Mellor v. Wasatch Crest Ins. Companyin Liquidation

360 P.3d 784

2015 UT App 239

Chris Ann MELLOR, Appellant,

v.WASATCH CREST INSURANCE COMPANYIN LIQUIDATION, Appellee.

No. 20131174–CA.

Court of Appeals of Utah.

Sept. 17, 2015.

Brian S. King, Salt Lake City, for Appellant.

John P. Harringtonand Cecilia M. Romero, Salt Lake City, for Appellee.

Opinion

VOROS, Judge:

¶ 1 This appeal involves a claim against an insolvent health insurance company in a liquidation proceeding. The district court ruled the claim untimely and, in any event, that it did not qualify for priority treatment, because Medicaid had reimbursed the claimant for the losses she claimed. We reverse on the first point and affirm on the second.

BACKGROUND

¶ 2 In early August 2001, Appellant Chris Ann Mellor's son suffered a near-drowning incident that left him with permanent injuries. At the time of the incident, Mellor's son had health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) through his father's insurance policy with Wasatch Crest Insurance Company (Wasatch Crest). After the accident, Mellor also obtained Medicaid coverage for her son. Medicaid back-dated its coverage to August 1, 2001. Wasatch Crest paid claims arising from the near-drowning incident until November 2001. Then Wasatch Crest determined that Mellor's son's Medicaid coverage made him ineligible for coverage under the terms of its policy. Wasatch Crest informed Mellor that her son had no coverage under its policy due to his Medicaid coverage, and consequently, as of November 1, 2001, she stopped paying COBRA premiums. Wasatch Crest then began requesting and receiving reimbursements for payments it made to providers on claims during the period of the overlapping coverage. Since August 1, 2001, Medicaid has paid Mellor's son's medical expenses in full.

¶ 3 In September 2002, Mellor entered into a collection agreement with the Utah State Office of Recovery Services (ORS). The collection agreement made ORS an assignee of any recovery Mellor obtained from Wasatch Crest for wrongly denying her son's coverage. In March 2003, Mellor filed suit against Wasatch Crest alleging, among other things, breach of contract for its failure to pay Mellor's son's medical expenses. In July 2003, the district court declared Wasatch Crest insolvent under Utah's Insurers Rehabilitation and Liquidation statutes (the Liquidation Act), Utah Code Ann. §§ 31A–27–101to –411 (LexisNexis 2002).¹The district court also appointed a liquidator (the Liquidator) to manage the Wasatch Crest estate, and the court set a July 31, 2004 deadline to file a proof of claim against Wasatch Crest's estate.

¶ 4 Wasatch Crest's insolvency automatically stayed all pending litigation against it. Id.§ 31A–27–317(1). Mellor then submitted a timely proof of claim to the Liquidator. The Liquidator denied Mellor's claim in its first amended notice of determination on the ground that Mellor's son's Medicaid coverage excluded him from coverage under the terms of Wasatch Crest's policy. Mellor filed a timely objection to the first amended notice of determination. A referee found that Wasatch Crest had no liability for the claims Mellor asserted on behalf of her son after the date that he acquired Medicaid coverage. The referee recommended that the district court affirm the Liquidator's denial of Mellor's proof of claim.

¶ 5 At a hearing before the district court on Mellor's objection to the referee's findings and recommendation, the Liquidator raised the issue of Mellor's standing and moved to have her claim dismissed. The district court ultimately determined that Mellor had standing to assert claims on behalf of her son. Nevertheless, the district court approved the recommendation of the referee and denied Mellor's claim on the merits.

¶ 6 Mellor appealed the district court's ruling on the issue of her son's COBRA coverage. The Liquidator cross-appealed on the issue of standing. The Utah Supreme Court ruled for Mellor on both issues—affirming on the issue of standing but reversing on the issue of coverage. Mellor v. Wasatch Crest Mut. Ins. Co.(Mellor I), 2009 UT 5, ¶¶ 9, 20, 201 P.3d 1004. The court held that Mellor's son's Medicaid coverage did not terminate his COBRA coverage as a matter of contract law. Id.¶ 20. Accordingly, the supreme court concluded that because Mellor's son “is a beneficiary of the Wasatch Crest plan, he, and through him his mother ..., have standing to pursue an action for recovery of benefits owing ... under the plan.” Id.¶ 21.

¶ 7 For approximately one year after remittitur from the supreme court, little happened with Mellor's claim. In an apparent effort to move things along, Mellor filed a motion for summary judgment in the district court. She asserted that, under Mellor I,her son was a covered beneficiary of the Wasatch Crest insurance plan. Therefore, she argued, principles of estoppel entitled her son to the reinstatement of his COBRA coverage under the Wasatch Crest insurance plan, and accordingly, her son had a reimbursable claim.

¶ 8 The Liquidator moved to strike or stay Mellor's motion for summary judgment. The Liquidator argued that Mellor's claim was not properly before the district court, because the Liquidator had not yet made a second determination on Mellor's claim. In the alternative, the Liquidator opposed Mellor's motion for summary judgment on the merits. The Liquidator explained, “As a result of ... [the Liquidation Act's] priority scheme, it is evident that Mellor does not have a Class Three Claim.” The Liquidator continued that any valid claim arising from the collection agreement Mellor entered into with ORS “the Liquidator will classify ... as Class Six.”

¶ 9 Mellor filed a response to the Liquidator's opposition to the motion for summary judgment. In her response, Mellor argued that the parties need not wait for the Liquidator to make a second determination on her claim, because the Liquidator's opposition to summary judgment made the Liquidator's official denial a mere formality. Mellor went on to challenge the Liquidator's opposition on the merits and its determination that Mellor's claim constituted a class-six and not a class-three claim. Mellor then requested that the district court “proceed with a ruling on the proper classification of Mellor's claim.”

¶ 10 The Liquidator filed a reply memorandum. The reply memorandum's caption page indicated, in a single sentence, that the Liquidator had attached his official denial of Mellor's claim—the second amended notice of determination (the Second Notice)—as an exhibit to the reply memorandum:

In conjunction with this Reply Memorandum, the Liquidator ... attaches its Second Amended Notice of Determination with respect to the Proof of Claim filed by [Mellor] on behalf of her son ..., a copy of which is attached hereto as Exhibit A.

The Second Notice, dated June 29, 2010, denied Mellor's claim:

Based upon review of the documents that were submitted and the records of [Wasatch Crest], the Liquidator has DENIED the claim in the amount of $200,000+. The basis for the Denial is included in the attached Reply Memorandum, the essence of which is that [Mellor] has been indemnified by a third party [Medicaid] and thus has suffered no unreimbursed loss....

The Liquidator's reply memorandum explained that he denied Mellor's claim because “Medicaid payments indemnified Mellor against any claims by doctors or hospitals.” Further, because Medicaid indemnified Mellor, the Liquidator reiterated that the Liquidation Act explicitly excludes her claim from the class-three priority classification. The Liquidator concluded, “[I]t is apparent that Mellor has no claim against the liquidation estate either as a Class Three or Class Six since Mellor has suffered no loss that has not been covered.” The Liquidator requested “that the Motion for Summary Judgment be dismissed and that the [Second Notice] constitute the final determination of the Mellor Claim.”

¶ 11 In November 2010, the district court issued its first memorandum decision and order (the 2010 Order). The district court ruled that under the terms of the Liquidation Act Mellor could not assert a class-three claim, because Medicaid had indemnified her for claims based on her son's accident. The court concluded that the statute relegated Mellor's claim to the statute's class-six catch-all classification. The district court then denied Mellor's motion for summary judgment and stayed further proceedings in the underlying lawsuit—i.e., any proceedings brought against Wasatch Crest before its insolvency and unrelated to Wasatch Crest's liquidation. Mellor appealed.

¶ 12 The Utah Supreme Court dismissed Mellor's appeal for lack of jurisdiction. Mellor v. Wasatch Crest Mut. Ins.(Mellor II), 2012 UT 24, ¶ 17, 282 P.3d 981. In Mellor II,the supreme court determined that it lacked jurisdiction over Mellor's appeal because she did not appeal from a final judgment. Id.The supreme court explained that the district court's “denial of [Mellor's] summary judgment motion and stay of further proceedings obviously leave the merits of the case unresolved.” Id.¶ 12. It continued, “Issues yet remain in dispute in the proceedings below regarding the value of Mellor's claim and whether the method by which Wasatch Crest provided [the Second Notice] satisfies the requirements of the Liquidation Act.” Id.

¶ 13 Back before the district court, Mellor filed an objection to the Second Notice. However, counting from the date of the Second Notice, her objection was untimely. Accordingly, Mellor challenged the Second Notice's validity given the means by which the Liquidator had provided it, namely, attached as an exhibit to a reply memorandum in connection with a summary judgment motion. Mellor requested that the district court “require the Liquidator to issue and serve a Notice of Determination of the priority and classification of Mellor's claim ... [so as to] allow[ ] for a full and fair review of the Liquidator's actions.” The Liquidator responded that the Second Notice...