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Jacqueline T. Lenmark, Esq.
JACKSON MURDO & GRANT, P.C.
(406) 442-1300

MONTANA FIRST IMPRESSIONS

In the past year, the Montana Supreme Court has handed down two decisions of first impression clarifying points of the Montana Unfair Trade Practices Act (UTPA). [1]  

Estate of Gleason v. Central United Life Insurance Company

Notice-Prejudice Rule

In Estate of Gleason v. Central United Life Insurance Company, [2] the Montana Supreme Court formally adopted the notice-prejudice rule in the first-party coverage context. [3] The rule provides that an insurer may deny coverage based on a failure to comply with a policy notice provision only if the insurer can demonstrate that it was prejudiced by the late notice. [4] The rule applies to all lines of insurance and has been extended to third-party coverages.

In 1991, Jude Gleason, a career high school teacher and coach, purchased cancer insurance from Colonial Life Insurance Company through an agent who met with teachers at her school. In 2002, Jude was diagnosed with cancer. She was treated, went into remission, suffered recurrence, incurred additional treatment, and died in 2010. Jude never missed a monthly premium payment, but did not file a claim while she was alive. The cancer policy was among those purchased from Colonial by Central United Life Insurance Company (CULI). After her death, her personal representative submitted a claim for benefits to CULI.

The policy’s proof-of-loss requirements contained a timely filing provision requiring the insured to submit a claim within 90 days after the covered loss began or as soon as reasonably possible, but in no event later than one year from the date of the expense for which a benefit was claimed. CULI denied Jude’s claim with respect to expenses incurred prior to that time window, relying upon the timely filing requirement in the policy.

The Estate filed suit in state district court seeking recovery for breach of contract and UTPA violations. The district judge granted summary judgment based upon the notice-prejudice rule and, upon CULI’s admission at trial that it was not prejudiced by the late notice, directed verdict in favor of the Estate in the amount of the contract benefits.

On appeal, the Montana Supreme Court stated:

[T]he notice-prejudice rule allows an insurer to deny coverage based on a failure to comply with a policy notice provision only if the insurer can demonstrate that it was prejudiced by the late notice. Here, CULI admitted to the District Court that it was not prejudiced by late notice. The District Court thus found that CULI was prohibited from denying the Estate’s claims on the basis of late notice.

The District Court’s application of the notice-prejudice rule in this case is hereby affirmed and we formally adopt the notice-prejudice rule in the first party insurance coverage context. [5]

In so holding, the Montana Supreme Court also rejected CULI’s asserted “reasonable basis defense,” determining that the issue “was not solely a matter of interpreting legal precedent.” The Court affirmed the district court’s decision that the “legal advice which informed [the insurer’s] decision to contest [the] claim is relevant to whether that decision was grounded in ‘a reasonable basis in law,’” allowing the jury to hear evidence about CULI’s knowledge and application of Montana law. [6]

The underpinnings of the Court’s decision are threefold: a “natural conclusion of an ongoing trend” in the court’s jurisprudence; earlier antiforfeiture protection principles codified by the Montana Legislature; and equitable principles established in contract law.[7]

Our decision here reaffirms our commitment to upholding the “fundamental protective purpose” of an insurance contract and ensures that a non-material, technical breach of a notice provision will not deprive the insured of coverage for which valuable consideration has been paid. [8]

This broad ruling in first party claims laid the groundwork for the Court’s adoption of the rule in third party actions, in Atlantic Casualty Insurance Company v. Greytak. [9]Relying on a majority of jurisdictions having adopted the notice-prejudice rule in insurance coverage disputes, the Court held:

The public policy of Montana is to narrowly and strictly construe insurance coverage exclusions in order to promote the “fundamental protective purpose” of insurance. An insured’s technical or illusory failure to comply with obligations of a policy will not automatically terminate coverage, and an insurer who does not receive timely notice required by the terms of an insurance policy must demonstrate prejudice from that lack of notice in order to avoid the obligation to provide defense and indemnification of the insured. This rule applies whether the claim arises from the insured as in Gleason or from a third party claiming damages as in the present case. [10]

Reacting to the Court’s decision, State Auditor ex officio Commissioner of Securities and Insurance Monica Lindeen (the Commissioner) [11] has initiated a proactive regulatory posture regarding the rule and has issued a draft advisory bulletin to insurers and their trade associations seeking comment. The draft advisory instructs all insurers in all lines of insurance to “ENSURE that all insurance forms and practices conform to the notice prejudice rule within sixty (60) days of the date of this Advisory Memorandum.” Comments from industry and others were accepted until close of business on April 21, 2016. [12] A formal bulletin or revised draft has not been issued.

Ibsen v. Caring for Montanans

Private Right of Action to Enforce UTPA

In a May 11, 2016 opinion, the Montana Supreme Court held that a person may not maintain a private right of action for a violation of the UTPA except as expressly permitted in section 33-18-242 of the Montana Code Annotated (the Code). The issue before the court was whether Plaintiff Mark Ibsen could maintain a private right of action for his insurer’s violation of Code sections 33-18-208 (rebates prohibited) and 33-18-212 (illegal dealing in premiums), or in the alternative, whether the claims could be sustained as common law claims. [13]

For several years and until December 2015, Mr. Ibsen owned and operated an urgent care clinic in Helena, Montana (Ibsen). Ibsen became a small business member of the Montana Chamber of Commerce and, during 2011, 2012, and 2013, elected to provide health insurance coverage for its employees through a Chamber program known as “Chamber Choices,” choosing Blue Cross and Blue Shield of Montana, Inc. (BCBSMT) as its vendor/provider “choice.” Ibsen paid monthly premiums to BCBSMT. As part of a routine market conduct examination, the Office of the Montana State Auditor, Commissioner of Securities and Insurance (CSI) reviewed BCBSMT’s business practices between July 1, 2006, and December 31, 2010. In February 2014, the CSI issued an order fining BCBSMT [14] for numerous discrepancies, including improper medical premium billing in violation of UTPA sections 33-18-208 and -212. BCBSMT did not challenge or appeal the fine and paid it within the required payment period. [15]

In April 2014, Ibsen filed a “Complaint Putative Class Action” against BCBSMT (now known as Caring for Montanans, Inc.) and Health Care Service Corporation alleging that, from 2007 through 2012, BCBSMT violated Code section 33-18-212 by improperly charging consumers enhanced premiums that included undisclosed amounts exceeding the medical premium. It claimed that the overcharges were used to provide kickbacks to the Chamber, which marketed BCBSMT’s insurance plan to its members, to ensure that BCBSMT would remain a “Chamber Choice” provider and thus were also in violation of Code section 33-18-208. [16]

In addition to class allegations, the amended complaint alleged four counts all premised on the violations of Code sections 33-18-208 and -212: (1) breach of fiduciary duty; (2) unfair and deceptive trade practices; (3) breach of contract; and (4) unjust enrichment.[17] Ibsen asserted that three of its four claims were common law claims rather than statutory claims brought under the UTPA. The district court disagreed. The court pointed out that “Count II clearly alleges a statutory violation and purports to allow [Ibsen] to enforce the two provisions of the insurance code ([S]ections -208 and -212) [sic].” [18]It therefore held that “Count II . . . is strictly and explicitly a statutory claim [and] is not allowed to be brought by private claimants.” [19] The district court also invoked Ibsen’s assertions in a parallel federal court proceeding that its “several causes of action” were “all based on violations of the two insurance code sections.” [20] Consequently, the district court held that each remaining count of the Complaint was not a common law claim. Citing 33-1-311(1), MCA, the “General powers and duties” section of the Montana Insurance Code, the court found that the clear legislative intent was that the insurance code is to be enforced by the Insurance Commissioner and not private litigants. [21]

Section 33-18-242, of the Code, confers a narrow private right of action for violations of six specific subsections of 33-18-201. [22] The court rejected Ibsen’s claims, applying a four-part test to determine if a statutory scheme implies a private right of action: whether the interpretation (1) is consistent with the statute as a whole; (2) reflects legislative intent considering the statute’s plain language; (3) is reasonable so as to avoid absurd results; and (4) is a construction placed on the statute by the agency charged with its administration. [23] In reaching its decision, the court relied on a detailed examination of the UTPA’s legislative history, [24] including its origin in NAIC model law, [25] the interpretation advanced by the 1959 and 1977 sitting Commissioners of Insurance who were actively engaged in its enactment and later amendments, [26] and the 1987 Commissioner’s direct involvement in the enactment of Code section 33-18-242. [27] It then retraced the court’s seminal opinions relative to violations of the UTPA from 1983 to the present time. [28]

Commissioner Lindeen appeared amicus in the appeal, urging the court to adopt a broad exception to the rule that it is the Commissioner only who will enforce the UTPA, arguing that the statute does not expressly preclude a private right of action for other claims. The court likewise rejected this “invitation to announce an open-ended private right of action for all violations of the UTPA,” deferring to the construction placed on the statute by the Commissioner directly involved in its enactment. [29]

The court expressly recognized that premising the class complaint upon a violation of the Insurance Code “that had already been established and sanctioned by the Commissioner would pave a clear path to” the class’s recovery. It affirmed that, if the UTPA allowed such a private right of action, it would not hesitate to overrule the district court’s conclusion. Instead, the court confirmed that the UTPA does not “expressly or impliedly” create a private right of action for claims falling outside the enumerated subsections of Code section 33-18-201. [30]

References

[1] Mont. Code Ann. tit. 33, ch. 18.

[2] 2015 MT 140, 379 Mont. 219, 350 P.3d 349.

[3] Id. ¶ 39.

[4] Id. ¶ 38 (emphasis added).

[5] Id. ¶¶ 38-39 (emphasis added).

[6] Id. ¶ 62.

[7] Id. ¶ 37.

[8] Id.

[9] Atl. Cas. Ins. Co. v. Greytak, 2015 MT 149, 379 Mont. 332, 350 P.3d 63 (certified by the Ninth Circuit Court of Appeals to the Montana Supreme Court).

[10] Id. ¶ 14 (citations omitted).

[11] Mont. Code Ann. § 2-15-1903.

[12] The American Insurance Association and the American Council of Life Insurers submitted joint comments to the Commissioner, complimenting CSI’s comprehensive notice to the industry of the court's action, but noting that requiring conformity within 60 days is too short to put the ruling into practice. The associations recommended a lengthier time frame for compliance, citing for comparison purposes the 5-month compliance period used when New York adopted the rule in 2008.

[13] 2016 MT 111, ___ Mont. ___, ___ P.3d ___, 2016 WL 27551792016 (May 11, 2016). The Opinion has not been released for publication in the permanent law reports. It is subject to revision or withdrawal.

[14] As a result of a conversion of BCBSMT and acquisition of its insurance assets by Health Care Service Corporation, an Illinois Legal Reserve Company, BCBSMT was at this time known as Caring for Montanans, Inc.

[15] Ibsen , ¶¶ 3-4.

[16] Id. ¶ 5.

[17] Id. ¶ 6.

[18] Id. ¶ 9 (internal quotation marks omitted).

[19] Id. (internal quotation marks omitted).

[20] Id. (internal quotation marks omitted)

[21] Id. ¶ 9 (with exceptions not applicable to this case).

[22] Mont. Code Ann. §§ 33-18-201 (1), (4), (5), (6), (9), and (13).

[23] Ibsen, ¶¶ 47-49.

[24] Id. ¶¶ 21-24.

[25] Id. ¶¶ 20-22.

[26] Id. ¶¶ 21-22, 27, 49.

[27] Id. ¶ 27.

[28] Id. ¶¶ 23-24, 30-40.

[29] Id. ¶¶ 27, 50.

[30] Id. ¶ 43; see also Fossen v. Caring for Montanans, Inc., 993 F. Supp. 2d 1254 (D. Mont. 2014); Fossen v. Caring for Montanans, Inc., 617 Fed. Appx. 737 (9th Cir. 2015).

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