American Health Care Providers, Inc. v. O'Brien

• Decision Date: 31 October 1994
• Docket Number: No. 93-1406,93-1406
• Citation: American Health Care Providers, Inc. v. O'Brien, 886 S.W.2d 588, 318 Ark. 438 (Ark. 1994)
• Parties: AMERICAN HEALTH CARE PROVIDERS, INC., Appellant, v. Michael U. O'BRIEN and Carla O'Brien, Appellees.
• Court: Arkansas Supreme Court

Page 588

886 S.W.2d 588

318 Ark. 438

AMERICAN HEALTH CARE PROVIDERS, INC., Appellant, v. Michael U. O'BRIEN and Carla O'Brien, Appellees.

No. 93-1406.

Supreme Court of Arkansas.

Oct. 31, 1994.

Sam Sexton, Jr., Michael P. Bradley, Fort Smith, for appellant.

David Hodges, Little Rock, Jefferson Faught, Russellville, for appellees.

NEWBERN, Justice.

Michael U. O'Brien and Carla O'Brien, who are husband and wife, sued American Health Care Providers, Inc., (AHCP), claiming breach of contract and the tort of bad faith. The O'Briens claimed that AHCP, a health maintenance organization, had breached its agreement to pay health care benefits incurred by the O'Briens and their three children.

The Trial Court directed a verdict in favor of AHCP on the bad faith claim but allowed the breach of contract claim to be decided by a jury which awarded $10,427.98 to Carla O'Brien. Judgment was entered for that amount plus fees of $5000 and $1250, respectively, to the two attorneys representing the O'Briens. AHCP appeals from the judgment in favor of Ms. O'Brien and from the refusal of the Trial Court to grant a new trial. The O'Briens cross-appeal from the directed verdict on their bad faith claim. In its appeal, AHCP states a number of points, one of which has merit. We must reverse the judgment due to insufficient evidence in support of it. In view of our reversal of the damages award, we also reverse the attorney's fee award. Brookside Village Mobile Homes v. Meyers, 301 Ark. 139, 782 S.W.2d 365 (1990). On the cross-appeal, we affirm.

On April 1, 1987, Maxicare Arkansas, Inc., contracted with the City of Ozark to provide HMO health care protection to the employees of the City of Ozark on a year to year basis. On October 1, 1988, AHCP acquired the assets and liabilities of Maxicare and continued to provide HMO health care protection.

As employees of the City of Ozark, Carla and Michael O'Brien began coverage under the group contract in 1989. They were each issued a member identification card to be presented to the health care providers when medical services were received. On each card there was a membership identification number.

In May 1989 Carla was diagnosed as having breast cancer. Medical services covered by the contract were provided to her and paid for by AHCP. On April 30, 1991, AHCP terminated the group contract with the City because there were fewer than 10 employees in the covered group. Michael O'Brien applied to AHCP to convert his membership from the AHCP City of Ozark Plan to an AHCP individual HMO membership which would provide health care to him and members of his family. His application was accepted by AHCP, and the family thus remained in an AHCP HMO although under terms different from the city plan.

After cancellation of the city group contract as of April 30, 1991, and the conversion to the individual contract, the O'Briens were assigned a new AHCP identification number. There is conflicting evidence as to whether the O'Briens received a new membership card with their new identification number.

The O'Briens experienced difficulty in getting various medical bills paid by AHCP. Pharmacy bills, which had been covered under the group plan but which were not covered under the individual plan, were submitted but not paid. The O'Briens received notice that some other claims were not being paid by AHCP because their coverage had ceased April 30, 1991, the date the group coverage was terminated. Other notices were received to the effect that claims were not being honored because the O'Briens had not received a referral from their primary care physician as required by AHCP.

In April 1992 the O'Briens brought the action which underlies this appeal and cross-appeal. AHCP moved to dismiss the bad faith claim on the basis that HMOs are not insurance companies and are not subject to the tort of bad faith. The motion was denied. AHCP moved for summary judgment supported by an affidavit and company records showing that it had paid all claims covered by the agreement. That motion was also denied, and the case proceeded to trial.

1. Bad faith

We are confronted at the outset with AHCP's contention that an HMO is not the same as an insurer and is thus not capable of the tort of bad faith. We have thus far limited the tort of bad faith to insurers, Quinn Cos. v. Herring-Marathon Group, Inc., 299 Ark. 431, 773 S.W.2d 94 (1989); Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1983), and we have said that an HMO is different from an insurer, at least to the extent that HMOs are not governed by the general provisions of the Arkansas Insurance Code. HMO Arkansas, Inc. v. Dunn, 310 Ark. 762, 840 S.W.2d 804 (1992).

But whether an HMO should be subjected to liability for bad faith refusal to pay claims, as insurers are, is a question we need not answer in this case because the Trial Court properly found there was no evidence of bad faith as we have described the tort. In Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1983), we summarized some previous cases recognizing the tort of bad faith and described it as follows:

[A] liability insurance company can be held accountable in tort for failure to settle a claim within the policy limits.... [A] claim based on the tort of bad faith must include affirmative misconduct by the insurance company, without a good faith defense, and that the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy. Such a claim cannot be based upon good faith denial, offers to compromise a claim or for other honest errors of judgment by the insurer. Neither can this type claim be based upon negligence or bad judgment so long as the insurer is acting in good faith.... [I]n an action of this type for tort, actual malice is that state of mind under which a person's conduct is characterized by hatred, ill will or a spirit of revenge. Actual malice may be inferred from conduct and surrounding circumstances.

Although the O'Briens list 63 instances of alleged wrongdoing on the part of AHCP, which we will not repeat because to do so would unduly lengthen this opinion, none of them rises to the level of bad faith. The most serious of the allegations, in our view, is that AHCP treated Carla O'Brien well when she was healthy but gave the O'Briens trouble in paying their claims after she was diagnosed as having cancer. The evidence was, however, that AHCP paid many of her medical expenses after Carla O'Brien had been diagnosed as having cancer. While it seems strange that it took a long time to straighten it out, the evidence shows that many, if not most, of the problems were the result of the changed identification number.

Other allegations include statements that AHCP improperly refused payment for an emergency room visit on the ground that there had been no true "emergency," failure to provide the O'Briens with a copy of the "policy" covering them, failure to honor claims because of lack of proper referral by a primary health care physician, and "dumping" Carla O'Brien on Medicare when she became eligible for that program.

We have no doubt that the O'Briens were subjected to a nightmarish red tape experience at a time when their family's financial and emotional resources were heavily taxed by Mrs. O'Brien's serious illness. We cannot say, however, that the conduct of AHCP amounted to "bad faith" as we have defined it. There was obvious confusion caused by the change in identification numbers. Equally obvious was confusion on the part of the O'Briens and AHCP over the referral process, given the need for involvement of doctors of various specialties after Mrs. O'Brien underwent mastectomies. As far as we can tell, however, the closest an AHCP employee came to demonstrating any malice was when, after numerous inquiries, an employee told Carla O'Brien that the company required higher premiums from them after the cancellation of the group plan and that was "just the way it was,"...