Bemis v. Employers Mutual Casualty Company ( 2015 )

2015 IL App (5th) 130402NOTICE
Opinion filed May 6, 2015. NO. 5-13-0402
Modified upon denial of
rehearing July 14, 2015.
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
________________________________________________________________________
FRANK C. BEMIS, D.C., d/b/a Frank Bemis & Associates, ) Appeal from the
and DR. FRANK C. BEMIS & ASSOCIATES, ) Circuit Court of
CHIROPRACTORS, S.C., Individually and on Behalf of ) Madison County.
Others Similarly Situated, )
)
Plaintiffs-Appellants, )
)
v. ) No. 05-L-164
)
EMPLOYERS MUTUAL CASUALTY COMPANY and )
EMC PROPERTY & CASUALTY COMPANY, a Wholly )
Owned Subsidiary of Employers Mutual Casualty Company, )
)
Defendants-Appellees )
)
(Employers Mutual Casualty Company and EMC Property )
& Casualty Company, a Wholly Owned Subsidiary of ) Honorable
Employers Mutual Casualty Company, Third-Party Plaintiffs; ) William A. Mudge,
and Fair Isaac Corporation, Third-Party Defendant). ) Judge, presiding.
_______________________________________________________________________
JUSTICE MOORE * delivered the judgment of the court, with opinion.
Justices Stewart and Schwarm concurred in the judgment and opinion.
*
Justice Spomer was originally assigned to participate in this case. Justice Moore
was substituted on the panel subsequent to Justice Spomer's retirement and has read the
briefs and listened to the tape of oral argument.
1
OPINION
¶1 The plaintiffs, Frank C. Bemis, D.C., doing business as Frank Bemis &
Associates, and Dr. Frank C. Bemis & Associates, Chiropractors, S.C. (Bemis), appeal
the July 18, 2013, judgment of the circuit court of Madison County, which dismissed
their class action claims against the defendants, Employers Mutual Casualty Company
and EMC Property & Casualty Company, a wholly owned subsidiary of Employers
Mutual Casualty Company (Employers Mutual), after the circuit court, on April 5, 2012,
decertified the following class based on this court's decision in Coy Chiropractic Health
Center, Inc. v. Travelers Casualty & Surety Co., 409 Ill. App. 3d 1114 (2011):
"All healthcare providers in Illinois whose reimbursement for medical services
to an Illinois workers' compensation claimant were [sic] paid at a reduced rate by
Defendants pursuant to a First Health PPO discount from February 1, 2004
through [August 16, 2010]."
For the following reasons, we affirm.
¶2 FACTS
¶3 On August 22, 2007, Bemis filed a motion for class certification regarding claims
Bemis previously made against Employers Mutual, which were restated in a first
amended class action complaint filed on July 15, 2008. Many of the facts of this case
mirror those in Coy, although there are some important differences. As in Coy (id. at
1115), Bemis entered into contracts with First Health and its predecessor, Community
Care Network (CCN), to participate in a preferred provider agreement under which
Bemis agreed to accept discounted reimbursements from payor insurance companies,
2
health care plans, or claims administrators with whom First Health and CCN had
contracted. Like Coy (id.), Bemis alleges that Employers Mutual discounted bills it
received from Bemis without steering patients to him because Employers Mutual did not
offer financial incentives to its insureds for utilizing Bemis as their provider. As in Coy
(id.), the allegations in the first amended complaint arise in the context of workers'
compensation insurance, where insurance companies could not, by law, require
employees to treat with a specific provider, except in very limited circumstances. 1
¶4 The first amended complaint in the instant case contains the same theories of
liability as the complaint in the Coy case. In count I, Bemis alleged that Employers
Mutual's practice of discounting bills without providing financial incentives amounted to
a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (the
Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2008)) because Employers Mutual
misrepresented to Bemis and the class that they were entitled to a preferred provider
organization (PPO) discount. See Coy, 409 Ill. App. 3d at 1116. In count II, Bemis
alleged unjust enrichment by Employers Mutual as a result of this practice. See id. In
count III, Bemis alleged an alternative cause of action for a breach of contract. See id.
Finally, in count IV, Bemis alleged a civil conspiracy based on Employers Mutual's
1
Effective June 28, 2011, the Workers' Compensation Act was amended to permit
employers to use a preferred provider program approved by the Illinois Department of
Insurance, and to require an injured employee to be treated from a preferred provider
network. 820 ILCS 305/8.1a (West 2012).
3
practice of entering into PPO networks with no intention to provide financial incentives
to its insureds for utilizing the network. See id.
¶5 Exhibit A to the first amended complaint is a document entitled "Community Care
Network Professional Care Provider Agreement" (provider agreement) entered into
between First Health's predecessor, CCN, and Bemis, dated April 28, 1998. This
provider agreement differs somewhat from the provider agreements involved in the Coy
case, in that the provider agreement in the instant case does not specifically refer to a
workers' compensation program or workers' compensation services. See id. at 1116-17.
However, the provider agreement also does not exclude workers' compensation programs
or services. Section 2.01 of the provider agreement reads as follows:
"Provider hereby agrees to provide Health Care Services or Benefits to
Beneficiaries or Claimants as set forth in Insuring Agreements, at the
Reimbursement Amounts determined and established through Payor Agreements
with Payors, which Payor Agreements are incorporated herein by reference. Such
Reimbursement Amounts are set forth in Exhibit A attached hereto and
incorporated herein."
¶6 In section 1.06, the provider agreement defines "Payor Agreement" as "an
instrument between a Payor and CCN or its authorized representative which provides for
CCN providers, including Provider pursuant to this Agreement, to render Health Care
Services or Benefits at Reimbursement Amounts determined and established by CCN and
such Payor." In section 2.02, the provider agrees to accept the reimbursement amounts in
Exhibit A as payment in full for health care services or benefits provided to beneficiaries
4
or claimants. In section 4.01, "Provider authorizes CCN to act on its behalf to contract
for the provision of Health Care Services or Benefits, at Reimbursement Amounts set
forth in Exhibit A."
¶7 Section 5 of the provider agreement, entitled "Covenants of Provider," contains
several provisions relevant to the issues on appeal. In section 5.07, the provider agrees
that:
"Except in an emergency and/or when medical necessity dictates, to admit
Beneficiaries or Claimants, in each instance where hospitalization is required, to a
hospital contracting with CCN unless a Beneficiary or Claimant specifically
requests otherwise after having been notified by Provider that the requested
hospital is not a CCN hospital."
In section 5.09, the provider agrees as follows:
"To refer Beneficiaries or Claimants, in each instance in which referral is required,
to other CCN providers, unless Provider, in his/her professional judgment,
determines that the Beneficiary's or Claimant's needs require otherwise and
Beneficiary or Claimant so agrees after being notified by Provider that the
proposed provider is not a CCN Provider."
As in Coy, there is no provision in the preferred provider agreement promising Bemis
that patients would be steered to him via the use of financial incentives. See id.
¶8 A document was appended to the first amended class action complaint containing
similar information as was contained in the "Explanation of Reimbursement" that was
attached to the complaint in Coy. See id. at 1117. According to this document, Bemis
5
billed Employers Mutual for two chiropractic manipulations that were performed on a
workers' compensation claimant in September of 2004. Bemis charged $31 for each
manipulation, and according to the document, Employers Mutual discounted each charge
by $7. A notation after the itemization of the discounts states, "Preferred Provider
Organization: FIRST HEALTH."
¶9 The remaining facts of the instant case deviate from the facts in Coy. Unlike Coy,
where the payor agreement between First Health's predecessor, CCN, and Travelers
appeared of record, no payor agreement between First Health or CCN and Employers
Mutual appears of record in the case at bar, and as will be set forth in more detail below,
no such payor agreement exists. On November 13, 2008, Employers Mutual filed an
amended third-party complaint against Fair Isaac Corporation (Fair Isaac), stating claims
against Fair Isaac for contractual and common law indemnity, as well as unjust
enrichment. According to the third-party complaint, on or about June 26, 1998,
Employers Mutual entered into a software license agreement with Fair Isaac's
predecessor corporation, CompReview, Inc., and on or about November 13, 2003, an
additional services addendum to the software license agreement with Fair Isaac itself.
Both agreements were attached to the third-party complaint.
¶ 10 Pursuant to the software license agreement and its addendum, Fair Isaac provided
computer software to Employers Mutual which provided electronic access to preferred
provider networks such that the preferred provider networks would review bills received
by Employers Mutual in order to determine whether the bills were subject to a PPO
agreement. After the software determined the applicability of a PPO reduction, Fair Isaac
6
then advised Employers Mutual of the amount of said reduction by providing Employers
Mutual with an explanation of benefits. According to the third-party complaint,
Employers Mutual relied on Fair Isaac to properly advise it as to whether a PPO
reduction could be taken in any particular case and Employers Mutual paid Fair Isaac a
fee based, in part, on the percentage of the PPO reductions taken.
¶ 11 Following a period of class certification discovery, Bemis filed a "Memorandum
in Support of Class Certification." In the memorandum, with citation to the deposition of
Employers Mutual's employees, further detailed below, Bemis explains the procedure
Employers Mutual used to apply PPO discounts to medical bills submitted for payment
on workers' compensation claims. According to Bemis's memorandum, Employers
Mutual's claims processors enter information from the bills into a computer program
called Smart Advisor, which is a program that Employers Mutual contracted with Fair
Isaac to use to provide access to PPO networks. After the bills have been entered into
Smart Advisor, "they are sent through the software to the PPO network administrators
who then apply the PPO network discounts." The bills are then sent back to Employers
Mutual through the Smart Advisor program.
¶ 12 Sometime later, it appears that Bemis filed a "First Amended Memorandum in
Support of Class Certification." Although there are exhibits to this first amended
memorandum in the record, as well as responses from Employers Mutual and Fair Isaac,
this court is unable to locate the memorandum itself. Interestingly, in its brief on appeal,
Employers Mutual argues that Bemis has conceded that First Health authorized Fair Isaac
to enter into an agreement with Employers Mutual giving it access to the First Health
7
network, and in support thereof, provides the following quote from the description of the
bill discounting process contained within Bemis's first amended memorandum, but states
that "citation to the record is omitted":
"After the bills have been entered into Smart Advisor, they are sent through the
software to First Health who then applies the PPO network discounts. Comp
Review [now known as Fair Isaac] only provides the electronic bridge between
Employers and First Health."
Bemis's reply brief does not address this argument or explain the absence of its "First
Amended Memorandum in Support of Class Certification."
¶ 13 The exhibits to Bemis's "First Amended Memorandum in Support of Class
Certification" contain, inter alia, the relevant contracts between Employers Mutual and
Fair Isaac and its predecessor corporation, CompReview, Inc. (CompReview).
Employers Mutual entered into a software license agreement with CompReview on June
26, 1998, in which CompReview granted Employers Mutual a license to use
CompReview's "bill review and repricing computer program" for certain designated
states, including Illinois, for a monthly fee. The software license agreement contains
provisions for the "selection, implementation, and placement of *** PPO Networks" to
be automated within the software. The software license agreement provides that, whether
initiated by Employers Mutual or CompReview, all PPO networks are to be directed
through CompReview, which has the right to accept or deny a PPO network based on the
ability to automate the network, or by the "inability for [CompReview] to recognize
benefit by automating such said network."
8
¶ 14 In the software license agreement, Employers Mutual agrees that if more than one
PPO network is utilized, priority as to which network would be used to discount any
given bill would be given "in a predetermined order agreed to between [CompReview]
and the PPO Networks that provide [CompReview] access to the names of their Providers
and Contract Rates." As alleged in Employers Mutual's amended third-party complaint,
the software license agreement contains provisions for indemnification of Employers
Mutual. The scope of these indemnification provisions and the merit of Employers
Mutual's third-party complaint against Fair Isaac are not at issue in this appeal.
¶ 15 It does not appear from the exhibits to the initial software license agreement that
CCN or First Health were included in the software package. However, in 2004,
Employers Mutual and Fair Isaac, as a successor corporation of CompReview, entered
into a "Change Request to Services," in which Employers Mutual elected to "receive"
First Health as "an additional PPO Network" and agreed to pay all associated fees.
According to this document, Employers Mutual would have access to the First Health
network in several states, including Illinois, as of February 1, 2004. It appears from this
document that First Health was considered a network for repricing workers'
compensation bills, and that Fair Isaac's fee for providing this electronic access to First
Health's network was to be 25% of any discounts that Employers Mutual received as a
result of this access.
¶ 16 Exhibit A to the "Change Request to Services," entitled "Requirements," contains
terms that Employers Mutual agreed to follow in reference to "First Health PPO Network
Services." Noteworthy in terms of the disposition of this appeal, Employers Mutual
9
agreed to "offer the First Health Network to its eligible workers within specified
geographic areas" and to "encourage claimants to use services of contract Providers
through use of work place posters, provision of directories and educational material" or
other means "unless prohibited by law."
¶ 17 On September 12, 2006, Employers Mutual and Fair Isaac entered into an
"Application Service Provider Agreement" (2006 Agreement), whereby Employers
Mutual gave Fair Isaac a license to use its bills, claim, and medical information, content,
and data, and Fair Isaac granted Employers Mutual a license to use its bill processing
services. With regard to any "third[-]party products" provided by Fair Isaac, Employers
Mutual agreed to comply with the terms and conditions of any contractual obligations to
use or access such products, which Fair Isaac promised to provide to Employers Mutual.
In the 2006 Agreement, Fair Isaac promised as follows:
"4.4 PPO Network Obligations. [Fair Isaac] warrants to make reasonably
commercial efforts to ensure that [Employers Mutual's] use of the Services,
including but not limited to Bill repricing, does not violate any federal, state or
local statutes, laws or regulations or the contractual rights and/or obligations
imposed on PPO Networks and Providers by the contractual arrangements
between the PPO Network and the Providers, and that based on [Fair Isaac's]
agreements with PPO Networks and Providers, [Employers Mutual] had the right
to apply the Contract Rate to a properly submitted bill.
***
10
5.1 [Fair Isaac] Indemnification. [Fair Isaac] agrees to indemnify
[Employers Mutual] and its directors, officers and employees and shall hold it and
such persons harmless against any and all claims (including third[-]party claims),
losses, costs, damages, liabilities and expenses, including without limitation, legal
fees and costs incurred by [Employers Mutual,] arising out of or in connection
with a determination that [Employers Mutual] was not entitled to access the PPO
Networks or Contract Rates and apply such to Bills submitted to [Fair Isaac] by
[Employers Mutual]."
¶ 18 Exhibit A-1 to the 2006 Agreement is an "Order Form: SmartAdvisor with
Capstone Decision Manager." This form "describes the Hosting Services and certain
other Services provided to [Employers Mutual] under the terms and conditions of the
[2006 Agreement]." Paragraph 9 of the order form states that Fair Isaac will provide
Employers Mutual with access to the PPO networks designated therein. This paragraph
states that Employers Mutual is to be bound, to the same extent as Fair Isaac, by all PPO
network-imposed contractual obligations required for access to such PPO network, and
that the 2006 Agreement is subject to any PPO network-imposed obligation or any other
form of requirement imposed by a PPO network. With regard to First Health, the order
form contained the same requirements as the 2004 "Change Request to Services."
Sample First Health network contracts were also attached to the 2006 Agreement
between Employers Mutual and Fair Isaac. However, these samples were provider
agreements. There were no sample payor agreements attached to the 2006 Agreement, at
least as it is contained within the record on appeal submitted to this court.
11
¶ 19 The depositions of, inter alia, Employers Mutual's medical management
employee, Mary Jane Allgood, and its medical claims service manager, Kathleen
Knutsen, are contained in the record on appeal. Both of these employees testified that the
Fair Isaac software that Employers Mutual purchased provides an "electronic bridge"
which "exports" the bills submitted to Employers Mutual to First Health, and that First
Health "re-prices" the bills according to the "contract rates" and sends them back to
Employers Mutual for payment.
¶ 20 On April 27, 2010, a hearing was held before the Honorable Daniel J. Stack on
Bemis's amended motion for class certification. On August 16, 2010, Judge Stack issued
a detailed order in which he analyzed the prerequisites for a class action as set forth in
section 2-801 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2-801
(West 2010)) and certified the class. On September 15, 2010, Employers Mutual filed a
petition for leave to appeal Judge Stack's order certifying the class in this court pursuant
to Illinois Supreme Court Rule 306(a)(8) (eff. Feb. 26, 2010), which this court denied on
November 12, 2010. Bemis v. Employers Mutual Casualty Co., No. 5-10-0449 (2010)
(unpublished order). On December 20, 2010, Employers Mutual filed a petition for leave
to appeal the order certifying the class to the Illinois Supreme Court pursuant to Illinois
Supreme Court Rule 315 (eff. Feb. 26, 2010), which was denied on March 30, 2011.
Bemis v. Employers Mutual Casualty Co., No. 111595 (Ill. Mar. 30, 2011).
¶ 21 On March 14, 2011, this court issued its opinion in Coy Chiropractic Health
Center, Inc. v. Travelers Casualty & Surety Co., 409 Ill. App. 3d 1114 (2011) (modified
upon denial of rehearing May 9, 2011). On April 25, 2011, Employers Mutual filed a
12
motion for reconsideration and to decertify the class in the instant case on the basis of the
Coy opinion. On April 5, 2012, the Honorable William A. Mudge, who had been
assigned the case following Judge Stack's retirement, entered an order granting the
motion for reconsideration and decertifying the class. On April 12, 2012, Bemis filed a
motion for reconsideration or clarification of Judge Mudge's order, which he denied on
May 1, 2012. On May 9, 2012, Bemis filed a petition for leave to appeal the
decertification order in this court pursuant to Illinois Supreme Court Rule 306(a)(8) (eff.
Feb. 26, 2010), which this court denied on June 5, 2012. Bemis v. Employers Mutual
Casualty Co., No. 5-12-0200 (2012) (unpublished order). Bemis then filed a petition for
leave to appeal the decertification order to the Illinois Supreme Court, pursuant to Illinois
Supreme Court Rule 315 (eff. Feb. 26, 2010), and that petition was denied on September
26, 2012. Bemis v. Employers Mutual Casualty Co., No. 114576 (Ill. Sept. 26, 2012).
On October 31, 2012, Employers Mutual filed a motion in the circuit court for the entry
of judgment in its favor, which Judge Mudge granted on July 18, 2013. On August 14,
2013, Bemis filed a notice of appeal from the judgment.
¶ 22 On May 6, 2015, this court issued its original opinion affirming the circuit court's
entry of judgment in favor of Employers Mutual. On May 26, 2015, Bemis filed a
petition for rehearing. After consideration of the petition for rehearing, we issue this
modified opinion upon denial of rehearing to address the issues Bemis raises therein.
¶ 23 ANALYSIS
¶ 24 As we set forth in Coy, " '[t]he decision regarding class certification is within the
discretion of the trial court and will not be disturbed on appeal unless the trial court
13
abused its discretion or applied impermissible legal criteria.' " 409 Ill. App. 3d at 1118
(quoting Cruz v. Unilock Chicago, Inc., 383 Ill. App. 3d 752, 761 (2008), citing Smith v.
Illinois Central R.R. Co., 223 Ill. 2d 441, 447 (2006)). Although the decision of whether
to certify a class typically rests upon the factors set forth in section 2-801 of the Code
(735 ILCS 5/2-801 (West 2012)), in Coy, this court followed the Illinois Supreme Court's
analysis in Barbara's Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 72 (2007), finding that
"there is no need to determine whether the prerequisites of the class action are satisfied if,
as a threshold matter, the record establishes that the plaintiffs have not stated an
actionable claim." Coy, 409 Ill. App. 3d at 1118. Here, Judge Mudge based his order
decertifying the class on his finding that, based on our opinion in Coy, Bemis did not
establish an actionable claim against Employers Mutual. On appeal, Bemis first argues
that our decision in Coy was wrongly decided. Second, Bemis argues that this case can
be distinguished from Coy because there is no payor agreement between First Health and
Employers Mutual, and there is no evidence in the record to show that First Health
authorized Fair Isaac to act as its representative in granting Employers Mutual access to
the network. We will address each of these arguments in turn.
¶ 25 We first address Bemis's argument that this court's decision in Coy was made in
error. In Coy, we held that because the plaintiffs' provider agreements with First Health
did not contain provisions promising any particular steerage or financial incentives, the
plaintiffs could not state a cause of action against the insurance company for a breach of
contract. Id. at 1119. For the same reasons, we found that the insurance company's
statement to the plaintiffs, that they were entitled to take a discount in accordance with
14
the First Health network, was not an actionable misrepresentation under the Consumer
Fraud Act. Id. at 1122. Bemis argues that these findings were made in ignorance of clear
Illinois Supreme Court precedent, which holds that the laws in operation at the time of an
agreement become part of the contract by operation of law. See, e.g., Schiro v. W.E.
Gould & Co., 18 Ill. 2d 538, 544-45 (1960). According to Bemis, because section 370i of
the Illinois Insurance Code (215 ILCS 5/370i (West 2008)) defines a PPO as an
arrangement requiring incentives, and because administrative regulations governing PPO
networks (see 50 Ill. Adm. Code 2051.55(c)(1)(A), amended at 22 Ill. Reg. 5126 (eff.
Dec. 9, 1997), and repealed at 34 Ill. Reg. 161 (eff. Dec. 16, 2009); and 50 Ill. Adm.
Code 2051.280(a), adopted at 34 Ill. Reg. 163, 177 (eff. Dec. 16, 2009)) require that
incentives be provided to insureds or beneficiaries for utilizing a network provider, such a
requirement must be read into any purported payor agreement as an implied term. This
argument fails for the following reasons.
¶ 26 First, we disagree that section 370i of the Illinois Insurance Code (215 ILCS
5/370i (West 2008)) defines a PPO as an arrangement requiring incentives. That section,
entitled "Policies, agreements or arrangements with incentives or limits on reimbursement
authorized" (emphasis added), provides, in subsection (b), as follows:
"(b) An insurer or administrator may:
(1) enter into agreements with certain providers of its choice relating to health
care services which may be rendered to insureds or beneficiaries of the insurer or
administrator, including agreements relating to the amounts to be charged the
insureds or beneficiaries for services rendered;
15
(2) issue or administer programs, policies or subscriber contracts in this State
that include incentives for the insured or beneficiary to utilize the services of a
provider which has entered into an agreement with the insurer or administrator
pursuant to paragraph (1) above." (Emphasis added.) 215 ILCS 5/370i(b) (West
2008).
¶ 27 The above-cited statutory provision does not purport to define a PPO and does not
require incentives to be a provision of a provider contract. Even if we were to adopt
Bemis's characterization of the statute as one defining a PPO, our reading of the
permissive language of the statute reveals that it provides insurers and administrators
with the flexibility to contract with providers to limit reimbursement amounts, to require
incentives, or both. Subsection (c) provides specific disclosures in the event that an
insurer "arranges, contracts with, or administers contracts with a provider whereby
beneficiaries are provided an incentive to use the services of such provider" as authorized
by subsection (b)(2). 215 ILCS 5/370i(c) (West 2008). These disclosures are not
required in situations authorized by (b)(1), wherein the contract is merely a contract to
limit reimbursement amounts. We see no way to read subsection (b)(2) as one defining a
PPO, without reading (b)(1) in the same way.
¶ 28 Turning to the administrative regulations, cited above, we find that such
regulations govern PPO administrators, such as First Health, and set forth provisions that
are required of payor agreements. In Coy, we based our holding that the plaintiffs could
not state a claim for a breach of contract against the insurance company on the fact that
the plaintiffs were not promised financial incentives in their provider agreements, which
16
were the only contracts to which they were a party. 409 Ill. App. 3d at 1119. Our
discussion of the promises made in the payor agreement at issue was a secondary
discussion pointing out that, "[e]ven if it could be said that the plaintiffs are third-party
beneficiaries to the payor agreement," the insurance company only promised to direct
patients to network providers "as permitted by applicable law." Id. The first amended
class action complaint does not state a cause of action for a breach of contract based on
Bemis's purported status as a third-party beneficiary, but instead, its allegations presume
that the provider agreement between Bemis and First Health and the payor agreement
between First Health and/or its authorized representative are to be considered one
contract. There are many potential problems with that theory (see Walsh Chiropractic,
Ltd. v. StrataCare, Inc., 752 F. Supp. 2d 896, 905-07 (S.D. Ill. 2010)), but this court need
not make a determination of whether the two agreements could be considered one
instrument, because, as detailed below, there are legal inconsistencies that are inherent in
the proposition that any administrative regulation purporting to require financial
incentives would be an implied term in this case.
¶ 29 On rehearing in Coy, we briefly addressed the plaintiffs' argument that the
regulations governing PPO administrators should be considered an implied term of the
payor agreement, and thus, the provider agreement, by operation of law. 409 Ill. App. 3d
at 1121. The payor agreement in Coy, and the software license agreement in the case at
bar, both require the insurance company to provide steerage "as permitted by applicable
law" in the case of the former, and "unless prohibited by law" in the case of the latter.
During the relevant time period, in the context of workers' compensation, applicable
17
Illinois law did not allow for financial incentives for employers to steer injured workers
to network providers. See 820 ILCS 305/8(a) (West 2010). 2 To imply financial
incentives as a contractual term in workers' compensation cases would ignore the plain
language of the Workers' Compensation Act that prohibits such incentives. This is a
contradiction that negates Bemis's argument.
¶ 30 The irreconcilable conflict that results from a fair application of the rule that
Bemis advocates, that the law in effect at the time of a contract becomes part of the
contract by operation of law, is a result of the incomplete nature of Bemis's statement of
the applicable rule. A complete statement of this rule contains an important caveat, and
that is, the rule applies only when the contract itself does not contradict application of the
law to be implied as a term. See Illinois Bankers' Life Ass'n v. Collins, 341 Ill. 548, 553
(1930); In re Estate of Savage, 73 Ill. App. 3d 656, 659 (1979); Larned v. First Chicago
Corp., 264 Ill. App. 3d 697, 699 (1994); Lincoln Towers Insurance Agency, Inc. v.
Boozell, 291 Ill. App. 3d 965, 969 (1997); Brandt v. Time Insurance Co., 302 Ill. App. 3d
159, 170 (1998); Jewelers Mutual Insurance Co. v. Firstar Bank Illinois, 341 Ill. App. 3d
14, 18-19 (2003). For example, in Schiro, where the Illinois Supreme Court held that a
2
Although the provider agreement in Coy specifically mentioned workers'
compensation, Bemis's provider agreement required Bemis to accept reimbursement at
contract rates from any First Health network payor, and nothing in the provider
agreement, nor the administrative regulations Bemis cites, excludes workers'
compensation patients.
18
building contract contained an implied term requiring compliance with applicable
building ordinances, the contract left open the standards to which the building was to be
built. Schiro v. W.E. Gould & Co., 18 Ill. 2d 538, 544 (1960). In fact, the Illinois
Supreme Court reasoned that "the parties to the contract would have expressed that which
the law implies 'had they not supposed that it was unnecessary to speak of it because the
law provided for it.' (12 I.L.P., 399.)" Id. The court went on to explain that
"[c]onsequently, the courts, in construing the existing law as part of the express contract,
are not reading into the contract provisions different from those expressed and intended
by the parties *** but are merely construing the contract in accordance with the intent of
the parties." Id. The same is not true in the case at bar, where Bemis agreed to accept
discounts from all First Health network payors, which would include those covering
workers' compensation patients where, during the relevant time period, applicable law
prevented financial incentives. We find that it is for this reason that the payor agreement
in Coy, and the software license agreement in the case at bar, required payors to provide
steerage in accordance with, or unless prohibited by, applicable law. 3
3
Nor do we find that such a caveat would violate fundamental Illinois public
policy. See Larned v. First Chicago Corp., 264 Ill. App. 3d 697, 700 (1994) (the parties
may only contradict application of a particular law within a contract if that law does not
embody fundamental Illinois public policy). As stated before, subsection 370i(b) of the
Illinois Insurance Code appears to permit, but not require, insurers or administrators to
contract with providers simply to limit reimbursement amounts or to include a provision
19
¶ 31 The foregoing analysis illustrates our statement in Coy that, assuming that the PPO
arrangement at issue violated the above-cited administrative regulations due to the
limiting language in the payor agreement, or in this case, software license agreement,
requiring Employers Mutual to steer "unless prohibited by law," the remedy for that
violation is not a cause of action for breach of contract against Employers Mutual
because these regulations, which are set forth by the Department of Insurance, govern the
PPO administrators, such as First Health. 4 409 Ill. App. 3d at 1121. "It is the province of
the Department of Insurance, and not this court, to determine whether the payor
agreements met the requirements of the regulations." Id. For the foregoing reasons, we
reaffirm our holding in Coy.
¶ 32 Before we turn our attention to Bemis's argument that it was error to decertify the
class based on Coy due to the absence of a contract in the record proving that Fair Isaac
was an authorized representative of First Health, we will briefly address Bemis's
argument that, assuming Fair Isaac was authorized to contract with Employers Mutual on
behalf of First Health, Employers Mutual's payor agreement was per se invalid under the
terms of the provider agreement. According to Bemis, because the recitals in the
provider agreement state that "CCN [First Health's predecessor] intends to execute
for incentives. We find no fundamental public policy favoring one type of contract over
another.
4
The record reflects that Bemis filed a class action against First Health, which was
settled.
20
contracts with Payor organizations which offer a preferred provider or exclusive provider
health care coverage plan," and Employers Mutual did not offer such a plan, Bemis
should have a cause of action against Employers Mutual for breach of contract, fraud, or
unjust enrichment. We do not agree. There is no allegation in the complaint nor
evidence in the record that Employers Mutual ever promised or represented to Bemis, or
anyone, that it offered a "preferred provider or exclusive provider health care coverage
plan," as was contemplated in the recitals to the provider agreement between Bemis and
CCN (First Health). The actual terms of the provider agreement do not define "payor" as
an entity that offers such a plan, but rather, define "payor" as an entity which has an
obligation to provide benefits to a claimant and a "payor agreement" as an agreement
between CCN (First Health) or its authorized representative and a "payor" which
provides for providers such as Bemis to render health services to claimants at the agreed
reimbursement amounts. For these reasons, we find no justification for imputing CCN
(First Health's) intentions as stated in the recitals to the provider agreement onto
Employers Mutual, a nonsignatory to the provider agreement. Accordingly, we will
proceed to determine the merit of Bemis's arguments that this case is distinguishable from
Coy on the basis that there is no proof that Fair Issac was an "authorized representative"
of First Health.
¶ 33 In order to assess the viability of Bemis's causes of action against Employers
Mutual in light of the absence, in the record, of a contract that demonstrates Fair Isaac
was an authorized representative of First Health, we must examine each cause of action
in turn. First, we find that the absence of this contract between First Health and Fair
21
Isaac does not change our analysis of Bemis's claim for breach of contract against
Employers Mutual. A breach of contract claim necessarily assumes that a contract did
exist between these parties. If Fair Isaac was not an authorized representative of First
Health, then in no case could it be said that a contract existed between Bemis and
Employers Mutual, under either an incorporation-by-reference theory or a third-party-
beneficiary theory, because the software license agreement could not be construed as a
"payor agreement" as that term is defined in the provider agreement. Accordingly, the
absence of a contract of record between First Health and Fair Isaac does not distinguish
the breach of contract claim in the case at bar from the one in Coy, and the circuit court
was correct in finding that Bemis cannot state a cause of action for breach of contract
against Employers Mutual based on this record.
¶ 34 We now turn to Bemis's cause of action for a violation of the Consumer Fraud Act
(815 ILCS 505/1 et seq. (West 2008)). As we set forth in Coy:
"The elements of a Consumer Fraud Act action are as follows:
'(1) a deceptive act or practice by the defendant, (2) the defendant's intent
that the plaintiff rely on the deception, (3) the occurrence of the deception
in the course of conduct involving trade or commerce, and (4) actual
damage to the plaintiff (5) proximately caused by the deception.' " 409 Ill.
App. 3d at 1122 (quoting Avery v. State Farm Mutual Automobile
Insurance Co., 216 Ill. 2d 100, 180 (2005)).
¶ 35 The deceptive act or practice on the part of Employers Mutual that Bemis alleges
is Employers Mutual's notation on the explanation of benefits it sent Bemis which stated
22
that the bill was being discounted based on "Preferred Provider Organization: FIRST
HEALTH." In Coy, we found that it was clear from the record that there was no
deceptive act or practice by the defendant, because the defendant did belong to the First
Health network. Our finding was based on the fact that the payor agreement between
First Health and the defendant, which provided the defendant access to the First Health
network, was contained in the record. Id. Here, as Bemis aptly points out, there is no
payor agreement between First Health and Employers Mutual. Instead, the record
contains a software license agreement between Fair Isaac and Employers Mutual,
purporting to grant access to the First Health network via the Smart Advisor software,
and containing provisions substantially similar to those contained in the payor agreement
in Coy. Bemis argues that this distinction raises a question regarding whether Employers
Mutual's statement in the explanation of benefits it sent to Bemis, which suggested it had
access to the First Health network, was deceptive. According to Bemis, although the
provider agreement between Bemis and First Health defines "payor agreement" as "an
instrument between a Payor and CCN or its authorized representative," absent a contract
between First Health and Fair Isaac, there is no evidence in the record on which to base a
determination that Fair Issac was an "authorized representative" of First Health. We
disagree.
¶ 36 We find evidence in the record to establish that First Health authorized Fair Isaac
to provide access to its network. As detailed in Bemis's memorandum in support of class
certification, and the deposition testimony of the claims handlers for Employers Mutual,
and as reflected in the software license agreement itself, the Smart Advisor software
23
created a bridge to First Health, and First Health verified Employers Mutual's status as a
First Health payor. We find that the fact that First Health accepted the transmission of
Employers Mutual's bills over Fair Isaac's network, applied the PPO discount, and sent
the bill back over Fair Isaac's network to Employers Mutual provides proof that Fair
Isaac was an "authorized representative" of First Health. Even if First Health merely
provided Fair Isaac access to its network provider database for use in its Smart Advisor
software, such an act would constitute an authorization as well. Accordingly, the
software license agreement is to be considered a "payor agreement" pursuant to the terms
of Bemis's provider agreement, and any representation by Employers Mutual that it
belonged to the First Health network is not actionable under the Consumer Fraud Act.
¶ 37 With regard to Bemis's claim for unjust enrichment, we find that the analysis we
employed in Coy applies and supports Judge Mudge's decision to decertify the class
because no such cause of action can be stated as between the parties. 409 Ill. App. 3d at
1122-23. Employers Mutual cannot be said to have retained a benefit to Bemis's
detriment because the record establishes that it had a legitimate payor agreement with an
authorized representative of First Health. See id. at 1123. Nor is this a case where Bemis
rendered services to Employers Mutual such that a quasi-contract arose for the reasonable
price of those services. See id. Rather Bemis's services were to the injured employee
and/or his employer, who is obligated to pay for the injured employee's treatment by
virtue of Illinois workers' compensation law. Id. For these reasons, Judge Mudge did not
err in decertifying this class based on a theory of unjust enrichment. And because any
claim for civil conspiracy requires wrongdoing on the part of Employers Mutual, that
24
claim would not give rise to a cause of action that would justify certification of the class.
See Adcock v. Brakegate, Ltd., 164 Ill. 2d 54, 62 (1994) ("Civil conspiracy consists of a
combination of two or more persons for the purpose of accomplishing by some concerted
action either an unlawful purpose or a lawful purpose by unlawful means." (citing Smith
v. Eli Lilly & Co., 137 Ill. 2d 222 (1990))). Thus, because we have determined that the
record belies all of the legal theories Bemis pleads in his first amended class action
complaint, the circuit court did not err in decertifying the class. See Coy, 409 Ill. App. 3d
at 1118 (citing Barbara's Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 72 (2007)).
¶ 38 CONCLUSION
¶ 39 For the foregoing reasons, the judgment of the circuit court of Madison County in
favor of Employers Mutual is affirmed.
¶ 40 Affirmed.
25
2015 IL App (5th) 130402NO. 5-13-0402
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
FRANK C. BEMIS, D.C., d/b/a Frank Bemis & Associates, ) Appeal from the
and DR. FRANK C. BEMIS & ASSOCIATES, ) Circuit Court of
CHIROPRACTORS, S.C., Individually and on Behalf of ) Madison County.
Others Similarly Situated, )
)
Plaintiffs-Appellants, )
)
v. ) No. 05-L-164
)
EMPLOYERS MUTUAL CASUALTY COMPANY and )
EMC PROPERTY & CASUALTY COMPANY, a Wholly )
Owned Subsidiary of Employers Mutual Casualty Company, )
)
Defendants-Appellees )
)
(Employers Mutual Casualty Company and EMC Property )
& Casualty Company, a Wholly Owned Subsidiary of ) Honorable
Employers Mutual Casualty Company, Third-Party Plaintiffs; ) William A. Mudge,
and Fair Isaac Corporation, Third-Party Defendant). ) Judge, presiding.
_____________________________________________________________________________________
Opinion Filed: May 6, 2015
Modified Upon Denial of Rehearing: July 14, 2015
_____________________________________________________________________________________
Justices: Honorable James R. Moore, J.
Honorable Bruce D. Stewart, J., and
Honorable S. Gene Schwarm, J.,
Concur
_____________________________________________________________________________________
Attorneys Timothy F. Campbell, Campbell & McGrady Law Office, 3017 Godfrey Road,
for P.O. Box 505, Godfrey, IL 62035; Robert W. Schmieder II, Mark L. Brown, SL
Appellants Chapman, LLC, 330 North Fourth Street, Suite 330, St. Louis, MO 63102
_____________________________________________________________________________________
Attorney Thomas R. Pender, Cremer, Spina, Shaughnessy, Jansen & Siegert, LLC,
for One North Franklin Street, 10th Floor, Chicago, IL 60606
Appellees
_____________________________________________________________________________________