Montague v. Dixie National Life Insurance Company et al

Filing 57

ORDER denying 48 Motion for Summary Judgment and notifying parties to appear at the roster meeting scheduled for 06/16/2010 at 3:00 PM. Signed by Honorable Joseph F Anderson, Jr on 06/11/2010.(bshr, )

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF SOUTH CAROLINA C O L U M B IA DIVISION P h yllis Gaither Montague, on behalf of ) H e rs e lf and all others similarly situated, ) ) P l a in tif f , ) ) vs. ) ) D ix ie National Life Insurance Company; ) N a tio n a l Foundation Life Insurance ) C o m p a n y; USHealth Group, Inc.; and ) S c o tt Richardson, in his official capacity ) a s Director of the South Carolina ) D e p a rtm e n t of Insurance, ) ) D e f e n d a n ts . ) ) C / A No.: 3:09-687-JFA

ORDER

T h ro u g h this action, an insured seeks to challenge the manner in which benefits were p a id pursuant to the "actual charges" provision of a disease-specific supplemental insurance p o licy. Currently before the court is the motion for summary judgment of defendants N a tio n a l Foundation Life Insurance Company and Dixie National Life Insurance Company (c o lle c tiv e ly, the "Insurance Companies") against plaintiff Phyllis Gaither Montague (" M o n ta g u e "). (Dkt. No. 48.) The motion has been fully briefed and the parties presented o ra l argument to the court at a June 7, 2010 hearing. This order serves to announce the ruling o f the court. I. B a c k g ro u n d T h is is the latest in the continuing saga over an insured's entitlement to the co n trac tually undefined term "actual charges." Identical to the claim in Ward v. Dixie Nat'l

L if e Ins. Co., 257 Fed. App'x 620, 625 (4th Cir. 2007) (Ward I), Montague claims that the In s u ra n c e Companies failed to pay benefits in the manner provided by her supplemental in s u ra n c e policy (the "Policy"). Specifically, Montague contends that the Policy requires the In s u ra n c e Companies to determine benefits by looking to the amount initially billed by the h ea lth ca re provider as opposed to the amount accepted by the provider from the payor. In p o lic ie s identical to the one at issue, the Fourth Circuit has found the term "actual charges" a m b ig u o u s and construed the term in favor of the insureds to mean the initial amount billed b y the provider. Ward I, 257 Fed. App'x at 625. O n June 4, 2008, S.C. Code Ann. § 38-71-242 (Supp. 2009) became law and defined " a ctu a l charges," where not otherwise defined in a specified disease insurance policy, as the a m o u n t accepted by the healthcare provider from the payor "pursuant to a network or other a g re e m e n t with a health insurer, third-party administrator, or other third-party payor" or " g o v e rn m e n t administered health care program." In Ward v. Dixie Nat'l Life Ins. Co., 595 F .3 d 164 (4th Cir. 2010) (Ward II), the Fourth Circuit found that section 38-71-242 did not a p p ly retroactively and that the statute went into effect on June 4, 2008. Montague obtained coverage under the Policy with the Insurance Companies prior to J u n e 4, 2008, but filed claims after that date. In handling Montague's claim, the Insurance C o m p a n ie s determined "actual charges" benefits pursuant to the statutory definition found i n section 38-71-242, rather than according to the Fourth Circuit's decision in Ward I. M o n ta g u e filed suit in the Court of Common Pleas for Richland County, South Carolina,

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a g a in s t the Insurance Companies and the South Carolina Director of Insurance alleging b re a ch of contract and seeking declaratory and injunctive relief. The case was thereafter re m o v e d to federal court on the basis of federal question jurisdiction, as the complaint alleges v io la tio n of the Contracts Clause of the United States Constitution. II. L e g a l Standard Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment s h o u ld be granted "if the pleadings, the discovery and disclosure materials on file, and any a f f id a v its show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). "[T]he mere existence of s o m e alleged factual dispute between parties will not defeat an otherwise properly supported m o tio n for summary judgment; the requirement is that there be no genuine issue of material f a ct." Ballenger v. N.C. Agric. Extension Serv., 815 F.2d 1001, 1005 (4th Cir. 1987) (e m p h a s is omitted). A fact is material if proof of its existence or non-existence would affect th e disposition of the case under the applicable law. Anderson v. Liberty Lobby, Inc., 477 U .S . 242, 248­49 (1986). An issue is genuine if the evidence offered is such that a re a so n a b le jury might return a verdict for the nonmovant. Id. at 257. In cases where the p a rtie s dispute material facts, "the non-moving party is entitled to have his evidence as f o re c a st assumed, his version of that in dispute accepted, and the benefit of all favorable in f e re n c es ." Henson v. Liggett Group, Inc., 61 F.3d 270, 275 (4th Cir. 1995). Moreover, the c o u r t "may not make credibility determinations or weigh the evidence." Williams v. Staples,

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In c ., 372 F.3d 662, 667 (4th Cir. 2004). The motion before the court turns solely on a point o f law, the parties do not dispute any material facts. III. D is c u ss io n T h e Insurance Companies contend that when Montague renewed her Policy on June 2 6 , 2008, she entered into a new policy that incorporated the statutory definition of "actual c h a rg e s" provided in section 38-71-242 that went into effect on June 4, 2008. Their position is that because they paid her claims pursuant to section 38-71-242, they have fulfilled their e n d of the bargain under the Policy. Montague contends that her monthly renewal of the P o l ic y does not effect the creation of a new policy, that the Policy has been in effect since M a rc h 26, 1992, and that the South Carolina legislature's attempt to rewrite the Policy th ro u g h statute violates the Contracts Clause of the South Carolina and United States C o n s titu tio n s . 1. T h e Contracts Clause

T h e Contracts Clause states that "[n]o State shall . . . pass any . . . Law impairing the O b lig a tio n of Contracts." U.S. Const. art. I, § 10. The United State Supreme Court has d e v is e d a tripartite analysis to determine whether the Contracts Clause has been violated. The f irs t prong, and only prong relevant to the instant motion for summary judgment, is the d ire c tiv e requiring "a court [to] ask whether there has been an impairment of a contract." C ataw b a Indian Tribe of S.C. v. City of Rock Hill, 501 F.3d 368, 371 (4th Cir. 2007). D e ter m in in g impairment, however, presupposes an existing contract capable of impairment.

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T ex ac o , Inc. v. Short, 454 U.S. 516, 531 (1982) ("The statute cannot be said to impair a c o n tra c t that did not exist at the time of its enactment."). The Insurance Companies contend th a t because the Policy became a new contract on June 26, 2008 and absorbed the definition o f actual charges found in section 38-71-242 upon renewal, the Contracts Clause is in a p p lic a b le . The question thus becomes whether Montague entered into a single insurance p o lic y in 1992 for an indefinite term, or whether she entered into a new insurance policy on th e 26th of each month for sixteen years. 2. O n e Continuous Contract or Many Successive Contracts?

C o u rts examining whether "a new contract arose upon the payment and acceptance o f each renewal premium" look to "the intention of the parties as expressed in the writing." H u d so n v. Reserve Life Ins. Co., 141 S.E.2d 926, 927 (S.C. 1965). In Hudson, the South C a ro lin a Supreme Court found that policy terms setting forth "agreed premiums, dates when p re m iu m s are due, [and] default in payment and reinstatement" are inconsistent with "the v ie w that the policy terminated on each premium paying date or within fifteen days th e re a fte r." Id. at 928. Other South Carolina Supreme Court cases have discussed similar c o n sid e ra tio n s in distinguishing between continuous and successive contracts. See Chastain v . United Ins. Co., 96 S.E.2d 464 (S.C. 1967); Hodge v. Nat'l Fid. Ins. Co., 68 S.E.2d 636 (S .C . 1952). In finding the contract at issue in Chastain constituted a fixed-term contract, the c o u rt reasoned: T h e policy in question is for a definite and fixed term. It can correctly be d e n o m in a te d a term policy. It could not be renewed or continued without the 5

c o n se n t of both parties. When the insurer refused to consent to a renewal of th e contract, it was acting within the reserved rights under the policy. Id . at 467. In Hodge, the court saw fit to make similar distinctions when considering whether a life insurance policy was in force at the time of an insured's death. As stated in Hodge: I n determining whether the policy under consideration was renewed, we must k e e p in mind the character of insurance involved. We are not here dealing w ith a policy which is an indivisible and continuous contract for insurance for l i f e or a stated number of years, subject to forfeiture for non-payment of p r e m iu m s, nor are we dealing with a health or accident policy which is n o n -c a n c e llab le . . . . The policy here is for a definite and fixed term. It is c le a rly a species of term insurance. No grace period is provided. It could not b e renewed or continued without the consent of both parties; that is, a new c o n tra c t had to be made. The rights of the parties were mutual in the sense that n e ith e r was bound to renew the contract. 6 8 S.E.2d at 639. Reading Chastain, Hodge, and Hudson together, the South Carolina S u p r e m e Court, in ascertaining the intent of the parties with respect to payment of renewal p re m iu m s , looks to (1) whether the policy is for a definite term; (2) the presence or absence o f a grace period; (3) the presence and necessity of mutual consent to continue the policy; a n d (4) whether the contract is subject to forfeiture only for non-payment of premiums. The Policy provides that the benefits guaranteed by its provisions cannot change while it remains in force and that an insured has the right "to continue this policy during [her] lif e tim e by timely payment of the required premium." In so providing, the Insurance C o m p a n ie s deprived themselves of the ability to withdraw consent. Such a provision o b v iate s the question of mutual consent upon renewal because the contract may continue in f o rc e , with benefits unaltered, at the pleasure of Montague. The Policy does not have a

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d e f in e d or fixed term. In this sense, offer issued and acceptance was solicited and obtained o n ly at the execution of the Policy, and immaterial thereafter. Accordingly, the Policy p ro v is io n guaranteeing Montague the right to continue "this policy" during her lifetime s tro n g ly suggests the parties envisioned and intended a single continuous contract rather than su cc essiv e independent contracts. Additional evidence of the parties' mutual intent to form a continuous single contract may be found throughout the Policy, as detailed below. T h e Policy provides that after two years the Insurance Companies promise to pay b e n e f its regardless of when cancer was first diagnosed or treated, and that the Policy is in c o n te s ta b le after that time. The Policy also states that coverage does not begin for 30 days a f te r it is executed. Provisions defining lifetime maximums, or the lack thereof, appear f re q u e n tly throughout the Policy. For example, under paragraph (L) of the Policy, the h o s p ic e care benefit is explicitly limited to a lifetime maximum of 180 days. The court finds th e se provisions incompatible with a policy term of thirty days and that the intent of the p a rtie s as manifested by the Policy language reflects an intent to form a "continuous contract o f insurance for life subject to forfeiture for nonpayment of premiums." Chastain, 96 S.E.2d a t 468­69. However, the question remains as to whether the ability of the Insurance C o m p a n i e s to change the premium mandates that the court consider each renewal a new c o n tra c t. 3. Is the Adjustable Premium Provision Dispositive Pursuant to Webb?

T h e Insurance Companies insist that regardless of the foregoing, the fact that the

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P o licy provides for an adjustable premium compels the finding that the parties entered into a new contract on the 26th of each month. To support their assertion, the Insurance C o m p a n ie s place near total reliance on Webb v. South Carolina Ins. Co., 407 S.E.2d 635 (S .C . 1991). Webb holds that renewal of a fixed-term automobile insurance policy

c o n stitu te s a new contract requiring a valid offer of UIM. Id. Webb also recognized an e x c e p tio n to this general rule where (1) "the expiring policy mandates the same terms shall re m a in in effect and (2) the terms of the policy do not change upon renewal." Id. In finding th a t the renewal at issue did not come within the exception, the Webb court found "it d is p o s itiv e [that the policy] specifically contemplate[d] upon renewal a renegotiation of an e ss e n tia l term of the contract, the premium rate." 407 S.E.2d 635. On that basis, the In s u ra n c e Companies contend that when Montague paid her premium in June 2008, she re n e g o tia te d the Policy because the Insurance Companies had the option of raising the p rem ium on all policies with the same form number. H o w e v e r, Webb's characterization of the effect of the renewal must be viewed in c o n te x t. Allstate Ins. Co. v. Thatcher, 325 S.E.2d 59, 61 (1985) ("In one sense of the word, th e renewal of any contract creates a new contract. Except for the renewal, the contract w o u ld be dead."). Webb dealt solely with "the extent of an exception to the rule that renewal c o n stitu te s a new contract." 407 S.E.2d at 636. The rule to which Webb refers was a n n o u n c ed in Knight. Id. And Knight specifically couched its rule in terms of "the renewal o f a policy of insurance for a fixed term." 374 S.E.2d 520, 522. The court reads Webb's

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re q u ire m e n t of an "expiring policy" as implicit recognition of its limited application to in s u r a n c e contracts of fixed duration--contracts which expire by their own terms. H e re , because the Policy continues in effect at the pleasure of Montague, it is c o n tin u o u s and does not expire. Accordingly, the general rule regarding renewal of fixedte rm contracts as announced in Allstate and Knight is inapplicable, and the Webb exception to the general rule doubly so. IV. C o n c lu s io n A t bottom, Hudson's charge to ascertain the intent of the parties compels the court to d e n y the Insurance Companies' motion for summary judgment (Dkt. No. 48) because the p re m iu m payments on or after the effective date of section 38-71-242 did not constitute the f o rm a tio n of new contracts. The court requests the parties to appear at the roster meeting p re v io u s ly noticed (Dkt. No. 55) for June 16, 2010 at 3:00 p.m., where the court will conduct a status conference. IT IS SO ORDERED.

Ju n e 11, 2010 C o lu m b ia , South Carolina

J o s e p h F. Anderson, Jr. U n ite d States District Judge

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