Massachusetts Farm Bureau Federation, Inc. v. Blue Cross of Massachusetts, Inc.

• Decision Date: 09 January 1989
• Citation: 532 N.E.2d 660,403 Mass. 722
• Parties: , 57 USLW 2508 MASSACHUSETTS FARM BUREAU FEDERATION, INC. v. BLUE CROSS OF MASSACHUSETTS, INC., et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 660

532 N.E.2d 660

403 Mass. 722, 57 USLW 2508

MASSACHUSETTS FARM BUREAU FEDERATION, INC. v. BLUE CROSS OF MASSACHUSETTS, INC., et al. ¹

Supreme Judicial Court of Massachusetts.

Jan. 9, 1989.

Edward J. Dailey (Susan M. Gretkowski, Boston, with him), for defendants.

William E. Ryckman, Jr., Boston, (Charles A. Goglia, Jr., Wellesley, with him), for plaintiff.

Before HENNESSEY, C.J., and ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

O'CONNOR, Justice.

Massachusetts Farm Bureau Federation, Inc. (Farm Bureau), is a Massachusetts nonprofit corporation with a membership comprised of Massachusetts farmers. Farm Bureau provides various services to its members including the provision of health care insurance coverage. That coverage was provided from July 1, 1972, through June 30, 1982, by the defendant corporations Blue Cross of Massachusetts, Inc., and Blue Shield of Massachusetts, Inc. (Blue Cross-Blue Shield). Farm Bureau terminated its relationship with Blue Cross-Blue Shield at the close of the policy year ending June 30, 1982. At that time, $448,557 was credited to Farm Bureau as a rate stabilization fund maintained by Blue Cross-Blue Shield. When Farm Bureau did not renew the coverage for the year beginning July 1, 1982, Blue Cross-Blue Shield transferred the $448,557 to its own members' reserve.

After a jury-waived trial, a judge of the Superior Court concluded that Blue Cross-Blue Shield's "attempts to work a forfeiture" of the $448,557 constituted unfair or deceptive conduct proscribed by G.L. c. 93A (1986 ed.). He also concluded that the unfair or deceptive conduct was "deliberate, willful, and knowing" and, accordingly, he awarded damages in the sum of $897,114 (2 X $448,557), interest, and attorneys' fees for a total of $1,587,303.97. Blue Cross-Blue Shield appealed, and we transferred the case to this court on our own initiative. We reverse the judgment and remand for the entry of a judgment for Blue Cross-Blue Shield.

Farm Bureau's amended complaint is in five counts. Counts 1 and 4 allege violations of G.L. c. 93A. The other counts assert breach of contract and deceit. We focus on counts 1 and 4 because the judge found for Blue Cross-Blue Shield on the other counts, and Farm Bureau has not appealed. Count 1 alleges in material part as follows: There was no written contract between the parties; the only written description of their relationship is contained in their correspondence. Since 1972, Blue Cross-Blue Shield consistently represented to Farm Bureau that its rates were based solely on Farm Bureau's own experience, using such terms as "self-rated" and "the group will make its own rate." By using such terminology, Blue Cross-Blue Shield "effectively represented ... that its premiums were closely related to losses and expenses." In addition, Blue Cross-Blue Shield failed to provide Farm Bureau with timely and accurate information about claims paid, administrative expenses, and surplus generated.

Count 1 alleges that from July 1, 1976, through June 30, 1979, Farm Bureau paid $716,117 in premiums in excess of the losses and expenses incurred by Blue Cross-Blue Shield for those years; that Farm Bureau was not told about that "surplus" until July, 1979; and that "[t]he failure of Blue Cross-Blue Shield to disclose the true nature of its rate making process and to disclose in a timely fashion the true data concerning the Farm Bureau's claims experience, combined with its misleading insistence that the Farm Bureau was rated solely by its own experience, constitute unfair and deceptive practices within the meaning of Chapter 93A and Chapter 176D of the general laws." Claiming that the "cumulative surplus" on July 1, 1980, was $728,695, Farm Bureau in count 1 seeks judgment in that amount tripled, together with attorneys' fees and interest.

We turn to the allegations in count 4 of the amended complaint: Sometime in 1976, an agent of Blue Cross-Blue Shield wrote to Farm Bureau that, on July 1, 1976, Blue Cross-Blue Shield "will begin to credit your account with claims reserves which in future periods may be used as a rate stabilization fund." Count 4 alleges that that letter "was deceptive in that it tended to lead the Farm Bureau and its members to believe they would receive some kind of direct credit for excesses of premiums over losses and expenses. The Farm Bureau and its members relied upon this statement by renewing their contract for the years 1976, 1977, 1978, 1979, and 1980."

Count 4 further alleges that, in July, 1979, Blue Cross-Blue Shield filed with the Commissioner of Insurance a rate stabilization fund plan which was unfair and deceptive because (1) it gave no credit to the plaintiff for "surplus" generated from 1976 to 1979, contrary to its earlier letter to Farm Bureau, and (2) the plan "imposed a reserve minimum of 25% of one year's premiums; only the excess over 25% would apply towards next year's premiums as a credit." According to count 4, after an informal meeting involving the insurance commissioner's office in January, 1980, Blue Cross-Blue Shield "acknowledged its 1976 commitment to credit reserves beginning in 1976. However, Blue Cross-Blue Shield otherwise left the rate stabilization fund plan in effect as filed." The rate stabilization fund yielded no credits to the plaintiff for the year beginning July 1, 1979, "because the [$716,117] surplus was below 25% of the premiums for 1979." Farm Bureau received no credit for the following year either. We continue the description of the allegations in count 4. On November 20, 1980, Blue Cross-Blue Shield sent Farm Bureau a letter outlining a "new methodology" for the rate stabilization fund. Blue Cross-Blue Shield calculated that for the policy year ending June 30, 1980, the reserve had increased from $716,117 to $728,695, and Blue Cross-Blue Shield promised that 50% of that amount ($364,368) "would be applied to prospective premiums for the policy year beginning July 1, 1981." On March 3, 1981, Blue Cross-Blue Shield wrote Farm Bureau that the figures contained in the November 20, 1980, letter were incorrect and that, correctly calculated, the reserve for the year ending June 30, 1980, was not $728,695, but instead was $655,634. Farm Bureau protested unsuccessfully to the Commissioner of Insurance. Farm Bureau alleges in substance that Blue Cross-Blue Shield unilaterally imposed the recomputed figures on Farm Bureau and its members for the policy year beginning July 1, 1981; that Farm Bureau was not free to reject those computations or to switch its coverage to another insurer "because Blue Cross-Blue Shield has taken the position that no part of the accumulated reserve would be refunded if the Farm Bureau and its members dropped their coverage." Count 4 concludes with an assertion that the "entire course of dealing outlined above constitutes a series of unfair and deceptive practices under chapter 176D and chapter 93A," followed by a request for judgment in the sum of $728,695, tripled, plus attorneys' fees, interest, and costs.

The judge made detailed findings which we summarize. Each year from 1972 through 1975, Blue Cross-Blue Shield solicited the renewal of Farm Bureau's group health insurance business with letters indicating that Farm Bureau's premiums would be based on the group's experience. In the spring of 1976, Blue Cross-Blue Shield wrote: "For the rating period effective on your July 1, 1976 anniversary date Blue Cross-Blue Shield will begin to credit your account with claims reserves which in future periods may be used as a Rate Stabilization Fund...." In the spring of 1978, Blue Cross-Blue Shield again wrote to Farm Bureau that premium prices were reached "using your past experience."

During the period 1975 to 1979, Farm Bureau expressed its increasing concern about rising premium costs. Blue Cross-Blue Shield wrote a letter stating that Farm Bureau's rates were among the lowest of association groups and again indicating that rates for the year beginning July 1, 1979, would be based on "your experience."

In June, 1979, the judge found, Blue Cross-Blue Shield filed with the Commissioner of Insurance a plan for a "Rate Stabilization Fund." The plan provided that each year's excess premiums would be carried forward until the accumulated reserve exceeded twenty-five percent of the annual premium, at which point the amount over twenty-five percent would be used to offset prospective premiums. The plan provided that "[i]n case of cancellation any unused rate stabilization fund will be transferred to the Blue Cross-Blue Shield members reserve." Farm Bureau met with Blue Cross-Blue Shield on June 27, 1979, and renewed its coverage for the year beginning July 1, 1979. On July 3, 1979, Blue Cross-Blue Shield sent Farm Bureau a letter confirming the existence of the rate stabilization plan for the year beginning July 1, 1979. As it worked out, because of the twenty-five percent floor, the plan did not benefit Farm Bureau in the policy years beginning July 1, 1979, or July 1, 1980.

In February, 1980, Blue Cross-Blue Shield informed Farm Bureau that its premium payments from July 1, 1976, through June 30, 1979, had resulted in a "members reserve" surplus of $716,117. This was the first time that Blue Cross-Blue Shield had confirmed to Farm Bureau the existence of such a substantial surplus. In April, 1980, Blue Cross-Blue Shield wrote a letter reiterating that Farm Bureau's rates were "totally dependent on its own experience" and noting that Farm Bureau's "members reserve" had almost reached the twenty-five percent threshold. In June, 1980, Farm Bureau's lawyers wrote to the Commissioner of Insurance requesting an investigation of unfair and deceptive practices under G.L. c. 176D, § 6. The commissioner declined to take any action.

The judge found that before December 1, 1980, Blue Cross-Blue Shield changed the method of computing the rate stabilization fund for associations and chambers of commerce. The new...