Cheatwood et al v. Christian Brothers Services
ORDER denying Sentinel's 23 Motion to Dismiss for Failure to State a Claim. (See document for further details). Signed by Judge H Russel Holland on 4/6/17.(SLQ)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
AARON and BREANNE CHEATWOOD,
individually and as Next Best Friend of
D.C., a minor child,
CHRISTIAN BROTHERS SERVICES, et al., )
Motion to Dismiss
Defendant Sentinel Air Alliance moves to dismiss plaintiffs’ claim against it.1
Defendants Christian Brother Services and Christian Brothers Employee Benefit Trust join
in Sentinel’s motion.2 The motion to dismiss is opposed.3 Oral argument was requested but
is not deemed necessary.
Docket No. 23.
Docket No. 24.
Docket No. 31.
Plaintiffs are Aaron and Breanne Cheatwood, individually, and as next best friend of
D.C., a minor child. Defendants are Christian Brothers Services (“CBS”); Christian Brothers
Employee Benefit Trust (“the Trust”); and Sentinel Air Medical Alliance.
Plaintiffs allege that “Christian Brothers Services ... provides and/or administers health
coverage and other benefits, including insurance.”4 Plaintiffs allege that CBS’s website
provides that “[o]ver time, the company has grown to administer and serve 7 trusts, which
provide a variety of programs to congregations, organizations, and dioceses both in the United
States and Canada.”5 Plaintiffs further allege that “CBS’s website .. states Christian Brothers
Services and these trusts are not insurance companies but are plans in which member
organizations pool their financial contributions to realize greater financial strength and
increased purchasing power, which translates to better coverages at significantly reduced
rates.”6 However, plaintiffs allege that “[a]lthough CBS’s website says its trusts are not
insurance companies, because the trusts collect member premiums to pool their financial
contributions and pool risk, it [the Trust] provides health insurance under any reasonable
definition of that term.”7
First Amended Complaint at 2, ¶ 12, Docket No. 11.
Id. at 4, ¶ 21.
Id. at ¶ 22.
Id. at ¶ 23.
Plaintiffs allege that “[b]enefits under the CBS health plan are funded by the Trust.”8
Plaintiffs further allege that “[t]hrough Aaron’s employment with Yuma Catholic High School
..., plaintiffs were covered under the CBS medical plan and/or the Trust.”9
In April 2015, D.C. was transported from Yuma Regional Medical Center to Banner
Cardon Children’s Medical Center by helicopter after his doctors determined that emergency
transport was necessary.10 The cost of this emergency transport was allegedly $61,566.00.11
CBS and/or the Trust denied plaintiffs’ claim for coverage of this emergency medical
transport.12 Plaintiffs allege that this decision was based “on an opinion obtained from
Sentinel Air.”13 Plaintiffs allege that Sentinel’s website provides that “Sentinel Air Medical
Alliance is an alliance of healthcare payors established in response to the rapid escalation of
air medical transport rates. Our goal is to provide solutions to effectively control rates and
ensure proper utilization for air transport services.”14
Id. at 3, ¶ 13.
Id. at ¶ 14.
Id. at 7, ¶¶ 33-35. D.C. has Hirschsprung’s disease, a serious congenital disease. Id.
at 6, ¶¶ 28-30.
Id. at 8, ¶ 46.
Id. at 7, ¶¶ 39-40.
Id. at ¶ 41.
Id. at 8, ¶ 43.
In their amended complaint, plaintiffs allege breach of contract and breach of the duty
of good faith and fair dealing claims against CBS and the Trust. In support of their bad faith
claim, plaintiffs allege that CBS and/or the Trust 1) “ignored information in the file that
supported payment of [p]laintiff’s claim[,]”15 2) “had no reasonable basis to deny payment of
[p]laintiffs’ claim[,]”16 3) “failed to give [p]laintiffs’ interests at least as much consideration
as its own, and instead, elevated its interests above [p]laintiffs’[,]”17 4) “deliberately conducted
a biased, outcome-focused investigation in order to deny [p]laintiffs’ claim[,]”18 5) “acted
unreasonably by relying on personnel who did not treat or examine D.C. ... to deny his
claim[,]”19 6) “acted unreasonably by disregarding the medically sound opinions of D.C.’s
treating physicians[,]”20 and 7) “acted unreasonably by relying upon the opinion of Sentinel
Air, an obviously biased and anti-claimant medical reviewer, to deny [p]laintiffs’ claim.”21
Plaintiffs allege an aiding and abetting claim against Sentinel. Plaintiffs allege that
Sentinel aided and abetted CBS’s and the Trust’s breach of the duty of good faith and fair
dealing. More specifically, plaintiffs allege that “[i]n administering [p]laintiffs’ claim,
Id. at 9, ¶ 55.
Id. at ¶ 56.
Id. at ¶ 58.
Id. at ¶ 59.
Id. at 10, ¶ 60.
Id. at ¶ 61.
Id. at ¶ 62.
Sentinel Air ignored information in the file that supported payment and coverage of
[p]laintiffs’ claim.”22 Plaintiffs further allege that Sentinel “had no reasonable basis to find
[that p]laintiffs’ claim was not covered or payable.”23 Plaintiffs allege that in investigating
or evaluating their claim, Sentinel 1) “failed to give [p]laintiffs’ interests at least as much
consideration as its own and instead, elevated its interests above [p]laintiffs’[,]”24 2)
“deliberately conducted a biased, outcome-focused investigation in order to deny [p]laintiffs’
claim[,]”25 3) “acted unreasonably by relying on personnel who did not treat or examine
D.C.[,]”26 and 4) “acted unreasonably by disregarding the medically sound opinions of D.C.’s
treating physicians despite having no reasonable basis for rejecting them[.]”27
Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, Sentinel now moves to
dismiss plaintiffs’ aiding and abetting claim. CBS and the Trust join in this motion and
request that plaintiffs’ breach of the duty of good faith and fair dealing claim against them be
Id. at 11, ¶ 72.
Id. at ¶ 73.
Id. at ¶ 76.
Id. at 12, ¶ 78.
Id. at ¶ 79.
Id. at ¶ 80.
“‘To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Zixiang
Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). “A claim is facially plausible ‘when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.’” Id. (quoting Iqbal, 556 U.S. at 678). “The plausibility standard requires more than
the sheer possibility or conceivability that a defendant has acted unlawfully.” Id. “‘Where
a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short
of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting Iqbal,
556 U.S. at 678). “[T]he complaint must provide ‘more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.’” In re Rigel
Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869, 875 (9th Cir. 2012) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “In evaluating a Rule 12(b)(6) motion, the
court accepts the complaint’s well-pleaded factual allegations as true and draws all reasonable
inferences in the light most favorable to the plaintiff.” Adams v. U.S. Forest Srvc., 671 F.3d
1138, 1142-43 (9th Cir. 2012). However, the court does not “‘necessarily assume the truth
of legal conclusions merely because they are cast in the form of factual allegations.’” Coto
Settlement v. Eisenberg, 593 F.3d 1031, 1034 (9th Cir. 2010) (quoting Paulsen v. CNF, Inc.,
559 F.3d 1061, 1071 (9th Cir. 2009)).
Sentinel moves to dismiss plaintiffs’ aiding and abetting claim against it.
Claims of aiding and abetting tortious conduct require proof of three
“(1) the primary tortfeasor must commit a tort that causes
injury to the plaintiff;
(2) the defendant must know that the primary tortfeasor’s
conduct constitutes a breach of duty; and
(3) the defendant must substantially assist or encourage
the primary tortfeasor in the achievement of the breach.”
Federico v. Maric, 226 P.3d 403, 405 (Ariz. Ct. App. 2010) (quoting Wells Fargo Bank v.
Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d
12, 23 (Ariz. 2002)).
Sentinel argues that plaintiffs’ aiding and abetting claim is subject to dismissal because
plaintiffs cannot, as a matter of law, state a bad faith claim against CBS and/or the Trust. CBS
and the Trust join in this argument. If plaintiffs cannot state a bad faith claim against CBS
and/or the Trust, then plaintiffs cannot establish the first element of an aiding and abetting
In Arizona, “tort recovery for breach of the implied covenant is well established in
actions brought on insurance contracts....” Rawlings v. Apodaca, 726 P.2d 565, 574 (Ariz.
1986). But, Sentinel argues that this case does not involve an insurance contract because CBS
and/or the Trust do not provide “insurance” as that term is defined under Arizona law. In
Arizona, “insurance” is defined as “a contract by which one undertakes to indemnify another
or to pay a specified amount upon determinable contingencies.” A.R.S. § 20-103(A). Arizona
courts look to five factors to determine whether a contract is an “insurance contract.” Those
1. An insurable interest
2. A risk of loss
3. An assumption of the risk by the insurer
4. A general scheme to distribute the loss among the larger group
of persons bearing similar risks
5. The payment of a premium for the assumption of risk.
Guaranteed Warranty Corp., Inc. v. State ex rel. Humphrey, 533 P.2d 87, 90 (Ariz. Ct. App.
Plaintiffs have alleged that all of these factors are present here. They have alleged that
they have an insurable interest in covered health care claims and a risk of financial loss if CBS
and/or the Trust refuse to pay a covered loss.28 They have alleged that CBS and/or the Trust
have assumed the risk of loss.29 Plaintiffs have also alleged that CBS and/or the Trust has a
general scheme to distribute loss among a large group of covered, premium-paying people,
and that they and Yuma Catholic pay premiums for CBS and/or the Trust’s assumption of
risk.30 Plaintiffs have also alleged that CBS and/or the Trust “pool financial resources and
contributions” to cover claims and “spread the risk of coverage among numerous employees
First Amended Complaint at 5, ¶ 24, Docket No. 11.
and employers[.]”31 And, plaintiffs offer Yuma Catholic’s participation agreement with CBS
and the accompanying “contribution rate” exhibit,32 which provide that Yuma Catholic makes
the same monthly contribution each month, regardless of the amount paid out each month for
claims by Yuma Catholic’s employees.33 The agreement also provides that Yuma Catholic’s
monthly contribution amount will be adjusted annually.34
Sentinel, however, argues that there has been no assumption of risk by CBS and/or the
Trust. Sentinel argues that CBS and/or the Trust have not promised to pay anything from their
own funds and thus they have not assumed any risk. But simply because Sentinel says it is so,
does not make it so. Sentinel has pointed to no evidence that shows that CBS and/or the Trust
have not assumed any of the risk of covered losses. There is nothing before the court that tells
it what happens if covered losses exceed the contributions. Perhaps that is unlikely to happen
given that the Trust “pools” the resources of the employers participating in the Trust, but the
Id. at 3, ¶ 19.
The court may consider this exhibit without converting the instant Rule 12(b)(6)
motion into a motion for summary judgment because they have alleged the contents of this
document in their amended complaint. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir.
2005) (citation omitted) (in considering a Rule 12(b)(6) motion, the court may “take into
account documents whose contents are alleged in a complaint and whose authenticity no party
questions, but which are not physically attached to the [plaintiff's] pleading”).
Exhibit 1, Plaintiffs’ Response to Sentinel’s Motion to Dismiss and CBS’s and The
Trust’s Joinder, Docket No. 31.
Christian Brothers Employee Benefit Trust Participation Agreement at 2, Exhibit 1,
Plaintiffs’ Response to Sentinel’s Motion to Dismiss and CBS’s and The Trust’s Joinder,
Docket No. 31.
court has no way of knowing at this point. It is at least plausible that CBS and/or the Trust
may assume some of the risk of loss.
It is also plausible that what Yuma Catholic pays are premiums, rather than
contributions to a self-funded plan as Sentinel contends. Sentinel argues that Yuma Catholic
is simply making contributions to a self-funded benefit plan. As Sentinel points out, Arizona’s
Department of Insurance does not regulate “self-insured program[s] operated by a single
employer for the benefit of its employees or the employees of a wholly-owned subsidiary.”
A.R.S. § 20-115(F). Sentinel argues that because self-funded programs are not regulated by
the Arizona Department of Insurance, those programs cannot be considered “insurance.”
But the court cannot determine from what is currently before it that, as a matter of law,
the Trust is a self-funded program. Under Arizona law, a self-funded plan is maintained by
“a single employer....” A.R.S. § 20-115(F). Plaintiffs have alleged that CBS accepts
premiums from multiple employer and their employees.35 Sentinel has offered evidence, in
the form of an IRS group exemption letter,36 in support of its contention that all of these
employers could be considered a single employer. But the court is not persuaded that this
letter establishes that the Catholic Church is the single employer for purposes of plaintiffs’
First Amended Complaint at 3-4, ¶ 21, Docket No. 11.
Exhibit A, Defendant Sentinel Air Medical Alliance’s Reply [etc.], Docket No. 32.
The IRS letter is a public document and thus the court may consider it without converting the
instant motion into a motion for summary judgement. Mack v. South Bay Beer Distributors,
Inc., 798 F.2d 1279, 1282 (9th Cir. 1986).
health benefit plan. Because plaintiffs’ health plan may involve multiple employers, it is
plausible that it is not a “self-funded program” as that term is defined under Arizona law.
Sentinel also argues that CBS and/or the Trust cannot be offering “insurance” because
they are a “health care sharing ministry”, which by definition is not “insurance.” In Arizona,
“health care sharing ministry” means a nonprofit organization
that is exempt from federal income tax under section 501 of the
internal revenue code and that:
1. Limits its participants to those who share a common set of
ethical or religious beliefs.
2. Meets the requirements of 26 United States Code section
3. Acts as a facilitator among participants who have financial or
medical needs and matches those participants with other participants who have the ability to assist those with financial or
medical needs consistent with the criteria established by the
health care sharing ministry.
4. Provides for the financial and medical needs of a participant
through contributions from one participant to another.
5. Suggests amounts that participants may contribute with no
assumption of risk or promise to pay among the participants and
no assumption of risk or promise to pay by the health care sharing
ministry to the participants.
6. Provides a written monthly statement to all participants that
lists the total dollar amount of qualified needs submitted to the
health care sharing ministry and the amount actually published or
assigned to participants for their contribution.
7. Provides a written disclaimer on or accompanying all applications and guideline materials distributed by or on behalf of the
ministry that reads, in substance:
Notice: The organization facilitating the sharing of
medical expenses is not an insurance company and
the ministry's guidelines and plan of operation are
not an insurance policy. Whether anyone chooses
to assist you with your medical bills will be completely voluntary because participants are not
compelled by law to contribute toward your medical bills. Therefore, participation in the ministry or
a subscription to any of its documents should not
be considered to be insurance. Regardless of
whether you receive any payment for medical
expenses or whether this ministry continues to
operate, you are always personally responsible for
the payment of your own medical bills.
A.R.S. § 20-122(B).
But, the health plan at issue cannot be a “health care sharing ministry.” In a “sharing
ministry”, the participating individuals chose to help others in the group with their medical
costs and thus coverage is completely voluntary. In contrast here, the Trust must pay covered
claims; coverage is not voluntary.
But even if plaintiffs have stated a plausible bad faith claim against CBS and the Trust,
which they have, Sentinel argues that plaintiffs’ aiding and abetting claim should still be
dismissed because plaintiffs have failed to sufficiently plead separate, secondary conduct. In
order to state a plausible aiding and abetting claim against Sentinel, plaintiffs must allege “a
separate tortious act was committed by” Sentinel. Young v. Liberty Mut. Group, Inc., Case
No. CV–12–2302–PHX–JAT, 2013 WL 840618, at *3 (D. Ariz. March 6, 2013).
Sentinel argues that the alleged bad faith conduct by CBS and/or the Trust is the exact
same conduct as that which purportedly supports the aiding and abetting claim. Sentinel
argues that plaintiffs allege that both CBS and/or the Trust and Sentinel “ignored information,”, failed to put plaintiffs’ interests first, “deliberately conducted a biased investigation,”
relied on opinions of doctors who did not examine D.C., and disregarded the “sound” medical
advice offered by D.C.’s doctors. Sentinel insists that plaintiffs have not alleged any conduct
by Sentinel that is separate and distinct from that of CBS and/or the Trust.
Although plaintiffs’ first amended complaint does contain similar allegations about
CBS and/or the Trust’s conduct and Sentinel’s conduct, plaintiffs have sufficiently alleged that
Sentinel engaged in separate tortious conduct. Plaintiffs have alleged that CBS and/or the
Trust engaged in tortious conduct by knowingly hiring a biased claims administrator and then
denying their claim by relying on an opinion obtained from Sentinel. As for Sentinel,
plaintiffs have alleged that Sentinel conducted a biased investigation, during which it
unreasonably ignored the evidence provided by D.C.’s treating physicians. In short, plaintiffs
allege that Sentinel provided an unfounded and unreasonable opinion, which is different
conduct from CBS and/or the Trust actually denying plaintiffs’ claim by relying on that
Based on the foregoing, Sentinel’s motion to dismiss37 is denied.
DATED at Anchorage, Alaska, this 6th day of April, 2017.
/s/ H. Russel Holland
United States District Judge
Docket No. 23.
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