Aultman Hosp. Ass'n v. Community Mut. Ins. Co.

• Decision Date: 11 October 1989
• Docket Number: No. 88-1221,88-1221
• Citation: 46 Ohio St.3d 51,544 N.E.2d 920
• Parties: AULTMAN HOSPITAL ASSOCIATION et al., Appellees, v. Hospital Care Corporation, Appellant.
• Court: Ohio Supreme Court

Page 51

46 Ohio St.3d 51

544 N.E.2d 920

AULTMAN HOSPITAL ASSOCIATION et al., Appellees, v. [COMMUNITY MUTUAL INSURANCE COMPANY, f.k.a.] Hospital Care Corporation, Appellant.

No. 88-1221.

Supreme Court of Ohio.

Submitted May 31, 1989.

Decided Oct. 11, 1989.

Syllabus by the Court

Where the parties following negotiation make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides.

In 1938 a group of Stark County-area hospitals entered into a contractual agreement with a predecessor of Community Mutual Insurance Company ("Blue Cross") to provide medical services to subscribers who were issued service contracts by Blue Cross. Under the terms of the contract between the hospitals and Blue Cross, the hospitals billed Blue Cross directly for the services rendered to Blue Cross subscribers. Because the hospitals were assured of payment by Blue Cross, the hospitals billed Blue Cross at a discounted rate for services to those subscribers.

The parties entered into a new agreement effective January 1, 1959, entitled "Stark County Inter-Hospital Agency Agreement." The definitions section of this agreement (Article I) provides, in part, as follows:

"4. The term 'Subscriber' is defined to mean any person to whom or for whose benefit Blue Cross has or shall issued [sic ] a Service Contract. Provided, however, that in no case shall maternity benefits be paid by Blue Cross except for the contract holder or his spouse.

"6. The term 'Service Contract' is defined to mean any contract that Blue Cross is authorized, pursuant to any provision of this agreement, to issue to or for the benefit of subscribers for hospital service."

The 1959 agreement was amended in 1976. As a result, Article III of the 1959 agreement was amended to read as follows:

" * * * [Blue Cross], subject to the applicable provisions of Chapter 1739 of the Revised Code, may issue to subscribers from time to time service or indemnity contracts or amendments to existing contracts as the * * * [Blue Cross] Board of Trustees may authorize; provided, however, that no such contract or amendment shall require the hospital to provide services of a different or additional nature from those which it now provides. * * * "

The 1976 amendment contains the following additional language:

"The participating hospitals signing this agreement hereby agree to all of the foregoing deletions, changes and amendments to the agreement between * * * [Blue Cross], and the undersigned participating hospitals and agree that all the provisions of the agreement heretofore executed by * * * [Blue Cross], and the undersigned participating hospitals, as the same has been amended prior to this agreement and as hereby amended by this agreement, shall constitute the entire contract between * * * [Blue Cross] and the undersigned participating hospitals on and after the [1st] day of [July], 1976."

The present dispute concerns whether the 1959 agreement, as amended in 1976, limits Blue Cross to issue only "traditional" subscriber contracts, as contended by the plaintiff hospitals, or to issue "traditional" and "nontraditional" subscriber contracts, as contended by defendant Blue Cross.

Under the traditional plan, Blue Cross charges the subscribers a set premium and makes payments to the hospitals pursuant to a discounted billing system.

Under the nontraditional plan, Blue Cross issues a number of group service contracts, which allow members of the subscribing groups to receive the same services from the hospitals as other Blue Cross subscribers. However, Blue Cross is paid on a "cost plus" basis by the subscriber groups for services rendered by the hospitals to group members. The subscriber groups, unlike the traditional Blue Cross subscribers, pay no premium to Blue Cross for their coverage. Blue Cross makes payments to the hospitals pursuant to the same discounted billing system used in the traditional plan.

In 1984, the plaintiff hospitals, Aultman Hospital Association, Massillon Community Hospital and Timken Mercy Medical Center, filed a complaint for declaratory relief and an accounting in the Court of Common Pleas of Stark County, contending that the 1959 and 1976 agreements with Blue Cross do not provide for the issuance by Blue Cross of nontraditional service contracts. In subsequent pleadings and arguments, plaintiffs contended that Blue Cross exposed them to financial risk by not collecting premiums from the nontraditional subscriber groups and therefore Blue Cross should not have been billed at a discounted rate for services rendered to those subscriber groups. Plaintiffs further argued that the 1959 and 1976 contracts limit Blue Cross's authority to issue only traditional service contracts, under which the subscribers pay Blue Cross set premiums. Blue Cross, they alleged, unilaterally extended the terms of the contract in a way never intended or authorized and, under quantum meruit, must compensate them for the value of the unauthorized benefits (discounts) received.

The trial court essentially determined that the term "service contract[s]" as defined in the 1959 agreement actually meant "authorized service contracts" and that the nontraditional service contracts were not authorized by the parties' agreement. The court further determined that Blue Cross was unjustly enriched by the discount provided by the hospitals to Blue Cross for medical services to the nontraditional subscribers. It granted declaratory relief to the hospitals by limiting the contract to the issuance of traditional service contracts and ordered an accounting for the discounts received by Blue Cross pursuant to the nontraditional subscriber service contracts. The court concluded that the appropriate measure of damages was to be determined on a quantum meruit basis.

On appeal, a majority of the court of appeals affirmed, holding that the terms "subscriber" and "service contract" as used in the 1959 contract are circular and thus ambiguous, leading to the inference that there may be limitations on the type of service contracts Blue Cross may issue. It indicated that the trial court properly allowed extrinsic evidence to explain terms of the contract.

The court also essentially held that the nontraditional subscriber agreements were beyond the reach of the discount agreement between the parties and that the parties' written contract did not contemplate nontraditional service agreements. Thus, the court held that Blue Cross breached the agreement with the hospitals when it paid the discounted rate to the hospitals for services provided to the nontraditional subscribers. The hospitals, it held, are entitled to recover in quasi-contract under the doctrine of quantum meruit. Like the trial court, it indicated that the discount rate offered to Blue Cross by the hospitals was only applicable to traditional subscribers and that Blue Cross was unjustly enriched by the difference between the nondiscount rate which it should have paid for services to the nontraditional subscribers and the amount it paid under the discount rate formula. Ostensibly relying on the decision in Aluminum Co. of America v. Essex Group, Inc. (W.D.Pa.1980), 499 F.Supp. 53, reforming a long-term service contract due to impracticality, the court indicated that due to the "unforeseen market forces of deregulation and increased competition," the hospitals stand to lose significant amounts of money in the absence of judicial intervention.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Verner, Liipfert, Bernhard, McPherson & Hand, Chartered and Douglas J. Colton, pro hac vice, for appellees.

Taft, Stettinius & Hollister, W. Stuart Dornette and James E. Britain, Thomas B. Bassler, Cincinnati, Vorys, Sater, Seymour & Pease, Michael J. Canter and James C. Becker...