Janet G. Peterson v. Meritain Health, Inc. ( 2022 )

IN THE SUPREME COURT, STATE OF WYOMING
2022 WY 54APRIL TERM, A.D. 2022
April 20, 2022
JANET G. PETERSON,
Appellant
(Plaintiff),
v. S-21-0123
MERITAIN HEALTH, INC.
Appellee
(Defendant).
Appeal from the District Court of Natrona County
The Honorable Catherine E. Wilking, Judge
Representing Appellant:
Stephen R. Winship, Winship & Winship, P.C., Casper, Wyoming. Argument by
Mr. Winship.
Representing Appellee:
Timothy M. Stubson and Holly L. Tysse, Crowley Fleck, PLLP, Casper, Wyoming;
Daniel A. Platt and Robert J. Catalano, Loeb & Loeb LLP, Los Angeles, California.
Argument by Mr. Platt.
Before FOX, C.J., and DAVIS*, KAUTZ, and GRAY, JJ., and RUMPKE†, D.J.
* Justice Davis retired from judicial office effective January 16, 2022, and, pursuant to Article 5, § 5 of the
Wyoming Constitution and Wyo. Stat. Ann. § 5-1-106(f) (LexisNexis 2021), he was reassigned to act on
this matter on January 18, 2022.
†
Judge Rumpke resigned from judicial office effective March 2, 2022.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are
requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of
any typographical or other formal errors so that correction may be made before final publication in the
permanent volume.
GRAY, Justice.
[¶1] After his claims for health insurance coverage were denied, David Peterson, 1 an
insured under Memorial Hospital of Converse County’s (Hospital) Health Benefit Plan
(Plan), brought this action against the Hospital 2 and Meritain Health, Inc. (Meritain), the
third-party administrator of the Plan. He sought to recover under theories of breach of the
Plan contract, breach of the Administrative Services Agreement (ASA) between the
Hospital and Meritain, and breach of the covenant of good faith and fair dealing. After Mr.
Peterson filed a third amended complaint, Meritain moved for summary judgment on all
claims.
[¶2] The district court granted summary judgment to Meritain, holding that, lacking
privity of contract, Mr. Peterson had no cause of action for breach of contract against a
third-party administrator. Mr. Peterson had no cognizable claim under the ASA as he was
not an intended third-party beneficiary as a matter of law. Without a contract, Mr. Peterson
could not assert a cause of action for bad faith against Meritain. The district court also
denied Mr. Peterson’s motion for sanctions against Meritain on its discovery conduct and
his motion to compel production of Meritain’s personnel files. Mr. Peterson appeals the
summary judgment and discovery rulings. There are genuine issues of material fact
regarding Mr. Peterson’s breach of contract claim, his third-party beneficiary claim, and
his claim for breach of the covenant of good faith and fair dealing. We reverse in part,
affirm in part, and remand for further proceedings.
ISSUES
[¶3] The issues are:
I. Does New York law apply?
II. Is Meritain entitled to summary judgment on Mr.
Peterson’s claim for breach of the Plan?
A. Can plan participants sue third-party
administrators for breach of the insurance
contract?
1
Mr. Peterson died on March 30, 2018, and Janet G. Peterson, his wife, as the personal representative for
his estate, is the remaining plaintiff and appellant in this lawsuit. We continue to refer to Mr. Peterson
throughout this opinion.
2
Not long after, the Hospital was dismissed. Nothing in the record reveals the reason for its dismissal.
1
B. Does the Plan’s use of ERISA language give Mr.
Peterson the right to sue Meritain for breach of
the Plan?
C. If Meritain was acting as the Hospital’s agent,
can Mr. Peterson assert a claim against it for
breach of the Plan?
D. If Meritain was the Hospital’s agent and acted
without authority, can it be liable to Mr. Peterson
under the Plan?
III. Is Meritain entitled to summary judgment on Mr.
Peterson’s third-party beneficiary claim for breach of
the ASA?
A. Are there questions of fact as to whether Mr.
Peterson was a third-party beneficiary of the
ASA?
B. Did Meritain’s and the Hospital’s course of
conduct modify the terms of the ASA?
IV. Is Meritain entitled to summary judgment on Mr.
Peterson’s claim for breach of the covenant of good
faith and fair dealing?
A. Can insurance plan participants sue third-party
administrators in bad faith, when there is no
contract between the participants and the third-
party administrator?
B. Are there genuine issues of material fact
precluding summary judgment on Mr. Peterson’s
claim for breach of the covenant of good faith
and fair dealing?
V. Can Mr. Peterson recover punitive damages or attorney
fees?
VI. Did the district court abuse its discretion when it did not
impose sanctions for Meritain’s conduct during
2
discovery or when it denied Mr. Peterson’s request for
personnel files?
FACTS
The Hospital’s Health Benefit Plan
[¶4] The Hospital provided a self-funded health insurance plan for its employees. The
Plan was drafted by Meritain, and Meritain’s name appears on its cover.
[¶5] The Plan was established “for [the] benefit [of the Hospital’s employees and
dependents].” It defines the Hospital as the “Plan Administrator” and the “Plan Sponsor.”
It identifies Meritain as the “Third Party Administrator.” It states that the Hospital “is a
named fiduciary of the Plan with full discretionary authority for the control and
management of the operation and administration of the Plan.” Finally, the Plan states that
it “is administered by” the Hospital and the Hospital “has retained the services of the Third
Party Administrator [Meritain] to provide certain claims processing and other ministerial
services.”
The Administrative Services Agreement
[¶6] Meritain contracted to administer the Plan pursuant to an Administrative Services
Agreement (ASA) between Meritain and the Hospital. The ASA was drafted by Meritain
and states that “Meritain shall have no discretionary authority to interpret the Plan or to
adjudicate Claims.” The ASA requires Meritain to “[r]efer to [the Hospital], for its
exclusive and final resolution, any questions concerning the meaning of any part of [the
Plan]” and “the validity of questionable or disputed Claims.” It also requires Meritain to
“[r]efer to [the Hospital], for its exclusive and final resolution, any appeals from any denial
of any of the Claims.”
Mr. Peterson and His Claims for Insurance Coverage
[¶7] Mr. Peterson began working for the Hospital in February 2013 and became insured
under the Plan on August 1, 2013. In 2012, prior to his employment with the Hospital, Mr.
Peterson had been prescribed medication for “probable viral myocarditis,” 3 and he received
two coronary artery stents to treat blockages in his artery. In October 2013, Mr. Peterson
was diagnosed with congestive heart failure and cardiomyopathy. In November 2013, Mr.
3
“Myocarditis is an inflammation of the heart muscle” which can “reduce the heart’s ability to pump and
cause rapid or irregular heart rhythms (arrhythmias).” Mayo Clinic, Myocarditis,
https://www.mayoclinic.org/diseases-conditions/myocarditis/symptoms-causes/syc-20352539 (last visited
Apr. 8, 2022).
3
Peterson was hospitalized and received treatment, including an implanted defibrillator. Mr.
Peterson incurred $247,934.74 in medical bills.
[¶8] Mr. Peterson submitted his medical bills to Meritain. Meritain paid some of the
bills but denied coverage for $207,423.67 determining these charges related to a pre-
existing condition, which the Plan excludes from coverage. Mr. Peterson appealed
Meritain’s decision. Meritain reviewed and denied his appeal. The Plan allowed a second
appeal, which Mr. Peterson pursued. Meritain reviewed and denied his second appeal. The
Hospital was not involved in any of his claims or appeals.
This Lawsuit
[¶9] On March 13, 2017, Mr. Peterson sued the Hospital and Meritain. 4 Not long after
the suit was filed, the Hospital was dismissed. On September 17, 2020, after a series of
trial continuances, discovery disputes, and deadline extensions, Mr. Peterson filed a Third
Amended Complaint, alleging breach of the Plan contract, breach of the ASA contract as
a third-party beneficiary, breach of the implied covenant of good faith and fair dealing, and
seeking punitive damages and attorney fees. Mr. Peterson contends that his claims should
have been covered by the Plan. He asserts that Meritain, when it administered his claims,
stepped into the shoes of the Hospital and improperly denied coverage, thereby breaching
the Plan and the ASA. He also contends that the way Meritain investigated and denied his
claims constituted bad faith.
Facts in Dispute
[¶10] Meritain filed a motion for summary judgment arguing that because the Plan was
an agreement between the Hospital and Mr. Peterson, Mr. Peterson had no privity with
Meritain and could not sue for breach of the Plan; Mr. Peterson as a nonparty could not sue
for breach of the ASA; Mr. Peterson was not a third-party beneficiary of the ASA; Mr.
Peterson could not assert a bad faith claim absent a contract with Meritain; and Meritain
could not have acted in bad faith because it had only ministerial functions under the Plan
and ASA. In opposition to Meritain’s motion for summary judgment, Mr. Peterson’s
expert, James M. Deren, attested that, as a third-party administrator, and contrary to the
terms of the ASA, “Meritain exercised discretionary control in the manner in which it
administered Mr. Peterson’s claims and appeals.” He also testified that Meritain did not
obtain Mr. Peterson’s past medical records to determine whether his prior medication and
treatment were in fact pre-existing conditions. He said,
[b]ecause Mr. Peterson was taking Carvedilol in the six
months prior [to his enrollment in the Plan], Meritain assumed
4
On October 3, 2016, a collection agency sued Mr. and Mrs. Peterson to recover $188,328.85 for the
defibrillator surgery.
4
that he was being “treated” for congestive heart failure and
cardiomyopathy. Mr. Peterson’s medical records . . . indicate
that in early 2012, Mr. Peterson was diagnosed . . . as having
“probable viral myocarditis” . . . . This condition was
successfully treated by the placement of cardiac stents. Mr.
Peterson also had a history of hypertension. A claim should
not be denied based on speculation or insufficient information.
[¶11] He opined that Meritain did not follow industry guidelines, and, if it had, it would
have conducted a more thorough investigation and would have concluded that Mr.
Peterson’s claims were covered by the Plan. 5
[¶12] He explained that Meritain’s internal policies “instruct[] the claim[] examiner to not
review any further records” if “there is any indication of a pre-existing condition.” In his
opinion, this “policy defeat[ed] a full and fair review of a claim.” He asserted that Meritain
did not request “additional information to fully complete or perfect the claim” and it did
not “indicate[] the specific medical treatment that gave rise to the determination that it was
a pre-existing condition . . . .” Mr. Deren concluded, “It was improper to deny the claims
as pre-existing because . . . a full investigation of the claims . . . would have disclosed that
Mr. Peterson had not been previously treated for congestive heart failure or
cardiomyopathy.” Further, it was his conclusion that Meritain determined Mr. Peterson’s
claims in an untimely manner. He also explained that “Meritain approved payment of
many of Mr. Peterson’s claims that were related to the claims that it denied. . . . In other
words, Meritain was inconsistent in its application of the pre-existing condition exclusion.”
Finally, he pointed out that “[e]ven though the ASA [states that the Hospital] is to decide
the appeals, there is nothing in the records [he] reviewed to indicate that [the Hospital] was
even aware of Mr. Peterson’s appeal much less having decided it. Mr. Peterson’s second
level appeal was never decided on its merits.”
The District Court’s Decision
5
The Plan provides that “[t]he length of the Pre-Existing Condition Limitation may be reduced or
eliminated if a Covered Person has Creditable Coverage, provided there was not a Significant Break in
Coverage.” Mr. Deren explained, the third-party administration “industry follows the International Claim
Association’s guidelines, which . . . state[] that ‘[e]very claimant is entitled to a prompt investigation of all
pertinent facts, and the equitable settlement of his claim as soon as liability has come reasonably clear.’”
An investigation following these guidelines would have included an
investigation of Mr. Peterson’s insurance coverage prior to becoming a
Plan Member [and] would have disclosed that Mr. Peterson had
“Creditable Coverage” for . . . times relevant to this matter such that the
claims in question were not subject to the Plan’s exclusion for pre-existing
conditions[.]
Mr. Deren explained: Mr. Peterson’s age of 66 years “alone should have triggered an inquiry by
the Meritain claim examiner as to any possibility of other or prior insurance . . . coverage for Mr. Peterson.”
“Meritain did little to nothing to investigate whether Mr. Peterson had creditable coverage.”
5
[¶13] The district court granted Meritain’s motion for summary judgment, concluding that
Mr. Peterson could not assert a breach of contract claim against Meritain because it was
not a party to the Plan, that Mr. Peterson was not an intended third-party beneficiary of the
ASA, and that because he had no contractual claims, he could not assert a claim for bad
faith. Mr. Peterson appeals.
STANDARD OF REVIEW
A. Summary Judgment
[¶14] A grant of summary judgment is appropriate when “the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.” W.R.C.P. 56(a).
[¶15] This Court reviews a district court’s order granting summary judgment de novo and
may affirm on any basis in the record. Bergantino v. State Farm Mut. Auto. Ins. Co., 2021
WY 138, ¶ 7, 500 P.3d 249, 253 (Wyo. 2021) (citing Gowdy v. Cook, 2020 WY 3, ¶ 21,
455 P.3d 1201, 1206–07 (Wyo. 2020) (citing Bear Peak Res., LLC v. Peak Powder River
Res., LLC, 2017 WY 124, ¶ 10, 403 P.3d 1033, 1040 (Wyo. 2017)); King v. Cowboy Dodge,
Inc., 2015 WY 129, ¶ 16, 357 P.3d 755, 759 (Wyo. 2015)).
[W]e review a summary judgment in the same light as the
district court, using the same materials and following the same
standards. We examine the record from the vantage point most
favorable to the party opposing the motion, and we give that
party the benefit of all favorable inferences that may fairly be
drawn from the record. A material fact is one which, if proved,
would have the effect of establishing or refuting an essential
element of the cause of action or defense asserted by the
parties.
Sullivan v. Pike & Susan Sullivan Found., 2018 WY 19, ¶ 15, 412 P.3d 306, 310 (Wyo.
2018) (internal citations omitted) (quoting Rogers v. Wright, 2016 WY 10, ¶ 7, 366 P.3d
1264, 1269 (Wyo. 2016)).
[¶16] The movant “‘bears the initial burden of establishing a prima facie case for summary
judgment’ using admissible evidence.” Bergantino, ¶ 8, 500 P.3d at 253 (quoting Gowdy,
¶ 22, 455 P.3d at 1207). “If the movant establishes a prima facie case for summary
judgment, the burden shifts to the opposing party to present admissible evidence
demonstrating a genuine dispute of material fact for trial.” Id. (citing Gowdy, ¶ 23, 455
P.3d at 1207). See also W.R.C.P. 56(c) (requiring evidence supporting and opposing
summary judgment to be admissible).
6
B. Discovery Rulings
[¶17] District courts are “generally afforded broad discretion, both in the mechanisms
adopted to control discovery and in its selection of appropriate sanctions for violations of
discovery.” Black Diamond Energy, Inc. v. Encana Oil & Gas (USA) Inc., 2014 WY 64,
¶ 43, 326 P.3d 904, 915 (Wyo. 2014) (citing Roemmich v. Roemmich, 2010 WY 115, ¶ 22,
238 P.3d 89, 95 (Wyo. 2010)); see also Windham v. Windham, 2015 WY 61, ¶ 16, 348
P.3d 836, 841 (Wyo. 2015). This Court reviews a district court’s rulings on discovery,
including the issuance of sanctions, for an abuse of discretion. Herrick v. Jackson Hole
Airport Bd., 2019 WY 118, ¶ 11, 452 P.3d 1276, 1280 (Wyo. 2019). “The appellant carries
the burden of proof to demonstrate an abuse of discretion, and the ultimate issue is whether
the court could have reasonably concluded as it did.” Groskop as Tr. of Black Diamond
Liquidating Litig. Tr. v. S&T Bank, 2020 WY 113, ¶ 25, 471 P.3d 274, 282 (Wyo. 2020).
“As long as there exists a legitimate basis for the trial court’s ruling, that ruling will not be
disturbed on appeal.” Rammell v. Mountainaire Animal Clinic, P.C., 2019 WY 53, ¶ 29,
442 P.3d 41, 49 (Wyo. 2019) (quoting Downs v. Homax Oil Sales, Inc., 2018 WY 71, ¶ 19,
421 P.3d 518, 523 (Wyo. 2018)).
[¶18] When a district court imposes sanctions following discovery violations, “[w]e apply
a de novo standard of review to the question whether the district court correctly interpreted
W.R.C.P. 37.” Windham, ¶ 12, 348 P.3d at 840 (citing Harmon v. Star Valley Med. Ctr.,
2014 WY 90, ¶ 17, 331 P.3d 1174, 1178 (Wyo. 2014)). We review a district court’s factual
determinations for clear error. Davis v. Harmony Dev., LLC, 2020 WY 39, ¶ 18, 460 P.3d
230, 237 (Wyo. 2020); Sharpe v. Timchula, Tr. of the Judith Timchula Living Tr. dated
Oct. 19, 2000, 2019 WY 121, ¶ 19, 453 P.3d 761, 766 (Wyo. 2019); Groskop, ¶ 26, 471
P.3d at 282.
DISCUSSION
I. Does New York law apply?
[¶19] Meritain raises the application of New York law for the first time on appeal.
Meritain asserts that the ASA provides, it “shall be construed and enforced in accordance
with the laws of the State of New York, to the extent such laws are not preempted by
ERISA.” Generally, this Court will “enforce a contract’s choice-of-law provision and
apply foreign law when doing so is not contrary to the law, public policy, or the general
interests of Wyoming’s citizens.” Denbury Onshore, LLC v. APMTG Helium LLC, 2020
WY 146, ¶ 24, 476 P.3d 1098, 1105 (Wyo. 2020) (citations and internal quotation marks
omitted) (applying New York law when interpreting the contract but applying Wyoming
law to procedural matters).
7
[¶20] At the same time, we “adhere to ‘[o]ur general rule . . . that we will not consider
issues not raised in the court below.’” Williams v. Tharp, 2017 WY 8, ¶ 10, 388 P.3d 513,
517 (Wyo. 2017) (quoting Rock Springs Land & Timber, Inc. v. Lore, 2003 WY 100, ¶ 35,
75 P.3d 614, 627 (Wyo. 2003)). An exception to this rule is when the issues raised “are
jurisdictional or are fundamental in nature.” Amoco Prod. Co. v. Dep’t of Revenue, State
of Wyo., 2004 WY 89, ¶ 53, 94 P.3d 430, 449 (Wyo. 2004) (quoting Yates v. Yates, 2003
WY 161, ¶ 13, 81 P.3d 184, 188 (Wyo. 2003)). Choice of law questions are neither
jurisdictional nor fundamental. Meritain waived this argument by failing to raise it below.
Wyoming law applies.
II. Is Meritain entitled to summary judgment on Mr. Peterson’s claim for breach of
the Plan?
A. Can plan participants sue third-party administrators for breach of the
insurance contract?
[¶21] Meritain argued below that it cannot be liable for breach of contract because it is
not a party to Mr. Peterson’s insurance contract with the Hospital. The district court agreed,
holding that “an essential element of a breach of contract claim is the existence of a lawfully
enforceable contract,” and because “there is no lawfully enforceable contract between
Meritain and [Mr.] Peterson,” it granted summary judgment for Meritain on Mr. Peterson’s
breach of contract claim.
[¶22] The elements of a breach of contract claim are “a lawfully enforceable contract, an
unjustified failure to timely perform all or any part of what is promised . . . , and entitlement
of [the] injured party to damages.” Halling v. Yovanovich, 2017 WY 28, ¶ 13, 391 P.3d
611, 616–17 (Wyo. 2017) (quoting Schlinger v. McGhee, 2012 WY 7, ¶ 12, 268 P.3d 264,
268 (Wyo. 2012), as amended on reh’g (Feb. 7, 2012)); see also Mantle v. N. Star Energy
& Constr. LLC, 2019 WY 29, ¶ 69, 437 P.3d 758, 784 (Wyo. 2019) (“elements of a contract
are offer, acceptance and consideration” (quoting McLean v. Hyland Enterprises, Inc.,
2001 WY 111, ¶ 42, 34 P.3d 1262, 1272 (Wyo. 2001))). It is well-settled that a non-party
to a contract cannot be sued for breach of that contract. See Rogers, ¶ 30, 366 P.3d at 1275
(contract law “is designed to protect expectations bargained for in a contract”); Cent.
Contractors Co. v. Paradise Valley Util. Co., 634 P.2d 346, 348 (Wyo. 1981) (“privity of
contract is an essential element [for] a cause of action on a contract”); Larsen v. Sjogren,
67 Wyo. 447, 472, 226 P.2d 177, 186 (1951) (“[t]he parties to a contract are the ones to
complain of a breach”) (quoting Williams v. Eggleston, 170 U.S. 304, 309, 18 S.Ct. 617,
619, 42 L.Ed. 1047 (1898)).
[¶23] The Plan was a contract between the Hospital and its employees, in this case, Mr.
Peterson. The Plan states that the Hospital, the “Plan Sponsor”:
8
[H]as adopted this amended and restated Plan Document and
Summary Plan Description effective as of August 1, 2011, for
the Memorial Hospital of Converse County Health Benefit
Plan (hereinafter referred to as the “Plan” or “Summary Plan
Description”), as set forth herein for the exclusive benefit of its
Employees and their eligible Dependents.
While our inquiry does not stop here, under this general rule, Meritain, a nonparty to the
Plan, could not be sued for an alleged breach of the Plan.
B. Does the Plan’s use of ERISA language give Mr. Peterson the right to sue
Meritain for breach of the Plan?
[¶24] Mr. Peterson argues that the Plan incorporated the Employee Retirement Income
Security Act of 1974 (ERISA), and under ERISA, an insured (Mr. Peterson) can sue a
third-party administrator (Meritain) for breach of contract. 6
1. ERISA
[¶25] ERISA allows claims against third-party administrators acting as fiduciaries. 29
U.S.C. § 1109(a). A third-party administrator will be considered a fiduciary under ERISA
if it “uses its own discretion in allowing and denying claims and does not follow any
procedures or guidelines established by another party . . . regardless of [terms describing]
the third-party administrator’s status under the administration agreement.” Paul J. Routh,
Welfare Benefits Guide, Definition of fiduciary § 5:3 (Jan. 2022 Update). 29 U.S.C.
§ 1110(a) (“any provision in an agreement . . . which purports to relieve a fiduciary from
responsibility or liability . . . shall be void against public policy”).
[¶26] ERISA provides that it “shall not apply to any employee benefit plan if . . . such
plan is a governmental plan.” 29 U.S.C. § 1003(b)(1). A “governmental plan” is a “plan
established or maintained for its employees . . . by the government of any State or political
subdivision thereof, or by any agency or instrumentality of any of the foregoing.” 29
U.S.C. § 1002(32). Courts have held that a governmental employer cannot “opt in” to
ERISA. See, e.g., Hall v. Maine Mun. Emps. Health Tr., 93 F. Supp. 2d 73, 75 (D. Me.
6
There is no dispute that the Plan and the ASA contain language referring to ERISA and incorporating
ERISA definitions. For example, the ASA states that the Plan was to be operated and maintained according
to ERISA. ERISA is a defined term in the ASA. Both the Plan and the ASA utilize ERISA terminology
such as “discretionary authority.” (Under ERISA, a third-party administrator with “discretionary authority”
is deemed a “fiduciary.” 29 U.S.C. § 1002(21)(A)(iii)). The Plan provides that its “claim procedures are
intended to reflect the Department of Labor’s claims procedures [and] regulations, and should be interpreted
accordingly.” See infra ¶ 29.
9
2000); Michel v. United Healthcare of Louisiana, Inc., No. CIV.A. 03-0649, 2003 WL
1790846 (E.D. La. Apr. 2, 2003).
2. Application of ERISA Here
[¶27] The district court found that ERISA does not apply because the Hospital is a
government entity, and the Plan is a governmental plan. There is no dispute the Plan is a
governmental plan, and the Hospital could not opt into ERISA. ERISA does not confer
upon Mr. Peterson the right to sue Meritain. But it is well established in Wyoming that
“parties to a contract are free to incorporate within their agreement whatever lawful terms
they desire.” City of Gillette v. Hladky Const., Inc., 2008 WY 134, ¶ 46, 196 P.3d 184,
200 (Wyo. 2008).
[¶28] While the Hospital could not opt into ERISA, the parties were free to include ERISA
terms and conditions in their contract.
An insurance policy constitutes a contract between the insurer
and the insured. As with other types of contracts, our basic
purpose in construing or interpreting an insurance contract is
to determine the parties’ true intent. We must determine intent,
if possible, from the language used in the policy, viewing it in
light of what the parties must reasonably have intended. The
nature of our inquiry depends upon how clearly the parties have
memorialized their intent. Where the contract is clear and
unambiguous, our inquiry is limited to the four corners of the
document.
We interpret an unambiguous contract in accordance with the
ordinary and usual meaning of its terms. The parties to an
insurance contract are free to incorporate within the policy
whatever lawful terms they desire, and the courts are not at
liberty, under the guise of judicial construction, to rewrite the
policy. It is only when a contract is ambiguous that we
construe the document by resorting to rules of construction.
Whether a contract is ambiguous is a question for the court to
decide as a matter of law.
Bergantino, ¶ 9, 500 P.3d at 253 (quoting Cathcart v. State Farm Mut. Auto. Ins. Co., 2005
WY 154, ¶ 18, 123 P.3d 579, 587–88 (Wyo. 2005)). To the extent ERISA terms and
conditions were incorporated into the Plan, the parties’ intent to be governed by those
provisions will not be read out of the agreement. See Arnold v. Mountain W. Farm Bureau
Mut. Ins. Co., 707 P.2d 161, 166 (Wyo. 1985) (“We are not free to rewrite contracts under
the guise of interpretation.”); Pope v. Rosenberg, 2015 WY 142, ¶ 20, 361 P.3d 824, 830
10
(Wyo. 2015) (“we avoid interpreting a contract . . . so as to render any provision
meaningless” (quoting Wallop Canyon Ranch, LLC v. Goodwyn, 2015 WY 81, ¶ 35, 351
P.3d 943, 953 (Wyo. 2015))).
[¶29] The Plan, referring to ERISA, states, its “claim procedures are intended to reflect
the Department of Labor’s claims procedures [and] regulations, and should be interpreted
accordingly.” The Plan also uses ERISA language, stating that the Plan Administrator
(Hospital) “will have maximum legal discretionary authority to construe and interpret the
terms and provisions of the Plan, to make determinations regarding [benefit eligibility], to
decide disputes . . . , and to decide questions of Plan interpretation[.]” It states the Plan
Administrator (Hospital) has “discretion” to perform certain tasks such as paying different
entities, deciding whether and from whom to recover excess payments, and denying future
benefits if excess payments are not recovered. The Plan also provides that the “Plan
Administrator [Hospital] retains sole, full and final discretionary authority to construe and
interpret” subrogation rights “to determine all questions of fact and law” arising with
respect to those rights. It also states, “to the extent this Plan is not governed by ERISA,
the Plan’s right to subrogation and reimbursement may be subject to applicable State
subrogation laws.” In the definitions section, the Plan defines ERISA.
[¶30] While the Plan states that its “claims procedures” should be interpreted in
accordance with ERISA and contains references and terminology used in ERISA, the Plan
does not adopt ERISA provisions that allow plan participants to sue third-party
administrators in general, or Meritain, specifically. It does not adopt 29 U.S.C. § 1109(a),
the ERISA provision that allows claims against third-party administrators acting as
fiduciaries. The Plan’s general references to ERISA are insufficient to provide an ERISA
cause of action against Meritain for breach of the Plan.
C. If Meritain was acting as the Hospital’s agent, can Mr. Peterson assert a claim
against it for breach of the Plan?
[¶31] Mr. Peterson argues whether Meritain acted as an independent contractor or the
Hospital’s agent are questions of fact, and if Meritain acted in either of these capacities, it
assumed liability for its actions. Meritain does not address this argument, except as it
relates to Mr. Peterson’s claim for breach of the covenant of good faith and fair dealing. 7
Meritain contends that its status as an agent or independent contractor has no relevance to
Mr. Peterson’s claims for breach of contract. After a careful reading of Mr. Peterson’s
brief, we agree with Meritain’s interpretation of Mr. Peterson’s argument as to Meritain’s
7
In that context, Meritain contends in a footnote:
Plaintiff does not appear to contend that Meritain’s status as an agent or
independent contractor has any relevance to the claims against it for breach
of contract (Counts I and II), nor can Plaintiff make such an argument. A
claim for breach of contract is asserted against the party to the contract,
not its agents or independent contractors.
11
status as an independent contractor but conclude that Meritain misconstrued Mr. Peterson’s
argument as to its agency status. Mr. Peterson claims that Meritain’s status as an agent is
a separate ground for contractual liability. We address the agency argument here and
consider the independent contractor argument in our analysis of a duty of good faith and
fair dealing as it applies to third-party administrators.
1. Agency
[¶32] Mr. Peterson can assert a claim for breach of the Plan against Meritain if Meritain
was acting as the Hospital’s agent, and if Meritain acted beyond its scope of authority. If,
on the other hand, Meritain was not acting as the Hospital’s agent, or if Meritain acted
within its agency authority, Mr. Peterson’s claim for breach of the Plan lies against the
Hospital, not Meritain.
[¶33] A principal-agent relationship “results from the manifestation of consent by one
person to another that the other shall act on his behalf and subject to his control and
consent.” Austin v. Kaness, 950 P.2d 561, 564 (Wyo. 1997) (quoting Holliday v. Bannister,
741 P.2d 89, 95 (Wyo. 1987)). 8 “Whether an agency relationship exists and the scope of
the agent’s authority are questions of fact.” Hamilton v. Natrona Cnty. Educ. Ass’n, 901
P.2d 381, 386 (Wyo. 1995) (quoting Cargill, Inc. v. Mountain Cement Co., 891 P.2d 57,
62 (Wyo. 1995)). However, when evidence is not presented creating a question of fact, the
determinations can be made as a matter of law. Id.8
“The overriding consideration in distinguishing between [agency] relationships and employer-
independent contractor relationships is the employer’s right to control the means and manner of the work.”
Singer v. New Tech Eng’g L.P., 2010 WY 31, ¶ 9, 227 P.3d 305, 309 (Wyo. 2010) (quoting Kruckenberg
v. Ding Masters, Inc., 2008 WY 40, ¶ 21, 180 P.3d 895, 901–02 (Wyo. 2008) (citing Stratman v. Admiral
Beverage Corp., 760 P.2d 974, 980 (Wyo. 1988); Cline v. State, Dep’t of Family Servs., 927 P.2d 261, 263
(Wyo. 1996); Noonan v. Texaco, Inc., 713 P.2d 160, 164 (Wyo. 1986))).
Such a right to control is a prerequisite of the master-servant
relationship. Conversely, the absence of such a right of control is
a prerequisite of an independent contractor relationship. Master-
servant and independent contractor are thus opposite sides of the
same coin; one cannot be both at the same time with respect to the
same activity; the one necessarily negatives the other, each
depending on opposite answers to the same right of control
inquiry.
Coates v. Anderson, 2004 WY 11, ¶ 7, 84 P.3d 953, 957 (Wyo. 2004).
When a worker is an independent contractor, the employer is typically
interested only in the results of the work and does not direct the details of
. . . how the work is performed. Noonan, 713 P.2d at 166; Natural Gas
Processing Co. v. Hull, 886 P.2d 1181, 1186 (Wyo. 1994).
When an express contract exists between the parties, it is
important evidence in defining the relationship, although it is not
conclusive of the issue. Coates, ¶ 14; Noonan, 713 P.2d at 164.
Singer, ¶ 9, 227 P.3d at 309 (quoting Kruckenberg, ¶ 21, 180 P.3d at 901–02).
12
[¶34] Mr. Peterson has presented evidence of an agency relationship between Meritain
and the Hospital. This evidence includes Meritain’s name on the cover of the Plan and
Meritain’s assumption of all claims functions, including processing, investigation,
approval, denial, consideration of appeals, payment, and final decisions. He also presents
evidence of the Hospital’s complete absence from the claims process.
[¶35] There are questions of fact as to whether Meritain acted as the Hospital’s agent when
it decided Mr. Peterson’s claims and appeals.
2. Implication of Agency Status
[¶36] Assuming Meritain did act as the Hospital’s agent when it decided Mr. Peterson’s
claims and appeals, such conduct would not generally give rise to a claim against Meritain.
When an agent breaches a contract between a third party and a principal, the third party
may recover against the principal, not the agent. See Restatement (Third) of Agency § 6.01
(Am. L. Inst. 2006).
[¶37] An agent for a disclosed principal does not become a party to the contract because
of their agent status. Restatement (Second) of Agency § 320 (Am. L. Inst. 1958) (“Unless
otherwise agreed, a person making or purporting to make a contract with another as agent
for a disclosed principal does not become a party to the contract.”); Restatement (Third) of
Agency § 6.01 (“When an agent acting with actual or apparent authority makes a contract
on behalf of a disclosed principal, (1) the principal and the third party are parties to the
contract; and (2) the agent is not a party to the contract unless the agent and third party
agree otherwise.”).
[¶38] In Excel Constr., Inc. v. HKM Eng’g, Inc., Excel Construction (Excel) contracted
with the Town of Lovell to replace and improve water and sewer lines. HKM Engineering
(HKM) contracted with the town to act as the project engineer for the project. Excel
Constr., Inc. v. HKM Eng’g, Inc., 2010 WY 34, ¶¶ 3–4, 228 P.3d 40, 42–43 (Wyo. 2010).
Disputes arose between HKM and Excel as to HKM’s approval of change orders, HKM’s
certification of the work, and other issues. Excel sued the town and subsequently joined
HKM as a defendant. Id. ¶¶ 8–9, 228 P.3d at 43–44. We held that the proper remedy for
an agent’s breach is a suit against the principal:
HKM was charged with determining compliance with the
contract, approving change orders, and otherwise serving as
decision-maker for the Town of Lovell by the express terms of
its agreement. HKM therefore acted not only as an agent, but
as an agent with the power to make decisions on behalf of the
town. Its actions, if they breached the contract, may entitle
13
Excel to recover against the town for that breach, but Excel
may not recover from HKM . . . .
Id. ¶ 23, 228 P.3d at 47.
[¶39] If Meritain was the Hospital’s agent, so long as Meritain was acting with authority,
Mr. Peterson’s cause of action is against the Hospital, not Meritain. We must then address
the flip side of this question which is, if Meritain was an agent acting without authority,
can it be liable in contract?
D. If Meritain was the Hospital’s agent and acted without authority, can it be
liable to Mr. Peterson under the Plan?
[¶40] Mr. Peterson contends that if Meritain undertook discretionary duties beyond those
provided for in the Plan and the ASA, he can assert his breach of contract claim against
Meritain under the Plan.
[¶41] When an agent is acting without authority on behalf of a disclosed principal, it can
be held liable for its conduct in some circumstances. See, e.g., Brown v. Grady, 16 Wyo.
151, 92 P. 622, 624 (1907) (“the agent clearly exceeded his authority in executing [the
contract and] not having been ratified by [the principal, the principal] was not bound
thereby”); Wilson v. Rogers, 1 Wyo. 51, 56 (1872) (“if an agent transcends his agency, or
departs from its provisions, or conducts himself so as to render his principal inaccessible
or irresponsible, or if he acts in bad faith, he makes himself personally liable”); see also
Nero v. LA Indep. Ins. Agencies, Inc., Unitrin Specialty Lines Ins., No. Civ.A. 02-3317,
2003 WL 203145, at *2 (E.D. La. Jan. 29, 2003) (“an agent for a known principal cannot
be held personally liable for breach of contract unless the agent personally binds itself or
exceeds its authority”).
The general rule that only the principal has rights and
liabilities under the contract is subject to several exceptions.
Most importantly, the agent’s freedom from liability on the
contract is normally conditioned on disclosure to the party
contracting with the agent of the fact of the agency and the
identity of the principal, and an agent who acts in excess of
its authority is generally liable on the contract. Also, an
agent may expressly assume obligations under the contract
....
12 Samuel Williston, Treatise on the Law of Contracts § 35:34, at 503–04 (Richard A.
Lord ed., 4th ed. 2012) (emphasis added) (footnotes omitted); see Snyder v. Lovercheck,
992 P.2d 1079, 1089 (Wyo. 1999); see also Halliday v. Great Lakes Ins. SE, No. 3:18-CV-
00072, 2019 WL 3500913, at *15 (D.V.I. Aug. 1, 2019) (“an agent may be personally
14
liable in contract when he . . . exceeds the scope of his authority” (quoting Francis v. Miller,
26 V.I. 184, 186 (Terr. V.I. Sept. 6, 1991))); Restatement (Second) of Agency § 322 cmt.
b; United States v. Webber, 396 F.2d 381, 389 n.18 (3d Cir. 1968). 9
[¶42] The court in Halliday held that an insurance adjuster (and agent of the insurer) “may
be personally liable in contract when he acts on behalf of an undisclosed principal or
exceeds the scope of his authority.” Halliday, 2019 WL 3500913, at *15 (emphasis
added) (quoting Francis, 26 V.I. at 186). In Halliday, the plaintiff had insured his boat
with Great Lakes Insurance SE (Great Lakes). Id. at *2. The boat was damaged by
Hurricane Irma. Id. Great Lakes engaged Wager & Associates, Inc. (Wager), a Florida
corporation “engaged in the business of Yacht Surveying, Insurance Claim Adjusting, and
Insurance Claim Management,” to adjust the plaintiff’s claim for damage on the vessel. Id.
at *1–2. The plaintiff provided Davis Marine Surveying and Adjusting’s (Davis) repair
estimate of $320,000 to $350,000 to repair the boat. Davis was the original estimator of
the boat’s value for insurance coverage. Great Lakes established the premiums based on
that estimate. Id. at *2. Wager informed Great Lakes that the “Plaintiff falsely claimed
that . . . the vessel had been damaged by the storm when in fact the damage was the result
of poor maintenance” and that “in its view, Davis’ [original] survey . . . ‘was misleading
and contained false information . . . ’ because Wager’s research indicated that the vessel’s
selling prices were far below the [Davis’ original value] estimates.” Id. When it became
apparent that Great Lakes would not cover his costs to repair the vessel, the plaintiff sued
Great Lakes, Wager, and the underwriter for his insurance policy. Id. at *1.
[¶43] The plaintiff asserted a claim of gross negligence against Wager and alleged that the
plaintiff was a third-party beneficiary of the adjustment of the claim contract between Great
9
Most commonly, this rule has been applied when an agent purports to enter a contract on behalf of a
principal, not when the agent’s acts breach a contract between the principal and a third party. See, e.g.,
Brown, 92 P. at 624; see also Hauff v. Petterson, 755 F. Supp. 2d 1138, 1150 (D.N.M. 2010) (“[I]t is well
established that an agent acting within his authority for a disclosed principal is not personally liable unless
he was expressly made a party to the contract or unless he conducts himself in such a manner as to indicate
an intent to be bound.” (quoting Barnes v. Sadler Assocs., Inc., 1981-NMSC-004, ¶ 5, 622 P.2d 239, 240));
Precision Mech., Inc. v. Empyrean Hosp., No. CV075002281, 2007 WL 3011010, at *3 (Conn. Super. Ct.
Sept. 26, 2007) (“A person who purports to make a contract . . . with a third party on behalf of another
person, lacking power to bind that person, gives an implied warranty of authority to the third party and is
subject to liability to the third party for damages caused by breach of that warranty.” (quoting Restatement
(Third) of Agency § 6.10 (2006))); Cytacki v. AP Parts Mfg. Co., 74 F.3d 1240, at *4 (6th Cir. 1996)
(“Michigan law holds that where an agent executes a contract on behalf of his principal, he may not be held
personally liable on the contract unless he acts outside the scope of his authority.”); Tapper v. Lumbermens
Mut. Cas. Co., 662 F. Supp. 599, 602 n.4 (S.D. Miss. 1987) (“[A]lthough an insurance agent acting on
behalf of a disclosed carrier principal in procuring insurance policies for a client does not become a party
to the insurance contract and thus may not be held liable for damages caused by breach of the contract by
the insurer, Patton v. Aetna Ins. Co., 595 F. Supp. 533 (N.D. Miss. 1984), certain actions or omissions
attributable to the agent while having undertaken to procure a client’s requested coverage may subject the
agent to tortious and, in some instances, contractual liability. Southside, Inc. v. Clark, 460 So. 2d 113(Miss. 1984).”).
15
Lakes and Wager. Id. at *2. The district court held that “insurance claimants have a
common law cause of action against insurance adjusters for gross negligence but are
categorically barred from bringing claims against adjusters for ordinary negligence.” Id.
at *9. The court reasoned:
“[J]urisprudence should not be in the position of approving a
deliberate wrong,” Bass [v. California Life Ins. Co.], 581 So.
2d [1087,] 1090 [(Miss. 1991)], and a claimant should have
recourse against an adjuster who operates in a manner that
undermines the integrity of an insurance claim adjustment or
sabotages what otherwise might be a legitimate claim. Indeed,
the type of conduct that could constitute gross negligence on
the part of the adjuster might not even create liability for the
insurance company. An adjuster should not be able to cloak
itself as an agent of the insurer for such behavior. To do so
could potentially erode the public’s faith in the private
insurance process.
Halliday, 2019 WL 3500913, at *12.
[¶44] The court also concluded that the plaintiff could assert a third-party beneficiary
claim against Wager. Id. at *15. It explained that “an agent may be personally liable in
contract when he acts on behalf of an undisclosed principal or exceeds the scope of his
authority” and noted that the “[p]laintiff was aware of the principal—Great Lakes—the
allegations within the [amended complaint] are consistent with the notion that Wager acted
well beyond what Great Lakes authorized it to do.” Id. (quoting Francis, 26 V.I. at 186).
[¶45] Here, the Plan and the ASA limit Meritain’s scope of authority. The Plan provides
that the Hospital has “maximum legal discretionary authority to construe and interpret the
terms and provisions of the Plan, to make determinations regarding . . . eligibility for
benefits . . . , to decide disputes . . . , and to decide questions of Plan interpretation.” The
Plan also states that “The Plan is administered by the Plan Administrator [defined as the
Hospital]. The Plan Administrator has retained the services of the Third-Party
Administrator [Meritain] to provide certain claims processing and other ministerial
services.” Under the ASA, the Hospital delegated to Meritain “only those powers and
responsibilities with respect to the Plan which are specifically enumerated herein. Any
function not specifically delegated to and assumed by Meritain pursuant to this Agreement
shall remain the sole responsibility of [the Hospital].” The ASA enumerates specific
“administrative services” assigned to Meritain.
[¶46] The record indicates that Meritain’s participation in the claims process far exceeded
“ministerial” or “administrative” services described in the Plan. Mr. Peterson was required
to submit his claims to Meritain. Meritain determined whether his claims would be
16
approved or denied. Meritain paid approved claims and notified claimants of denied
claims. Meritain decided two levels of appeal, with no apparent input or approval from the
Hospital. There is no evidence that the Hospital had any role in these decisions or that
Meritain ever communicated its decisions on Mr. Peterson’s claims to the Hospital. Supra
¶¶ 8, 12. Meritain does not deny that it did not communicate its claims decisions to the
Hospital. This raises questions of fact about Meritain’s assumption of duties and whether
it exceeded its scope of authority, under the Plan and the ASA.
[¶47] If Meritain acted as the Hospital’s agent and acted beyond the scope of its authority,
here, as in Halliday, it may be held liable for breach of contract. Accordingly, summary
judgment is not warranted on Mr. Peterson’s breach of contract claim.
III. Is Meritain entitled to summary judgment on Mr. Peterson’s third-party
beneficiary claim for breach of the ASA?
[¶48] Mr. Peterson’s second cause of action asserts that Meritain breached the ASA, (an
agreement between Meritain and the Hospital only) and, because Mr. Peterson was a third-
party beneficiary of that contract, he can recover damages for that breach.
A. Third-Party Beneficiary Rights to Sue for Breach of Contract in Wyoming
[¶49] Contracts are “often made in which one party’s performance [is] directed to a third
party, not a party to the contracting process; that is, not in privity with the contract.” 13
Samuel Williston, Treatise on the Law of Contracts § 37:1, at 7–9 (Richard A. Lord ed.,
4th ed. 2013). “Over time, . . . th[e] traditional view [that strangers to a contract have no
rights under it] was abandoned, and an exception to the need for privity was developed
through the doctrine of third party beneficiaries.” Id. at 12–13 (footnotes omitted).
[¶50] In Wyoming, a promise may be made between two parties for the benefit of a third
party and:
[A] third-party beneficiary may enforce his rights under a
contract, although not a party to nor specifically mentioned in
the contract; but there is more to it than that. An outsider
claiming the right to sue must show that it was intended for his
direct benefit. Otherwise he may be only an incidental
beneficiary because the compelling provisions of a contract
require that his claims be satisfied in order to protect another.
However, an incidental beneficiary acquires no right of action
against the promisor or promisee.
Bear v. Volunteers of Am., Wyoming, Inc., 964 P.2d 1245, 1252 (Wyo. 1998) (emphasis
added) (quoting Wyoming Mach. Co. v. U.S. Fid. & Guar. Co., 614 P.2d 716, 720 (Wyo.
17
1980) (citing Peters Grazing Ass’n v. Legerski, 544 P.2d 449 (Wyo. 1975) and Graham &
Hill v. Davis Oil Co., 486 P.2d 240 (Wyo. 1971))). “If the terms of the contract necessarily
require the promisor to confer a benefit on a third person, then the contract, and hence the
parties thereto, contemplate a benefit to the third person” and that person is an intended
beneficiary. 13 Williston, supra, at 111. The Restatement (Second) of Contracts sets forth
a test for determining whether a third person is an intended beneficiary:
(1) Unless otherwise agreed between promisor and
promisee, a beneficiary of a promise is an intended beneficiary
if recognition of a right to performance in the beneficiary is
appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an
obligation of the promisee to pay money to the
beneficiary; or
(b) the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the
promised performance.
(2) An incidental beneficiary is a beneficiary who is not an
intended beneficiary.
Restatement (Second) of Contracts § 302 (Am. L. Inst. 1981); Cordero Mining Co. v. U.S.
Fid. & Guar. Ins. Co., 2003 WY 48, ¶ 14, 67 P.3d 616, 622 (Wyo. 2003) (applying the
Restatement (Second) of Contracts § 302 test for determining whether a third person was
an intended third-party beneficiary of a contract); Richardson Assocs. v. Lincoln-Devore,
Inc., 806 P.2d 790, 807 (Wyo. 1991) (same); Bear, 964 P.2d at 1252 (same).
[¶51] “When third-party beneficiary claims are reviewed, the real question is whether the
contracting parties intended the contract to be for the direct benefit of a third party”; “absent
evidence of such intent, the party is an incidental beneficiary with no enforceable rights
under the contract.” Cordero Mining, ¶¶ 9, 12, 67 P.3d at 621. In determining the parties’
intent to contract for the benefit of a third party, courts “can and must” look to the terms of
the contract and surrounding circumstances, including “facts showing the relations of the
parties, the subject matter of the contract, and the apparent purpose of making the contract.”
Id. ¶ 15, 67 P.3d at 623.
B. Are there questions of fact as to whether Mr. Peterson was a third-party
beneficiary of the ASA?
[¶52] Count II of Mr. Peterson’s third amended complaint alleges that Mr. Peterson was
a third-party beneficiary under the ASA, the terms of which were breached by Meritain,
18
and Mr. Peterson has been damaged by Meritain’s breach in the amount of $207,423.67.
In its motion for summary judgment, Meritain argued that Mr. Peterson was not a third-
party beneficiary to the ASA and, therefore, could not sue for a breach of that agreement.
The district court agreed, concluding that Mr. Peterson was not a third-party beneficiary as
a matter of law. Mr. Peterson argues, at a minimum, there is a genuine issue of material
fact as to whether insureds under the Plan are third-party beneficiaries to the ASA.
[¶53] On summary judgment, Meritain has the initial burden of showing no genuine issue
of material fact existed on the question of whether Mr. Peterson was an intended third-
party beneficiary of the ASA. The ASA provides:
7.11 No Third Party Beneficiaries. Nothing expressed
or implied in this Agreement is intended or shall be construed
to confer upon, or give to any third party (including without
limitation, Plan Participants), any rights or remedies against
any party hereto. . . .
This language is evidence of the parties’ intent regarding the creation of intended third-
party beneficiary status.
[¶54] The burden then shifts to Mr. Peterson to demonstrate a material dispute as to the
intent. Mr. Peterson contends that the ASA existed for Plan members’ benefit. He sets
forth the following terms in the ASA in support of his argument: Meritain and the Hospital
agreed that Meritain would “administer and adjudicate” the Plan members’ claims;
Meritain would process Plan members’ claims; Meritain would pay Plan members’ claims;
Meritain was obligated to “determine all questions of eligibility, status and coverage under
the Plan”; Meritain was obligated to “decide disputes which may arise relative to a [Plan
member’s] rights”; Meritain was required to “provide an explanation of the adjudication of
the Claim or reason(s) for the denial of benefits” to participants; and Meritain was required
to “[r]efer to [the Hospital], for its exclusive and final resolution, any appeals from any
denial of any of the Claims, pursuant to Section 503 of ERISA.” Mr. Peterson argues that
these provisions of the ASA “indicate[] it was intended to directly benefit the Plan
Members.” He contends that the Plan’s purpose (of “provid[ing] for the payment or
reimbursement of” employees’ health care expenses and to “protect [employees and their
families] by offsetting some of the financial problems that may arise from an Injury or
Illness”) could “not be carried out if Meritain failed to perform its duties under the ASA.”
[¶55] Meritain urges the Court to ignore the context in which the ASA was executed and
the acts it performed in its role as a third-party administrator. Meritain argues that the
Court must look only to the four corners of the ASA, and, if its language is unambiguous,
we must conclude that there was no intent to create a third-party beneficiary. Meritain cites
Cordero Mining in support of its argument.
19
[¶56] In Cordero Mining, we held that the parties’ intention to create a third-party
beneficiary “is to be gleaned from a consideration of all of the contract and the
circumstances surrounding the parties at the time of its execution.” Cordero Mining,
¶ 14, 67 P.3d at 622 (emphasis added) (quoting Richardson, 806 P.2d at 809). Courts look
to “surrounding circumstances, facts showing the relations of the parties, the subject matter
of the contract, and the apparent purpose of making the contract.” Id. ¶ 15, 67 P.3d at 623;
see also Ultra Res., Inc. v. Hartman, 2010 WY 36, ¶ 22, 226 P.3d 889, 905 (Wyo. 2010)
(“Courts should consider the circumstances surrounding execution of the agreement to
determine the parties’ intention, even in reviewing unambiguous contracts.”).
[¶57] We agree that the language contained in the ASA was unambiguously drafted to
avoid creating intended third-party beneficiaries. Nevertheless, the ASA, as a whole, and
the circumstances surrounding its execution (including the adoption of the Plan, which was
also drafted by Meritain), create a question of fact as to whether the Hospital and Meritain
intended to benefit Plan Participants.
C. Did Meritain’s and the Hospital’s course of conduct modify the terms of the
ASA?
[¶58] If a factfinder determines that Mr. Peterson was a third-party beneficiary under the
ASA, it must then examine the terms of the ASA and decide whether those terms were
breached.
[¶59] Meritain argues its agreement with the Hospital is established exclusively by the
ASA. Mr. Peterson contends that the parties modified the ASA by their course of conduct
to allow Meritain to process his claims and appeals. Meritain denies that there was any
course of conduct modification of the ASA and points to its provisions that declare: “No
Oral Modification. No provision of this Agreement may be amended, augmented or in any
way modified except in a writing signed by a duly authorized representative of each of the
parties.” Mr. Peterson argues that despite the ASA’s prohibition on oral modification and
despite ASA limitations on Meritain’s role, Meritain assumed the role of deciding claims
and appeals, a role which had been assigned to the Hospital in both the Plan and the ASA,
and if the Hospital agreed to Meritain’s augmented role, the ASA was modified.
[¶60] “[P]arties to a written agreement may orally waive or modify their rights under the
agreement.” Terris v. Kimmel, 2010 WY 110, ¶ 7, 236 P.3d 1022, 1025 (Wyo. 2010)
(quoting Keever v. Payless Auto Sales, Inc., 2003 WY 147, ¶ 12, 79 P.3d 496, 499 (Wyo.
2003)). Further, “a written agreement may be modified through course of conduct.” Id.However, a party who asserts
a written agreement was modified by the subsequent
expressions or conduct of the parties must prove so by clear
and convincing evidence. The question of whether the alleged
20
modification of the written agreement has been proved by the
required quantum of evidence is one to be decided by the trier
of fact.
Keever, ¶ 13, 79 P.3d at 499–500 (citing Ruby Drilling Co. v. Duncan Oil Co., 2002 WY
85, ¶ 11, 47 P.3d 964, 968 (Wyo. 2002)).
[¶61] If Meritain undertook duties outside those addressed by the ASA, its course of
conduct could have amended the terms of the ASA; and, if Mr. Peterson was a third-party
beneficiary, Meritain could be liable for breach of the ASA, including any modifications,
to the extent it failed to comply with the terms of the ASA.
IV. Is Meritain entitled to summary judgment on Mr. Peterson’s claim for breach of
the covenant of good faith and fair dealing?
A. Can insurance plan participants sue third-party administrators in bad faith,
when there is no contract between the participants and the third-party
administrator?
[¶62] “Insurance contracts are generally considered significantly different than most other
types of contracts. In recognizing the special nature of the relationship between the parties
to an insurance contract, courts have characterized the insurer-insured relationship as:
Contractual, Special, Fiduciary, [and] Quasi-fiduciary.” 14 Steven Plitt, Daniel
Maldonado, Joshua D. Rogers & Jordan R. Plitt, Couch on Insurance § 198:7, at 198-22–
198-24 (3d ed. 2020). This relationship has given rise to the recognition of a bad faith
cause of action against insurance companies. In McCullough v. Golden Rule Ins. Co., 789
P.2d 855, 858 (Wyo. 1990), this Court first permitted recovery, in tort, for breach of the
implied covenant of good faith and fair dealing (or bad faith) based upon the special
relationship created by the unequal bargaining power that an insurer has over an insured.
“This bad faith tort covers both an insurer’s obligation to investigate and its obligation to
pay its insureds in appropriate situations.” Kirkwood v. CUNA Mut. Ins. Soc., 937 P.2d
206, 211 (Wyo. 1997). 10 Potential liability for bad faith has provided an incentive for
10
To establish an insurer breached the implied covenant of good faith and
fair dealing by denying payments, the insured is required to show: “(1) the
absence of any reasonable basis for denying a claim for benefits; and (2)
the insurer’s knowledge or reckless disregard of the lack of a reasonable
basis for denying the claim for benefits.”
Bergantino, ¶ 16, 500 P.3d at 256 (quoting State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d 813, 825
(Wyo. 1994)). An insured can also “maintain a tort claim for violation of the implied covenant of good
faith and fair dealing even though the express terms of the insurance contract are honored by the insurer.”
Id. ¶ 18, 500 P.3d at 256 (citing Hatch v. State Farm Fire & Cas. Co., 842 P.2d 1089, 1099 (Wyo. 1992)).
“Even if the insurer has a ‘fairly debatable’ reason for not paying the claim, it is bad faith to ‘go beyond a
reasonable denial of the claim and engage in unreasonable or unfair behavior to gain an unfair advantage.’”
21
insurance companies to better control their practices and to protect their insureds’ interests.
See, e.g., 3 Ronald J. Clark, Dianne K. Dailey & Linda M. Bolduan, Law and Prac. of Ins.
Coverage Litig. § 28:2 (2021) (“From the insurer’s perspective, the best strategy is not to
be sued for bad faith in the first place. Bad faith can generally be avoided by using common
sense in handling a claim.”).
[¶63] Over time, insurance companies began outsourcing operations that they had
traditionally performed in-house to third parties. These third parties (managing general
agents, third-party administrators, and independent claims adjusters) perform tasks such as
underwriting, billing, recordkeeping, and claims handling. As one commentator has
explained:
Many insurers have “outsourced” substantial parts of their
operations, making [managing general agents, third-party
administrators,] and independent adjusters de facto insurers, at
least for purposes of these key tasks related to policy
administration and claims handling. Despite their increasing
importance, these intermediaries have historically been
immune from claims by disgruntled policyholders . . . so long
as the insurer for whom they work is known to the policyholder
or there is no formal written contract between the downstream
intermediary and the policyholder or other third party.
. . . [W]ith reduced incentive to discharge their duties well, the
other intermediaries frequently act negligently, recklessly, or
even in bad faith, needlessly creating claims imbroglios that
could be avoided . . . .
Jeffrey W. Stempel, The “Other” Intermediaries: The Increasingly Anachronistic
Immunity of Managing General Agents and Independent Claims Adjusters, 15 Conn. Ins.
L.J. 599, 602–03 (2009).
[¶64] This calls into question the extent of the responsibility, if any, of third-party
administrators to insureds. Many courts have concluded that because third-party
administrators have no privity of contract with the insured, they owe no duties to the
insured. See, e.g., Sanchez v. Lindsey Morden Claims Servs., Inc., 84 Cal. Rptr. 2d 799,
801–02 (Ct. App. 1999); Natividad v. Alexsis, Inc., 875 S.W.2d 695, 698 (Tex. 1994);
Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1038–39 (Cal. 1973); see also De Dios v.
Indem. Ins. Co. of N. Am., 927 N.W.2d 611, 623–24 (Iowa 2019), amended (May 14, 2019)
Id. (quoting Hatch, 842 P.2d at 1099). “Thus, an insurer may be liable for its unreasonable, oppressive,
and intimidating claims practices in investigating, handling, or denying a claim, even though the denial was
appropriate.” Id. ¶ 19, 500 P.3d 256–57 (citing Hatch, 842 P.2d at 1099 and Shrader, 882 P.2d at 828).
22
(refusing to recognize a bad faith claim against workers compensation third-party
administrators because Iowa workers compensation statutes do not apply to third-party
administrators). Other courts, however, have reasoned that in certain circumstances, third-
party administrators owe the insured a duty of good faith and fair dealing and can be sued
for breaching it. See, e.g., Wathor v. Mut. Assur. Adm’rs, Inc., ¶ 5, 87 P.3d 559, 561, as
corrected (Okla. Jan. 22, 2004); Dellaira v. Farmers Ins. Exch., 2004-NMCA-132, ¶ 13,
102 P.3d 111, 115; Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 468 (Colo. 2003),
as modified on denial of reh’g (May 19, 2003); Wolf v. Prudential Ins. Co. of Am., 50 F.3d
793, 797 (10th Cir. 1995) (third-party administrator could be liable for bad faith
administration of claim); Sparks v. Republic Nat’l Life Ins. Co., 647 P.2d 1127, 1137–38
(Ariz. 1982); Scott Wetzel Servs., Inc. v. Johnson, 821 P.2d 804, 811 (Colo. 1991); see also
Cont’l Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281, 286–87 (Alaska 1980) (insurance
adjuster could be held liable for negligence).
1. Wyoming Law
[¶65] Whether an insurance plan participant can sue a third-party administrator for bad
faith is a question of first impression in Wyoming. Meritain argues that the lack of a
contract precludes any claim for the breach of the covenant of good faith and fair dealing.
[¶66] In Birt v. Wells Fargo Home Mortg., Inc., 2003 WY 102, ¶ 4–5, 75 P.3d 640, 646
(Wyo. 2003), the plaintiffs sued Wells Fargo when—after indicating a home construction
loan would be forthcoming and encouraging them to sign a contract to build a new home—
it denied their loan application. They asserted numerous causes of action, including breach
of contract, breach of implied contract, and breach of the covenant of good faith and fair
dealing. Id. ¶ 9, 75 P.3d at 647. We concluded that there was no express or implied contract
between the plaintiffs and the bank. Id. ¶¶ 10–20, 75 P.3d at 647–50. Consequently, we
held there could be no claim for breach of the covenant of good faith and fair dealing:
Our conclusion that neither an express contract nor an
implied-in-fact contract existed in this case leads inexorably to
the further conclusion that Wells Fargo was entitled to
summary judgment on the issue of its alleged breach of the
implied covenant of good faith and fair dealing. Without a
contract, there is no basis for imposition of the implied
covenant, whether in contract or in tort, because either
cause of action arises out of the contractual relationship.
The duty of good faith and fair dealing does not come into
play until the parties have reached an agreement and does
not bind them during their earlier negotiations.
Id. ¶ 21, 75 P.3d at 650 (emphasis added) (citations omitted).
23
[¶67] Yet, we have recognized that tort duties and liabilities are not limited to contractual
principles. In Throckmartin, we considered duties owed by real estate agents. We said:
Contract principles that govern the parties to a contract are not
controlling on claims against nonparty professionals whose
duties arise in tort. Our precedents reveal a recognition that
tort duties and liabilities imposed by the legislatures and
courts are supported by underlying social policies which
require the imposition of obligations on a defendant to act
reasonably for the protection of a plaintiff. By imposing
tort duties, courts and legislatures have externally
allocated the risks arising from certain relationships for the
protection of the public.
Throckmartin v. Century 21 Top Realty, 2010 WY 23, ¶ 19, 226 P.3d 793, 804 (Wyo. 2010)
(emphasis added).
[¶68] We have recognized the tort of bad faith where the party alleging bad faith did not
have privity of contract with the tortfeasor. See, e.g., Gainsco Ins. Co. v. Amoco Prod. Co.,
2002 WY 122, ¶ 26, 53 P.3d 1051, 1061 (Wyo. 2002) (“a covenant not to execute in the
settlement agreement between an insured and a claimant . . . does not bar the claimant, as
assignee of the insured, from pursuing a claim against the insurer for third-party bad faith”);
Herrig v. Herrig, 844 P.2d 487, 490 (Wyo. 1992) (“A cause of action for ‘third party’ bad
faith will lie when a liability insurer fails in bad faith to settle a third-party claim within
policy limits against its insured.” (citing W. Cas. & Sur. Co. v. Fowler, 390 P.2d 602 (Wyo.
1964))).
[¶69] In Long, Great West Life and Annuity Insurance Company (Great West)
administered a health insurance plan which was sponsored by the State of Wyoming. The
plan’s terms gave Great West “virtually total control and discretion in the administration
of the plan and, when claims [were] denied, [the plan] provide[d] for an appeal procedure
to Great West.” Long v. Great West Life & Annuity Ins. Co., 957 P.2d 823, 824 (Wyo.
1998). Great West provided a list of in-network physicians. Id. The plan provided for a
utilization review by the Health Care Review Service (HCRS) to preauthorize treatment.
Under the plan terms, surgery performed without preauthorization would result in a
payment penalty. Id. at 824–25. Mr. Long’s treating physician recommended back surgery
for chronic pain, and he sought preauthorization for surgery. Id. HCRS declined to
preauthorize his surgery and recommended steroid injections. Id. at 825. The
anesthesiologist scheduled to deliver the steroid injections refused to do so, explaining that
he could not ethically administer the injections because he believed they “would be of no
physical benefit to Long and would involve some risk.” Id. Long attempted repeatedly
over a prolonged period to resolve the matter with Great West and received no response.
Id. at 826. In the meantime, his condition deteriorated, and he had the surgery without the
24
necessary preauthorization. Id. He sued Great West alleging, among other things, breach
of contract and bad faith. Id. The trial court granted summary judgment to Great West,
ruling that Mr. Long had not exhausted his administrative remedies because the contract
required him to file a grievance when his claim was denied. Id.
[¶70] On appeal, this Court held that the grievance procedure did not apply to the
utilization review process under the terms of the insurance contract. Id. at 831. The Court
also considered whether Long could assert his claim for bad faith. Great West had argued
that it was “not the proper party to be sued” because “it was merely a claims processor
performing ministerial functions for the employer, the State of Wyoming.” Id. at 828–29.
The Court recognized that under “federal law, a third-party plan administrator that
performs ministerial functions is not subject to suit because the law does not define it as a
‘fiduciary.’” Id. at 829 (citing Santana v. Deluxe Corp., 920 F. Supp. 249, 253–54 (D.
Mass. 1996)). However, an “administrator that exercises discretionary authority or
discretionary control in the administration and management of the plan may qualify as a
fiduciary.” Id. The Court explained that the record did not clearly identify the relationship
between HCRS and Great West. It concluded that because the plan provided that HCRS
will determine whether treatment was medically necessary and the plan tasked Great West
with duties such as providing the list of in-network physicians, and stated that Great West
will determine medical necessity, “a genuine question of material fact exists as to whether
the terms of the insurance contract issued to Long created a fiduciary relationship between
him and Great West.” Id. The Court also concluded there were “genuine issues of material
fact regarding Great West’s handling of Long’s request for medical treatment through its
utilization review process.” Id. at 830–31.
[¶71] Important principles can be gleaned from Long. First, Great West was a third-party
administrator—and the Court applied federal law stating that when “a third-party
administrator” exercises discretionary authority or control, it assumes a fiduciary duty
toward the insured. 11 Second, we “perceive[d] Long’s other numerous causes of action as
being in the nature of a claim for bad faith in handling and investigating his claim for
appropriate medical treatment” and held that there were genuine issues of material fact
regarding whether Great West is liable for breach of the covenant of good faith and fair
dealing. Id. at 829–30. In other words, we found that a third-party administrator could
potentially be liable for breach of the covenant of good faith and fair dealing, at least under
the circumstances of that case.
While the Long opinion does not cite the “federal law” upon which it relies, we assume it is referring to
11
ERISA.
25
[¶72] Nevertheless, the Long decision leaves unanswered questions, 12 and the Court did
not establish a framework for determining when a third-party administrator could be liable
for bad faith.
2. Other Jurisdictions
[¶73] We look to other jurisdictions for guidance. Other courts imposing a duty of good
faith and fair dealing on third-party administrators have done so when the third-party
administrator performs many of the tasks of the insurance company and bears some of the
financial risk of loss for the claim. For example, in Wolf, the Tenth Circuit Court of
Appeals concluded that under Oklahoma law, a third-party administrator could be liable
for the bad-faith administration of claims. The Wolf court explained that “the special
relationship on which an insurer’s duty of good faith is based results from the quasi-public
nature of insurance, the unequal bargaining power between the insurer and insured, and the
potential for an insurer to unscrupulously exert that power at a time when the insured is
particularly vulnerable.” Wolf, 50 F.3d at 797. The court concluded that a determination
of whether a third-party administrator owes the insured a duty of good faith “should focus
more on the factual question of whether the administrator acts like an insurer such that
there is a ‘special relationship’ between the administrator and insured that could give rise
to a duty of good faith.” Id. There, the insurer retained “ultimate responsibility for benefit
determination,” but the third-party administrator assumed “the ordinary insurer role of
investigating and servicing claims,” and made benefit determinations “through at least two
levels of appeal.” Id. at 797–98. In addition, the third-party administrator’s share of the
insurance premiums rose as losses decreased. Id. at 798. The court concluded that, because
the third-party administrator “had primary control over benefit determinations, and
assumed some of the risk of these determinations,” it “undertook many of the obligations
and risks of an insurer.” Id. Accordingly, whether the third-party administrator should be
subject to the duty of good faith was a question of fact precluding summary judgment. Id.
[¶74] In Wathor, Oklahoma County offered employees health insurance through a self-
funded plan. The plan contracted with a third-party administrator to administer the plan.
The third-party administrator denied coverage to the plaintiff because of a pre-existing
condition. Wathor, 87 P.3d at 561. The plaintiff sued the third-party administrator,
alleging it breached its duty of good faith when it administered the plan. Id. The Oklahoma
Supreme Court agreed with the test articulated in Wolf. It held:
In a situation where a plan administrator performs many of the
tasks of an insurance company, has a compensation package
that is contingent on the approval or denial of claims, and bears
some of the financial risk of loss for the claims, the
12
For example, the Court also did not discuss Mr. Long’s breach of contract claim against Great West, nor
did it address privity of contract.
26
administrator has a duty of good faith and fair dealing to the
insured.
Id. at 562–63. However, because the third-party administrator in that case did not share
the risk of loss, the Oklahoma Supreme Court affirmed summary judgment in favor of the
third-party administrator on the plaintiff’s bad faith claim. Id. at 563. 13
[¶75] Similarly, in Cary, the Colorado Supreme Court imposed a duty of good faith and
fair dealing on third-party administrators who ran a self-funded health insurance plan for
the City of Arvada. The court held that when a “third-party administrator performs many
of the tasks of an insurance company and bears some of the financial risk of loss for the
claim, the administrator has a duty of good faith and fair dealing to the insured in the
investigation and servicing of the insurance claim.” Cary, 68 P.3d at 469. In Cary the City
of Arvada had established a trust to oversee its insurance program, and the trust was staffed
by volunteers who only met quarterly and had no “experience or expertise in handling
insurance claims or making coverage decisions.” The trust gave the third-party
administrator “near-complete control over the administration of the Plan.” Id. at 464. In
addition, the third-party administrator had entered into a reinsurance agreement with the
trust under which it agreed to reimburse the trust for certain payments. Id. The Colorado
Supreme Court concluded that these facts were sufficient to support a claim of bad faith.
Id. at 468–69.
[¶76] In Dellaira, a third party “directed, handled, administered, and adjusted all claims”
arising from an automobile insurance policy issued by the insurer. The plaintiffs, insureds,
sued the insurance company and the administrator, alleging bad faith (among other causes
of action) in the handling of their claim for coverage. The administrator argued that there
could be no bad faith cause of action against it because there was no contract. Dellaira,
¶¶ 1–3, 102 P.3d at 112–13. The Dellaira court disagreed:
13
The Wathor court also addressed the argument that a third-party administrator does not owe a duty of
good faith and fair dealing to the insured because that duty is non-delegable. Wathor, 87 P.3d at 562. The
court concluded, “the imposition of a nondelegable duty on the insurer does not necessarily preclude an
action by an insured against a plan administrator for breach of an insurer’s duty of good faith.” Id. In
Colorado, the Cary court went a step further. It explained,
[T]he existence of this non-delegable duty does not mean that a third-party
claims administrator never has an independent duty to investigate and
process the insured’s claim in good faith. When the actions of a defendant
are similar enough to those typically performed by an insurance company
in claim administration and disposition, we have found the existence of a
special relationship sufficient for imposition of a duty of good faith and
tort liability for its breach—even when there is no contractual privity
between the defendant and the plaintiff.
Cary, 68 P.3d at 466.
27
We do not see any sound reason why New Mexico should not
permit pursuit of [a bad faith] claim where, as is suggested by
the pleadings, an entity related to or pursuant to agreement with
the insurer issuing the policy has control over and makes the
ultimate determination regarding the merits of an insured’s
claim. . . . An entity that controls the claim determination
process may have an incentive similar to that of an
unscrupulous insurer to delay payment or coerce an insured
into a diminished settlement. The entity acts as an insurer and
is therefore bound within the special relationship created
through the insurance contract. . . . An insured’s expectations
of good faith handling and ultimate determination of his or her
claim for benefits by the insurer extends no less to an entity
that both handles and determines the claim than to the insurer
issuing the policy. Absent the prospect of damages for bad
faith breach, [the entity performing claims determination] has
no incentive to pay in good faith[.]
Id. ¶ 14, 102 P.3d at 115–16 (internal citations and quotation marks omitted). Unlike the
courts in Wolf, Cary, and Wathor, the New Mexico appellate court in Dellaira did not
consider a financial risk of loss to be necessary to establish a bad faith claim against the
third-party administrator. Id. 14
14
Courts in Delaware, Arizona, Nevada, and South Dakota have also concluded that a third-party
administrator can be liable for bad faith.
In Sliney v. New Castle Cnty., the Superior Court of Delaware denied a motion to dismiss a bad
faith claim against a third-party administrator because it concluded a question of material fact existed as to
whether the third-party administrator acted sufficiently like an insurer and/or whether a joint venture
existed, of which either would create a special relationship between the administrator and the insured.
Sliney v. New Castle Cnty., No. CV N19C-05-061 FWW, 2021 WL 1235204 (Del. Super. Ct. Mar. 31,
2021). Without any previous Delaware case law to follow, the court felt inclined to follow the reasoning
of Wolf and Cary believing that following the traditional privity of contract approach did not account for
the “current reality on the ground where insurers may essentially delegate all or substantially all their
responsibilities under their health insurance plans to third-party administrator.” Id. at *5–6.
In Sparks, the Supreme Court of Arizona looked past the lack of privity and held that a jury
instruction on joint and several liability for bad faith was proper in regard to an insurer and its servicing
agent because the business relationship between the two entities was such that they shared a community of
purpose. Sparks, 647 P.2d 1127. Republic National Life Insurance’s (Republic) servicing agent marketed
and administered Republic’s policy, issued certificates of coverage, collected premiums, and handled
investigation and payment of claims. Id. at 1137–38. Given this, the court found that the two shared a
common duty which warranted joint tort liability. Id.Following Sparks, in Farr v. Transamerica Occidental Life Ins. Co. of California, the Court of
Appeals of Arizona held that a third-party administrator could be liable for bad faith, despite missing some
classic elements of a joint venture because the administrator collected claims and handled premiums with
little involvement from the insurer. Farr v. Transamerica Occidental Life Ins. Co. of California, 699 P.2d
28[¶77] We adopt the reasoning set forth in these cases. When a third-party administrator
acts sufficiently like the insurer, it owes a duty to the insured to act in good faith, as if it
were the insurer.
B. Are there genuine issues of material fact precluding summary judgment on Mr.
Peterson’s claim for breach of the covenant of good faith and fair dealing?
[¶78] Meritain contends that summary judgment on Mr. Peterson’s bad faith claim should
be upheld because the Plan precludes a conclusion that Meritain undertook to act as an
insurer. Meritain points to Plan language that “Meritain was retained as a ‘Third Party
Administrator to provide certain claims processing and other ministerial services’”; 15 it is
the Hospital, not Meritain, which the Plan established as the “plan sponsor,” “plan
administrator,” and “plan fiduciary”; and the Plan states the Hospital has
maximum legal discretionary authority to construe and
interpret the terms and provisions of the Plan, to make
determinations regarding . . . eligibility for benefits . . . , to
decide disputes . . . , and to decide questions of Plan
interpretation and those of fact and law relating to the Plan.
The decisions of the Plan Administrator . . . will be final and
binding on all interested parties.
[¶79] Meritain would confine our review to the carefully worded language of the Plan.
Our inquiry is not so limited. On summary judgment, once the movant brings forth
evidence entitling it to judgment as a matter of law, the other party, in this case Mr.
Peterson, may bring forth evidence raising factual questions. W.R.C.P. 56.
[¶80] Mr. Peterson has alleged that Meritain assumed many of the duties that were
assigned to the Hospital under the Plan. During discovery, Meritain did not deny that it
assumed these duties. As in Wolf, Meritain provided a list of participating providers. The
Plan states that “[a] current list of Participating Providers is available, without charge,
through the Third Party Administrator at www.myMERITAIN.com.” There is a question
376 (Ariz. Ct. App. 1984). The court noted that the elements of a joint venture that were missing in the
case before them (no proof of profit and loss sharing and no proof of joint right to control) were also missing
in Sparks. Id. at 386. Therefore, with the business relationship being much the same as that in Sparks,
there was no reason to depart from Sparks’ holding. Id. See Albert H. Wohlers & Co. v. Bartgis, 969 P.2d
949, 959 (Nev. 1998), as amended (Feb. 19, 1998) (insurance administrator who assumed functions of
insurer could be liable for bad faith because its functions made it a joint venturer); Tovares v. Gallagher
Bassett Servs., Inc., 379 F. Supp. 3d 791, 807 (D.S.D. 2019) (the United States District Court for the District
of South Dakota denied summary judgment seeking to dismiss bad faith claim against Gallagher Bassett
Services, a third-party administrator, because it concluded the South Dakota Supreme Court would
recognize a duty of good faith owed by a third-party administrator in Gallagher’s circumstances).
15
The Plan does not define “claims processing and other ministerial services.”
29
of fact as to whether the Hospital retained “ultimate responsibility for benefit
determination,” or whether Meritain assumed “the ordinary insurer role of investigating
and servicing claims,” including whether Meritain made benefit determinations “through
at least two levels of appeal.” See Wolf, 50 F.3d at 797–98. There is no evidence in the
record demonstrating that the Hospital had any role in any aspect of Meritain’s denials of
Mr. Peterson’s claims and appeals. There is no evidence that Meritain ever communicated
with the Hospital regarding Mr. Peterson’s claims. Meritain’s decision was final—there
was no procedure by which Mr. Peterson could seek reconsideration or involve the Hospital
after Meritain denied his appeals. These facts support Mr. Peterson’s contention that
Meritain assumed the Hospital’s duties and, in fact, exercised complete control over the
claims process.
[¶81] Meritain argues that it “does not underwrite any of the risk of the Plan and has no
financial interest in the financial performance of the Plan” and, therefore, had no duty of
good faith to Mr. Peterson. Language contained in the ASA proves otherwise. It states,
“where Meritain provides direct services, through its employees and agents, to negotiate
bills, reduce claim amounts, . . . or otherwise increase savings on behalf of the Plan,
Meritain shall be entitled to retain a contingency fee . . . resulting from such services.”
Meritain acknowledges that this benefit accrued to it but argues this benefit is removed
from the claims process and is not the type of monetary benefit considered by the courts in
Wolf, Cary, and Wathor. This argument notwithstanding, market forces alone provide an
incentive for third-party administrators to keep claim payments low. As one court
explained, “As a rational market actor, an adjuster knows it could lose business with a
carrier if claim payments are too high.” Halliday, 2019 WL 3500913, at *12. We apply
this logic to third-party administrators.
[¶82] We find there are genuine issues of material fact which preclude summary judgment
on the question of whether Meritain acted sufficiently like an insurer to impose upon it a
duty of good faith and fair dealing.
V. Can Mr. Peterson recover punitive damages or attorney fees?
[¶83] The district court properly concluded that Mr. Peterson could not recover on his
claim for punitive damages or attorney fees because none of his other claims survived
Meritain’s motion for summary judgment. See Alexander v. Meduna, 2002 WY 83, ¶ 40,
47 P.3d 206, 218 (Wyo. 2002) (“Punitive damages cannot be awarded when compensatory
damages are not recoverable.”); Cline v. Rocky Mountain, Inc., 998 P.2d 946, 949 (Wyo.
2000) (“A prevailing party may . . . be reimbursed for his attorneys’ fees when express
statutory or contractual authorization exists for such an award.” (emphasis added)).
However, because we are reversing and remanding, the questions of punitive damages and
attorney fees must also be remanded to the district court for a determination in accordance
with the evidence introduced to the trier of fact.
30
VI. Did the district court abuse its discretion when it did not impose sanctions for
Meritain’s conduct during discovery or when it denied Mr. Peterson’s request for
personnel files?
[¶84] Mr. Peterson appeals two district court rulings on discovery. He contends that the
district court should have awarded sanctions for Meritain’s failure to comply with the
court’s October 2018 discovery order. He also argues that the district court abused its
discretion when it sustained Meritain’s objection to the production of its personnel files.
A. Meritain’s Discovery Conduct
[¶85] Mr. Peterson asked the district court on three separate occasions to compel
discovery. October 23, 2018, the district court ordered Meritain to identify the claims
examiners and appeals analysts who denied Mr. Peterson’s claims and appeals and to
produce its procedure manuals, policies, and guidelines for processing claims and appeals.
The district court awarded sanctions when it required Meritain to pay Mr. Peterson’s
attorney fees in conjunction with its September 2019 Order Granting Plaintiff’s Motion to
Compel Discovery and Attorney Fees. In its September 2020 ruling on Mr. Peterson’s
Motion to Compel Discovery, the district court, again, awarded sanctions.
[¶86] Following the October 23, 2018 order, Meritain, in its responsive supplemented
discovery, stated that it “has been unable to identify the specific individuals rendering the
decision” to deny Mr. Peterson’s claims and appeals. Meritain also produced the “Meritain
Health MAPS/DG System Claims Guide On-line 2003-2013” and the “Meritain Health
MAPS/DG System Claims Guide On-line 2003-2014.” Later, Meritain’s claims manager
and expert witness, Karen Welter, testified in her deposition that, contrary to Meritain’s
discovery responses, Meritain used an additional claims guide and Meritain could identify
those employees involved in administering claims and appeals using its DG System. Mr.
Peterson requested Meritain supplement its discovery responses with this information.
Meritain failed to do so, and Mr. Peterson filed his Third Motion to Compel Discovery on
May 12, 2020. This prompted Meritain to supplement its responses on May 26, 2020. It
identified the claims examiner and the appeal analyst for Mr. Peterson’s claims (Sandra
Nelson and Kimberly Johnson), and provided the Trilogy Manual, (the additional claims
guide that it failed to produce earlier). Mr. Peterson filed his “Motion for Order to Show
Cause Why Sanctions for Disobeyance [sic] of This Court’s Discovery Order Should Not
Be Imposed” in which he sought sanctions for Meritain’s delay in complying with the 2018
discovery order. The district court declined to impose sanctions.
[¶87] On appeal, Mr. Peterson contends that the district court abused its discretion when
it did not order sanctions under W.R.C.P. 37(b)(2). Mr. Peterson points to Meritain’s
continual deficiencies—failure to properly attest to the truth of its responses, as required
by W.R.C.P. 33(b)(1), “sustained pattern of delay” throughout the case, and the “severe[]
prejudice[]” caused by the delay—to argue the district court abused its discretion.
31
[¶88] Wyoming Rule of Civil Procedure 37 provides a mechanism for a party to request
the court to either compel discovery, see W.R.C.P. 37(a), or sanction a party who fails to
comply with the court’s discovery orders. See W.R.C.P. 37(b)–(f). 16 In Groskop, ¶¶ 48–
16
Rule 37 states:
Failure to make disclosures or to cooperate in discovery; sanctions.
(a) Motion for an Order Compelling Disclosure or Discovery. —
(1) In General. — On notice to other parties and all affected persons,
a party may move for an order compelling disclosure or discovery.
The motion must include a certification that the movant has in good
faith conferred or attempted to confer with the person or party failing
to make disclosure or discovery in an effort to obtain it without court
action.
. . .
(b) Failure to Comply with Court Order. —
(1) Sanctions Sought in the District Where the Deposition Is Taken.
— If the court where the discovery is taken orders a deponent to be
sworn or to answer a question and the deponent fails to obey, the
failure may be treated as contempt of court. If a deposition-related
motion is transferred to the court where the action is pending, and that
court orders a deponent to be sworn or to answer a question and the
deponent fails to obey, the failure may be treated as contempt of either
the court where the discovery is taken or the court where the action is
pending.
(2) Sanctions Sought in the District Where the Action Is Pending. —
(A) For Not Obeying a Discovery Order. — If a party or a party’s
officer, director, or managing agent—or a witness designated
under Rule 30(b)(6) or 31(a)(4)—fails to obey an order to provide
or permit discovery, including an order under Rule 26(f), 35, or
37(a), the court where the action is pending may issue further just
orders. They may include the following:
(i) directing that the matters embraced in the order or other
designated facts be taken as established for purposes of the
action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from introducing
designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient
party; or
(vii) treating as contempt of court the failure to obey any order
except an order to submit to a physical or mental examination.
(B) For Not Producing a Person for Examination. — If a party
fails to comply with an order under Rule 35(a) requiring it to
produce another person for examination, the court may issue any
32
of the orders listed in Rule 37(b)(2)(A)(i)–(vi), unless the
disobedient party shows that it cannot produce the other person.
(C) Payment of Expenses. — Instead of or in addition to the orders
above, the court must order the disobedient party, the attorney
advising that party, or both to pay the reasonable expenses,
including attorney’s fees, caused by the failure, unless the failure
was substantially justified or other circumstances make an award
of expenses unjust.
(c) Failure to Disclose, to Supplement an Earlier Response, or to Admit.
—
(1) Failure to Disclose or Supplement. — If a party fails to provide
information or identify a witness as required by Rule 26(a) or (e), the
party is not allowed to use that information or witness to supply
evidence on a motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless. In addition to or instead of this
sanction, the court, on motion and after giving an opportunity to be
heard:
(A) may order payment of the reasonable expenses, including
attorney’s fees, caused by the failure;
(B) may inform the jury of the party’s failure; and
(C) may impose other appropriate sanctions, including any of the
orders listed in Rule 37(b)(2)(A)(i)–(vi).
(2) Failure to Admit. — If a party fails to admit what is requested
under Rule 36 and if the requesting party later proves a document to
be genuine or the matter true, the requesting party may move that the
party who failed to admit pay the reasonable expenses, including
attorney’s fees, incurred in making that proof. The court must so order
unless:
(A) the request was held objectionable under Rule 36(a);
(B) the admission sought was of no substantial importance;
(C) the party failing to admit had a reasonable ground to believe
that it might prevail on the matter; or
(D) there was other good reason for the failure to admit.
(d) Party’s Failure to Attend Its Own Deposition, Serve Answers to
Interrogatories, or Respond to a Request for Inspection. —
(1) In General. —
(A) Motion; Grounds for Sanctions. — The court where the action
is pending may, on motion, order sanctions if:
(i) a party or a party’s officer, director, or managing agent—
or a person designated under Rule 30(b)(6) or 31(a)(4)—fails,
after being served with proper notice, to appear for that
person’s deposition; or
(ii) a party, after being properly served with interrogatories
under Rule 33 or a request for inspection under Rule 34, fails
to serve its answers, objections, or written response.
(B) Certification. — A motion for sanctions for failing to answer
or respond must include a certification that the movant has in good
33
49, 471 P.3d at 289, this Court affirmed the district court’s award of sanctions—dismissing
the matter with prejudice—following repeated discovery violations. There, the plaintiff
had “refus[ed] to turn over documents, properly verify interrogatories, and prepare for the
Rule 30(b)(6) deposition” and “refused to comply with two orders compelling discovery
and two orders awarding attorney fees.” Id. ¶¶ 45–46, 471 P.3d at 288–89. Before ordering
sanctions, the district court considered the prejudice resulting from the plaintiff’s conduct,
whether the conduct was willful, and the numerous opportunities the plaintiff had been
given to comply with discovery requests and orders. Id. In affirming the decision, we
recognized that district courts are vested with broad discretion in their use of sanctions
regarding discovery matters. Id. ¶ 47, 471 P.3d at 289 (quoting Lee v. Max Int’l, LLC, 638
F.3d 1318, 1320 (10th Cir. 2011)).
faith conferred or attempted to confer with the party failing to act
in an effort to obtain the answer or response without court action.
(2) Unacceptable Excuse for Failing to Act. — A failure described in
Rule 37(d)(1)(A) is not excused on the ground that the discovery
sought was objectionable, unless the party failing to act has a pending
motion for a protective order under Rule 26(c).
(3) Types of Sanctions. — Sanctions may include any of the orders
listed in Rule 37(b)(2)(A)(i)–(vi). Instead of or in addition to these
sanctions, the court shall require the party failing to act, the attorney
advising that party, or both to pay the reasonable expenses, including
attorney’s fees, caused by the failure, unless the failure was
substantially justified or other circumstances make an award of
expenses unjust.
(e) Failure to Preserve Electronically Stored Information. — If
electronically stored information that should have been preserved in the
anticipation or conduct of litigation is lost because a party failed to take
reasonable steps to preserve it, and it cannot be restored or replaced
through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the
information, may order measures no greater than necessary to cure the
prejudice; or
(2) only upon finding that the party acted with the intent to deprive
another party of the information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the
party;
(B) instruct the jury that it may or must presume the information
was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
(f) Failure to Participate in Framing a Discovery Plan. — If a party or
its attorney fails to participate in good faith in developing and submitting
a proposed discovery plan as required by Rule 26(f), the court may, after
giving an opportunity to be heard, require that party or attorney to pay to
any other party the reasonable expenses, including attorney’s fees, caused
by the failure.
W.R.C.P. 37.
34
[¶89] Mr. Peterson argues that Meritain’s failures to disclose the names of its claims and
appeals administrators and to provide the Trilogy Manual “interfered with the judicial
process” by involving the court in discovery disputes; “thwarted” his expert’s ability to
fully evaluate the case and prepare his opinion; and delayed the adjudication of this case.
He also argues that Meritain’s failures were culpable. Meritain, on the other hand, asserts
that “none of this” resulted in “significant prejudice.” It also claims it made an “honest
mistake as to the identities of its analysts[] and had a good faith belief that the publicly
available Trilogy Manual should not [have been] included in its initial production.”
[¶90] “[T]he decision whether and how severely to sanction under Rule 37 rests securely
within the district court’s province.” 8B Charles A. Wright et al., Federal Practice and
Procedure § 2284, at 444 (3d ed. 2010) (emphasis added). A district court has “broad
discretion, both in the mechanisms adopted to control discovery and in its selection of
appropriate sanctions for violations of . . . discovery[.]” Roemmich, ¶ 22, 238 P.3d at 95
(quoting Ruwart v. Wagner, 880 P.2d 586, 592 (Wyo. 1994)). A court does not abuse its
discretion if it could reasonably conclude as it did. See supra ¶¶ 14–15. The district court’s
decision declining to award sanctions was not unreasonable.
B. Meritain’s Personnel Files
[¶91] In his written discovery requests, Mr. Peterson sought “the personnel files . . . ,
including any performance review and evaluations of[] all claims representatives, claims
handlers, claims assistants or any of MERITAIN’s other employees assigned to, or who
otherwise worked on, the claims submitted by Plaintiff[].” Meritain objected to this
request, stating this “request seeks documents irrelevant to the claims or defenses at issue
in this action.” Meritain’s response to this request was the subject (among others) of Mr.
Peterson’s June 1, 2018 Motion to Compel Discovery. The district court ruled: “Meritain’s
objection to this request is sustained at this point in time, but the Court shall revisit this
request if Plaintiff can further demonstrate the need for those documents.” (Emphasis
added.) After Mr. Peterson learned that Kimberly Johnson, the Meritain analyst who
denied his initial appeal, had died, he requested the court “revisit” its prior ruling and to
reconsider his request for production of the personnel files of Ms. Johnson and Sandra
Nelson (another Meritain employee Mr. Peterson planned to depose). The district court
denied Mr. Peterson’s request and his subsequent motion to reconsider that ruling.
[¶92] On appeal, Mr. Peterson argues that the district court applied an improper standard
when it held that he could only obtain discovery of the personnel files if he could show he
needed them. Rule 26 of the Wyoming Rules of Civil Procedure sets forth the scope of
discovery: “Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party’s claim or defense.” W.R.C.P. 26 (b)(1). However, that scope is
tempered by considerations of proportionality and need. Parties may obtain discovery if
the evidence is:
35
proportional to the needs of the case, considering the
importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant
information, the parties’ resources, the importance of the
discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit.
Information within this scope of discovery need not be
admissible in evidence to be discoverable.
W.R.C.P. 26 (b)(1). Our jurisprudence is clear, “District courts are vested with wide
discretion on discovery matters.” McCulloh v. Drake, 2005 WY 18, ¶ 16, 105 P.3d 1091,
1095 (Wyo. 2005); Kidd v. Kidd, 832 P.2d 566 (Wyo. 1992); Inskeep v. Inskeep, 752 P.2d
434 (Wyo. 1988). “Nonetheless, the court’s discretion is not unlimited—reversal may be
in order when the court’s ruling rests on clearly untenable or unreasonable grounds.”
McCulloh, ¶ 16, 105 P.3d at 1095. The party challenging a district court’s discovery
decision has the burden to prove an abuse of discretion. Herrick, ¶ 11, 452 P.3d at 1280.
[¶93] “[P]ersonnel files often contain sensitive personal information, . . . and it is not
unreasonable to be cautious about ordering their entire contents disclosed willy-nilly.”
Regan-Touhy v. Walgreen Co., 526 F.3d 641, 648 (10th Cir. 2008). Because of the often-
sensitive nature of information contained in personnel files, other courts have held that
public policy “strongly disfavors” their discovery. See, e.g., Graham & Co., LLC v. Liberty
Mut. Fire Ins. Co., No. 2:14-CV-02148-JHH, 2016 WL 1319697, at *8 (N.D. Ala. Apr. 5,
2016); Coker v. Duke & Co., 177 F.R.D. 682, 685 (M.D. Ala. 1998). Consequently, the
discovery of personnel files has been held to be permissible only if “(1) the material sought
is ‘clearly relevant’ [to the parties’ claims and defenses], and (2) the need for discovery is
compelling because the information sought is not otherwise readily obtainable.” See In re
One Bancorp Sec. Litig., 134 F.R.D. 4, 12 (D. Me. 1991) (quoting In re Sunrise Sec. Litig.,
130 F.R.D. 560, 580 (E.D. Pa. 1989), decision clarified on denial of reconsideration, 109
B.R. 658 (E.D. Pa. 1990)); see also Coker, 177 F.R.D. at 685.
[¶94] Mr. Peterson contends the personnel files would contain evidence such as the
“training, education and experience” of the Meritain employees who processed his claims
and appeals and would show whether “they had a financial incentive to deny claims and
appeals.” Meritain suggests that this information is available from other sources, such as
employee depositions (or in the case of Ms. Johnson, a deposition of her supervisor) or
interrogatories. We agree with Meritain. Mr. Peterson has not demonstrated that the
information sought was exclusively available from the personnel records. He has not
established the district court abused its discretion when it denied his motion to produce
them. “[T]he Supreme Court has underscored ‘the requirement of Rule 26(b)(1) that the
material sought in discovery be ‘relevant’ should be firmly applied, and the district courts
should not neglect their power to restrict discovery [to protect] ‘a party or person from
annoyance, embarrassment, [or] oppression[.]’’” Regan-Touhy, 526 F.3d at 648–49
36
(quoting Herbert v. Lando, 441 U.S. 153, 177, 99 S.Ct. 1635, 1649, 60 L.Ed.2d 115(1979)).
[¶95] While some discovery into personnel files might be relevant, the district court did
not abuse its discretion when it denied wholesale discovery of the personnel files of the
Meritain employees who processed Mr. Peterson’s claims and appeals.
[¶96] Given that we are remanding this matter and there are questions of fact that must be
addressed, it may be that the district court will “revisit” the production of personnel files
(or portions of those files):
[C]ourts generally permit discovery of some portions of the
personnel files of the claims representatives who were
significantly involved with the underlying claim or case if the
plaintiff can articulate a sufficient connection between its
bad faith theory and the information sought in the files.
This is an achievable standard in most cases, although certainly
not all. Assuming there is a connection, and thus information
in the files is relevant for discovery purposes, courts typically
allow the discovery of job applications, compensation
information, information on incentive awards and programs,
performance evaluations related to claims handling,
information regarding defense and indemnity goals imposed on
claims personnel, information concerning the employees’
qualifications, and materials reflecting professional discipline
related to claims handling.
Douglas R. Richmond, Recurring Discovery Issues in Insurance Bad Faith Litigation, 52
Tort Trial & Ins. Prac. L.J. 749, 794–95 (2017) (emphasis added) (footnotes omitted). The
district court, in its discretion, can evaluate whether certain documents in the personnel
files—performance evaluations which might laud employees for denying claims, or an
employee compensation structure that rewards claim denial—ought to be produced. We
note the district court has options to assist in protecting sensitive information such as in-
camera review or protective orders.
CONCLUSION
[¶97] There are genuine issues of material fact precluding summary judgment on Mr.
Peterson’s breach of contract claim (including whether Meritain was the Hospital’s agent
and, if so, the extent of its authority), and his third-party beneficiary claim for breach of
the ASA (including whether Meritain and the Hospital modified the terms of the ASA, and
if so, whether he was a third-party beneficiary). There are also genuine issues of material
fact precluding summary judgment on Mr. Peterson’s claim for breach of the covenant of
37
good faith and fair dealing. Finally, the district court did not abuse its discretion when it
did not impose sanctions for Meritain’s discovery conduct or when it denied Mr. Peterson’s
request for production of personnel files. We reverse in part, affirm in part, and remand
for further proceedings consistent with this opinion.
38