Atlanticare Management LLC v. Scottsdale Insurance Company

Background

Atlanticare Management, LLC, doing business as Putnam Ridge, brought claims for breach of contract and declaratory relief against Scottsdale Insurance Company. Putnam Ridge operates a nursing and rehabilitation facility and offered employees self-insured health care benefits through a plan connected to a network agreement with Cigna Health and Life Insurance Company.

An employee stopped consistently appearing for work and, according to the complaint, was no longer eligible for plan benefits as of March 31, 2021. The employee later received approximately $1.6 million in medical care from Westchester County Health Care Corporation, a participating provider in Cigna’s network. The hospital was allegedly informed that the employee remained enrolled. After Cigna refused to pay, the employee assigned to the hospital her right to seek insurance coverage under the plan. The hospital then sued Cigna and Putnam Ridge in a separate New York state-court action to recover payment.

Putnam Ridge was insured under a Scottsdale policy that included Employee Benefits Liability coverage. The coverage applied to damages resulting from a negligent act, error, or omission in administering the employee benefit program, and required Scottsdale to defend Putnam Ridge against covered suits. Putnam Ridge tendered the state-court lawsuit to Scottsdale, but Scottsdale denied coverage. Putnam Ridge then sued Scottsdale.

Court’s Analysis

Scottsdale moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. The court explained that a breach-of-contract claim under New York law requires an agreement, the plaintiff’s adequate performance, the defendant’s breach, and damages.

The court focused on the policy’s requirement that a covered claim be made by an “employee” or an employee’s dependents or beneficiaries. Putnam Ridge argued that the hospital became a beneficiary because the employee assigned her right to seek coverage to the hospital. The policy did not specifically define “beneficiary,” but the court held that the lack of a definition did not automatically make the term unclear. It used the ordinary meaning of “beneficiary” and relied on Second Circuit precedent holding that health care providers are not beneficiaries merely because they have a right to payment for medical services.

Because Putnam Ridge’s argument rested only on the hospital’s effort to obtain payment for treatment, the court found that the complaint did not plausibly allege that the hospital was a plan beneficiary. The court therefore concluded that Scottsdale was not obligated under the allegations then before it to defend or indemnify Putnam Ridge in the underlying lawsuit, and that refusing coverage did not constitute a breach of contract as currently pleaded.

The court separately addressed declaratory relief. It concluded that, because the complaint did not plausibly allege a breach-of-contract claim, there was no current contractual breach to remedy and therefore no basis for the requested declaration.

Disposition

Judge Nelson S. Román granted Scottsdale’s motion to dismiss the breach-of-contract claim without prejudice and granted the motion to dismiss the declaratory-relief claim without prejudice. Putnam Ridge was granted leave to file an amended complaint by June 29, 2025. Any amended complaint would replace, rather than supplement, the original complaint. If Putnam Ridge did not file an amended complaint within the allowed period, the dismissed claims would be deemed dismissed with prejudice. The clerk was directed to terminate the motion at ECF No. 17.