Byorth v. USAA Cas. Ins. Co.

• Decision Date: 22 November 2016
• Docket Number: DA 16-0013
• Citation: 384 P.3d 455,2016 MT 302,385 Mont. 396
• Parties: Peter Byorth and Ann McKean, on behalf of themselves and all those similarly situated, Plaintiffs and Appellees, v. USAA Casualty Insurance Company, and John Does I–X, Defendants and Appellants.
• Court: Montana Supreme Court

385 Mont. 396

384 P.3d 455

2016 MT 302

Peter Byorth and Ann McKean, on behalf of themselves and all those similarly situated, Plaintiffs and Appellees,

v.USAA Casualty Insurance Company, and John Does I–X, Defendants and Appellants.

DA 16-0013

Supreme Court of Montana.

Submitted on Briefs: August 24, 2016

Decided: November 22, 2016

For Appellants: Ian McIntosh, Kelsey E. Bunkers, Crowley Fleck, PLLP, Bozeman, Montana, Jessica G. Scott, Wheeler Trigg O'Donnell LLP, Denver, Colorado.

For Appellees: John Heenan, Colette B. Davies, Bishop & Heenan, Billings, Montana.

Justice Patricia Cotter delivered the Opinion of the Court.

¶ 1 USAA Casualty Insurance Company (USAA) appeals from an order of the Thirteenth Judicial District Court in Yellowstone County certifying a class action pursuant to M. R. Civ. P. 23. We reverse the order of the District Court and remand for further proceedings.

ISSUES

¶ 2 The question on appeal is whether the District Court abused its discretion in certifying the class pursuant to M. R. Civ. P. 23. Following the structure of Rule 23, we divide this question into two issues:

1. Did the District Court abuse its discretion in certifying the class under M. R. Civ. P. 23(a) ?

2. Did the District Court abuse its discretion in certifying the class under M. R. Civ. P. 23(b)(3) ?

BACKGROUND

¶ 3 In September 2011, Peter Byorth was struck by a motor vehicle while riding his bicycle. He was insured at the time by USAA under an auto insurance policy that provided $10,000 in medical payment coverage. Byorth submitted medical payment claims totaling $85,000, which USAA then sent to Auto Injury Solutions (AIS) for review. Due to an alleged coding error in the paperwork AIS required Byorth's physician to complete, USAA initially denied Byorth's claims as medically unnecessary. However, USAA eventually paid policy limits to Byorth.

¶ 4 Ann McKean was also insured under a USAA auto insurance policy that provided medical payments coverage. In February 2014, McKean was injured in a motor vehicle accident and incurred damages far greater than her policy limits. McKean submitted her medical bills to USAA, and USAA forwarded them to AIS for review. AIS allegedly determined several procedures McKean underwent were not medically necessary, and USAA subsequently denied coverage.

¶ 5 On April 24, 2015, Byorth and McKean filed a complaint against USAA alleging breach of fiduciary duties, breach of contract, and violations of the Unfair Trade Practices Act, § 33–18–201, MCA (UTPA). Plaintiffs argued USAA's practice of sending medical claims to AIS was “an improper cost containment scheme designed to wrongfully deprive Montana consumers of their first-party medical pay benefits.” Plaintiffs sought to recover actual and punitive damages and to enjoin USAA from submitting future claims to AIS for review.

¶ 6 On June 11, 2015, USAA removed the matter to federal court. While the case was before the federal court, USAA filed its answer, wherein USAA denied all allegations relating to AIS's role in adjusting medical claims. The federal court ultimately determined that it lacked subject matter jurisdiction, and the case returned to the District Court. On November 19, 2015, Plaintiffs filed a motion to certify the proposed class. Six days later, USAA filed a motion to strike the class allegations from Plaintiff's complaint. On December 15, 2015, USAA filed its response in opposition to certification. The District Court issued its order certifying the class two weeks later, on December 29.

¶ 7 Plaintiffs' motion and brief in support of class certification recited many of the allegations of their complaint. In its motion to strike the class allegations from the complaint, USAA argued that the class was unascertainable, that individual issues predominated over common issues, and that a class action was not the superior method of litigation. USAA reasoned that no amount of discovery would ever show that Plaintiffs' class could overcome these deficiencies and satisfy the requirements of Rule 23.

¶ 8 In response to USAA's motion to strike, Plaintiffs repeated their allegations regarding AIS's role in reviewing medical claims. To support these allegations, Plaintiffs appended two exhibits to their brief. First, Plaintiffs provided an August 6, 2009, National Association of Insurance Commissioners (NAIC) memorandum (hereinafter the NAIC memo) discussing the status of Horton v. USAA Casualty Ins. Co. , No. CV–06–02810–PHX–DGC (D. Ariz.), a class action alleging USAA relied on AIS payment recommendations to pay less than the full amount owed on medical claims. Plaintiffs also provided an excerpt from a proposed settlement agreement dated May 27, 2008, wherein USAA denied the Horton class allegations but stipulated to a class for settlement purposes. The NAIC memo indicates the parties were scheduled to file an amended settlement agreement by November 6, 2009. Plaintiffs did not provide evidence of a final settlement in Horton .

¶ 9 Second, Plaintiffs provided the District Court with an undated excerpt from a Washington Superior Court's order approving a class settlement in MySpine, PS v. USAA Casualty Ins. Co. , No. 12–2–32635–5 SEA (Wash. Super. Ct.). The settlement class in MySpine included USAA insureds who had medical claim payments reduced due to certain “Reason Codes.” The excerpt does not mention AIS, nor does it explain what a “Reason Code” is or if the codes were used erroneously.

¶ 10 In its December 15 brief in opposition to class certification, USAA provided medical payment logs for Byorth and McKean and the results of an AIS review of one of McKean's claims. The payment logs list the dates USAA received claims from Byorth and McKean, as well as the dates USAA issued payments under the respective insurance policies. The logs indicate USAA did not pay many of the claims submitted, but they do not include any reason for the denials. The AIS review relates to coverage of an MRI McKean received. The review is signed by a physician who reviewed documentation submitted with the claim and concluded the MRI was “medically reasonable or necessary.” The physician therefore recommended payment of the claim.

¶ 11 The District Court's certification order concluded that “all members of the proposed class, including Byorth and McKean, were subject to the same claims processing procedure of outsourcing claims to AIS.” Thus, the common question for the class was “[w]hether or not USAA violated Montana law with respect to its med-pay claims handling practices.” The District Court reasoned that although additional litigation may be needed to determine each class member's damages, the threshold question of unfair trade practices could be resolved in a single stroke. The District Court therefore certified the class as follows:

Under Mont. R. Civ. P. 23(b)(3) the Court certifies the following class: (a) all Montana consumers who (b) were insured by USAA for med pay benefits and (c) who submitted a claim for med pay benefits from April 2007 to April 2015, and (d) had their claim denied in whole or in part following a “file review” by AIS or because of an asserted “coding error.”

¶ 12 The District Court analyzed each of the four elements of Rule 23(a), but did not explicitly address the requirements of Rule 23(b)(3). USAA promptly appealed from the certification order in accordance with Rule 23(f).

STANDARD OF REVIEW

¶ 13 We review a district court's decision on a motion for class certification for an abuse of discretion. Sangwin v. State , 2013 MT 373, ¶ 10, 373 Mont. 131, 315 P.3d 279 (citing Chipman v. N.W. Healthcare Corp. , 2012 MT 242, ¶ 17, 366 Mont. 450, 288 P.3d 193 ). The question is not whether this Court would have reached the same decision, but whether the District Court acted arbitrarily without conscientious judgment or exceeded the bounds of reason. Sangwin , ¶ 10 (citing Chipman , ¶ 17 ). We afford trial courts the broadest discretion because they are “ ‘in the best position to consider the most fair and efficient procedure for conducting any given litigation.’ ” Sangwin , ¶ 10 (quoting Jacobsen v. Allstate Ins. Co. , 2013 MT 244, ¶ 25, 371 Mont. 393, 310 P.3d 452 ). Certification orders are usually made in the early stages of litigation, when discovery is still underway and facts are disputed. Because of this timing, and the trial court's power to modify a class after certification pursuant to Rule 23(c)(1)(C), we are generally reluctant to supplant the trial court's certification decision. Diaz v. State , 2013 MT 219, ¶ 20, 371 Mont. 214, 308 P.3d 38 (Diaz II ). A district court's interpretation of procedural rules, like Rule 23, is a matter of law that we review de novo for correctness. See In re Estate of Strange , 2008 MT 158, ¶ 6, 343 Mont. 296, 184 P.3d 1029.

DISCUSSION

¶ 14 1. Did the District Court abuse its discretion in certifying the class under M. R. Civ. P. 23(a) ?

¶ 15 Rule 23(a) establishes four prerequisites to class certification:

One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

M. R. Civ. P. 23(a). These four prerequisites are respectively known as numerosity, commonality, typicality, and adequacy of representation. The absence of any one prerequisite is fatal to certification. Jacobsen , ¶ 28 (citing Chipman , ¶ 43 ). These prerequisites “ ‘ensure[ ] that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate’ and ‘effectively limit the class claims to those fairly encompassed by the named plaintiff's claims.’ ” Mattson v. Mont. Power Co. , 2012 MT 318, ¶ 18, 368 Mont. 1, 291 P.3d 1209 (Mattson...