Upmc Health System v. Metropolitan Life Ins. Co.

Decision Date16 December 2004
Docket NumberNo. 03-3677.,03-3677.
Parties<SMALL><SUP>*</SUP></SMALL>UPMC HEALTH SYSTEM, a Pennsylvania non-profit corporation Appellant v. METROPOLITAN LIFE INSURANCE COMPANY, a Delaware Corporation.
CourtU.S. Court of Appeals — Third Circuit

Anthony Cillo, (Argued), Richard R. Nelson, Cohen & Grigsby, Pittsburgh, for Appellant.

Daniel E. Wille, (Argued), Darren P. O'Neill, Reed Smith, Pittsburgh, for Appellee.

Before ROTH, BARRY, and GARTH, Circuit Judges.


BARRY, Circuit Judge.

In this case, we are asked to review the grant of summary judgment in favor of an insurer and damages awarded by the District Court to the insurer. For the reasons that follow, we will affirm in part, reverse in part, and remand for further proceedings.


UPMC Health System ("UPMC"), a nonprofit corporation that operates a system of hospitals and health care facilities, negotiated with Metropolitan Life Insurance Company ("MetLife") for an umbrella dental insurance policy for all of UPMC's employees. On July 29, 1999, MetLife issued a written quote for a one-year insurance policy for a "High Option" dental plan. UPMC rejected this proposal, requested changes, and MetLife issued a revised proposal, dated August 26, 1999. This revised proposal included dual option coverage, whereby employees would be able to choose between High Option and Low Option plans, and a two-year coverage commitment and rate guarantee, which provided that the rates for the second year of coverage would be no more than 5% higher than the rates for the first year.1

Because MetLife could not know in advance how many UPMC employees would choose the High Option versus the Low Option, its revised proposal included rates 5.5% higher to account for this risk, although it based its calculations on an assumed 75/25 split between the High and Low Options. It also increased its rates by 1.5% to account for the increased risk associated with its two-year, as opposed to its original one-year, commitment. Important for this appeal, the proposal included a reservation of rights provision that stated:

Notwithstanding any rate guarantee, we reserve the right to change our rates for any of the following reasons:

a. The composition of the group, employees, dependents or life insurance volume, has changed 10% or more from the composition when quoted

b. The financial arrangement on any part of the package is changed

c. Any of the coverages are cancelled or not issued

d. Any of the plan designs are changed

(49a, 56a.) This revised proposal was to remain in effect until January 1, 2000.

UPMC accepted the revised proposal in September 1999. Its employees were thereby required to enroll in MetLife's plan before January 1, 2000 in order to be covered in 2000. Enrollment was complete in November, with a 90/10 split between the High Option and the Low Option, which fact MetLife knew prior to the commencement of coverage on January 1. Policy number 101491-G issued and became effective on January 1, 2000.

The policy was a form policy for one year, and included only the first year rates, not the second year rates or guarantee. MetLife's standard practice was to issue form policies such as this regardless of negotiated multi-year rate guarantees. The policy, however, included a "Changes in Rate" section ("Section 6"), which stated:

Metropolitan may change any or all of the premium rates if there is a change in the terms of this Policy. Metropolitan may also change any or all of the premium rates (a) on the first day of each Policy Period which begins after the Date of Issue and (b) on any Premium Due Date following the date there has been a change, since the last day of the prior Policy Period, of 10% more in the number of Employees insured for Personal Insurance and/or Dependent Insurance under this Policy.

(67a.) The term "Policy Period" was defined as each calendar year, thereby giving MetLife the right to increase rates for the second year of coverage. It also included an integration clause (Section 14), titled "Entire Contract," which provided that "[t]his Policy and the application of the Employer constitute the entire contract between the parties. A copy of the application is attached to this Policy." (69a.) The copy of the policy provided to UPMC, however, did not contain the application, although it was included in the copy produced from MetLife's files. The application stated that, by signing it, the policyholder agreed that "[a]ll of the terms and conditions under which the insurance is to be provided will be set forth in the Group Policy (or Policies) issued." (521a.) UPMC never signed the application, and, it argues, never agreed that all of the terms of its contract with MetLife were set forth in the policy.

By June 2000, MetLife was losing money on the UPMC policy, and realized the mistake it had made during underwriting in entering data into its computer spreadsheet, causing it to quote rates at least 23% too low. Upon realizing this error, the MetLife Regional Vice President decided to "pull" the second year rate guarantee. MetLife calculated that, even if it did not try to recoup its year 2000 losses, it would need a 69.7% rate increase to reach its profitability goals for 2001. In July 2000, MetLife tried to convince UPMC to accept higher rates for the second year of coverage because it was losing money on the policy, and because it claimed that UPMC had not provided all of the data required during the quote process. By mid-September, MetLife conceded that it had been given the required data, and instead invoked its right to increase the rate because the number of "lives" had changed by 10%. It soon abandoned this justification, and, instead, on September 26, 2000, invoked its right under the August 26 revised proposal to increase the rate because the "composition of the group" had changed sufficiently, and threatened a 57% increase.2 Notably, MetLife did not then argue that the two-year rate guarantee was inapplicable because the policy was an integrated contract; it argued only that the provisions of that guarantee allowed it to unilaterally raise its rates because of the changed circumstances.

UPMC refused to pay the threatened rate increase, and on October 27, 2000, MetLife issued a renewal notice that called for a 55% rate increase. On December 22, 2000, UPMC informed MetLife that it would not accept any rate increase beyond 5%, and that it intended to enforce the two-year coverage commitment and rate guarantee. In response, MetLife informed UPMC that it would send a premium bill reflecting the 55% increase. UPMC paid only the 5% rate increase agreed to as a result of the August 26, 1999 revised proposal, although MetLife continued paying claims. During 2001, MetLife submitted premium bills to UPMC totaling $11,173,878.91, but UPMC remitted only $7,569,792.39 — a difference of $3,604,086.52.

On January 18, 2001, UPMC filed this action in the U.S. District Court for the Western District of Pennsylvania, seeking both a declaratory judgment that MetLife was contractually obligated to provide group dental insurance at a guaranteed rate for a two year period (Count One), and damages for conduct in violation of Pennsylvania's Bad Faith Statute, 42 PA. CONS.STAT. ANN. § 8371 (Count Two). MetLife counterclaimed for breach of contract, seeking damages for UPMC's refusal to pay the 55% rate increase.

On May 10, 2002, MetLife moved for summary judgment on liability. On August 4, 2003, the Hon. Arthur J. Schwab, to whom the case had been reassigned, issued a memorandum opinion and order granting MetLife's motion. Among other things, the District Court held that the policy was an integrated, enforceable contract that contained all of the terms of the parties' agreement in unambiguous terms. It concluded that the August 26, 1999 revised proposal could not be considered to defeat those clear terms, and that even if it could, the rate increase for 2001 was allowed under that proposal because there had been a sufficient change in the composition of the group of employees. The Court also dismissed UPMC's bad faith claim because it was not premised on MetLife's refusal to pay a claim. The parties were directed to either stipulate to damages, or to file position papers on damages.

On August 28, 2003, after the parties exchanged briefs on damages, the District Court awarded $4,062,229.03 to MetLife — the $3,601,950.81 in premiums UPMC refused to pay,3 plus $460,278.22 in pre-judgment interest, and post-judgment interest at a rate of 6% in accordance with Pennsylvania law. UPMC appealed both the order of August 4th and the order of August 28th, 2003.

The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291.

A. Summary Judgment on Liability

Our standard of review on summary judgment is well-established:

Summary judgment is appropriate if there are no genuine issues of material fact presented and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Wisniewski v. JohnsManville Corp., 812 F.2d 81, 83 (3d Cir.1987). In determining whether a genuine issue of fact exists, we resolve all factual doubts and draw all reasonable inferences in favor of the nonmoving party. Suders v. Easton, 325 F.3d 432, 435 n. 2 (3d Cir.2003). "Although the initial burden is on the summary judgment movant to show the absence of a genuine issue of material fact, `the burden on the moving party may be discharged by "showing" — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case' when the nonmoving party bears the ultimate burden of proof." Singletary v. Pennsylvania Dept. of Corrections, 266 F.3d 186, 192 n. 2 (3d Cir.2001) (quoting Celotex, 477 U.S. at 325, 106 S.Ct. 2548, 91...

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