Lifespan/Physicians Professional v. Combined Ins., No. C.A. 02-175L.

Decision Date17 November 2004
Docket NumberNo. C.A. 02-175L.
Citation345 F.Supp.2d 214
PartiesLIFESPAN/PHYSICIANS PROFESSIONAL SERVICES ORGANIZATION, INC., Plaintiff, v. COMBINED INSURANCE COMPANY OF AMERICA and Aon Risk Services of Massachusetts, Inc., Defendants.
CourtU.S. District Court — District of Rhode Island

Jeffrey S. Brenner, Linn F. Freedman, Nixon Peabody LLP, Providence, RI, for Plaintiff.

Anthony F. Demarco, Boyer, Reynolds & Demarco, Ltd., Benjamin V. White, Howard A. Merten, Vetter & White, Incorporated, Providence, RI, Scott J. Tucker, Richard E. Heifetz, Danielle M. Maloney, Tucker, Heifetz & Saltzman, Michelle E. Leinbach, Joseph G. Blute, John Stephan, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, Rosemary M. Allen, for Defendants.

DECISION AND ORDER

LAGUEUX, Senior District Judge.

This case is before the Court on cross motions for partial summary judgment. The dispute involves the amount payable under a "stop loss" insurance policy, which in turn depends on the proper interpretation in the language of the policy. The parties to this litigation are the insured, Plaintiff Lifespan/Physicians Professional Services Organization, Inc., (hereinafter "PSO"); the insurance broker, Defendant Aon Risk Services of Massachusetts, Inc., (hereinafter "Aon Mass"); and the insurance company, Defendant Combined Insurance Company of America (hereinafter "Combined"). When the payment received by PSO pursuant to the policy turned out to be much smaller than it had anticipated, it filed this lawsuit, sounding in eight counts. All three parties filed motions for partial summary judgment. PSO moves for summary judgment on Counts I and II, and requests that the Court interpret the policy. Aon Mass moves for summary judgment on Counts II, IV, VII, and VIII. Combined also seeks to have the Court construe the language of the policy, and moves for summary judgment on Counts I, III, and V. In addition, Combined has requested that the Court refer the matter to an independent auditor to make the calculations under the policy. No party has moved for summary judgment on Count VI of the operative complaint.

For the reasons that follow, the Court determines that Aon Mass is entitled to summary judgment on Counts II, IV and VII of the Amended Verified Complaint, and Combined is entitled to summary judgment on Count V. Both the motions of PSO and Combined on Counts I and II are denied, as is Aon Mass' motion on Count VIII. Furthermore, the Court concludes that the language of the insurance policy is ambiguous and that further evidence needs to be presented at trial to determine its meaning. Because a trial is necessary to determine the proper interpretation of the language of the insurance policy, Combined's motion to have the matter turned over to an independent auditor is premature, and is denied.

Background

Plaintiff PSO is a non-profit Rhode Island corporation made up of three hospitals and three membership entities, which include over eight hundred physicians. On March 1, 1999, PSO signed a contract with Coordinated Health Partners, Inc., d/b/a BlueCHiP ("Bluechip"), which, inter alia, allocated the potential financial risk resulting from PSO providing hospital and physician services to Bluechip patient/subscribers. In this so-called "risk contract," Bluechip set limits on the amount (or "capitated" the amount) it would pay PSO for medical services provided to Bluechip subscribers, some of whom are Medicare and Medicaid recipients. If a Bluechip subscriber required medical care that exceeded the limit set by Bluechip, then PSO had to absorb those excess costs.

To insure itself against the risk of those kinds of catastrophic medical costs, and because it was required to do so by federal Medicare regulations, PSO sought reinsurance, a new form known in the industry as "stop loss" insurance, prior to entering into the Bluechip contract. PSO contacted Aon Risk Services of Rhode Island, Inc. ("Aon RI"), a licensed insurance broker with which PSO's affiliate Lifespan Corporation had previously done business. Explaining that it did not have the expertise to broker a "stop loss" insurance policy, Aon RI, in turn, referred PSO to its affiliate Defendant Aon Mass.

In early 1998, Aon Mass agreed to serve as PSO's broker to secure a "stop loss" policy, and proceeded to solicit offers from insurance companies offering this type of reinsurance coverage. Several proposals were presented to PSO during a series of meetings that took place over close to a year at which various aspects of this complex coverage were explained by Aon Mass personnel, most notably Senior Vice President Berni Bussell, to PSO's Chief Operating Officer, William Beyer. During this time, Beyer reviewed a specimen insurance policy provided by Combined.

In the spring of 1999, PSO zeroed in on the policy offered by Defendant Combined, and in April 1999 Beyer signed an Insurance Binder for Combined's "stop loss" coverage. The policy was drafted to cover services provided by PSO over a year-long period from March 1, 1999, to March 1, 2000.

The stop-loss policy

The policy provided PSO with two types of coverage: Specific Excess of Loss coverage and Aggregate Excess of Loss coverage. The Specific Excess of Loss coverage was fairly simple, and, with the exception of some disputed charges, the parties are in agreement as to its basic operation. For this coverage, a per-patient limit was set for doctors' services ($17,000) and one for hospital services ($75,000). All eligible costs incurred by PSO over these limits were to be reimbursed by Combined at a rate of ninety per cent.

A distinguishing feature of the Combined policy — and the one that has caused the major headaches for the parties to this dispute — is the Aggregate Excess of Loss provision. Under this provision, all eligible costs ("Billed Charges for Eligible Services") are added together or "aggregated." A separate calculation is then undertaken to arrive at an "Aggregate Attachment Point," as follows: the number of Bluechip subscribers in the underlying risk contract is multiplied by a factor provided in the policy (one for commercial patients and one for Medicare/Medicaid patients). The Aggregate Attachment Point is then subtracted from the aggregated eligible charges. All eligible charges exceeding the Aggregate Attachment Point are to be reimbursed by Combined at the rate of ninety per cent.

The Schedule of Insurance

The formula outlined above for calculating the Aggregate Attachment Point and determining the amount subject to reimbursement under the Aggregate Excess of Loss provision was discussed in the meetings between Aon Mass and PSO, and was generally understood by the parties. However, at some point some new concepts and terms were introduced into the mix.

The new terms are found in the Schedule of Insurance which was added to the policy and incorporated therein by the time PSO received a final copy of the policy on April 21, 2000. The new terms are found in the Insurance Binder, although with different numeric values than those found in the Schedule. The Insurance Binder was signed by PSO's Chief Operating Officer Beyer on April 6, 1999. The new terms are not found in any section of the Specimen Policy, including the specimen schedule, the definitions, exclusions, etc., that PSO examined during the presentation of the proposal. A central question of fact posed by this dispute is when did PSO become aware of the new terms and concepts in the Schedule — which new terms, concepts and numeric limits serve to significantly change the coverage delineated in the body of the policy.

The new terms

Item # 6 of the Schedule of Insurance, a provision entitled "Aggregate Excess of Loss Insurance," contains three new concepts that are not included or defined in the body of the policy, and which this Court determines to be ambiguous.

1) The first of these is the "Minimum Aggregate Attachment Point." After completing the calculations to determine the Aggregate Attachment Point as described above and explained in the policy, Combined contends that these figures now must be scrapped, and new figures substituted. The new figures are the Minimum Aggregate Attachment Points provided in the Schedule. The Minimum Aggregate Attachment Points are described by Combined as "underwriting safeguards." These figures, in both the case of commercial patients and Medicare/Medicaid patients, are much higher than those tallied in the initial calculations. The result is that when the new figures are subtracted from the eligible charges, little remains to be reimbursed by Combined at the rate of ninety per cent.

Combined contends that the Minimum Aggregate Attachment Points are to be substituted for the Aggregate Attachment Points derived from the calculations; however, this interpretation of the words used is not apparent without Combined's explanation. Neither the policy nor the Schedule provides an explanation of the meaning or impact of the term "Minimum Aggregate Attachment Point." The meaning of the term is not apparent from the four corners of the agreement.

This Court concludes that the phrase "Minimum Aggregate Attachment Point" is not defined and is not self-explanatory as used in the insurance policy documents and, consequently, is ambiguous. Extrinsic evidence is necessary to determine whether or not this term was explained adequately and in a timely manner to PSO, and, if not, why not.

2) Also new in Item # 6 of the Schedule is the phrase "Loss Limit Per Covered Person." "Loss Limit Per Covered Person" is explained in the schedule as follows:

Hospital: $35,000 in excess of the first $40,000 of the Covered Amount

Physician: $7,000 in excess of the first $10,000 of the Covered Amount

As Defendants have subsequently explained in their briefs and at oral argument, this provision is intended to limit the eligible charges that are aggregated. The correct total does not simply...

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