State Farm Mut. Auto. Ins. Co. v. Reyher

• Decision Date: 17 January 2012
• Docket Number: No. 10SC77.,10SC77.
• Citation: 266 P.3d 383
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Petitioner v. Pauline REYHER, and Dr. Wallace Brucker, on behalf of themselves and all others similarly situated, Respondents.
• Court: Colorado Supreme Court

266 P.3d 383

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Petitioner

v.Pauline REYHER, and Dr. Wallace Brucker, on behalf of themselves and all others similarly situated, Respondents.

No. 10SC77.

Supreme Court of Colorado, En Banc.

Oct. 31, 2011.Rehearing Denied Jan. 17, 2012.*

Faegre & Benson LLP, Michael S. McCarthy, Todd P. Walker, Sarah A. Mastalir, Denver, Colorado, Faegre & Benson LLP, Aaron Van Oort, Minneapolis, Minnesota, Mendenhall & Malouff, R.L.L.P., H. Barton Mendenhall, Rocky Ford, Colorado, Attorneys for Petitioner.

Hagens Berman Sobol Shapiro, LLP, Robert B. Carey, Megan E. Waples, Colorado Springs, Colorado, Todd A. Travis, P.C., Todd A. Travis, Englewood, Colorado, Law Office of John Gehlhausen, John Gehlhausen, Lamar, Colorado, Attorneys for Respondents.

Wheeler Trigg O'Donnell LLP, Malcolm E. Wheeler, Michael D. Alper, Denver, Colorado, O'Melveny & Myers LLP, Richard B. Goetz, Matthew M. Shors, Washington, D.C., National Chamber Litigation Center, Inc., Robin S. Conrad, Washington, D.C., Attorneys for Amicus Curiae Chamber of Commerce of the United States and the American Tort Reform Association.The Hannon Law Firm, Kevin S. Hannon, Denver, Colorado, Attorneys for Amicus Curiae Colorado Trial Lawyers' Association.Husch Blackwell Sanders LLP, J. Eric Elliff, Denver, Colorado, Attorneys for Amicus Curiae Colorado Civil Justice League.Justice MARTINEZ delivered the Opinion of the Court.

The class certification issue presented by this appeal arises from a dispute concerning the payment of medical bills under the Colorado Automobile Accident Reparations Act (“No–Fault Act”). Plaintiffs, Pauline Reyher and Dr. Wallace Brucker, filed suit against State Farm Mutual Automobile Insurance Company (“State Farm”) alleging that it failed to pay the full, reasonable amount of medical expenses in violation of the No–Fault Act and its contracts. Plaintiffs subsequently moved for certification of two classes that included all insureds and all providers, respectively, who submitted a medical bill to State Farm and were reimbursed less than the full amount.

The trial court denied the motion for class certification on the grounds that Plaintiffs had failed, among other things, to establish C.R.C.P. 23(b)(3)'s predominance requirement. The court explained that the central question in the case—determining the reasonableness of medical bills submitted to State Farm—would require analyzing the facts of each claim. As a result, the court determined that the individual issues of each claim would predominate over issues common to the class.

The court of appeals reversed and remanded the case to the trial court to enter an order certifying the class. See Reyher v. State Farm Mut. Auto. Ins. Co., 230 P.3d 1244, 1253 (Colo.App.2009) [hereinafter “ Reyher II ”]. The court of appeals explained that Plaintiffs had alleged two conceivable theories of proving liability on a class-wide basis. The court of appeals thus concluded that Plaintiffs had demonstrated a class-wide theory of proof, thereby satisfying C.R.C.P. 23(b)(3)'s predominance requirement. Id. at 1258 (citing Farmers Ins. Exch. v. Benzing, 206 P.3d 812, 820 (Colo.2009)). ¹

State Farm now challenges the court of appeals' determination that common issues predominate over individual issues for purposes of C.R.C.P. 23(b)(3). We conclude that the trial court did not abuse its discretion when it determined that individual issues predominate. Therefore, we reverse the judgment of the court of appeals.

I. Facts and Procedure

Reyher was insured under a no-fault insurance policy issued by State Farm. The policy was governed by section 10–4–706(1)(b) of the No–Fault Act, which at that time required State Farm to pay for its insureds “all reasonable and necessary expenses for medical ... services” related to covered automobile accidents. Ch. 303, sec. ––––, § 10–4–706(1)(b), 1984 Colo. Sess. Laws 1071 (formerly codified as amended at § 10–4–706; repealed effective July 1, 2003, ch. 189, sec. ––––, § 10–4–726, 2002 Colo. Sess. Laws 649).

In October 2001, Reyher was injured in an automobile accident and received medical treatment from Dr. Brucker at the Arkansas Valley Regional Medical Center. Dr. Brucker then submitted bills for the treatment to State Farm for reimbursement. At the time, State Farm contracted with Sloans Lake Managed Care to review and handle claims through its Auto Injury Management (“AIM”) program. To determine the “reasonable and necessary” price for a patient's treatment, Sloans Lake's AIM program relied on a Medicode database (the “database”) to compare the price of the treatment with charges for like services in the same geographical area. Based on recommendations generated by the database, Sloans Lake suggested repricing eight of Dr. Brucker's bills. State Farm repriced those bills, compensating Dr. Brucker only for the amount it deemed reasonable.

Plaintiffs filed suit alleging that State Farm had failed to pay the full, reasonable amount of the medical bills. They asserted five separate claims, including breach of contract and violation of the No–Fault Act. Their complaint included allegations on behalf of a class of persons similarly situated.

State Farm moved for summary judgment on all five of Plaintiffs' claims, arguing that Plaintiffs could not prevail because the Colorado Division of Insurance (“DOI”) had issued an order finding that State Farm's use of the database did not violate a DOI regulation relating to the Unfair Competition–Deceptive Practices Act, section 10–3–1104(1)(h)(III)–(IV), C.R.S. (2009) ( “UCDPA”). The trial court granted the motion.

Plaintiffs appealed and in Reyher v. State Farm Mutual Automobile Insurance Co., 171 P.3d 1263 (Colo.App.2007) [hereinafter “ Reyher I ”], the court of appeals reversed. The court explained that “[t]he determination of whether medical expenses and treatment are reasonable and necessary' under the No–Fault Act presents a question of fact.” Id. at 1265. The court then identified a number of questions of material fact regarding Plaintiffs' claims, including: (1) whether an insured presented an insurer with “reasonable proof” of medical expenses and whether that proof reflected reasonable expenses; (2) whether the database is the only source used by State Farm to determine whether expenses are reasonable; and (3) whether the database accurately assessed the reasonableness of medical bills. Id. at 1266. Because the DOI did not resolve any of these factual issues, the court of appeals concluded that its order did not dispose of the lawsuit. Id. at 1267. The court thus remanded the case to the trial court for further proceedings, including a “fact-driven, pragmatic inquiry” into whether Plaintiffs had satisfied the C.R.C.P. 23 criteria for class action certification. Id. (quoting Medina v. Conseco Annuity Assur. Co., 121 P.3d 345, 348 (Colo.App.2005)).

Subsequent to the Reyher I decision, the trial court held a two-day evidentiary hearing on the motion for class certification. In addition to numerous exhibits, the trial court admitted the testimony of various witnesses, including Russell Kile, a State Farm Section Manager. Kile testified to State Farm's claim review process, emphasizing that claim adjusters individually reviewed each claim and considered everything that had transpired with the claim. In its findings of fact, the trial court summarized Kile's testimony that Sloans Lake's AIM program utilized a three step process for repricing claims: (1) a code review to determine how accurately providers were reporting their claims; (2) repricing by comparing bills with a database for like services; and (3) an appeal process for reviewing repriced claims. The trial court further noted that, according to Kile, the database “was a reference for [Sloans Lake] and adjusters to use in determining the amount which should be paid for a particular service.”

The trial court acknowledged that the court of appeals had, in ruling on the summary judgment appeal, identified several common questions of law and fact, including two that correspond to Plaintiffs' class-wide theories of proof:

If [the database] was the only source [used by State Farm to determine whether expenses are reasonable], did State Farm violate DOI regulation no. 5–2–8(4)(E)(2), which requires insurers to “make decisions independent of the vendor's recommendations when appropriate[,]” and thereby presumptively also violate the Act?

Did State Farm compensate insureds for all “reasonable” medical expenses by using the AIM database?

The trial court agreed that these questions appeared to be common to both insureds and providers across the spectrum.

The trial court then identified numerous questions regarding the reasonableness of the medical bills which could not be answered by evidence common to the class, including:

What process did [State Farm] use in deciding not to pay the bill as originally submitted?

Was the database used in the repricing program reliable?

Was the repricing decision reviewed?

At the time, was the AIM database the only source of ‘reasonableness' which was considered?

Was it unreasonable for the insurer to deny full payment?

Based on its review of the testimony and conclusion that these questions could not be answered with evidence common to the class, the trial court refused to certify either class, concluding that Plaintiffs had failed to establish any of the C.R.C.P. 23 requirements. Analyzing C.R.C.P. 23(a)(2)'s commonality requirement, the trial court explained that Plaintiffs' claims ultimately turned on the reasonableness of medical bills. The court further noted that

the question of the reasonableness of the medical bills comes down to the facts of each claim, and, despite the many common questions of fact and law, in the final analysis the individualized facts of each repriced bill will have to be examined to answer the question of what is reasonable.

The court...