Individual Healthcare Specialists, Inc. v. Bluecross Blueshield of Tenn., Inc., No. M2015-02524-SC-R11-CV

CourtSupreme Court of Tennessee
Writing for the CourtHolly Kirby, J.
Citation566 S.W.3d 671
Parties INDIVIDUAL HEALTHCARE SPECIALISTS, INC. v. BLUECROSS BLUESHIELD OF TENNESSEE, INC.
Decision Date18 January 2019
Docket NumberNo. M2015-02524-SC-R11-CV

566 S.W.3d 671

INDIVIDUAL HEALTHCARE SPECIALISTS, INC.
v.
BLUECROSS BLUESHIELD OF TENNESSEE, INC.

No. M2015-02524-SC-R11-CV

Supreme Court of Tennessee, AT NASHVILLE.

February 7, 2018 Session
FILED January 18, 2019


E. Todd Presnell, Joel D. Eckert, Edmund S. Sauer, Junaid A. Odubeko, and Jessica Jernigan-Johnson, Nashville, Tennessee, for the defendant/appellant/cross-appellee, BlueCross BlueShield of Tennessee, Inc.

Jay S. Bowen and Will Parsons, Nashville, Tennessee, for the plaintiff/appellee/cross-appellant, Individual Healthcare Specialists, Inc.

Amy J. Farrar, Murfreesboro, Tennessee; and Hyland Hunt and Ruthanne M. Deutsch, Washington, D.C., for the amicus curiae, America’s Health Insurance Plans.

Thomas Anthony Swafford and Rocklan W. King III, Nashville, Tennessee, for the amici curiae, the Nashville Area Chamber of Commerce, the Greater Memphis Chamber, and the Chattanooga Area Chamber of Commerce.

Lynda M. Hill and Katharine B. Fischman, Nashville, Tennessee, for the amicus curiae, the Tennessee Chamber of Commerce & Industry.

George T. Lewis, III, and Nicole D. Berkowitz, Memphis, Tennessee, for the amici curiae, Tennessee Defense Lawyers Association and DRI-The Voice of the Defense Bar.

John F. Kuppens, Chicago, Illinois, for the amicus curiae DRI-The Voice of the Defense Bar.

Professor George W. Kuney, Knoxville, Tennessee, amicus curiae.

Holly Kirby, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Sharon G. Lee, and Roger A. Page, JJ., joined.

Holly Kirby, J.

566 S.W.3d 676

We granted permission to appeal in this breach-of-contract case to address the use of extrinsic evidence in the interpretation of contracts. Tennessee judges have long used extrinsic evidence of the context and circumstances at the time the parties entered into the contract to facilitate interpretation of contractual terms in accord with the parties' intent. However, the written words are the lodestar of contract interpretation, and Tennessee courts have rejected firmly any notion that courts may disregard the written text and make a new contract for parties under the guise of interpretation. Tennessee has consistently enforced the parol evidence rule to prohibit the use of evidence of pre-contract negotiations in order to vary, contradict, or supplement the contractual terms of a fully integrated agreement. Thus, in interpreting a fully integrated contract, extrinsic evidence may be used to put the written terms of the contract into context, but it may not be used to vary, contradict, or supplement the contractual terms in violation of the parol evidence rule. As applied to this case, we hold that the defendant insurance company did not breach the parties' agreement by modifying renewal commission rates on existing policies, but it did breach the agreement by refusing to pay commissions to the plaintiff agency after their agreement was terminated. In addition, because the indemnity provision in the parties' agreement does not specifically authorize fee shifting in a suit between the two contracting parties, we hold that the plaintiff agency is not entitled to an award of attorney fees. We further conclude that the alleged systemic commission underpayments in this case were not inherently undiscoverable under any definition of that term. Consequently, even if we were to conclude that the discovery rule applies when the contractual breach is "inherently undiscoverable," the plaintiff agency’s claim for any underpayments would not qualify under the facts of this case. The case is remanded for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

Overview

Plaintiff/Appellee Individual HealthCare Specialists, Inc., (IHS) is an insurance agency based in Brentwood, Davidson County, Tennessee. From 1999 to 2012, IHS sold insurance policies for Defendant/Appellant BlueCross BlueShield of Tennessee, Inc. ("BlueCross"), and BlueCross paid IHS commissions on the sales.1 The parties' commission arrangement was governed by a General Agency Agreement. This lawsuit stems from IHS’s claim that BlueCross breached the Agency Agreement and owes IHS substantial damages resulting from that breach.

General Agency Agreement

In 1999, IHS and BlueCross executed their first General Agency Agreement ("1999 Agency Agreement"). In 2009, almost ten years later, the parties renewed their contract by executing a superseding General Agency Agreement ("2009 Agency Agreement"). The two agreements (collectively, the "Agency Agreements") were substantially similar to one another.

Generally, the Agency Agreements authorized IHS to solicit applications for BlueCross’s individual hospital, surgical, medical, and supplemental insurance policies.

566 S.W.3d 677

They contemplated that IHS would use both in-house agents and outside brokers, known as "producing agents" or "subagents," to solicit applications for BlueCross policies. Under the Agency Agreements, IHS was responsible for hiring, supervising, and terminating the subagents. It was also responsible for ensuring that the subagents were in compliance with Tennessee laws and regulations as well as BlueCross’s policies and procedures. The Agency Agreements stated expressly that IHS and its subagents were considered independent contractors of BlueCross, not employees.

BlueCross paid IHS two types of commissions: (1) first-year commissions and (2) renewal commissions. First-year commissions were based on the premiums paid on insurance policies in the year they were sold; renewal commissions were based on the premiums paid for the renewal of existing policies. The specific commission rates payable by BlueCross were set forth in commission schedules attached as addenda to each of the Agency Agreements and incorporated into the agreements by reference. The attached commission schedules stated separate rates for first-year and renewal commissions for specified BlueCross insurance products.2 In the event of a conflict between the commission schedule and the Agency Agreement to which it was attached, the terms of the Agency Agreement would control.

In this lawsuit, IHS claims that BlueCross breached several provisions in the Agency Agreements and also breached a modified commission schedule dated May 1, 2011. The relevant Agency Agreement provisions will be set forth later in this opinion, with the legal analysis related to that provision. Suffice it to say at this juncture that IHS sought damages under Article XII ("the Compensation provision") and attorney fees under Article VI ("the Indemnity provision"). Those claims also implicate Article XIV ("the Termination provision") and Article X ("the Integration clause"). The controversy surrounding BlueCross’s alleged breach of the May 1, 2011 commission schedule requires some preliminary explanation.

Commission Schedules and the May 2011 Schedule

As we have stated, each Agency Agreement had an attached commission schedule containing the applicable commission rates for policies sold. Each commission schedule included bolded language at the bottom of the document indicating that the commission schedules were subject to unilateral change by BlueCross with appropriate notification to IHS: "[BlueCross] reserves the right to modify or change the commission and payment schedules with appropriate notification."

On several occasions, BlueCross exercised its right to modify the commission schedules under both Agency Agreements.3 Each modified commission schedule included the same language reserving to BlueCross "the right to modify or change the commission and payment schedules with appropriate notification." They also included the same provision stating that, in the event of a conflict between

566 S.W.3d 678

the commission schedule and the Agency Agreement, "then the terms of the Agency Agreement will control." With the notable exception of the last commission schedule, effective on May 1, 2011 (which is at issue in this lawsuit), each modified commission schedule included the following language: "This Commission Schedule supplements any previous Commission Schedule you may have received; commissions for products previously sold are governed by the Commission Schedule in place at the time the sale was made. " (Emphasis added).

In February 2011, BlueCross notified IHS of a new commission schedule that would become effective on May 1, 2011 (the "May 2011 Schedule"). BlueCross said that the new commission schedule was necessitated by the Affordable Care Act, enacted the previous year in March 2010.4

The May 2011 Schedule significantly reduced commission rates for IHS and its subagents.5 It also omitted the provision in previous schedules stating it would "supplement[ ] any previous Commission Schedule" and instead said it would "replace any previous Commission Schedule." The new schedule also omitted the language in previous schedules stating that "commissions for products previously sold are governed by the Commission Schedule in place at the time the sale was made" and instead said: "Commissions on sold or renewed...

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61 practice notes
  • Carulli v. N. Versailles Twp. Sanitary Auth., No. 751 C.D. 2017
    • United States
    • Commonwealth Court of Pennsylvania
    • August 13, 2019
    ...‘inherently unknowable,’ or ‘difficult to detect,’ " Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc. , 566 S.W.3d 671, 711-12 & n.43 (Tenn. 2019), but would not apply in cases where the plaintiff fails to exercise due diligence, specifically "cases where t......
  • Alsbrook v. Concorde Career Colls., Inc., No. 2:19-cv-02583
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • June 25, 2020
    ...cause of action accrues ‘as of the date of the breach’ ...." Indiv. Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn. Inc., 566 S.W.3d 671, 709 (Tenn. 2019) (quoting Greene v. THGC, Inc., 915 S.W.2d 809, 810 (Tenn. Ct. App. 1995) ).3 Plaintiffs filed suit on August 29, 2019. (EC......
  • TWB Architects, Inc. v. Braxton, LLC, No. M2017-00423-SC-R11-CV
    • United States
    • Supreme Court of Tennessee
    • July 22, 2019
    ...to determine the intent of the parties. 578 S.W.3d 892 Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc. , 566 S.W.3d 671, 697–98 (Tenn. 2019) (citing URI, Inc. v. Kleberg Cnty. , 543 S.W.3d 755, 765 (Tex. 2018) ). Thus, whether the parties intended a novation i......
  • United States v. Napper, 3:17-cv-1478
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • October 27, 2021
    ...claim ultimately sounds in tort or contract. See Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc., 566 S.W.3d 671, 680 n.6 (Tenn. 2019). Even once the applicable statute of limitations is resolved, however, issues of discovery and accrual may require factua......
  • Request a trial to view additional results
56 cases
  • Carulli v. N. Versailles Twp. Sanitary Auth., No. 751 C.D. 2017
    • United States
    • Commonwealth Court of Pennsylvania
    • August 13, 2019
    ...unknowable,’ or ‘difficult to detect,’ " Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc. , 566 S.W.3d 671, 711-12 & n.43 (Tenn. 2019), but would not apply in cases where the plaintiff fails to exercise due diligence, specifically "cases where......
  • Alsbrook v. Concorde Career Colls., Inc., No. 2:19-cv-02583
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • June 25, 2020
    ...of action accrues ‘as of the date of the breach’ ...." Indiv. Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn. Inc., 566 S.W.3d 671, 709 (Tenn. 2019) (quoting Greene v. THGC, Inc., 915 S.W.2d 809, 810 (Tenn. Ct. App. 1995) ).3 Plaintiffs filed suit on August 29, 2019. (ECF......
  • TWB Architects, Inc. v. Braxton, LLC, No. M2017-00423-SC-R11-CV
    • United States
    • Supreme Court of Tennessee
    • July 22, 2019
    ...to determine the intent of the parties. 578 S.W.3d 892 Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc. , 566 S.W.3d 671, 697–98 (Tenn. 2019) (citing URI, Inc. v. Kleberg Cnty. , 543 S.W.3d 755, 765 (Tex. 2018) ). Thus, whether the parties intended a novation i......
  • United States v. Napper, 3:17-cv-1478
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • October 27, 2021
    ...claim ultimately sounds in tort or contract. See Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc., 566 S.W.3d 671, 680 n.6 (Tenn. 2019). Even once the applicable statute of limitations is resolved, however, issues of discovery and accrual may require factua......
  • Request a trial to view additional results

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