Ward v. Dixie Nat. Life Ins. Co.

• Decision Date: 08 February 2010
• Docket Number: No. 08-2378.,08-2378.
• Citation: 595 F.3d 164
• Parties: Martha WARD, on behalf of herself and all others similarly situated, Plaintiff-Appellee, v. DIXIE NATIONAL LIFE INSURANCE COMPANY; National Foundation Life Insurance Company, Defendants-Appellants. South Carolina Department of Insurance; Ronald Daniel Rotunda, Amici Supporting Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

595 F.3d 164

Martha WARD, on behalf of herself and all others similarly situated, Plaintiff-Appellee, v. DIXIE NATIONAL LIFE INSURANCE COMPANY; National Foundation Life Insurance Company, Defendants-Appellants South Carolina Department of Insurance; Ronald Daniel Rotunda, Amici Supporting Appellants.

No. 08-2378.

United States Court of Appeals, Fourth Circuit.

Argued: December 1, 2009.

Decided: February 8, 2010.

ARGUED:

Kenneth W. Starr, Kirkland & Ellis, LLP, Los Angeles, California, for Appellants. Richard Harpootlian, Richard A. Harpootlian, PA, Columbia, South Carolina, for Appellee.

ON BRIEF:

Susan E. Engel, Elizabeth M. Locke, Kirkland & Ellis, LLP, Washington, DC; J. Calhoun Watson, Jr., Sowell Gray Stepp & Laffitte, LLC, Columbia, South Carolina; C. Allen Foster, Kevin E. Stern, Robert P. Charrow, Greenberg Traurig, LLP, Washington, D.C., for Appellants. Graham L. Newman, Richard A. Harpootlian, PA, Columbia, South Carolina; Tobias G. Ward, Jr., Todd & Ward PC, Columbia, South Carolina, for Appellee. Jeffrey A. Jacobs, South Carolina Department of Insurance, Columbia, South Carolina, for South Carolina Department of Insurance, Amicus Supporting Appellants. Professor Ronald D. Rotunda, Chapman University School of Law, Orange, California, for Ronald Daniel Rotunda, Amicus Supporting Appellants.

Before TRAXLER, Chief Judge, and WILKINSON and MICHAEL, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Chief Judge TRAXLER and Judge MICHAEL joined.

OPINION

WILKINSON, Circuit Judge:

This case began as a relatively straightforward class action suit for breach of contract. Martha Ward and other policyholders in the state of South Carolina (collectively, "plaintiffs") sued insurance companies National Foundation Life Insurance Company ("National") and Dixie National Life Insurance Company ("Dixie") (collectively, "defendants"). Plaintiffs alleged that defendants violated their contractual promise under the insurance policies to pay policyholders the "actual charges" of cancer treatments. The dispute centered on the proper meaning of "actual charges": Plaintiffs contended that the phrase meant the full amount a medical provider billed patients for its services, while defendants argued that it meant the lesser amount a medical provider received as payment from insurers for its services.

After several procedural twists and turns, the question reached this court, and in a previous decision, we adopted plaintiffs' definition of "actual charges." Ward v. Dixie Nat'l Life Ins. Co., 257 Fed.Appx. 620 (4th Cir.2007) (per curiam). Shortly thereafter, however, the South Carolina legislature enacted a statute adopting, in effect, defendants' definition. On this latest appeal, defendants ask us to reverse the trial court, apply the freshly enacted statutory definition to this case, and overturn our prior decision. Because doing so would undermine the presumption against statutory retroactivity and raise constitutional concerns, we decline defendants' invitation. Defendants also raise a number of other issues regarding class certification and the calculation of damages, but we likewise find these arguments without merit. Accordingly, we affirm.

I.

All the class members in this case, including lead plaintiff Martha Ward, are South Carolina residents who hold supplemental cancer insurance policies with defendants. The insurance policies, which were initially issued by Dixie and later assigned to National, obligate the insurer to pay its policy-holders the "actual charges" of any covered cancer treatments they undergo, in exchange for policyholders' regular premium payments. As "supplemental" insurance, the terms of the policies require defendants to make payments of "actual charges" directly to policyholders, not to medical providers. Medical providers often are paid for their services not by defendants but by primary insurers, such as Blue Cross or Medicare. In this case, because many of the plaintiffs had both supplemental and primary insurance, they received payments for the value of their cancer treatments even though they were not paying out-of-pocket for those treatments. In this sense, the supplemental cancer policies serve, as defendants explained in letters to policyholders, to "provid[e] financial protection against the catastrophic effects of health care costs."

The policies do not define "actual charges." For the years immediately following the policies' issuance, Dixie, and then National, paid "actual charges" based on the amount a medical provider charged for its services, usually as reflected in the medical provider's bill to its patients. This amount is usually greater than the amount actually received by medical providers as payment for their services. This is because medical providers frequently enter into pre-negotiated agreements with primary insurers in which they agree to accept a discounted amount as payment-in-full for their services (or, in the case of Medicare, are required under federal law to accept a discounted amount as payment-in-full for their services). The discounted amount paid to medical providers is shown on explanation of benefits (EOB) statements and on Medicare forms.

In late 2001 or early 2002, National changed its payment practice. Instead of basing "actual charges" on the full list price of healthcare services, it began basing "actual charges" on the lesser payment medical providers received. Its policyholders were not pleased. In March 2003, one policyholder, Martha Ward, sued defendants in South Carolina state court, claiming that by paying "actual charges" in the discounted amount, defendants had breached the insurance contracts. In response, defendants removed the action to federal court on the basis of diversity jurisdiction.

The United States District Court for the district of South Carolina certified a statewide class of plaintiffs, which consisted of all South Carolina residents "insured during the class period under cancer policies from defendant Dixie National Life Insurance Company, sold in South Carolina, where Dixie promised to pay . . . `actual charges.'" Soon thereafter, both parties filed motions for summary judgment, and the district court initially granted summary judgment in favor of defendants.

Plaintiffs appealed the district court's judgment, and this court held that the phrase "actual charges," as used in plaintiffs' insurance policies, was patently ambiguous, and that under South Carolina law, that ambiguity had to be resolved in favor of the insured. Ward v. Dixie Nat'l Life Ins. Co., 257 Fed.Appx. 620, 625-27 (4th Cir.2007) (per curiam) (hereinafter, "Ward I"). Accordingly, this court adopted plaintiffs' definition of actual charges: the amount billed by a medical provider for a service, even if that amount is not the same as the amount paid for the service by insurers. Id. at 625. This court in Ward I thus remanded the case back to the district court with instructions to enter summary judgment in favor of plaintiffs on their breach of contract claim. Id. at 630.

In response to Ward I, and before the district court could follow this court's instructions on remand, the South Carolina state legislature took action. It enacted a statute defining "actual charges" for all insurance policies of the type at issue here: supplemental disease policies that do not otherwise define the term. S.C.Code Ann. § 38-71-242(B). The definition adopted by the state legislature was, in effect, that advocated by defendants and rejected by this court in Ward I. The statute defines "actual charges" as the amount a medical provider accepts as payment-in-full for its medical services, whether by pre-negotiated agreement with a third-party insurer or by operation of law in the case of Medicare. Id. § 38-71-242(A)(1)(a) & (b). The statute further states:

Notwithstanding any other provision of law, after the effective date of this section, an insurer . . . shall not pay any claim or benefits based upon . . . actual charges . . . in an amount in excess of the . . . "actual charges" . . . as defined in this section.

Id. § 38-71-242(C). The effective date of the statute was June 4, 2008.

In light of the new legislative landscape, defendants moved for judgment on the pleadings, arguing that the statute prohibited them from paying "actual charges" as defined in Ward I. The district court, however, denied their motion, holding that the new statute did not apply retroactively to this lawsuit. The court rested its holding on the presumption against statutory retroactivity, under which a statute does not apply retroactively unless the legislature clearly and explicitly expresses an intent that it do so. In this case, the court did not find the necessary clear and explicit intent, stating that "[n]othing in either the legislative history or the language of § 38-71-242 unambiguously indicates that the statute is to be applied retroactively."

Consequently, the district court determined that it was bound to use this court's definition of "actual charges" in Ward I in lieu of the statutory definition. The district court proceeded to follow this court's instructions to enter summary judgment in favor of plaintiffs and subsequently entered an order awarding plaintiffs nearly $8 million in damages. Attached to the order was a calculation of damages for each of 182 class members, each of whom was a policyholder whose policy contained the contested language clarified by the decision in Ward I. Defendants now appeal.

II.

Defendants' primary contention on appeal is that the district court erred in refusing to apply the South Carolina statute's definition of "actual charges" in this case. For the reasons explained below, we disagree.

A.

Both federal and South Carolina courts employ a robust presumption against statutory retroactivity. See, e.g., Landgraf v. USI Film Prods., 511 U.S. 244, 265, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994); Jenkins v....