Individual Healthcare Specialists, Inc. v. Bluecross Blueshield of Tenn., Inc.

Decision Date15 May 2017
Docket NumberNo. M2015-02524-COA-R3-CV,M2015-02524-COA-R3-CV
CourtTennessee Court of Appeals


No. M2015-02524-COA-R3-CV


February 21, 2017 Session
May 15, 2017

Appeal from the Chancery Court for Davidson County
No. 111042III
Ellen H. Lyle, Chancellor

This is a breach of contract action in which the issues hinge on the meaning of several provisions in the agreement. In 1999 and again in 2009, BlueCross BlueShield of Tennessee, Inc. ("BlueCross") and Individual Healthcare Specialists, Inc. ("IHS") entered into a general agency agreement that authorized IHS to solicit applications for individual insurance policies through IHS's in-house agents and outside "subagents." The commission rates to be paid were stated in a schedule, which was subject to modification by BlueCross. During the first eleven years, BlueCross modified the commission schedule several times and each modification was prospective only. In 2011, BlueCross modified the commission schedule and, for the first time, applied the commission schedule retrospectively. At the same time, IHS determined that BlueCross had been underpaying commissions since 1999. As a consequence, it commenced this action asserting claims for, inter alia, breach of contract and damages, while also claiming it was entitled to recover its attorney's fees based on the contract's indemnification provision. BlueCross denied any breach of contract. It also asserted the statute of limitations defense as a bar to recovering any commissions that accrued more than six years earlier, and asserted that IHS was not entitled to recover its attorney's fees because the indemnification provision did not apply to disputes between the contracting parties. Shortly thereafter, BlueCross terminated the general agency agreement and began paying renewal commissions directly to IHS's subagents instead of paying them to IHS as it had done since 1999. IHS then amended its complaint to assert a claim that BlueCross also breached the agreement by failing to pay commissions directly to IHS. Following a bench trial, the court denied BlueCross's statute of limitations defense on the ground that IHS's claims were "inherently undiscoverable." The court also determined that BlueCross breached the contract by underpaying commissions, by applying the 2011 commission rates for renewals to existing policies, and by failing to pay all renewal commissions to IHS after termination of the general agency agreement. As for damages, the court awarded IHS some of the damages it claimed but denied others on the ground the evidence was speculative. As for IHS's attorney's fees, the trial court considered parol

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evidence to ascertain the intent of the parties and held that the indemnification provision authorized the recovery of attorney's fees in a dispute between the contracting parties. Accordingly, it held that IHS, as the prevailing party, was entitled to recover its attorney's fees. Both parties appeal. We affirm the trial court in all respects but one, that being the award of attorney's fees. We have determined the trial court erred by considering parol evidence to determine the meaning of the indemnification provision. We also find that the indemnification provision does not apply to contractual disputes between the parties. Accordingly, IHS is not entitled to recover its attorney's fees in this action.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part and Reversed in Part

FRANK G. CLEMENT, JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D. BENNETT and RICHARD H. DINKINS, JJ., joined.

E. Todd Presnell, Joel D. Eckert, Edmund S. Sauer, and Junaid A. Odubeko, Nashville, Tennessee, for the appellant, BlueCross BlueShield of Tennessee, Inc.

Jay S. Bowen and Will Parsons, Nashville, Tennessee, for the appellee, Individual Healthcare Specialists, Inc.


In 1999, BlueCross and IHS negotiated and executed a General Agency Agreement ("the 1999 agreement"). This agreement authorized IHS to solicit applications for BlueCross's individual hospital, surgical, medical, and supplemental insurance policies through a network of in-house agents and outside brokers, known as "subagents" or "producing agents." In 2009, BlueCross and IHS renewed their contractual relationship by executing a second agency agreement ("the 2009 agreement") that was substantially similar to the 1999 agreement.

Pursuant to each of the agreements, BlueCross agreed to compensate IHS and its subagents by paying a commission on sales. BlueCross paid two types of commissions: first year commissions, based on premiums paid in the insurance policy's first year; and renewal commissions, based on renewal premiums paid in subsequent years. Attached to, and incorporated by reference within, the 1999 agreement was a "Commission Schedule," which set the specific commission rates for first year and renewal commissions for each of BlueCross's insurance products. The commission schedule expressly provided that it "shall be subject to change by BlueCross," and BlueCross exercised its right to modify the commission schedule under the 1999 agreement on

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several occasions.1 Each modified commission schedule contained the following language:

3. 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.

. . .

[BlueCross] reserve[s] the right to modify or change the commission and payment schedules with appropriate notification.

(Emphasis added).

When the parties entered into their 2009 agreement, they continued to provide for compensation pursuant to a commission schedule which was attached to the contract and incorporated by reference therein. As before, and in pertinent part, the commission schedule included within the 2009 agreement provided that it "supplements any previous Commission Schedule . . . ," and that "commissions for products previously sold are governed by the Commission Schedule in place at the time the sale was made." The 2009 commission schedule also reserved BlueCross's right to modify or change the commission and payment schedules with appropriate notice.

Further, the 2009 agreement provided that BlueCross would pay all commissions, whether for policies sold by IHS's in-house agents or its subagents, directly to IHS. With respect to policies sold by subagents, IHS would retain a portion of the commission and remit the remainder to the subagent. The agreement stated that "in the event [IHS] is no longer able, entitled or available to receive Commissions, [BlueCross] shall use its best efforts to contract individually with the [subagents] . . . ."

The 2009 agreement also authorized either party to cancel the agreement "at any time and for any reason . . . upon ninety (90) days prior written notice." Upon termination,

Neither party and no Producing Agent shall have any claim against the other for any alleged loss of prospective profits or commissions . . . , with

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the exception that renewal commissions for policies with effective dates prior to termination will continue to be paid by [BlueCross].

Further, the agreement contained an indemnity provision requiring BlueCross to,

indemnify and hold [IHS], as well as its Directors, Officers, and employees, harmless from any and all claims, lawsuits, settlements, judgments, costs, interest, and penalties, expenses and taxes, including but not limited to attorney's fees and court costs, resulting from or arising directly or indirectly out of or in connection[] with, any action or lack of action by [BlueCross] associated with this agreement.[2]

The 2009 agreement also contained an integration clause which provided as follows:

This Agreement, together with any attached amendments, exhibits and supplements and all referenced schedules and plans constitute the entire Agreement between the parties hereto, provided, however, that anything not specifically set forth herein will be subject to the rules and regulations of the Company as such are issued from time to time. Any prior agreements, promises, negotiations or representations, either verbal or written relating to the subject matter of this agreement and not expressly set forth in this Agreement are of no force or effect. No amendments shall be effective unless in writing and signed by authorized representatives of both parties hereto.

In February 2010, BlueCross exercised its right to modify the commission schedule listed in the 2009 agreement. Like each prior commission schedule modification, the 2010 commission schedule stated that "commissions for products previously sold are governed by the Commission Schedule at the time the sale was made." Additionally, the new schedule restated BlueCross's right to "modify or change the commission and payment schedules with appropriate notification."

In May 2011, BlueCross again promulgated a new commission schedule ("the May 2011 commission schedule"). The May 2011 commission schedule stated,

1. This Commission Schedule replaces any previous Commission Schedule you may have received.

. . . .

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5. We reserve the right to modify or change the commission and payment schedules with appropriate notification. Failure to receive this notice will not change its effective date.

(Emphasis added). As can be seen from this language, the May 2011 commission schedule not only changed the commission rate for future policies, but purported to change the rate for renewals of existing insurance policies.

At about the same time in 2011, BlueCross and IHS discussed the possibility of BlueCross purchasing IHS based on a yet to be determined multiple of IHS's projected annual commission revenue. These discussions prompted James Walker, President of IHS, to project IHS's annual revenue. In the process of designing a computer model to project the revenue, Mr. Walker began to suspect that IHS was...

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