Insurance – ERISA — breach of contract

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United States Court of Appeals For the Seventh Circuit

Civil

Insurance – ERISA — breach of contract

Even if it is customary for hospitals to pay refunds to health plans, there is no contractual right to a refund.

“Refunds by hospitals to health plans are indeed common, just as refunds by retailers are common, and generally for the same reasons: either that the plan overpaid or that the plan is a good customer of the hospital, and good customers receive favored treatment because the seller doesn’t want by annoying them to lose them—although in the latter case the customer dissatisfied with his purchase at least returns it (with very rare exceptions, as we’re about to see), and the seller can resell it.”

“But to infer a contractual obligation to refund a purchase price when the seller is faultless and the buyer does not return the purchase is to infer absurdity. Suppose a person buys a Rolex watch, retailing for several thousand dollars. Walking from the store to his office, he removes the watch from his wrist and holds it in front of his eyes, the better to revel in its opulence. A thief chances by, snatches the watch, and runs off. The watch is never seen again. Does Rolex have a legal duty to refund the purchase price? No—and still no even if it had made comparable refunds in similar circumstances to Bill Gates, Warren Buffett, Carlos Slim, and Christy Walton. Far from being necessary to make the provider agreement effective, interpolating an obligation to make a refund when the seller is faultless and the buyer is asking to be compensated for his own mistake would make the contract fail by reducing the buyer’s incentive to exercise proper care in determining the eligibility of presumed plan beneficiaries.”

Affirmed.

12-3837 & 12-3929 Kolbe v. Medical College of Wisconsin, Inc.

Appeals from the United States District Court for the Western District of Wisconsin, Crabb, J., Posner J.