Kennedy v. United American Insurance Company

Filing 62

ORDER denying 48 Motion for Leave to File; denying 49 Motion to Certify Class. Signed by Judge Susan Webber Wright on 4/3/13. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
HELENA DIVISION
BRENDA KENNEDY,
individually and on behalf of
others similarly situated
Plaintiff
V.
UNITED AMERICAN
INSURANCE COMPANY

*
*
*
*
*
*
*
*
*
*
*

NO: 2:11CV00131 SWW

Defendant
ORDER
Plaintiff Brenda Kennedy (“Kennedy”) commenced this putative class action
in state court against United American Insurance Company (“United”), claiming
that United failed to pay benefits due under an insurance policy. United removed
the case to federal court pursuant to 28 U.S.C. § 1441(a), asserting jurisdiction
pursuant to the Class Action Fairness Act, codified at 28 U.S.C.
§ 1332(d). Now before the Court is (1) Kennedy’s motion for class certification
(docket entries #49, #50), United’s response in opposition (docket entries #55,
#56), and Kennedy’s reply (docket entry #58) and (2) Kennedy’s motion to amend
(docket entry #48) and United’s response in opposition (docket entry #57). After
careful consideration, and for reasons that follow, Kennedy’s motion for class

certification and motion for leave to file a third amended complaint are denied.
I.
United issued Kennedy an insurance policy, on United’s form GSP2, that
provides limited benefits for hospital expenses. The GSP2 Policy provides under
Part 1 that United will pay a hospital expense benefit at a rate of 80% of the
expenses, in excess of a deductible amount, incurred for hospital room charges
and services and supplies furnished by a hospital during a hospital stay. See ECF
No. 49-2 (GSP2 Policy Part 1). The GSP2 hospital expense benefit is limited to
the lesser of two amounts, specified as (A) and (B), where (A) is a primary daily
benefit times the number of hospital days, but no more than ten hospital days, plus
a secondary daily benefit times the number of hospital days, but no more than
thirty hospital days; and (B) is the maximum hospital expense benefit. Id. The
GSP2 Policy defines the term “hospital days” as the “total number of days of
confinement for all Hospital Stays for the same injury or Sickness.” ECF No 49-2
(GSP2 Policy at 2, Definitions). The GSP2 Policy does not define the terms
“confinement” or “days.”
Kennedy was hospitalized at NEA Baptist Memorial Hospital (“NEA”) from
March 31, 2009 to April 2, 2009. Prior to entering the hospital, Kennedy signed a
standard admission agreement that included an assignment of insurance benefits
2

provision. Pursuant to the assignment, Kennedy transferred and assigned to NEA
all of her rights to benefits payable to her under all applicable insurance policies,
and she authorized NEA’s direct receipt of benefit payments.
In April 2009, NEA sent United a standard billing form that listed expenses
incurred by Kennedy during her hospital stay. That form, commonly referred to as
a “UB04,” included charges for two days room and board. See ECF No. 55-6.
United calculated the benefits due under Kennedy’s GSP2 Policy according to Part
1(A), based on a two-day hospital stay, and United remitted that amount to NEA,
pursuant to Kennedy’s assignment of benefits. See ECF No. 55-3 (Mitchell Dep. at
100). Kennedy canceled her GSP2 Policy on July 14, 2009, and subsequently
received a premium refund. Kennedy still owes NEA approximately $23,000 for
charges incurred during her 2009 hospital stay.
Kennedy brings this putative class action against United, charging that
United breached the terms of her GSP2 Policy by failing to pay benefits based on a
three-day hospital stay. Kennedy alleges that United utilizes a “uniform adjusting
procedure,” whereby it determines benefits due by excluding the day of discharge
from total “hospital days.” It is Kennedy’s contention that the day of discharge
qualifies as one of the “total number of days of confinement for a Hospital Stay”
under the GSP2 Policy.
3

Kennedy seeks to represent a nationwide class of individuals and entities
that received benefits under a GSP2 Policy, Part 1(A). Kennedy describes the
proposed class as follows:
Nationwide Restitution/Monetary Relief Class: All persons and
businesses domiciled in the United States who, between May 31, 2008
and the present, are or have been an insured, covered person or
beneficiary and/or have been assigned rights and/or benefits in whole
or in part under a GSP2 Limited Benefit Hospital and Surgical Expense
Policy issued by United American Insurance Company, and were paid
benefits for a hospital stay under the Hospital Expense Benefit
provision of that GSP2 policy. Excluded from the Class are (1) all
members of the judiciary of the United States District Court, Eastern
District of Arkansas and their immediate family members; (2) all GSP2
insureds, covered persons, beneficiaries and their assignees whose claims
for Hospital Expense Benefits included a hospital stay in which the
admission and discharge dates were on the same date; and (3) all GSP2
insureds, covered persons, beneficiaries and their assignees whose claims
for Hospital Expense Benefits exceeded 40 or more calendar days of
confinement.
Docket entry #50, at 6.
Alternatively, Kennedy proposes that if the Court determines that a
nationwide class is untenable, the Court should “consider either multi-state
subclasses, or a class comprised of class members with laws aligned with
Arkansas, or an Arkansas-only class.” ECF #50, at 30.
II.
A party seeking class certification must demonstrate that each requisite
under Federal Rule of Civil Procedure 23(a) is met: (1) that the putative class is so
4

numerous that joinder of all members is impracticable; (2) that common questions
of law and fact exist among potential class members; (3) that claims or defenses of
the representative parties are typical of the claims or defenses of the class; and (4)
that representative parties will fairly and adequately protect the interests of the
class. See Fed. R. Civ. P. 23(a).
A party seeking to maintain a class action must affirmatively demonstrate
her compliance with Rule 23. “The Rule ‘does not set forth a mere pleading
standard.’ Rather, a party must not only ‘be prepared to prove that there are in fact
sufficiently numerous parties, common questions of law or fact,’ typicality of
claims or defenses, and adequacy of representation, as required by Rule 23(a). The
party must also satisfy through evidentiary proof at least one of the provisions of
Rule 23(b).” Comcast Corp. v. Behrend, No. 11-864, 2013 WL 1222646, *4 (U.S.
March 27, 2013)(quoting Califano v. Yamasaki, 442 U.S. 682, 700–701, 99 S.Ct.
2545 (1979)(first quotation) and Wal–Mart Stores, Inc. v. Dukes, 564 U.S. ––––,
––––, 131 S.Ct. 2541, 2551–2552 (2011)(second quotation)). A class action “may
only be certified if the trial court is satisfied, after a rigorous analysis, that the
prerequisites of Rule 23 . . . have been satisfied.” General Telephone Co. of
Southwest v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 2372 (1982).
United maintains that Kennedy is unable to affirmatively demonstrate that
5

the requisites for class certification are met, and it gives special attention to the
following arguments: (1) the proposed class includes individuals and businesses
that lack standing and (2) the proposed class is overbroad and ill-defined. The
Court finds that United’s central arguments pertain to the predominance
requirement under Rule 23(b)(3) and will, therefore, address that criterion first.
Rule 23(b)(3) - Predominance Requirement
A party seeking class certification shoulders the burden to satisfy through
evidentiary proof at least one of the provisions of Rule 23(b). Here, Kennedy
contends that the record supports certification under Rule 23(b)(3), which requires
the court to find that “the questions of law or fact common to class members
predominate over any questions affecting only individual members . . . . ” Fed.
Rule Civ. P. 23(b)(3). The predominance standard requires that common questions
predominate over individual questions, and it “tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation.” Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997).
In deciding whether common issues predominate over individual issues, a
court must conduct a rigorous analysis, including an examination of what the
parties would be required to prove at trial. See In re Zurn Pex Plumbing Products
Liability Litigation, 644 F.3d 604, 611 (8th Cir. 2011)(citing Avritt v. Reliastar Life
6

Ins. Co., 615 F.3d 1023, 1029 (8th Cir. 2010)). “The nature of the evidence that
will suffice to resolve a question determines whether the question is common or
individual.” Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005). If the
evidence required to resolve a particular question would vary among individual
class members, it is an individual question. See id. But if the same evidence
would suffice for each member, then it becomes a common question. See id.
In its answer to the amended complaint, United affirmatively asserts that
Kennedy and the putative class members “lack standing” to the extent that they
have assigned their rights to benefits to a medical service provider or other third
party. ECF No. 47 (Second Affirmative Defense). Previously in this case, United
moved for dismissal under Rule 17(a), asserting that Kennedy was not the real
party in interest with respect to her individual claim for breach of contact. Based
on the specific language of the assignment agreement between Kennedy and NEA
and the particular circumstances the assignment transaction, the Court found that
NEA, not Kennedy, qualified as the real party in interest. However, the Court did
not dismiss Kennedy’s claim. In accordance with Fed. R. Civ. P. 17(a)(3), the
Court allowed a reasonable period of time for ratification of the action by, or
joinder or substitution of, NEA. Subsequently, Kennedy obtained NEA’s
ratification and release of assignment, which qualified her as the real party in
7

interest. United has presented undisputed evidence that in exchange for NEA’s
ratification and release, Kennedy has agreed to pay NEA one-half of all amounts
that she recovers in this lawsuit. A letter dated July 20, 2012, from Plaintiff’s
counsel to Baptist Memorial Health Care Corporation, reads as follows:
This letter will confirm that Brenda Kennedy will pay to NEA Baptist
one-half (½) of all amounts recovered by her, individually, in the above
referenced matter [Kennedy v. United American Insurance Company,
No. 2:11CV00131 (E.D. Ark.)]. Any amount paid to NEA Baptist
though recover[y] in the litigation shall be applied to Ms. Kennedy’s
unpaid balance.
See ECF No. 47, Ex. B.
United contends that the proposed class, as defined by Kennedy, includes
insureds who have assigned their right to GSP2 benefits to healthcare providers.1
Describing the matter as a standing issue, United argues that even if it could obtain
copies of each and every assignment and release involving a proposed class
member,2 it would be impossible without individualized inquiry to determine
which proposed class members possess the right to benefits and thus actually

1

The proposed class includes “[a]ll persons and businesses domiciled in the United States
who, between May 31, 2008 and the present, are or have been an insured, covered person,
beneficiaries and/or have been assigned rights and/or benefits in whole or in part under a GSP2
. . . Policy . . . and were paid benefits for a hospital stay under the [HEB] provision . . . . ” ECF
No. 50, at 6.
2

United states that it does not maintain records of assignments between insureds and
healthcare providers; nor is it privy to ratification and release agreements between insureds and
assignees.
8

qualify as real parties in interest.
Kennedy argues that the assertion that some class members may lack
standing or real-party-in-interest status is mere speculation, which should be
ignored. The Court disagrees. Kennedy assigned her right to benefits by signing a
standard hospital admission agreement, and it is likely that other putative class
members entered similar agreements. Furthermore, Kennedy’s definition of the
putative class includes individuals and entities that have been assigned rights and
benefits “in whole or in part” under a GSP2 Policy. The rule requiring that the
party who brings an action actually possess, under the substantive law, the right
sought to be enforced protects a defendant against a subsequent action by the party
actually entitled to recover, and it ensures that the judgment will have its proper
effect as res judicata. See United HealthCare Corp. v. American Trade Ins. Co.,
Ltd. 88 F.3d 563, 569 (8th Cir. 1996)(citing Fed. R. Civ. P. 17(a), advisory
committee note). Kennedy cannot bypass or ignore the important task of
identifying putative class members that qualify as real parties in interest.
Under the circumstances, it is difficult to envision a method for identifying
proper class members without conducting extensive, individualized inquiries. In
determining whether Kennedy qualified as the real party in interest in this case it
was necessary to resolve multiple questions--including which state’s law governed
9

the issue, whether the language of the assignment contract between Kennedy and
NEA evidenced an intention to effect a transfer, and whether the contract language
and circumstances evidenced only a partial transfer and an intent that Kennedy
retain the right to sue. As demonstrated by the protracted proceedings regarding
Kennedy’s status, assignments of GSP2 benefits present a myriad of issues that
require consideration of individual proof.
Kennedy suggests that because the class is limited to individuals that “were
paid benefits for a hospital stay,” individual inquiries are not necessary. She states:
“All assignments would have been executed before [United] made any benefit
payments. Therefore, [United] has this information and Plaintiff’s claim is
typical.” ECF No. 58, at 21. Kennedy provides nothing to support her assumption
that assignments always occur before United pays benefits, and the history of
Kennedy’s individual claim undermines her argument that the class definition
ensures that putative class members qualify as real parties in interest.
Furthermore, the law governing assignments simply does not support
Kennedy’s contention that limiting the class to benefit payees ensures that class
members qualify as real parties in interest. An assignment may be partial or
conditional, and the assignor may retain an interest in the chose sufficient to
qualify as the real party in interest. For example, an assignment for collection only
10

transfers legal title to an assignee, who serves as an agent for collection. See
Dickinson v. Burr, 15 Ark. 372, 1854 WL 612 (1854). The assignee may bring suit
to collect money from the debtor, but he must turn over the proceeds to the
assignor, and the assignor, who retains a beneficial interest in the assigned chose,
may revoke the assignment for collection at any time and sue in his own name. See
Dickinson v. Burr, 15 Ark. 372, 1854 WL 612 (1854).
Even if assignments were not a factor, the Court finds that the class claims
are not sufficiently cohesive to warrant adjudication by representation. First,
assuming a nation-wide class, choice-of-law determinations and resolution of the
applicable legal standards under various state laws will require individual
inquiries.3 Second, even if class members were limited to individuals and entities
domiciled in Arkansas, and further assuming that Arkansas law would govern all
class claims, Kennedy fails to demonstrate that common evidence will generate
common answers apt to drive the resolution of the litigation.
Kennedy contends that this case presents a single legal issue that is “perfect”

3

When federal jurisdiction is based on diversity of citizenship, the court looks to the
choice-of-law principles of the forum state–in this case Arkansas--and applies those principles as
the forum state would. Simpson v. Liberty Mut. Ins. Co., 28 F.3d 763, 764 (8th Cir. 1994). In
contract actions, when the agreement does not specify the law to be applied, Arkansas Courts
have applied the “significant contacts” test, which requires an inquiry into the nature and
quantity of each state’s contacts with the transaction at issue. Fuller v. Hartford Life Ins. Co.,
281 F.3d 704, 706 (8th Cir. 2002); Southern Farm Bureau Casualty Ins. Co. V. Craven, 79 Ark.
App. 423, 89 S.W.3d 369 (2002).
11

for class certification: “Whether, under the GSP2 policy, the day of discharge
should be considered in calculating the number of Hospital Days.” ECF No. 68, at
16. Presuming that the day of discharge will be counted toward the
number of days of hospital confinement, Kennedy asserts that the remedy in this
is straightforward: every class member will be entitled to benefits for an additional
day of hospitalization.
United maintains that the recalculation of benefits will necessitate separate
assessments for each plaintiff. For example, the GSP2 Policy provides that the
benefit limitation under Part 1 are calculated according expenses incurred for the
same injury or illness. Therefore, if a hospital stay involved treatment for multiple
injuries or illnesses, it would take a manual review to determine which expenses
pertain to each injury or illness and whether those expenses exceeded any
limitation under GSP2, Part 1. See ECF No. 56, at 22 n.11 (citing Hendee Dep. at
35). Kennedy has no plan for addressing instances where a hospital stay involves
multiple injuries or illnesses, and the Court finds that she has failed to show that
damages can be proven on a systematic, class-wide basis.
Kennedy asserts that the Court “may determine that a predominate issue of
law and fact is whether the GSP2 HEB policy provision is ambiguous” and that
this issue alone supports certification. However, “‘[w]hat matters to class
12

certification ... is not the raising of common ‘questions'—even in droves—but,
rather the capacity of a classwide proceeding to generate common answers apt to
drive the resolution of the litigation. Dissimilarities within the proposed class are
what have the potential to impede the generation of common answers.’”
Wal-Mart Stores, Inc. v. Dukes 131 S.Ct. 2541, 2551 (2011)(quoting Nagareda,
Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L.Rev. 97, 132
(2009)).
Here, the broad class definition and dissimilarities within the proposed class
make the class claims particularly ill-suited for class action treatment. It is
undisputed that the putative class includes hospitals that have received assignments
for GSP2 hospital benefits. United presents evidence that for billing purposes,
hospitals follow an industry-wide standard for computing the days of inpatient
confinement in a hospital. See ECF No. 55-12 (Arges Aff., ¶ 1). George Arges,
the Senior Director of the Health Data Management Group for the American
Hospital Association Arges, who also serves as Chair of the National Uniform
Billing Committee, testifies that hospitals use a standard billing form, known as
UB04, which is commonly submitted to insurance companies in connection with
patient benefit claims. According to Arges, “hospitals understand” that
information contained on a UB04 form will be used by insurance companies to
13

process claims. Id. (Arges Aff., ¶ 4). Arges further testifies that hospitals employ
an industry-wide standard for computing the days of inpatient confinement in a
hospital. Id. (Arges Aff., ¶ 2). He states: “With one exception, the day of
admission is counted, but the day of discharge is not. The exception occurs when
the day of admission and discharge occur within the same twenty-four hour period,
in which case the number of hospital days is considered to be one.” Id. According
to Arges, the method for computing the days of hospital confinement has its
origins in Medicare requirements, and it is employed by all hospitals regardless of
the payor insurance company. Id. (Arges Aff., ¶ 3).
United also presents the testimony of the company’s vice president, Peter
Hendee. Hendee testifies that he personally drafted the GSP2, Part 1 hospital
benefits provision, which he states “is based on the number of days of
hospitalization.” ECF No. 58-5 (Hendee Dep. at 2-3). Hendee reports that United
determines the number of hospital days or “days of confinement” for a particular
claim based on billing information submitted by hospitals and healthcare providers.
ECF No. 55-10 (Hendee Dep. at 21). In Kennedy’s case, United received a UB04
claim statement from NEA, which indicated that Kennedy incurred hospital
expenses for two days’ room and board. See ECF No. 55-6.
Given evidence that hospitals uniformly exclude the day of discharge on
14

claim forms submitted to insurance companies, with knowledge that insurance
companies rely on that information in processing claims, hospital class members
are uniquely susceptible to affirmative defenses asserted in United’s answer,
including estoppel and waiver, which would require consideration of individual
proof.4
Because the Court finds that Kennedy has failed to show that common
questions of law and fact predominate over individual issues, class certification
must be denied.
Rule 23(a) Requirements
The commonality, typicality, and adequacy of representation requirements5
effectively “limit the class claims to those fairly encompassed by the named
4

Waiver “may occur when one, with full knowledge of material facts, does something
inconsistent with the right or his intention to rely upon it.” Smith v. Walt Bennett Ford, Inc., 314
Ark. 591, 614, 864 S.W.2d 817, 830 (1993). Under Arkansas law, an estoppel defense requires
proof that (1) the plaintiff knew the facts on which the estoppel is based, (2) the plaintiff
reasonably should have expected that the defendant would act upon his conduct, (3) the
defendant was unaware of the facts on which the estoppel is based, and (4) the defendant relief in
good faith upon the plaintiff’s conduct. See Bedford v. Fox, 333 Ark. 509, 514, 970 S.W.2d 251,
254 (1998).
5

As explained by the Supreme Court in General Tel. Co. v. Falcon, 102 S. Ct. 2364
(1982), the commonality, typicality, and adequacy of representation requirements tend to merge.
The commonality and typicality requirements “[b]oth serve as guideposts for determining
whether maintenance of a class action is economical and whether the named plaintiff’s claim and
the class claims are so interrelated that the interests of class members will be fairly and
adequately protected in their absence. [The commonality and typicality] requirements therefore
also tend to merge with the adequacy-of-representation requirement, although the latter
requirement raises [additional] concerns about the competency of class counsel and conflicts of
interest.” Id. at 2370 n.13.
15

plaintiff’s claims.” General Tel. Co. v. Falcon, 102 S. Ct. 2364, 2370 (1982) “A
class representative must be part of the class and ‘possess the same interest and
suffer the same injury’ as the class members.” Id. (quoting East Texas Motor
Freight System, Inc. V. Rodriguez, 97 S. Ct. 1891, 1896 (1977). )
In this case, the undisputed evidence disqualifies Kennedy as a member of
the class. Kennedy contends that a key requirement of class membership is that the
plaintiff “[was] paid benefits for a hospital stay under the Hospital Expense
Benefit provision of that GSP2 policy.” Docket entry #50, at 6. According to
Kennedy, limiting class membership to benefit payees serves several important
purposes: ensuring that all class members have standing, excluding members who
are not entitled to benefits, and facilitating identification of class members via
United’s payment records. It is undisputed that Kennedy transferred her right to
receive benefit payments to NEA, and she was never paid benefits under a GSP2
Policy.
Even if Kennedy were a benefit payee, the Court finds that she does not
qualify as an adequate representative, which is perhaps the most important of all
prerequisites to certification of a class action. See Bishop v. Committee on
Professional Ethics and Conduct, 686 F.2d 1278, 1288 (8th Cir. 1982). Kennedy’s
entire claim rests on the supposition that the GPS2 Policy requires that United
16

count the day of discharge as a day of confinement during a hospital stay. United
notes that Kennedy’s proposed interpretation conflicts with the standardized billing
practices of hospital class members that she seeks to represent. United also points
out that the putative class includes current GSP2 policyholders who have a
financial incentive to consider how this litigation will affect the cost of a GSP2
Policy. Kennedy, who is not a policyholder and remains indebted for the hospital
charges that underlie her claim for benefits, has no similar interest.
III.
For the reasons stated, Plaintiff’s motion for class certification (docket entry
#49) is DENIED, and Plaintiff’s related motion to amend the complaint (docket
entry #48 )6 is DENIED.
IT IS SO ORDERED THIS 3RD DAY OF APRIL, 2013.

/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

6

Kennedy seeks to amend the complaint to conform to the proposed class definition. The
Court considered the proposed, amended class definition in deciding Kennedy’s motion for class
certification.
17