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Smith v. Life Investors Insurance Company of America

November 6, 2009


The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge


Pending before the Court is PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT (Document No. 193). The matter has been thoroughly briefed (Document Nos. 194, 202, 214, 227, 246, 292, 293) and in addition, the parties have comprehensively developed their respective positions as to the Concise Statement of Material Facts (Document Nos. 195, 196, 215, 216, 228, 229, 231). The motion is ripe for disposition.

Factual and Procedural Background

This case has a tortuous procedural history which need not be recounted in full.*fn1 It is important to recognize that the instant motion seeks only a narrow determination. Specifically, Plaintiff seeks summary judgment on Counts 1 and 3 of the Second Amended Complaint and asks the Court to declare that: (1) Plaintiff's interpretation of the term "actual charges," as used in the policies issued or administered by Defendant in Pennsylvania, is reasonable, and that the term is at least ambiguous; and (2) Defendant breached and continues to breach the policies at issue. These are legal questions for the Court which are well-suited to summary judgment.

Defendant Life Investors Insurance Company of America ("Life Investors") is a corporation organized under the laws of Iowa and with a principal place of business in Iowa. Bankers United Life Assurance Company ("Bankers Life") merged into Life Investors on December 31, 2001. Effective October 2, 2008, after this litigation was filed, Life Investors merged into Transamerica Life Insurance Company ("Transamerica"). For convenience and consistency, Defendant will be referred to as "Life Investors."

Life Investors sold policy form LPC01PA and substantially identical Bankers Life policy form BPC01PA supplemental cancer-only insurance policies in Pennsylvania between 1996 and 2002. Policy forms LPC01PA and BPC01PA will be referred to collectively as "the Policy." Because the Policy provides "supplemental" insurance, it pays cash benefits directly to the insured, irrespective of whether the insured's medical expenses are paid by other insurance. The insured is free to use the cash benefits for any purpose, such as to defray the indirect expenses associated with a major illness. The Policy provides approximately 24 different categories of benefits. Some benefits are expressed as fixed dollar amounts, other benefits have yearly maximums, some are unlimited and some are based on usual and customary charges. At issue in this litigation are the benefits which are based on "actual charges" for the services provided, including chemotherapy, radiation therapy, blood benefits, and ambulance services. The term "actual charges" is not defined in the Policy.

Plaintiff Frances Smith is a 67-year-old Pennsylvania resident who purchased a supplemental cancer insurance policy written on Life Investors policy form LPC01PA, with an effective date of October 17, 1998. Her husband, William E. Smith, was also a "covered person" under the policy.*fn2 Ms. Smith purchased the Policy through her daughter, Mary Pennington, who worked as an insurance agent for Life Investors. Ms. Smith chose a $5000 deductible and an unlimited yearly benefit for chemotherapy, radiation and blood benefits. Mr. Smith was diagnosed with cancer in November 2005 and began receiving chemotherapy treatments from the University of Pittsburgh Cancer Institute ("UPCI") beginning in December 2005 and he died on December 24, 2008. Prior to April 1, 2006, Life Investors paid benefits on the full amount billed by UPCI for Mr. Smith's chemotherapy treatments as set forth on the Explanation of Benefits forms ("EOB forms") sent by Life Investors to Ms. Smith, rather than the discounted amounts that UPCI accepted as payment.

Life Investors began issuing supplemental insurance policies that covered "actual charges" in the 1970s. On November 11, 1997, Jim Brandon, Vice President of Claims for Life Investors, sent a memo to claims examiners and supervisors regarding "Actual Charges Versus Discounted Charges." The memo instructed Life Investors claims personnel:

Several benefits in our policies state we will pay actual charges. This term is not defined in the policy. For claims processing purposes, use the actual charge billed by the provider, not the discounted amounts. While predominantly occurring on prescription drugs, if seen elsewhere, pay the actual charges (including taxes) and not the reduced amounts. . . .

A similar instruction was provided in an April 16, 2003 memorandum from Carol Rutledge, Quality Assurance Coordinator for Life Investors. At no time prior to April 2006 did Life Investors require insureds to submit the amounts the medical providers had accepted as payment for their services in support of their claims.

On January 12, 2006, Life Investors sent a letter to its Pennsylvania policyholders to announce its changed procedures regarding "actual charges" claims.*fn3 The letter explained that information statements from medical providers to patients that contain "list" prices are not true "bills" and do not reflect the actual amounts accepted as payment by the medical providers. Accordingly, Life Investors stated that effective April 1, 2006, policyholders would be required to submit as proof of loss "documentation which shows the amount of the actual charges being paid to and accepted by the healthcare provider as payment in full for the medical services rendered." Mr. Smith continued to receive chemotherapy treatments after April 1, 2006, but Life Investors paid as benefits only the discounted amounts accepted as payment by UPCI rather than the full amounts billed by UPCI to the Smiths. The monetary difference between the parties' proposed interpretations of "actual charges" in excess of $275,000.*fn4

Numerous lawsuits throughout the country have raised similar issues regarding the interpretation of the term "actual charges" in supplemental insurance policies. The vast majority of the cases have concluded that the term "actual charges" is ambiguous. See Pierce v. Central United Life Ins. Co., 2009 WL 2132690 (D. Ariz. 2009); Lindley v. Life Investors Ins. Co. of America, 2009 WL 2163513 (N.D. Okla. 2009); Guidry v. American Public Life Ins. Co., 512 F.3d 177 (5th Cir.2007); Ward v. Dixie Nat'l Life Ins. Co., 257 Fed. Appx. 620 (4th Cir. Nov. 29, 2007); Hodges v. American Fidelity Assur. Co., 2008 WL 723994 (S.D. Miss. Mar. 17, 2008); Conner v. American Public Life Ins. Co., 448 F. Supp.2d 762 (N.D. Miss. 2006); Metzger v. American Fidelity Assurance Co., 2006 WL 2792435 (W.D. Okla. Sep. 26, 2006). However, two cases have held that "actual charges" unambiguously means the amount accepted by the plaintiff's medical provider as full payment pursuant to an agreement with a group health insurer. See Claybrook v. Central United Life Ins. Co., 387 F. Supp.2d. 1199 (M.D. Ala.2005); Jarreau v. Central United Ins. Co., 2006 WL 2086011, * 1 (M.D. La.2006) (questioned by Guidry, 512 F.3d at 182, and Ward, 257 Fed. Appx. at 630). See also Ward v. Dixie Nat'l Life Ins. Co., 2006 WL 1529398 (D.S.C. 2006), reversed and vacated 257 Fed. Appx. 620 (4th Cir. 2007). In Philadelphia American Life Ins. Co. v. Charles Buckles, 2009 WL 3403281 (11th Cir. Oct. 23, 2009), the district court had concluded that "actual charges" unambiguously meant "the amount billed by the provider, and that 'actual charges incurred' is the reduced amount that the hospital accepts from an insurance company as full payment." Id. at *1. The Court of Appeals rejected the policyholder's argument that the terms "actual charges" and "actual charges incurred" were synonymous and affirmed the district court's interpretation of "actual charges incurred."

Standard of Review

Rule 56(c) of the Federal Rules of Civil Procedure reads, in pertinent part, as follows: [Summary Judgment] shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any ...

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