Tenet Healthsystem Desert v. Eisenhower Med. Center CA4/1 (2016) · DecisionDepot
Tenet Healthsystem Desert v. Eisenhower Med. Center CA4/1
California Court of Appeal May 3, 2016 No. D069296Unpublished
Filed 5/3/16 Tenet Healthsystem Desert v. Eisenhower Med. Center CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
TENET HEALTHSYSTEM DESERT, INC., D069296
Plaintiff and Appellant,
v. (Super. Ct. No. INC 1303739)
EISENHOWER MEDICAL CENTER, et al.,
Defendants and Respondents.
APPEAL from judgments of dismissal, Superior Court of Riverside County,
John G. Evans, Judge. Affirmed in part and reversed in part.
Helton Law Group, Carrie S. McLain, Teddy T. Davis and Kim M. Worobec for
Plaintiff and Appellant.
Seyfarth Shaw, F. Scott Page and Kiran Aftab Seldon for Defendant and
Respondent Eisenhower Medical Center.
Kinsella Weitzman Iser Kump & Aldisert, Dale F. Kinsella, Alan R. Kossoff and
Nicholas C. Soltman for Defendant and Respondent Keenan & Associates.
Plaintiff and appellant Tenet Healthsystem Desert, Inc. (Hospital) brought this
action for damages on fraud and other theories against defendants and respondents
Eisenhower Medical Center (Eisenhower) and Keenan & Associates (Keenan), among
others. Eisenhower sponsors a health plan ERISA trust (the Plan) to provide health care
benefits for its employees and their family members. Hospital alleges it incurred
damages by providing uncompensated medical services to a patient who was a member
of Eisenhower's Plan but who was denied coverage by the Plan (Patient X). Hospital
claims actionable misrepresentations were made by Eisenhower and its agents who
provided administrative services for the Plan, Keenan and codefendants Blue Cross of
California, doing business as Anthem Blue Cross (Blue Cross), and its two affiliated
companies (together Anthem).1
The trial court sustained demurrers by Eisenhower and Keenan to Hospital's third
amended complaint (TAC), in large part without leave to amend. Hospital appeals the
resulting judgments of dismissal, having declined to attempt amendment on its sole
remaining claim (of unfair or unlawful business practices against all defendants; Bus. &
Prof. Code, § 17200 et seq., the Unfair Competition Law or UCL). Hospital contends
that it sufficiently pled not only its theories of fraud against Eisenhower, but also related
1 The Blue Cross defendants are Blue Cross of California, doing business as Anthem Blue Cross (Blue Cross), Anthem Blue Cross Life and Health Insurance Company (BC Life), and Anthem UM Services, Inc. (Anthem UM). At times, we will refer to them together with Eisenhower and Keenan as Defendants. Hospital separately appealed dismissal judgments obtained after demurrer by the Blue Cross defendants, and this court reversed those judgments in a published opinion, Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821. We do not discuss Blue Cross issues here, only those pertaining to Eisenhower and Keenan. 2
contract based and equitable counts against it, all of which sought damages for the
recovery of the treatment costs for Patient X, which the Plan eventually refused to pay by
invoking an exclusion from coverage for treatment of any injuries incurred through a
member's drunk driving (as was the case for Patient X). As against Keenan, negligent
misrepresentation is alleged, along with the remaining UCL derivative cause of action
against all Defendants.
Hospital contends that at all the relevant times, while Anthem performed its
utilization management duties on behalf of its principal Eisenhower and Eisenhower's
Plan administrator Keenan, the Defendants were on notice but failed to disclose facts
indicating that Patient X's Hospital admission, when he had a blood alcohol level far
exceeding the legal limit, would adversely implicate his ability to obtain coverage for his
injuries.2 Hospital pleads that the utilization management communications sent to it by
Anthem representatives amounted to a set of misleading representations, which resulted
in the authorization of approximately 50 days of services for Patient X as medically
necessary. Collectively, Defendants allegedly failed to notify Hospital that his injuries
fell under an exclusion in the terms of the Plan's coverage, until it was too late to seek
other avenues of reimbursement or alternative places of treatment for him. Hospital
2 As will be more fully explained, Anthem UM was retained to perform utilization management duties for Eisenhower's ERISA Plan, and communicated with Hospital representatives with respect to Patient X's care on certifications of medical necessity and authorizations for services. (Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq.) Generally, utilization review is the process of evaluating under a given health care plan whether health care services are medically necessary and consistent with acceptable treatment patterns. (Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594, 1599.) 3
alleges that either on their own behalf or as agents of one another, Defendants allegedly
intentionally or negligently failed to make truthful representations about facts known to
them about the probable applicability of the Plan's exclusion that disqualified Patient X
from coverage, and Hospital justifiably relied on the representations, sustaining damages
of the cost of treatment, approximately $1,996,265.50.3
In ruling on all the causes of action except the UCL claim, the trial court
determined that the TAC lacked the necessary specificity to survive a demurrer or was
otherwise defective. Although the order permitted Hospital to pursue amendment of the
UCL theory, Hospital has decided to stand on its pleading and appeal the dismissals of
Eisenhower and Keenan.
Our review of the TAC leads us to conclude that the trial court erred in sustaining
Eisenhower's demurrers without leave to amend, as to each set of the three fraud based
causes of action (Nos. 1-3 [rehab.]; 10-12 [ICU]) and that the UCL claim (No. 19)
likewise survives. Keenan is charged only with negligent misrepresentation and UCL
violations, and for the same reasons to be explained, we reverse the dismissal judgments
as to Keenan (regarding causes of action Nos. 1, 10, and 19). Additionally, the separate
claims against Eisenhower alone on certain contract and equitable theories (Nos. 4 and 13
[fraudulent promise made without intent to perform]), and estoppel (Nos. 6, 7, 15, 16),
3 Due to the sequence of treatment rendered for the injuries sustained by Patient X, the TAC frames its claims in two sets of causes of action, numbers 1 through 9 regarding the provision of rehabilitation (sometimes rehab.) services to him (costing $132,325.02), and numbers 10 through 18, regarding his initial intensive care unit services (ICU) (costing over $1.8 million). 4
and quantum meruit and common count (Nos. 8, 9, 17, 18) state sufficient facts
supporting those claims. However, we agree with the trial court that the two causes of
action for breach of an implied-in-fact contract against Eisenhower alone (Nos. 5, 14) fail
to state sufficient facts to support their causes of action, and do not plead any agency
theory, and we affirm the judgment of dismissal in that respect alone. The balance of the
orders and judgments of dismissal are reversed in part, with directions to the trial court to
overrule the demurrers and allow reinstatement of the TAC and any appropriate further
proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
A. Injury, Hospital Admission and Rehabilitation Care
As alleged in the TAC, Patient X was injured in a truck accident and hospitalized
by May 7, 2012. When he arrived at Hospital by ambulance, it was discovered he was
carrying a member identification card which listed a telephone number to call for "Pre-
Authorization." The card identified Patient X as having health care coverage through a
plan sponsored by Eisenhower. Patient X's "member identification card identified BC
Life and Keenan as Eisenhower's authorized agent[s] and administrator[s] of
Eisenhower's plan," and "further identified Blue Cross as Eisenhower's and BC Life's
authorized agent and administrator who administers claims under Eisenhower's plan on
behalf of BC Life."
At the emergency room, treatment was rendered and blood tests were taken. An
admissions representative of Hospital called the "Pre-Authorization" number, (800) 274-
7767, which Hospital was informed and believes is answered "by individuals who are the
5
agents of Eisenhower and the employees and agents of [Anthem and] Keenan."
"Aileen A." (Aileen) answered, and Hospital conveyed to her that Patient X had been
admitted to the acute care hospital within Hospital for "post-stabilization services."
Aileen gave the Hospital admissions assistant "reference number 0225239133 and
requested that the Hospital fax a clinical review of the Patient's medical condition to
(888) 391-3134." On behalf of Defendants, Aileen accessed certain private information
about Patient X, such as his name and date of birth, that she and they "would not have
had if they were not . . . agents [of Eisenhower]."
Hospital alleges it is informed and believes that the reply fax number given out by
Aileen, on behalf of Anthem and Keenan ((888) 391-3134), is used by them "to
communicate with providers regarding information necessary to authorize care and make
coverage determinations on behalf of Eisenhower." Hospital's case manager faxed to the
number Aileen had provided "a clinical review of the Patient's medical condition as of the
date of service May 7, 2012." The clinical summary included information that Patient X
had been brought to the emergency room by ambulance after having been in a motor
vehicle accident in which he was an unrestrained driver, and that he had "tested positive
for cannabis and a blood alcohol level ('ETOH' for ethyl alcohol) of .235."
The next day, Hospital representatives attempted to verify Patient X's benefit
summary through a website "maintained jointly by [Anthem] and Keenan, on behalf of
Eisenhower." The website did not disclose the existence of an exclusion from coverage
for services to treat injuries sustained as a result of a participant's drunk driving. Hospital
alleges that its practice is to reasonably rely on the information provided by a health care
6
plan and its representatives during the insurance verification and authorization process,
because it cannot keep track of information regarding all exclusions from coverage
applicable to the thousands of insurance plans that cover its patients.
On May 8, Hospital received a letter via fax from Anthem's case manager that
"authorized" Hospital to admit Patient X and to provide medical services to him "at the
ICU level of care." The letter identified the case manager as an employee of Anthem,
showed that the fax was sent on Anthem's behalf, and included private information about
the patient that an individual would not have possessed if he or she were not an agent of
Anthem. The letter did not advise Hospital that Patient X's plan excluded coverage for
services provided to treat injuries sustained when a plan participant was driving with a
blood alcohol level over the legal limit, nor did the case manager inform Hospital of this
fact over the telephone.
Over the next few days and weeks, Anthem repeatedly requested clinical
information pertaining to Patient X. When Hospital provided the information, Anthem's
"unnamed care managers" responded with telephone calls and faxed letters authorizing
extensions of the approved care. These letters are on Anthem UM letterhead and
reference Defendants' trademarks, and will be referred to here as the "medical necessity
certification letters."4
4 In a separate order, we denied a request by Eisenhower, joined by Keenan, that this court take judicial notice of the medical necessity certification letters. They are described in but not attached as exhibits to any of the versions of the complaint. For California plans, Health and Safety Code section 1367.01, subdivisions (d) through (f) 7
On May 15, Patient X's case was referred to a "discharge planner" for Anthem,
Nell Steele-Alvarez, for the purpose of making arrangements to send Patient X to a
rehabilitation facility once he was discharged from the acute care hospital. Steele-
Alvarez reviewed the clinical information sent to her about Patient X, which included
information that his injuries had resulted from a vehicle accident that occurred while he
was driving with a blood alcohol level in excess of the legal limit. On May 17, Steele-
Alvarez informed Hospital case manager Janet Sobleskie that she was "investigating
acute rehab facilities where the Patient would go when the Patient was discharged from
Hospital's acute care hospital."
On May 16, Hospital documented that "it was not reviewing the Patient's account
for potential alternative health care coverage because the existence of Patient's insurance
coverage had been confirmed." Hospital received additional faxed medical necessity
certification letters from representatives of Anthem, including Gabriela Becerra, on
May 16, May 18, May 25, May 30, May 31, June 4, June 6 and June 11, "authorizing"
medical care for Patient X in the ICU. They did not make reference to any applicable
exclusions. The TAC alleges the dates and times of many of these contacts between
Hospital's representatives and named and unnamed representatives of Anthem.
In further discharge planning between May 17 and June 15, Anthem's Steele-
Alvarez telephoned Hospital's case manager Sobleskie and Hospital's rehabilitation case
manager Robyn Angeli to discuss the plan for Patient X's rehabilitation care after his
require that medical necessity determinations be made by health care professionals who are familiar with clinical principles and processes. 8
discharge from the ICU. Steele-Alvarez discussed Patient X's medical condition, clinical
information, and discharge planning. On June 12, Steele-Alvarez called Hospital's nurse
case manager regarding facilities where Patient X could be sent pursuant to the terms of
his coverage following his discharge from the ICU, considering Patient X's medical
condition, the basis for his admission, the nature of his injuries, and discharge plans.
On June 18, 2012, Hospital discharged Patient X from the acute care hospital, and,
based on the requests by Steele-Alvarez that Patient X be treated at Hospital's acute
rehabilitation facility, transferred and admitted Patient X as an inpatient at its acute
rehabilitation hospital. On June 20, an unnamed care manager for Anthem sent Hospital
a medical necessity certification letter on Anthem letterhead, authorizing the provision of
acute rehabilitation services to Patient X through June 25. That same date, Anthem's
Dionne Myers spoke with a representative of Hospital and verbally indicated that
Hospital's provision of acute rehabilitation services to Patient X was authorized under the
terms of his plan until June 25, when he was discharged.
When Hospital submitted claims to Defendants for reimbursement of its expenses,
Hospital was notified on October 24, 2012 about the existence of the exclusion for
coverage in Patient X's plan for "injuries sustained while drinking and driving." As a
result, Hospital was denied payment for approximately 50 days of services that Hospital
rendered to Patient X in its ICU and acute rehabilitation facility. Hospital alleges that
since it was not informed of the coverage exclusion until late October 2012, it was unable
to seek reimbursement via Medi-Cal because claims for Medi-Cal must be submitted
within 60 days from the date the services were rendered.
9
B. Pleadings; Agency
Hospital's complaint was originally filed in June 2013 against Anthem,
Eisenhower, and Keenan, and was amended several times after demurrer hearings, at
which the trial court required additional specificity for pleading of fraud as well as the
other causes of action.5 The 276-page TAC makes introductory, general agency
allegations, that each Defendant acted for and within the scope of its agreed agency. It
laboriously outlines specific agency allegations as to various individuals identified during
Hospital's weeks of interactions with individuals who held themselves out as representing
Anthem, for purposes of reviewing and authorizing the medical care being provided to
Patient X. These allegations include dates, times, the manner of communication (e.g., the
medical necessity certification letters, faxes and telephone calls), and give the telephone
and fax numbers utilized, the names of individuals and their titles, if known, and the
companies these individuals represented, as efforts to set forth factual bases for Hospital's
belief that an agency relationship existed between the Defendants sufficient to bind them
to the statements or misrepresentations made by each.
For example, Hospital asserts that when the person responding to inquiries at the
phone number on the medical identification card (Aileen) requested, and the named
Anthem employees (Steele-Alvarez, Myers, and the unnamed care managers) discussed
the clinical condition of Patient X with Hospital representatives, all to enable continuing
5 In the discussion portion of this opinion, we will set forth additional details about the specific types of fraud allegations against Eisenhower and Keenan within the TAC, as well as the contract related and equitable claims against Eisenhower. 10
authorizations for ICU and rehabilitation services to be made, they were acting as agents
and employees of each Defendant. Next, the joint maintenance of the website by Keenan
and Anthem was done pursuant to the agency granted them by Eisenhower. The same
groups of allegations about representations made by Aileen, Steele-Alvarez, Myers, and
the unnamed care managers are repeated in subsequent fraud related and contract related
causes of action, regarding agency of the named persons for Defendants.
The TAC alleges that the administrative services performed by Anthem and
Keenan, on behalf of Eisenhower's Plan, included "all communications and direct
dealings with providers, such as the Hospital, including but not limited to verification of
eligibility, benefits and authorization of services; negotiating with providers, such as the
Hospital, concerning any matters including the entering into and/or revisions to contracts;
pricing claims in accordance with the terms of the plan documents and Summary Plan
Description; producing member identification cards; conducting utilization review;
processing authorizations of services and responding to providers' request for such
authorizations; and coordination and management of medical care through case
management." (Italics added; see pt. II.A, post, for explanation of related "trade custom
and usage" allegations in support of agency theory.)
Although Hospital alleges that Eisenhower and Keenan, as well as Anthem, "had
actual knowledge of the terms of the Plan's coverage, including exclusions," Hospital
pleads that it "does not and could not possibly maintain information regarding all
exclusions from coverage for the tens (if not hundreds) of thousands of health insurance
plans that cover the patients the Hospital treats each year . . . ." Hospital thus alleges that
11
Defendants' agents made misrepresentations in the performance of their administrative
services, for which they and Eisenhower should each be responsible, in the form of
reimbursement of the costs of treatment of Patient X.
The TAC also brings numerous causes of action against Eisenhower alone, such as
claiming it made promises without intent to perform (4th, 13th causes of action). (Civ.
Code,6 § 1572 [actual fraud requires proof of a party's intentionally deceptive acts, done
as inducement to enter into a contract, including "(4) A promise made without any
intention of performing it"].) Hospital alleges against Eisenhower that it entered into an
implied-in-fact contract for Hospital's services supplied to its member, Patient X.
Hospital further argues it is entitled to recover its expenses under theories of quantum
meruit, common counts, promissory estoppel, or equitable estoppel (causes of action Nos.
5-9, 14-18).
D. Demurrers and Rulings
In addition to bringing its own set of demurrers to the causes of action brought
solely against it (Nos. 4-9, 13-18), Eisenhower joined in the demurrers and points and
authorities filed by Anthem, regarding the fraud, concealment, negligent
misrepresentation and UCL claims brought against all defendants, as well as the judicial
notice request (Nos. 1-3, 10-12, 19). Keenan likewise joined in Anthem's demurring
papers and request.
6 All further statutory references are to the Civil Code unless noted. 12
In its rulings, the trial court declined to take judicial notice, requested by
Eisenhower and Keenan, of the numerous medical necessity certification letters that
Anthem had issued for treatment of Patient X. The court ruled that the contents of the
letters were not proper subjects of judicial notice and would not be considered by the
court. On the merits, the court stated that Hospital had failed to plead fraud and
misrepresentation with the requisite specificity, because the TAC did not set forth "a
single actual specific misrepresentation that was made by a specific defendant that the
patient was covered."
With respect to the claims solely against Eisenhower, the court relied on its
previous reasoning, in which it noted that as with fraud, the lack of specifically attributed
statements was fatal to an allegation that some kind of implied contract had been
established for a promise to pay, and likewise, the allegations of promissory or equitable
estoppel or common counts failed.
The orders permitted Hospital to pursue amendment of its UCL theory, but
judgments of dismissal were otherwise entered. Hospital brings this appeal as to
Eisenhower and Keenan, seeking to overturn the orders and also to allow reinstatement of
the UCL claim.
I
APPLICABLE LEGAL PRINCIPLES
A. Rules of Review
In demurrer analysis, this court assumes the truth of the properly pleaded factual
allegations and of the facts that reasonably can be inferred from those expressly pleaded.
13
(Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111
(Fremont Indemnity Co.); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We
independently review the ruling on a demurrer to determine de novo whether the
complaint alleges facts sufficient to state a cause of action. (Fremont Indemnity Co.,
supra, at p. 111.) "We construe the pleading in a reasonable manner and read the
allegations in context. [Citation.] We affirm the judgment if it is correct on any ground
stated in the demurrer, regardless of the trial court's stated reasons." (Ibid.)
Where leave to amend a pleading was denied, we apply an abuse of discretion
standard and decide whether there is a reasonable possibility that the defect can be cured
by amendment. "The burden of proving such reasonable possibility is squarely on the
plaintiff." (Blank v. Kirwan, supra, 39 Cal.3d 311, 318.)
B. Specificity Concerns for Fraud Claims
Hospital's assertions of misrepresentations form the basis of all the fraud and UCL
allegations, and also underlie the contract based and equitable claims brought only
against Eisenhower. The basic elements of fraud, giving rise to a tort action for deceit,
are (1) a misrepresentation, which may take the form of a false representation,
concealment, or nondisclosure; (2) knowledge of falsity; (3) intent to defraud and induce
reliance; (4) justifiable reliance and (5) resulting damage (causation). (Lazar v. Superior
Court (1996) 12 Cal.4th 631, 638 (Lazar); §§ 1709, 1710.) "Every element of the cause
of action for fraud must be alleged in the proper manner and the facts constituting the
fraud must be alleged with sufficient specificity to allow defendant to understand fully
the nature of the charge made." (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976)
14
57 Cal.App.3d 104, 109; Committee on Children's Television, Inc. v. General Foods
Corp. (1983) 35 Cal.3d 197, 216-217 (Committee on Children's Television); Tarmann v.
In the context of a fraud pleading, "general and conclusory allegations do not
suffice. [Citations.] 'Thus " 'the policy of liberal construction of the pleadings . . . will
not ordinarily be invoked to sustain a pleading defective in any material respect." '
[Citation.] [¶] This particularity requirement necessitates pleading facts which "show
how, when, where, to whom, and by what means the representations were tendered." ' "
(Lazar, supra, 12 Cal.4th 631, 645.) A plaintiff is held to a higher standard in asserting a
fraud claim against a corporate defendant. "In such a case, the plaintiff must 'allege the
names of the persons who made the allegedly fraudulent representations, their authority
to speak, to whom they spoke, what they said or wrote, and when it was said or written.' "
(Ibid.)
"The specificity requirement serves two purposes. The first is notice to the
defendant, to 'furnish the defendant with certain definite charges which can be
intelligently met.' [Citations.] The pleading of fraud, however, is also the last remaining
habitat of the common law notion that a complaint should be sufficiently specific that the
court can weed out nonmeritorious actions on the basis of the pleadings. Thus the
pleading should be sufficient ' "to enable the court to determine whether, on the facts
pleaded, there is any foundation, prima facie at least, for the charge of fraud." ' "
(Committee On Children's Television, supra, 35 Cal.3d 197, 216-217.) "[C]ertain
exceptions [will] mitigate the rigor of the rule requiring specific pleading of fraud." (Id.
15
at p. 217.) For example, less specificity is required of a complaint when " 'it appears
from the nature of the allegations that the defendant must necessarily possess full
information concerning the facts of the controversy,' [citation]; '[even] under the strict
rules of common law pleading, one of the canons was that less particularity is required
when the facts lie more in the knowledge of the opposite party . . . .' " (Ibid., Tarmann,
supra, 2 Cal.App.4th 153, 157-159.)
II
INTENTIONAL FRAUD (EISENHOWER, CAUSES OF ACTION NO. 3 (REHAB.) AND NO. 12 (ICU)
A. Introduction to Issues and Agency Allegations
Because Hospital's claims arise in the transactional context of administration of a
network agreement for provision and compensation of health care services, we examine
the respective legal positions of the parties. The agency allegations of the TAC are
common to all the fraud-based claims. For purposes of analysis of the issues concerning
Eisenhower and Keenan, we note that the TAC specifies that each played different roles,
as did the Anthem entities.
Eisenhower is alleged to be the principal or operator of the Plan. Together with
Keenan, Eisenhower created, but Eisenhower controlled, the terms of coverage and
exclusions under its Plan. It should be emphasized that this is not an insurance coverage
case. Eisenhower is not being charged as an insurer, and Hospital is not a plan
participant or beneficiary, nor is it an assignee of one. (Croskey, et al, Cal. Practice
Guide: Insurance Litigation (The Rutter Group 2015) ch. 6F-D, ¶ 6:1670, pp. 6F-50,
16
¶¶ 6:1698-1699, p. 6F-56 [plan beneficiaries have only the rights and remedies allowed
under ERISA, such as seeking to recover benefits]; 29 U.S.C. § 1132(a)(1)(B).)7
Also, Eisenhower's respondent's brief represents that it had no direct contact with
Hospital, since it delegated those duties to Anthem and to some extent Keenan, and
therefore Eisenhower argues it, as the plan sponsor, has no "independent, continuing duty
to disclose all possible exclusions throughout a utilization review process in which it does
not itself participate." (Compare Engalla v. Permanente Medical Group, Inc. (1997) 15
Cal.4th 951, 977 [employer that negotiates group benefits for its employees undertakes a
narrow agency capacity for those employees during such negotiations, but such agency
does not preclude the employer from acting in its own interests to obtain cost savings
when choosing a group plan]; Cal. Practice Guide: Insurance Litigation, supra, ch. 6F-B,
¶¶ 6:1330-1332, pp. 6F-3 to 6F-4.)
In the fraud claims, Eisenhower is being sued as a principal who should be
responsible for damages from the misrepresentations, negligent or intentional, of its
agents, Keenan and Anthem, who were administering the plan for it. (Cf. Mintz v. Blue
Cross of California, supra, 172 Cal.App.4th 1594, 1598, 1611 [a health plan's third-party
administrator may owe plan members a duty of due care in administering the plan to
protect them from physical injury caused by its negligence in making benefit
determinations].)
7 A service provider's claim arises from the terms of the provider agreement and does not amount to claiming benefits under the terms of ERISA plans. (Cal. Practice Guide: Insurance Litigation, supra, ch. 6E-H, ¶ 6:1274, p. 6E-92.) 17
As to Keenan individually, the negligent misrepresentation and agency allegations
seem to rely on (1) Keenan's participation in designing the Plan's provisions, (2) the
representations made by Aileen in response to Hospital's call to the phone number on the
member identification card that Keenan supplied, and (3) its joint maintenance of the
website with Anthem, also leading to some kind of agency between them.
Essentially, there are three types of misrepresentations alleged against all
Defendants: (a) oral communications among Hospital personnel and Anthem personnel
(b) which amounted to a course of dealing over approximately 50 days of such
communications, designed to obtain medical necessity determinations necessary for
treatment authorizations, and (c) generalized allegations of "trade custom and usage" in
the industry. From some or all of those representations, Hospital alleges that an
authorization of services constitutes an affirmative representation to it by the agents that,
based on all of the information that the Plan was provided to date (and that it presumably
provided to the agents), the requested services were covered by the Plan.
Specifically, Hospital alleges that the parties' execution of the network agreement
gave rise to an agency relationship for Keenan and Anthem to jointly administer
Eisenhower's Plan. Pursuant to the network agreement, Eisenhower provided its
summary plan description to Anthem in order for it to perform "administrative services"
(while Anthem also acted as an agent for Keenan). These "administrative services,"
performed by Anthem and Keenan on behalf of the Plan, are alleged to include "all
communications and direct dealings with providers, such as the Hospital, including but
not limited to verification of eligibility, benefits and authorization of services; negotiating
18
with providers, such as the Hospital, concerning any matters including the entering into
and/or revisions to contracts; pricing claims in accordance with the terms of the plan
documents and Summary Plan Description; producing member identification cards;
conducting utilization review; processing authorizations of services and responding to
providers' request for such authorizations; and coordination and management of medical
care through case management." (Italics added.)
The TAC alleges that the consequences of such a "trade custom and usage" are
that, "to the extent that a health plan and its administrators have information indicating
that services are not covered under the plan, the health plan and its administrators do not
authorize such services." Thus, "there has existed a trade custom and usage that an
authorization of services constitutes an affirmative representation that, based on all of
the information the health plan has been provided to date, the services are covered."
(Italics added.) The TAC further alleges that this "custom and usage is, and at all times
mentioned has been, certain and uniform, of general continuity and notoriety, and
acquiesced-in by the whole of this industry," and, beyond this, "was well known to the
Hospital and to [Defendants] at the time of their communication of each of the
authorizations."
The foundation of Hospital's intentional fraud claim is that Keenan and Anthem,
as Eisenhower's agents, were allegedly in a position to know and did know of facts
concerning the exclusion of coverage under the Plan for medical services received by
Patient X, based on clinical information communicated to them by Hospital about his
condition at admission (high blood alcohol level with cannabis found). During the
19
process of obtaining authorizations for medical services provided to him, they falsely
represented or implied that coverage would be supplied and Hospital would be paid,
through (1) their continuing communications about privileged matter, including the
clinical condition of Patient X, (2) their issuance of the medical necessity certification
letters, and (3) trade custom and usage that the process would not be carried out unless
coverage were available. Hospital describes the interactions between its own
representatives and Aileen, unnamed care managers, Steele-Alvarez, Becerra, Myers, and
others, about obtaining the medical necessity certification letters, as giving rise to its
justifiable reliance on express and implied representations of the existence of coverage
for Patient X.
Regarding damages, the TAC alleges that Hospital refrained from seeking
reimbursement from Medi-Cal for services provided to Patient X within Medi-Cal's time
limits or transferring him elsewhere, as a result of the delayed notification about the lack
of coverage. Hospital thus alleges it was damaged through reasonable reliance on
representations that Eisenhower would be paying Hospital for the services provided.
B. Authority and Analysis
We are required to consider whether the broadly stated agency relationships
claimed in the TAC support the intentional misrepresentation claims against Eisenhower
(not Keenan). Eisenhower as the principal had the right to control the conduct of the
agent on the subject of the agency, presumably including the types of representations to
be made. (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1869 (Lewis).) An
agent has the power to alter the legal relations between the principal and third persons, or
20
the principal and the agent. (Id. at pp. 1868-1869.) Even if an agent, at the time of the
doing of an act, is without actual or ostensible authority, "the act may be rendered valid
and binding on the principal, as of the time the unauthorized act was done, if the principal
ratifies and thus gives effect to it." (3 Witkin, Summary of Cal. Law (10th ed. 2005)
Agency and Employment, § 139, p. 184; § 2307 ["An agency may be created, and an
authority may be conferred, by a precedent authorization or a subsequent ratification."].)
Here, both express and ostensible agency by Anthem and Keenan is alleged, in
carrying out the administrative services for Eisenhower's Plan. " 'To establish ostensible
authority in an agent, it must be shown the principal, intentionally or by want of ordinary
care has caused or allowed a third person to believe the agent possesses such authority.' "
611, 619.) At this pleadings stage of the case, no factual questions are being resolved,
and we examine only whether the allegations set forth a cognizable claim. Hospital need
not clarify all details of Defendants' relationships with each other, or each entity's
particular role in conducting and administering the health insurance plan at issue, to
enable Eisenhower to defend against the claims that Hospital asserts. (See Committee On
Children's Television, supra, 35 Cal.3d at pp. 216-217.) Overall, the TAC provides an
adequately detailed set of allegations of intentional fraud against Eisenhower.
27
III
FRAUD: SUPPRESSION OF FACTS (EISENHOWER, CAUSES OF ACTION NO. 2 (REHAB.) AND 11 (ICU)
A. Nature of Allegations
These causes of action for damages for suppression or concealment of facts rely
on the same underlying scenario alleged in the intentional fraud claim, regarding the
existence of the network agreement, the member identification card, the website, and the
trade custom and usage and course of dealing. Hospital alleges that from its course of
dealing with Eisenhower's agent Anthem, Hospital was led to believe that an
authorization or certification of services constitutes an affirmative representation that the
services will be covered. Also, Hospital was provided by Eisenhower and Anthem with
Patient X's private identity and medical information about his condition at admission
(high blood alcohol level, cannabis), leading it to conclude that Anthem's representatives
were agents of Eisenhower who were consequently authorized to make representations
about the patient's benefits information, including any exclusions from coverage.
Hospital claims that during the ongoing communications about Patient X's clinical
condition and the requests for medical necessity certification letters, Eisenhower and its
agents were on notice, but failed to reveal, that no coverage would be forthcoming, and
they suppressed those facts to mislead Hospital. If those facts had not been suppressed,
Hospital would have transferred Patient X to county facilities and sought Medi-Cal
reimbursement for his care. Because of the late notification of the exclusion from
coverage, Hospital was unable to seek reimbursement from Medi-Cal.
28
B. Authority and Analysis
For a tort claim of suppression or nondisclosure of known material facts, three
varieties of such a claim against a nonfiduciary were identified in Warner Constr. Corp.
v. City of Los Angeles (1970) 2 Cal.3d 285, 294: "(1) the defendant makes
representations but does not disclose facts which materially qualify the facts disclosed, or
which render his disclosure likely to mislead; (2) the facts are known or accessible only
to defendant, and defendant knows they are not known to or reasonably discoverable by
the plaintiff; (3) the defendant actively conceals discovery from the plaintiff."
(Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612–613
(Marketing West); § 1710, subd. (3) [deceit includes "[t]he suppression of a fact, by one
who is bound to disclose it, or who gives information of other facts which are likely to
mislead for want of communication of that fact."].)
Thus, active concealment or suppression of facts by one having knowledge or
belief of the significance of facts related to them may be fraudulent, and may be the
equivalent of a false representation, i.e., a variety of actual fraud. (5 Witkin, Cal. Proc.
(5th ed. 2008) Pleading, § 722, p. 138; § 1572, subd. (3) [suppression of fact].) (In
comparison to this intentional tort claim based on a defendant's suppression of known
material facts, a cause of action for negligent misrepresentation does not require such
fraudulent intent; see pt. IV, post.)
A plaintiff can demonstrate fraudulent nondisclosure by a defendant if the facts
that were withheld would have materially affected the value or desirability of the
property or the transaction, and such facts were known to the defendant, who also knew
29
that the facts were "unknown to or beyond the reach of the plaintiff." (La Jolla Village
Homeowners' Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1151-1152.) To
plead fraud and deceit based on concealment, the plaintiff must allege that the defendant
concealed or suppressed a material fact in a situation in which the defendant was under a
duty to disclose that material fact.
Although Hospital has not alleged the existence of a fiduciary or confidential
relationship, the allegations otherwise specify facts supporting its claim that Eisenhower's
agent Anthem made representations to Hospital, while failing to disclose other facts that
rendered misleading the disclosures that were made. Hospital alleged that over a period
of almost two months, representatives of Anthem repeatedly "authorized" the medical
services that Hospital provided to Patient X, despite their presumed knowledge that his
care would be excluded by the insurance policy, because his injuries were sustained as a
result of his driving with a blood alcohol level in excess of the legal limit.
Even if Hospital had not alleged that by "authorizing" services, Defendants were
also representing that the services would be "covered" or paid for by the Plan, Hospital
sufficiently alleged that Anthem's statements to Hospital concerning the authorization of
services and Anthem's requests for information, to which it would not be entitled if it the
services were not covered by the Plan, were all made on behalf of Eisenhower and were
misleading. Hospital can permissibly plead that since no significant facts were disclosed
about the Plan's exclusion from coverage for Patient X's injuries, the nature and number
of Anthem's communications with Hospital over approximately 50 days would otherwise
30
have caused a reasonable person to believe that the services would be paid for by the
Plan.
In light of the specificity of these numerous alleged communications, together
with the allegation that the provision of an "authorization" has a specific meaning in this
context (that an "authorization of services constitutes an affirmative representation
that . . . the services are covered"), Hospital has sufficiently alleged the existence of
multiple affirmative misrepresentations by the agents, potentially binding Eisenhower,
that Patient X's care would be covered by the Plan. The representations are pleaded in a
context of the existence of other material facts that were not disclosed.
The merits of the case are not now before us, on whether the disclosures
Defendants made were so incomplete and defective as to amount to actionable fraudulent
nondisclosure. In a concealment case, the duty of disclosure is treated as "fact dependent
and a question for the trier of fact, not a question of law." (Marketing West, Inc., supra,
6 Cal.App.4th at p. 614; see Charpentier v. Los Angeles Rams Football Co. (1999) 75
Cal.App.4th 301, 312, fn. 9 [existence of duty to disclose was "for the jury to sort out"].)
We decide only that Hospital has adequately pled facts supporting its theory that
Eisenhower's agents, on its behalf, tortiously suppressed material facts in these
transactions.
31
IV
NEGLIGENT MISREPRESENTATION (BOTH EISENHOWER AND KEENAN; CAUSES OF ACTION NOS. 1 [REHAB.] AND 10 [ICU])
A. Nature of Required Allegations
In addition to alleging Eisenhower's intentional fraud and concealment, as above,
the TAC also brings a cause of action for negligent misrepresentation damages against
Eisenhower and its alleged agents, including Keenan. Those allegations initially outline
the status of Keenan and Anthem as authorized agents and administrators of Eisenhower's
Plan, as well as pleading there is a trade custom and usage, and a course of dealing
common throughout the industry, such that when authorizations of services are requested
by a provider through a health plan's authorized agents, coverage is affirmatively
represented to be available.
Hospital contends that although the various Keenan and/or Anthem employees
were put on notice that Patient X was injured while having a high blood alcohol level and
some cannabis level, they did not disclose the existence of any applicable exclusions, nor
did the website they jointly maintained do so. Hospital claims that while Defendants
continued to make representations in the medical necessity certification letters, as part of
the authorizations for services process, they had no reasonable ground for believing their
representations were true or that the Plan would be financially responsible to pay for
covered services.
Hospital alleges that it was ignorant of the falsity or incorrectness of the
representations made by Defendants, but believed them to be true. Hospital reasonably
32
believed that Defendants were complying with privacy laws regarding patient
information, and further, Hospital was ignorant as to the terms of coverage under the
Plan. Defendants allegedly knew that Hospital would rely on their statements made
during those claims administration and utilization review services. Hospital acted in
reasonable reliance on the representations and seeks damages to compensate it for those
expenses.
B. Authority and Analysis
Under sections 1709 and 1710, subdivision (2), the tort of deceit may include a
party's "assertion, as a fact, of that which is not true, by one who has no reasonable
ground for believing it to be true." In Byrum v. Brand (1990) 219 Cal.App.3d 926, 940-
942, this court acknowledged that the statutory definitions of negligent misrepresentation
normally require that such allegations of the element of a "representation" include that the
defendant asserted or positively asserted a fact, rather than merely omitting to state
something. There, we held an alleged misrepresentation by omission, of material facts
about an investment, was insufficient to meet the statutory definitions, where the plaintiff
could not show the defendant had positively asserted any facts about these topics that
were not true, nor had the defendant actively concealed or suppressed any such facts that
were known to him. (Ibid.) For pleading and proving negligent representation, it was not
adequate for a plaintiff to argue that a defendant's failure to disclose any undiscovered
facts, even assuming the defendant had a duty to investigate, would have amounted to a
negligent omission. We reasoned, "There were apparently no known facts which [the
33
defendant] failed to disclose, from which nondisclosure could be inferred an implied
representation that the facts were otherwise." (Id. at p. 942, italics omitted.)
Moreover, a negligent misrepresentation claim must set forth allegations that the
facts that were not accurately presented were either past or present, existing material
facts. " '[P]redictions as to future events, or statements as to future action by some third
party, are deemed opinions, and not actionable fraud.' " (Tarmann, supra, 2 Cal.App.4th
at p. 158.)
As already set forth in our discussion of the other fraud claims, we think that
Hospital has sufficiently set forth specific facts to support its pleading of the preliminary
elements of fraud (a set of affirmative representations of an existing set of facts on the
equivalent of coverage availability, their falsity and the knowledge of falsity; pts. II, III,
ante). Those facts include the circumstances under which the medical necessity
certification letters were issued, including background about the medical identification
card, the network agreement, the disclosures of private information about the patient, and
the agency allegations. Hospital's allegations about the trade custom and usage and
course of dealings common throughout the industry, for obtaining authorizations of
services from a health plan's authorized agents, include its theory that the authorization
process presumes that coverage is available under the plan they are administering, based
on their access to privileged information and the overall purposes of utilization
management. Taken together, those initial elements of this cause of action are alleged
with enough specificity in the TAC.
34
For this negligent misrepresentation cause of action, it is not necessary to allege
any fraudulent intent. This claim does not rely on an alleged false promise that was made
with an intentionally deceptive state of mind, and it is thus distinguishable from
Hospital's other fraud theories (e.g., a promise falsely made without any intention to
perform it, § 1710, subd. (4) [pt. V.A, post]; Tarmann, supra, 2 Cal.App.4th at pp. 158-
159). Thus, Hospital need not set forth allegations here that Defendants had a fraudulent
intent to induce reliance, or they fraudulently concealed material information. (Small v.
Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173; Gagne v. Bertran (1954) 43 Cal.2d
481, 487-488.) Misrepresentations may be implied from conduct. (See Thrifty-Tel, Inc.
v. Bezenek, supra, 46 Cal.App.4th at p. 1567.) In this claim of negligent
misrepresentation, Hospital does not rely on allegations of intentionally misleading
conduct, but it does claim that more than a negligent omission took place during the
transactions. Its trade custom and usage allegations, as the equivalent of making
affirmative representations about the availability of coverage in this context, will satisfy
this pleading requirement. (Byrum v. Brand, supra, 219 Cal.App.3d 926, 940-942.)
However, Hospital as the plaintiff is still required to allege justifiable reliance on
the erroneous or incomplete representations, as well as causation and damages. It is
usually a question of fact whether a plaintiff's reliance was reasonable. (Charnay v.
Cobert (2006) 145 Cal.App.4th 170, 186.) Hospital is alleging that throughout the
transactions, Eisenhower and Keenan, among others, did not accurately represent existing
material facts about potential availability of coverage for Patient X, or about
Eisenhower's potential liability for reimbursement of expenditures. In light of the
35
lengthiness of the communications on medical necessity, and the factual questions about
what particular inquiries were encompassed within them, we cannot now determine, for
pleadings purposes, that the statements made by Eisenhower's agents in sending the
medical necessity certification letters were wholly neutral and not inferentially deceptive.
(See Diediker v. Peelle Financial Corp. (1997) 60 Cal.App.4th 288, 297-298 [neutral
statements do not support negligent misrepresentation claims]; Fremont Indemnity Co.,
supra, 148 Cal.App.4th at p. 111 [on demurrer, court assumes truth of properly pleaded
factual allegations and of reasonably inferable facts].)
Keenan argues its participation in providing the medical identification card and
maintaining the website amounted to something less than making any positive assertions
of the extent of coverage to be afforded or promises about compensation amounts.
Keenan questions whether the trade custom and usage allegations suffice to plead the
ultimate fact of agency or to give significance to the authorization representations.
We think Hospital has alleged sufficient facts to support its negligent
representation claim that the representations made by Eisenhower and its agents, who
were held out to be experienced in these matters, gave Hospital some basis for believing
that the referrals and authorizations made for Patient X's treatment would be routine in
nature, rather than subject to any specific exclusions from coverage. (See Tenet
Healthsystem Desert, Inc., supra, 520 F.Supp.2d at p. 1194 [on factual issues and use of
expert testimony about the extent of industry custom and practice in authorizing
treatment].) Factual issues may remain about the extent of the duties imposed on each of
the Defendants by the network agreement, and whether Hospital's reliance on the
36
communications was reasonable, but such factual issues cannot be resolved on demurrer.
The trial court erred in sustaining the demurrer with respect to causes of action Nos. 1
and 10.
V
CLAIMS VERSUS EISENHOWER ONLY
A. Fraud: Promise Made Without Any Intent to Perform (Causes of Action Nos. 4 [Rehab.] and 13 [ICU])
1. Allegations
As with the other fraud-related causes of action, this claim relies on the same
underlying sequence of events and agency allegations, as creating Eisenhower's
"promise" that coverage was available for the authorized services, or alternatively that
reimbursement would be made, but such promises were made without any intent to
perform on them. Specifically, Hospital alleges that it was made aware of the Plan's
member identification card, the network agreement, the website, the trade custom/usage
and course of dealing, but without any additional notification that applicable exclusions
would be enforced. Hospital claims it was led to believe that an authorization or
certification of services constituted an affirmative representation by the Plan operator,
Eisenhower, that the services would be covered.
Based on industry custom, Hospital claims against Eisenhower alone that when
Defendants, as agents of Eisenhower, made available to it Patient X's private
identification and medical information, including his condition at admission with a high
blood alcohol level, Hospital was justified in concluding that those agents were
37
authorized to make representations about his benefits information, including the status of
any applicable exclusions from coverage. During its ongoing communications about the
patient's clinical condition and the requests for authorizations, Hospital claims that
Eisenhower and its agents were on notice of, but failed to reveal, the effect of the
reported blood alcohol level of Patient X at his admission upon coverage availability
(ultimately none). Hospital alleges that Eisenhower promised to pay for the services
provided, but because of Eisenhower's knowledge that Patient X would not be entitled to
coverage under the Plan, this promise was made without any intention to perform it.
Hospital then alleges it reasonably relied on the promise in providing the services
and was damaged thereby. If the promise had not been made, Hospital would have
transferred Patient X to county facilities and sought Medi-Cal reimbursement for his care.
Because of the late notification of the exclusion from coverage, Hospital was unable to
seek reimbursement from Medi-Cal.
2. Authority and Analysis
In the contract context, section 1572, subdivisions (4) and (5), provide that actual
fraud may consist of a party's intentionally deceptive acts, done as inducement to enter
into a contract, such as making a promise "without any intention of performing it; or
[committing] [a]ny other act fitted to deceive." (Ibid.) Such a " 'false promise is
actionable on the theory that a promise implies an intention to perform, that intention to
perform or not to perform is a state of mind, and that misrepresentation of such a state of
mind is a misrepresentation of fact. The allegation of a promise (which implies a
38
representation of intention to perform) is the equivalent of the ordinary allegation of a
representation of fact.' " (Tarmann, supra, 2 Cal.App.4th at pp. 158-159.)
This variety of claim is quite similar to the fraud claims found sufficient above
(pts. II-IV, ante). Promissory fraud "is a subspecies of the action for fraud and deceit. A
promise to do something necessarily implies the intention to perform; hence, where a
promise is made without such intention, there is an implied misrepresentation of fact that
may be actionable fraud. [Citations.] . . . [¶] . . . [T]he plaintiff's claim does not depend
upon whether the defendant's promise is ultimately enforceable as a contract. 'If it is
enforceable, the [plaintiff] . . . has a cause of action in tort as an alternative at least, and
perhaps in some instances in addition to his cause of action on the contract.' [Citations.]
Recovery, however, may be limited by the rule against double recovery of tort and
contract compensatory damages." (Lazar, supra, 12 Cal.4th at p. 638; § 1710, subd. (4)
[deceit may include a "promise, made without any intention of performing it"].)
Where a fraud or misrepresentation claim is predicated on a failure to perform
contractual obligations, " 'something more than nonperformance is required to prove the
defendant's intent not to perform his promise.' " (Tenzer v. Superscope, Inc. (1985) 39
Cal.3d 18, 30; Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481.)
Although Hospital had pled a lack of participation of Eisenhower itself in the process, it
made significant agency allegations about the conduct of Eisenhower's codefendants, in
continually approving requests for services as medically necessary. As described in the
TAC, different tasks are required to administer Eisenhower's health insurance plan, and
Eisenhower allegedly represented to Hospital that the agents were authorized to
39
participate in its process of obtaining authorizations and making coverage determinations.
Hospital appears to allege as ultimate facts that "claims administration" encompasses
coverage issues, that the agents were held out to be experienced in these matters, and that
the issuance of medical necessity certification letters involves making representations
about coverage questions.9
Eisenhower as a principal presumably retained the right to control the conduct of
the agents on the subject of the agency. (Pt. II.B, ante; Lewis, supra, 30 Cal.App.4th
1850, 1869.) Both express and ostensible agency by Anthem and Keenan are alleged, in
carrying out the administrative services for Eisenhower's Plan. (Gulf Ins. Co., supra, 86
Cal.App.4th 422, 439; § 2317 [how ostensible authority is created, intentionally or
negligently].)
On agency issues, we find analogous the case of Preis v. American Indemnity Co.
(1990) 220 Cal.App.3d 752 (Preis). There, a defense summary judgment for a property
insurer (American) was reversed, based on the plaintiffs' contentions they relied on
American's certificate of insurance that was issued by an insurance broker, Al Schlom, on
its behalf and on behalf of American's subagent (Appleby). The court reiterated basic
agency rules as follows:
"Generally speaking, a person may do by agent any act which he might do himself. [Citations.] An agency is either actual or
9 As already observed, the allegations about Keenan individually relate to its participation in designing the Plan's provisions, including the website, and the representations made by Aileen in response to Hospital's call to the phone number on the member identification card that Keenan supplied. Hospital also alleges some kind of agency between Keenan and Anthem. 40
ostensible. [Citation.] 'An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.' [Citation.] To establish ostensible authority in an agent, it must be shown the principal, intentionally or by want of ordinary care has caused or allowed a third person to believe the agent possesses such authority. [Citations.] [¶] Under Civil Code section 2334, a principal is bound by acts of his ostensible agent to those persons 'who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof.' Liability of the principal for the acts of an ostensible agent rests on the doctrine of 'estoppel,' the essential elements of which are representations made by the principal, justifiable reliance by a third party, and a change of position from such reliance resulting in injury." (Preis, supra, at p. 761.)
Where the principal "knows that the agent holds himself out as clothed with
certain authority, and remains silent," the principal's conduct in allowing the agent to
conduct business in that way may give rise to responsibility on the insurance documents.
(Preis, supra, 220 Cal.App.3d at p. 761.) "Defendants have not negated the possibility
their act of placing Schlom in such a position to amend the policy or their failure to
exercise the requisite degree of control over the issuance of insurance documents on their
behalf caused plaintiffs to believe Schlom possessed the power to act." (Id. at p. 763.)
Accordingly, the court in Preis ruled that a triable issue of material fact existed as to
whether American (the principal) or its subagent had negligently caused or allowed the
plaintiffs to believe that the broker (Schlom) "possessed the authority to modify the
insurance policy." (Ibid.)
We have declined to take judicial notice of the existence and context of the
medical necessity certification letters, as Eisenhower requested. It would not be proper to
consider the factual issues of interpretation of those letters in this demurrer proceeding,
41
and the issues about the extent of industry (trade) custom and practice, as pled, remain
or promissory estoppel may be presented as alternative theories of recovery].) First,
regarding promissory estoppel to deny a contract existed, Hospital repeats its allegations
about the member identification card, network agreement and trade custom and usage, all
as giving rise to Hospital's understanding that an authorization of services constitutes an
affirmative representation that the services will be covered. Since Hospital was provided
by Defendants with Patient X's private identity and medical information about his
condition at admission (high blood alcohol level, cannabis), it claims it reasonably
concluded that Anthem's representatives were agents of Eisenhower who were
consequently authorized to make representations about his benefits information,
including the existence of any exclusions from coverage. Based on Eisenhower's agents'
continuing communications, including private information about the patient's clinical
condition and the requests for authorizations for treatment, Hospital relied on those
representations in providing services, which was justified because Hospital reasonably
believed that Eisenhower was complying with the law.
43
Next, Hospital alleges that if those representations had not been made, Hospital
would not have admitted the patient or would have transferred him to county facilities
and sought Medi-Cal reimbursement for his care. Because of the late notification of the
exclusion from coverage, Hospital was unable to seek reimbursement from Medi-Cal.
Next, Hospital pleads it is entitled to relief on grounds of promissory estoppel by
concealment, on the basis that Eisenhower and its agents provided information that was
incomplete, about the member identification card and network agreement. Based on the
course of dealing and trade custom and usage known to it, Hospital understood that an
authorization of services constitutes an affirmative representation that, based on all of the
information the health plan has been provided to date (and assuming that the agents were
told), the services for the patient are covered. When Hospital disclosed clinical
information to Eisenhower's actual and/or ostensible agents, Hospital received medical
necessity certification letters that failed to identify that the Plan had any exclusion from
coverage. Eisenhower knew or should have known that Hospital would rely on its
incomplete representations, and if Hospital had known the actual facts, it would not have
admitted the patient or continued to provide care to him, incurring damages.
As to each of the estoppel causes of action, Hospital concludes, "Injustice can be
avoided only by enforcing the representations of Eisenhower [and Doe defendants]
completely."
2. Authority and Analysis
"The elements of estoppel are: "(1) a representation of material fact by defendant,
(2) with knowledge, actual or virtual, of the true facts, (3) to a party actually or
44
permissively ignorant of the truth, (4) with the intention, actual or virtual, that the other
party act upon it, and (5) the other party was induced to act." (Tenet Healthsystem
Desert, Inc., supra, 520 F.Supp.2d 1184, 1195; Federal Deposit Ins. Corp. v. Dintino
(2008) 167 Cal.App.4th 333, 346 [unjust enrichment recovery is imposed on "a common
law obligation implied by law based on the equities of a particular case and not on any
contractual obligation"].)
"Promissory estoppel was developed to do rough justice when a party lacking
contractual protection relied on another's promise to its detriment." (Kajima/Ray Wilson
v. Los Angeles County Metropolitan Transportation Authority (2000) 23 Cal.4th 305, 315
(Kajima/Ray Wilson).) Using equitable principles, this doctrine acknowledges that " 'A
promise which the promisor should reasonably expect to induce action or forbearance on
the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.' "
(Id. at p. 310; US Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113, 130.)
In Cedars Sinai Medical Center v. Mid-West Nat. Life Ins. Co. (C.D. Cal. 2000)
118 F.Supp.2d 1002, 1005 (Cedars Sinai Medical Center), the court analyzed a medical
provider's lawsuit against an insurer and the holder of a group health care policy, seeking
reimbursement of expenses of patient care it had provided. The insurer had "precertified"
the provider's services for coverage, but the patient's health insurance coverage had been
rescinded for misrepresentations he made during the application process. The court
determined that the insurer's motion for summary judgment would be granted against the
45
provider's claims for breach of oral contract, fraud, and quantum meruit, but denied as to
its negligent misrepresentation and estoppel claims. (Id. at pp. 1010-1015.)
In discussing estoppel in Cedars Sinai Medical Center, the court noted that its
elements are "quite similar to that of negligent misrepresentation. The essential elements
to support an estoppel claim are: (1) a representation of material fact by defendant, (2)
with knowledge, actual or virtual, of the true facts, (3) to a party actually or permissively
ignorant of the truth, (4) with the intention, actual or virtual, that the other party act upon
it, and (5) the other party was induced to act." (Cedars Sinai Medical Center, supra, 118
F.Supp.2d at p. 1012; San Diego Municipal Credit Union v. Smith (1986) 176 Cal.App.3d
919, 923.) The court found there were triable issues of fact on whether the insurer, which
had the ability to investigate before verifying coverage but failed to do so, was on notice
of the potential lack of coverage, and on whether the provider had been induced to act
and provide services upon the insurer's pre-certification on coverage availability.
(Cedars Sinai Medical Center, supra, at p. 1012.) However, the court also determined
that a preliminary "verification of coverage" was not a promise to pay for a patient's
treatment, where neither party had manifested an intent to enter into a contract. (Id. at
pp. 1008-1009.)
Here, Hospital as a provider is alleging only against Eisenhower, the Plan sponsor,
that in these transactions, relevant, material information was not disclosed about the
existence of any specific policy exclusions that might preclude a payment obligation.
(Regents of University of California v. Principal Financial Group (N.D.Cal. 2006) 412
F.Supp.2d 1037, 1044 (Regents of University of California).) In that case, a hospital had
46
provided services to a patient injured while drunk driving, and the patient's insurer
declined to pay for services on grounds of an exclusion for such patient conduct. When
the hospital sued to recover its expenses, the insurer sought summary judgment. The
motion was granted in part, disposing of the express contract and negligent
misrepresentation claims. However, the court allowed the implied contract, estoppel,
quantum meruit, and a statutory claim to proceed, "subject to renewal" upon further
discovery into the relevant industry custom and practice about pre-authorization
communications and authorizations for treatment. (Id. at pp. 1041-1047.) Those
communications included disclaimers about the availability of benefits subject to plan
provisions on eligibility, limitations or exclusions. (Id. at p. 1040.)10
Specifically, in allowing the estoppel claim to proceed, the court in Regents of
University of California, supra, 412 F.Supp.2d 1037 reasoned, "It may be, in light of
industry custom or past interactions with [insurer defendants], that [the provider] was not
justified in expecting defendants to provide information about specific exclusions.
Defendants have not presented any evidence of relevant industry custom and practice in
connection with their motion." (Id. at p. 1046.) The denial of summary judgment in that
case was made without prejudice to a renewed challenge to the estoppel and other claims,
"if and when the parties produce sufficient evidence of industry custom to support a good
10 In Regents of University of California, supra, 412 Fed. Supp.2nd 1037, 1047, the court was considering additional statutory claims brought under the Knox-Keene Health Service Plan Act of 1975. (Health & Saf. Code, § 1340 et seq.; § 1371.8.) That Act is not relied on in the TAC. 47
faith motion for summary judgment." (Ibid.; Cedars Sinai, supra, 118 F.Supp.2d at
pp. 1012-1013 [factual issues remained on inducement and reliance].)
In our case, Hospital does not attempt to allege that Eisenhower, a Plan sponsor
that delegated claims administration duties, made any direct promises to it about paying
for services. Hospital does not deny that the Plan evidently contained exclusions
applicable to Patient X, but contends that the manner in which Eisenhower's agents
represented that they were authorized to administer an existing Plan gave rise to implied
equitable obligations on the part of the principal, Eisenhower. It is unclear whether
Eisenhower provided guidance or information to its agents about the scope of the
coverage for the plan being administered. It cannot be determined at the pleading stage
whether Eisenhower "virtual[ly]" knew of the significance of the policy exclusion, or
whether the Hospital "permissibly" remained ignorant of the exclusion. (Regents of
University of California, supra, 412 F.Supp.2d at p. 1045.)
The allegations of misrepresentations and concealments by Eisenhower's agents
set forth facts from which Hospital can plead it was damaged due to the unavailability of
coverage or reimbursement for services. Hospital provided uncompensated services,
allegedly in detrimental reliance on those promises. (Kajima/Ray Wilson, supra, 23
Cal.4th 305, 315.) At the pleading stage, we determine only that it was error for the trial
court to sustain the demurrers without leave to amend on these claims.
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C. Quantum Meruit; Common Counts for Services Rendered (Causes of Action Nos. 8-9 [Rehab.] and 17-18 [ICU])
1. Allegations
For the quantum meruit claims against Eisenhower and Doe defendants, Hospital
simply alleges that it provided services to Patient X at the special request of Eisenhower,
and that Eisenhower and/or the Doe defendants knew about the services and promised to
pay their reasonable value, but have not done so.
On the common count claims, Hospital alleges that it provided services to
Patient X, at the behest of and for the benefit of Eisenhower, and that Hospital's
published charges reflect the reasonable and customary value for the services and
supplies as provided. Based on allegations of the custom and practice in the health care
industry, Hospital claims that Eisenhower expressly and/or impliedly promised to pay the
amounts due at the rates published in professional fee schedules available to the public,
even without a written contract. Other than the trade custom allegations, the activities by
Anthem or Keenan, as Eisenhower's agents, are not expressly described.
2. Authority and Analysis
"The elements of a claim based on quantum meruit are: '(1) that the plaintiff
performed certain services for the defendant, (2) their reasonable value, (3) that they were
rendered at defendant's request, and (4) that they are unpaid.' " (Tenet Healthsystem
Desert, Inc., supra, 520 F.Supp.2d at p. 1196.) The issue is whether the plaintiff has an
implied-in-law right to recover the reasonable value of services provided. (4 Witkin, Cal.
Procedure (5th ed. 2008) Pleading, § 566, p. 692; Bell v. Blue Cross of California (2005)
49
131 Cal.App.4th 211, 221.) Quantum meruit compensation for a party's performance
should be paid by the person whose request induced the performance. (Earhart v.
William Low Co. (1979) 25 Cal.3d 503, 515.) It is not necessary that the inducing party
be the same as the recipient of the benefit. (See Day v. Alta Bates Medical Center (2002)
"The distinction between express and implied in fact contracts relates only to the
manifestation of assent; both types are based upon the expressed or apparent intention of
51
the parties. 'The true implied contract, then, consists of obligations arising from a mutual
agreement and intent to promise where the agreement and promise have not been
expressed in words.' " (1 Witkin, Summary of Cal. Law, supra, Contracts, § 102, p. 144;
italics omitted; Silva v. Providence Hospital of Oakland (1939) 14 Cal.2d 762, 773;
Spinelli v. Tallcott (1969) 272 Cal.App.2d 589, 595 [services of type usually charged for,
and performed with defendant's knowledge].)
"Implied contracts, more accurately called contracts implied in fact, should be
distinguished from contracts implied in law, or quasi-contracts." (1 Witkin, Summary of
Cal. Law, supra, Contracts, § 103, p. 146; italics omitted; see Desny v. Wilder (1956) 46
Cal.2d 715, 737.) Hospital seeks to allege the ultimate fact of the making of
Eisenhower's contracts to pay for the services rendered, through its theory of trade
custom and usage, but without explaining how the services came to be authorized. It also
cannot explain what terms would have been involved regarding payment for services
rendered, full or partial. No conduct is alleged by the only named defendant here,
Eisenhower, about its agreement to pay.
Whether a " 'verification of coverage was a promise' to pay for a patient's 'covered
treatment, which resulted in a binding contract,' " appears to depend on factual issues
about whether a party has manifested an intent to enter into such a contract. (Tenet
Healthsystem Desert, Inc., supra, 520 F.Supp.2d at p. 1194.) In its reply brief, Hospital
contends that its contract pleading should be broadly construed, in contrast to requiring
specificity in stating a fraud claim. However, the breach of implied-in-fact contract
52
claims still lack the essential element of consent through Eisenhower's own conduct, and
no information is pleaded here about Eisenhower's agents' activities on its behalf.
In Regents of University of California, supra, 412 F.Supp.2d 1037, the court
granted the insurer defendants' summary judgment motion, dismissing the medical
provider's express contract and negligent misrepresentation claims, on similar facts
(albeit where the insurer defendant had evidently conducted its own business, rather than
delegating it to agents). The court observed: "Hospitals such as UCSF, like insurers, are
repeat players in insurance-related disputes and are likely aware of common policy
exclusions." (Id. at p. 1044.) The court ruled that the plaintiff provider had failed to
produce evidence supporting its theory that the insurer's written authorizations for
treatment resulted in an express contract. However, the court permitted the provider's
alleged implied contract theory to proceed, as follows:
"It is not possible to discern the contours of plaintiff's implied contract claim from the complaint or moving papers. Presumably, plaintiff is claiming that defendants' conduct—authorizing treatment and allowing treatment to proceed without objection—manifested an unstated intent to be bound. If so, the implied contract came into being after treatment was completed and after defendants failed to object, which occurred subsequent to the transmission of the authorization letters. The acts giving rise to plaintiff's implied contract claim, although they may include the authorizations, are therefore at least partially distinct from the acts giving rise to the express contract." (Regents of University of California, supra, at pp. 1043-1044; italics added.)
The court accordingly determined that summary judgment could not then be
granted in favor of the insurer on the implied contract theory, although further inquiry
53
into industry custom and practice might permit renewal of the motion. (Regents of
University of California, supra, 412 F.Supp.2d at p. 1044.)
In our case, Hospital's implied contract theory against Eisenhower is based on
trade custom and usage allegations, allegedly amounting to an implied promise by
Eisenhower to pay for the services. Without incorporated or express agency allegations
about Eisenhower's agents' activities, it is difficult to find any support for Hospital's
theory that Eisenhower itself manifested an intent to enter into such a contract, or what its
terms would be. (Tenet Healthsystem Desert, Inc., supra, 520 F.Supp.2d at pp. 1194-
1195.)
Whether or not the alleged implied contract "came into being after treatment was
completed and after [Eisenhower] failed to object" (Regents of University of California,
supra, 412 F.Supp.2d at pp. 1043-1044; italics added), or earlier, when the authorizations
were granted by the other Defendants, there is still not any conduct or activity by
Eisenhower alleged, other than permitting Patient X's enrollment in the Plan. We think
that Hospital's extremely broad arguments on appeal about its implied-in-fact contract
theory against Eisenhower are not supported by the cause of action as pled or the
remainder of the TAC. The contractual arrangements outlined in the TAC do not support
a conclusion that Eisenhower intended to expand coverage it had agreed to make
available under the Plan, or to create exceptions to its exclusions, through its own
conduct. Also, Hospital did not adequately plead that Eisenhower's agents were granted
the authority to negotiate on contractual issues as part of their claims administration. The
54
trial court correctly sustained the demurrers to the fifth and 14th causes of action without
leave to amend on this ground.
VI
UCL CLAIM (BOTH EISENHOWER & KEENAN, CAUSE OF ACTION NO. 19)
An unfair business practice includes " ' "anything that can properly be called a
business practice and that at the same time is forbidden by law." ' " (Farmers Ins.
Exchange v. Superior Court (1992) 2 Cal.4th 377, 383.) A UCL challenge must allege
that members of the public are likely to be deceived by the subject business act or
practice, which is claimed to be unlawful, unfair, or fraudulent. (In re Tobacco II Cases
(2009) 46 Cal.4th 298, 311-312; Bus. & Prof. Code, § 17200.) Hospital's claim of unfair
business practices is based on a variety of alleged conduct, including that Eisenhower and
Keenan "engaged in misrepresentation [and] fraud" in their business practices with
Hospital, in the form of the conduct that underlies the deceit-based causes of action.
Allegedly, Defendants' failure to fully inform Hospital of the existence of the applicable
exclusions prevented Hospital from timely seeking alternative care or sources of
payment, and restitution or injunctive relief is requested.
For the reasons set forth above in determining that the demurrers to the majority of
the causes of action against Eisenhower were not properly sustained, and regarding the
negligent misrepresentation claims as to both Eisenhower and Keenan, we likewise
conclude that this derivative UCL cause of action has been adequately pled. Although
we conclude the TAC sufficiently states facts in those respects, "this conclusion means
only that [Hospital] has plead sufficient facts to overcome a demurrer. [Hospital] will
55
still be required to prove its claims, and we offer no opinion as to the likelihood that
[Hospital] will be able to do so." (US Ecology, Inc. v. State of California, supra, 92
Cal.App.4th 113, 137.) We reverse the judgment of dismissal with directions to overrule
the demurrers as to all causes of action, with the exception that dismissal of numbers 5
and 14 is proper (breach of implied-in-fact contract as to Eisenhower).
DISPOSITION
The judgment of dismissal is reversed with directions to overrule the demurrers as
to all causes of action, with the exception that dismissal of numbers 5 and 14 is proper
(breach of implied-in-fact contract as to Eisenhower). The trial court shall otherwise
allow the TAC to be reinstated for appropriate further proceedings. Costs are awarded to
Hospital.
HUFFMAN, Acting P. J.
WE CONCUR:
AARON, J.
PRAGER, J.*
* Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. 56
AI Brief
AI-generated · verify before citing
Holding. The court held that the trial court erred in sustaining demurrers to the plaintiff's fraud-based, contract, and equitable claims, as the complaint sufficiently alleged agency and misrepresentation, but correctly dismissed the claims for breach of an implied-in-fact contract.
Issues
Whether the third amended complaint sufficiently pled fraud-based, contract, and equitable claims against the plan sponsor and administrator.
Whether the plaintiff sufficiently alleged an agency relationship between the defendants to support its claims.
Whether the trial court abused its discretion in sustaining demurrers without leave to amend.
Disposition. Affirmed in part and reversed in part.
Quotations verified verbatim against the opinion
“Our review of the TAC leads us to conclude that the trial court erred in sustaining Eisenhower's demurrers without leave to amend, as to each set of the three fraud based causes of action”
“the UCL claim (No. 19) likewise survives.”
“we agree with the trial court that the two causes of action for breach of an implied-in-fact contract against Eisenhower alone (Nos. 5, 14) fail to state sufficient facts”