Geschke, Irene M. v. Air Force Associatio ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-3205
IRENE M. GESCHKE, individually
and as Executor of the Estate of
Clarence O. Geschke,
Plaintiff-Appellant,
v.
AIR FORCE ASSOCIATION and
MONUMENTAL LIFE INSURANCE COMPANY,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 02 C 50271—Philip G. Reinhard, Judge.
____________
ARGUED APRIL 7, 2005—DECIDED SEPTEMBER 23, 2005
____________
Before MANION, ROVNER, and SYKES, Circuit Judges.
SYKES, Circuit Judge. Clarence Geschke purchased a
defined-benefit supplemental cancer insurance policy that
promised to reimburse him for “incurred expenses for the
cost of blood or blood plasma.” Geschke developed leukemia
and required numerous blood transfusions. He later died,
and his widow, Irene Geschke, filed an insurance claim that
included $33,689.81 in expenses for blood and transfusion-
related charges such as laboratory testing, equipment,
drugs, administrative fees, and other transfusion expenses.
2 No. 04-3205
The insurer paid only the cost of the blood product itself, or
$1,245.10, and denied coverage for the related charges. Mrs.
Geschke filed suit in state court against the insurer and the
association that marketed the policy to her late husband,
alleging breach of contract, common law fraud, and viola-
tion of the Illinois Consumer Fraud Act (“ICFA”). The
defendants removed the case to federal district court.
The district court granted summary judgment to the
defendants, holding that the unambiguous policy language
covered only the cost of the blood itself and not other
costs associated with its delivery and administration. We
agree with this conclusion. The insurance policy expressly
covers only “incurred expenses for the cost of blood or
plasma,” not related transfusion charges. This coverage
language is clear and unambiguous. Accordingly, the
insurer did not breach its contract by paying only that
portion of the transfusion-related claim that consisted of the
cost of the blood. Summary judgment in favor of the
defendants on the common law and statutory fraud claims
was also appropriate, as there is no evidence of any
false statement or deceptive act by the defendants in
connection with the sale of the policy.
I. Background
In May 1997 Clarence Geschke enrolled in the Air Force
Association’s (“AFA”) CancerCare Plan, a supplemental
cancer insurance policy underwritten by Monumental Life
Insurance Company (“Monumental” or “the insurer”). The
policy and its associated riders provided defined benefits for
certain expenses incurred in the treatment of cancer, such
as hospitalization, hospice care, ambulance services,
anesthesia, and blood and plasma. As is relevant here, the
“Blood and Plasma Benefit Rider” included in Mr. Geschke’s
policy provided as follows:
Upon receipt of due proof that the Covered Person
No. 04-3205 3
incurred expenses for the cost of blood or blood plasma,
we will pay a benefit for these expenses not to exceed
the Maximum Benefit shown on the Schedule. The ex-
pense of blood or blood plasma incurred while Hospital
Confined, as an outpatient or in a free standing facility
is eligible for this benefit.
The rider’s maximum benefit per Illness Period was $500,
but the Schedule of Benefits also indicated that there
was no maximum for leukemia. Mr. Geschke paid a quarter-
ly premium of $31.50 for “Member & Family” coverage
under the policy and its associated riders.
Mr. Geschke was diagnosed with leukemia in March 1999.
On or about April 14, 1999, he sent Monumental a claim
form seeking benefits for inpatient and outpatient services
provided by Sherman Hospital in 1998 and early 1999. The
parties dispute exactly when Mr. or Mrs. Geschke provided
Monumental with documentation sufficient to establish Mr.
Geschke’s cancer diagnosis, as required by the policy, but
the issue is no longer material. Sadly, Mr. Geschke died on
June 21, 1999.
On October 18, 1999, Mrs. Geschke submitted an updated
claim to Monumental for $37,622.37. Of that amount,
$33,689.81 related to Mr. Geschke’s blood transfusions. In
December 1999 Monumental paid $2,114.61 to Mrs.
Geschke for hospitalization, surgical, and anesthesia
charges. Later, on March 31, 2000, Monumental paid
$1,245.10 under the Blood and Plasma Benefit Rider. In
a follow-up letter to Mrs. Geschke dated June 23, 2000,
Monumental explained that the Blood and Plasma Benefit
Rider did not cover processing or administrative fees,
supplies, drugs, or laboratory charges associated with
the blood transfusions, and that Monumental was declining
to cover the remaining $32,444.71 of the transfusion-related
claim.
Mrs. Geschke never cashed Monumental’s checks.
4 No. 04-3205
Instead, she filed suit against Monumental and the AFA
in Illinois state court, alleging breach of contract and
seeking recovery of benefits under the Blood and Plasma
Benefit Rider. She also alleged common law fraud and fraud
under the ICFA, 815 ILCS §§ 505/2 et seq. The gravamen of
both fraud claims is that by failing to explain that the Blood
and Plasma Benefit Rider covered only the cost of blood
products and not related tranfusion expenses, the defen-
dants fraudulently induced Mr. Geschke to purchase the
policy and pay premiums. For each of the three claims,
compensatory damages were alleged to be “in excess of
$20,000 and not more than $50,000.” In addition, the two
fraud claims included demands for punitive damages.
Monumental, a corporation chartered and located in
Maryland, removed the case to federal court with the
consent of the AFA, a corporation chartered under the laws
of the District of Columbia and located in Virginia. Thereaf-
ter the defendants moved for summary judgment, which the
district court granted.1
The district court concluded that although the terms
“blood” and “plasma” are not defined in the policy, a
reasonable person would understand that the phrase
“cost of blood or blood plasma” refers to the cost of the blood
product itself and not to other costs associated with the
administration of the blood product to a sick person. As
1
The motion for summary judgment was considered upon
Geschke’s second amended complaint, which was styled as a
class action on behalf of all persons who purchased the
CancerCare policy within ten years of the commencement of
this action and who were denied benefits under the Blood and
Plasma Benefit Rider for the same reasons the Geschkes’ claim
was denied. Nothing in the record indicates that a motion for class
certification was filed or ruled upon, and the district court’s
decision on summary judgment does not treat the case as a
class action.
No. 04-3205 5
such, the court held that Monumental did not breach its
contract with Geschke. The court also held that Mrs.
Geschke could not carry her burden on the common law and
statutory fraud claims because no misrepresentation could
be inferred from policy language that was unambiguous,
and no other evidence of false statements or deception by
the defendants had been presented.
II. Discussion
A. Jurisdiction
The parties did not raise the issue of the district court’s
jurisdiction, but the defendants argued, both in the lower
court and on appeal, that Mrs. Geschke’s two fraud claims
did not accrue prior to Mr. Geschke’s death and therefore
abated. We asked at oral argument whether only the breach
of contract claim should be considered for purposes of the
$75,000 amount-in-controversy requirement for diversity
jurisdiction under 28 U.S.C. § 1332(a). We asked whether
the damages potentially recoverable in the breach of
contract action were above $75,000. After considering the
parties’ supplemental briefing on this issue, we are satisfied
that the district court had jurisdiction over Mrs. Geschke’s
suit.
Whether § 1332 supplies jurisdiction must be deter-
mined at the outset of a case; “events after the suit begins
do not affect . . . diversity jurisdiction.” Johnson v. Wat-
tenbarger, 361 F.3d 991, 993 (7th Cir. 2004) (citing
Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S.
426 (1991), and other cases). We therefore look to
Mrs. Geschke’s first complaint, the one the defendants
removed to federal court, to see whether the case satis-
fies the jurisdictional threshold of $75,000. Each of
Mrs. Geschke’s three claims sought compensatory dam-
ages in the amount of $20,000 to $50,000, plus prejudgment
interest. The two fraud claims each also demanded an
6 No. 04-3205
award of punitive damages. “It is the case, rather than the
claim, to which the $75,000 minimum applies.” Johnson,
361 F.3d at 993. The total amount at stake was thus clearly
above that mark.
Whether or not the defendants could succeed with their
argument that the fraud claims abated upon Mr. Geschke’s
death is immaterial to the jurisdictional question. Only if it
were legally impossible for Geschke to win on claims
totaling more than $75,000 would her suit fail for want
of jurisdiction. St. Paul Mercury Indem. Co. v. Red Cab Co.,
303 U.S. 283, 289 (1938); Johnson, 361 F.3d at 993-94.
“Legal impossibility” in this sense differs from the standard
for dismissal for failure to state a claim under FED. R. CIV.
P. 12(b)(6); that there may be a plausible argument that the
plaintiff’s claims must fail as a matter of law does not mean
the court lacks jurisdiction to consider them. Bell v. Hood,
327 U.S. 678 (1946); Johnson, 361 F.3d at 993-94. If it were
otherwise, “defendants would never win in diversity cases.
They could at best achieve jurisdictional dismissals,
followed by new suits in state court.” Johnson, 361 F.3d at
994.
The defendants’ argument that the fraud claims failed
to accrue before Mr. Geschke’s death or that if they did
accrue, did not survive his death, hardly colors this suit as a
“legal impossibility.” Though we need not decide the issue,
the defendants are probably wrong about the ac-
crual question. See Knox College v. Celotex Corp., 430
N.E.2d 976, 980 (Ill. 1981) (under Illinois’ discovery rule,
fraud claim accrues “when a person knows or reasonably
should know of his injury and also knows or reasonably
should know that it was wrongfully caused”). The question
of the survival of the punitive damages aspect of the
common law and statutory fraud claims is apparently
unsettled in Illinois. See 755 ILCS 5/27-6 (Illinois Sur-
vival Act) (West 1994) (“In addition to the actions which
survive by the common law, the following also survive: . . .
No. 04-3205 7
actions for fraud or deceit.”); Nat’l Bank of Bloomington
v. Norfolk & W. Ry. Co., 383 N.E.2d 919, 924 (1978) (puni-
tive damages can be recovered if the underlying action is
predicated on a statute that specifically authorizes the
recovery of punitive damages); but see Duncavage v. Allen,
497 N.E.2d 433, 442 (Ill. Ct. App. 1986) (Although Illinois
Consumer Fraud Act permits court to grant prevailing
plaintiff “any relief which it deems proper,” the Act does not
explicitly authorize punitive damages, so an action to
recover such damages does not survive under the rule of
Nat’l Bank of Bloomington). In any event, because Mrs.
Geschke’s claim for punitive damages was not legally
impossible at the outset, her lawsuit meets the $75,000
jurisdictional threshold. We therefore proceed to the merits.
B. The Blood and Plasma Benefit Rider
We review the district court’s decision on summary
judgment de novo, employing the same methodology as
the district court. Summary judgment will be granted if
there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. FED. R.
CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). We view the facts and draw all reasonable infer-
ences therefrom in favor of the nonmoving party. See
Franzoni v. Hartmarx Corp., 300 F.3d 767, 771 (7th Cir.
2002). However, to survive summary judgment, the non-
moving party may not rely on mere allegations; he must
present specific facts to show that a genuine issue of
material fact exists. Celotex, 477 U.S. at 322-23.
In Illinois, an insurance policy is treated as any other
contract and is subject to the same rules of construction.
Horning Wire Corp. v. Home Indem. Co., 8 F.3d 587, 589
(7th Cir. 1993) (citing Dempsey v. Nat’l Life & Accident Co.,
88 N.E.2d 874, 876 (1949)). Policy language that is clear
and unambiguous is accorded its plain, ordinary, and
8 No. 04-3205
popular meaning. Travelers Ins. Co. v. Eljer Mfg., Inc., 757
N.E.2d 481, 491 (Ill. 2001); Outboard Marine Corp. v.
Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992).
Ambiguities should be construed in favor of the insured.
United States Fire Ins. Co. v. Schnackenberg, 429 N.E.2d
1203, 1205 (Ill. 1981). But “a court should not search for an
ambiguity where there is none.” Allstate Ins. Co. v. Smiley,
659 N.E.2d 1345, 1350 (Ill. 1995). The determination of
whether the terms of an insurance policy are ambiguous is
made by reference to a reasonable person standard; “the
test is . . . what a reasonable person in the position of the
insured would understand [the terms] to mean.” Id. “All the
provisions of an insurance contract, rather than an isolated
part, should be read together to interpret it and to deter-
mine whether an ambiguity exists.” Schnackenberg, 429
N.E.2d at 1205.
The policy language at issue in this case is contained in
the Blood and Plasma Benefit Rider, which by its terms
provides benefits for “incurred expenses for the cost of blood
or blood plasma.” The question here is whether the phrase
“expenses for the cost of blood or blood plasma” confers
coverage for blood or plasma costs only, or includes addi-
tional expenses associated with the transfusion of the blood
product. The policy does not define either “blood” or
“plasma,” but under Illinois law “[a] policy term is not
ambiguous because the term is not defined within the policy
or because the parties can suggest creative possibilities for
its meaning.” Lapham-Hickey Steel Corp. v. Prot. Mut. Ins.
Co., 655 N.E.2d 842, 846 (Ill. 1995).
Monumental argues that the “blood or blood plasma”
language in the policy is clear and unambiguous and that
a reasonable person would understand that the phrase
refers only to the cost of the blood product itself and not the
various additional charges for equipment and services
involved in providing the blood to a medical patient under-
going treatment. Mrs. Geschke argues that it is unreason-
No. 04-3205 9
able to interpret the rider to cover the cost of blood product
but not the services essential for it to be useful. A cancer
patient in need of a blood transfusion, she argues, “is not
merely handed some blood and told to take it himself as if
it were aspirin.”
Mrs. Geschke is undoubtedly correct that no cancer
patient expects to be handed a pint of blood by medical staff
and told to transfuse it himself. But the way medical
services are delivered is not the issue here. The issue is
whether Monumental contracted with Mr. Geschke to pay
not only for the pints of blood or plasma he received but
for the various additional costs associated with the delivery
of blood to him. We agree with the insurer and the district
court that the “blood or plasma” language is clear on its face
and covers only the cost of blood or plasma.
Although it is true that blood and blood plasma are of
no practical use to a patient without being transfused, it
does not follow that the Blood and Plasma Benefit Rider
covers more than the cost of the blood or plasma itself, as
only the blood products are specifically mentioned in the
rider. “Blood” and “blood transfusion” are not synonyms, nor
is the latter term subsumed within the former. The dictio-
nary definition of “blood” is “the fluid that circulates in the
principal vascular system of vertebrate animals carrying
nourishment and oxygen to all parts of the body and
bringing away waste products for excretion . . . .” WEBSTER’S
THIRD NEW INTERNATIONAL DICTIONARY 236-37 (1981).
“Plasma” is defined as “the fluid part of blood, or lymph, or
milk that is distinguishable from suspended material . . .
and that in blood differs from serum.” Id. at 1732. Nothing
in these definitions suggests anything other than what we
colloquially refer to as “a pint of blood,” nor do they encom-
pass the medical process of transfusion.
The CancerCare Plan at issue here distinguishes the
defined benefits included within the policy’s coverages from
10 No. 04-3205
general “treatment” and “cancer treatment.” The policy
itself does not generally cover cancer treatment, or any
treatment at all; according to the “Cancer Insurance Bene-
fit” provision, the policy pays “benefits according to the
Schedule of Benefits for Cancer that manifests itself while
the Covered Person is insured under this Policy.” A special
rider was available that did, under limited circumstances,
provide coverage for cancer treatment. Mr. Geschke pur-
chased this rider, called the “Extended Hospital Expenses
Benefit Rider.” It offered policyholders who purchased the
rider a choice: the Plan would pay “Hospital charges for
Cancer treatment while a Covered Person is Confined in the
Hospital,” beginning with the ninety-first day of hospital-
ization, but only in lieu of all the other benefits provided
under the policy. Thus, for policyholders like Mr. Geschke
who purchased the Extended Hospital Expenses rider,
“cancer treatment” was considered a benefit distinct from
all the other defined benefits included in the plan and the
other riders. None of the other defined benefits were
denominated “treatment” by the policy. This supports the
conclusion that the phrase “cost of blood or blood plasma”
means the cost of blood or plasma only and not the addi-
tional costs associated with treatment-related services such
as laboratory testing and transfusion.
Furthermore, if Mr. Geschke’s medical bills are any guide
at all, the total cost of testing and transfusing the blood
products dwarfs the cost of the blood itself by a ratio of
roughly 27:1. We must therefore consider whether a
reasonable purchaser of this policy would have thought that
by paying $31.50 per quarter for “Member & Family”
coverage he or she was obtaining coverage not only for blood
products but for the full range of services necessary to the
transfusion process. Under the Blood and Plasma Rider, the
maximum benefit per illness period is $500. However, there
is no limit on the benefit for leukemia patients. The parties
agree that leukemia treatment generally requires numerous
No. 04-3205 11
blood transfusions, and the rider’s no-limit benefit for
leukemia reflects that reality. But not every purchaser of
the rider expects to develop leukemia; some are concerned
about other forms of cancer. Given the great disproportion
between the cost of blood itself and the costs associated
with transfusions, it would be unreasonable for a purchaser
of this policy to believe that the $500 maximum in
nonleukemia cases covers transfusions as well as blood, for
$500 will not pay for the transfusion of a single pint.2
Mrs. Geschke maintains that the Illinois Blood and Organ
Transaction Liability Act, 745 ILCS §§ 40/1 et seq., supports
her reading of the policy because the Act defines blood
transfusions as services. The Act reads, in pertinent part:
The procuring, furnishing, donating, processing, distrib-
uting or using human whole blood, plasma, blood
products, blood derivatives and products, corneas,
bones, or organs or other human tissue for the purpose
of injecting, transfusing or transplanting any of them in
the human body is declared for purposes of liability in
tort or contract to be the rendition of a service.
745 ILCS § 40/2. See also Brandt v. Boston Sci. Corp., 792
N.E.2d 296, 301-02 (Ill. 2003). Mrs. Geschke does not
explain why this statute informs our understanding of the
phrase “cost of blood or blood plasma” in the insurance rider
2
According to Geschke’s October 18, 1999, claim, Geschke
incurred the following expenses for blood and plasma on Novem-
ber 5-6, 1998: $82.70 for “IV Drugs,” $225.75 for “Med/Sur
Supplies,” $1,660.36 for “Laboratory,” $165.60 for “Lab/Im-
munology,” $45.95 for “OR Services,” and $112.65 for “Blood/
Store-Proc.” The same itemized charges, and others, were broken
out in Sherman Hospital’s other billings for blood and plasma.
(Apparently $112.65 is the hospital’s price for one pint of blood, as
other “Blood/Store-Proc” charges were often exact multiples of
that amount.) Accordingly, the total cost of transfusing one pint
of blood on that particular day was $2,263.06.
12 No. 04-3205
at issue here. Nor can we see any reason why it should. In
Brandt, the Illinois Supreme Court described the Act as a
response to Cunningham v. MacNeal Memorial Hospital,
266 N.E.2d 897 (Ill. 1970), in which the court held that a
blood transfusion transaction was the sale of a product for
purposes of a strict liability claim. The Brandt court noted
that the Act overruled Cunningham to the extent of pre-
cluding warranty and strict liability claims in the context of
blood transfusions. Brandt, 792 N.E.2d at 301-02. The Act
thus has little relevance to the insurance coverage question
in this case.
We agree with the district court that the phrase “cost of
blood or blood plasma” in the insurance rider is unambigu-
ous and includes only the cost of the blood product itself.
Monumental did not breach its contract by declining to
pay the administrative, testing, transfusion, and other
charges associated with the administration of the blood
products.
C. Common Law and Statutory Fraud Claims
The elements of a common law fraud claim in Illinois are:
(1) a false statement of material fact made by the defen-
dant; (2) the defendant knew the statement was false; (3)
the defendant intended for the false statement to induce the
plaintiff to act; (4) the plaintiff relied upon the truth of the
statement; and (5) the plaintiff suffered damages as a result
of his reliance on the statement. Connick v. Suzuki Motor
Co., 675 N.E.2d 584, 591 (Ill. 1996). Mrs. Geschke has not
come forward with any evidence that either defendant made
a false statement to her husband or affirmatively misrepre-
sented the scope of coverage provided by the Blood and
Plasma Benefit Rider. Mrs. Geschke’s argument rests on
the rider’s language and her contention that the defendants
failed to explain that it did not cover all transfusion-related
costs. We have concluded that the policy language unambig-
No. 04-3205 13
uously covers only the cost of the blood or blood plasma
itself; clear and unambiguous policy language cannot form
the basis of a fraud claim. Accordingly, the common law
fraud claim was properly dismissed.
The elements of a claim under the ICFA are: (1) a decep-
tive act or practice by the defendant; (2) the defendant
intended that the plaintiff rely on the deception; (3) the
deception occurred in the course of conduct involving trade
or commerce; (4) the plaintiff suffered actual damage; and
(5) the damage was proximately caused by the deception.
Oliveira v. Amoco Oil. Co., 776 N.E.2d 151, 160 (Ill. 2002).
As with her common law fraud claim, Mrs. Geschke’s ICFA
claim is premised upon the policy itself and not on any
statements or actions by either defendant in connection
with the sale of the policy. The blood and plasma rider is
not itself deceptive. Summary judgment in favor of the
defendants on the ICFA claim was therefore appropriate.
For the foregoing reasons, the decision of the district
court granting summary judgment to the defendants is
AFFIRMED.
14 No. 04-3205
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-23-05