Haisch v. Allstate Ins. Co.

• Court: Arizona Court of Appeals
• Writing for the Court: THOMPSON, Presiding.
• Citation: Haisch v. Allstate Ins. Co., 5 P.3d 940, 197 Ariz. 606 (Ariz. App. 2000)
• Decision Date: 06 June 2000
• Docket Number: No. 1 CA-CV 98-0703.,1 CA-CV 98-0703.
• Parties: Elizabeth HAISCH, a single person, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

5 P.3d 940

197 Ariz. 606

Elizabeth HAISCH, a single person, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

No. -0703.

Court of Appeals of Arizona, Division 1, Department B.

June 6, 2000.

Hagens & Berman, P.S. by Steve W. Berman and Sean R. Matt, Seattle, Washington, and Hagens Berman & Mitchell, P.L.L.C. by Steven C. Mitchell and Christopher A. O'Hara, Phoenix, Attorneys for Plaintiff-Appellant.

Steptoe & Johnson LLP by Floyd P. Bienstock and Bennett Evan Cooper, Phoenix, and Sonnenschein Nath & Rosenthal by Jeffrey Lennard and Mark Hanover, Chicago, Illinois, Attorneys for Defendant-Appellee.

OPINION

THOMPSON, Presiding Judge.

¶ 1 Elizabeth Haisch (Haisch) appeals from summary judgment for Allstate Insurance Company (Allstate) on Haisch's alternative damages claims for violation of the Arizona Consumer Fraud Act, Ariz.Rev.Stat. Ann. (A.R.S.) §§ 44-1521 through 44-1534 (1994 and Supp.1998); common-law fraud; negligent misrepresentation; and misrepresentation in violation of A.R.S. §§ 20-441 through 20-467 (1990 and Supp.1998). The appeal presents these questions:

(1) Whether Allstate's failure to explain to holders and prospective purchasers of automobile liability policies that optional Med Pay coverage would cover only those medical expenses that insured persons became legally liable to pay constituted

a. a "deceptive act, fraud, false pretense, [or] misrepresentation" within the Arizona Consumer Fraud Act, A.R.S. § 44-1522(A); or

b. a misrepresentation that would support a claim for negligent misrepresentation, common-law fraud, or violation of A.R.S. §§ 20-441 through 20-467;

(2) Whether reliance was an essential element of any of Haisch's claims for relief; and

(3) Assuming reliance was required for any recovery, whether the burden of proof on that issue should shift to Allstate.

We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) (1992) and 12-2101(B) (1994).

FACTUAL AND PROCEDURAL HISTORY

¶ 2 At all times material to this litigation Haisch was a member of CIGNA Private Practice Plan of Arizona, a Health Care Service Organization, or "HMO." As a CIGNA member, Haisch was completely covered for charges resulting from health care services listed in her plan. See A.R.S. § 20-1072 (1990 and Supp.1998).¹ Haisch was also the insured under an Allstate automobile liability policy that included optional Med Pay coverage of $5,000.00.²

¶ 3 Haisch sustained injuries in an automobile accident in August 1994. She later submitted $6,204.44 in physician and surgical facility bills to Allstate with a request for payment up to her Med Pay coverage limits. Allstate declined to pay her anything in excess of $943.00, representing sums she incurred for physical therapy and other health care services not covered by CIGNA and coinsurance payments that were Haisch's responsibility under her CIGNA coverage. Allstate demurred as to all sums representing bills that CIGNA had paid as Haisch's HMO. Allstate's written explanation stated:

Our policy provides coverage for expenses "actually incurred" from an auto accident. To "incur" means "to become legally obligated for" by common law. According to A.R.S. § 20-1052, Health Care Service Organizations (HCSO's) are required to provide "basic health care services" to their patients. In addition, A.R.S. § 20-1072, does not allow HCSO's to charge their customers for basic health care services with the exception of copayment amounts or types of services not normally covered under HCSO plans. Our position with regard to this case is that our insured has only received "basic health care services", which have already [been] paid for through HMO premiums, and has not actually incurred a bill other than the copayment amount.

¶ 4 In other litigation, Allstate had previously stated that in contrast to insureds who have health coverage through HMOs, insureds covered by indemnity plans are legally responsible for all health care services they obtain even though they may be contractually entitled to reimbursement from their insurers for a large percentage of the health care fees they are charged. Allstate stated that these health care fees were legally "incurred" by insureds with indemnity coverage, and Allstate's Med Pay provisions therefore entitled them to reimbursement for one hundred percent of those fees up to the Med Pay coverage limit.

¶ 5 It is undisputed that Allstate did not and does not explain its interpretation of its Med Pay provisions to its prospective or current policy holders, either orally or in writing, in advance of the customer's decision to buy or add Med Pay coverage.

¶ 6 At no time before Haisch was deposed in this litigation had she read either her CIGNA HMO policy or the Med Pay provisions of her Allstate automobile liability policy. Haisch did not know that her Med Pay insurance would cover passengers or persons to whom she lent her insured automobile. She was also unaware that Med Pay covered many services that CIGNA did not provide, such as dental work, prescription drugs, glasses, hearing aids, funeral expenses, chiropractic care, services of non-participating providers, and physical therapy.

¶ 7 Haisch testified on deposition that her deceased husband had once told her that if they were ever in an accident they could use Med Pay, and that was why they needed it. Haisch further testified that twice in the past she had talked to Allstate agents about dropping her Med Pay coverage. In the first discussion the agent told her that doing so would not lower her premium appreciably. She decided to keep the coverage because "I'm one of the older group, and I always figured you need as much insurance as you can." In the second discussion a different Allstate agent advised Haisch to keep her Med Pay coverage because she had health insurance through an HMO. She testified she agreed with this advice because she believed that the particular HMO through which she had coverage at that time does not "quite pay for everything, and a lot of times they say no, they don't approve it."

¶ 8 Haisch brought this action against Allstate in February 1996. Her First Amended Complaint alleged that Allstate engages in a systematic practice of unfairly marketing Med Pay coverage, because it fails to disclose to its customers that Med Pay will not cover any medical expenses already covered by the insured's HMO or health insurance.³ Haisch's complaint also sought relief on behalf of the class of all persons who paid premiums for Allstate Med Pay coverage and "were members of a Health Care Service Organization or otherwise had health insurance in effect" at any time from and after February 16, 1993. The complaint alleged that Allstate's conduct violated the Arizona Consumer Fraud Act and constituted negligent misrepresentation, common-law fraud, and misrepresentation in violation of A.R.S. § 20-443 et seq. Haisch and the alleged class sought declaratory and injunctive relief, the return of "insurance premiums paid for useless insurance," and punitive damages.

¶ 9 Allstate moved for summary judgment. The trial court ruled for Allstate. The trial court reasoned that Allstate's marketing of Med Pay coverage did not as a matter of law establish a cognizable claim under any of Haisch's theories of recovery.⁴

¶ 10 From formal judgment, Haisch timely appeals.

DISCUSSION

I. OMISSION TO EXPLAIN EFFECT OF A.R.S. § 20-1072

¶ 11 Haisch's central contention on appeal proceeds from the uncontroverted proposition that Allstate does not advise prospective purchasers of Med Pay coverage that automobile accident-related expenses for health care that HMOs provide are not covered by Med Pay, while any expenses for health care that HMOs do not provide will be paid to the insured up to the Med Pay policy limit even if a non-HMO health insurer also pays the insured for all or a portion of the same expenses. Haisch contends that Allstate's omission to disclose this information constitutes a "misrepresentation" or "deceptive practice" in violation of A.R.S. § 44-1522(A), and a "misrepresentation" sufficient to support liability for common-law fraud, negligent misrepresentation, and for violation of A.R.S. § 20-443. We disagree on all counts.

¶ 12 Section 44-1522(A) (1994) provides:

The act, use, or employment by any person of any deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived, or damaged thereby, is declared to be an unlawful practice.

The term "merchandise" in section 44-1522(A) includes "services." See Maurer v. Cerkvenik-Anderson Travel, Inc., 181 Ariz. 294, 297, 890 P.2d 69, 72 (1994). A private right of action exists for damages caused by a violation of A.R.S. § 44-1522(A). See id.

¶ 13 Section 20-443 (1990) provides in pertinent part:

No person shall make, issue or circulate, or cause to be made, issued or circulated, any estimate, illustration, circular, sales material or statement:

1. Misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised....

. . . .

4. Using any name or title of any policy or class of policies misrepresenting the true nature of such policy.

See also A.R.S. § 20-444(A) (prohibiting untrue, deceptive or misleading representations with regard to business of insurance or any person in conduct of insurance business). A private right of action exists for damages caused by a violation of section 20-443. See Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 540-41, 647 P.2d 1127, 1138-39 (1982).

¶ 14 To establish actionable fraud, a plaintiff must show that the defendant made a false, material representation that he knew was false or...