Kirven v. Cent. States Health & Life Co.

• Decision Date: 25 June 2014
• Docket Number: No. 27403.,27403.
• Citation: Kirven v. Cent. States Health & Life Co., 409 S.C. 30, 760 S.E.2d 794 (S.C. 2014)
• Court: South Carolina Supreme Court
• Parties: Diane KIRVEN, on behalf of herself and all others similarly situated, Plaintiff, v. CENTRAL STATES HEALTH & LIFE CO., OF OMAHA, and Philadelphia American Life Insurance Company, Defendants. Appellate Case No. 2013–000273.

409 S.C. 30

760 S.E.2d 794

Diane KIRVEN, on behalf of herself and all others similarly situated, Plaintiff,

v.CENTRAL STATES HEALTH & LIFE CO., OF OMAHA, and Philadelphia American Life Insurance Company, Defendants.Appellate Case No. 2013–000273.

No. 27403.

Supreme Court of South Carolina.

Heard Nov. 19, 2013.

Decided June 25, 2014.

Unconstitutional as Applied

Code 1976, § 38–71–242.

Richard A. Harpootlian, Graham L. Newman, M. David Scott, and Tobias G. Ward, Jr., all of Columbia, for Plaintiff.

John T. Lay and Laura W. Jordan, both of Columbia, and Robert L. Harris, of Richardson, TX, for Defendants.

CERTIFIED QUESTIONS ANSWERED

Justice KITTREDGE.

We certified the following questions from the United States District Court for the District of South Carolina:

1.Can the definition of “actual charges” contained within S.C.Code Ann. Section 38–71–242 be applied to insurance contracts executed prior to the statute's effective dates?

2.Can the South Carolina Department of Insurance mandate the application of “actual charges” definition in S.C.Code Ann. Section 38–71–242 to policies already in existence on the statute's effective dates by prohibiting an insurance company from paying claims absent the application of that definition?

We answer both certified questions, “no.”

I.

This case concerns supplemental health insurance policies, which differ from ordinary health insurance policies in both purpose and operation.Indeed, “[s]upplemental insurance policies pay cash benefits directly to the policyholders, as opposed to primary insurance policies that pay benefits directly to a third-party health care provider.”Montague v. Dixie Nat. Life Ins. Co.,No. 3:09–CV–687–JFA, 2011 WL 2294146, at *18–19(D.S.C.June 8, 2011)(noting the reason for this difference lies in the purpose of the policies and stating “the benefits under specified disease policies have nothing to do with how much a particular cancer treatment may cost” because supplemental insurance policies contain a “two-fold promise: a promise to pay for the medical treatment and a promise to provide its policyholders with additional monetary relief ... to cope with the myriad of other costs and expenses that arise from their battle with cancer, but are not covered by their primary health insurance policies.”);accordGuidry v. Am. Pub. Life Ins. Co.,512 F.3d 177, 182 n. 6(5th Cir.2007)(“Although the fundamental purpose of ordinary health insurance coverage is to indemnify against loss from disease or illness, the purpose of a supplemental insurance policy, such as the one at issue in this case, is not only to cover medical expenses but also ... to provide supplemental income for general living expenses or any other purpose.Thus, the payment of benefits in amounts exceeding actual expenses does not lead to an unreasonable result.”(quotations omitted)).

PlaintiffDiane Kirven purchased a supplemental Cancer and Specified Disease policy from defendant Central States Health and Life (Central States) in 1999.Under the policy, Central States promised to pay Kirven a defined benefit in an amount equal to, or based on a percentage of, the “actual charges” for certain medical and pharmaceutical cancer treatments.However, the term “actual charges” was not defined under the policy.Kirven was diagnosed with cancer in 2003, and she underwent chemotherapy and radiation treatments.Consistent with the understood purposes of a supplemental insurance policy, Central States paid Kirven benefits based on the amount she was billed by her medical providers.¹The cancer fell into remission.

Some years later, on November 29, 2007, the United States Court of Appeals for the Fourth Circuit issued a decision construing the term “actual charges” in a supplemental cancer insurance policy virtually identical to Kirven's.SeeWard v. Dixie Nat'l Life Ins. Co. (Ward I),257 Fed.Appx. 620(4th Cir.2007)(per curiam).Ward I involved a dispute over how benefits paid in the amount of the “actual charges” were to be calculated.²Id. at 623.The Fourth Circuit found the meaning of the phrase “actual charges” as used in Ward's policy was patently ambiguous and that South Carolina law “very clearly requires us to resolve the ambiguity in favor of the insured.”Id. at 627(citation omitted).

Approximately eight months later, as a direct response to Ward I, the General Assembly enacted South Carolina Code section 38–71–242, which includes a mandatory, default definition for “actual charges” in policies that, like Kirven's policy, do not define the term.The statute essentially codified the construction of the term “actual charges” in the manner advocated by the defendant insurance companies in Ward I and provides as follows:

(A)(1) When used in any individual or group specified disease insurance policy in connection with the benefits payable for goods or services provided by any health care provider or other designated person or entity, the terms “actual charge”, “actual charges”, “actual fee”, or “actual fees” shall mean the amount that the health care provider or other designated person or entity:

(a) agreed to accept, pursuant to a network or other agreement with a health insurer, third-party administrator, or other third-party payor, as payment in full for the goods or services provided to the insured;

(b) agreed or is obligated by operation of law to accept as payment in full for the goods or services provided to the insured pursuant to a provider, participation agreement, or supplier agreement under Medicare, Medicaid, or any other government administered health care program, where the insured is covered or reimbursed by such program; or

(c) if both subitems (a) and (b) of this subsection apply, the lowest amount determined under these two subitems;

....

(B)This section applies to any individual or group specified disease insurance policy issued to any resident of this State that contains the terms “actual charge”, “actual charges”, “actual fee”, or “actual fees” and does not contain an express definition for the terms “actual charge”, “actual charges”, “actual fee”, or “actual fees”.

(C) Notwithstanding any other provision of law, after the effective date of this section, an insurer or issuer of any individual or group specified disease insurance policy shall not pay any claim or benefits based upon an actual charge, actual charges, actual fee, or actual fees under the applicable policy in an amount in excess of the “actual charge”, “actual charges”, “actual fee”, or “actual fees” as defined in this section.

S.C.Code Ann. § 38–71–242(Supp.2013)(emphasis added).

In light of the enactment of section 38–71–242, on remand fromWard I, the Warddefendants argued that the statute prohibited them from paying “actual charges” as defined in Ward I. SeeWard v. Dixie Nat'l Life Ins. Co. (Ward II),595 F.3d 164, 171–72(4th Cir.2010).The district court denied the Warddefendants' motion, finding the presumption against statutory retroactivity precluded application of section 38–71–242 to the Wardplaintiffs' insurance policies.The district court concluded the Fourth Circuit's Ward I definition of “actual charges” applied to the Wardplaintiffs' policies—not the definition found in section 38–71–242. Id.

On appeal, the Fourth Circuit affirmed the district court's finding that the presumption against retroactivity barred application of section 38–71–242 to the Wardplaintiffs' claims.Id. at 173.The Fourth Circuit noted that the Wardplaintiffs' claims arose prior to the statute's effective date and found the defendants failed to rebut the presumption against statutory retroactivity because “[n]either the statutory language nor the legislative history evinces any intent to apply the statute's definition to the insurance contracts in this case.”Id. at 174–75.

In the instant case, Kirven's cancer recurred in 2009.Kirven continued to rely on the policy she purchased years earlier, long before the enactment of section 38–71–242.Kirven underwent chemotherapy and filed a claim seeking benefits under the policy with Philadelphia American Life Insurance Co.(Philadelphia American), which had acquired Central States' South Carolina policies in 2005.Philadelphia American required Kirven to submit an explanation of benefits (EOB) form as documentation of the discounted amounts her primary health insurers had negotiated to pay for her medical treatment.Unlike Central States had done previously, Philadelphia American used the amount in the EOB to calculate the benefit payable to Kirven consistent with the definition of “actual charges” set forth in section 38–71–242.Thereafter, Kirven filed suit in federal court seeking a declaratory judgment adjudicating the term “actual charges” within her insurance policy and damages from the alleged breach of that contract.

In her lawsuit, Kirven claims the definition of “actual charges” in section 38–71–242 cannot be applied retroactively to policies that existed prior to its enactment.The parties agree the legal definition of the term “actual charges,” as that term is used in Kirven's policy, is dispositive of the issues in the case.As a result, the parties jointly moved to certify to this Court two separate questions regarding the applicability of section 38–71–242.

II.

Kirven argues section 38–71–242 may not be applied to preexisting contracts for several reasons: the presumption against statutory retroactivity and the doctrine of constitutional avoidance require a prospective construction of section 38–71–242, and, in any event, the application of section 38–71–242 to preexisting insurance policies would violate the Contract Clause of the United States and South Carolina constitutions.We address each of these arguments in turn.

A.Presumption Against Retroactivity

Kirven argues the application of section 38–71–242 to existing insurance policies is prohibited by the presumption against statutory retroactivity and the doctrine of...