Case Name: Stanford University Hospital and Clinics v. The Foundation for Medical Care of Tulare and Kings Counties, Inc., et al.
Case No.: 2014-1-CV-265847

Motion by Cross-Defendant QBE Insurance Corporation for Summary Judgment or, Alternatively, Summary Adjudication of the First Amended Cross-Complaint of Defendant and Cross-Complainant R-N Market, Inc.

Currently before the Court is the motion by cross-defendant QBE Insurance Corporation (“QBE”)for summary judgment of the first amended cross-complaint (“FAXC”) of defendant and cross-complainant R-N Market, Inc. (“R-N Market”) or, alternatively, summary adjudication of the following four issues: (1) the second cause of action for breach of contract fails as a matter of law; (2) the third cause of action for breach of the covenant of good faith and fair dealing fails as a matter of law; (3) the fourth cause of action for declaratory relief fails as a matter of law; and (4) the claim for punitive damages fails as a matter of law. (Ntc. Mtn., p. 1.) R-N Market filed papers in opposition to the motion on June 30, 2016. QBE filed a reply on July 7, 2016.

I. Legal Standard for Motions for Summary Judgment and/or Summary Adjudication

The pleadings limit the issues present for summary judgment, and a motion for summary judgment cannot be granted or denied on issues not raised by the pleadings. (Nieto v. Blue Shield of Calif. Life & Health Ins. (2010) 181 Cal.App.4th 60, 73 [“the pleadings determine the scope of relevant issues on a summary judgment motion”].) A defendant seeking summary judgment or adjudication “must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; see also Code Civ. Proc., § 437c, subd. (p)(2).) “‘There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.’” (Madden v. Summit View, Inc. (2008) 165 Cal.App.4th 1267, 1272, internal citations omitted; see also Raghavan v. Boeing Co. (2005) 133 Cal.App.4th 1120, 1132; see also Intrieri v. Super. Ct. (2004) 117 Cal.App.4th 72, 82.)

For purposes of establishing their respective burdens, the parties involved in a motion for summary judgment must present admissible evidence. (See Saporta v. Barbagelata (1963) 220 Cal.App.2d 463.) Summary judgment may not be granted by the court based on inferences reasonably deducible from the papers submitted, if such inferences are contradicted by other inferences which raise a triable issue of fact. (Hepp v. Lockheed-California Co. (“Hepp”) (1978) 86 Cal.App.3d 714, 717-718.) Additionally, in ruling on the motion, a court cannot weigh said evidence or deny summary judgment or adjudication on the ground that any particular evidence lacks credibility. (See Melorich Builders v. Super. Ct. (1984) 160 Cal.App.3d 931, 935; see also Lerner v. Super. Ct. (1977) 70 Cal.App.3d 656, 660.) As summary judgment “is a drastic remedy eliminating trial,” the court must liberally construe evidence in support of the party opposing summary judgment and resolve all doubts concerning the evidence in favor of that party. (See Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389; see also Hepp, supra, 86 Cal.App.3d at p. 717.)

With that in mind, R-N Market’s claims and the issues presented by the motion are discussed below.

II. R-N Market’s Request for Judicial Notice

R-N Market’s request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (d); see also People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [a precondition to taking judicial notice is that the matter is relevant to an issue under review].)

III. QBE’s Evidentiary Objections

The Court declines to rule on QBE’s evidentiary objections because QBE failed to provide a proposed order for its evidentiary objections that complies with the requirements set forth in California Rules of Court, rule 3.1354(c). (See Vineyard Spring Estates v. Super. Ct. (2004) 120 Cal.App.4th 633, 642 [trial courts only have duty to rule on evidentiary objections presented in proper format]; see also Hodjat v. State Farm Mut. Auto. Ins. Co. (2012) 211 Cal.App.4th 1, 8 [trial court not required to rule on objections that do not comply with Rule of Court 3.1354 and not required to give objecting party a second chance at filing properly formatted papers].)

IV. Motion for Summary Judgment

For the reasons set forth below, QBE is entitled to summary judgment of the FAXC.

A. Second Cause of Action: Breach of Contract

In the second cause of action, R-N Market alleges that: a patient with identification no. 52925238 (“Patient”) is a participant in its health plan and received medical services from plaintiff and cross-defendant Stanford University Hospital and Clinics (“Stanford”), which are the subject of the underlying first amended complaint (“FAC”); it tendered Stanford’s claims to QBE’s authorized agent, Intermediary Insurance Services, Inc. (“IISI”); IISI informed it that QBE would only pay a portion of Stanford’s claim and it would be responsible for any remainder; the amount determined by QBE to be paid is substantially less than the amount required under the Stop Loss Policy entered into by it and QBE; QBE anticipatorily breached and/or repudiated the Stop Loss Policy by refusing to reimburse it for Stanford’s claim pursuant to the terms of the Stop Loss Policy; QBE owed it a duty to defend, indemnify, and/or hold it harmless; it tendered this action to QBE for defense, but QBE did not assume its defense; Stanford demanded payment for the medical services; and it made payments for those medical services pursuant to the limitations of its health plan. (FAXC, ¶¶ 5-6, 8-13, 19-23.)

In support of its motion, QBE proffers evidence that: the Stop Loss Policy provides that it will reimburse R-N Market for “Plan Benefits Paid” in excess of a specific attachment point (see UMF Nos. 5-7, 36-38); the Stop Loss Policy does not state that QBE is required to defend R-N Market (see UMF Nos. 40-41); Patient was covered under the R-N Market, Inc. Employee Group Health Benefit Plan (“Plan”) (see UMF No. 11); Patient received a drug identified as J9228 (“Drug J9228”) as part of outpatient chemotherapy treatment from Stanford on three dates of service (June 11, 2012, July 2, 2012, and July 23, 2012) (see UMF No. 8); Stanford claims that the total charge for Drug J9228 for all three dates of service is $2,125,608 (i.e., $708,536 per treatment) (see UMF No. 9); Robert A Harvard, M.D., administered a fourth chemotherapy treatment to Patient using Drug J9228 for $112,644 (see UMF No. 10); defendant The Foundation for Medical Care of Tulare and Kings Counties, Inc. (“Foundation”) is the third party administrator for R-N Market’s Plan (see UMF No. 14); Foundation, on behalf of R-N Market, submitted claims under the Stop Loss Policy to IISI—which administers claims of behalf of QBE—for charges related to Patient’s three dates of service with Stanford (see UMF Nos. 15-16); invoices received by IISI reflect Stanford’s charge of $708,536 for Drug J9228 per treatment (see UMF No. 17); Steve Beargeon (“Beargeon”) with Foundation indicated that he felt that the average whole price (“AWP”) for Drug J9228 was $86,400 (see UMF No. 18); Beargeon asked IISI to determine what it felt was the appropriate AWP for Drug J9228 (see UMF No. 19); IISI used a third party vendor and determined that the correct AWP for Drug J9228 was $86,400 and the maximum mark-up on the AWP was 200 percent (see UMF Nos. 20-21); IISI informed Beargeon of the same and that the appropriate charge for Drug J9228 was $172,800 per treatment (see UMF No. 22); IISI subsequently received an email from Beargeon, submitting a claim under the Stop Loss Policy regarding Stanford’s charge for the June 11, 2012 Drug J9228 treatment in the amount of $172,800 (see UMF Nos. 23-24); QBE approved payment in that amount under the Stop Loss Policy and IISI mailed a payment to R-N Market in that amount (see UMF No. 25); Foundation also submitted claims for reimbursement under the Stop Loss Policy regarding the July 2, 2012 and July 23, 2012 charges in the amount of $290,600 (see UMF No. 26); QBE issue payment to R-N Market in the amount of $290,600 under the Stop Loss Policy (see UMF Nos. 27-28); and it is R-N Market’s position that Stanford has been overpaid for the three dates of service in question (see UMF No. 44).

The evidence presented by QBE establishes that under the terms of the Stop Loss Policy, QBE was only obligated to reimburse R-N Market for “Plan Benefits Paid” (i.e., health benefits actually paid to a covered person, or their health care provider, pursuant to a claim made under the Plan) in excess of a specific attachment point. (See Jenkins Dec., Ex. A., pp. IIS-001059 [“WE will reimburse YOU for Plan Benefits Paid in excess of the Specific Attachment Point …. WE will reimburse YOU after YOU have provided an acceptable proof of loss and satisfactory proof of Paid Plan Benefits.”], IIS-000264 [same], IIS-000268 [“Paid (Payment) means that a claim has been adjudicated by the TPA and the funds are actually disbursed by the Plan prior to the end of the Benefit Period. Payment of a claim is the unconditional and direct payment of a claim to a Covered Person or their health care provider(s). [¶] Plan Benefits means health benefits covered by the Plan during the Policy Period which are” incurred on specified dates.], IIS-000270, IIS-000272 [“WE shall not be liable under this Policy to directly reimburse any Covered Person or provider of professional or medical services for any benefits that YOU have agreed to provide under the terms of the Plan.”].) Moreover, the evidence demonstrates that R-N Market submitted two claims to QBE for the three treatments involving Drug J9228 provided by Stanford in the amounts of $172,800 and $290,600 and QBE issued payments for those claims in full. (See Jenkins Dec., Exs. D-E; see also UMF Nos. 23-28.) Thus, the evidence is sufficient to establish that QBE did not breach the Stop Loss Policy because QBE fully reimbursed R-N Market for the claims actually submitted to it, i.e., QBE reimbursed R-N Market for all Plan benefits that were paid by R-N Market. R-N Market has not paid Stanford any additional monies for the medical services provided in this case. Since no additional plan benefits have been paid by R-N Market, it is not entitled to any additional reimbursement from QBE under the Stop Loss Policy and QBE has not breached the Stop Loss Policy.

Next, QBE’s alleged assertion that it would not reimburse R-N Market for any Plan benefits paid beyond $172,800 per treatment does not constitute anticipatory repudiation and/or breach of the Stop Loss Policy. A party may breach a contract before performance is due by anticipatory repudiation, and anticipatory repudiation may be either express or implied. (Taylor v. Johnston (1975) 15 Cal.3d 130, 137.) “An express repudiation is a clear, positive, unequivocal refusal to perform ([citations]); an implied repudiation results from conduct where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible ([citations]).” (Ibid.) Here, the evidence demonstrates that QBE’s statement that it would not reimburse R-N Market more than $172,800 per treatment was not an unequivocal refusal to perform under the Stop Loss Policy. Rather, the statement indicates QBE’s willingness to perform under the Stop Loss Policy by reimbursing R-N Market for an amount certain. Moreover, QBE actually performed under the Stop Loss Policy by paying R-N Market the full amount of monies requested in its claims. (See Jenkins Dec., Exs. D-E.) Furthermore, there is no indication that by making the statement QBE put it out of its power to perform under the Stop Loss Policy so as to make substantial performance of its promise impossible.

Additionally, the evidence shows that QBE did not breach the Stop Loss Policy by refusing to defend R-N Market against this lawsuit. In its opposition papers, R-N Market argues that even though the Stop Loss Policy does not contain any language providing that QBE has a duty to defend it, an insurance contract is presumed to include a duty to defend and QBE cannot avoid its duty unless there is no potential that Stanford’s claims are covered by the Stop Loss Policy. Notably, QBE contends that this presumption of a duty to defend does not apply in this case because it the presumption only applies to liability insurers. Nonetheless, even assuming arguendo that QBE is a liability insurer and the presumption applies in this case, it is apparent that the claims alleged by Stanford in the FAC are not covered by the Stop Loss Policy. The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. (Horace Mann Ins. Co. v. Barbara B. (“Horace”) (1993) 4 Cal.4th 1076, 1081.) “[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275; Montrose Chemical Corp. v. Super. Ct. (1993) 6 Cal.4th 287, 295.) As articulated above, the Stop Loss Policy only provides for reimbursement to R-N Market for “Paid Plan Benefits.” The Stop Loss Policy explicitly states that “WE will not reimburse YOU for any loss or expense caused by or resulting from: … liability or obligations assumed by YOU under any contract or service agreement other than the Plan.” (Ex. A, pp. IIS-000272-IIS-000273.) Stanford’s claims against R-N Market do not seek to recover Plan Benefits. (UMF Nos. 31-35, 45.) Rather, the claims seek to recover damages based on R-N Market’s alleged breach of the Interplan Contract and common counts. (UMF No. 45.)

In opposition, R-N Market fails to raise a triable issue of material fact. R-N Market contends that Stanford’s claims are covered by the Stop Loss Policy because QBE recognizes that Patient is a participant in the Plan and found him to be eligible for Plan benefits in the past. While it is undisputed that Patient was covered by the Plan and was eligible for medical benefits, both of these facts are irrelevant to whether the claims alleged by Stanford in the FAC create the potential for coverage under the Stop Loss Policy. The pertinent inquiry is whether the FAC potentially seeks damages within the coverage of the Stop Loss Policy. (See Gray, supra, 65 Cal.2d at p. 275; see also Montrose, supra, 6 Cal.4th at p. 295.) Stanford’s claims against R-N Market do not seek to recover Plan Benefits and Stanford admits it only seeks to recover damages pursuant to the Interplan Contract and state law claims (see UMF Nos. 31-35, 45) and, therefore, the FAC does not potentially seek damages within the coverage of the Stop Loss Policy.

R-N Market also argues that even if the Stop Loss Policy does not cover the damages sought by Stanford under the Interplan Contract, there is potential coverage for the damages for the quantum meruit cause of action because that claim does not depend upon the existence of the Interplan Contract. Again, R-N Market misses the point. The only damages potentially within the coverage of the Stop Loss Policy are Plan benefits and Stanford unequivocally admits that it does not seek to recover the same. (See UMF No. 45.) Thus, the fact that the damages sought under the quantum meruit claim are not dependent upon the existence of the Interplan Contract is immaterial.

Lastly, R-N Market contends that QBE breached the Stop Loss Policy by: considering only one of the three factors enumerated in the Stop Loss Policy for determining the usual and customary value of the charges for Drug J9228; and refusing to pay the additional monies sought by Stanford in the FAC. R-N Market’s arguments are not well-taken. R-N Market’s first argument—that QBE used only one factor set forth in the Stop Loss Policy to determine the usual and customary value of Drug J9228—does not demonstrate that QBE breached the Stop Loss Policy. As previously stated, the Stop Loss Policy obligated QBE to reimburse R-N Market for “Paid Plan Benefits” and QBE fully paid R-N Market for the two claims actually submitted to it by R-N Market. (See Jenkins Dec., Exs. D-E; see also UMF Nos. 23-28.) Thus, QBE fulfilled its obligations under the Stop Loss Policy. Furthermore, the Stop Loss Policy provides that R-N Market’s third party administrator, Foundation, is responsible for verifying the “accuracy and computation of all claims, in accordance with the Plan.” (Jenkins Dec., Ex. A, p. IIS-000275.) Thus, even if QBE’s determination of the usual and customary value of Drug J9228 was somehow deficient, it was Foundation’s duty to ensure that computation used to arrive at the amount of the claim submitted to QBE was accurate. Consequently, any errors in the computation do not constitute a breach of the Stop Loss Policy by QBE. R-N Market’s second argument—that QBE anticipatorily breached the Stop Loss Policy by failing to pay the additional monies sought by Stanford—lacks merit for the reasons already set forth above.

B. Third Cause of Action: Breach of Covenant of Good Faith and Fair Dealing

In the third cause of action for breach of implied covenant of good faith and fair dealing, R-N Market alleges that QBE, as its insurer, owed it a fiduciary responsibility to act in good faith and QBE “acted in bad faith with respect to Stanford’s [claims] … by … utilizing or ratifying a method for determining the reimbursable amount that is inconsistent with its prior methods of determination, or otherwise contrary to the standards for making such determinations; refusing to reimburse [it] for [Stanford’s claims] pursuant to the provisions of the [Stop Loss] Policy …; disregarding [its] warnings that QBE’s failure to reimburse [it] pursuant to the terms of the [Stop Loss] Policy would result in [Stanford] continuing to assert [its claims] against R-N; refusing to defend its unilateral determination that [Stanford’s claims] were excessive; allowing … the present action to be brought against [it]; denying the existence or force of the Policy; and refusing to acknowledge, repudiate or ratify the determinations conveyed by IISI when provided the opportunity to do so.” (FAXC, ¶¶ 24-27.)

“[T]here are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1151-52.)

Here, as QBE persuasively argues, the undisputed facts show the threshold requirement is absent because it fully reimbursed R-N Market for the claims for reimbursement submitted to it, i.e., no benefits due under the Plan were withheld or delayed. (See Jenkins Dec., Exs. D-E; see also UMF Nos. 23-28.) R-N Market’s arguments to the contrary lack merit for the reasons set forth above.

C. Fourth Cause of Action: Declaratory Relief

In the fourth cause of action for declaratory relief with respect to QBE, R-N Market seeks a judicial declaration that QBE is obligated to reimburse it to the extent any monies are owed to Stanford as a result of Stanford’s claims. (See FAXC, ¶¶ 30-33.)

The elements of a cause of action for declaratory relief are: (1) a proper subject of declaratory relief within the scope of Code of Civil Procedure section 1060; and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606.) “The propriety of the application of [summary judgment to] declaratory relief lies in the trial court’s function to render such a judgment when only legal issues are presented for determination.” (Spencer v. Hibernia Bank (1960) 186 Cal.App.2d 702, 712.) To meet its initial burden on summary judgment for a declaratory relief cause of action, a defendant must establish that the declaration is incorrect as a matter of law, the undisputed facts do not support the premise for the sought-after declaration, or the issue is otherwise inappropriate for declaratory relief. (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1402.)

Here, R-N Market’s declaratory relief cause of action is premised on the same allegations supporting the second cause of action for breach of contract and the third cause of action for breach of covenant of good faith and fair dealing, namely, that QBE must reimburse it should it be found liable for the damages sought by Stanford in its FAC. (See FAXC, ¶¶ 30-33.) As previously discussed in connection with the second and third causes of action, QBE submits evidence it has no duty to reimburse R-N Market for the damages sought by Stanford in the FAC. Since the undisputed facts do not support the premise of R-N Market’s declaratory relief cause of action, summary judgment is warranted.

D. Conclusion

Since QBE demonstrates that there is no triable issue of material fact as to each and every claim alleged against it, its motion for summary judgment of the FAXC is GRANTED.