 22, 2013,
at docket entry number 88.

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VISA and Mastercard issuing banks to market a benefit program that included an Accidental
Permanent and Total Disability insurance product (Disability Policy) and an Emergency Accident
and Sickness Medical Expense insurance product (Health Policy). (Am. Compl. ¶ 86).2
Plaintiff received marketing materials from HealthExtras defendants which were forwarded
to him in mailings from his credit card issuer, Capital One, in 1998. (Id. at ¶¶ 32). On February 22,
2000, HealthExtras defendants accepted plaintiff’s enrollment in these policies. (Id. at ¶ 41).
Virginia Surety Company, Inc. (“Virginia Surety”), proposed to be added as a defendant, became
underwriter of plaintiff’s Health Policy at some point in calendar year 2001, and remained
underwriter to present. (Id. at ¶ 40). The premium, also described as a “program fee” or
“membership fee,” advertised for the policies was $9.25 per month. (Id. at ¶ 43, 53). HealthExtras
defendants began debiting plaintiff’s account for an annual premium of $95.00 on January 29, 2001.
(Id. at ¶ 43).
On October 27, 2004, plaintiff received a letter signed by an employee of JLT Services
Corporation, now known as defendant Alliant Services Houston, informing plaintiff that defendant
National Union would become the underwriter for the plaintiff’s Disability Policy, and that the
policy definition of “Accidental Permanent Disability” would be altered, both changes taking effect
January 1, 2005. (Id. at ¶¶ 44-45). At this time, plaintiff was first informed that the program benefit
was organized with a policyholder denoted as “AIG Group Insurance Trust, for the Account of
HealthExtras.” (Id. at ¶ 45).

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As noted, the facts summarized are drawn from plaintiff’s First Amended Class Action Complaint, filed November
22, 2013. (DE 88-1).

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In 2005, HealthExtras defendants unilaterally increased plaintiff’s premium to $131.00 per
year, without obtaining prior approval from the North Carolina Department of Insurance. (Id. at ¶
46). It again increased the premium to $167.00 per year, again without required prior approval, in
2009. (Id. at ¶ 47).
At plaintiff’s request, HealthExtras defendants forwarded him program materials, signed by
defendant Alliant Services Houston’s Executive Vice President, on January 5, 2010. (Id. at ¶ 48).
The letter described “AIG Group Insurance Trust, for the Account of HealthExtras” as the
policyholder and “JLT Services Corporation” as the broker of record. (Id. at ¶¶ 49-50). The
description of coverage referred to a policy series and master policy which plaintiff has never
received from defendants. (Id. at ¶¶ 51-52). The policy summary of terms contains contradictions
and exclusions which intentionally render the policy virtually worthless to purchasers. (Id. at ¶ 52).
The allegations underlying Jeffrey and Kimberly Bush (“Bushes”), proposed as plaintiffs, are
similar. After receiving marketing materials from HealthExtras in 1998, they initially enrolled with
the HealthExtras “benefit program” effective February 1, 1999, while residents of Pennsylvania. (Id.
at ¶ 67). They moved to Cornelius, North Carolina on July 21, 2005. (Id.). Virginia Surety was
underwriter for the policy. (Id. at ¶ 68). The Bushes’ fees were increased in 2009, without prior
approval of the North Carolina Department of Insurance. (Id. at ¶ 71). In response to a written
request, defendants HealthExtras and Alliant Services Houston forwarded program materials to the
Bushes on October 11, 2013, denoting Alliant Services Houston as broker of record and AIG Group
Insurance Trust, for the Account of HealthExtras, as policyholder. (Id. at ¶¶ 72-74). The Bushes
have never received a copy of the policy series or of the master policy described in those program
materials. (Id. at ¶ 76).
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The policies issued to plaintiff and the Bushes may only insure eligible blanket groups. (Id.
at ¶¶ 98-101). Defendant National Union deceptively sought and obtained approval of the policy
series pertaining to the Disability Policy from the North Carolina Department of Insurance on
December 21, 2001, based on its representation that it would only sell this coverage to eligible
blanket groups. (Id. at ¶ 98). Furthermore, the Health Policy underwritten by Virginia Surety also
includes a provision requiring subrogation for benefits that might be payable under the policy. (Id.
at ¶ 103).
HealthExtras defendants have administered, collected, allocated and retained fees for these
policies from January 1, 2000, until August 1, 2012, at which time it divested these functions to
HealthExtras, LLC (“New HealthExtras), proposed to be added as defendant. (Id. at ¶¶ 111, 115).
From 2000 to 2004, HealthExtras defendants allocated and distributed the sums collected to
themselves, Virginia Surety, other underwriters, insurance brokers and the credit card issuer that
maintained the account through which HealthExtras defendants collected premiums from plaintiff.
(Id. at ¶ 54). From 2005 through August 1, 2012, HealthExtras defendants distributed sums collected
from plaintiff and the Bushes to itself, defendant National Union, Alliant defendants, Virginia
Surety, and the credit card issuer that maintained the account through which HealthExtras defendants
collected premiums. (Id. at ¶¶ 55, 77). The insurance was placed in insurance trusts that “held” the
policies, including AIG Group Insurance Trust, for the account of HealthExtras. (Id. at ¶¶ 54-55,
77). Virginia Surety has underwritten and accepted sums for the insurance policies since January
1, 2001. (Id. at ¶ 112). Defendant National Union has underwritten and accepted sums for these
policies since January 1, 2005. (Id. at ¶ 113). Alliant defendants have brokered and accepted sums
for these policies since January 1, 2005. (Id. at ¶ 114). All of these actions were performed on a
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monthly and yearly basis. (Id. at ¶¶ 111-115). Plaintiff alleges that each defendant has engaged in
a “continuing wrong” over the respective time period that they performed these actions. (Id. at ¶¶
57-63).
Plaintiff and the Bushes fall within a group of persons to whom these policies were sold
which formed specifically for the purpose of obtaining insurance. (Id. at ¶ 117). Plaintiff alleges
that the only unifying characteristic of this group was the fact that these persons have credit card
accounts. (Id. at ¶ 145). The policyholder “AIG Group Insurance Trust, for the account of
HealthExtras” was created for the sole purpose of obtaining and placing insurance in order to avoid
state insurance laws and defraud customers. (Id.). Defendants formed this group of persons in order
to prevent an actual group of persons from evaluating the program and its policies, including its
promises, premiums and exclusions. (Id. at ¶ 118). Defendants issued the policies to themselves
using the guise of insurance trusts, and have refused to allow plaintiff or others access to the master
policies. (Id. at ¶ 119). In this manner, defendants have concealed the basis that underwriters rely
upon to wrongfully deny claims. (Id. at ¶ 119). Through a similar pattern of activity, HealthExtras
defendants have created and administered other trusts with other underwriters and brokers involving
AIG Group Insurance Trust. (Id. at ¶ 120). The defendants engaged in these concerted actions to
avoid insurance regulation and to disguise the fact that the subject policies have no value to the
actual persons who were and are paying premiums. (Id. at ¶ 121).
Plaintiff and other North Carolina residents suffered damages by being charged these
premiums for these policies. (Id. at ¶ 122). Plaintiff alleges entitlement to damages against
HealthExtras defendants for all time periods since January 1, 2000, against Virginia Surety for all
time periods from January 1, 2001 or the exact date Virginia Surety assumed underwriting
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responsibilities; against defendant National Union for all time periods from January 1, 2005, against
Alliant defendants for all time periods from January 1, 2005, and against defendant New
HealthExtras for all time periods subsequent to its assumption of the administration and collection
of fees after being divested from HealthExtras defendants in 2012. (Id. at ¶ 110).
By dint of that motion filed June 19, 2014, plaintiff now seeks to proceed on a more precise
pleading reflecting a more accurate, simplified recitation of the identities of the parties, he offers.
There is, for example, a distinction in how plaintiff seeks to refer to the HealthExtras defendants.
The newly proposed amended complaint identifies HealthExtras, Inc., Catalyst Health Solutions,
Inc., and Catamaran Health Solutions, LLC, separately, and seeks in light of mergers and name
changes therein described to refer to all of these defendants as one, “Catamaran, f/k/a, Catalyst, f/k/a
HealthExtras Inc.” The newly proposed amended complaint also reflects anticipated dismissal of
those three defendants which are the subjects of pending motions to dismiss with prejudice.
COURT’S DISCUSSION
A.

Standard of Review
A plaintiff may amend complaint one time as a matter of course within twenty-one (21) days

after service of a responsive pleading or twenty-one (21) days after service of a motion under Rule
12(b), whichever is earlier. Fed. R. Civ. P. 15(a). Otherwise, however, a plaintiff may amend
complaint only by leave of the court or by written consent of the defendant, although “The court
should freely give leave when justice so requires.” Id. This liberal rule gives effect to the federal
policy in favor of resolving cases on their merits, rather than disposing of them on technicalities.
See Ostrzenski v. Seigel, 177 F.3d 245, 252-53 (4th Cir. 1999). Leave to amend should be freely
given in the absence of “undue delay, bad faith or dilatory motive on the part of the movant, repeated
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failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, or futility of the amendment.” Foman v. Davis, 371
U.S. 178, 182 (1962).
B.

Analysis
Plaintiff seeks to amend the complaint to institute a manifold number of changes from his

original pleading, as further clarified in the newly proposed first amended complaint. Several
amendments are not contested, including amendments to join the Bushes as plaintiffs, join Virginia
Surety and New HealthExtras as defendants, and correct errors regarding defendants’ names. As
such, in these parts, the motion is ALLOWED.
Also, with respect to the motions to dismiss with prejudice (DE 104, 105, 106), absent some
cause being shown by a defendant within fourteen (14) days why these defendants should not now
be dismissed, for the reasons given, they will be. If no response timely is made, the clerk is directed
to enter the attached orders, as proposed, and conform the docket to reflect removal of these
defendants, as shall the case caption in any future filing.
Defendants oppose plaintiff’s motion to amend to the extent it brings claims for payments
of premiums made prior to March 6, 2008 and on behalf of purported class members whose policies
terminated prior to March 6, 2008. Defendants argue these amendments are futile because the statute
of limitations bars such claims. The newly proposed amended complaint renews these claims.
The court withholds ruling on remaining part of the motion to amend in light of plaintiff’s
recent supplement, where this court GRANTS him leave to make that filing. Therefore, the
proposed amended complaint on which his motion is based is the one filed June 20, 2014. Because
plaintiff has been allowed, in the court’s discretion, opportunity to supplement his motion to amend
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in this respect, defendants shall have twenty-one (21) days to supplement their filings in opposition,
with regard to the newly proposed amended complaint, and arguments offered June 20, 2014, in
furtherance of plaintiff’s motion. Plaintiff then shall have fourteen (14) days to respond. No reply
is permitted.
CONCLUSION
For the reasons stated above:
1.

Plaintiff’s motions to dismiss (DE 104, 105, 106) provisionally are ALLOWED,
where three defendants have been requested to be dismissed with prejudice, and their
anticipated dismissals are reflected on the face of the newly proposed amended
complaint. Should no cause be offered why the court’s provisional allowance of the
motions to dismiss is in error, within fourteen (14) days as herein ordered, then those
motions finally will be ALLOWED;

2.

In its discretion, the court ALLOWS plaintiff’s supplemental motion for leave to file
his newly proposed first amended complaint, (DE 107), to the extent of his request
now to have the court consider this proposed amended complaint in ruling on his
motion to amend.

3.

The court allows uncontested parts of plaintiff’s motion to amend (DE 88) as
follows:
a.

Plaintiff’s motion to amend (DE 88) is ALLOWED in those uncontested
parts where plaintiff seeks to join Jeffrey and Jeffrey and Kimberley Bush as
plaintiffs, join Virginia Surety and HealthExtras, LLC as defendants, and

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correct errors regarding defendants’ names, to the extent these changes also
are reflected in the proposed amended complaint filed June 20, 2014;
b.

Plaintiff’s motion to amend (DE 88) is ALLOWED in those uncontested
parts where plaintiff seeks to identify National Union Fire Insurance
Company as a “member,” rather than as a “division,” of American
International Group, Inc. (AIG), and change the name of defendant identified
as Catalyst Health Solutions, Inc. to reflect its post-merger entity name,
“Catamaran Health Solutions, LLC, f/k/a Catalyst Health Solutions, Inc.”

4.

The court holds in abeyance decision on remaining, contested parts of plaintiff’s
motion, where defendants have twenty-one (21) days within which to supplement
their arguments of record with respect to plaintiff’s sought-after amendment of
complaint, as now reflected in the form of proposed amended complaint filed June
20, 2014. Plaintiffs have fourteen (14) days within which to respond. No reply will
be permitted; and

5.

The STAY on class discovery and other deadlines REMAINS IN EFFECT.

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6.

In accordance with this order, the clerk of court is DIRECTED to amend the caption
to (1) add Jeffrey and Kimberly Bush as plaintiffs; (2) join Virginia Surety Company,
Inc. and HealthExtras, LLC as defendants; (3) identify National Union Fire Insurance
Company as a “member,” rather than as a “division,” of American International
Group, Inc. (AIG); and (4) change the name of defendant identified as Catalyst
Health Solutions, Inc. to reflect its post-merger entity name, “Catamaran Health
Solutions, LLC, f/k/a Catalyst Health Solutions, Inc.” Case caption in future case
filings by the parties shall be in conformity with these directions.

SO ORDERED this the 24th day of June, 2014.

___________________________________
LOUISE W. FLANAGAN
United States District Judge

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