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Shaffer v. National Health Insurance Co.

United States District Court, N.D. West Virginia

April 27, 2018




         On October 12, 2017, the plaintiffs, Timothy and Mary Shaffer (collectively, “the Shaffers”), filed a complaint in the Circuit Court of Monongalia County, West Virginia, against the defendants, National Health Insurance Company (“National”) and Meritain Health, Inc. (“Meritain”) (Dkt. No. 1-3). After the defendants removed the case to this Court (Dkt. Nos. 1; 4), Meritain moved to dismiss the Shaffers' complaint. For the reasons stated on the record during the scheduling conference, and for the following reasons, the Court GRANTS in part and DENIES in part the motion (Dkt. No. 12).

         I. BACKGROUND

         The Court's recitation of the facts is taken from the complaint and construed in the light most favorable to the Shaffers. See De'Lonta v. Johnson, 708 F.3d 520, 524 (4th Cir. 2013). National provides health insurance to individuals in West Virginia, and Meritain acts as “the administrator of and agent for the health insurance policies” issued by National (Dkt. No. 1-3 at 1, 6). On May 29, 2015, Mr. Shaffer was laid off from his job at a coal mine. Although eligible for COBRA benefits, the Shaffers could not afford the premiums. Instead, on July 1, 2015, they purchased health insurance policies from National and paid their premiums in a timely manner. Id. at 2.

         In January 2016, Mr. Shaffer underwent treatment for cancer and incurred substantial medical bills. Mrs. Shaffer also incurred medical expenses. Rather than approve and pay the Shaffers' bills, National and Meritain repeatedly denied payment, often alleging that they needed additional information from medical providers. Id. at 3. But the explanations of benefits and letters sent to the Shaffers failed to specify what information was missing, and the defendants never provided reasonable explanations for their failure to pay the claims. Id. at 3-5.

         The Shaffers' medical providers supplied the defendants with any reasonable information requested. At one point, when Mrs. Shaffer spoke to the defendants, she was advised that they needed pharmaceutical records. Mrs. Shaffer provided the requested records, but the defendants still failed to pay the claims. Id. at 3-4. Due to the defendants' failure to promptly investigate and pay the Shaffers' medical bills, medical providers have made collection demands on the Shaffers, and the Shaffers have been forced to make payment arrangements. Id. at 5. Given the financial strain caused by Mr. Shaffer's unemployment, the defendants' failure to pay has caused the Shaffers substantial and severe distress. Id.

         Due to Meritain's role as third-party administrator, the Shaffers allege that it “knew, understood, implemented and condoned the misconduct of National in failing to pay the plaintiffs' medical providers for many of the services they rendered to the plaintiffs even though it was well aware of the fact that it was delaying and/or denying payment for services covered by the health insurance policies.” Id. at 6. The Shaffers further allege that they “have been treated with continual delays and/or denials” as “part of a pattern and practice of the defendants designed to delay or deny valid health insurance in this and, on information and belief, [] in other cases.” Id. They make the following claims: 1) breach of contract, 2) Unfair Trade Practices Act/common law bad faith, and 3) conspiracy/aiding and abetting. Id. at 8-13.


         Fed. R. Civ. P. 12(b)(6) allows a defendant to move for dismissal on the grounds that a complaint does not “state a claim upon which relief can be granted.” When reviewing the sufficiency of a complaint, a district court “must accept as true all of the factual allegations contained in the complaint.” Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007) (quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)). “While a complaint . . . does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted). A court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). In order to be sufficient, “a complaint must contain ‘enough facts to state a claim to relief that is plausible on its face.'” Anderson, 508 F.3d at 188 n.7 (quoting Twombly, 550 U.S. at 547). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A motion to dismiss “does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992).

         In deciding a motion to dismiss, the Court “may also consider documents attached to the motion to dismiss, so long as they are integral to the complaint and authentic.” Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009). The Court has considered the following documents, which Meritain attached to its motion to dismiss: the National health insurance policy, the Administrative Services Agreement (“ASA”) between National and Meritain, and an ASA amendment (Dkt. Nos. 12-1; 12-2; 12-3).


         “A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits.” Volvo Const. Equip. N. Am. v. CLM Equip. Co., Inc., 386 F.3d 581, 599-600 (4th Cir. 2004) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79 (1938)). The Court must apply West Virginia law. See Beckley Mech., Inc. v. Erie Ins. & Cas. Co., 374 Fed.Appx. 381, 383 n.1 (4th Cir. 2010) (unpublished decision) (citing Erie, 304 U.S. 64).

         A. Count One - Breach of Contract

         With regard to Count One, Meritain contends that it cannot be liable for breach of contract because it is not a party to the insurance policies issued by National (Dkt. No. 13 at 4-5). Indeed, “[i]t is well-settled that ‘[a] non-party to a contract cannot be sued for breach of that contract.'” Ohio Valley Health Servs. & Educ. Corp. v. Riley, 149 F.Supp.3d 709, 715 (N.D.W.Va. 2015) (quoting A. Hak Indus. Servs. BV v. TechCorr USA, LLC, 2014 WL 7243191, at *12 (N.D.W.Va. Dec. 19, 2014)). Moreover, “[t]he Shaffers recognize that Meritain is not liable for breach of contract” (Dkt. No. 21 at 2, 8). The Court thus GRANTS Meritain's motion to dismiss Count One.

         B. Count Two - Bad Faith

         Although pleaded as one claim, Count Two actually raises different theories of common law bad faith and statutory bad faith. Meritain argues that each is defective. As discussed below, the Shaffers have not pleaded a viable common law bad faith claim against Meritain but have stated a claim for statutory bad faith.

         1. Common Law Bad Faith

         According to Meritain, because it is not a party to the Shaffers' insurance contracts, it cannot be liable for common law bad faith (Dkt. No. 13 at 5-6). This contention is well-founded. There is undoubtedly “a common law duty of good faith and fair dealing running from an insurer to its insured.” Elmore v. State Farm Mut. Auto. Ins. Co., 504 S.E.2d 893, 896 ( W.Va. 1998) (citing Hayseeds, Inc. v. State Farm Fire & Cas., 352 S.E.2d 73 (1986)). In Elmore, however, the Supreme Court of Appeals rejected the possibility that a third party to an insurance contract can maintain a common law bad faith claim against an insurer:

[T]he common law duty of good faith and fair dealing in insurance cases under [West Virginia] law runs between insurers and insureds and is based on the existence of a contractual relationship. In the absence of such a relationship there is simply nothing to support a common law duty of good faith and fair dealing on the part of insurance carriers toward third-party claimants.

Id. at 897. In Grubbs v. Westfield Insurance Co., this Court applied the holding in Elmore to a common law bad faith claim by a policyholder against an insurer's adjuster. 430 F.Supp.2d 563, 567 (N.D.W.Va. 2006). The Court reasoned that insurance agents and adjusters have no contractual relationship with the insured, and thus owe no common law duty of good faith and fair dealing to an insured. Id. at 567-68.

         As the Shaffers concede (Dkt. No. 21 at 8), the principles of Elmore and Grubbs dictate the same result in this case. Meritain allegedly acted as National's administrator and agent with regard to the policies (Dkt. No. 1-3 at 1, 6), but the Shaffers have not alleged a contractual relationship with Meritain that would impose a common law duty of good faith and fair dealing. See Elmore, 504 S.E.2d at 897; Grubbs, 430 F.Supp.2d at 567. They thus cannot maintain a claim for common law bad ...

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