James J. Donelon v. Terry S. Shilling
| Decision Date | 28 February 2019 |
| Docket Number | 2017 CW 1545 |
| Parties | JAMES J. DONELON, COMMISSIONER OF INSURANCE FOR THE STATE OF LOUISIANA, IN HIS CAPACITY AS REHABILITATOR OF LOUISIANA HEALTH COOPERATIVE, INC. v. TERRY S. SHILLING, GEORGE G. CROMER, WARNER L. THOMAS, IV, WILLIAM A. OLIVER, CHARLES D. CALVI, PATRICK C. POWERS, CGI TECHNOLOGIES AND SOLUTIONS, INC., GROUP RESOURCES INCORPORATED, BEAM PARTNERS, LLC, MILLIMAN, INC., BUCK CONSULTANTS, LLC, AND TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA |
| Court | Court of Appeal of Louisiana — District of US |
On review from the Nineteenth Judicial District Court Parish of East Baton Rouge State of Louisiana
The Honorable Timothy E. Kelley
V. Thomas Clark, Jr.
Grant J. Guillot
Baton Rouge, Louisiana
Harry A. Rosenberg
New Orleans, Louisiana
H. Alston Johnson
Baton Rouge, Louisiana
Attorneys for Applicant-Relator
Milliman, Inc.
J.E. Cullens, Jr.
Edward J. Walters, Jr.
Darrel J. Papillion
David Abboud Thomas
Jennifer Wise Moroux
in His Capacity as Rehabilitator of
Billy Bostick
BEFORE: HIGGINBOTHAM, HOLDRIDGE, and PENZATO, JJ.
In this writ application, applicant, Milliman, Inc. ("Milliman"), challenges the ruling of the trial court, which overruled Milliman's Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction.1 For the following reasons, we reverse the ruling of the trial court and dismiss the claims of James J. Donelon, Commissioner of Insurance for the State of Louisiana, through his duly appointed Receiver, Billy Bostick, against Milliman, without prejudice.
This matter arises from the insolvency and the rehabilitation of Louisiana Health Cooperative, Inc. ("LAHC"). LAHC executed a Consulting Services Agreement ("Agreement") with Milliman for actuarial services. The Agreement states, in pertinent part, as follows:
Representatives of Milliman and LAHC signed the Agreement on August 4, 2011, and August 15, 2011, respectively.
A Proposal for Actuarial Services ("Engagement Letter") from Milliman to Beam Partners, dated August 4, 2011, was attached to the Agreement. The Engagement Letter outlined that Beam Partners was working with LAHC, which is sponsored by Ochsner Health System, to investigate the creation of a Consumer Operated and Oriented Plan ("CO-OP") in Louisiana. Beam Partners, on behalf of LAHC, had asked Milliman to provide a proposal for actuarial support of the proposed CO-OP, with initial support including assistance with a feasibility study and LAHC's loan application in response to Funding Opportunity Announcement No. OO-COO-11-001, CFDA 93.545 released from the U.S. Department of Health and Human Services on July 28, 2011. The Engagement Letter provided Milliman's work plan as well as timing, staffing, and professional fees.
It is alleged that LAHC became registered with the Louisiana Secretary of State on September 12, 2011, and applied for and received loans from the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, in 2012. However, it is undisputed that, by July 2015, LAHC stopped doing business.
On September 21, 2015, in response to a verified petition and testimony on behalf of Caroline Brock, Deputy Commissioner of Financial Solvency for the Louisiana Department of Insurance and Billy Bostick, a Permanent Order of Rehabilitation and Injunctive Relief (the "Rehabilitation Order") was signed, confirming James J. Donelon, Commissioner of Insurance for the State of Louisiana ("the Commissioner") as Rehabilitator of LAHC and Billy Bostick as Receiver of LAHC. The Rehabilitation Order further states, in pertinent part, as follows:
On August 31, 2016, the Commissioner, as Rehabilitator of LAHC, through his duly appointed Receiver, Billy Bostick, filed a Petition for Damages and Jury Demand, in a separate matter from the rehabilitation proceeding, asserting claims of breach of fiduciary duty, breach of contract, negligence, and gross negligence against multiple defendants and seeking damages in connection with LAHC's failure. Milliman was named as a defendant in the Commissioner's First Supplemental, Amending and Restated Petition for Damages and Request for Jury Trial filed on November 29, 2016.
The Commissioner alleged professional negligence, breach of contract, and negligent misrepresentation against Milliman. The Commissioner stated that Milliman was engaged via the Engagement Letter to provide "actuarial support" for LAHC including the production of a feasibility report and loan application.The Commissioner further alleged that Milliman was engaged via a separate engagement letter dated November 13, 2012, to develop 2014 premium rates in Louisiana.2
As to the professional negligence and breach of contract claims, the Commissioner alleged the following: (1) the feasibility study was prepared using unrealistic and unreasonable assumption sets failing to consider the possibility of adverse enrollment and/or medical loss ratio scenarios; (2) Milliman conditioned its payment upon LAHC being awarded a loan, compromising its actuarial independence and breaching its duty to LAHC; (3) Milliman's feasibility study and pro forma reports were unreliable, inaccurate, and not the result of careful professional analysis; (4) Milliman owed a duty to LAHC to exercise reasonable care in accordance with the professional standards for actuaries; (5) Milliman provided actuarial memorandums for 2014 rate filings utilizing unreasonable assumptions, grossly underestimating the level of non-claim expenses in 2014, and providing no basis for assumptions made therein; (6) Milliman breached its duty to LAHC by failing to discharge its duties with reasonable care, failing to act in accordance with the professional standards applicable to actuaries, failing to produce an accurate and reliable feasibility study, failing to set premium rates that were accurate and reliable, and failing to exercise the reasonable judgment expected of professional actuaries under like circumstances; and (7) Milliman's failure to exercise reasonable care, failure to act in accordance with the professional standards applicable to actuaries and breach of contract were the legal causes of all or substantially all of LAHC's damages. The Commissioner further alleged that Milliman's advice and reports to LAHC negligently misrepresented the actual funding needs and premium rates of LAHC, and Milliman had a duty to provide accurate and up-to-date information to LAHC thatMilliman knew or should have known LAHC would rely on in making its decision concerning premium amounts.
In response to the First Supplemental, Amending and Restated Petition for Damages, Milliman filed a Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction, asserting that the Commissioner's claims against it must be arbitrated, pursuant to the arbitration provision in the Agreement. Milliman requested that the Commissioner's claims against it be dismissed, with prejudice. Attached to Milliman's exception was a copy of the Agreement and the Engagement Letter.
The Commissioner opposed the exception arguing, in pertinent part, as follows: (1) the Rehabilitation, Liquidation, Conservation Act, La. R.S. 22:2001 et seq. ("the RLC Act") of the Louisiana Insurance Code is...
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