Opinion
H044065
11-27-2019
R-N MARKET, INC., Cross-complainant and Appellant, v. QBE INSURANCE CORPORATION, Cross-defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-14-CV-265847)
In response to an action brought by plaintiff Stanford University Hospital and Clinics (Stanford) to recover payment for medical services, appellant R-N Market, Inc. filed a cross-complaint against both Stanford and respondent QBE Insurance Corporation (QBE), R-N Market's excess insurer. QBE moved for summary judgment, which the superior court granted. On appeal, R-N Market contends that triable issues of fact existed on whether QBE breached or repudiated the excess policy by (1) denying full coverage for Stanford's claim for medical services provided to R-N Market's insured and (2) refusing to defend R-N Market in Stanford's action. We will affirm the judgment.
Background
R-N Market provides medical benefits to its employees and their beneficiaries through its self-insured medical benefit plan, referred to by the parties as the "R-N plan" or "the Plan." The claims administrator for the Plan was the Foundation for Medical Care of Tulare and Kings Counties (Foundation).
Beginning in 2005, QBE provided excess insurance to R-N Market in a "Stop Loss" policy, which was amended and renewed thereafter. The renewals for the one-year policy periods effective July 1, 2011 and July 1, 2012 were applicable to the coverage dispute in this case. The California Foundation for Medical Care (CFMC) was identified in the policy as the participating network provider. Intermediate Insurance Services, Inc. (IISI) was QBE's third-party administrator for the policy.
On June 11, July 2, and July 23 of 2012, Stanford provided outpatient chemotherapy treatment to "Vincent," the husband of an R-N Market employee. Stanford administered a drug identified as J9228 on each occasion, charging a total of $2,125,608 ($708,536 per treatment). A fourth treatment using the same dose of J9228 was administered in August 2013 by Dr. Robert A. Havard, who charged only $112,644.
In discovery Stanford explained that Vincent's treatment consisted of "labs, radiology, and other pharmaceuticals" in addition to J9228.
When Steven M. Beargeon, the CEO of the Foundation, saw Stanford's bill for Vincent's chemotherapy treatment, he thought it was "outrageous." He believed that the average wholesale price (AWP) of J9228 was $86,400. IISI agreed with that figure, and it advised Beargeon that the maximum markup on that amount would be 200 percent, resulting in an "appropriate"—or "usual and customary"—charge of $172,800 for each treatment of the drug. The Foundation submitted a claim to IISI under the Stop Loss Policy for $172,800 for the June 11, 2012 treatment with J9228, and IISI "advanced funded" that amount. IISI later paid for the July 2 and July 23 treatments, amounting to $290,600 (two treatments at $172,800 each, less the excess loss deductible of $55,000).
The controversy between R-N Market and QBE arose on May 29, 2014, when Stanford brought suit against R-N Market and the Foundation to recover additional payment for the medical services provided to Vincent. In its first amended complaint filed in June 2014, Stanford alleged breach of contract and quantum meruit against both defendants. Stanford represented that it was a member of the "Interplan" network, pursuant to its contract with Interplan, Inc., which provided "discounted rates" to health care plans that were Interplan clients. The Foundation was a party to the Interplan contract, thus enabling it to secure those discounted rates for its client health plans from providers in the network, subject to a monthly fee to access the network.
In its two causes of action for breach of contract against the Foundation and R-N Market, Stanford sought damages of $968,812.80, representing the approximate balance remaining of the discounted charge of $1,494,297.70. In its third cause of action for quantum meruit against both defendants Stanford sought $2,134,711.80, which it claimed was the "usual and customary value" of the cancer treatment delivered to Vincent, less the amount of $525,484.97 paid, leaving $1,609,226.90 due.
R-N Market tendered its defense of the Stanford lawsuit to QBE, which rejected the tender. In February 2015 R-N Market filed an amended cross-complaint naming Stanford and QBE. In its first cause of action against Stanford, it sought to recover its alleged overpayment for Stanford's services. In the second cause of action against QBE, it alleged breach, "or repudiation" (anticipatory breach), of the Stop Loss policy based on QBE's refusal to reimburse R-N Market for Stanford's claim, "to the extent said Claim is valid." In the third cause of action R-N Market alleged breach of the covenant of good faith and fair dealing for QBE's refusal to reimburse R-N Market for Stanford's claim, for failing to act on or defend its determination that the claim was excessive, and for denying the "existence or force" of the policy. Finally, R-N Market sought a declaration that "the amount of the Claim is excessive in light of what R-N is obligated to pay pursuant to the terms of its health plan, but that, to the extent the Claim is valid, QBE is obligated to reimburse R-N therefor; and QBE contends that it has fully performed its obligations to R-N under the Policy." R-N Market sought return of its overpayments to Stanford; damages from QBE for breach of contract; and emotional distress damages and punitive damages for QBE's bad faith.
On March 14, 2016 QBE moved for summary judgment, or alternatively, summary adjudication of each cause of action, the request for declaratory relief, and the claim for punitive damages. QBE asserted that none of the amounts claimed by Stanford was covered by the Stop Loss policy, because Stanford's complaint was based on breach of the Interplan contract, not the R-N Plan. QBE further argued that it had no duty to defend R-N Market against Stanford's action, because its policy did not provide such a duty.
The superior court determined that the evidence presented by QBE in support of its motion established that the Stop Loss policy obligated QBE to reimburse R-N Market only for amounts covered by the R-N Plan. QBE's payment of $ 172,800 per treatment constituted full payment under the policy; consequently, there was no breach of contract or anticipatory breach and no breach of a duty to defend. The court therefore granted QBE's motion. R-N Market then filed its notice of appeal from that order.
Discussion
1. Appealability
R-N Market initially represents that the order granting summary judgment, filed July 18, 2016, was an appealable order. Then, as if tacitly conceding that this position is incorrect, R-N Market urges this court to treat the appeal as one from the final judgment, entered October 12, 2018. QBE agrees; in fact, it procured the judgment in order to facilitate this appeal. We elect to treat R-N Market's notice of appeal as filed from the judgment rather than the order granting the motion and therefore proceed to address the merits. (Cal. Rules of Court, rule 8.104(d)(2); see Mukthar v. Latin American Security Service (2006) 139 Cal.App.4th 284, 288 [deeming premature notice of appeal to have been filed after the entry of subsequent judgment].) 2. Principles of Summary Judgment Review
Summary judgment is appropriate when all of the papers submitted show there is no triable issue of material fact and the moving party is entitled to a judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) A triable issue of material fact exists "if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar).)
On appeal, we review the grant of summary judgment de novo, considering all the evidence set forth in the moving and opposition papers, except evidence to which objections were made and properly sustained by the trial court, and all inferences reasonably drawn from the evidence. (Code Civ. Proc., § 437c, subd. (c); see Regents of University of California v. Superior Court (2018) 4 Cal.5th 607, 618.) We view the evidence in the light most favorable to the party opposing summary judgment, liberally construing the opposing party's submissions and resolving all doubts concerning the evidence in favor of the opposing party. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 717; Aguilar, supra, 25 Cal.4th at p. 843.)
In cases involving an insurer's denial of coverage or a defense, whether the subject policy provides a potential for coverage and a duty to defend is a question of law, as it calls for interpretation of policy language. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 (Waller).) Accordingly, "[t]he insurer is entitled to summary adjudication that no potential for indemnity exists . . . if the evidence establishes as a matter of law that there is no coverage." (Smith Kandal Real Estate v. Continental Casualty Co. (1998) 67 Cal.App.4th 406, 414; accord, Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.) 3. R-N Market's Complaint
"Because summary judgment is defined by the material allegations in the pleadings, we first look to the pleadings to identify the elements of the causes of action for which relief is sought." (Baptist v. Robinson (2006) 143 Cal.App.4th 151, 159; Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 945.) In the second cause of action of its amended cross-complaint R-N Market alleged that QBE had "breached, anticipatorily breached, or repudiated the Policy by, among other things: refusing to reimburse R-N for [Stanford's] Claim pursuant to the terms of the Policy, to the extent said Claim is valid." In the third cause of action R-N Market alleged that QBE had breached the covenant of good faith and fair dealing by refusing to reimburse R-N Market or defend QBE's "unilateral determination" that Stanford's claim was excessive. In the fourth cause of action R-N Market sought an adjudication of the "rights and legal obligations" of Stanford, QBE, and R-N Market. 4. QBE's Motion
We have no occasion to address R-N Market's first cause of action against Stanford, as that entity is not a party in this appeal.
In its motion QBE asserted that there was no merit in any of the claims against it, essentially because the Stop Loss policy did not provide coverage for Stanford's claims, which were made under the Interplan contract; instead, its contractual duties were confined to the R-N Plan and excluded coverage for the insured's "liability or obligations . . . under any contract or service agreement other than the Plan." QBE supported its position with copies of the R-N Plan, the Stop Loss policy, and applicable policy renewals, none of which referred to the Interplan contract. QBE also noted Stanford's interrogatory response, in which it stated that its action was not "to recover plan benefits, but rather to recover damages arising from state-law-based contractual and common law theories of recovery." QBE further pointed out that the Interplan contract at issue was between Stanford and the Foundation, though Stanford had alleged that R-N Market was the "responsible payor."
The parties agreed that the R-N Plan was governed by ERISA, the Employee Retirement Income Security Act of 1974. (29 U.S.C. § 1001.) Only those individuals and entities listed in 29 U.S.C. section 1132(a), have standing to bring a civil action under ERISA—namely, plan participants, beneficiaries, fiduciaries, and the Secretary of Labor. (See DB Healthcare, LLC v. Blue Cross Blue Shield of Arizona, Inc. (9th Cir. 2017) 852 F.3d 868, 875 [health care providers did not have direct authority as beneficiaries or assignees to sue to recover benefits under ERISA plan]; but see Connecticut State Dental Ass'n v. Anthem Health Plans, Inc. (11th Cir. 2009) 591 F.3d 1337, 1347 [recognizing derivative standing to sue for payment of medical benefits under ERISA for health care provider that obtained written assignment from a participant or beneficiary].) Stanford is not one of the enumerated entities, nor does it represent itself as an assignee of plan benefits. In its answers to interrogatories, Stanford stated that it "seeks relief as against R-N Market, Inc. based upon independent, state law based causes of action. Responding Party has not brought an action to recover plan benefits, but rather to recover damages arising from state-law-based contractual and common law theories of recovery. Based squarely on on-point Ninth Circuit precedent, the complaint does not fall under ERISA's purview." (Italics added.)
R-N Market did not dispute these points. On appeal, however, it maintains that because the three drug treatments were covered by both the Plan and the Stop Loss policy, QBE was obligated to reimburse R-N Market for the amounts exceeding the Specific Attachment Point for each policy period, up to the "Specific Policy Period Maximum Reimbursement amount." Thus, according to R-N Market, to meet its burden QBE had to present "undisputed admissible evidence that no more than $172,800 per treatment was required from it," and QBE failed to meet this burden.
QBE's position, however, was based only on the terms of the policy, the interpretation of which, as noted above, was a question of law. The policy language proffered by QBE supports its argument that no coverage existed for the Interplan claim. From July 1, 2011 through June 30, 2013, the renewed policy stated: "WE will reimburse YOU for Plan Benefits Paid in excess of the Specific Attachment Point, not to exceed the Specific Policy Period Maximum Reimbursement amount shown in the Schedule. WE will reimburse YOU after YOU have provided an acceptable proof of loss and satisfactory proof of Paid Plan Benefits." The "Specific Attachment Point" was the amount "which is retained and Paid by YOU during the Policy Period." The "Plan" was defined in the policy as "the self-insured health care plan YOU have agreed to make available to YOUR employees and their eligible dependents." "Plan Benefits" generally meant "the health benefits covered by the Plan during the Policy Period," incurred and paid during the policy period. But specifically excluded from the term "Plan Benefits" were "amounts recoverable from any other source" and "amounts Paid under a previous policy or arrangement or excess loss coverage, whether issued by US or another entity." The policy further warned, as noted earlier, that QBE would not reimburse the insured for any loss or expense resulting from the insured's liability or obligations "under any contract or service agreement other than the Plan."
It was undisputed that IISI, on behalf of QBE, paid the amounts it believed were usual and customary for each treatment Stanford provided to Vincent in June and July of 2012—that is, $172,800 per treatment. Beargeon, the Foundation's CEO, did not contest this calculation on behalf of R-N Market, as he agreed with IISI that the amount on which it was based—the AWP—was $86,400. Josephine Jenkins, a claims manager for IISI, stated by declaration that the Foundation never requested payment of Stanford's charges under the Stop Loss policy beyond the $172,800 IISI had paid for each treatment with J9228. This evidence, together with the undisputed terms of the policy and applicable amendments, was sufficient to establish QBE's entitlement to judgment as a matter of law. 5. R-N Market's Opposition
"Usual and Customary Charges" was defined in the policy as "the common charge for the same or comparable service or supply in the geographic area in which the service or supply is furnished. Usual and Customary Charges are determined based upon: [¶] 1. [T]he amount of resources expended to deliver the treatment; [¶] 2. [T]he complexity of the treatment rendered; and [¶] 3. [C]harging protocols and billing practices generally accepted by the medical community."
a. Duty to Reimburse
R-N Market disputed QBE's assertion that the Foundation had not requested additional reimbursement from IISI. The evidence R-N Market supplied, however—Beargeon's declaration—did not contradict this asserted fact. Beargeon stated only that he was informed that QBE would limit payment of Stanford's claims to twice the AWP, and that for any amount beyond that, it was up to the Foundation and R-N Market "to figure out how to proceed." As the superior court observed, this limitation was "not an unequivocal refusal to perform under the Stop Loss Policy"; and it would have been irrelevant if it had been, since the policy did not call for any additional contribution. QBE was not liable for more than the amount called for by the policy language, which allowed excess coverage of "Plan Benefits Paid," but not under any other contract or service agreement. Payments billed under the Interplan contract, on which Stanford based the balance of its claim of $708,536 per treatment, were not covered by the Stop Loss policy.
In his deposition Beargeon testified that in adjudicating the Stanford claim he did not use the plan benefits but relied on the Interplan contract.
The allegations against QBE were that QBE had breached or repudiated the contract by refusing to "reimburse R-N for [Stanford's] Claim pursuant to the terms of the Policy, to the extent said Claim is valid." Beargeon, the Foundation's CEO, submitted the Stanford claims on behalf of R-N Market in accordance with his own estimate of the AWP per treatment as $86,400, an amount IISI agreed with and then doubled to arrive at the $172,800 figure. QBE approved and paid the entire claims submitted by the Foundation for R-N Market, and R-N Market did not make any further payments for which it sought reimbursement. The undisputed evidence thus established that QBE did not refuse to pay the claims submitted to it for Vincent's treatment. IISI did inform Beargeon that it would not pay more than that amount; and Beargeon, though concerned about the application of "usual and customary" measure, concurred in the basis for IISI's determination of that figure (i.e., $86,400 per treatment). Moreover, as the trial court noted, IISI's statement alone did not constitute either express or implied repudiation of the contract, nor did R-N Market treat it as such.
Although anticipatory breach, or repudiation, can be express or implied, R-N Market's assertion can only be characterized as directed at express repudiation, which is "a clear, positive, unequivocal refusal to perform." (Taylor v. Johnston (1975) 15 Cal.3d 130, 137.) "When a promisor repudiates a contract, the injured party faces an election of remedies: he can treat the repudiation as an anticipatory breach and immediately seek damages for breach of contract, thereby terminating the contractual relation between the parties, or he can treat the repudiation as an empty threat, wait until the time for performance arrives and exercise his remedies for actual breach if a breach does in fact occur at such time. [Citation.] However, if the injured party disregards the repudiation and treats the contract as still in force, and the repudiation is retracted prior to the time of performance, then the repudiation is nullified and the injured party is left with his remedies, if any, invocable at the time of performance. [Citations.]" (Id. at pp. 137-138.) R-N Market did not respond to IISI's assessment of the claim as an anticipatory breach and terminate its contractual relationship with QBE, but continued submitting claims in accordance with IISI's determination that $172,800 was the proper amount to be reimbursed for Vincent's medical treatment. (Cf. McCaskey v. California State Automobile Assn. (2010) 189 Cal.App.4th 947, 958 [renunciation of promise was, at plaintiff's election, basis for immediate suit or only empty threat of breach].)
In any event, QBE had no obligation to reimburse R-N Market beyond what was called for in the Stop Loss policy—that is, for "Plan Benefits Paid" beyond the Specific Attachment Point (the amount paid by R-N Market). Interplan was not mentioned in the Plan description of benefits; its participating provider network was CFMC. Stanford's contractual allegations against R-N Market were based not on Plan Benefits, but on its duty to pay Stanford under the Interplan Contract. The charges pursued by Stanford were for "expenses that are not covered by the Plan or this Policy." Thus, the additional amounts demanded by Stanford in its complaint met the policy's criterion for exclusion for loss or expense resulting from the insured's obligations "under any contract or service agreement other than the Plan."
During discovery R-N Market stated that there was currently "a dispute as to whether the Plan language calls for the use of the [CFMC] or InterPlan rates."
R-N Market maintains that it was a triable issue of fact whether QBE was "obligated" to pay more than $172,800 under the Stop Loss policy. Then, "even assuming" that "IISI's determinations constituted admissible evidence [that] it was in fact only obligated to pay of [sic] $172,800 per treatment," R-N Market contends that a triable issue "would have been created as a result of the Declaration of John J. Glynn, who determined that IISI's calculations were improper and not in accordance with the Stop Loss Policy requirements." Glynn had been retained as a consultant by R-N Market's counsel to conduct an analysis of Stanford's quantum meruit claim and QBE's determination of what were usual and customary charges under the Stop Loss policy. Glynn expressed the opinion that IISI had based its determination that $172,800 was usual and customary on an obsolete factor, the AWP. In his view, that determination failed to consider (1) "comparable service and charging protocols and billing practices generally accepted by the medical community" and (2) the complexity of the treatment rendered." (Italics omitted.)
Glynn's analysis, however, does not create a triable issue of material fact. Whether the payment for Stanford's claim met the terms of the policy was a legal issue, not a factual one. Furthermore, in its cross-complaint R-N Market took the position that it had overpaid Stanford and that Stanford should have returned the overpayment to R-N Market. Glynn's conclusion that the reimbursement amount should have been higher would have undermined R-N Market's position that Stanford's charges were excessive and that it had already overpaid Stanford. Even allowing for the conditional phrase "to the extent [Stanford's] [c]laim is valid" in R-N Market's complaint, Glynn's declaration does not nullify the dispositive exclusionary language of the Stop Loss policy.
R-N Market thus fails to demonstrate a triable issue of material fact that refutes QBE's assertion that its excess policy did not cover Stanford's additional demands. QBE reimbursed R-N Market for "Plan Benefits Paid"; thereafter, no more was required under the Stop Loss policy.
b. Duty to Defend
It was undisputed below—and R-N Market concedes in its opening brief on appeal—that the Stop Loss policy did not contain any language expressly obligating QBE to provide a defense to R-N Market. R-N Market renews its contention, however, that the duty to defend an insured is presumed to include a duty to defend its insured where the policy language does not expressly and unambiguously exclude it. In R-N Market's view, because there is no explicit exclusion in QBE's policy language, and because the facts alleged by Stanford create the potential for coverage, QBE "breached the Stop Loss Policy by refusing to defend [R-N Market] against [Stanford's] claims."
R-N Market purports to retract this concession in its reply brief, asserting that the policy at issue did contain a duty to defend. It offers no language to that effect; and in any event, no good reason is offered for its failure to raise this point in its opening brief. (Cf. Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 4 ["To withhold a point until the closing brief deprives the respondent of the opportunity to answer it or requires the effort and delay of an additional brief by permission"].)
The numerous judicial decisions R-N Market cites are based on principles governing liability insurance, not medical insurance claims. (See, e.g., Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081 [liability insurer owes broad duty to defend insured against potentially covered claims]; see also Liberty National Enterprises, L.P. v. Chicago Title Ins. Co. (2013) 217 Cal.App.4th 62, 76 [same, as applied to title insurer]; but see Buss v. Superior Court (1997) 16 Cal.4th 35, 47 [duty to defend "extends beyond claims that are actually covered to those that are merely potentially so—but no further"].) Nevertheless, as discussed above, Stanford's action was not directed at the recovery of Plan Benefits, which were the source of QBE's excess coverage, but sought only damages for breach of the Interplan Network Contract and for quantum meruit based on the value of the services it provided. Consequently, even if a duty to defend can be presumed in a medical insurance context, it was not triggered here, as there was no potential for coverage under the policy at issue.
6. Adjudication of Remaining Claims
For the same reason, the cause of action for breach of the covenant of good faith and fair dealing and the request for declaratory relief were properly adjudicated against R-N Market. "It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer." (Waller, supra, 11 Cal.4th at p. 36; see Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349 ["The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made"]; see also Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132, 1156 [summary adjudication of declaratory relief claim, seeking declaration of the parties' rights, liabilities, and obligations under title policy, appropriate where breach-of-contract claim based on denial of coverage lacked merit as a matter of law].) Likewise, without a wrongful denial of coverage or refusal to defend R-N Market, there could be no factual basis for an award of punitive damages.
Because QBE was not liable for reimbursement of Stanford's allegedly excessive charges, it established entitlement to judgment as a matter of law. As no triable issue of fact was produced by R-N Market, the trial court did not err in granting summary judgment to QBE.
Disposition
The judgment is affirmed.
/s/_________
ELIA, J. WE CONCUR: /s/_________
GREENWOOD, P. J. /s/_________
PREMO, J.