P.A.M. Transport, Inc. v. Arkansas Blue Cross and Blue Shield

• Decision Date: 06 December 1993
• Docket Number: No. 93-59,93-59
• Court: Arkansas Supreme Court
• Parties: P.A.M. TRANSPORT, INC., Appellant, v. ARKANSAS BLUE CROSS AND BLUE SHIELD, Appellee.

Page 33

868 S.W.2d 33

315 Ark. 234

P.A.M. TRANSPORT, INC., Appellant, v. ARKANSAS BLUE CROSS AND BLUE SHIELD, Appellee.

No. 93-59.

Supreme Court of Arkansas.

Dec. 6, 1993.

Opinion Supplementing Decision on Denial of Rehearing Jan. 10, 1994.

Kenneth S. Hixson, Fayetteville, for appellant.

George R. Rhoads, David R. Matthews, Rogers, for appellee.

NEWBERN, Justice.

This is an insurance contract case. The appellant, P.A.M. Transport, Inc. (PAM), entered a contract with the appellee, Arkansas Blue Cross and Blue Shield (BCBS), which provided that BCBS would administer the health care claims of PAM employees. BCBS was to adjust and then pay all claims submitted by PAM employees. BCBS would then bill PAM, monthly, for reimbursement of the claims plus an administrative fee. The agreement provided PAM's annual liability for insurance claims would not exceed a "cap." The cap was calculated using a formula based on the number of employees insured under the plan. BCBS adjusted and paid all claims, but PAM was to reimburse BCBS only up to the cap amount. Claims in excess of the cap amount were to be absorbed by BCBS. Within sixty days after the contract year, BCBS provided PAM with an accounting of insurance claims for that year. If the accounting showed that PAM's monthly reimbursements to BCBS exceeded the cap for the year, BCBS would reimburse PAM that amount.

At the end of the 1988-89 contract year, a dispute arose as to how the cap was calculated. Officials at PAM believed payments to BCBS for the 1988-89 year had exceeded the cap by several thousand dollars. By BCBS's calculations, these payments had not reached the cap amount. The dispute extended into the 1989-90 contract year. Toward the end of the 1989-90 contract year, PAM believed it was being overbilled again. It decided that when its monthly payments approached the cap, as PAM calculated the cap, PAM would cease reimbursing BCBS. As a result of that action, PAM's account became delinquent according to BCBS, and in May, 1990, BCBS suspended payment on claims submitted by PAM employees.

PAM sued BCBS for breach of contract and deceit. PAM claimed BCBS had miscalculated the cap for contract years 1988-89 and 1989-90 and thus PAM was entitled to a reimbursement for each of those contract years. Additionally, PAM claimed BCBS had induced PAM to enter the contracts by misrepresenting the manner in which BCBS intended to calculate the liability cap. BCBS counterclaimed for the unpaid invoices in contract year 1989-90.

The jury found that BCBS had indeed overbilled PAM $201,099.50 for the contract year 1988-89. It also determined BCBS liable for deceit damages of $400,000. For the 1989-90 contract year, the jury returned a $94,271.24 verdict in favor of PAM, and a $282,187.98 verdict in favor of BCBS. The Trial Court set aside the deceit verdict, stating there was not substantial evidence to support it and that it was inconsistent with the contract awards in favor of PAM. Judgment was entered on the other two verdict awards favoring PAM and the one favoring BCBS.

PAM has raised five points of appeal, and BCBS argues six points in its cross-appeal. We find no reversible error.

PAM and BCBS signed a new contract each contract year beginning in late May or early June. Each contract contained a clause describing the cap. The clauses were identical with the exception of changes in the cap amount and number of PAM employees to be insured. For example, the clause in the contract entered June 1, 1988, for the 1988-1989 year stated:

MAXIMUM LIABILITY: The maximum liability is $1,208,457.00 based on 901 certificates. If actual exposure exceeds these amounts, the maximum liability will be adjusted at the end of the policy year using $111.77 per certificate. A settlement will be computed sixty days after the end of the policy year. In the event that paid claims plus administrative expenses exceed the maximum liability, carrier is liable for the excess.

Each of PAM's employees was issued an insurance certificate by BCBS. The number of certificates stated (901) was BCBS's projection of the number of PAM employees through the contract year. The maximum liability cap ($1,208,457.00) was the product of the number of certificates times the cost figure contained in the clause ($111.77) and the number of months the contract was in effect (12).

The dispute that arose between PAM and BCBS concerned the number of certificates used in calculating the cap. It was PAM's understanding that the number of certificates used to calculate the cap was to be based on the actual number of PAM employees. Based on that interpretation, the liability cap could fluctuate up or down from the cap stated in the liability clause. According to BCBS's interpretation, the liability cap was calculated based on the minimum number of certificates that was found in the liability clause. According to BCBS, the cap could only adjust upward.

PAM presented evidence that BCBS representatives stated the liability cap would fluctuate up or down. PAM based its calculation of each annual cap on the understanding it claimed to have been induced by those representations.

BCBS rebutted this evidence with testimony of its representatives that those comments were made while PAM was in an "expansion growth mode." The BCBS representatives believed, at the time the statements were made, the actual number of PAM employees during a contract year would always be higher than the projected figure that was placed in the maximum liability clause. In that context the liability cap would fluctuate up and down between contract years. As it turned out PAM's number of employees decreased during the years it contracted with BCBS. That is evident from the contracts in dispute. In 1988-89, the projected number of certificates used in the liability cap clause was 901, and the same figure for the 1989-90 clause was 783.

Appeal

1. The deceit verdict

PAM introduced testimony of its employees and some BCBS employees to the effect that, during negotiation of the agreement, BCBS personnel had stated that PAM's liability in any given contract year could decrease below the "maximum liability" stated in the contract if the number of PAM employees decreased. PAM contended that was a misrepresentation made to induce it to enter the agreement, and it suffered damages accordingly. In its first two points of appeal, PAM argues the jury's award of damages for deceit was not inconsistent with its recovery on the contract as it was injured in excess of its contract recovery, and thus it was improper to have set the verdict aside.

In each of the breach of contract verdicts favoring PAM, the jury awarded damages to PAM calculating the liability cap for each contract based on PAM's interpretation of the maximum liability clause. The Trial Court set aside the deceit verdict, holding that, as the jury had determined that the contract was as PAM had interpreted it to be, there was no misrepresentation. Although it is somewhat inverted, we find no fault with the Trial Court's logic, but in addition we choose to state a different rationale for our agreement with the result reached.

One of the elements of deceit is that the misrepresentation alleged must typically be a misrepresentation of fact. Delta School of Commerce, Inc. v. Wood, 298 Ark. 195, 766 S.W.2d 424 (1989). In the context of negotiating a contract, a misrepresentation sufficient to form the basis of a deceit action may be made by one prospective party to another and must relate to a past event, or a present circumstance, but not a future event. "An assertion limited to a future event may be a promise that imposes liability for breach of contract or a mere prediction that does not, but it is not a misrepresentation as to that event." 1 E. ALLEN FARNSWORTH, FARNSWORTH ON CONTRACTS § 4.11 (1990); see also, Delta School of Commerce, supra (citing Anthony v. First National Bank of Magnolia, 244 Ark. 1015, 431 S.W.2d 267 (1968); Lawrence v. Mahoney, 145 Ark. 310, 225 S.W. 340 (1920); Harriage v. Daley, 121 Ark. 23, 180 S.W. 333 (1915); and Conoway v. Newman, 91 Ark. 324, 121 S.W. 353 (1909)).

The representations in question illustrated BCBS's interpretation of the liability cap. Since these representations were made before any contract was signed, they could not have represented a past event or present circumstance. These representations could only have alluded to BCBS's future performance of contracts to be executed in the future. In these circumstances, the Trial Court was correct to set aside the deceit verdict.

2. Inconsistent verdicts

PAM contends the breach of contract verdict favoring BCBS awarded by the jury is inconsistent with the ones favoring PAM. In its first breach of contract verdict, the jury awarded PAM $201,099.50 for BCBS's breach of the 1988-89 contract. The second breach of contract verdict is divided into two portions. In the first portion, the jury awarded PAM $94,271.24 for BCBS's breach of the 1989-90 contract; in the second portion the jury awarded BCBS $282,187.98 for PAM's breach of the 1989-90 contract. PAM contends it was impossible for the jury to return the award to BCBS based on the calculations used to determine the damages awarded to PAM. To understand PAM's argument requires careful analysis of each verdict.

At trial PAM presented calculations to show it was overbilled for the 1988-89 contract. The 1988-89 contract contained a liability cap of $1,208,457.00. According to PAM's interpretation of the contract, its maximum liability was $1,079,027.58, based on the actual number of PAM employees. PAM's monthly payments to BCBS for 1988- 89 totalled $1,208,457.24. Using PAM's liability cap, PAM claimed it was overbilled $129,429.66. PAM was also entitled to a "large claim rebate" from BCBS in the amount of $71,669.84. This rebate was based on an agreement between BCBS and PAM in which BCBS insured PAM for any claims from a single employee that...