Palos Cmty. Hosp. v. Humana, Inc.

2020 IL App (1st) 190633

172 N.E.3d 524

447 Ill.Dec. 1

PALOS COMMUNITY HOSPITAL, Plaintiff-Appellant,

v.HUMANA, INC.; Humana Insurance Company, Inc. ; Humana Health Plan, Inc.; Advocate Health Care ; and Motorola Solutions, f/k/a Motorola, Inc., Defendants

(Humana Insurance Company, Inc., Defendant-Appellee).

No. 1-19-0633

Appellate Court of Illinois, First District, SIXTH DIVISION.

April 17, 2020

Everett J. Cygal, Catherine M. Masters, Neil Lloyd, David Y. Pi, and Christopher A. Nelson, of Schiff Hardin LLP, of Chicago, for appellant.

Tacy F. Flint, Suzanne B. Notton, and Emily Scholtes, of Sidley Austin LLP, and Scott C. Solberg and James W. Joseph, of Eimer Stahl LLP, both of Chicago, for appellee.

JUSTICE HARRIS delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, Palos Community Hospital (Palos), appeals the order of the circuit court of Cook County entered on the jury's verdict finding defendant Humana Insurance Company, Inc. (HIC) not liable on Palos's breach of contract claims. On appeal, Palos contends the trial court erred in (1) denying Palos's motion for substitution of judge as of right where the judge made no ruling on any substantive issue; (2) determining that a facially unambiguous contract had a latent ambiguity that the jury should interpret; (3) imposing monetary, evidentiary, and instructional sanctions against Palos for spoliation where the electronic records containing sensitive information were discarded in good faith and duplicates of the discarded records existed; (4) dismissing its fraud claim as untimely; and (5) barring Palos from presenting certain evidence to quantify its contract damages claim. For the following reasons, we affirm.

¶ 2 I. JURISDICTION

¶ 3 The trial court entered judgment on the jury verdict on June 18, 2018. The court denied Palos's posttrial motion on March 20, 2019, and Palos filed its notice of appeal on March 28, 2019. Accordingly, this court has jurisdiction pursuant to Illinois Supreme Court Rule 301 (eff. Feb. 1, 1994) and Rule 303 (eff. July 1, 2017), governing appeals from final judgments entered below.

¶ 4 II. BACKGROUND

¶ 5 Palos has been a provider of health care since 1973. As a provider, Palos contracts with many different insurers who have managed-care plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Through HMOs and PPOs, insurers promise patient volume, or steerage, in exchange for discounted medical fees.

¶ 6 In 1985, Palos contracted with Michael Reese Health Plan, Inc. (MRHP), an HMO, to provide services to MRHP members at agreed-upon rates. In 1991, the assets of MRHP were sold and assigned to Humana Health Plan, Inc. (HHP), a Kentucky corporation. On February 15, 1991, Palos signed a form consenting to the assignment of its contract with MRHP to "Humana Health Plan, Inc. or its affiliates." In July 1991, Palos's contract with MRHP, now assigned to and assumed by HHP, was amended to reflect that Palos agreed to provide medical services as set forth in the agreement to "Humana Health Care Plans Preferred Provider Organization" under "the same terms and conditions specified" for members of MRHP's HMO. The contract was amended again in 2004, 2005, and 2008, but none of the subsequent changes affected the terms of the July 1991 amendment.

¶ 7 In January 1998, Palos entered into a provider agreement with Private Healthcare Systems, Inc. (PHCS). PHCS was a consortium of insurers who agreed on a common set of PPO terms under which Palos would be reimbursed for services provided to their members. One of the insurers in the consortium was Employers Health Insurance Company, a Humana entity.

¶ 8 On June 14, 1999, Humana sent a letter to Palos with "important information" regarding the "Employers Health Insurance/Humana PPO provider network currently managed by [PHCS]." The letter stated that effective August 1, 1999, "EHI/Humana will assume the management and operation of its provider network and rename it ChoiceCare." Instead of paying PHCS to provide network administration services, EHI/Humana would perform these duties.

¶ 9 On April 29, 2002, ChoiceCare sent a letter inviting Palos to join the network and to review the enclosed agreement. The letter identified ChoiceCare Network as "a wholly owned subsidiary of Humana, Inc.; therefore, the proposed rate structure would be at parity with the rate structure currently in place for the Humana PPO product lines." Since Humana PPO enrollees were already part of the ChoiceCare Network, the agreement served to "formalize" the network's relationship with Palos and other hospitals. On June 6, 2002, Palos signed a "Hospital Participation Agreement" with ChoiceCare. The agreement provided that "Hospital shall accept payment from Payors for Covered Services provided to Members in accordance with the reimbursement terms in Attachment B." These PPO reimbursement rates were higher than the rates applicable pursuant to the 1991 amendment to the MRHP agreement. The ChoiceCare agreement also provided that

"Nothing in this Agreement shall limit or prohibit a Payor from contracting directly with or maintaining a direct agreement with Hospital and utilizing such direct agreements for payment for Covered Services to Members. In the event that Payor elects to apply discounts from their direct agreement with Hospital, the Payor shall not apply the discount from this Agreement so long as its direct agreement with Hospital remains in effect."

The "Payor" is identified in the Payor Agreement as Humana Insurance Company (HIC).

¶ 10 On July 1, 2004, Andrew Stefo, the chief financial officer of Palos, sent a letter to Humana stating that "Choice Care is accessing Humana's PPO discounts" applicable to the agreement with the former MRHP, when the "separate agreement with Choice Care * * * should govern the payments received for services rendered to its members." Stefo requested that Humana "[e]nsure" reimbursements are made according to the proper agreement, and "[c]oordinate the proper, additional reimbursement due to Palos." The record contains no response to Stefo's letter.

¶ 11 In May 2008, Palos hired a contract compliance auditor, HealthCheck, to audit insurers' payments under their managed-care contracts. Palos subsequently filed a complaint with the Illinois Department of Insurance and on February 12, 2010, made a formal demand against Humana "for the immediate payment of $21,964,243." According to the demand letter, Palos spoke with Humana representatives who informed Palos that "only a very limited number of out-of-state Humana members have been—and continue to be—covered under the ChoiceCare contract." The Department of Insurance ultimately declined to intervene, suggesting that the matter was one for "a court of law."

¶ 12 On June 21, 2013, Palos filed a complaint for fraud and breach of contract against Humana, Inc., HIC, HHP, Advocate Health Care, and Motorola Solutions. The case was assigned to Judge Sanjay Tailor, who dismissed the fraud claims as time-barred. The court found that "no later than July 1st, 2004, [Palos] knew of its injury and its wrongful cause, as evidenced by Stefo's letter." Therefore, the cause of action accrued "no later than that date."

¶ 13 The breach of contract claims proceeded to discovery. HIC requested Palos's billing and collection records to ascertain what reimbursement rates Palos believed applied to the disputed claims. Discovery disputes ensued, and since the court did not "anticipate the number of discovery disputes to abate or decrease," it appointed James Sullivan, a retired judge, as "discovery master" to mediate at the parties' expense. Neither party objected to Judge Sullivan's appointment. Although the court expected the parties to come to a resolution, it stated that Judge Sullivan could submit a recommendation if the parties could not agree, and the parties would have an opportunity to file objections.

¶ 14 The parties worked with Judge Sullivan for five months but could not come to an agreement. Judge Sullivan drafted a letter to Judge Tailor, dated March 20, 2017, recommending that "[Palos] shall respond to Humana's Request for Production Nos. 1, 24, 31 and 34" and "to Humana's Interrogatories Nos. 13, 19 and 22." He also recommended that "the Court order Palos to produce the documents and data that reflect the rates that Palos expected to be paid by Humana," specifying documents Palos "shall include" in the production.

¶ 15 At a hearing the next day, the parties learned that the case was reassigned to Judge Diane Shelley because Judge Tailor had moved to the chancery division. Judge Sullivan attended the hearing and tendered his recommendation letter to the court. After Judge Shelley held two hearings, Palos filed a motion for substitution of judge as a matter of right. Judge Shelley denied the motion, finding that Palos had "discern[ed] the court's disposition toward a very important issue in the case, the production of certain documents which are at the heart of this controversy."

¶ 16 Discovery proceeded, and HIC learned that Palos had instructed JDA eHealth Systems, Inc. (JDA), which provided Palos with daily reports regarding proper reimbursement for claims, to permanently delete all of Palos's data. HIC moved for discovery sanctions due to Palos's destruction of evidence. The court granted the motion and ordered Palos to pay HIC's attorney fees and costs. It also found that "an adverse instruction as found in Ill. Pattern Jury Instructions Civ. 5.01 is appropriate under the facts of this case." The court subsequently denied Palos's motion to reconsider. We set forth the facts concerning this issue and the substitution of judge issue in more detail when we address Palos's claims below.

¶ 17 In April 2018, the parties filed cross-motions for summary judgment. HIC alleged that, through the July 1991 amendment, Palos unambiguously contracted to provide care for Humana PPO members in accordance with rates specified in Palos's...