Dierkes v. Blue Cross and Blue Shields

• Decision Date: 27 April 1999
• Docket Number: 81236
• Citation: 991 S.W.2d 662
• Parties: This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Robert Eugene Dierkes and Emma H. Dierkes, et al., Appellants, v. Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc., d/b/a Alliance Blue Cross Blue Shield, Respondents. Case Number: 81236 Supreme Court of Missouri Handdown Date: 0
• Court: Missouri Supreme Court

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court

Robert Eugene Dierkes and Emma H. Dierkes, et al., Appellants v Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc., d/b/a Alliance Blue Cross Blue Shield, Respondents

Case Number: 81236

Supreme Court of Missouri

Handdown Date: 04/27/99

Appeal From: Circuit Court of the City of St. Louis, Hon. Robert H. Dierker, Jr.

Counsel for Appellant: Jeffrey J. Lowe, Robert F. Ritter and Jason D. Dodson

Counsel for Respondent: Alan C. Kohn, Robert F. Murray and Jennifer S. Forsythe

Opinion Summary: Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc. (Blue Cross) failed to secure Department of Insurance (DOI) approval before increasing premiums for Medicare supplemental insurance (Medigap), which state regulation based on section 376.874 requires. The DOI later approved the premium increases and executed a settlement agreement with Blue Cross.

Robert Dierkes and his mother, Emma Dierkes, sued Blue Cross in a class action made up of subscribers of non-ERISA Medigap health insurance plans issued by Blue Cross from 1992 to 1994. They alleged breach of contract, unjust enrichment, breach of duty of good faith and fair dealing, misrepresentation, and fraud. The trial court entered summary judgment for Blue Cross. Plaintiffs appeal.

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

Court en banc holds:

1. Res judicata does not bar plaintiffs' action. Plaintiffs' common law claims and the DOI action do not share the required "identity" of a cause of action or requisite identity of parties. The DOI helps to ensure a fair bargain for all Missourians seeking Medicare supplement insurance; it does not enforce individuals' common law claims.

2. The trial court erred in finding that no contractual provision required compliance with the subject state guidelines. Blue Cross represented that its policies met all "state and federal requirements" and that any change in premiums was "subject to all applicable laws and regulations." Its information booklet and descriptive brochure stating likewise are also a part of the insuring agreement. Blue Cross' promise to meet "all" such requirements, laws and regulations necessarily includes section 376.874 and the regulations adopted pursuant to it.

3. The statutory enforcement scheme covering Medicare supplement insurance does not preempt all of plaintiffs' claims. When the legislature has established other means of enforcing its statutes, this Court will not recognize a private civil action for a violation unless such appears by clear implication to have been the legislative intent. Although section 376.874 mandates a reasonable return for policyholders on certain insurance coverage, it vests the DOI with the power to carry out that mandate. The trial court's dismissal of causes of action based solely on the statutory violation is affirmed. But plaintiffs are suing for claims existing independent of the foregoing statute. Section 376.874 does not comprehend and envelop plaintiffs' common law action for breach of contract and other common law actions stated in their petition, although the violation of the statute does constitute part of the basis of those actions. The regulatory scheme established in chapters 374, 375 and 376 does not preempt those common law claims brought by plaintiffs so long as plaintiffs' claims assert more than mere violations of sections 375.934 or 376.874. The trial court's contrary summary judgment that the common law actions are preempted is reversed.

4. Damages for fraud and breach of contract are measured by the "benefit of the bargain" rule. Nominal damages are available where a contract and its breach are established. In fraud cases where the benefit of the bargain rule is inadequate, other measures of damages may be used. The "bargain" here included an unequivocal representation by Blue Cross that changes in premiums would comply with all state guidelines. Damages are easily ascertainable by subtracting the premiums authorized by DOI from the actual premiums paid by the subscribers. Thus, plaintiffs have made at least a prima facie showing of damages. Pursuant to Blue Cross' representations, it was only entitled to charge premiums at rates that have been filed with and approved by DOI, not at rates that it subsequently determines are reasonable. In addition, the evidence to which Blue Cross points in support of its claims that its rate increases were reasonable falls short when viewed in a light most favorable to plaintiffs. Thus, even if one analyzes damages as Blue Cross suggests, a question of fact remains as to whether plaintiffs suffered damages. It is not the premiums' reasonableness but the loss of the benefit of plaintiffs' bargain for lawful premium charges by which damages are measured under their common law claims.

Opinion Author: John C. Holstein, Judge

Opinion Vote: AFFIRMED IN PART; REVERSED IN PART; REMANDED. All concur.

Opinion:

Robert Dierkes and his mother, Emma Dierkes (plaintiffs), brought a class action suit against Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc. (Blue Cross), alleging breach of contract, unjust enrichment, breach of duty of good faith and fair dealing, misrepresentation, and fraud. The action arose out of the failure of Blue Cross to secure state approval of increases in its premium rates for Medicare supplemental insurance (Medigap). The trial court entered summary judgment for Blue Cross. Plaintiffs appealed. Following opinion by the Missouri Court of Appeals, this Court granted transfer. Mo. Const. art. V, section 10. The judgment is reversed in part, affirmed in part and remanded.

I.

Plaintiffs' class is made up of subscribers of non-ERISA Medigap health insurance plans issued by Blue Cross from 1992 to 1994. The Missouri Medicare Supplement Insurance Act (MMSIA) provides in section 376.874:¹

Medicare supplement policies shall return to policyholders benefits which are reasonable in relation to the premium charged. The director shall issue reasonable regulations to establish minimum standards for loss ratios of Medicare supplement policies on the basis of incurred claims experience, or incurred healthcare expenses where coverage is provided by health maintenance organizations on a service rather than reimbursement basis, and earned premiums in accordance with accepted actuarial principles and practices.

Pursuant to this statute, the Missouri Department of Insurance (DOI) promulgated a regulation effective July 30, 1992, providing that no insurance company selling Medicare supplement policies in Missouri can raise premiums without the approval of DOI. That regulation, 20 CSR 400-3.600(12)(B), provides:

An insurer shall not use or charge premium rates for a Medicare supplement policy or certificate unless the ratings, rating schedule and supporting documents have been filed with and approved by the director in accordance with the filing requirements and procedures prescribed by the director.

The regulations further prescribe that no Medigap policy shall be issued unless aggregate benefits are returned to the policyholders in an amount "at least sixty-five percent (65%) of the aggregate amount of premiums earned in the case of individual policies." 20 CSR 400-3.600(11)(A)B.

Blue Cross sold certain Medicare supplement insurance products in Missouri, including what are referred to as prestandardized and standardized plans. Effective January 1, 1993, Blue Cross increased the premiums that it charged for prestandardized Medicare supplement policies. From January 1, 1993, through August 10, 1994, Blue Cross did not obtain approval from the DOI for the rate increase prior to charging the increased premiums for the prestandardized plans. From January 1, 1994, through August 10, 1994, Blue Cross increased premiums for the standardized plans in excess of those previously approved by DOI.

On August 9, 1994, the DOI filed administrative charges against Blue Cross pursuant to section 376.889, RSMo Supp. 1993,² alleging that Blue Cross knowingly changed premium rates for its Medicare supplement policies without first obtaining approval from the DOI, in violation of 20 CSR 400-3.600(12)(B). On the same date, the director issued an order for Blue Cross to cease marketing certain Medicare supplement policies, except at the last approved rates. Immediately thereafter, Blue Cross submitted its premium rate data to the DOI. On August 11, 1994, the director approved the premium rates for all Blue Cross Medicare supplement policies effective August 11, 1994. The director also rescinded his August 9 order.

On September 2, 1994, Blue Cross and the DOI executed a settlement agreement in which Blue Cross promised to pay $1,000,000.00 to the Missouri state school fund. The settlement agreement provided that the dismissal would be with prejudice if the DOI took no legal or administrative action against Blue Cross. On September 15, 1994, the DOI dismissed the charges against Blue Cross.

Plaintiffs then filed their class action in which they allege that Blue Cross illegally raised its premium rates for Medicare supplement insurance without the required approval of the DOI, and that the premiums charged were excessive. In count II of their amended petition, plaintiffs allege that Blue Cross "breached its contract with plaintiffs and plaintiffs' class by increasing rates without state approval, charging plaintiffs rates that did not, in 1992, 1993 and 1994, meet state guidelines." In count III, plaintiffs allege that Blue Cross "raised its rates without state approval and charged plaintiffs and the plaintiffs' class excessive, unauthorized rates" and Blue Cross "was therefore enriched at the expense of plaintiffs and the plaintiffs' class." In count VII, plaintiffs allege that in selling the policies to plaintiffs and the plaintiffs' class, Blue Cross...