In re Farmers Med-Pay Litigation

229 P.3d 551

2010 OK CIV APP 12

In re FARMERS MED-PAY LITIGATION Ladonna Houck, Roberta Oliver, and Tasha Sherman-Harris, Individually and as Representatives of All Other Similarly Situated Insureds, Plaintiffs/Appellees, v. Farmers Insurance Company, Inc.; Farmers Group, Inc.; Farmers Insurance Exchange; Mid-Century Insurance Company; Truck Insurance Exchange; and Fire Insurance Exchange, Defendants/Appellants, and Zurich Services Corporation, Defendant.

No. 105,295. Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 4.

Court of Civil Appeals of Oklahoma, Division No. 4.

October 20, 2009.

Certiorari Denied January 25, 2010.

COPYRIGHT MATERIAL OMITTED

Robert W. Nelson, Derrick L. Morton, Nelson, Roselius, Terry, O'Hara & Morton, Rick W. Bisher, Ryan Bisher Ryan, Bryce Johnson, Johnson & Carson, Paul M. Kolker, Pignato & Cooper, P.C., Jeff F. Laird, Foshee & Yaffe, Oklahoma City, OK, Gregg R. Renegar, Kornfeld, Franklin, Renegar & Randall, Edmond, OK, for Plaintiffs/Appellees.

Richard C. Ford, Brooke S. Murphy, Rustin J. Strubhar, Crowe & Dunlevy, Oklahoma City, OK, for Defendants/Appellants.

DOUG GABBARD II, Presiding Judge.

¶ 1 Defendants, Farmers Insurance Company and related entities (collectively, Farmers), appeal the trial court's certification of this case as a class action. We affirm.

FACTS

¶ 2 Plaintiffs, Ladonna Houck, Roberta Oliver, and Tasha Sherman-Harris, are insurance policyholders of Farmers. Their policies all contain identical clauses providing what is known as no-fault "med-pay" coverage. These clauses provide that where an insured suffers bodily injury in an accident, Farmers will pay reasonable expenses for necessary medical services furnished within two years of the accident. The policies define "reasonable expenses" as "expenses which are usual and customary for necessary medical services in the county in which those services are provided." Each of the Plaintiffs sustained injuries arising from accidents covered by the policies, each submitted bills for necessary medical services furnished within two years of her accident, and each had bills denied by Farmers, in whole or in part, as "unreasonable."

¶ 3 At issue is the manner in which Farmers processed, reviewed, and denied Plaintiffs' med-pay claims. Beginning in late 2000, Farmers entered into a Managed Care Services Agreement to have all such claims reviewed by Zurich Services Corporation (ZSC), a claims management company owned by Farmers. ZSC maintains a large computerized database of charges billed by medical providers within federally established medical service areas called PSROs (Professional Standards Review Organization). ZSC compares each incoming Farmers' policyholder's medical bill against the database, and "flags" a charge as potentially unreasonable whenever it exceeds the 80th percentile of all charges in the database for the relevant PSRO service. According to Farmers, ZSC then individually reviews the flagged charge and, in some cases, finds it unreasonable, assigns it an "RC40 code," and notifies the medical provider or policyholder that it is reducing or denying payment. Farmers asserts this process identifies inappropriate or excessive medical charges, and benefits policyholders because the provider usually accepts the reduction as full payment, leaving the policyholder with more room before reaching his or her "cap" on coverage.

¶ 4 However, Plaintiffs filed suit alleging that Farmers systematically uses the ZSC 80th percentile audit/review process to wrongfully deny payment/reimbursement of policyholders' medical expenses in a predetermined manner, regardless of whether an expense is or is not unreasonable, primarily to reduce Farmers' costs. Although Plaintiffs have alleged causes of action for bad faith, unjust enrichment, fraud or deceit, and conspiracy to commit a tortious act,¹ they only seek class certification for their breach of contract claims.

¶ 5 After a hearing, the trial court entered a 30-page order which extensively analyzed the case pursuant to the prerequisites of 12 O.S.2001 § 2023, found that each prerequisite was met, and granted class certification with a class composed of:

All persons who made a covered claim pursuant to the Medical Payments Coverage of a private passenger automobile insurance policy written by Farmers where:

A. Zurich Services Corporation ("ZSC") was utilized to review medical expenses;

B. Farmers applied ZSC's RC 40 reduction to the medical expenses; and

C. The insurance policy was written in one of the following states:

1. Alabama;

2. California;

3. Idaho;

4. Illinois;

5. Indiana;

6. Iowa;

7. Montana;

8. Nebraska;

9. Nevada;

10. New Mexico;

11. Ohio;

12. Oklahoma;

13. South Dakota; and/or

14. Wyoming.²

¶ 6 Farmers now seeks interlocutory review of this order.³

STANDARD OF REVIEW

¶ 7 A trial court's class certification order is reviewed for abuse of discretion. Shores v. First City Bank Corp., 1984 OK 67, ¶ 4, 689 P.2d 299, 301. An abuse of discretion occurs if the record fails to support the conclusion that each of the prerequisites set forth in 12 O.S.2001 § 2023 have been met.⁴ Ysbrand v. DaimlerChrysler Corp., 2003 OK 17, ¶ 5, 81 P.3d 618, 623 (cert. den., 542 U.S. 937, 124 S.Ct. 2907, 159 L.Ed.2d 812 (2004)); Harvell v. Goodyear Tire and Rubber Co., 2006 OK 24, 164 P.3d 1028.

¶ 8 Section 2023(A) sets forth four requirements for maintaining a class action: numerosity of the class; commonality of the questions of law or fact; typicality of the class representatives' claims; and ability of the class representatives to fairly and adequately protect the interests of the class. Section 2023(B) provides that class members seeking certification must meet one of three additional requirements. In this case, Plaintiffs assert that there is a predominance of common questions of law or fact over individual questions, pursuant to § 2023(B)(3).

¶ 9 "To resolve whether the prerequisites for class-certification are met, we need not reach the merits of the claim." Harvell at ¶ 11, 164 P.3d at 1032. However, in order to determine whether the trial court applied the correct legal standards in assessing the § 2023 requirements, we must identify and review the core liability issues asserted by the class. Id., 164 P.3d at 1032-33.

ANALYSIS

1. Numerosity

¶ 10 Numerosity occurs when "the class is so numerous that joinder of all members is impracticable." 12 O.S.2001 § 2023(A)(1). This requirement is satisfied by numbers alone where the size of the class is in the hundreds. Black Hawk Oil Co. v. Exxon Corp., 1998 OK 70, 969 P.2d 337.

¶ 11 Here, the trial court found a sufficient number of potential class members to meet this requirement, noting that, in Oklahoma alone, thousands of claims were adjusted annually using the 80th percentile method. Farmers does not dispute this finding.

2. Commonality

¶ 12 Commonality requires that there be questions of law or fact common to the class members. 12 O.S.2001 § 2023(A)(2). As a general rule, where a lawsuit challenges a practice or policy affecting all putative class members, individual factual differences among the individual litigants will not preclude a finding of commonality. Ysbrand, 2003 OK 17 at ¶ 21, 81 P.3d at 627.

¶ 13 Plaintiffs allege that all class members had similar Farmers' policies with identical med-pay provisions, that Farmers denied payment of necessary medical charges for covered injuries using a predetermined computerized audit/review process primarily to reduce Farmers' costs, and that Farmers' actions were in violation of its policy terms. Clearly, commonality was present.

3. Typicality

¶ 14 Typicality is satisfied "`when it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented... irrespective of varying fact patterns which underlie individual claims.'" Ammons v. Am. Family Mut. Ins. Co., 897 P.2d 860, 863 (Colo.Ct.App.1995)(quoting 1 H. Newberg, Newberg on Class Actions § 3-13 at 3-77 (3d ed.1992)).

¶ 15 In this case, the court found that the class representatives' claims were typical of the class since each class member was insured by Farmers under a policy with identical med-pay language, each sustained injury in an automobile accident covered by the policy, each submitted medical bills for necessary treatment, each had bills for such services reduced or denied by Farmers after a ZSC audit/review, and each claimed that this denial was arbitrary and a breach of their insurance contract. Clearly, "the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented," as required for a finding of typicality.

¶ 16 Nevertheless, Farmers asserts that none of the Plaintiffs' claims are typical, because Farmers denied payment of individual medical bills as not "reasonable" for a wide variety of reasons, thereby necessitating an individual inquiry into each claim. In Burgess v. Farmers Insurance Co., Inc., 2006 OK 66, ¶¶ 14, 17, 151 P.3d 92, 99-100, 101, the Oklahoma Supreme Court rejected a similar argument by Farmers, stating:

Insurer would have us reject class certification on the basis of a determination regarding the veracity of its defense on the merits-that Insurer in fact did not operate pursuant to an across-the-board pattern of underpayment of claims, but rather, made individual assessments as to the propriety of O & P payments on every claim. We express no opinion on the merits and our determination on class certification should not be taken as any indication of how a jury might properly decide these fact questions....

Here, the acts or omissions of Insurer which constitute the alleged breaches of contract, bad faith and/or fraud ... are the same or similar acts or omissions for each class member.

4. Adequacy of representation

¶ 17 Adequacy of representation is satisfied when "the representative parties will fairly and...