Breach of Contract-Bad Faith

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7^th Circuit Court of Appeals

Case Name: Megan Daniels v. United Healthcare Services, Inc.

Case No.: 22-2210

Officials: Hamilton, Brennan, and Jackson-Akiwumi, Circuit Judges.

Focus: Breach of Contract-Bad Faith

The parents are employed by the School District and have a self-funded health insurance plan contracted through the District. The District holds full financial responsibility for plan benefits and serves as the plan administrator and named fiduciary. However, United HealthCare is contracted as the third-party claims administrator with the authority to approve or deny claims. Since the plan is a governmental one, it falls outside the scope of the Employee Retirement Income Security Act (ERISA).

In 2017, their daughter Megan, covered under her parents’ policy, experienced a mental health emergency. United HealthCare initially approved 24 days of inpatient treatment but refused to cover additional days, leading to disagreements between Megan’s parents, doctors, and United. Despite internal appeals, the denial of coverage resulted in a substantial portion of Megan’s treatment expenses remaining uncovered.

Consequently, the family filed a lawsuit against United HealthCare, alleging breach of contract, bad faith, punitive damages, and interest under Wisconsin’s prompt pay statute. However, they did not include the School District as a defendant in the lawsuit. The Seventh Circuit upheld the dismissal of the suit, citing the absence of a contractual relationship between the plaintiffs and United HealthCare. Under Wisconsin law, suing United for tortious bad faith without contractual privity is not permissible, as the prompt pay statute applies solely to insurers.

Affirmed.

Decided 07/17/23

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