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Kirven v. Central States Health & Life Co. of Omaha

United States District Court, D. South Carolina, Columbia Division

March 23, 2015

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.


MARGARET B. SEYMOUR, District Judge.

On August 15, 2011, Plaintiff Diane Kirven filed this class action against Defendants Central States Health & Life Co. of Omaha ("Central States") and Philadelphia American Life Insurance Company ("Philadelphia American") pursuant to 28 U.S.C. § 1331, alleging that she and others similarly situated were wrongfully denied full benefits under "cancer and specified disease" supplemental insurance policies issued by Defendants prior to June 4, 2008. This order serves to memorialize the court's rulings made at a fairness hearing on February 23, 2015.


The facts are set out in detail in the court's preliminary order granting class certification and approving the parties' settlement, which order was filed on December 12, 2014. Briefly, Central States marketed certain "cancer and specified disease" supplemental insurance policies that promised to pay the insured a defined benefit based upon the "actual charges" for certain medical and pharmaceutical treatments. The term "actual charges" was not defined in the policies. Initially, Central States paid benefits based upon the actual charges represented on medical provider bills, without reference to any reduction in the charges negotiated between the medical provider and the insured's primary insurer. On December 31, 2005, Philadelphia American acquired Central States' South Carolina "cancer and specified disease" supplemental insurance policies, and continued Central States' practice of paying benefits without reference to any reduction in charges negotiated by the primary insurer.

On November 29, 2007, the Court of Appeals for the Fourth Circuit issued its opinion in Ward v. Dixie Nat'l Life Ins. Co., 257 F.App'x 620 (4th Cir. 2007). In Ward, an insured had purchased a supplemental cancer treatment benefit policy from Dixie National Life Insurance Company in 1990. As in the within action, the term "actual charges" was not defined in the insured's policy. Also as in the within action, the insurer initially calculated benefits based on the amounts billed to patients by their medical providers, "even though providers often have agreements with certain insurers to accept as payment-in-full an amount less than that reflected on the patient's bill." Id . The litigation arose after the insurer changed its benefit payment practice in 2001 and began to calculate benefits in light of any pre-negotiated discount rate for treatments.

The Fourth Circuit found the term "actual charges" to be patently ambiguous because there was "nothing in the policy to indicate whether actual charges' is best understood to mean the amount actually billed or the amount actually owed." Id. at 625. Consequently, the Fourth Circuit construed the ambiguity in favor of the insured. Id. at 627.

In response to Ward, the South Carolina Legislature enacted S.C. Code Ann. § 38-71-242, effective June 4, 2008. Section 38-71-242 provides, in pertinent part:

(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", "actual fee", or "actual fees" shall mean the amount that the health care provider or other designated person or entity:
(a) agreed to accept, pursuant to a network or other agreement with a health insurer, third-party administrator, or other third-party payor, as payment in full for the goods or services provided to the insured;
(b) agreed or is obligated by operation of law to accept as payment in full for the goods or services provided to the insured pursuant to a provider, participation agreement, or supplier agreement under Medicare, Medicaid, or any other government administered health care program, where the insured is covered or reimbursed by such program; or
(c) if both subitems (a) and (b) of this subsection apply, the lowest amount determined under these two subitems; and
(2) must include any applicable deductibles, coinsurance requirements, or co-pay requirements applicable to the insured under any government administered health care program or any private primary health insurance coverage for the health care provider's goods or services provided to the insured.

Relying on section 38-71-242, Philadelphia American commenced calculating benefits based upon the statutory definition of "actual charges." Plaintiff thereafter brought this action seeking a declaration, among other things, that section 38-71-242 did not apply to supplemental cancer insurance policies entered into between Defendants and policyholders prior to June 4, 2008 (First Cause of Action); and asserting breach of contract (Second Cause of Action).

On consent motion of the parties, the court certified the following questions to the South Carolina Supreme Court on February 5, 2013, pursuant to Rule 244 of the South Carolina Rules of Appellate Procedure:

1. Can the definition of "actual charges" contained within S.C. Code Ann. § 38-71-242 be applied to insurance contracts executed prior to the statute's effective date?
2. Can the South Carolina Department of Insurance mandate the application of "actual charges" definition in S.C. Code Ann. § 38-71-242 to policies already in existence on the statute's effective date by prohibiting an insurance company from paying claims absent the application of that definition?

By opinion dated June 25, 2014, the supreme court answered both questions in the negative. The supreme court found that neither the presumption against retroactivity nor the doctrine of constitutional avoidance bars the application of section 38-71-242 to Plaintiff's claims, because Plaintiff's claims arose after the statute's June 4, 2008 effective date. However, the supreme court agreed that section 38-71-242's definition of "actual charges" cannot be applied to insurance contracts entered into prior to the June 4, 2008 effective date because such an application violates the Contract Clause of both the state and federal constitutions. ECF No. 81.

On November 4, 2014, the parties filed a petition for preliminary approval of certification and settlement, which petition was supplemented on November 14, 2014. ECF Nos. 95, 98. The court held a hearing on December 8, 2014, and directed the parties to make certain changes and clarifications with respect to the notice package to be sent to the putative class members. See ECF No. 101. On December 12, 2014, the court issued an order preliminarily granting class certification and approving the settlement, and appointing class counsel. Further, the court set a fairness hearing for February 23, 2015. ECF No. 102. The parties filed a final supplement to the petition on December 16, 2014. ECF No. 104.

The approved class notice package was sent to the thirty-seven members of a class described as:

All persons insured at any time from August 21, 2008 to the present by Defendant Central States Health & Life Co. of Omaha "cancer and specified disease" policies executed in the State of South Carolina and who have filed a claim for benefits relative to the "actual charges" provisions contained within these policies that has been paid or should be paid by Defendant Philadelphia American Life Insurance Company.

Excluded from the class are the officers, directors, and employees of the Defendants. ECF No. 1, 2.

The class notice package was written in plain English and included (1) a description of the settlement class; (2) a description of the proposed settlement; (3) the names of class counsel; (4) a fairness hearing date; (5) a statement of the deadlines for filing objections to the settlement and for filing requests of exclusion; (6) the consequences of such exclusion; (7) the consequences of remaining in the settlement class; (8) information regarding class counsel's fees and expenses; and (9) instructions regarding how to obtain additional information. Specifically, the class members were notified that they were entitled to receive a sum for the difference between payments made based on "billed charges" pursuant to S.C. Code Ann. § 38-71-242, and "actual charges" submitted, as was the practice of Defendants prior to the enactment of section 38-71-242. The total amount for all past claims was contemplated to be $510, 080.22. The class notice package provided for $22, 919.00 to be paid to Plaintiff as compensation for acting as class representative, which amount included any amount she could recover under the claims process. The class notice package also notified the class members that class counsel would apply to the court for an award of attorneys' fees and expenses not to exceed $168, 326.47. The parties contemplated that, with the exception of Plaintiff's benefit, the attorneys' fees and expenses would be deducted from each class member's benefit on a pro rata basis. See ECF No. 101-2.


A. Final Class Certification

For the reasons stated in the court's order filed December 12, 2014, the court finds that the class should be certified in accordance with Fed.R.Civ.P. 23(a) and (b)(3).

B. Final Approval of Settlement

Under Fed.R.Civ.P. 23(e), the claims of a certified class may be settled only with the court's approval. The following procedures apply to a proposed settlement:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.
(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.
(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.
(4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.
(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval.

1. Notice

Proper notice is "an elementary and fundamental requirement of due process.'" Snider Int'l Corp. v. Town of Forest Heights, 739 F.3d. 140, 146 (4th Cir. 2014) (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314-15 (1950)). Notice must not be a mere gesture, but rather an effort reasonably calculated to effect actual notice. Id . (citing Mullane, 339 U.S. at 315). Notice satisfies due process where it either (1) "is in itself reasonably certain to inform those affected'" or (2) "where conditions do not reasonably permit such notice, ... the form chosen is not substantially less likely to bring home notice than other of the feasible and customary substitutes.'" Id . (quoting Mullane, 339 U.S. at 315). The use of mail satisfies the notice element of due process. Id . (citing cases).

On February 3, 2015, counsel for Defendants filed a notice indicating that the approved class notice package had been mailed on December 23, 2014 to the last known address of each class member. ECF No. 105. At the hearing, Defendant's counsel affirmed that no class notice package had been returned undeliverable and that neither he nor class counsel were aware of any class members who had not received the class notice package. The court finds that the notice requirement has been satisfied.

2. Finding that settlement is fair, reasonable, and adequate.

"The purpose of Rule 23(e) is to protect the unnamed members of the class. Under Rule 23(e), a district court acts as a fiduciary, guarding the claims and rights of the absent class members.'" McDaniels v. Westlake Services, LLC, C/A No. ELH-11-1837, 2014 WL 556288, *8 (D. Md. Feb. 7, 2014) (quoting Ehrheart v. Verizon Wireless, 609 F.3d 590, 595 (3d Cir. 2010)). "To determine whether a proposed settlement is fair, reasonable, and adequate, the court must examine whether the interests of the class are better served by the settlement than by further litigation.'" Id . (quoting Annotated Manual For Complex Litigation (Fourth) § 21.61 at 487 (2011)). The most important factor is a comparison of the terms of the proposed settlement with the likely recovery that the plaintiffs would realize if they were successful at trial. Id . (quoting Blackman v. District of Columbia, 454 F.Supp.2d 1, 8 (D.D.C. 2006)). In Deem v. Ames Tre Temper, Inc., C/A No. 6:10-cv-1339, 2013 WL 2285972, *1 (S.D. W.Va. May 23, 2013), the district court considered the following factors: (1) the extent of discovery that has taken place and the stage of the proceedings; (2) bad faith or collusion and circumstances surrounding the negotiation; (3) the experience of counsel; (4) objections from class members; (5) the relative ...

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