Calhoun Cnty. v. Blue Cross Blue Shield Mich., Docket No. 303274.

• Decision Date: 05 June 2012
• Docket Number: Docket No. 303274.
• Parties: CALHOUN COUNTY v. BLUE CROSS BLUE SHIELD MICHIGAN.
• Court: Court of Appeal of Michigan — District of US

297 Mich.App. 1

824 N.W.2d 202

CALHOUN COUNTY

v.BLUE CROSS BLUE SHIELD MICHIGAN.

Docket No. 303274.

Court of Appeals of Michigan.

Submitted May 2, 2012, at Lansing.

Decided June 5, 2012, at 9:00 a.m.

Giarmarco, Mullins & Horton, P.C., Troy (by William H. Horton and Elizabeth A. Favaro), and Richard C. Lindsey, Jr., Corporation Counsel, Jackson, for plaintiff.

Bodman PLC (by James J. Walsh, Ann Arbor, and Rebecca D'Arcy O'Reilly, Detroit) and Leo A. Nouhan, Detroit, for defendant.

Before: FITZGERALD, P.J., and MURRAY and GLEICHER, JJ.

MURRAY, J.

Defendant Blue Cross and Blue Shield of Michigan appeals as of right a final judgment entered in favor of plaintiff, Calhoun County, in the amount of $1,138,943. Defendant's appeal challenges several preliminaryrulings made by the trial court when deciding the parties' cross-motions for summary disposition, as well as the trial court's denial of defendant's motion to amend its affirmative defenses. We reverse the trial court's order granting plaintiff summary disposition on its breach-of-contract and fiduciary-duty claims and remand for entry of an order granting defendant's motion for summary disposition of those claims.

I. FACTUAL BACKGROUND ¹

This case is one of a series involving defendant and various governmental entities. Calhoun County has for years contracted with defendant to administer its self-insured health care plan. Defendant is governed by various Michigan statutes and is legally obligated to subsidize insurance policies for any Medicare-eligible person who is not a member of a “group.” Defendant internally refers to this subsidy as “other than group” (OTG). Defendant is also required to maintain a contingency fund and ensure that each “line of business” is independently funded. Defendant's self-insurance plan is one “line of business.”

In the late 1980s, defendant separately billed its customers for the cost of the OTG subsidy. Many self-insured customers were dissatisfied with paying the OTG charge; as a result, some customers hired defendant's competitors, while others simply refused to pay the OTG charge. Defendant ultimately decided to merge mandatory business charges such as the OTG charge into the hospital claims for self-insured plans. Thus, the various business charges were no longer “visible” on billing statements, but were instead built into the bill submitted to the customer (after a reduction had already occurred because of defendant's network discounts). According to defendant, these built-in charges were part of an access fee that was structured in part as the cost for access to defendant's hospital network discounts.

II. THE CONTRACT BETWEEN THE PARTIES

Since 1990, plaintiff has contracted with defendant to administer plaintiff's self-insuredhealth care plan. Pursuant to the parties' agreement, plaintiff reimburses defendant on a weekly basis for the medical claims submitted by its employees. This weekly payment includes the costs of actual claims (which, as noted, are initially reduced by defendant's network savings) and some additional fees. The amount of the payment is determined by the parties' administrative services contract (ASC). The ASC is the central contract for the insurance arrangement, and it determines the rights and obligations of each party.

The ASC outlined plaintiff's financial responsibilities as follows:

A. General Obligations.

The Group ² will immediately assume: all risks; all financial obligations, including but not limited to Amounts Billed, court costs, and attorney's fees; and all other liabilities BCBSM may assume or which might otherwise attach with respect to processing Coverage pursuant to this Contract. The Group will make full payment and satisfaction to BCBSM for all amounts resulting from such risks, financial obligations, and liabilities. Group responsibility will not, however, include amounts resulting directly from any negligent processing/payment of claims by BCBSM.

B. Specific Obligations.

The Group will, for each Contract Year, pay BCBSM the total of the following amounts:

1. Amounts Billed during the current Contract Year.

2. The hospital prepayment reflecting the amount BCBSM determines is necessary for its funding of the prospective hospital reimbursement.

3. The actual administrative charge.

4. The group conversion fee.

5. Any late payment charge.

6. Any statutory and/or contractual interest.

7. Stop Loss premiums, if applicable.

8. Cost containment program fee, if applicable.

9. Any other amounts which are the Group's responsibility pursuant to this Contract, including but not limited to risks, obligations or liabilities, deficit amounts relating to previous agreements, and deficit amounts relating to settlements.

The Provider Network Fee, contingency, and any cost transfer subsidies or surcharges ordered by the State Insurance Commissioner as authorized pursuant to 1980 P.A. 350 [MCL 550.1101 et seq.] will be reflected in the hospital claims cost contained in Amounts Billed. [Emphasis added.]

The ASC defined “Amounts Billed” as “the amount the Group owes in accordance with BCBSM's standard operating procedures for payment of Enrollees' claims” and “Provider Network Fee” as “the amount allocated to the Group for the expenses incurred by BCBSM in the establishment, management and maintenance of its participating hospital, physician and other health care provider networks.” The ASC expressly incorporated additional documents, including schedules, and contained a severability clause.

Each year the parties agreed to a new fee for defendant's administrative services, which was typically detailed in a document titled “Schedule A.” The Schedule As included an “administrative charge” and a fee for “excess loss coverage” or “stop-loss coverage.” The 1994 Schedule A also contained the following provision:

8. Effective with your current renewal, your hospital claims cost will reflectcertain charges for provider network access, contingency, and other subsidies as appropriate. [Emphasis added.]

The Schedule As from 1995 to 2006 contained a substantially similar provision, stating either, “Your hospital claims cost reflects certain charges for provider network access, contingency, and other subsidies as appropriate,” or something quite similar, while the 2007 Schedule A contained a more detailed provision acknowledging the agreed-upon fees and charges:

11. A portion of your hospital savings has been retained by BCBSM to cover the ASC Access Fee. The ASC Access Fee covers (a) costs associated with the establishment, management and maintenance of BCBSM's participating hospital, physician and other health provider networks, (b) charges to help maintain BCBSM's surplus at an appropriate level in compliance with regulatory and Blue Cross and Blue Shield Association standards, and (c) cost transfer subsidies or surcharges authorized pursuant to 1980 P.A. 350, such as the group conversion fee and the ‘other than group’ subsidy. [Emphasis added.]

The access fee ³ varied based upon projected business costs. The access fee was a fixed percentage of each hospital claim, and during separate litigation defendant produced a document titled “Development of Access Fee Factors” that purportedly reflected defendant's formula for calculating the access fee.

III. PROCEDURAL HISTORY

Plaintiff's complaint contained two counts alleging breach of contract as well as additional counts alleging breach of fiduciary duty, conversion, and constructive fraud. In general, each of plaintiff's allegations centered on the assertion that the parties had not agreed to a price for the access fee and, even if they had, defendant unilaterally charged excessive fees in violation of the parties' agreement. In particular, with respect to its first breach-of-contract claim, plaintiff alleged that there was no agreement between the parties on the access fee because the lack of a stated price made the term so vague that no contract regarding that fee existed:

19. The contractual relationship between the parties is governed by two documents—the Master Contract and the yearly Schedule A. Plaintiff agreed to pay Defendant an Administrative Fee and Stop Loss Coverage. Plaintiff did not agree to pay Defendant an ASC Access Fee or other fee other than an Administrative Fee and Stop Loss Coverage. To the extent that the Master Contract or Schedule A make reference to charges for “provider network access, contingency and other subsidies as appropriate,” that provision is so vague, uncertain or ambiguous that an enforceable contract does not exist regarding that fee. The amount, price or method to determine the amount or the price is absent. [Emphasis added.]

Plaintiff's second breach-of-contract claim asserted that if there was a contract regarding the fees, defendant violated the covenant of good faith and fair dealing by unilaterally determining the fee, which was unreasonably high.

After initially denying both motions for summary disposition, the trial court held a second hearing just prior to trial to reconsider the competing motions for summary disposition.⁴ The trial court set forth several legal conclusions in support of its decision to grant plaintiff's motion:

And what I've come up with is this: that the Plaintiff's theory in this case is that there is—that the contract between the parties provides for an access fee but provides for an indefinite means of determining what that fee will be. And so in looking at the contract language, it seems to me that there isn't—as a matter of law there is no agreement on what the price term was for the access fee.

And the Plaintiff's counsel has presented a line of cases that indicate in that instance that that part of the contract providing for an access fee is unenforceable, which leads one to the conclusion that the Defendant is not allowed to charge an access fee. They did charge it. And so the only factual issue remaining for the jury is to determine if there was the issue of fraudulent...