The bankrupted Pope and Talbot lumber operation, rather than its former employees, was responsible to pay Rapid City Regional Hospital System for health care expenses of the workers and their families, the South Dakota Supreme Court ruled Thursday.
The high court’s 4-1 decision overturns a previous decision by Circuit Judge Randall Macy that the employees were responsible to pay Regional for health care services in the months after the bankruptcy.
The Spearfish lumber business provided a self-insurance health plan and collected deductions from employees to pay for it. The high court’s decision concluded that employees would be paying twice for services if they had to pay Regional.
Regional wanted the employees to be responsible for the debts still owed under the health plan. Pope and Talbot declared bankruptcy in November 2007, sold the lumber company in May 2008 and stopped making payments to Regional.
Regional had continued to provide services after the November 2007 bankruptcy and stopped services after May 2008.
In writing for the majority, Justice Judith Meierhenry said the plain language of the agreements specifically states the members of the insurance plan aren’t liable for covered services from Regional.
Meierhenry said Pope and Talbot’s failure to pay for employees’ covered services doesn’t pass the obligation to the employees, who have already contributed to the health plan.
She said Regional’s recourse is against the company, not the employees.
Circuit Judge Macy had ruled the employees no longer had eligibility as members of the health plan after Pope and Talbot filed bankruptcy.
But Justice Meierhenry noted Pope and Talbot continued to take deductions for the self-insurance plan from employees’ paychecks after the bankruptcy.
Justice John Konenkamp dissented and said the company’s failure to pay Regional was a breach of contract and therefore Regional couldn’t be held to the terms of the contract. He said Regional therefore shouldn’t be barred from seeking payment from the employees.