Diane Kirven, on behalf of herself and all others similarly situated, Plaintiff,
Central States Health & Life Co., of Omaha, and Philadelphia American Life Insurance Company, Defendants
Heard November 19, 2013.
ON CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR SOUTH CAROLINA. Appellate Case No. 2013-000273. Margaret B. Seymour, United States District Judge.
Richard A. Harpootlian, Graham L. Newman, M. David Scott, and Tobias G. Ward, Jr., all of Columbia, for Plaintiff.
John T. Lay and Laura W. Jordan, both of Columbia, and Robert L. Harris, of Richardson, Texas, for Defendants.
JUSTICE KITTREDGE. TOAL, C.J., PLEICONES, BEATTY and HEARN, JJ., concur.
[409 S.C. 34]
We certified the following questions from the United States District Court for the District of South Carolina:
1. Can the definition of " actual charges" contained within S.C. Code Ann. Section 38-71-242 be applied to insurance contracts executed prior to the statute's effective dates?
2. Can the South Carolina Department of Insurance mandate the application of " actual charges" definition in S.C. Code Ann. Section 38-71-242 to policies already in existence on the statute's effective dates by prohibiting an insurance company from paying claims absent the application of that definition?
We answer both certified questions, " no."
This case concerns supplemental health insurance policies, which differ from ordinary health insurance policies in both purpose and operation. Indeed, " [s]upplemental insurance policies pay cash benefits directly to the policyholders, as opposed to primary insurance policies that pay benefits directly to a third-party health care provider." Montague v. Dixie Nat. Life Ins. Co., No. 3:09-CV-687-JFA, 2011 WL 2294146, at *18-19 (D.S.C. June 8, 2011) (noting the reason for this difference lies in the purpose of the policies and stating " the benefits under specified disease policies have nothing to do with how much a particular cancer treatment may cost" because supplemental insurance policies contain a " two-fold [409 S.C. 35] promise: a promise to pay for the medical treatment and a promise to provide its policyholders with additional monetary relief . . . to cope with the myriad of other costs and expenses that arise from their battle with cancer, but are not covered by their primary health insurance policies." ); accord Guidry v. Am. Pub. Life Ins. Co., 512 F.3d 177, 182 n.6 (5th Cir. 2007)
(" Although the fundamental purpose of ordinary health insurance coverage is to indemnify against loss from disease or illness, the purpose of a supplemental insurance policy, such as the one at issue in this case, is not only to cover medical expenses but also . . . to provide supplemental income for general living expenses or any other purpose. Thus, the payment of benefits in amounts exceeding actual expenses does not lead to an unreasonable result." (quotations omitted)).
Plaintiff Diane Kirven purchased a supplemental Cancer and Specified Disease policy from defendant Central States Health and Life (Central States) in 1999. Under the policy, Central States promised to pay Kirven a defined benefit in an amount equal to, or based on a percentage of, the " actual charges" for certain medical and pharmaceutical cancer treatments. However, the term " actual charges" was not defined under the policy. Kirven was diagnosed with cancer in 2003, and she underwent chemotherapy and radiation treatments. Consistent with the understood purposes of a supplemental insurance policy, Central States paid Kirven benefits based on the amount she was billed by her medical providers. The cancer fell into remission.
Some years later, on November 29, 2007, the United States Court of Appeals for the Fourth Circuit issued a decision construing the term " actual charges" in a supplemental cancer insurance policy virtually identical to Kirven's. See Ward v. Dixie Nat'l Life Ins. Co . ( Ward I ), 257 F.Appx. 620 (4th Cir. 2007) (per curiam). Ward I involved a dispute over how benefits paid in the amount of the " actual charges" were to be calculated. Id. at 623. The Fourth Circuit found the meaning [409 S.C. 36] of the phrase " actual charges" as used in Ward's policy was patently ambiguous and that South Carolina law " very clearly requires us to resolve the ambiguity in favor of the insured." Id. at 627 (citation omitted).
Approximately eight months later, as a direct response to Ward I, the General Assembly enacted South Carolina Code section 38-71-242, which includes a mandatory, default definition for " actual charges" in policies that, like Kirven's policy, do not define the term. The statute essentially codified the construction of the term " actual charges" in the manner advocated by the defendant insurance companies in Ward I and provides as follows:
(A)(1) When used in any individual or group specified disease insurance policy in connection with the benefits payable for goods or services provided by any health care provider or other designated person or entity, the terms " actual charge", " actual charges", [409 S.C. 37] " actual fee", or " actual fees" shall mean the amount that the health ...