One of the last relics of Madison County's class action empire has crumbled at the Fifth District Appellate Court.
Justices on May 7 affirmed Madison County Circuit Judge William Mudge who dismissed a case against Employers Mutual Casualty Co. over allegations the insurer took discounts from workers' compensation claims that it was not entitled to.
Alton chiropractor Frank Bemis, originally represented by the now dissolved Lakin Law Firm, sued Employers in 2005, just before the effective date of a reform law that steered most new class actions to federal courts.
Bemis claimed Employers took discounts through preferred provider organization First Health but didn’t meet an obligation to steer patients to providers.
The case against Employers was similar to at least two dozen cases that Bemis and fellow chiropractors Mark Eavenson and Richard Coy filed in Madison County up until the Class Action Fairness Act took effect in early 2005.
In 2011, the Fifth District pulled the plug on a Coy class action against Travelers Insurance, holding that plaintiffs did not state a valid claim for relief and that former Circuit Judge Daniel Stack abused his discretion in certifying the class.
In the Bemis case against Employers, Mudge decertified a class that Stack also had certified, based on the Fifth District opinion in Coy. Mudge found that Bemis did not establish an actionable claim against Employers Mutual, and dismissed the case in July 2013.
Bemis appealed, arguing, first, that the Fifth District wrongly decided Coy v. Travelers.
He also argued that his case could be distinguished from Coy because there was no payor agreement between preferred provider organization First Health and Employers Mutual, and there was no evidence in the record to show that First Health authorized claims processor Fair Isaac to act as its representative in granting Employers Mutual access to the network.
Justice James Moore authored the court's opinion. Justices Bruce Stewart and Gene Schwarm concurred.
"In Coy, we held that because the plaintiffs' provider agreements with First Health
did not contain provisions promising any particular steerage or financial incentives, the plaintiffs could not state a cause of action against the insurance company for a breach of contract," Moore wrote.
"For the same reasons, we found that the insurance company's statement to the plaintiffs, that they were entitled to take a discount in accordance with the First Health network, was not an actionable misrepresentation under the Consumer Fraud Act."
Moore discussed Bemis's argument that the court's findings were made in "ignorance" of Illinois Supreme Court precedent, which holds that the laws in operation at the time of an agreement become part of the contract by operation of law.
He wrote that, according to Bemis, because administrative regulations governing PPO networks require that incentives be provided to insureds or beneficiaries for utilizing a network provider, "such a requirement must be read into any purported payor agreement as an implied term."
That argument fails, Moore wrote.
"...[T]here are legal inconsistencies that are inherent in the proposition that any administrative regulation purporting to require financial incentives would be an implied term in this case," Moore wrote.
"The irreconcilable conflict that results from a fair application of the rule that Bemis advocates, that the law in effect at the time of a contract becomes part of the contract by operation of law, is a result of the incomplete nature of Bemis's statement of the applicable rule. A complete statement of this rule contains an important caveat, and that is, the rule applies only when the contract itself does not contradict application of the law to be implied as a term."
Regarding Bemis's argument that it was error to decertify the class based on Coy due to the absence of a contract in the record proving that Fair Isaac was an authorized representative of First Health when Fair Isaac provided Employers Mutual with access to the First Health network, Moore wrote that the absence of a contract of record between First Health and Fair Isaac does not distinguish the breach of contract claim in the case at bar from the one in Coy.
"...[T]he circuit court was correct in finding that Bemis cannot state a cause of action for breach of contract against Employers Mutual based on this record," Moore wrote.
The appellate court rejected Bemis's consumer fraud and unjust enrichment claims.
"[B]ecause we have determined that the record belies all of the legal theories Bemis pleads in his first amended class action complaint, the circuit court did not err in decertifying the class," Moore wrote.
On appeal, Bemis was represented by Timothy F. Campbell of Godfrey and Robert W. Schmieder II and Mark L. Brown of SL Chapman in St. Louis.
Employers Mutual was represented by Thomas R. Pender of Cremer, Spina, Shaughnessy, Jansen & Siegert in Chicago.