Pedicini v. Life Ins. Co. of Ala.

• Decision Date: 11 July 2012
• Docket Number: Nos. 10–6270,10–6301.,s. 10–6270
• Citation: 682 F.3d 522
• Parties: Italo PEDICINI, Plaintiff–Appellant/Cross–Appellee, v. LIFE INSURANCE COMPANY OF ALABAMA, Defendant–Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

682 F.3d 522

Italo PEDICINI, Plaintiff–Appellant/Cross–Appellee,

v.LIFE INSURANCE COMPANY OF ALABAMA, Defendant–Appellee/Cross–Appellant.

Nos. 10–6270, 10–6301.

United States Court of Appeals,Sixth Circuit.

June 21, 2012.

Rehearing Denied July 11, 2012.

ON BRIEF:Thomas W. Davis, Glasgow, Kentucky, for Appellant/Cross–Appellee. Thomas N. Kerrick, Kerrick, Stivers, Coyle & Van Zant, P.L.C., Bowling Green, Kentucky, Charles A. Dauphin, Baxley, Dillard, Dauphin, McKnight & James, Birmingham, Alabama, for Appellee/Cross–Appellant.

Before: MERRITT and MOORE, Circuit Judges, and MAYS, District Judge. ^*

OPINION

KAREN NELSON MOORE, Circuit Judge.

This appeal and cross-appeal arise from a dispute regarding the meaning of the term “actual charges” in the context of a supplemental cancer-insurance policy. The policyholder, Italo Pedicini (“Pedicini”), contends that “actual charges” refers to the amount billed by a medical provider, while the insurer, Life Insurance Company of Alabama (“LICOA”), argues that it refers to the amount actually accepted by a medical provider as full payment. Pedicini sued LICOA for breach of contract and bad faith after LICOA refused to pay Pedicini benefits due under his policy pursuant to Pedicini's interpretation of “actual charges.” The district court granted summary judgment in Pedicini's favor on the breach-of-contract claim and in LICOA's favor on the bad-faith claims. Both parties appeal their respective adverse rulings. In addition, Pedicini argues that the district court abused its discretion in denying Pedicini leave to file a second amended complaint and additional discovery. Because the district court correctly granted summary judgment for Pedicini as to the breach-of-contract claim, but incorrectly granted summary judgment for LICOA as to the bad-faith claims, we AFFIRM the district court's judgment in part and REVERSE in part. We also hold that the district court did not abuse its discretion with respect to Pedicini's motion to amend, and we remand for consideration by the district court as to whether further discovery is necessary or justified.

I. BACKGROUND AND PROCEDURAL HISTORY

A. Background

A supplemental cancer-insurance policy is a “valued policy” that ties cash benefits to charges for qualifying cancer treatments received. R. 43–3 (Christensen Aff. at 2). The cash benefits are paid directly to the insured, and the insured is at liberty to use them as he or she wishes. Id. Thus, while a policyholder can use these benefits to offset the cost of medical treatment, a policyholder with health insurance otherwise covering those medical costs can utilize the benefits to offset extraneous costs associated with illness or for any purpose whatsoever. Id.

In 1990, Pedicini purchased a supplemental cancer-insurance policy from LICOA. R. 17–4 (1990 Policy at 2). The policy provided for unlimited cash benefits equal to the “usual and customary charges made for” radiation or chemotherapy received as treatment for cancer. Id. at 4. The policy defined “usual and customary charges” as “[t]he usual charge made by a person or entity furnishing the services, treatment or material.” Id. at 10. Because Pedicini's policy provided unlimited benefits for chemotherapy and radiation treatments, his premiums increased dramatically over time. R. 31 (Pedicini Dep. at 12:6–13). As a result, in 2001, Pedicini contemplated terminating his policy and solicited the advice and assistance of the insurance agent from whom he purchased car and homeowners insurance, Jerry Hardison (“Hardison”). Id. at 12:18–20, 13:7–9. Hardison contacted LICOA and negotiated a virtually identical policy that capped Pedicini's benefits for chemotherapy and radiation treatments at twenty-five thousand dollars per year, thereby significantly lowering the requisite premium payments. Id. at 12:22–13:6. The new policy tied the radiation and chemotherapy benefits to “actual charges” for those treatments and defined “actual charges” as “actual charges made by a person or entity furnishing the services treatment or material.” R. 17–4 (2001 Policy at 10, 16). The new policy became effective on October 1, 2001. Id. at 3.

Unbeknownst to Pedicini, approximately eight months earlier in February 2001, LICOA changed its benefit-payment practices. R. 32 (Casey Dep. at 25:11–14). For approximately twenty years prior to February 2001, LICOA paid benefits tied to “actual charges” according to the amount billed by medical providers regardless of the amount medical providers accepted as full payment. See id. at 26:1–5. However, in February 2001, LICOA abandoned this policy and began paying benefits equal to the amount accepted as full payment by medical providers. Id. at 123:13 –17; 153:11–17. In many instances, this resulted in lower benefit payments because of discounted rates required by Medicare and/or previously negotiated by private health-insurance providers. See id. at 87:1–89:12. LICOA contends that it enacted this change upon learning that new medical-billing practices were resulting in overcharges and a surplus in benefit distributions. Id. at 25:11–19. LICOA did not provide notice to policyholders of the change, although it did provide notice to its servicing agents. Id. at 31:22–33:10. Many policyholders became aware of the change only upon receiving a reduced benefit payment. See id.

In February 2007, Pedicini was diagnosed with cancer. R. 68–3 (Pedicini Aff. at 2). After Pedicini began receiving treatments qualifying for the chemotherapy and radiation benefit under his policy, he submitted claims to LICOA. See R. 31 (Pedicini Dep. at 21:5–12). Upon receiving his first benefit payment, Pedicini realized that LICOA was not providing him benefits equal to the amount billed by his medical provider, but rather only equal to the discounted amount accepted by his medical provider in light of his status as a Medicare recipient. Id. at 21:15–22:20.¹ When Pedicini called LICOA to inquire about the discrepancy, LICOA informed him that LICOA would only pay benefits equal to the amount accepted by the medical provider as full payment in light of Medicare discounts. Id. at 21:21–22:20. LICOA also instructed Pedicini to include documentation of the amount actually accepted by his medical provider as full payment, i.e., evidence of payments made by Medicare and any other health insurance provider, when submitting future claims. Id. at 22:8–20. To date, LICOA has paid Pedicini benefits under the policy only according to LICOA's interpretation of “actual charges.”

B. Procedural History

Pedicini filed a complaint against LICOA in Kentucky state court and asserted claims for breach of contract, breach of good faith and fair dealing, bad faith, violations of the Kentucky Unfair Claims Settlement Practices Act, and punitive damages. R. 1–3 (First Amended Compl.). LICOA removed the action to federal district court on the basis of diversity jurisdiction. R. 1 (Notice of Removal). The district court bifurcated the breach-of-contract claim from the bad-faith claims, R. 25 (Dist. Ct. Order), and both parties moved for summary judgment as to the breach-of-contract claim, R. 42 (Plaintiff Summary Judgment Mot.); R. 44 (Defendant Summary Judgment Mot.). The district court granted summary judgment in Pedicini's favor, finding that because the term “actual charges” was ambiguous, it must be construed in Pedicini's favor under Kentucky law. R. 60 (Dist. Ct. Op. at 11).

Thereafter, LICOA moved for summary judgment on the remaining bad-faith claims. R. 66 (Defendant Summary Judgment Mot.). In addition to responding to LICOA's summary judgment motion, Pedicini entered a number of deposition notices, see R. 68 (Response to Summary Judgment Mot.); R. 69–75 (Dep. Notices), and moved to file a second amended complaint, R. 78 (Amended Compl. Mot.). The district court granted LICOA's motion for summary judgment finding “that because the interpretation of the term ‘actual charges' under the supplemental cancer insurance policy is fairly debatable, Plaintiff's common law and statutory bad faith claims may not be maintained.” R. 82 (Dist. Ct. Op. at 4). The district court also denied Pedicini's motion to file an amended complaint as untimely and declined to grant further discovery. Id. at 6. The district court entered judgment as to all claims on September 20, 2010. R. 83 (Judgment). Pedicini and LICOA timely appealed and cross-appealed, respectively. R. 84 (Notice of Appeal); R. 85 (Notice of Cross–Appeal).

II. ANALYSIS

A. Breach–of–Contract Claim

LICOA challenges the district court's conclusion that Pedicini is entitled to summary judgment on the breach-of-contract claim because the term “actual charges” is ambiguous as a matter of Kentucky law. We review a grant of summary judgment on a breach-of-contract claim de novo. See Jones v. Union Cnty., 296 F.3d 417, 423 (6th Cir.2002).

“As a federal court sitting in diversity, we apply the choice-of-law provisions of the forum state.” NILAC Int'l Mktg. Grp. v. Ameritech Servs., Inc., 362 F.3d 354, 358 (6th Cir.2004) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). Under Kentucky law, the law of the state with “the most significant relationship to the transaction and the parties” governs the dispute. State Farm Mut. Auto. Ins. Co. v. Marley, 151 S.W.3d 33, 42 (Ky.2004) (quoting Restatement (Second) of Conflict of LawsS § 188 (1971)) (internal quotation marks omitted). The parties do not dispute that Kentucky law applies.

Under Kentucky law, “the construction and legal effect of an insurance contract is a matter of law for the court.” Bituminous Cas. Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633, 638 (Ky.2008). Kentucky law requires that an ambiguous term in an insurance policy “be liberally construed so as to resolve all doubts in favor of the insured.” Id. “A contract is ambiguous if a reasonable person would find it susceptible to different or inconsistent...