Schiff v. Liberty Mut. Fire Ins. Co.

2 Wn.3d 762

[No. 101576-3. En Banc.]

Argued September 26, 2023. Decided February 15, 2024.

Stan Schiff, on Behalf of Himself and a Class of Similarly Situated Providers, Respondent, v. Liberty Mutual Fire Insurance Company et al., Petitioners.

[2 Wn.3d 763]

Johnson, J., delivered the opinion of the court, in which Madsen, Owens, Gordon McCloud, Yu, Montoya-Lewis, and Whitener, JJ., concurred. Stephens, J., filed a dissenting opinion, in which González, C.J., concurred.

Nature of Action: A physician claimed that an insurer violated the Consumer Protection Act (CPA) (ch. 19.86

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RCW) and insurance statutes and regulations by using a statistical database to assess the reasonableness of medical provider bills submitted for reimbursement and capping reimbursement at the 80th percentile of charges for a treatment in the geographic area. The plaintiff sought class certification, damages, prejudgment interest, attorney fees, litigation expenses, and an injunction prohibiting the defendant from making reductions to medical providers’ bills and from not conducting a reasonable investigation of a bill before refusing to pay in full.

Superior Court: After denying the plaintiff’s motion for class certification and denying the plaintiff’s motion for partial summary judgment on liability, the Superior Court for King County, No. 17-2-11676-9, John R. Ruhl, J., on April 8, 2021, entered an order denying the parties’ subsequent cross motions for summary judgment.

Court of Appeals: At 24 Wn. App. 2d 513 (2022), the court affirmed the trial court’s denial of the defendant’s motion for summary judgment and reversed the trial court’s denial of the plaintiff’s motion for summary judgment, holding that an insurer engages in an unfair practice by failing to conduct an individualized assessment of the reasonableness of a medical provider’s bill.

Supreme Court: Holding that the defendant’s practice of using a statistical database to assess the reasonableness of medical bills submitted by medical providers for reimbursement and capping reimbursement payments at the 80th percentile of charges for a treatment in the geographic area based on statistical benchmarks provided by the database did not violate the CPA or the requirements under the personal injury protection statutes to establish standards under which reasonable charges were determined, the court reverses the decision of the Court of Appeals and remands the case to the trial court to enter a summary judgment in favor of the defendant.

[2 Wn.3d 765]

Philip A. Talmadge (of Talmadge/Fitzpatrick); and Sarah Eversole (of Wilson, Smith, Cochran, Dickerson) (Marc Fuller, of counsel), for petitioners.

David E. Breskin and Cynthia J. Heidelberg (of Breskin, Johnson & Townsend PLLC), for respondents.

Molly A. Terwilliger and Andrew S. DeCarlow on behalf of Mitchell International Inc., amicus curiae.

Linda B. Clapham, Isaac C. Prevost, Christina M. Shin, and Michael B. King on behalf of American Property Casualty Insurance Association, amicus curiae.

John S. Conniff on behalf of Washington State Chiropractic Association, amicus curiae.

Blythe H. Chandler on behalf of Northwest Consumer Law Center, amicus curiae.

John M. Geyman, Michael Bradley, and Benjamin Brysacz on behalf of Attorney General for the State of Washington, amicus curiae.

Anthony Todaro and Joseph D. Davison on behalf of Chamber of Commerce of the USA, amicus curiae.

Justo Gonzalez, Bradford J. Axel, Valerie A. Walker, and Siobhan Moran on behalf of Fair Health Inc., amicus curiae.

Daniel E. Huntington and Valerie D. McOmie on behalf of Washington State Association for Justice Foundation, amicus curiae.

[As amended by order of the Supreme Court April 19, 2024.]

¶ 1 Johnson, J. — This case looks at what an insurer must do to meet the "reasonable investigation" requirement and

[2 Wn.3d 766]

the requirement to pay "all reasonable and necessary" medical expenses under the personal injury protection (PIP) statutes, ch. 48.22 RCW; accompanying regulations; and the Washington Consumer Protection Act (CPA), ch. 19.86 RCW. WAC 284-30-330(3); RCW 48.22.005(7).

¶2 Dr. Stan Schiff brought a class action suit claiming the practice of reducing provider bills to an 80th percentile cap based on a computer-generated calculation violated the CPA. Schiff argues that the formulaic approach violates the PIP statutory requirement to pay " ‘all reasonable and necessary’ " medical expenses and is not a reasonable investigation, resulting in a violation of Washington’s CPA. Resp. of Resp’t Dr. Schiff to Liberty Mut.’s Pet. for Rev. at 1-2 (emphasis added). Liberty Mutual Fire Insurance Company and Liberty Mutual Insurance Company (collectively Liberty) contend that the statutory requirement to conduct a reasonable investigation into medical expenses is satisfied by determining the 80th percentile of charges for a treatment in the geographic area and is not an unfair practice under the CPA. The trial court denied both Schiff’s and Liberty’s summary judgment motions. The Court of Appeals reversed as to Schiff. Schiff v. Liberty Mut. Fire Ins. Co., 24 Wn. App. 2d 513, 520 P.3d 1085 (2022), review granted, 1 Wn.3d 1001 (2023).We reverse the Court of Appeals in part and hold that Liberty’s 80th percentile practice is not an unfair practice under Washington’s CPA.¹

FACTS AND PROCEDURAL HISTORY

¶3 Liberty provides PIP and MedPay (supplemental medical payment coverage) policies to insureds in Washington State. When Liberty receives a medical bill for a policyholder, Liberty uses a third-party database called FAIR

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Health to determine the reasonableness of the medical provider’s charges. FAIR Health is an independent, non-profit, national medical claim database. FAIR Health allows insurers to compare providers’ charges for specific treatments in a geographical area and determine different percentiles of those charges. Under Liberty’s bill review practice, if a medical provider’s bill is below the 80th percentile for the area, Liberty pays the bill in full. If the provider’s charge exceeds the 80th percentile benchmark, the payment is reduced to that amount.

¶4 Over several years, Schiff submitted 20 treatment bills to Liberty. Based on Liberty’s bill review practice, 2 of Schiff’s bills were reduced to the 80th percentile. A 2015 bill was originally $380.00 and was reduced to $339.00. A 2016 bill was originally $945.00 and was reduced to $841.73. The total reduction was $144.27.

¶5 On May 8, 2017, Schiff sued individually and on behalf of similarly situated Washington health care providers, alleging that Liberty’s practice of reducing payments to medical providers was a violation of Washington’s PIP statutes, the WACs, and Washington’s CPA. Schiff sought class certification, damages, prejudgment interest, attorney fees, and litigation expenses. In an amended complaint, Schiff also requested that Liberty be enjoined from making reductions to providers’ bills and from not conducting a reasonable investigation of a bill before refusing to pay in full. Liberty asserted defenses that their conduct is protected by the CPA " ‘safe harbor’ " defense, set forth in RCW 19.86.170, and/or by the " ‘good faith’ " exception to CPA liability established under Washington case law. Clerk’s Papers at 4159.

¶6 Both parties filed for summary judgment as to whether Schiff had legal standing to bring the class action and individual claims alleged in his pleadings, or whether he was barred from asserting those claims based on the settlement agreement in an Oregon case, Froeber v. Liberty Mutual Insurance Co., 222 Or. App. 266, 193 P.3d 999

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(2008). The trial court concluded that the class action settlement barred Schiff from asserting the class action claims, but did not bar him from pursuing his individual CPA claim for monetary damages based on the two bill reductions.²

¶7 Schiff then motioned for partial summary judgment on liability based on the Court of Appeals’ decision in Folweiler Chiropractic, PS v. American Family Insurance Co., 5 Wn. App. 2d 829, 429 P.3d 813 (2018), which the trial court denied. The court outlined the undisputed facts, including stipulations that (1) Liberty relied solely on its 80th percentile bill review methodology to review and reduce the payment on Schiff’s 2015 and 2016 bills and (2) Liberty did not do individualized investigations with respect to those bills. The trial court ultimately denied summary judgment because there were genuine issues of material fact as to whether Liberty’s conduct is protected by the CPA "safe harbor" defense or the "good faith" exception to CPA liability. Included in that factual dispute is whether the Office of the Insurance Commissioner (OIC) affirmatively approved Liberty’s methodology and whether Liberty acted in compliance with whatever approval the OIC gave. The trial court also denied both parties’ subsequent cross motions for summary judgment.

¶8 Both parties sought discretionary review of the trial court’s denial of summary judgment in the Court of Appeals. The Court of Appeals granted review. The trial court stayed the case pending the outcome of their motions for discretionary review. In a published opinion, the Court of Appeals reversed the trial court’s denial of Schiff’s motion for summary judgment and affirmed the trial court’s denial of Liberty’s motion for summary judgment. Schiff, 24 Wn. App. 2d at 547. The court reasoned that under Folweiler, an insurer engages in an unfair practice by failing to conduct an individualized assessment of the reasonableness of a medical provider’s bill. Schiff, 24 Wn. App. 2d at 526. The

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court noted that RCW 48.22.095(1)(a) and RCW 48.22-.005(7) require "an individualized assessment rather them substituting a formulaic approach that pays only 80 percent of the average charge for a large geographic area." Folweiler, 5 Wn. App. 2d at 838. Liberty then sought this court’s review,³ which we granted.⁴

ISSUE

¶9 Whether...