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Tanadgusix Corp. v. ARM, Ltd.

United States District Court, D. Alaska

December 19, 2019

TANADGUSIX CORPORATION, et al., Plaintiff,
v.
ARM, LTD., an Illinois corporation, et al., Defendants.

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          Douglas F. Strandberg, Law Office of Douglas F. Strandberg, P.S., Friday Harbor, WA, Laura Dulic, Thomas V. Wang, Jr., Ashburn & Mason, P.C., Natalie A.

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Cale, Holmes Weddle & Barcott, PC, Anchorage, AK, for Plaintiff.

          Steven Richard Rogovin, Pro Hac Vice, Meltzer, Purtill & Stelle LLC, Chicago, IL, Thomas A. Larkin, Stewart, Sokol & Larkin LLC, Portland, OR, Daniel T. Quinn, Richmond & Quinn, Brewster H. Jamieson, Lane Powell LLC, Anchorage, AK, Dennis G. Rolstad, Pro Hac Vice, Hinshaw & Culbertson LLP, San Francisco, CA, Ryan P. McBride, Pro Hac Vice, Seattle, WA, for Defendants.

         ORDER

         Motion to Dismiss; Motion for Partial Summary Judgment

         H. Russel Holland, United States District Judge.

         Defendant Unimerica Insurance Company moves to dismiss the claims plaintiffs have asserted against it.[1] This motion is opposed.[2] Also pending in this case is plaintiffs' motion for partial summary judgment.[3] This motion is opposed.[4] Oral argument has been heard on both motions.

         Background[5]

         Plaintiffs are Tanadgusix Corporation ("TDX"), Ron Philemonoff, Jeanette Matthews, Robert Dean Hughes, Benjamin English, Larry Cooper, and John Lyons. The individual plaintiffs are trustees of the Tanadgusix Corporation Health and Welfare Trust. Defendants are ARM, Ltd., Hines & Associates, Inc., and Unimerica Insurance Company.

         Plaintiffs allege that "TDX and the Trust have established an Employee Health Plan (`the Plan') for employees of TDX and its subsidiaries, and qualifying Directors of TDX."[6] Plaintiffs allege that "on June 1, 2005, Bering Sea Eccotech, Inc., a wholly owned TDX subsidiary, as original Plan Sponsor, entered into an Administrative Services Agreement with ARM ... as Contract Administrator, to provide administrative services to the Plan, including, but not limited to the processing and payment of benefits in accordance with the Plan."[7] Plaintiffs allege that "[s]ubsequently, TDX took over as Plan Sponsor, and at all times relevant was the Plan Sponsor."[8]

         Plaintiffs allege that "in 2014, a dependent (`Patient') of an employee of TDX Power, a TDX subsidiary, was diagnosed with [the] rare disease of paroxysmal nocturnal hemoglobinuria."[9] Plaintiffs allege that it was determined "that it was medically necessary to treat the Patient with infusions of a drug named Soliris[,]" which was "reputed to be the most expensive drug in the world."[10] The Patient was treated "at Scott & White Hospital in Waco, Texas (`Hospital'), where the Patient's mother worked."[11]

         Plaintiffs allege that "[t]he Hospital is a Participating Provider in an Aetna network, whereby the Hospital, through an agreement with Aetna (`Hospital Agreement') allegedly provides discounted rates for services to patients if they are part of a

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health plan that can access these rates through the Aetna network."[12] Plaintiffs allege that "ARM ... had a contract with Aetna ... which allowed it to access this Aetna network for a fee, purportedly giving TDX Plan members, including the Patient, the opportunity to obtain discounted rates."[13]

         Plaintiffs allege that "ARM initially hired or associated with Defendant Hines & Associates, Inc. (`Hines') to review the cost of Soliris and provide medical case management of the Patient on behalf of ARM and the Trust."[14] Plaintiffs allege that "[t]he Hines case manager claims she contacted the Hospital and obtained a cost quote of $12,200 per 600mg infusion and $18,200 per 900 mg fusion...."[15] Plaintiffs allege that "[t]he Hines employee failed to document this alleged oral quote, but passed the alleged quote information on to ARM."[16]

         Plaintiffs allege, however, that in 2014, the Hospital billed $35,956 for an infusion and then $51,934, "for which the Hospital expected payment of $21,573.60 and $32,360.40 respectively (60% of amount billed)[.]"[17] Plaintiffs allege that rather than paying what the Hospital was billing, "ARM continued to reprice each Hospital claim and had the Trust pay a much-reduced amount solely based on an alleged single oral quote from the Hospital to ARM via Hines, which quote the Hospital denies even providing."[18]

         Plaintiffs allege that "[i]n February of 2017, three of the Trustees of the Trust, TDX Power, Inc., ... along with ARM and the ARM network provider ... were sued by the Hospital" in Texas.[19] Plaintiffs allege that the Hospital was seeking "$1,765,482.12 for underpayment of forty-six claims[.]"[20]

         Plaintiffs allege that the Trust first obtained stop-loss insurance from Unimerica in 2016 and that the Trust had a stop-loss insurance policy with Unimerica through the end of December 2018.[21] Although Unimerica was not the Trust's stop-loss insurer in 2015, the Unimerica Policy provides "that the Benefit Period was `Covered Expenses Incurred from January 1, 2015 through December 31, 2018...."[22] Thus, plaintiffs allege that "Unimerica agreed to pay claims from 2015 that were submitted to it during the extended Benefit Period for which TDX paid an increased premium to Unimerica."[23] Plaintiffs allege that the Policy set a specific deductible for the Patient of $450,000.[24]

         Plaintiffs allege that "[d]uring both 2016 and 2017 the Patient's medical treatment at the Hospital exceeded the Patient's $450,000 deductible under the Unimerica Policy and ARM submitted the excess Hospital claims to Unimerica, which paid the excess pursuant to its Policy with TDX."[25]

         Plaintiffs allege that in November 2017, ARM was terminated as the plan administrator

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and the Trust "retained Professional Benefit Services, Inc. (`PBS') to [a]dminister claims under the TDX Plan."[26] Plaintiffs allege that starting in November 2017 "and continuing into 2018, PBS utilized a preferred health care provider network that had a contract with the Hospital, and pursuant to the agreements, the Hospital was paid at the 60% of the Hospital contract rate for Patient treatment in late 2017 and 2018."[27] Plaintiffs allege that "[a]s a result, the Hospital ha[d] no underpayment claims for 2018, but the Patient exceeded her $450,000 deductible ... and the excess claim was submitted to Unimerica for payment, which payment Unimerica processed without complaint or modification at the time."[28]

         Plaintiffs allege that "[o]n August 6, 2018, the Trustees provided Unimerica with a Scott & White summary sheet of underpayment claims by year."[29] Plaintiffs allege that according to the summary sheet, "Unimerica would owe at least $1,628,835.92 toward the unpaid Hospital claims."[30] Specifically, this summary sheet showed that the Hospital claimed the underpayment for 2015 was $503,489.11; $548,818.61 for 2016; and $576,528.20" for 2017.[31] Plaintiffs allege that "[b]ecause TDX and the Trust believed that Unimerica owed any underpayments to the Hospital, TDX and the Trust requested that Unimerica attend a mediation of all Parties in the Hospital Litigation...."[32]

         Plaintiffs allege that "[o]n August 31, 2018 the United States Magistrate Judge in the Hospital Litigation issued a Report and Recommendation to the United States District Judge in which he found, in part, that ARM ... had breached" its agreements with plaintiffs "by processing and repricing the Hospital claims at less than the contractually agreed upon rate of 60% of the billed charge."[33]

         Plaintiffs allege that "[t]he mediation of the Hospital Lawsuit took place ... on September 19, 2018 without the participation of Unimerica or the Aetna entities."[34] Plaintiffs allege that "[a]t the mediation TDX and the Trust, along with ARM, reached a tentative settlement with the Hospital entirely contingent on Unimerica participating in a final settlement to pay at least $1,500,000 for the underpaid Hospital claims."[35] Plaintiffs allege that "TDX and the Trust agreed to have the Hospital claims re-adjudicated in accordance with the Magistrate's decision and in accordance with the TDX Plan Document and Unimerica Policy."[36]

         Plaintiffs allege that "[i]n addition to the Hospital claims, in 2018 the Patient underwent surgery at Texas Children's Hospital, and Texas Children's Hospital has submitted claims to be paid under the TDX Plan in an amount in excess of $2,000,000.00."[37]

         Plaintiffs allege that on November 12, 2018, the "repriced" Hospital claims for the Patient's treatment in 2015, 2016, and 2017 were submitted to Unimerica.[38] In

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addition, "the Hospital claims for 2018 and all of the Children's Hospital claims" were submitted to Unimerica "because the Patient had already exceeded the Patient's Specific Deductible of $450,000 for 2018."[39]

         Plaintiffs allege that Unimerica responded to these claims on January 4, 2019.[40] Plaintiffs allege that in the January 4, 2019 letter, "Unimerica ... purported to exercise its rights under the Policy provision Paragraph titled `Misstated Data, Concealment, Fraud' to unilaterally, without any prior notice to TDX and the Trust, retroactively change the terms and conditions of the Policy."[41] In the January 4, 2019 letter, Unimerica stated that in October 2015, ARM had provided it with "claim data [that] showed that [the Patient] was receiving Soliris once every two weeks at a cost of $24,400 per treatment."[42] Unimerica stated that "[r]elying on this data, [it] estimated that, as of August 31, 2015, the total year-to-date spend for [the Patient's] Soliris treatment was $564,000, totaling approximately $745,000 per year."[43] Unimerica further stated that its "underwriting team used and relied on the ARM reports[] to determine whether to quote, issue a policy and to establish appropriate terms and conditions, in accordance with industry standards."[44] Based on the alleged misrepresentation about the cost of Soliris treatment, Unimerica changed the deductible for the Patient for the years 2016-2018 to $1,050,000 and excluded any claims incurred in 2015.[45]

         Plaintiffs allege that on January 28, 2019, Unimerica provided "an Explanation of Benefits (`EOB') for [the] Patient's claims that had been submitted on November 12, 2018."[46] Unimerica paid $2,106,362.63 of the claims but denied $2,212,086.67 of the claims.[47]

         In their second amended complaint, plaintiffs assert a breach of contract claim (Count XII), a bad faith claim (Count XIII), a claim for punitive damages (Count XIV), a UTPA claim (Count XV), and a claim for declaratory judgment (Count XVI) against Unimerica. Plaintiffs seek a declaration

that Unimerica: (a) did not have the right to unilaterally modify and reform the Unimerica Policy; (b) if Unimerica had the right to unilaterally modify and reform the Unimerica Policy, it did so in a manner to make the Policy illusory, unenforceable, and non-binding on TDX and the Trust with respect to the purported unilateral changes by Unimerica; and (c) TDX and the Trust can enforce the Unimerica Policy as issued without the Unimerica changes.[[48] ]

         Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, Unimerica now moves to dismiss all of plaintiffs' claims asserted against it. And, plaintiffs move for summary judgment on their breach of contract and declaratory judgment claims on the grounds that Unimerica's conduct violated AS 21.54.010 and AS 21.51.050.

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         Discussion

         "`To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). "A claim is facially plausible `when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). "The plausibility standard requires more than the sheer possibility or conceivability that a defendant has acted unlawfully." Id. "`Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). "[T]he complaint must provide `more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" In re Rigel Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869, 875 (9th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "In evaluating a Rule 12(b)(6) motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the light most favorable to the plaintiff." Adams v. U.S. Forest Srvc., 671 F.3d 1138, 1142-43 (9th Cir. 2012). "A dismissal under rule 12(b)(6) `may be based on either a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.'" Kwan v. SanMedica Int'l, 854 F.3d 1088, 1093 (9th Cir. 2017) (quoting Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008)).

         Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The initial burden is on the moving party to show that there is an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets its initial burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding a motion for summary judgment, the court views the evidence of the non-movant in the light most favorable to that party, and all justifiable inferences are also to be drawn in its favor. Id. at 255, 106 S.Ct. 2505.

         breach of contract and declaratory judgment claims

         Plaintiffs' breach of contract and declaratory judgment claims hinge on the question of whether Unimerica could retroactively eliminate coverage for the 2015 claims and raise the deductible for the Patient for 2016-2018. Unimerica argues that these claims are not plausible because it had the right to retroactively adjust the Policy under the terms of the Misrepresentation Clause. Unimerica contends that its adjustments to the Policy were permitted by the unambiguous terms of the Policy and plaintiffs' reasonable expectations. Plaintiffs, on the other hand, move for summary judgment on these claims, arguing that Unimerica's unilateral adjustment of the terms of the Policy violated AS 21.54.010 and AS 21.51.050.

         We begin with the question of whether plaintiff's breach of contract and declaratory judgment claims are plausible, which requires the court to construe the Misrepresentation Clause. "Alaska has adopted the doctrine of reasonable expectations."

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West v. Umialik Ins. Co., 8 P.3d 1135, 1138 (Alaska 2000). "`The obligations of insurers are generally determined by the terms of their policies.'" Id. (quoting Bering Strait Sch. Dist. v. RLI Ins. Co., 873 P.2d 1292, 1294 (Alaska 1994)). "But because insurance policies are contracts of adhesion, they are construed according to the principle of `reasonable expectations.'" Id. (quoting Bering Strait Sch. Dist., 873 P.2d at 1294). "Under the reasonable expectations doctrine, [t]he objectively reasonable expectations of applicants ... regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." Id. (citation omitted). "It is a settled principle that ambiguities in an insurance policy are construed in favor of the insured." Id. "The court need not find the policy ambiguous, however, to construe it under the reasonable expectations doctrine." Id. "To determine the parties' reasonable expectations, the court examines (1) the language of the disputed policy provisions; (2) the language of other provisions in the same policy; (3) extrinsic evidence; and (4) case law interpreting similar provisions." Id.

         The Misrepresentation Clause provided:

The Company has relied on the information provided by the Policyholder, the Administrator or any agent of the Policyholder, in the issuance of this Policy, or for any Subsequent Policy Period. In the event of a misrepresentation, concealment or omission of a fact, or a mistake of fact (whether or not a mutual mistake), any of which materially affect the underwriting, premium, rating or terms and conditions of this Policy, the Company may, at its option:
a) increase premium rates, attachment points and/or otherwise change the terms and conditions of this Policy. Such increase or change to be effective retroactively to the Effective Date ...

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