Rutherford v. Health Care Service Corporation, 6:24-cv-00081

Johnny Rutherford, employed by the Montana University System (MUS), was denied medical coverage by Health Care Service Corporation (HCSC), which administers the MUS group health plan.
Rutherford sued both HCSC and MUS in state court for bad faith, breach of fiduciary duty, breach of contract, and other claims; after HCSC’s initial denial, the claim was later paid following an appeal.
The action was removed to federal court on diversity jurisdiction grounds. Plaintiffs brought claims on behalf of themselves and a putative class, seeking declaratory and injunctive relief.
Both defendants moved to dismiss several counts in the Second Amended Complaint (SAC), arguing lack of legal basis and that certain statutes shielded them from liability.
Some claims, particularly under Montana’s Consumer Protection Act, were alleged against MUS as a governmental entity and HCSC as a third-party administrator rather than an insurer.
Claims were also asserted by Mrs. Rutherford for loss of consortium and emotional distress, though her standing on several claims was challenged.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Applicability of common law bad faith claims to MUS	MUS not governed by Montana Insurance Code; can be sued for bad faith	Montana Insurance Code shields MUS from such claims	MIC does not apply to MUS; claim survives dismissal
MCPA claims against governmental entity	MUS is a "legal entity" and is liable under the MCPA	MCPA does not cover governmental entities	Dismissed; statute does not cover MUS
HCSC liability as third-party administrator under bad faith/statutory claims	HCSC acted as administrator with significant control; liable under both common law and statute	HCSC merely handled administrative duties, not an insurer; shielded by statute	HCSC may be liable as TPA; claims survive dismissal
Fiduciary duty owed by HCSC	HCSC exercised discretionary power, acting as de facto decisionmaker	HCSC performed only ministerial duties per contract	HCSC’s control sufficient to potentially create fiduciary duty; claim survives
Mrs. Rutherford's standing	Suffered emotional distress/loss of consortium	Not a party or beneficiary to contract, lacks standing	Dismissed for lack of standing, with leave to amend
Application of contract/breach claims after ultimate payment of claim	HCSC’s delays and handling caused damages regardless of payment	No damages since claim was ultimately paid	Handling could still create damages; claim survives dismissal

Ashcroft v. Iqbal, 556 U.S. 662 (plausibility pleading standard for Rule 12(b)(6) motions)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (requirements for stating a claim under Rule 12(b)(6))
Turner v. City and County of San Francisco, 788 F.3d 1206 (all allegations taken as true on motion to dismiss)
Navarro v. Block, 250 F.3d 729 (dismissal appropriate only where no cognizable legal theory)
Draggin’ Y Cattle Co. v. Junkermier, 439 P.3d 935 (insured can bring breach of contract under MT UTPA)
Thomas v. Northwestern Nat. Ins. Co., 973 P.2d 804 (breach of covenant claims not necessarily barred by statute)
Marshall v. State, 830 P.2d 1250 (implied covenant of good faith and fair dealing claim permitted)
Montana Vending, Inc. v. Coca-Cola Bottling Company of Mont., 78 P.3d 499 (definition of "person" for Consumer Protection Act does not include governmental entities)
O’Fallon v. Farmers Ins. Exch., 859 P.2d 1008 (third-party claimants can bring bad faith claims under MT UTPA)
CSA 401(K) Plan v. Pension Prof'ls, Inc., 195 F.3d 1135 (third-party administrators are not fiduciaries unless exercising discretion)
Crystal Springs Trout Co. v. First State Bank of Froid, 732 P.2d 819 (principal liable for agent’s wrongful acts)
Estate of Gleason v. Cent. United Life Ins. Co., 350 P.3d 349 (tort damages may arise from denial or delay of insurance claims)