Martis v. Grinnell Mut. Reinsurance Co.

• Citation: 329 Ill.Dec. 82,905 N.E.2d 920
• Decision Date: 27 March 2009
• Docket Number: No. 3-08-0004.,3-08-0004.
• Parties: Richard J. MARTIS, D.C., on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. GRINNELL MUTUAL REINSURANCE COMPANY, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

905 N.E.2d 920

329 Ill.Dec. 82

Richard J. MARTIS, D.C., on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. GRINNELL MUTUAL REINSURANCE COMPANY, Defendant-Appellant.

No. 3-08-0004.

Appellate Court of Illinois, Third District.

March 27, 2009.

Michael T. Reagan, Herbolsheimer, Lannon, Henson, Duncan & Reagan, PC, Ottawa, IL, Stephen J. O'Neil, Paul J. Walsen, Dawn L. Johnson, Sara E. Robinson, Bell, Boyd & Lloyd, LLP, Chicago, IL, for Appellant.

Donald K. Birner, Pekin, IL, for Appellee.

Justice LYTTON delivered the Opinion of the court:

Plaintiff, Richard Martis, filed a class action complaint against defendant, Grinnell Mutual Reinsurance Company, alleging conspiracy, unjust enrichment, violation of the Illinois Consumer Fraud Act and breach of contract. The trial court dismissed all but defendant's breach of contract claim. The trial court then granted plaintiff's motion to certify a class. On appeal, defendant argues that (1) plaintiff does not have a valid breach of contract claim, and (2) the trial court abused its discretion by certifying a class. We hold that plaintiff cannot state a claim for breach of contract against defendant and thus, reverse and remand.

Plaintiff is a chiropractor. In February 2006, he began treating an employee of Water Management Corp. of Illinois who was injured while working. Water Management had a workers' compensation insurance policy from defendant Grinnell Mutual Reinsurance Company. That policy listed Water Management Corp. of Illinois, employer, as the insured. The policy states: "We [Grinnell] will pay promptly when due the benefits required by you [employer] by the workers compensation law." Another provision of the policy states: "We [Grinnell] are directly and primarily liable to any person entitled to benefits payable by this insurance. Those persons may enforce our duties; so may an agency authorized by law. Enforcement may be against us or against you [employer] and us."

After plaintiff provided medical treatment to the Water Management employee, plaintiff submitted bills to defendant for payment. Plaintiff's bills were reviewed by a third-party medical invoice review firm, which applied PPO discounts to plaintiff's bills even though plaintiff did not have a PPO agreement with defendant. Defendant paid plaintiff the discounted amounts.

Plaintiff filed a seven-count complaint against defendant, seeking to represent a class of Illinois health care providers who submitted bills to defendant under workers' compensation insurance and had bills reduced because of a PPO discount even though the providers did not have a PPO contract with defendant. Count I alleged civil conspiracy. Count II alleged unjust enrichment. Count III alleged violation of the Illinois Consumer Fraud Act. Count IV alleged breach of contract. Count V sought injunctive relief, and count VI sought declaratory relief. Count VII sought an accounting and a constructive trust.

Defendant filed a motion to dismiss plaintiff's complaint. The trial court granted the motion in part and denied it in part, finding that counts I and II failed to state a cause of action. The court then ruled on plaintiff's motion to certify a class action. The trial court concluded that plaintiff, as a class representative, could not prevail on count III, his consumer fraud count, but could potentially prevail on count IV, his breach of contract claim, as a third-party beneficiary of the workers' compensation policy.¹ As to count IV, the court certified the following class: "All licensed Illinois healthcare providers who: (a) submitted claims for medical expenses pursuant to a Grinnell workers' compensation policy; (b) received or were tendered payment between October 20, 1996 and October 20, 2006 in which Grinnell took a PPO discount; and (c) did not have a PPO contract with Grinnell."

Defendant filed a petition for leave to appeal pursuant to Supreme Court Rule 306(a)(8) (210 Ill.2d R. 306(a)(8) (2006)), which we granted.

ANALYSIS

In order to certify a class action, the trial court must find that certain factors, set forth in section 2-801 of the Code of Civil Procedure, have been met. See 735 ILCS 5/2-801 (West 2006); Avery v. State Farm Mutual Auto. Insurance Co., 216 Ill.2d 100, 125, 296 Ill.Dec. 448, 835 N.E.2d 801, 819 (2005). However, before deciding if the necessary requisites for a class action have been met, the trial court must find that the plaintiff has asserted a valid cause of action. See Saldana v. American Mutual Corp., 97 Ill.App.3d 334, 338, 52 Ill.Dec. 651, 422 N.E.2d 860, 863 (1981). "Unless the plaintiff has a cause of action against the defendant, any attempted class action fails." Saldana, 97 Ill. App.3d at 338, 52 Ill.Dec. 651, 422 N.E.2d at 863.

I.

Defendant argues that the trial court erred in certifying plaintiff's class action based on his breach of contract claim because plaintiff is not an intended third-party beneficiary of the workers' compensation policy.

The construction, interpretation, or legal effect of a contract is a matter to be determined by the court as a question of law. Avery, 216 Ill.2d at 129, 296 Ill. Dec. 448, 835 N.E.2d at 821. Our review is de novo. Avery, 216 Ill.2d at 129, 296 Ill.Dec. 448, 835 N.E.2d at 821. An individual not a party to a contract may only enforce the contract's rights when the contract's original parties intentionally entered into the contract for the direct benefit of the individual. Swavely v. Freeway Ford Truck Sales, Inc., 298 Ill.App.3d 969, 973, 233 Ill.Dec. 80, 700 N.E.2d 181, 185 (1998). There is a strong presumption that the parties to a contract intend that the contract's provisions apply only to them, and not to third parties. Barney v. Unity Paving, Inc., 266 Ill.App.3d 13, 19, 203 Ill.Dec. 272, 639 N.E.2d 592, 596 (1994). That the contracting parties know, expect, or even intend that others will benefit from their agreement is not enough to overcome the presumption that the contract was intended for the direct benefit of the parties. Barney, 266 Ill.App.3d at 19, 203 Ill.Dec. 272, 639 N.E.2d at 596.

Whether someone is a third-party beneficiary depends on the intent of the contracting parties, as evidenced by the contract language. See F.H. Paschen/S.N. Nielsen, Inc. v. Burnham Station, L.L.C., 372 Ill.App.3d 89, 96, 309 Ill.Dec. 865, 865 N.E.2d 228, 235 (2007). It must appear from the language of the contract that the contract was made for the direct, not merely incidental, benefit of the third person. Gallagher Corp. v. Russ, 309 Ill. App.3d 192, 200, 242 Ill.Dec. 326, 721 N.E.2d 605, 612 (1999). Such an intention must be shown by an express provision in the contract identifying the third-party beneficiary by name or by description of a class to which the third party belongs. See Holmes v. Federal Insurance Co., 353 Ill.App.3d 1062, 1066, 289 Ill.Dec. 750, 820 N.E.2d 526, 530 (2004). If a contract makes no mention of the plaintiff or the class to which he belongs, he is not a third-party beneficiary of the contract. See 155 Harbor Drive Condominium Ass'n v. Harbor Point Inc., 209 Ill.App.3d 631, 647, 154 Ill.Dec. 365, 568 N.E.2d 365, 375 (1991); Swaw v. Ortell, 137 Ill.App.3d 60, 70, 92 Ill.Dec. 49, 484 N.E.2d 780, 787 (1984). The plaintiff bears the burden of showing that the parties to the contract intended to confer a direct benefit on him. See F.H. Paschen, 372 Ill.App.3d at 96, 309 Ill.Dec. 865, 865 N.E.2d at 235.

The issue we must decide in this case, whether a medical provider is a third-party beneficiary of a workers' compensation policy, is one of first impression in this state.² Thus, we look to decisions of other states for guidance.

In Jou v. National Interstate Insurance Co. of Hawaii, 114 Hawai'i 122, 157 P.3d 561 (App.2007), the Hawaii Court of Appeals examined whether a physician who provided medical services to an injured employee was an intended third-party beneficiary of the employer's workers' compensation insurance contract. The court held that "a physician is merely an incidental beneficiary rather than an intended third-party beneficiary of the employer's workers' compensation insurance." Jou, 114 Hawai'i at 134, 157 P.3d at 573. The court explained:

"In providing workers' compensation insurance coverage, the insurer promises the employer that the insurer will pay benefits owed by the employer to injured employees. This promise incidentally benefits the physician to the extent that the physician provides treatment for which the employer is required to pay." Jou, 114 Hawai'i at 134, 157 P.3d at 573.

Thus, the physician was precluded from bringing a bad faith claim against the workers' compensation carrier. Jou, 114 Hawai'i at 134, 157 P.3d at 573.

Similarly, in McFadden v. Liberty Mutual Insurance Co., 803 F.Supp. 1178 (N.D.Miss.1992), a federal district court held that a treating physician could not bring a bad faith claim against a workers' compensation insurance carrier because the physician was not an intended beneficiary of the workers' compensation policy. The court stated that the Workers' Compensation Act contemplates a three-party agreement among the employer, the employee and the compensation insurance carrier. McFadden, 803 F.Supp. at 1183. The employer and workers' compensation insurance carrier were the parties to the contract, and the employee was the intended beneficiary of the contract. McFadden, 803 F.Supp. at 1183. The treating physician was not an intended beneficiary but was merely an incidental third-party beneficiary under the insurance contract. McFadden, 803 F.Supp. at 1183. Thus, the physician did not have standing to sue under it. McFadden, 803 F.Supp. at 1185-86. See also CNA Insurance Co. v. Scheffey, 828 S.W.2d 785, 791 (Tex.App. 1992) ("The Workers' Compensation Act contemplates a three party agreement entered into by the employer, the employee and the compensation carrier."); Furno v. Citizens Insurance Co. of America, 590 N.E.2d 1137, 1141...