Tristar Risk Management et al v. American Liberty Insurance
Filing
25
MEMORANDUM DECISION and ORDER granting #11 Defendant's Motion for Summary Judgment. Plaintiffs' Complaint is dismissed. Signed by Judge David Nuffer on 8/31/2017. (blh)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
TRISTAR RISK MANAGEMENT, a
California corporation, and TRISTAR
MANAGED CARE, INC., a California
corporation,
MEMORANDUM DECISION
AND ORDER GRANTING
[11] DEFENDANT’S MOTION
FOR SUMMARY JUDGMENT
Plaintiffs,
v.
Case No. 2:16-cv-00476-DN
AMERICAN LIBERTY INSURANCE CO.,
INC., a Utah corporation,
District Judge David Nuffer
Defendant.
Plaintiffs Tristar Risk Management (“Risk Management”) and Tristar Managed Care, Inc.
(“Managed Care”) (collectively “Tristar”) managed claims on behalf of Defendant American
Liberty Insurance Company, Inc. (“American Liberty”). Some of these claims were for services
rendered by IHC Health Services, Inc. (“IHC”).
Managed Care also has a separate, previous contract with IHC for claims management.
An arbitrator ordered Managed Care to pay IHC damages for underpayment because IHC claims
were paid by Managed Care on the rates applicable to the agreement between Risk Management
and American Liberty rather than on the rates in the contract between Managed Care and IHC.
Tristar wants to be reimbursed by American Liberty for the arbitration award.
Tristar’s complaint (“Complaint”) alleges American Liberty: (1) breached a contract; (2)
breached the implied covenant of good faith and fair dealing; (3) was unjustly enriched; and (4)
should, in equity, indemnify Tristar. 1 American Liberty moves for summary judgment on
1
Complaint at ¶¶ 21–47, docket no. 2, filed June 3, 2016.
Tristar’s claims (“Motion”). 2 Tristar opposes the Motion (“Opposition”). 3 American Liberty
filed a reply in support of the Motion (“Reply”). 4
There is no genuine dispute as to any material fact supporting Tristar’s claims. American
Liberty is entitled to summary judgment. Therefore, American Liberty’s Motion for Summary
Judgment 5 is GRANTED.
Contents
Background ..................................................................................................................................... 2
Summar Judgment Standard ........................................................................................................... 4
Undisputed Material Facts .............................................................................................................. 5
Analysis........................................................................................................................................... 8
1.
American Liberty Did Not Breach the Claims Service Agreement with Risk
Management ............................................................................................................ 9
A.
Managed Care is not a third party beneficiary of the Claims Service
Agreement and cannot assert a claim of breach of contract ..................... 10
B.
Because American Liberty is a not a party to the IHC Agreement, it is not
obligated to pay amounts purportedly owed to IHC ................................. 13
C.
The undisputed facts do not show that American Liberty breached Article
5.5 of the Claims Service Agreement ....................................................... 15
D.
The undisputed facts do not show that American Liberty breached Article
9.2 of the Claims Service Agreement ....................................................... 17
2.
American Liberty Did Not Breach the Covenant of Good Faith and Fair Dealing
............................................................................................................................... 19
3.
American Liberty Was Not Unjustly Enriched by Managed Care ....................... 21
4.
American Liberty is Not Required to Equitably Indemnify Managed Care ......... 23
Order ........................................................................................................................................... 25
BACKGROUND
This case concerns two separate contracts: (1) the Intermountain Facility Services
Agreement By and Between IHC Health Services, Inc. and Tristar Managed Care (“IHC
2
Defendant’s Motion for Summary Judgment (“Motion”), docket no. 11, filed Aug. 15, 2016.
3
Plaintiffs’ Memorandum in Opposition to Defendant’s Motion for Summary Judgment (“Opposition”), docket no.
20, filed Oct. 14, 2016.
4
Defendant’s Reply Memorandum in Support of Its Motion for Summary Judgment (“Reply”), docket no. 23, filed
Nov. 4, 2016.
5
Motion docket no. 11, filed Aug. 15, 2016.
2
Agreement”); 6 and (2) the Claims Service Agreement between Risk Management 7 and American
Liberty. 8
IHC and Managed Care signed the IHC Agreement in June 2010.9 The IHC Agreement
allowed Managed Care to give insurance companies (and patients insured by those companies)
access to IHC services if Managed Care contractually obligated the insurance companies to pay
certain rates listed in the IHC Agreement (“PPO” rates). 10 Managed Care never contracted with
American Liberty to provide American Liberty insureds access to the IHC facilities or to pay the
rates in the IHC Agreement.
The Claims Service Agreement between Risk Management and American Liberty
became effective in May 2011, and obligated Risk Management to perform claims handling
services on American Liberty’s behalf in exchange for compensation. 11 Risk Management was to
use American Liberty funds to pay for claims. 12 Managed Care was not a party to this agreement
but was designated in the agreement to perform functions.
While the Claims Service Agreement was in effect, American Liberty insureds received
treatment at IHC facilities. 13 As outlined in the Claims Service Agreement, Risk Management
forwarded the insureds’ claims from IHC above $2500 (later $1500) to FairPay Solutions
6
Intermountain Facility Services Agreement By and Between IHC Health Services, Inc. and Tristar Managed Care
(“IHC Agreement”), Ex. B to Motion, docket no 11-2, filed Aug. 15, 2016.
7
Claims Service Agreement-Workers Compensation (“Claims Service Agreement”), Ex. A to Motion, docket no.
11-1, filed Aug. 15, 2016. The Claims Service Agreement mentions Tristar Managed Care, but it is not a party to the
agreement. See infra Undisputed Fact ¶ 7.
8
Claims Service Agreement at 1.
9
IHC Agreement at 1.
10
Id. at 5, ¶ II.B.1, 7, ¶ II.F, 8, ¶ II.H, & 11, ¶¶ III.A, III.B.
11
Claims Service Agreement at 1, ¶ 1.1, 3, ¶ 3.1, & 10, ¶ 10.1.
12
Id. at 6, ¶ 5.1.
13
Declaration of Thomas J. Veale (“Veale Declaration”) ¶ 4, Ex. A to Opposition, docket no. 20-1, filed Oct. 14,
2016.
3
(“FairPay”) and the rest of the claims to Managed Care. 14 After FairPay adjusted the claims over
$2500 (later $1500), it would tell Managed Care the amount it should pay to IHC in accordance
with FairPay’s schedule, not according to the rates in the IHC Agreement. 15 Managed Care
would then “cut a check” to IHC. 16 For the other claims, below $2500 (later $1500), Managed
Care not only made the check to IHC but also adjusted the claim. 17
Because IHC believed it was being underpaid for American Liberty claims that were
adjusted by FairPay, IHC filed an arbitration action against Managed Care for breach of the IHC
Agreement. 18 The arbitrator agreed with IHC and entered an award in IHC’s favor. 19 The award
requires Managed Care to pay IHC the difference between the claims as adjusted by FairPay
(established under the Claims Service Agreement) and the claims as billed by IHC, applying the
PPO reduction allowed in the IHC Agreement between Managed Care and IHC. 20 Because the
IHC Agreement PPO rates are higher than the payments authorized by FairPay, IHC was
awarded the difference. 21 Now, Tristar is seeking to recover the arbitration award from American
Liberty.
SUMMARY JUDGMENT STANDARD
American Liberty is entitled to summary judgment if it “shows that there is no genuine
dispute as to any material fact” and “is entitled to judgment as a matter of law.” 22 A dispute
14
Id.
15
Id.
16
Id.
17
Id.
18
Demand for Arbitration, Ex. E to Motion, docket no. 11-5, filed Aug. 15, 2016.
19
Veale Declaration ¶ 4.
20
Id.
21
Id. ¶ 5.
22
Fed. R. Civ. P. 56(a).
4
about a material fact is genuine “if the evidence is such that a reasonable jury could return a
verdict for [Tristar].” 23 American Liberty satisfies its “initial burden of demonstrating an absence
of a genuine issue of material fact” when it “indicat[es] to the court a lack of evidence for
[Tristar] on an essential element of [Tristar’s] claim.” 24 “Once [American Liberty] has done so,
‘the burden shifts to [Tristar] to go beyond the pleadings and set forth specific facts showing that
there is a genuine issue for trial.’” 25 In determining whether there is a genuine dispute as to
material fact, the court should “view the factual record and draw all reasonable inferences
therefrom most favorably to [Tristar].” 26
UNDISPUTED MATERIAL FACTS 27
1.
On June 1, 2010, IHC and Managed Care entered into the IHC Agreement. 28
2.
The IHC Agreement contained a payment schedule. 29
3.
American Liberty is not a party to the IHC Agreement. 30
4.
In May 2011, American Liberty and Risk Management entered into the Claims
Service Agreement [dealing with workers compensation claims]. 31
23
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
24
1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1242 (10th Cir. 2013) (quoting Sally Beauty Co. v.
Beautyco, Inc., 304 F.3d 964, 971 (10th Cir. 2002)).
25
Id. (quoting Sally Beauty Co., 304 F.3d at 971).
26
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
27
These facts are drawn from the Motion, Opposition, and Reply. Only one fact, asserted by Tristar, is not included
in this section because it is an impermissible conclusion: “As a result of [American Liberty] requiring Risk
Management to follow FairPay’s instructions and facilitate the of making reduced payments to IHC, any payments
Risk Management is required to make under the arbitration award would necessarily be payments on [American
Liberty] claims out of Risk Management funds.” Opposition at 4, ¶ 9.
28
Motion at v, ¶ 1 (citing IHC Agreement). Undisputed by Tristar. Opposition at 3.
29
Motion at v, ¶ 2 (citing Intermountain Facilities and Payment Schedule, Attach. A to IHC Agreement, docket no.
11-2, filed Aug. 15, 2016). Undisputed by Tristar. Opposition at 3.
30
Motion at vi, ¶ 9 (citing IHC Agreement). Undisputed by Tristar. Opposition at 3.
31
Motion at v, ¶ 3 (citing Claims Service Agreement). Undisputed by Tristar. Opposition at 3. Tristar asserts this
same fact, which is undisputed by American Liberty. Opposition at 3, ¶ 1.
5
5.
Prior to entering into the Claims Service Agreement, American Liberty received
from Risk Management a proposal concerning workers’ compensation claims services
(“Proposal”). 32
6.
The Proposal contains five pages that discuss services to be provided by Managed
7.
Managed Care is not a party to the Claims Service Agreement. 34
8.
The Claims Service Agreement does not refer to the IHC Agreement. 35
9.
The Claims Service Agreement does not contain the payment schedule found in
Care. 33
Attachment A of the IHC Agreement. 36
10.
The Claims Service Agreement mentions Managed Care only once. Exhibit A to
the Agreement states: “Pricing assumes TRISTAR Managed Care will direct all managed care as
mutually agreed upon and as outlined in the Client Service Instructions.” 37
11.
The Client Service Instructions list the services being provided to American
Liberty as “Workers’ Compensation Third Party Claims Administration and TRISTAR Managed
Care Services.” 38
32
Opposition at 3, ¶ 2 (citing Proposal for Workers’ Compensation Claim Services (“Proposal”) ¶ 3, Ex. 1 to Ex. A
of Opposition, docket no. 20-1, filed Oct. 14, 2016). Undisputed by American Liberty. Responses to Statement of
Undisputed Additional Facts (“Responses”) at 1, ¶ 2, Ex. B to Reply, docket no. 23-2, filed Nov. 4, 2016.
33
Opposition at 3, ¶ 3 (citing Proposal at 12–17). Undisputed by American Liberty. Responses at 1, ¶ 3.
34
Motion at vi, ¶ 10 (citing Claims Service Agreement). Undisputed by Tristar. Opposition at 3.
35
Motion at v, ¶ 4 (citing Claims Service Agreement). Undisputed by Tristar. Opposition at 3.
36
Motion at v, ¶ 5 (citing Claims Service Agreement). Undisputed by Tristar. Opposition at 3.
37
Motion at vi, ¶ 11 (citing Claims Service Agreement at 16). Undisputed by Tristar. Opposition at 3.
38
Opposition at 3, ¶ 4 (citing Client Service Instructions, Ex. C to Motion, docket no. 11-3, filed Aug. 15, 2016).
Undisputed by American Liberty. Responses at 1, ¶ 4.
6
12.
Under the Claims Service Agreement, FairPay—not Risk Management—would
adjust medical bills above a threshold amount. 39
13.
At all times when the Claims Service Agreement was in effect, Risk Management
received American Liberty claims from IHC. Risk Management would forward any claims
greater than $2500 (later greater than $1500) to FairPay for handling. Remaining claims were
forwarded to Managed Care for review. For claims sent to Managed Care for review, Managed
Care would cut checks on behalf of American Liberty to IHC that applied the PPO discount
negotiated by Managed Care with a notation on the check that the Managed Care PPO rate was
being applied. For claims sent to FairPay for handling, FairPay would review the claims and then
instruct Managed Care the amount to pay on the claim. Managed Care would then “cut a check”
on behalf of American Liberty to IHC in the amount instructed by FairPay and with a notation
that the FairPay PPO rate was being applied. 40
14.
American Liberty would not have received a PPO rate reduction from IHC on
claims handled by Risk Management and Managed Care but for the agreement Managed Care
had with IHC. 41
15.
The Claims Service Agreement provides that “at no time will [Risk Management]
be obligated to make any payments of Claims and Allocated Loss Adjustment Expenses out of
[Risk Management] funds.” 42
39
Motion at v, ¶ 7 (citing Claims Service Agreement at 17; Client Service Instructions; Complaint ¶¶ 8–9).
Undisputed by Tristar. Opposition at 3.
40
Opposition at 4, ¶ 5 (citing Veale Declaration ¶ 4). Undisputed by American Liberty. Responses at 1-2, ¶ 5.
41
Opposition at 5, ¶ 10 (citing Veale Declaration ¶ 8). Undisputed by American Liberty. Responses at 3, ¶ 10.
42
Opposition at 4, ¶ 6 (citing Claims Service Agreement ¶ 5.5). Undisputed by American Liberty. Responses at 2,
¶ 6.
7
16.
The Claims Service Agreement does not obligate American Liberty to pay any
particular rate for IHC services. 43
17.
Tristar never alleges that American Liberty entered into a contract with Managed
Care that requires American Liberty to pay any particular rate for IHC services. 44
18.
An arbitrator has entered an award against Managed Care requiring Managed
Care to pay the difference between American Liberty’s claims as adjusted by FairPay and
American Liberty’s claims as billed by IHC, applying the PPO reduction allowed in the
agreement between Managed Care and IHC. 45
19.
Managed Care does not allege that it has made any payments to IHC. 46
20.
Managed Care is now seeking to recover from Risk Management the amount
awarded by the arbitrator. 47
ANALYSIS
American Liberty seeks summary judgment on all of Tristar’s claims. 48 The claims are:
(1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing;
(3) unjust enrichment; and (4) equitable indemnification. 49 Each claim will be discussed below.
As the following explains in detail, American Liberty’s Motion is GRANTED on all claims.
43
Motion at v, ¶ 6 (citing Claims Service Agreement). Undisputed by Tristar. Opposition at 3.
44
Motion at v, ¶ 8. Undisputed by Tristar. Opposition at 3.
45
Opposition at 4, ¶ 7 (citing Veale Declaration ¶ 5). Undisputed by American Liberty. Responses at 2, ¶ 7.
46
Motion at vii, ¶ 12 (citing Complaint). Although Tristar says that this fact is disputed by its seventh additional
fact, this is not the case. Tristar’s seventh additional fact explains that an arbitration award has been entered against
Managed Care. Opposition at 4, ¶ 7 (citing Veale Declaration). On the other hand, this fact speaks to whether
Managed Care has made payments on the arbitration award entered against it. American Liberty does not dispute
Tristar’s seventh additional fact. Responses at 2, ¶ 7.
47
Opposition at 4, ¶ 8 (citing Veale Declaration ¶ 6). Undisputed by American Liberty. Responses at 2-3, ¶ 8.
48
Motion at i.
49
Complaint at ¶¶ 21–47.
8
1. American Liberty Did Not Breach The Claims Service Agreement
With Risk Management.
Tristar asserts that the Claims Service Agreement is a “binding and enforceable
agreement” between American Liberty and Risk Management and that Managed Care is a third
party beneficiary of that agreement. 50 Tristar then alleges American Liberty materially breached
the Claims Service Agreement by: 51 1) “[r]efusing to respond to [Risk Management] and
[Managed Care’s] requests that [American Liberty] pay amounts owed to IHC under the IHC
Agreement;” 52 2)” allowing [Risk Management] to be placed in a situation where [Risk
Management] is required to pay claim-related costs out of its own funds;” 53 and 3) “failing to
indemnify and hold harmless [Risk Management] and [Managed Care] for [American Liberty]’s
negligence and willful misconduct. 54” Neither party disputes that the Claims Service Agreement
is a binding agreement between American Liberty and Risk Management. 55 Their dispute
focuses on whether American Liberty breached its obligations under Claims Service Agreement.
In Utah, “[a] breach of express contract claim arises out of the express terms of the
contract, and the breach [must be] proven in relation to those terms.” 56 “When interpreting a
contract, a court first looks to the contract’s four corners to determine the parties’ intentions,
50
Complaint at ¶ 24.
51
The Complaint refers to Risk Management as “TRM,” Managed Care as “TMC,” and American Liberty as
“ALIC.” For consistency and uniformity, quotations to the Complaint throughout this decision have been altered to
reflect the party names indicated at decision’s outset.
52
Id.
53
Id.
54
Complaint at ¶ 24.
55
Undisputed Fact ¶ 1.
56
Global. Fitness Holdings, LLC v. Fed. Recovery Acceptance, Inc., 127 F. Supp. 3d 1176, 1187 (D. Utah 2015)
(quoting Christiansen v. Farmers Ins. Exch., 116 P.3d 259, 261 (Utah 2005)).
9
which are controlling.” 57 “If the language within the four corners of the contract is unambiguous
. . . a court determines the parties’ intentions from the plain meaning of the contractual language
as a matter of law.” 58 In the following discussion, Managed Care’s purported status as a third
party beneficiary of the Claims Service Agreement will be addressed first, followed by the
individual allegations that American Liberty acted in a way that breached the Claims Service
Agreement.
A. Managed Care is not a third party beneficiary of the Claims Service Agreement and
cannot assert a claim of breach of contract.
Because the Complaint contains both contractual and quasi-contractual causes of action,
Managed Care’s status as a third party beneficiary of the Claims Service Agreement must be
resolved to determine if Managed Care may appropriately make claims against American
Liberty. American Liberty’s Motion argues that Managed Care is not a third party beneficiary of
the Claims Service Agreement and has no right assert a breach of contract claim. 59 Tristar offers
no response. 60
Under Utah law, “[t]he benefits conferred by contracts are presumed to flow exclusively
to the parties who sign the contracts.” 61 “[A] third party has standing to sue if it is an intended,
and not merely an incidental, beneficiary.” 62 “[T]hird party beneficiary status is determined by
57
Fairbourn Comm., Inc. v. Am. Hous. Partners, Inc., 94 P.3d 292, 295 (Utah 2004) (quoting Bakowski v. Mountain
States Steel, Inc., 52 P.3d 1179, 1184 (Utah 2002)).
58
Id.
59
Motion at 2.
60
Tristar bypasses American Liberty’s argument on this point entirely. Instead, it focuses its argument in the
Opposition on American Liberty’s alleged breaches of Article 5.5 and Article 9.2. See Opposition at 6–9. American
Liberty acknowledges the omission. Reply at 2.
61
Bybee v. Abdulla, 189 P.3d 40, 49 (Utah 2008).
62
Orlando Millenia, LC v. United Title Servs. of Utah, Inc., 355 P.3d 965, 972 (Utah 2015) (emphasis in original).
10
the examining a written contract.” 63 That written contract “must show that the contracting parties
clearly intended to confer a separate and distinct benefit upon the third party.” 64 “Indeed, it is not
enough that the parties to the contract know, expect or even intend that others will benefit from
the contract.” 65 “[T]he contract must be undertaken for the plaintiff's direct benefit and the
contract itself must affirmatively make this intention clear.” 66 Only when there is clear intent in
the contract “to confer rights upon a third party” is that party able to “enforce rights and
obligations of the contract.” 67 Absent this clear intent, “a third party who benefits only
incidentally from the performance of a contract has no right to recover under that contract.” 68
It is undisputed that Managed Care is not a party to the Claims Service Agreement 69 and
also that American Liberty is not a party to the IHC agreement. 70 The Claims Service Agreement
does not incorporate or reference the Payment Schedule (with its PPO rate provision) attached as
Exhibit A to the IHC agreement. 71 The Claims Service Agreement does not obligate American
Liberty to pay any particular rate for IHC services. 72 The Claims Service Agreement mentions
Managed Care only once in an exhibit: “Pricing assumes TRISTAR Managed Care will direct all
managed care as mutually agreed upon and as outlined in the Client Service Instructions.” 73 The
portion of the separate unsigned Client Service Instructions referring to Managed Care describes
63
Wagner v. Clifton, 62 P.3d 440, 442 (Utah 2002) (internal citation and quotation omitted).
64
Lilley v. JP Morgan Chase, 317 P.3d 470, 472 (Utah Ct. App. 2013) (quoting Wagner, 62 P.3d at 442).
65
Id. (quoting SME Indus., Inc. v. Thompson, Ventullet, Stainback & Assocs., 28 P.3d 669, 684 (Utah 2001)).
66
Id.
67
Id. (quoting Wagner, 62 P.3d at 440).
68
Id. (internal quotation and citation omitted).
69
Undisputed Fact ¶ 7.
70
Undisputed Fact ¶ 3.
71
Undisputed Fact ¶ 9.
72
Undisputed Fact ¶ 16.
73
Undisputed Fact ¶ 10.
11
its services as “Workers’ Compensation Third Party Claims Administration and TRISTAR
Managed Care Services.” 74
On the undisputed facts, Managed Care is only an incidental beneficiary of the agreement
between Risk Management and American Liberty. Although the references to Managed Care in
the Claims Service Agreement certainly might have caused American Liberty and Risk
Management to know or expect Managed Care would benefit from the contract, these references
do not make it affirmatively clear that the Claims Service Agreement was undertaken for
Managed Care’s direct benefit. In particular, without any reference in the Claims Service
Agreement to the IHC Agreement or to the fact that Managed Care would be providing client
services under the Claims Service Agreement subject to its contractual obligations to IHC,
nothing in the Claims Service Agreement enables Managed Care to make a claim against
American Liberty under the IHC Agreement. 75
At most, the single reference to Managed Care in the Claims Service Agreement and the
single reference in the Client Service Instructions demonstrate that Managed Care, as a nonparty
to the Claims Service Agreement, incidentally benefits from the agreement as it one of two
designated entities that was to provide claims handling services. 76 Because Managed Care is not
an intended third party beneficiary that may assert rights under the Claims Service Agreement,
Managed Care may not obtain reimbursement for the arbitration award through the breach of
contract claim or the associated breach of the implied covenant of good faith and fair dealing
claim.
74
Undisputed Fact ¶ 11.
75
See Supra notes 82–85 and accompanying discussion in the text.
76
Risk Management would forward any claims greater than $2500 (later greater than $1500) to FairPay for
handling. Remaining claims were forwarded to Managed Care for review. See Undisputed Fact ¶ 13.
12
B. Because American Liberty is a not a party to the IHC Agreement, it is not obligated
to pay amounts purportedly owed to IHC.
Risk Management’s first allegation of contractual breach is that American Liberty
materially breached the Claims Service Agreement by “refusing to respond to Risk Management
and Managed Care’s requests that American Liberty pay amounts owed to IHC under the IHC
Agreement.” 77 American Liberty argues that no language in the Claims Service Agreement
“requires American Liberty to pay the rates listed in the IHC Agreement[,]” 78 nor is there any
“separate contract with American Liberty that requires American Liberty to pay the rates
contained in the IHC Agreement.” 79
American Liberty’s arguments are supported by the undisputed facts. As outlined earlier,
the Claims Service Agreement does not obligate American Liberty to pay any particular rate for
IHC services. 80 American Liberty is not a party to the IHC agreement which obligates Managed
Care to arrange payment at the PPO rates, 81 and the Complaint does not allege that American
Liberty entered into a contract with Managed Care that requires American Liberty to pay the
PPO rate for IHC services. 82 No enforceable language in the Claims Service Agreement binds
American Liberty to pay the rates specified in the IHC agreement.
Tristar, through Managed Care, could have executed such an instrument with American
Liberty. In fact, the express language of the IHC Agreement mandates that Managed Care do so.
By the IHC Agreement, Managed Care is obligated to “obtain and maintain … a valid
77
Complaint at ¶ 24(a).
78
Motion at 3.
79
Id.
80
Undisputed Fact ¶ 16.
81
Undisputed Fact ¶ 3.
82
Undisputed Fact ¶ 17.
13
enforceable agreement with each Purchaser that obligates such Purchaser to comply with the
applicable terms and condition of this agreement.” 83 “Purchaser” is defined in the IHC
Agreement as “an employer group which pays a premium or service fee, or whose funds are used
to pay health care providers for Covered Services under the Worker’s Compensation Medical
Benefits.” 84 Later in the IHC Agreement, Managed Care indicated that it “understands and
agrees that it is responsible, and [Managed Care] will obligate Purchasers under agreement with
[Managed Care] to be responsible for claims administration and for all payments to [IHC]
Facilities, for all Covered Services rendered to Employees under this Agreement.” 85 Managed
Care also agreed “that payments for Covered Services to [IHC] Facilities will be made in
accordance with the payment schedules in Attachment A, ‘INTERMOUNTAIN Facilities and
Payment Schedule’ . . . .” 86
Managed Care was clearly obligated to enter into agreements with insurance providers to
abide by the terms of the IHC Agreement when the providers’ policy holders received treatment
at IHC facilities and the providers paid for that treatment. Yet Plaintiffs do not allege that
American Liberty entered into a contract with Managed Care that required American Liberty to
pay any particular rate for IHC services. 87 In the absence of such a separate agreement—that
Managed Care was required by the IHC Agreement to obtain—or the inclusion of language in
83
IHC Agreement at 5, ¶ II.B.1.
84
Id. at 3, ¶ I.K.
85
Id. at 7, ¶ II.F. The term “employer group” is not specifically defined in the IHC Agreement, but the “Purchaser”
definition suggests that it can mean either the employer or the insurer. This is because “[t]he parties to the contract
of workers’ compensation and employer's liability insurance are the employer and the insurer.” 9A Steven Plitt,
Daniel Maldonado, Joshua D. Rogers, and Jordan R. Plitt, Couch on Insurance § 133:25 (3d ed. 1999). The
“Purchaser” definition accounts for both of these parties: the employer who pays “a premium or service fee” to
cover its employees and the insurer “whose funds are used to pay health care providers.” IHC Agreement at 7, ¶ II.F
86
Id.
87
Undisputed Facts ¶ 17.
14
the Claims Service Agreement reflecting Managed Care’s obligations to IHC, American Liberty
is not bound by the terms of the IHC Agreement. Therefore American Liberty’s refusal of
Tristar’s request to pay amounts that Tristar claims are owed to IHC is not a breach of the Claims
Service Agreement.
C. American Liberty did not breach Article 5.5 of the Claims Service Agreement.
Risk Management’s next allegation of contractual breach is that American Liberty
materially breached the Claims Service Agreement because it “[a]llow[ed] [Risk Management]
to be placed in a situation where [Risk Management] [was] required to pay claim related costs
out of its funds.” 88 Tristar clarifies in the Opposition that this conduct breached Article 5.5 of the
Claims Service Agreement, in which “American Liberty acknowledges that at no time will [Risk
Management] be obligated to make any payments of Claims and Allocated Loss Adjustment
Expenses out of [Risk Management] funds.” 89 Risk Management treats the arbitration award
against Managed Care as a claims payment that is “now be[ing] put upon Risk Management.” 90
American Liberty argues that it did not breach this provision because Tristar did not allege that
American Liberty “asked Risk Management to use its funds to make claim payments to IHC” 91
or that “Risk Management is obligated to make claims payments out of its funds.” 92
As noted at the outset of this section, “[a] breach of express contract claim arises out of
the express terms of the contract, and the breach [must be] proven in relation to those terms.” 93
The express language contained in other subsections within Article 5 provide additional context
88
Complaint at ¶ 24(b).
89
Opposition at 7 (citing Claims Service Agreement at 7, ¶ 5.5).
90
Id.
91
Motion at 3.
92
Id. at 4.
93
Global Fitness, 127 F. Supp. 3d 1187.
15
for the acknowledgement in Article 5.5. Article 5.4 provides that “[Risk Management] 94 shall
make payment of claims and Allocated Loss Adjustment Expenses from a claims payment
account funded by American Liberty . . . .” 95 Article 5.1 describes how the claims payment
account is funded and the purpose of the account itself:
[Risk Management] shall have the authority to draw upon a bank account which
shall be established and funded by American Liberty for the purpose of making
payments on claim files. It is the responsibility of American Liberty to have
sufficient funding available in the account to allow [Risk Management] to be able
to make all payments in a timely manner and as required by law. 96
Under the express terms of the Claims Service Agreement, American Liberty was
obligated to supply sufficient funding for a claims payment account that Risk Management
would draw from as it made timely payments on the claims it handled. American Liberty would
breach that obligation if it failed to provide sufficient funding to the claims payment account and
caused Risk Management to pay for the claims it handled out of its own funds. Notably, Tristar
does not allege or offer evidence that the claims payment account was insufficiently funded.
Instead, Plaintiffs seek to contort this section of the Claims Service Agreement into a
requirement that American Liberty pay for Managed Care’s failure to adhere to its obligations to
IHC. But Managed Care is not a party to, or intended beneficiary of, the Claims Service
Agreement. The allegation that American Liberty breached Article 5.5 has no evidentiary
support.
94
“TRISTAR” appears in the original, but the Claims Service Agreement specifies that “TRISTAR” refers to
“TRISTAR Risk Management.” Claims Service Agreement at 1. To avoid confusion, quotations to articles of the
Claims Service Agreement have been altered to reflect the appropriate plaintiff, in this case, Risk Management.
95
Claims Service Agreement at 7, ¶ 5.4.
96
Id. at 6, ¶ 5.1.
16
D. American Liberty did not breach Article 9.2 of the Claims Service Agreement.
Risk Management’s other allegation of breach of contract is that American Liberty
breached the Claims Service Agreement by “[f]ailing to indemnify and hold harmless [Risk
Management] and [Managed Care] for American Liberty’s negligence and willful
misconduct.” 97 The requirement for American Liberty to indemnify and hold harmless Risk
Management and its agents is found in Article 9.2 of the Claims Service Agreement:
American Liberty agrees to defend and hold harmless [Risk Management], their
officers, agents and employees, from and against any and all liability, loss,
damage or expense, including extra contractual and punitive damages and
attorney's fees, incurred in connection with claims or demands for damages
arising out of the services provided under this Agreement, when such claims or
demands arise from or are caused by the sole negligence or willful misconduct of
American Liberty. 98
Managed Care was Risk Management’s agent. Risk Management argues that, by
providing services under the Claims Service Agreement, Managed Care was acting on behalf of
Risk Management as Risk Management’s agent and thus entitled to indemnity. Risk
Management argues that American Liberty’s underpayment of IHC claims was negligent and
willful and was the direct cause of the damages incurred through the arbitration award. 99For
Managed Care to be an agent of Risk Management for potential indemnification under Article
9.2, “three elements must exist: (1) the principal must manifest its intent that the agent act on its
behalf, (2) the agent must consent to so act, and (3) both parties must understand that the agent is
subject to the principal's control.” 100 An exhibit to the Claims Service Agreement between
American Liberty and Risk Management states that the pricing of fees or cost of services
97
Complaint at ¶ 24(c).
98
Claims Service Agreement at 9, ¶ 9.2.
99
Opposition at 8–9.
100
Sutton v. Miles, 333 P.3d 1279, 1282 (Utah Ct. App. 2014).
17
“assumes TRISTAR Managed Care will direct all managed care as mutually agreed upon and as
outlined in the Client Service Instructions.” 101 The separate unsigned Client Service Instructions
show that the provided services included “TRISTAR Managed Care Services.” When Risk
Management received American Liberty Claims from IHC, it would forward claims less than
$2500 (later $1500) to Managed Care for handling. 102 These facts satisfy the elements of an
agency relationship: (1) Risk Management manifested its intent that Managed Care act on its
behalf; (2) Managed Care consented to do so; and (3) both Risk Management and Managed Care
understood that Managed Care was subject to Risk Management’s control.
American Liberty did not engage in conduct entitling Risk Management to
indemnity. Although Managed Care is an agent of Risk Management, 103 the undisputed facts do
not show that American Liberty engaged conduct that requires it to indemnify Risk Management
under Article 9.2. American Liberty argues that the arbitration award was not a result of
American Liberty’s sole negligence or willful misconduct, but that Managed Care’s own conduct
breached the IHC agreement. 104
Even if the undisputed facts were to support the conclusion that American Liberty was
somehow negligent, it was not solely negligent as is required to trigger indemnification under
Article 9.2. As previously explained, Managed Care was obligated to arrange for and enforce
agreements between Managed Care and insurance providers, requiring those providers to abide
101
Undisputed Facts ¶ 7.
102
Undisputed Facts ¶ 10.
103
Recognizing Managed Care as an agent has no bearing on the previous determination that Managed Care is not
an intended third party beneficiary. The Supreme Court of Utah has held that “run-of-the-mill indemnity and hold
harmless provisions . . . are insufficient to show an intent to benefit nonparties to the contract and, therefore, do not
give rise to third-party beneficiary rights.” Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382,
1387 (Utah 1989) (internal citations omitted).
104
Motion at 4.
18
by the terms of IHC Agreement’s payment schedule and specified rates. 105 Tristar never has
alleged that American Liberty entered into a contract with Managed Care that required American
Liberty to pay any particular rate for IHC services. 106 American Liberty paid the rates required
under the Claims Service Agreement and was not negligent. Managed Care neglected its duties
under the IHC Agreement. Risk Management’s claim for indemnity under Article 9.2 fails as a
matter of law.
2. American Liberty Did Not Breach The Covenant Of Good Faith And Fair Dealing
Tristar also claims that American Liberty’s unreasonable conduct—acting in a matter that
deprived Risk Management and Managed Care of the fruits of the Claims Service Agreement—
constitutes a breach of the covenant of good faith and fair dealing that is implied in the Claims
Service Agreement. 107 Because Risk Management is the only plaintiff with the ability to assert
rights under the Claims Service Agreement, 108 the analysis of this claim will focus only on the
contractual relationship between Risk Management and American Liberty.
American Liberty argues that it is only obligated under the Client Services Agreement to
compensate Risk Management for providing claims handling services and that it complied with
that obligation. 109 Risk Management, according to American Liberty, is attempting to read into
the Claims Service Agreement a new, independent covenant that would require American
Liberty to pay the amount that Managed Care owes IHC under the IHC Agreement. Risk
Management argues this obligation already exists in Article 5.5 of the Claims Service Agreement
105
See infra notes 82–85 and accompanying discussion in the text.
106
Undisputed Facts ¶ 17.
107
Complaint at ¶¶ 30–31.
108
Infra at 12.
109
Motion at 5.
19
and that “[t]he justified expectation of Risk Management (and its agents) was that it would
provide claim handling services, including a PPO discount, and would never be obligated to pay
any of [American Liberty]’s claims out of its own funds. . . .” 110
Utah law recognizes only a “limited role for the covenant of good faith and fair
dealing” 111 and has set a “high bar for the invocation of a new covenant.” 112 The benefit of
“inferring as a term of every contract a duty to perform in the good faith manner that the parties
surely would have agreed to if they had foreseen and addressed the circumstance giving rise to
their dispute” 113 cannot justify the “judicial inference of contract terms” 114 that would “threaten[]
‘commercial certainty and breed[] costly litigation.’” 115 “[T]his covenant cannot be read to
establish new, independent rights or duties to which the parties did not agree ex ante.” 116 In
short, “[t]he reach of the implied covenant of good faith and fair dealing extends no further than
the purposes and express terms of the contract.” 117
As specified earlier, the express language of Article 5 imposes the obligation on
American Liberty to create a claims payment account and to ensure that the account is
sufficiently funded. 118 Article 5.5 enforces this obligation through the acknowledgement that “at
no time will [Risk Management] be obligated to make any claims payment out of [Risk
110
Opposition at 9.
111
Young Living Essential Oils, LC v. Marin, 266 P.3d 814, 816 (Utah 2011).
112
Id. at 817.
113
Id. at 816.
114
Id.
115
Id. (quoting Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir.1990)).
116
Oakwood Vill. LLC v. Albertsons, Inc., 104 P.3d 1226, 1240 (Utah 2004).
117
Smith v. Grand Canyon Expeditions Co., 84 P.3d 1154, 1160 (Utah 2003) (internal citation omitted).
118
See infra notes 94–95 and accompanying text.
20
Management] funds. 119 The Complaint does not allege that American Liberty failed to maintain
sufficient funding in the account. The Claims Service Agreement does not obligate American
Liberty to pay any particular rate for IHC services, 120 and Tristar has never alleged that
American Liberty entered into a contract with Managed Care that required American Liberty to
pay any particular rate for IHC services. 121
Risk Management seeks to improperly invoke the covenant of good faith and fair dealing
to establish a new, independent right or duty that is not included the Claims Service Agreement.
Risk Management’s breach of the covenant of good faith and fair dealing claim fails.
3. American Liberty Was Not Unjustly Enriched By Managed Care
American Liberty’s Motion also seeks summary judgment on Tristar’s two quasicontractual claims for relief. 122 The first of these two claims is an unjust enrichment claim. 123
Tristar alleges that “[American Liberty] has been or will be unjustly enriched at the expense of
[Risk Management] and [Managed Care] as a result of its conduct[,]”124 and that “[Risk
Management] and [Managed Care] are entitled to recover those amounts by which [American
Liberty] has been unjustly enriched.” 125 American Liberty argues that Risk Management cannot
make this claim because Risk Management has a contract with American Liberty. 126 This is
correct. In Utah, “a claim of unjust enrichment cannot arise where there is an express contract
119
Claims Service Agreement at 7, ¶ 5.5.
120
Undisputed Facts ¶ 16.
121
Id. ¶ 17.
122
Motion at 10–12.
123
Complaint at ¶¶ 33–38.
124
Id. at ¶ 34.
125
Id. at ¶ 348.
126
Motion at 6.
21
governing the subject matter of a dispute.” 127 Only Managed Care, as a nonparty to (and
incidental beneficiary of) the Claims Service Agreement, may seek a quasi-contractual claim
here.
American Liberty also argues that Managed Care’s unjust enrichment claim fails because
Managed Care has not conferred a benefit on American Liberty. Managed Care responds that it
did “bestow[] a benefit on [American Liberty] when an arbitration award was issued against
Managed Care requiring it to pay [American Liberty]’s underpayment on IHC claims.” 128
In order to “prevail on an unjust enrichment theory” a plaintiff must prove three
elements: “(1) a benefit conferred on one person by another; (2) an appreciation or knowledge by
the conferee of the benefit; and (3) the acceptance or retention by the conferee of the benefit
under such circumstances as to make it inequitable for the conferee to retain the benefit without
payment of its value.” 129 Even if American Liberty benefitted because it received a PPO rate
reduction from IHC on claims handled by Risk Management and Managed Care because of the
agreement Managed Care had with IHC, 130 American Liberty did not know about or appreciate
that benefit. American Liberty is not a party to the IHC Agreement. 131 The Claims Service
Agreement between Risk Management and American Liberty does not refer to the IHC
Agreement. 132 The Claims Service Agreement does not contain the payment schedule found in
Attachment A of the IHC Agreement. 133 The Proposal provided to American Liberty in advance
127
U.S. Fidelity v. U.S. Sports Specialty, 270 P.3d 464, 468 (Utah 2012).
128
Opposition at 10.
129
Jeffs v. Stubbs, 970 P.2d 1234, 1247–48 (Utah 1998) (internal quotation and citation omitted).
130
Undisputed Facts ¶ 14.
131
Id. ¶ 3.
132
Id. ¶ 8.
133
Id. ¶ 9.
22
of entering into the Claims Service Agreement contains general language regarding Managed
Care PPO network partners, but does not refer to the IHC Agreement, IHC services or the
specified terms or rates of the IHC Agreement. 134 And American Liberty was never billed at
those rates. American Liberty did not have the requisite knowledge to appreciate any benefit it
might receive through Managed Care’s handling of American Liberty Claims. Managed Care’s
unjust enrichment claim fails.
4. American Liberty Is Not Required To Equitably Indemnify Managed Care.
Tristar’s fourth claim for relief in the Complaint is for equitable indemnification. 135
Tristar asserts that “[i]t would be inequitable for [Risk Management] and/or [Managed Care] to
compensate IHC for [American Liberty]’s alleged underpayments[,]” 136 and that “any obligation
for alleged underpayments to IHC and the costs of defending against IHC’s allegations should be
paid by American Liberty.” 137 However, because “the law will not imply an equitable remedy
when there is an adequate remedy at law[,]” 138 Risk Management is precluded from taking part
in the equitable indemnity claim just as it was in the unjust enrichment claim.
American Liberty argues that summary judgment against Managed Care is appropriate
because American Liberty “does not owe IHC any money under the IHC Agreement.” 139 “IHC’s
arbitration demand is based on Managed Care’s failure to require that American Liberty pay the
rates stated in the IHC Agreement.” 140 “That breach results from Managed Care’s conduct, not
134
See Proposal at 2, 12–16.
135
Complaint at ¶¶ 39–47.
136
Id. at ¶ 45.
137
Id. at ¶ 46.
138
Thorpe v. Washington City, 243 P.3d 500, 507 (Utah Ct. App. 2010) (internal quotation and citation omitted).
139
Motion at 9.
140
Reply at 9.
23
American Liberty’s conduct.” 141 Managed Care responds that “Managed Care has discharged an
obligation to IHC, as evidenced by the arbitration award against Managed Care[,]” and that
“[American Liberty] was obligated to pay something more to IHC than it paid.” 142 According to
Managed Care, “[b]y [American Liberty]’s logic, it was not required to pay IHC anything.” 143
American Liberty is correct. American Liberty is not required—or obligated—to pay IHC
anything either under the Claims Service Agreement or the IHC Agreement. The absence of any
obligation running from American Liberty to IHC is fatal to Managed Care’s claim of equitable
indemnity.
An equitable indemnity claim consists of three elements. “First, the prospective
indemnitee must discharge a legal obligation owed to a third party.” 144 “Second, the prospective
indemnitor must also be liable to the third party.” 145 “Third, as between the prospective
indemnitor and the prospective indemnitee, the obligation should be paid by the indemnitor.” 146
These principles do not fit these facts. Managed Care is liable to IHC. IHC and Managed Care
entered into the IHC agreement. 147 American Liberty is not a party to the IHC agreement. 148 The
Claims Service Agreement between American Liberty and Risk Management 149 does not refer to
the IHC Agreement 150 and does not contain the payment schedule found in the IHC
141
Id.
142
Opposition at 11.
143
Id.
144
Salt Lake City Sch. Dist. v. Galbraith & Green, Inc., 740 P.2d 284, 287 (Utah Ct. App. 1987) (citing Perry v.
Pioneer Wholesale Supply Co., 681 P.2d 214, 218 (Utah 1984).
145
Id.
146
Id.
147
Undisputed Facts ¶ 1.
148
Id. ¶ 3.
149
Id. ¶ 4.
150
Id. ¶ 8.
24
Agreement. 151 Managed Care was clearly obligated to arrange for and enforce agreements with
insurance providers requiring them to abide by the terms of the IHC Agreement, including
paying the rates specified in the payment schedule. 152 If Managed Care had done so, it would
have formed the relationship that would support a claim of equitable indemnification. But as
American Liberty points out, Managed Care breached the IHC Agreement when it failed to
ensure that American Liberty was contractually obligated to comply with the terms of the IHC
Agreement. Managed Care, because of this breach, cannot seek equitable indemnification against
American Liberty and is itself responsible for the resulting arbitration award.
ORDER
IT IS HEREBY ORDERED that American Liberty’s Motion for Summary Judgment 153
is GRANTED. Plaintiffs’ Complaint 154 is dismissed.
Signed August 31, 2017.
BY THE COURT
________________________________________
District Judge David Nuffer
151
Id. ¶ 9.
152
See infra notes 82–85 and accompanying discussion in the text.
153
Defendant’s Motion for Summary Judgment, docket no. 11, filed Aug. 15, 2016.
154
Complaint, docket no. 2, filed June 3, 2016.
25
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