TX Municipal League v. Hartford Life Acidnt ( 2000 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 99-40181
TEXAS MUNICIPAL LEAGUE, ETC., ET AL.,
Plaintiffs,
CITY OF PASADENA, CITY OF BEAUMONT,
Plaintiffs-Appellants-Cross-Appellees,
VERSUS
HARTFORD LIFE & ACCIDENT INSURANCE COMPANY, HARTFORD FIRE
INSURANCE COMPANY,
Defendants-Appellees-Cross-Appellants.
Appeals from the United States District Court
For the Southern District of Texas
(B-91-CV-166)
September 27, 2000
Before KING, Chief Judge, GARWOOD and DeMOSS, Circuit Judges.
PER CURIAM:*
This consolidated appeal involves what are essentially two
different cases arising out of the Texas Municipal League Benefits
Risk Pool’s (“TML Risk Pool”) insurance and administration
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
contracts with Hartford Life and Accident Insurance Company and
Hartford Fire Insurance Company (collectively “Hartford”). In the
first case, the City of Pasadena (“Pasadena”) appeals the district
court’s final judgment, following entry of a judgment on partial
findings under Federal Rule of Civil Procedure 52(c), providing
that Pasadena take nothing for its breach of contract claim and its
claims under the Texas Deceptive Trade Practices and Consumer
Protection Act (“DTPA”), Tex. Bus. & Com. Code Ann. §§ 17.01-
17.854, and Texas Insurance Code article 21.21 § 16(a). Hartford
cross-appeals, arguing that the district court erred in not
ordering restitution by Pasadena to Hartford for overpayment under
their contract.
In the second case, the City of Beaumont (“Beaumont”)
challenges the district court’s denial of attorney’s fees despite
its finding in favor of Beaumont’s breach of contract claim against
Hartford. Beaumont further contends that the district court erred
in reducing the damages award and in failing to find a violation of
article 21.21-2 of the Texas Insurance Code. Hartford cross-
appeals, maintaining that the district court improperly concluded
that Hartford breached its contract with Beaumont.
I. BACKGROUND
In 1979, the TML Risk Pool, an affiliate of the Texas
Municipal League, was formed to procure and manage health insurance
2
for the employees of member-city governmental entities. Pasadena
and Beaumont were members of the TML Risk Pool. In 1986, the TML
Risk Pool placed its health insurance program out for bid. As a
result, Hartford forwarded a proposal (“Proposal”) and was
ultimately selected as the insurer and claims administrator. After
the bid process, Hartford, the TML Risk Pool, and various other
interested parties including some member cities negotiated a series
of agreements to govern their relationships.
In late September 1991, the TML Risk Pool filed suit against
Hartford in Cameron County District Court for damages arising from
Hartford’s alleged malfeasance or nonfeasance with respect to the
health insurance program. Hartford removed the action to federal
court on the basis of diversity. Thereafter, Beaumont intervened
as an individually-named plaintiff in the TML Risk Pool lawsuit
while Pasadena filed a separate suit. In response to Pasadena’s
action, Hartford filed a counterclaim against Pasadena, seeking to
recoup damages for the overpayment of medical claims. Ultimately,
Beaumont and the TML Risk Pool’s lawsuit was consolidated with
Pasadena’s suit. That consolidated case proceeded to a bench trial
in February 1996. During trial, the TML Risk Pool settled with
Hartford, but Pasadena and Beaumont continued with their claims.
A. Pasadena’s Claims Against Hartford
In 1986, Pasadena hired Hartford to administer Pasadena’s
self-funded health insurance program and to provide excess
3
coverage. Pasadena, Hartford, and the TML Risk Pool executed three
contracts: 1) an Administrative Services Agreement (“ASO”); 2) an
Individual Stop-Loss Contract (“ISL”); and 3) an Aggregate Stop-
Loss Contract (“ASL”). Pasadena remained a self-funded entity, but
under the ASO, Hartford had to administer the payment of bills
received from medical providers. Under the ISL and the ASL,
Hartford had to provide excess insurance coverage, which required
Hartford to pay the costs of individuals above a certain amount and
the aggregate costs of all benefits above a certain amount.
Prior to entering the agreements with Hartford, Pasadena had
established a Preferred Provider System (“PPO”) in 1984. Under the
PPO, medical providers had agreed to certain percentage discounts
off their standard charges in exchange for Pasadena’s recommending
those providers. An outside vendor, CAPPCare,2 was hired by
Pasadena to administer the PPO. Before Hartford began
administering Pasadena’s health insurance claims, the medical
providers had been responsible for submitting already discounted
bills. During Hartford’s administration of Pasadena’s health
insurance plan, however, the PPO providers’ bills did not include
a discount.
Several months after the start of Hartford’s tenure,
Pasadena’s health insurance plan became underfunded, resulting in
substantial losses. Believing that the result of the losses were
2
Originally, Pasadena contracted with Southeast Medical Service
(“SEMS”) to administer the PPO. CAPPCare later purchased SEMS.
4
due to Hartford’s failure to apply the PPO discount on the bills
submitted by the medical providers, Pasadena filed suit against
Hartford. Pasadena’s amorphous complaint seemed to raise three
claims: 1) under the ASO and Hartford’s Proposal, Hartford should
have taken the PPO discount from the bills submitted by the medical
providers; 2) pursuant to Hartford’s administrative
responsibilities under the ASO and the Proposal, Hartford should
have discovered that the shortfall occurred from the failure to
take the PPO, and it should have instituted a program to secure the
health insurance plan’s financial stability; and 3) in the
alternative, the Proposal included representations regarding the
services to be provided that ultimately proved untrue, and those
representations constituted DTPA and Texas Insurance Code
violations. The case went to trial, but after Pasadena presented
its case, the district court ruled pursuant to Rule 52(c) that
Hartford did not breach its contract with Pasadena because Hartford
did not have any knowledge that non-discounted bills would be
submitted and because the ASO did not require Hartford to ascertain
that fact.2 Furthermore, the district court held against Hartford
in its counterclaim to recoup from Pasadena alleged overpayments
made by Hartford due to Pasadena’s exceeding its ISL and ASL limits
sooner than if discounted PPO payments had been made.
2
Two different judges comprised the district court that heard
the TML Risk Pool suit. Judge Reavley entered several pre-trial
orders, while Judge Newblatt conducted the trial and entered the
final judgments. Both sat by designation.
5
Both Pasadena and Hartford appeal the district court’s
rulings.
B. Beaumont’s Claims Against Hartford
Hartford’s contract with Beaumont ran from October 1, 1986
through September 30, 1989. Beaumont’s relationship with Hartford
was governed by a Minimum Premium Agreement (“MPP”), which
incorporated a delayed funding mechanism, excess insurance
coverage, and claims processing by Hartford. Under the MPP,
Beaumont funded the health claims of its municipal employees and
their eligible dependents (collectively “participants”) up to an
agreed maximum by reimbursing Hartford for medical claims that
Hartford processed and paid. Beaumont funded the claims by
remitting payments to Hartford on a delayed basis rather than in
advance. The insurance coverage related to Hartford’s agreement to
cover with its own funds claims that exceeded certain limits.
Three limits existed under the MPP. First, the Individual
Participant Liability Limit (“IPLL”) limited Beaumont’s liability
for each individual’s claims. Second, the Aggregate Plan Liability
Limit (“APLL”) limited Beaumont’s liability for all participants’
health claims in a contract year. And third, if Beaumont so chose,
the Plan Benefit Extension Limit (“PBEL”) could limit Beaumont’s
liability for health claims after termination of the MPP.
In early 1989, Beaumont decided to become self-insured and to
terminate its relationship with Hartford effective September 30,
6
1989. When Beaumont intervened in the TML Risk Pool suit, it
asserted various claims ranging from breach of contract to DTPA
violations. Of those claims, most were dismissed before trial.
The only claim to survive and be addressed by the district court
was Beaumont’s breach of contract claim under the MPP. In general,
that claim concerned the payment of claims in the final year of the
contractual relationship, specifically the medical expenses
incurred before the termination date but not paid on or before that
date. Beaumont contended that Hartford was liable for those claims
and, as a result, argued that those claims should have been
included in any calculation of the APLL for the final contract
year. Because those claims would have added to any excess beyond
the APLL limit, Beaumont sought reimbursement of its funds. At
trial, the district court agreed with Beaumont and awarded
$371,868.41 in damages. After post-trial motions for
reconsideration, the district court reduced that amount to
$346,421.70, but did not award Beaumont attorneys’ fees or treble
damages under the Insurance Code. The district court, however, did
award Beaumont pre-judgment interest accruing as of October 30,
1989, thirty days after the MPP expired.
Both Beaumont and Hartford appeal.
II. DISCUSSION
A. Pasadena v. Hartford
7
Pasadena presents three main issues on appeal. The first two
concern Pasadena’s claims against Hartford for overpayment of
health insurance claims to medical providers, while the last issue
refers to Hartford’s cross-appeal against Pasadena for restitution.
We review the first two issues apart from the last.
1. Pasadena’s Two Claims Against Hartford
The district court entered the final judgment as to Pasadena’s
claims after it first granted Hartford’s motion for judgment on
partial findings under Rule 52(c).3 Accordingly, we review the
judgment under the standard reserved for a Rule 52(c) ruling. See
Downey v. Denton County, Tex., 119 F.3d 381, 385 (5th Cir. 1997).
The factual findings are reviewed for clear error, while the
district court’s legal conclusions are subject to de novo review.
Id. & n. 5. The construction of an unambiguous contract is a
question of law.4 See Tarrant Distribs. Inc. v. Heublein Inc., 127
F.3d 375, 377 (5th Cir. 1997).
3
Rule 52(c) provides:
If during a trial without a jury a party has been fully heard
on an issue and the court finds against the party on that
issue, the court may enter judgment as a matter of law against
that party with respect to a claim or defense that cannot
under the controlling law be maintained or defeated without a
favorable finding on that issue, or the court may decline to
render any judgment until the close of all the evidence. Such
a judgment shall be supported by findings of fact and
conclusions of law as required by subdivision (a) of this
rule.
4
Neither Pasadena or Hartford asserts that the ASO is
ambiguous.
8
On appeal, Pasadena asserts that the district court erred in
dismissing two of the three claims that were apparently raised in
district court.5 First, Pasadena re-urges one of the two breach of
contract claims, arguing that pursuant to Hartford’s administrative
responsibilities under the ASO and the Proposal, Hartford should
have discovered that the shortfall in the health insurance plan
occurred from the failure to take the PPO discounts and, therefore,
should have instituted a program to secure the health insurance
plan’s financial stability. Second, Pasadena contends, in the
alternative, that the Proposal included representations regarding
the services to be provided that ultimately proved untrue and that
constituted DTPA and Texas Insurance Code violations.
With respect to the breach of contract claim, Pasadena
primarily maintains that Hartford breached subsections I(e) and
I(f) of the ASO.6 Pasadena also asserts that Hartford breached
pre-contract statements, in the form of the Proposal, that were
5
The nature and extent of Pasadena’s claims is unclear because
of the ambiguous nature of its complaint and briefing. But it is
clear that Pasadena does not appeal the breach of contract claim
specifically charging that Hartford had a specific contractual duty
to take the PPO discounts.
6
Sections I(e) and I(f) provide:
(e) [Hartford] agree[s] to provide actuarial services
including (i) annual cost projections, (ii) cost projections
for Plan modifications; and (iii) estimates of reserve amounts
required to fund the Plan on a current basis.
(f) [Hartford] agree[s] to provide Plan design services
including assistance to Plan benefit design based on coverage
adequacy, cost control effectiveness, and medical or economic
developments.
9
allegedly integrated into the ASO, but at other times, Pasadena
disaffirms any contention that the Proposal was a part of the
contract. Whatever is Pasadena’s position, we find that the
Proposal was not a part of the contract because of the following
“merger” clause in the ASO:
“This Agreement, the Request for Benefit Administration
Services, and the attached copy of The Plan, together
with any amendments to The Plan, constitute the entire
Agreement between [Pasadena] and [Hartford].”
“[I]n the absence of fraud, mistake, or accident, the parol
evidence rule is particularly applicable where the written contract
contains a recital that the contract encompasses the ‘entire
agreement between the parties’, or a similarly worded merger
provision.” Boy Scouts of America v. Responsive Terminal Sys., 790
S.W.2d 738, 745 (Tex. App.—Dallas 1990, writ denied) (citations
omitted); see also Super-Cold Southwest Co. v. Elkins, 166 S.W.2d
97, 98 (Tex. 1942). The ASO contains “a similarly worded merger
provision.” Therefore, we conclude that the pre-contract
negotiations did not become part of the contract between Hartford
and Pasadena.
As a result, we must look only to subsections I(e) and I(f) of
the ASO to determine if Hartford should have discovered that the
shortfall in the health insurance plan occurred from the failure to
take the PPO discounts and that, therefore, Hartford should have
instituted a program to secure the health insurance plan’s
financial stability. By their plain terms, subsections I(e) and
10
I(f) do not obligate Hartford to discover that the failure to take
the PPO discounts might cause the shortfall or to institute some
program to secure the health insurance plan’s financial stability.
Rather, subsection I(e) discusses Hartford’s duty to provide
actuarial services while subsection I(f) requires Hartford to
service the health insurance plan and to provide certain cost
control adequacy assistance. Any obligation to account for the PPO
discounts so as to ensure a viable health plan does not comport
with the actual requirements of the two subsections, nor is there
sufficient evidence suggesting that any failure to comply with the
plain terms of those subsections lead to Pasadena’s damages.7
Hence, we see no breach by Hartford of subsections I(e) and I(f) of
the ASO and find no error on the part of the district court.
Pasadena’s second claim on appeal relates to Hartford’s pre-
contractual representations in the form of the Proposal. Pasadena
contends that those representations violated subsections
17.46(b)(5) and (6) of the DTPA8 and, consequently, article 21.21
7
In essence, Pasadena’s claim for breach of subsections I(e)
and I(f) is nothing more than another attempt to recoup damages for
the failure to take PPO discounts, which the ASO clearly does not
require and which formed the basis of the other breach of contract
claim that was not appealed to this Court. Therefore, just as the
district court’s implied finding that Hartford was under no
obligation to take the PPO discounts or to ascertain whether it had
such an obligation disposed of the non-appealed breach of contract
claim, that finding necessarily disposed of Pasadena’s claim for
breach of subsections I(e) and I(f).
8
Subsection 17.46(b)(5) makes “representing that goods or
services have sponsorship, approval, characteristics, ingredients,
uses, benefits, or quantities which they do not have or that a
11
§ 16(a) of the Texas Insurance Code.9 To recover under its DTPA
claims, Pasadena must establish that it was a consumer of goods or
services, that Hartford violated one of the two “laundry list”
provisions Pasadena relies upon, and that the “laundry list”
violation(s) was the producing cause of Pasadena’s injuries.10 See
Americom Distributing v. ACS Comm., 990 F.2d 223, 227 (5th Cir.
1993); see also Tex. Bus. & Com. Code § 17.50(a).
Again, like Pasadena’s other claim on appeal, it is clear that
the DTPA action is just another attempt to recoup damages for the
failure to take PPO discounts, which the district court found was
not a breach by Hartford. In Pasadena’s case, the only damages
were essentially the damages resulting from the failure to take the
PPO discounts. There is insufficient evidence of any other
damages, and there is no demonstrable link between any DTPA
person has a sponsorship, approval, status, affiliation, or
connection which he does not” a “false misleading, or deceptive
act[] or practice[].” Similarly, subsection 17.46(b)(7) provides
that “representing that goods or services are of a particular
standard, quality, or grade, or that goods are of a particular
style or model, if they are of another” is also a “false,
misleading, or deceptive act[] or practice[].”
9
Article 21.21 § 16(a) incorporates the “laundry list” of
violations listed in section 17.46 of the DTPA as actionable
insurance code violations. Thus, Pasadena’s Insurance Code claim
necessarily depends upon its DTPA claim.
10
“Producing cause” means “a substantial factor which brings
about the injury and without which the injury would not have
occurred.” Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d
472, 481 (Tex. 1995). Foreseeability is not required, but cause-
in-fact is. See id. The complained of conduct, however, need not
be the sole producing cause.
12
misrepresentations and the losses incurred by Pasadena. Pasadena’s
losses stemmed from the failure to take PPO discounts, and the
district court rightly found no liability on Hartford’s part for
that failure. Accordingly, we conclude that the district court did
not err when it denied any recovery to Pasadena.
2. Hartford’s Restitution Claim
Hartford seeks restitution for the excess funds it paid on the
non-discounted bills to the PPO health care providers. Hartford
claims that the district court’s finding that it did not know of
the non-PPO billing compels the conclusion that Pasadena owes
Hartford restitution. The district court disagreed, concluding
that the errors were attributable to CAPPCare, the PPO
administrator, and that no evidence established an agency
relationship between Pasadena and CAPPCare. Accordingly, the
district court concluded that CAPPCare’s errors were not
attributable to Pasadena and could not form the basis for an award
of restitution.
Under Texas law, “[g]enerally, a party who pays funds under a
mistake of fact may recover restitution of those funds if the party
to whom payment was made has not materially changed his position in
reliance thereon.” Bryan v. Citizens Nat’l Bank, 628 S.W.2d 761,
763 (Tex. 1982). “The purpose of such restitution is to prevent
unconscionable loss to the party paying out the funds and unjust
enrichment to the party receiving the payment.” Id. The excess
13
payments Hartford complains of, although benefitting Pasadena and
its employees, were made to the PPO health care providers, who
accepted the full bill despite being enrolled in the PPO plan.
Hence, those medical providers are the ones who have been enriched
by the failure to take the PPO discounts. Unlike the medical
providers, Pasadena cannot be said to have been unjustly enriched
or to have benefitted from the overpayments.11 Pasadena itself
ultimately paid its full annual deductible under the ASO. Thus,
Hartford’s restitution claim fails, and we affirm the district
court’s judgment with respect to that claim.12
B. Beaumont v. Hartford
Of the various issues presented in the dispute between
Beaumont and Hartford, we first focus on Hartford’s claim that the
district court misinterpreted the MPP because a ruling favorable to
Hartford necessarily disposes of all the issues, except one.13
1. Whether Hartford Breached the MPP
On cross-appeal, Hartford contends that the district court
11
Hartford states that it paid Pasadena several hundred thousand
dollars in compensation, but those dollars constituted
reimbursements that were required for having exceeded the ASL and
ISL limits and were actually funds repaid to Pasadena for its, not
Hartford’s, expenditures.
12
Hartford also seeks attorneys’ fees based on a successful
restitution claim. The claim for attorneys’ fees goes no further
than the restitution claim.
13
The affected issues are Beaumont’s claim for attorney’s fees,
Beaumont’s appeal of the reduction of its damages, and Hartford’s
appeal of the prejudgment interest award. The only non-susceptible
issue concerns Beaumont’s claim under the Texas Insurance Code.
14
erroneously concluded that Hartford breached the MPP. After trial,
the district court entered certain findings regarding the MPP and
whether Beaumont or Hartford was responsible for the medical
expenses incurred before the termination date, September 30, 1989,
but not paid on or before that date. Beaumont had contended that
Hartford was liable for those claims and, as a result, argued that
those claims should have been included in any calculation of the
APLL for the final contract year. Because those claims would have
added to any excess beyond the APLL limit, Beaumont sought
reimbursement of its funds.
In finding in favor of Beaumont, the district court applied a
multi-prong analysis. First, the district court considered section
214 of the MPP. Among other things, that section provides that
“[i]f an expense is incurred while this Agreement is in effect, but
is not paid before the date this Agreement terminates, its
disposition shall be determined by the terms of paragraph 3(d) of
this Agreement.” The district court found, and all parties agreed,
the reference to “paragraph 3(d)” was a scrivener’s error and was
intended to be “paragraph 3(g).”
14
“This agreement shall apply to the claims of participants for
the benefits:
(a) For which such participants are covered under the Group
Policy(ies); and
(b) Which become due while this Agreement is in effect.
If an expense is incurred while this Agreement is in effect, but
is not paid before the date this Agreement terminates, its
disposition shall be determined by the terms of paragraph 3(d) of
this Agreement.”
15
As a result, the district court next examined section 3(g).
That section states:
(g) After this Agreement terminates, [Beaumont’s]
obligation to provide funds for payment of Plan benefits
shall cease upon transfer by [Beaumont’s] bank to
[Hartford’s] bank, in accordance with paragraph 7 of this
Agreement, Federal Funds sufficient to satisfy benefits
paid up to the date of termination. After that,
[Hartford] will pay all benefits which are due or become
due under the Group Policy(ies). However, [Beaumont]
agrees to reimburse [Hartford] for such payments, subject
to a maximum reimbursement of the lesser of:
(i) The amount of such benefits, plus the
administrative costs of their payment; or
(ii) The Plan Benefit Extension Limit as shown in
the schedule or as amended in accordance with
paragraph 10 of this Agreement.
The amount of the Plan Benefit Extension Limit shall be
secured to [Hartford] by [Beaumont’s] letter of credit or
other collateral acceptable to [Hartford]. [Hartford] may
call [Beaumont’s] letter of credit or other acceptable
collateral as may be required to satisfy the preceding
conditions of this paragraph 3(g).”
Instead of stopping with this provision to address Beaumont’s
contractual claim, the district court then proceeded to review
section 3(f), which, as the district court also noted, became
operative upon termination of the MPP. Section 3(f) reads:
“(f) After this Agreement terminates, [Beaumont’s]
obligation to provide funds for the payment of benefits
to Participants, as described herein, shall cease with
the payment of funds sufficient to satisfy all such
benefits paid or payable to Participants up to the date
of termination of this Agreement.
After parsing through both sections 3(f) and 3(g), the
district court attempted to address Beaumont’s allegations
regarding those claims that were incurred but not paid by the
termination date. The district court interpreted the two sections
16
as covering two different types of “incurred but not paid by the
termination date” claims. The district court found section 3(f) as
requiring Beaumont to provide funds to satisfy benefits paid or
payable up to the date of termination. It further defined the
“payable” claims as those claims that had been incurred by the
participants and received by Hartford. Concomitantly, the district
court ruled that under section 3(f), Hartford must have had the
obligation to pay those claims that were paid and to pay those
claims that had been incurred by the participants and received by
Hartford.15 As for section 3(g), the district court determined that
that section required Beaumont to provide funds sufficient to
satisfy claims that had been paid up to the termination date.
Moreover, it noted that section 3(g) provided Beaumont with the
option to have Hartford “pay all benefits which are due or become
due.” If Beaumont were to elect that option, then it had to
reimburse Hartford the lesser of either the amount of such benefits
plus their administrative costs, or the PBEL. The district court
surmised that the elective language in section 3(g) referred to the
payment of claims that had been incurred by the participants but
that had not been received by Hartford before the termination date.
15
In concluding this, the district court questioned whether
Hartford could receive monies for benefits payable but not paid
during the benefit year. According to the district court, Beaumont
clearly had to reimburse Hartford for the benefits that Hartford
had paid out. That necessarily implied that if Beaumont were going
to reimburse Hartford for benefits that were payable, then Hartford
had the obligation to pay those payable benefits.
17
Accordingly, the district court found that section 3(f)
governed claims incurred and due as of September 30, 1989, while
section 3(g) dealt with claims incurred but not due on that date.
Since Beaumont chose not to have Hartford pay claims under section
3(g), the district court believed that section 3(f) controlled and
that, therefore, Hartford had to pay for claims that had been
incurred by participants and that had been received by Hartford
before the termination date. As the paid claims apparently
exceeded the APLL, any obligation on the part of Hartford to pay
the payable claims for the 1988-89 contract year amounted to
damages for Beaumont.16
16
In finding in favor of Beaumont and awarding damages, the
district court reconsidered a prior summary judgment ruling, by a
different judge sitting as the district court, in which the
district court found that under section 3(d), only paid claims were
to be considered when calculating the PLL. Section 3(d) provides:
“If, at the end of any Contact Year, the cumulative amount of
benefits [Hartford] ha[s] paid on [Beaumont’s] behalf, and for
which [Beaumont] ha[s] reimbursed us in accordance with
paragraph 7 of this Agreement, with respect to all
Participants exceeds the Plan Liability Limit for that
Contract Year, [Hartford] agrees to reimburse to [Beaumont]
the amount of such excess. However, this amount will be
reduced by any monthly payments due [Beaumont] or made by
[Hartford] to [Beaumont], during the Contract Year, in
accordance with this Agreement.”
Beaumont had argued that any benefits becoming due within the
contract year should be accounted for in determining whether the
APLL had been reached because section 3(a) referred to the APLL and
that section talked about Beaumont’s liability for benefits that
become due. Conversely, Hartford had maintained that section 3(d)
only provided for the consideration of “paid” claims in determining
whether the APLL had been reached. The district court agreed with
Hartford, concluding that section 3(d) was the applicable section
and that that section unambiguously referred only to “paid” claims
when calculating the APLL. But in revisiting the summary judgment
ruling, the district court held that “contract year,” as used in
18
On cross-appeal, Hartford maintains that the district court’s
ruling was in error. First, Hartford contends that section 2 of
the MPP unambiguously (once the scrivener’s error is taken into
account) states that incurred but unpaid claims at the end of the
agreement fall under section 3(g). Section 3(g) requires that any
payments made by Hartford after September 30, 1989 would be
reimbursed by Beaumont to the lesser of the costs plus
administrative fees or the PBEL, provided Beaumont elected that to
occur. Beaumont, however, did not choose that option; rather, it
chose one of Hartford’s competitors to pay the claims. Second,
Hartford argues that the district court improperly read “paid or
due” into section 3(g) when the plain language refers only to “paid
claims.” Thus, any payable claims should not have been counted
towards the APLL, and Hartford should not have had to pay for those
incurred but unpaid claims that exceeded the APLL.
Despite Beaumont’s and the district court’s attempts to
harmonize the MPP and make it appear reasonable, we agree with
Hartford’s interpretation of the MPP, which better follows the
agreement’s plain language. The district court’s initial
interpretation of section 3(d) at the summary judgment stage was
correct. When calculating the annual APPL, only the “paid” claims
section 3(d), encompassed more than claims paid in a calendar year
and that the terms had to be defined by other provisions in the
MPP. Consequently, the district court determined that a “contract
year” included all transactions within that year and the
consequences that may take place after the end of that year as a
result of those transactions.
19
counted. More importantly, section 2 explicitly states what
happens to incurred but unpaid claims on September 30, 1989: they
are disposed of under section 3(g), not section 3(f) and 3(g) as
the district court and Beaumont contend. Neither explains how one
gets to section 3(f) given section 2's plain language (and
correction of the scrivener’s error). In addition, section 3(f)
focuses on Beaumont’s responsibility to provide funds for paid and
payable claims up to the end of the agreement. It does not mention
how the “payable” claims will be allocated between Beaumont and
Hartford. Instead, section 2 reveals that section 3(g) provides
the mechanism through which those claims will be disposed. Hence,
we conclude that the district court misinterpreted the MPP and
render judgment in favor of Hartford on Beaumont’s breach of
contract claim.
With our conclusion that Hartford did not breach the MPP, the
only remaining live issue in the dispute between Beaumont and
Hartford is whether Hartford violated article 21.21-2 of the Texas
Insurance Code.
2. Beaumont’s Claim Under Article 21.21-2 of the Texas
Insurance Code and Treble Damages
Beaumont alleges that Hartford violated article 21.21-2 of the
Texas Insurance Code17 by knowingly misrepresenting pertinent policy
17
The Insurance Code provision at issue reads as follows:
Sec. 2. (a) No insurer doing business in this state under the
authority, rules and regulations of this code shall engage in
unfair settlement practices.
(b) Any of the following acts by an insurer shall be
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provisions when, in response to Beaumont’s 1993 request for a copy
of its MPP, Hartford mailed to Beaumont a copy of a 1987 agreement
(which was an updated version of the 1986 MPP) that was never
consummated by the parties. Beaumont contends that the actual 1986
agreement signed by the parties, the only one ever in effect,
contained materially different provisions. The most important
difference was that the 1987 MPP removed the PBEL from the
agreement. Moreover, Beaumont asserts that Hartford attached the
signature page from the 1986 agreement to the 1987 agreement sent
to Beaumont. As a result of Hartford’s alleged violation of
article 21.21-2, Beaumont seeks treble damages as allowed under the
Texas Insurance Code. The district court, however, concluded that
Hartford did not engage in a deceptive act, and treble damages were
not awarded.
Hartford presses two reasons for upholding the district
court’s judgment: (1) Beaumont suffered no damages as a result of
receiving the 1987 MPP, as required for recovery under the Texas
Insurance Code; and (2) there was no evidence of knowing conduct.
In its reply brief, Beaumont admits that it “incurred no additional
damages by virtue of Hartford’s deceptive acts.” Instead, Beaumont
constitute unfair settlement practices:
(1) Knowingly misrepresenting to claimants pertinent facts
or policy provisions relating to coverages at issue;
Tex. Ins. Code Ann. art. 21.21-2, §§ 2(a) & (b)(1) (Vernon Supp.
2000). The earlier version of article 21.21-2 is quite similar to
the current version, and for purposes of this case, the difference
does not alter the outcome.
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appears to argue that Hartford’s breach of contract and 1993
misrepresentation of the MPP were part-and-parcel of the same
damages suffered by Beaumont.
Under Texas law, however, an insured cannot recover treble
damages for a mere breach of contract. See State Farm Fire & Cas.
Ins. Co. v. Vandiver, 970 S.W.2d 731, 744 (Tex. App.—Waco 1998, no
pet.) (citations omitted). Beaumont had the burden of establishing
that it sustained actual injuries as a result of the conduct it
alleges was prohibited by the Texas Insurance Code. See Walker v.
Federal Kemper Life Assurance Co., 828 S.W.2d 442, 454 (Tex.
App.—San Antonio 1992, writ denied); First Am. Title Co. of El Paso
v. Prata, 783 S.W.2d 697, 701 (Tex. App.—El Paso 1989, writ
denied). As Beaumont seems to admit, there is no evidence that
Hartford’s alleged misrepresentation in 1993 caused any injury
other than what Beaumont had already suffered in 1989 by Hartford’s
allegedly improper failure to pay claims.
Beaumont’s reliance on Fort Worth Mortgage v. Abercrombie, 835
S.W.2d 262 (Tex. App.—Houston [14th Dist.] 1992, no writ), is
unavailing. The Abercrombies had purchased a mortgage protection
policy which would have paid their house payments for up to 300
months in the event Mr. Abercrombie became disabled. In 1986, Mr.
Abercrombie became permanently disabled, but the insurance only
covered one year of house payments. It turned out that the policy
they originally signed had been canceled in 1979 and substituted
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with a policy with less benefits. As the court noted, the
switching of policy benefits without notice caused, at a minimum,
“confusion or misunderstanding.” Id. at 265. In contrast to the
present case, the switch in Abercrombie caused the damages. Here,
the damages Beaumont complains of occurred in 1989, when Hartford
failed to pay claims under the contract, while the alleged
misrepresentation did not take place until 1993.
As for Hartford’s second contention, there is conflicting
evidence as to whether Hartford committed a knowing deception. To
knowingly misrepresent, “a person must think to himself at some
point, ‘Yes, I know this is false, deceptive, or unfair to him, but
I’m going to do it anyway.’” St. Paul Surplus Lines Ins. Co. v.
Dal-Worth Tank Co., 974 S.W.2d 51, 54 (Tex. 1998) (per curiam).
Moreover, knowingly “means actual awareness of the falsity,
deception, or unfairness of the conduct in question.” Id. at 53.
Although “actual awareness” may be inferred by objective
manifestations, it “does not mean merely a person knows what he is
doing; rather, it means that a person knows that what he is doing
is false, deceptive, or unfair.” Id. at 53-54. The only evidence
supportive of Beaumont’s position is Hartford’s sending, in 1993,
the 1987 agreement, allegedly with 1986's signature form. But
Hartford’s own files revealed no 1986 signature page attached to
the 1987 contract.
For the foregoing reasons, we affirm the district court’s
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judgment denying Beaumont treble damages for its claim under
article 21.21-2 of the Texas Insurance Code.
III. CONCLUSION
After a careful review of the briefs and relevant portions of
the record, we find no error on the part of the district court’s
ruling that Pasadena take nothing for its claims against Hartford.
Moreover, we conclude that the district court did not err when it
denied restitution to Hartford. Accordingly, we affirm the
district court’s judgment with respect to Pasadena’s and Hartford’s
claims against each other.
As for Beaumont’s dispute with Hartford over the funding and
administration of Beaumont’s health insurance plan, we affirm the
district court’s ruling that Hartford did not violate article
21.21-2 of the Texas Insurance Code, but we find that the district
court misinterpreted the MPP and, therefore, reverse and render
judgment in favor of Hartford on Beaumont’s breach of contract
claim.
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