Wiedenbeck v. Cinergy Health, Inc.

HARRY R. WIEDENBECK and RHONDA L. WIEDENBECK,on behalf of themselves and all others who are similarly situated, Plaintiffs, v. CINERGY HEALTH, INC., AMERICAN MEDICAL AND LIFE INSURANCE COMPANY,and NATIONAL CONGRESS OF EMPLOYERS, INC., Defendants.

12-cv-508-wmc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

Entered: September 20, 2013

OPINION AND ORDER

In this action, plaintiffs husband and wife Harry R. Wiedenbeck and Rhonda L. Wiedenbeck allege that defendants Cinergy Health, Inc., American Medical and Life Insurance Company ("AMLI") and National Congress of Employers, Inc. ("NCE") used false and misleading infomercial advertisements to induce their purchases of a "comprehensive" medical benefit plan that was, in fact, deceptively limited and then acted in bad faith in denying coverage. Before the court is defendant AMLI's motion to dismiss for lack of jurisdiction, its motion for judgment on the pleadings, and plaintiffs' related motion to amend their complaint to add additional allegations concerning AMLI's involvement in the alleged fraud. (Dkt. ##40, 48, 57.) Also before the court isplaintiffs' motion for class certification of their fraudulent advertising claim. (Dkt. #42.)¹

For the reasons more fully described below, the court will deny defendant AMLI's motion to dismiss for lack of subject matter jurisdiction, finding that its Rule 68 offer of judgment did not offer complete relief and, therefore, did not render plaintiffs' claims moot. The court will grant plaintiffs leave to amend their complaint, finding good cause for the amendment. The court will also deny AMLI's motion for judgment on the pleadings, finding plaintiffs' amended complaint sufficient to state claims for both fraud and bad faith. As for class certification, the court will deny plaintiffs' motion for several reasons, most notably because the proposed class does not meet the predominance requirement of Fed. R. Civ. P. 23(b).

FACTS²

A. Parties

The complaint and amended complaint are sparse when it comes to details about the parties. Plaintiffs husband and wife Harry R. and Rhonda L. Wiedenbeck are residents of Wisconsin. From its website, the court discerns that defendant AMLI is a "specialty risk insurer" offering limited medical benefits health insurance among otherproducts. See http://www.usamli.com/about-amli/ (last visited August 19, 2013). AMLI issued the limited medical benefits health insurance policy purchased by plaintiffs and the putative class. Defendant Cinergy purports to be a "nationwide provider of affordable health and life insurance products" see http://www.cinergyhealth.com/ (last visited August 19, 2013), and allegedly marketed the insurance policy at issue in this case. Lastly, defendant National Congress of Employers is a "national association that represents America's small and medium sized businesses." See http://www.thence.org/ (last visited August 19, 2013). NCE allegedly also was involved in the marketing of AMLI's limited medical benefits insurance policy to its members, though plaintiffs do not allege that they are, or are affiliated with, members of NCE.

B. Background

Effective January 1 and December 1, 2007, defendant AMLI entered into written agreements with defendants Cinergy and NCE to issue and market a "Limited Medical Benefit Plan" to enroll purchasers, and bill and collect premiums. On or before March 1, 2009, AMLI, Cinergy and NCE also entered into an agreement that authorized Cinergy to market AMLI's "limited benefit" health insurance policies to NCE "members." Cinergy subsequently engaged in marketing in Wisconsin by internet and television "infomercials." Plaintiffs allege that AMLI approved (1) a television advertisement that ran in Wisconsin and (2) a sales script used by employees at a Cinergy call center.

Plaintiffs allege generally that Cinergy's marketing was "intentionally misleading in that it, among other things, misrepresented the [AMLI] limited benefit healthinsurance policies as a comprehensive plan providing major medical coverage, with no exclusions for pre-existing conditions." (Am. Compl. (dkt. #48-1) ¶ 11.) Plaintiffs further allege that NCE and AMLI were fully aware of Cinergy's marketing and approved it.³

Plaintiffs further allege that all three defendants were involved in a "scheme, pattern and undertaking to deny, delay and underpay claims." (Am. Compl. (dkt. #48-1) ¶ 20.) Specifically, plaintiffs allege that defendants (1) made it difficult to determine which entity was responsible for responding to and answering questions about claims; (2) routinely denied claims by misapplying the pre-existing condition limitation; (3) mis-classified claims by misusing billing and diagnoses code information in order to exclude claims from coverage; and (4) delaying responses to claims for weeks and months.

C. Plaintiffs' Alleged Experiences

On April 26, 2009, Harry Wiedenbeck saw the Cinergy "infomercial" on television. Based on certain representations that the policy covered "major medical expenses without exclusions for pre-existing conditions," Harry called the toll free number. (Am. Compl. (dkt. #48-1) ¶ 24.) During the call, plaintiffs allege in their complaint that the Cinergy representative "did nothing to correct Mr. Wiedenbeck's misperception concerning the nature of the American Medical policy, continuing tomislead him about the nature of the coverage consistent with the infomercial and Cinergy's marketing scheme." (Id.)⁴

During the call, Mr. Wiedenbeck provided his credit card information to the Cinergy representative and authorized automatic charges of the monthly premium. No documents were provided to plaintiffs at the time of purchase. At some later point, plaintiffs received a letter from AMLI confirming they were "covered under a group limited medical insurance certificate underwritten by [AMLI], effective May 15, 2009." (Id. at ¶ 26.)

On October 27, 2009, Rhonda Wiedenbeck was admitted to Grant Regional Health Center for evaluation of disorientation. Additional testing was recommended. AMLI then was contacted to approve Mrs. Wiedenbeck's admission in the hospital for overnight stay. Based on the AMLI representative's representation that this would be acceptable, Mrs. Wiedenbeck stayed overnight at the hospital for observation and testing. The hospital submitted the bill to AMLI for payment. AMLI initially denied the claim on the basis that the hospitalization was for a "pre-existing condition." At some later point, AMLI again denied the claim because the hospitalization was for a "mental health" condition, which was excluded from coverage.

In trying to secure coverage of this claim, plaintiffs allege that they first discovered the "true nature of the [AMLI] policy -- that it was a 'limited benefits' policy which would cover only a small fraction of the hospitalization charges." (Id. at ¶ 29.) The Wiedenbecks also allege that they experienced "delay and frustration" in attempting to secure coverage of Mrs. Wiedenbeck's hospital claim. (Id. at 30.) Ultimately, the bill for the hospital care was referred to a collection agency, threatening the Wiedenbeck's credit and reputation. The Wiedenbecks contend that because of defendants' misrepresentations and denials of coverage, they incurred "substantial personal expense in the form [of] premium payments for the purchased policy, the Grant Regional Health Center billing and other economic and non-economic damage in an amount to be determined by a jury." (Id. at ¶ 31.) On February 15, 2012 -- almost 52 months after Mrs. Wiedenbeck's hospitalization -- AMLI agreed to pay the full amount of the required benefit under the insurance policy plus interest.

D. Plaintiffs' Claims and Proposed Class Action

Plaintiffs assert two causes of action: (1) fraud based on the alleged "intentional misrepresentations made by Cinergy, with [AMLI's] and NCE's knowledge and consent" that the "policies were comprehensive, covering major medical and not excluding pre-existing conditions"; and (2) bad faith breach of the fiduciary relationship between an insurer and an insured. (Am. Compl. (dkt. #48-1) ¶¶ 47, 53.)

In the amended complaint, plaintiffs seek to represent a class consisting of: "All Wisconsin residents who purchased an [AMLI] insurance policy marketed by Cinergy."(Id. at ¶ 34.) Plaintiffs also seek to represent a subclass consisting of: "All Wisconsin residents who have purchased an [AMLI] insurance policy marketed by Cinergy and who have incurred unreimbursed medical expenses on claims submitted under that policy." (Id. at ¶ 35 (emphasis added).)⁵ In their motion for class certification, however, plaintiffs clarify that they seek to certify a class based on the fraud cause of action only.

E. Offer of Judgment

On February 1, 2013, AMLI served plaintiffs with an Offer of Judgment in the amount of $20,000 pursuant to Federal Rule of Civil Procedure 68 to plaintiffs to resolve "all of Plaintiffs' claims for relief," including "all of Plaintiffs' costs." (Affidavit of Ronald S. Stadler ("Stadler Aff."), Ex. 9 (dkt. #56-9).)

OPINION

I. Jurisdiction under CAFA

As an initial matter, the court required plaintiffs to file "a jurisdictional brief pleading the actual state of incorporation of each defendant and explaining why and how the jurisdictional amount under CAFA is satisfied." (6/24/13 Opinion & Order (dkt. #68) 4.) Having reviewed plaintiffs' response, the court is now satisfied that it has jurisdiction over this case pursuant to the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d).

Specifically, plaintiffs submitted materials demonstrating a possible "restitutionary damages" award exceeding $5,000,000, which does not account for a possible punitive damages award. (Pls.' Jurisdictional Br. (dkt. #69) 3.) In reply, defendants submitted a letter to the court indicating that plaintiffs' estimate of what is at stake is not "legally impossible." (Defs.' Resp. (dkt. #72) (quoting Back Doctors Ltd. v. Metro. Prop. & Cas....