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Citizens Communications Co. v. Trustmark Insurance

Court Enforces Retroactive $1 Million Laser; Leaves Resolution Of Other Disclosure Issues To Jury; Holds That MGU Can Be Liable In Its Own Right For Breach Of Duty Of Good Faith And Fair Dealing Even Though Acting For Stop-Loss Carrier (Citizens Communications Co. v. Trustmark Insurance, No. 3:01cv948 (D. Conn. 2004).

Comment: This case, which has apparently since settled, involved several high-dollar disclosure issues, and required the Court to determine the validity of an agreement reached between the carrier and the group subsequent to the renewal of the stop-loss policy to impose a $1 million laser on one individual, effectively eliminating stop loss coverage for his claims.  The Connecticut federal court, applying Connecticut law, enforced the laser over the Plaintiff group's objection, reserved the other disclosure issues for the jury, and further held that an MGU can be liable in its own right for certain claims in this context, despite the fact that it was acting at all times as agent for the stop-loss carrier and had no direct contractual relationship with the group.

The Laser Issue

According to the facts set forth in the Court's opinion, Plaintiff Citizens maintained a self-insured Plan with stop-loss coverage through Trustmark for the calendar year 1999.  In September '99, the group, through its broker, notified Trustmark that it intended to renew for the year 2000.  In a letter later that month, Trustmark's MGU, RMTS Associates [the Court's Opinion does not specifically identify RMTS as an MGU, but the description of its activities on behalf of Trustmark suggests that it was functioning as such] notified the broker that the renewal would be capped at a rate increase of no more than 5% of 1999 levels, and that RMTS required confirmation that it had received notification as of November 30, 1999 on all "known" claimants "with the potential to exceed the $100,000 Specific deductible...based on diagnosis and paid/pending claims."  Opinion at p. 7.  In early December '99, RMTS sent a follow-up letter reiterating these expectations and stating that "should updated claims data prove this assumption to be wrong, we reserve the right to amend the Specific rate and/or set higher individual deductibles retroactive to the effective date [of the renewal]." Id.

On January 11, 2000, the broker faxed an acceptance of this proposal to RMTS, "without identification of any currently developing claims with potential to exceed $100,000."  Opinion at p. 8. The next day, Citizens faxed Trustmark initial notice of a claim for a plan participant [hereinafter "PP1," for clarity] in the amount of $1,053,657.44; PP1's medical bills ultimately reached $3.1 million. Id.

According to the Opinion, PP1 had requested pre-certification of aortic valve and mitral valve replacement surgery on October 21, 1999, was pre-certified by Citizen's case management vendor, and was admitted to the hospital on November 29, 1999. His surgery occurred on November 30 [note the date in RMTS first letter, above].  On December 8, the case management vendor learned that PP1 had experienced complications; on December 9 it learned he had undergone sternal wound debridement; and on December 13 it learned that PP1 was in intensive care on a ventilator and recovering from a staph infection. Opinion at pp.6-7. By this time, Citizen's TPA, North American Benefits Network, had scanned in approximately $222,000 in medical bills for PP1. Citizens approved its case management vendor's request for case management authorization on December 15. Opinion at p. 7.

After learning of the million dollar notice of claim in January, Trustmark sent Citizen's broker a letter that offered Citizens two options:  a) accept rescission of the renewal of stop-loss coverage effective January 1, 2000 with refund of all premium; or b) accept a $1 million laser on PP1, plus certain other terms.  Opinion at p. 8. Because the Plan had a $1 million maximum benefit, the laser effectively removed stop-loss coverage for PP1's claims.  Opinion at p. 9. After subsequent correspondence back and forth [the details of which are somewhat interesting--the reader is referred to the Court's opinion at pp. 9-10] an agreement was ultimately reached on March 6, 2000 and confirmed in a letter authored by an officer of Citizens whereby Citizens would accept the $1 million PP1 laser. Opinion at p. 10. Citizens thereafter continued to pay premium under the March 6 agreement.  Ultimately, it was able to achieve a settlement with the hospitals which had treated PP1, reducing the amount it had to pay from over $3 million to $800.000.Id.

In October 2000, Citizens informed the carrier for the first time that it did not consider itself bound by the March 6 agreement containing the PP1 laser.  Opinion at pp. 10-11. In May 2001, Citizens went to court, suing its broker, RMTS, and Trustmark on a variety of legal theories related to the PP1 laser and other issues discussed below.  Opinion at p. 11.

The Court analyzed the PP1 laser issue like any other contract claim, noting that the March 6 agreement "would ordinarily constitute a valid contract."  Opinion at p.19.  However, Citizens made an intriguing argument:  the March 6 agreement was never reflected in a policy endorsement or by an amendment to the policy, and the policy itself stated that "All changes in the Contract must...be evidenced by an endorsement on the Contract or by an amendment to the Contract...."  Opinion at p. 20.  Indeed, Citizens pointed to an amendment concerning some other matter executed by Trustmark dated May 23, 2000 on a form entitled "AMENDMENT" which specified that is "attached to and form[s] a part of" the policy.  Id.  In response, Trustmark asserted that it does not customarily include laser information in an "amendment "page.

Did Citizens have a legal "gotcha!" with this creative argument?  The Court didn't think so:

"Based on the evidence submitted by the parties, the Court concludes that the [PP1] Laser is a valid and effective amendment of the parties insurance policy.  Although the policy defines many of its terms, it does not define the term "amendment"; nor does anything in the policy specify precisely what an amendment must look like, other than it must be approved by Trustmark and signed by Citizens, both of which occurred here."

Opinion at p.21.  Perhaps what may have been a close call for the carrier could be avoided in the future by formally endorsing the policy to reflect lasers, or by altering the standard policy language concerning amendments.

Citizens also lost on a "duress" argument that it made, contending that its agreement to the PP1 laser was invalid because Citizens agreed to it under circumstances constituting duress under Connecticut law. The Court was singularly unimpressed with this claim:

[T]o prove duress, Citizens must...convince a jury that there was no reasonable basis whatsoever for Trustmark to believe that Citizens had made a material misrepresentation regarding the [PP1] claim....Here, Citizens submitted the [PP1] claim--a single claim that represented approximately 150% of the annual cost of the entire policy--one day after [Citizens' broker] had communicated Citizens' acceptance of the renewal and acknowledgment that Citizens knew of no claims that might exceed $100,000 in the coming year.  On the basis of this undisputed evidence, this Court holds that no reasonable jury could find that Trustmark's position was wrongful...."

Opinion at p. 23 (emphasis in original).

The Other Disclosure Issues

Meet PP2, who was placed on a waiting list for a pancreatic transplant at some time in 1996 or 1997 and pre-certified by Citizens at that time to be covered under its Plan. Opinion at p.4.  The 1999 Disclosure Statement called for disclosure of whether "any employee or dependent now enrolling for coverage had any medical condition(s) for which expenses have exceeded $10,000 in the past twelve months or which might be expected to exceed $10,000 in the next twelve months."  Opinion at p. 3.  Citizens did not disclose PP2's condition on the Disclosure Statement, presumably because he had not incurred the requisite $10,000 in expenses during the preceding 12 months.    The Citizen's officer who signed that Disclosure Statement was aware that PP2 was awaiting a transplant, but Citizens argued to the Court that PP2 had been on a transplant waiting list for two years, and that it therefore had no reason to expect at the time it signed the Disclosure Statement that he would have such a transplant in the coming 12 months.  Opinion at pp.5, 13-14.  In fact, PP2 had the transplant in April 1999, incurring more than $139,000 in expenses. Trustmark contended that Citizens' knowledge of PP2's condition and of the probable cost of the transplant procedure meant that PP2 should have been disclosed, and that it was justified in denying the claim under the stop-loss contract. 

PP3, another Citizens Plan participant, had "chordoma," a malignant brain tumor that typically recurs.  Opinion at p.5. He had been on long-term disability since June 1998, and was not disclosed on the Disclosure Statement for the 1999 policy. Opinion at p. 6. Trustmark denied this claim as well.

Unlike its ruling on the PP1 laser issue, the Court refused to resolve the issue of coverage for PP2 and PP3 at the summary judgment stage:

"A dispute of this nature, where the parties disagree about what one party knew at a certain point, unquestionably constitutes a material dispute of fact and is exactly what the summary judgment process is designed not to resolve.  This Court will leave this question to the jury."

Opinion at p. 14 (emphasis in original).  This result typifies that in many disclosure issue cases:  they are difficult to resolve on pre-trial motion, and must often be tried. However, with proper wording of the Disclosure Statement itself, and with the help of favorable local law (not always available), pretrial dispositions can sometimes be achieved.

MGU Liability

In this author's experience, MGUs have often been successful in extricating themselves from cases filed by stop-loss insured groups alleging denial of covered claims on the ground that they were acting at all times as the agent for a disclosed principal--the stop-loss carrier.  Because there is no contractual relationship between the MGU and the insured group or Plan, the MGU is not liable for breach of contract, although the carrier can be.  In this case, however, the Plaintiff successfully weathered a pretrial motion for summary judgment directed to the counts of the Complaint asserting that the carrier's agent was liable for breach of the duty of good faith and fair dealing and for violations of the Connecticut Unfair, Deceptive, and Prohibited Insurance Practices Act ("CUIPA") and Unfair, Deceptive, and Prohibited Trade Practices Act ("CUTPA") even though liability for breach of contract did not exist. See Opinion at pp. 16-18. 

Many states allow a claim for breach of a duty of good faith and fair dealing in a suit between the two parties to a given contract, although the states differ as to whether breach of such a duty has any legal consequences apart from those resulting from the breach of the underlying contract itself.The issue in this case, however, was whether an entity that was not a party to the contract at all could nevertheless have liability for breach of this duty. The Court resolved this question against the MGU:

"It is clear that the interaction between Citizens and RMTS occurred within the context of a contractual relationship, even if RMTS' role in the relationship was not as a party but as the agent of a contracting party.  As the agent of a party who had a duty of good faith based on a contract, RMTS also effectively had such a duty in its interactions in the contractual relationship."

Opinion at p. 17. MGUs take note, at least in Connecticut.

Read the Court's Opinion here .

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