Hamm v. Blue Cross & Blue Shield of N.C.

Hamm v. Blue Cross & Blue Shield of N.C., 2010 NCBC 14.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF DURHAM 05 CVS 5606

MACY M. HAMM, Individually and on behalf )
of All Others Similarly Situated, )
Plaintiff )
) ORDER AND OPINION ON
v. ) CROSS MOTIONS
) FOR SUMMARY JUDGMENT
BLUE CROSS AND BLUE SHIELD OF )
NORTH CAROLINA, )
Defendant )

THIS CAUSE, designated exceptional and assigned to the undersigned by Order

of the Chief Justice of the North Carolina Supreme Court, pursuant to Rule 2.1 of the

General Rules of Practice for the Superior and District Courts, came before the court

upon Plaintiff's Motion for Partial Summary Judgment ("Plaintiff's Motion") and

Defendant's Motion for Summary Judgment ("Defendant's Motion") (collectively, the

"Motions"), pursuant to Rule 56, North Carolina Rules of Civil Procedure ("Rule(s)");

and 1

THE COURT, after considering the arguments, briefs, affidavits, other

submissions of counsel and appropriate matters of record, as discussed infra,

CONCLUDES that the Plaintiff's Motion should be GRANTED and the Defendant's

Motion should be GRANTED in part and DENIED in part.

Twiggs, Beskind, Strickland & Rabenau, PA by Donald H. Beskind, Esq.; Billet
and Connor, PC by J. Martin Futrell, Esq. and David S. Senoff, Esq.; and
Marcus, Auerbach & Zylstra, LLC by Jerome Marcus, Esq. and Jonathan
Auerback, Esq. for Plaintiff.

1
In its Answer, Defendant moved to dismiss the Complaint under Rule 12(b)(6). This motion was never
fully briefed and thus is deemed to have been abandoned.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP by Jennifer K. Van Zant,
Esq. and Charles F. Marshall, III, Esq. for Defendant.

Jolly, Judge.
I.

PROCEDURAL BACKGROUND

[1] On November 3, 2005, Plaintiff Macy M. Hamm ("Hamm") filed a

Complaint in behalf of herself and all others similarly situated against Defendant Blue

Cross and Blue Shield of North Carolina Foundation (the "Foundation") and Defendant

Blue Cross and Blue Shield of North Carolina ("BCBSNC"). The Complaint alleges

claims for relief ("Claim(s)") in four counts: First Count – Breach of Contract; Second

Count – Breach of Good Faith; Third Count – Unfair and Deceptive Trade Practices and

Fourth Count – Declaratory Judgment.

[2] On January 30, 2006, Defendants filed their Answer to the Complaint.

The Answer raises ten affirmative defenses, including lack of standing on the part of

Plaintiff (Fourth Defense) and failure of Plaintiff to exhaust her available administrative

remedies prior to filing this civil action (Fifth Defense).

[3] On March 21, 2007, the court entered a Consent Order dismissing,

without prejudice, the Claims against the Foundation.

[4] On March 8, 2008, Hamm filed the Plaintiff's Motion, relative to her Claim

for declaratory judgment.

[5] On August 5, 2008, the court granted the Plaintiff's Motion for Class

Certification, pursuant to Rule 23.

[6] On October 10, 2008, BCBSNC filed the Defendant's Motion as to all

Claims, on the grounds that (a) the Plaintiff and class members (the "Class") lack
standing to bring their claims and (b) there exist no genuine issues of material fact, and

that Defendant is entitled to judgment of dismissal as to all Claims.

[7] The court has heard oral argument on the Motions and they are ripe for

determination.

[8] Unless otherwise indicated herein, the material facts reflected in

paragraphs 9 through 21 of this Order exist, are undisputed 2 and are pertinent to the

issues raised by the Motions.

II.

FACTUAL BACKGROUND

[9] Hamm is a citizen and resident of Wake County, North Carolina.

[10] The Class includes any individual (a) who ever was a member of one of

BCBSNC's preferred provider organization health benefit plans ("PPO Plan(s)" or

"Plan(s)") between November 2002, and August 5, 2008, the date of the class

certification Order; (b) whose PPO Plan was not an Employee Retirement Income

Security Act ("ERISA") plan; (c) who in any benefit period reached their benefit

period maximum or who reached their lifetime maximum as those phrases are

defined under the terms of their PPO Plan contract and (d) who were charged by in-

network providers more than the allowed amount for covered services or supplies

after they reached their benefit period maximum or lifetime maximum.

2
It is not proper for a trial court to make findings of fact in determining a motion for summary judgment
under Rule 56. However, it is appropriate for a Rule 56 order to reflect material facts that the court
concludes exist and are not disputed, and which support the legal conclusions with regard to summary
judgment. Hyde Ins. Agency v. Dixie Leasing, 26 N.C. App. 138, 142 (1975).
[11] The contract between the Class and BCBSNC consists of a Summary of

Benefits, a benefit booklet (the "Booklet"), an application and an optional benefit

endorsement (collectively, the "Contract(s)"). 3

[12] As defined by the Booklet, 4

(a) A "member" ("Member") "is a subscriber or dependent, who is

currently enrolled in [a BCBSNC] health benefit plan and for whom premium is

paid." 5 According to the Booklet, "[M]embers are eligible to receive benefits as

long as they are under age 65 at the time they initially enroll, subject to

acceptance by BCBSNC." 6

(b) A "benefit period" is "the 12-month period of time as stated in the

'Summary Of Benefits' during which charges for covered services provided to a

[M]ember must be incurred in order to be eligible for payment by BCBSNC." 7

(c) A "benefit period maximum" is "the dollar amount that each covered

[M]ember can receive in paid benefits from BCBSNC for certain services." 8

(d) A "lifetime maximum" is "the maximum amount of covered services

that will be reimbursed for a [M]ember while he or she has coverage under [the]

health benefit plan." 9 It is also defined as the "dollar amount that each covered

[M]ember can receive in paid benefits from BCBSNC during a lifetime for certain

services." 10

3
Dunlap Aff., Ex. A BCBS003026 (hereinafter, references to this source will be to Ex. A 30**).
4
The court includes BCBSNC’s use of italics in the following definitions to identify other defined terms.
5
Dunlap Aff., Ex. A 3071.
6
Id. at 3054.
7
Id. at 3068.
8
Id. at 3038.
9
Id. at 3071.
10
Id. at 3038.
(e) An "in-network provider" is "a hospital, doctor, other medical

practitioner or provider of medical services and supplies that has been

designated as a Blue Advantage provider by BCBSNC. 11 It is also defined as

one who participates in the Blue Advantage network. 12

(f) An "allowed amount" is "the charge that BCBSNC determines is

reasonable for covered services provided to a [M]ember." 13

(g) A "covered service" as "a service, drug, supply or equipment

specified in this benefit booklet for which [M]embers are entitled to benefits in

accordance with the terms and conditions of this health benefit plan." 14

[13] BCBSNC operates as a non-profit "medical services corporation" under

N.C. Gen. Stat. Ch. 58 (hereinafter, references to the North Carolina General Statutes

will be to "G.S.").

[14] BCBSNC has Members enrolled in PPO Plans, including but not limited to

plans with trade names Blue Advantage and Blue Options and plans governed by the

provisions of ERISA.

[15] BCBSNC contracts with health care providers to provide certain covered

services to Members who are enrolled in Blue Advantage.

[16] BCBSNC contracts with certain entities to offer group health plans.

[17] Hamm purchased Blue Advantage health insurance from BCBSNC in or

around 2003. Hamm renewed her Blue Advantage policy each year through the filing of

11
Id. at 3070.
12
Id. at 3017.
13
Id. at 3068.
14
Id. at 3068.
her Complaint and has remained a Member of the plan at least until the date of the filing

of this action.

[18] On or about June 12, 2003, Hamm gave birth to a son. This son was a

Member of Hamm's Blue Advantage plan as of the date of the filing of this action.

[19] From June 12, 2003, through the date of filing, Hamm's son received

extensive medical treatment from in-network providers for cerebral palsy, including

extensive physical and speech therapies. He reached the benefit period maximums

under Hamm's PPO plan prior to the close of the benefit period.

[20] Subsequent to reaching the benefit period maximums, Hamm's son

continued to receive therapies from in-network providers although Hamm was

responsible for payment for the therapies. The in-network providers charged Hamm

their ordinary rates, which exceeded the allowed rates for those services that her son

received from in-network providers before he reached benefit period maximums.

[21] Similarly, after the Class Members' benefit period maximums were

reached, the in-network providers charged Class Members the providers' ordinary rates,

amounts which exceeded the allowed rates for those services Class Members received

from in-network providers before they reached benefit period maximums.

III.

PARTIES' CONTENTIONS

[22] The pivotal issue before the court is one of contractual construction of the

Booklet. More specifically, it is whether as a matter of law (a) as Defendant contends,

BCBSNC can adjudicate claims from in-network providers to allow them to charge PPO

Class Members amounts over the allowed amount once the Member reaches a benefit
period maximum for covered services when the maximum is expressed in visits rather

than dollars; or (b) as Plaintiff contends, BCBSNC is contractually bound to a promise to

Class Members that if a Member received covered services from an in-network

provider, the Member would never be responsible for any amount of excess of the

discounted contract rate BCBSNC has negotiated with the in-network provider.

[23] The Plaintiff argues that (a) BCBSNC's exclusion of covered services as

such upon a Member's reaching a benefit period maximum expressed in visits

determines and limits BCBSNC's responsibility only as to the level of payments by a

Member, and does not act to establish whether a service is a covered service for other

purposes under the Contract, (b) the Contract expressly limits a Member's responsibility

for payment to the allowed amount unless services are provided by out-of-network

providers and (c) at best, the Contract language is ambiguous as a matter of law and

must be construed against BCBSNC.

[24] BCBSNC argues that (a) Class Members lack standing to bring the action

against BCBSNC because (i) they fail to allege a sufficient injury in fact; (ii) their alleged

injury is not fairly traceable to the acts of BCBSNC and (iii) their alleged injuries cannot

be redressed by a favorable decision against BCBSNC; (b) Class Members failed to

exhaust their administrative remedies and cannot proceed here and (c) the substantive

Claims of the Complaint fail as a matter of law pursuant to Rule 56. 15

15
The various other affirmative defenses raised by Defendant are not pivotal to the court’s determination
of the Motions and need not be analyzed in this Order.
IV.

APPLICABLE LAW

[25] Under Rule 56(c), summary judgment is to be rendered "forthwith" if the

pleadings, depositions, answers to interrogatories and admissions on file, together with

the affidavits, if any, show that upon the forecast of evidence there exists no genuine

issue as to any material fact and that any party is entitled to a judgment as a matter of

law. Grayson v. High Point Dev. Ltd. P'ship, 175 N.C. App. 786, 788 (2006). The court

views the evidence in the light most favorable to the nonmoving party. Bruce-Terminix

Co. v. Zurich Ins. Co., 130 N.C. App. 729, 733 (1998).

V.

ANALYSIS

[26] The court first will consider Defendant's threshold procedural defenses

with regard to the issues of standing and exhaustion of administrative remedies.

A.

STANDING

[27] A party must have standing to assert a claim in order to invoke the subject

matter jurisdiction of this court. See Estate of Apple v. Commercial Courier Express,

Inc., 168 N.C. App. 175, 177, disc. rev. denied, 359 N.C. 632 (2005). The question of

standing is jurisdictional and may be raised at any time. Crouse v. Mineo, 189 N.C.

App. 232, 236 (2008).

[28] Standing requires (a) injury in fact, which is an invasion of a legally

protected interest that is concrete and particularized and actual or imminent, not

conjectural or hypothetical; (b) that the injury be fairly traceable to the challenged action
of the defendant and (c) that it be likely, as opposed to merely speculative, that the

injury will be redressed by a favorable decision. See Neuse River Found., Inc. v.

Smithfield Foods, Inc., 155 N.C. App. 110, 114 (2002).

a.

Injury in Fact

[29] A breach of contract, even if negligible, constitutes injury. 16 Here, the

Class Members have alleged and forecast evidence sufficient to establish such a

breach. Therefore, nothing else appearing, they satisfy this standing element.

[30] However, North Carolina courts have held that a claim which is "barred by

law," e.g., because of expiration of the applicable statute of limitations, does not satisfy

the injury in fact standing requirement. Estate of Apple, 168 N.C. App. at 177. Here,

BCBSNC argues that the statute of limitations has expired on some Class Claims and

that those Class Members do not have standing in this civil action.

[31] A claim for an alleged injury must be made within the applicable statue of

limitations. The statute of limitations for contracts is three years from the time of

accrual. G.S. 1-52(1). Accrual takes place "as soon as the right to institute and

maintain a suit arises." Penley v. Penley, 314 N.C. 1, 19-20 (1985).

[32] The Complaint in this action defines BCBSNC's alleged breach of contract

as the act, committed by both BCBSNC and in-network providers, of charging Class

Members amounts in excess of the allowed amount for medical services provided by

the in-network providers after they reach the benefit period maximum and/or lifetime

16
See Bowen v. Bank, 209 N.C. 140, 144 (1936); Kinnard v. Mecklenburg Fair, 46 N.C. App. 725, 730
(1980) (holding that once breach of contract is established, plaintiff is entitled to at least nominal damages
because of injury to rights). See also Neuse River Found., 155 N.C. App. at 114..
maximum. 17 The breach is later described as BCBSNC's alleged improper adjudication

of the Class Members' claims. 18 A cause of action for such a contended breach of

contract would accrue when an in-network provider charged its ordinary rates to the

Class Member.

[33] Consequently, the statute of limitations would bar contract Claims against

BCBSNC by those Class Members who were charged ordinary rates by in-network

providers more than three years prior to the commencement of this action. However, it

would not bar contract Claims by those Class Members who were charged ordinary

rates by in-network providers less than three years prior to the commencement of this

action, or whose particular fact situation would cause a tolling of the statute of

limitations. Coe v. Highland Sch. Assocs. Ltd. P'ship, 125 N.C. App. 155, 157 (1997),

Johnson Neurological Clinic, Inc. v. Kirkman, 121 N.C. App. 326, 330-31 (1996).

b.

Fairly Traceable

[34] For an injury to be fairly traceable to the challenged action of the

defendant, it must not be the result of the independent action of a third party not before

the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). See also Frank

Krasner Enters. v. Montgomery County, 401 F.3d 230, 235 (4th Cir. Md. 2005); Friends

of the Earth, Inc. v. Gaston Copper Recycling Corp., 204 F.3d 149, 162 (4th Cir. S.C.

2000).

17
Compl. ¶ 24.
18
Pl. Mem. Opp. Def. Mot. Summ. J. ¶ III (C).
[35] In the case sub judice, the alleged breach of contract is itself the cause of

the injury. Therefore, the acts of independent third parties are of no moment, 19 and

Class Members satisfy this element.

c.

Redressability Requirement

[36] For an injury to be redressable, a favorable decision must not depend "on

the unfettered choices made by independent actors not before the courts and whose

exercise of broad and legitimate discretion the courts cannot presume either to control

or to predict." Wangberger v. Janus Capital Group (In re Mut. Funds Inv. Litig.), 529

F.3d 207, 217 (4th Cir. Md. 2008), citing ASARCO, Inc. v. Kadish, 490 U.S. 605, 615

(1989).

[37] In the case sub judice, a decision favorable to Class Members would

remedy their injuries by estopping Defendant from breaching its alleged contracts with

them, i.e., from continuing to allow in-network providers to charge standard rates to

Class Members once Class Members have exceeded visit maximums, and by obliging

Defendant to pay compensatory damages.

[38] The court concludes that Plaintiff and Class Members have standing, and

Defendant's Motion based on lack of standing should be DENIED.

B.

EXHAUSTION OF ADMINISTRATIVE REMEDIES

[39] The court next considers BCBSNC's exhaustion of remedies argument.

19
Defendant’s argument that it is the provider’s decision actually to charge and collect rates in excess of
the allowed amount, Werner Aff. ¶ 11, is attractive, though unconvincing. It is to be expected that a
provider, if given a choice, would charge the higher rate.
[40] Courts will enforce parties' contractual agreements to submit disputes to

administrative resolution before litigating an action. See, e.g., Adams v. Nelsen, 313

N.C. 442, 446 (1985); Summerville v. Local 77, 369 F. Supp. 2d 648, 657 (M.D.N.C.

2005); First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. N.Y.

1994). See also Brooks v. Arlington Hosp., 850 F.2d 191, 196 (1988).

[41] At first blush, the grievance process at issue here seems to be completely

voluntary in nature. 20 However, the Limitation on Actions provision of the Booklet

makes it clear that a Member may not take action to recover benefits for sixty (60) days

after the Member gives BCBSNC a Notice of Claim and until the Member has

exhausted all administrative remedies, including the grievance process. 21

[42] However, neither the particular provision nor the contract defines an

"action to recover benefits." Moreover, neither equates the phrase "action to recover

benefits" with the term "grievance." Without more, the court must look to the plain

meaning of the words used. In doing so, the court is forced to conclude that an action

to recover benefits is not necessarily the same as an action regarding billing or claims

processing. As such, the phrase is ambiguous, and the court must view it in light of the

Class Members' reasonable interpretation to the effect that they were not subject to the

provision because they were not complaining about a denial of benefits, but rather

about billing and claims processing. 22

[43] The court concludes that Defendant's Motion based upon failure to

exhaust administrative remedies should be DENIED.

20
Ex. A 3059 (“The grievance process is voluntary . . . .”).
21
Id. at 3066.
22
See Def. Mot. Summ. J., Ex. 4 (Hamm Dep.) 167: 20-25.
C.

FOURTH COUNT – DECLARATORY JUDGMENT

[44] The court now considers the Motions with respect to the Class Members'

action for declaratory judgment. 23 As to this Count, both Plaintiff and Defendant seek

judgment pursuant to Rule 56.

1.

Background

[45] Class Members seek a declaration by the court that they are not

responsible for payment of any amount above the "allowed amount," as the term is

defined by the Contracts, for services that they receive from in-network providers, 24

including those situations in which they have reached their benefit period maximums

and/or lifetime maximums under their PPO Plans.

[46] By way of their Motion, Class Members ask the court to conclude as a

matter of law that under the relevant Contracts, BCBSNC cannot adjudicate claims from

in-network providers to allow those providers to charge Class Members at rates over the

allowed amount once Class Members reach a benefit period maximum for covered

services when the maximum is expressed in visits rather than dollars. The Class

Members construe their Contracts with BCBSNC to include an express promise by

BCBSNC that Members who receive covered services from in-network providers will

never be responsible for any payment amount in excess of an allowed amount. The

Class Members distinguish the terms "exclusion" and "limitation," arguing that covered

23
The court determines it is preferable to consider the Plaintiff’s Fourth Count first.
24
Regardless of whether Class Members or BCBSNC are responsible for payment to the in-network
provider.
services are subject to limitations, but not exclusions and, as such, always remain

covered services.

[47] On the other hand, BCBSNC contends that a fair reading of the Contracts

supports its argument that the term "covered services" does not include those services

provided by in-network providers that exceed a visit benefit period maximum. BCBSNC

points out that the Class Members' contended construction effectively would prohibit in-

network providers from charging Members even the allowed amount because in-

network providers are not allowed to charge Members any fees for covered services

other than deductibles, coinsurance and copayments. 25 BCBSNC also argues that if a

service remained a covered service after a Member exceeded a visit maximum, then

BCBSNC would be required to pay benefits for those services indefinitely, thus

rendering ineffective the visit limitation.

[48] As discussed supra, a "covered service" is "a service, drug, supply or

equipment specified in this [] Booklet for which Members are entitled to benefits in

accordance with the terms and conditions of this health benefit plan." 26

[49] The central issue for resolution is whether the "terms and conditions"

referred to in the Contract's definition of "covered services" includes restrictions on

benefits provided after a Member has exceeded an applicable benefit period maximum

and/or lifetime maximum.

[50] The Contract documents do not define explicitly the applicable "terms and

conditions" and, as such, the court must look to the other Contract provisions to

25
Werner Aff. ¶ 7, Ex. B ¶ 10.13.2.
26
Ex. A 3068.
determine the meaning of those words. See Wachovia Bank & Trust Co. v.

Westchester Fire Ins. Co., 276 N.C. 348, 355 (1970), supra.

2.

Applicable Law

[51] The meaning of language in an insurance policy is a matter of law.

Wachovia, 276 N.C. at 354.

[52] If a term is defined in a policy, that definition is given to the term wherever

it appears in the policy, unless the context clearly requires otherwise. Id. See also

Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 505-06 (1978); Nationwide Mut. Ins.

Co. v. Mabe, 342 N.C. 482, 492 (1996) ("If a policy defines a term, then that meaning is

to be applied regardless of whether a broader or narrower meaning is customarily given

to the term, the parties being free, apart from statutory limitations, to make their contract

for themselves and to give words therein the meaning they see fit.") (internal citation

omitted).

[53] If a term is not defined in a policy, "nontechnical words are to be given a

meaning consistent with the sense in which they are used in ordinary speech, unless

the context clearly requires otherwise." Wachovia, 276 N.C. at 354. See also Woods,

295 N.C. at 506 (1978); North Carolina Farm Bureau Mut. Ins. Co. v. Mizell, 138 N.C.

App. 530, 532-33 (2000).

[54] If the immediate context in which a word is used in a policy does not

clearly indicate the intended meaning of a word, a court may look to other portions of

the policy and construe all its clauses to bring them into harmony. Wachovia, 276 at

355. See also Woods, 295 N.C. at 506 (1978); Pa. Nat'l Mut. Ins. Co. v. Strickland, 178
N.C. App. 547, 550 (2006) ("[E]ach provision of an insurance contract must be

interpreted in view of the whole contract and not in isolation."). Moreover, "[e]ach word

is deemed to have been put into the policy for a purpose and will be given effect, if that

can be done by any reasonable construction in accordance with the foregoing

principles." Id. (referencing Williams v. Ins. Co., 269 N.C. 235, 240 (1967)).

[55] An ambiguity exists when, in the court's opinion, "the language of the

policy is fairly and reasonably susceptible to either of the constructions for which the

parties contend." Wachovia, 276 N.C. at 354 (internal citation omitted). See also

Joyner v. Nationwide Ins., 46 N.C. App. 807, 809, disc. rev. denied, 301 N.C. 91 (1980)

("The test in deciding whether the language is plain or ambiguous is what a reasonable

person in the position of the insured would have understood it to mean, and not what

the insurer intended."); Strother v. N.C. Farm Bureau Mut. Ins. Co., 90 N.C. App. 734,

737 (1988) ("The determinative question is whether a reasonable person in the position

of the insured, from reading the policy, would believe the policy provided coverage.").

[56] Any ambiguity or uncertainty as to the meaning of words in an insurance

policy is resolved in favor of the policyholder, or the beneficiary, and against the

company because the company drafted the policy. Wachovia, 276 N.C. at 354. See

also Woods, 295 N.C. at 506 (1978).

[57] Exclusions upon and limitations of "undertakings by the [insurance]

company, otherwise contained in the policy, are to be construed strictly so as to provide

the coverage, which would otherwise be afforded by the policy." Wachovia, 276 N.C.

348 at 355). See also Southeast Airmotive Corp. v. United States Fire Ins. Co., 78 N.C.

App. 418, 420 (1985), disc. review denied, 316 N.C. 196 (1986) ("Exclusions from
liability are not favored, and are to be strictly construed against the insurer. (citation

omitted). When the coverage provisions of a policy include a particular activity, but that

activity is later excluded, the policy is ambiguous, and the apparent conflict between

coverage and exclusion must be resolved in favor of the insured."); Washington Hous.

Auth. v. North Carolina Hous. Auths. Risk Retention Pool, 130 N.C. App. 279, 281

(1998), disc. review denied, 349 N.C. 530 (1998) ("In construing the provisions of an

insurance policy . . . wherever possible, the policy will be interpreted in a manner 'which

gives, but never takes away, coverage.'") (internal citation omitted).

3.

Other Contract Terms and Conditions

[58] The court now looks to other parts of the Contract policy to determine

what "terms and conditions" apply to covered services.

[59] The "Covered Services" section of the Booklet lists a number of covered

services. 27 This section also indicates that exclusions and limitations apply to a

Member's coverage. 28 First, the section refers to service-specific exclusions. 29 For

example, benefits for short-term rehabilitative therapies are limited to a combined in-

network and out-of-network benefit period maximum. 30 Second, the section refers to

exclusions that apply to many services. 31 Third, the section directs the Member to other

sections to understand what exclusions and limitations apply to each service. 32

27
Dunlap Aff. Ex. A. 3039-52.
28
Id. at 3039.
29
Id.
30
Id. at 3044.
31
Id. at 3039.
32
Id.
[60] The preceding descriptions of exclusions and limitations refer only to

specific services or groups of services, not services as a whole. If there were such

exclusions or limitations, the Covered Services section does not indicate where an

explanation of such would be located. Moreover, the exclusions described in the "What

is Not Covered?" section of the Booklet are service-specific. 33 None of these

exclusions indicate that coverage ends for services, supplies, drugs or charges not

listed when visit or dollar maximums are exceeded. 34 As such, it is reasonable to

interpret these sections as suggesting that no exclusions or limitations apply to all

services.

[61] Defendant's interpretation of "covered services" is inconsistent with the

above interpretation because it suggests an exclusion that would apply to all services.

[62] The Booklet starkly contrasts in and out-of-network benefits. 35 Its

description of out-of-network benefits specifically states that if a Member receives

covered services from an out-of-network provider, that Member may be required to pay

the difference between the provider's actual charge and the BCBSNC allowed

amount. 36 There is no such limitation in the description of in-network benefits. 37

Rather, in the "Understanding Your Share of the Cost" section, the Booklet instructs

Members that if they receive covered services from in-network providers, then they are

not responsible for any charge over the allowed amount. There is no limitation on this

statement.

33
Id. at 3052.
34
Id. at 3052-53.
35
See, e.g., id. at 3039.
36
Id. at 3035.
37
See id. at 3034.
[63] The "When Coverage Begins and Ends" section explains that Members

are eligible to receive benefits subject to an age restriction. 38 Termination of a

Member's coverage is predicted only when the Member reaches his or her lifetime

maximum, not a benefit period maximum. 39 As such, it is reasonable to construe the

language to mean that coverage continues despite visits to in-network providers that

exceed a benefit maximum.

[64] Moreover, the "Additional Terms Of Your Coverage" section explains that

benefits for services provided by in-network providers are "based on the lesser of the

allowed amount or the provider's charge." 40 The section reminds Members, however,

that Members are responsible for charges not covered by Blue Advantage, such as

amounts above the benefit maximums, and for the full cost of noncovered services. 41 In

contrast, the same section explains that benefits for services provided by out-of-network

providers are paid based on the allowed amount and that, in addition to the limitations

listed above, the Members are responsible for any amounts over the allowed amount. 42

[65] The court has attempted to construe the Contract documents in the

manner contended by Defendant in its Motion. The court has been unable to give the

Contract only the construction argued by Defendant. Rather, the court is forced to

conclude that the Contract documents' description of terms and conditions imposed

upon covered services is fairly and reasonably susceptible to either of the constructions

for which the respective parties have argued. As such, an ambiguity exists, and the

court is required to resolve the ambiguity in favor of the Class.

38
Id. at 3055.
39
Id.
40
Id. at 3063.
41
Id.
42
Id. at 3063-64.
[66] Accordingly, the court concludes that the terms and conditions that limit

the definition of "covered service" do not include restrictions placed on benefits provided

by in-network providers after a Member has exceeded an applicable benefit period

maximum and/or lifetime maximum.

[67] Accordingly, with regard to Plaintiff's Fourth Count, the court

CONCLUDES that there exist no genuine issues of material fact, that Plaintiff's Motion

as to said Fourth Count should be GRANTED and that Defendant's Motion should be

DENIED.

D.

FIRST COUNT – BREACH OF CONTRACT

[68] Defendant's Motion seeks dismissal of Plaintiff's breach of contract Claim.

[69] The Complaint alleges that BCBSNC breached its Contract with Class

Members by charging them an amount in excess of the allowed amount for medical

services rendered by in-network providers after reaching applicable benefit period

maximums. BCBSNC responds correctly that it was the providers, not BCBSNC, who

charged the Class Members. The Complaint later defines the breach complained of as

the wrongful adjudication of claims processing. At the heart of both definitions is the

contention that BCBSNC broke its alleged promise to Class Members that they would

not be charged more than an allowed amount if they received covered services from in-

network providers. 43

[70] To determine whether or not there is evidence sufficient to support a

Claim that BCBSNC broke such a promise, the court considers the process by which

Class Members are charged more than the allowed amount for covered services.
43
Id. at 3037.
[71] After receiving requests for reimbursement from in-network providers,

BCBSNC's procedure is to determine whether the services are covered. 44 BCBSNC

then provides the in-network provider with either a "Notification of Payment" or an

"Explanation of Payment." 45 These documents inform a provider whether and to what

extent it will be reimbursed for the services it provided to the Member. 46

[72] The provider will not be reimbursed by BCBSNC for non-covered

services. 47 An example of a non-covered service, as defined by BCBSNC, is a visit

exceeding the Member's visit maximum. 48 BCBSNC contends that the provider may

seek payment in excess of the allowed amount from Members for such non-covered

services. 49 The right to seek such payment may require the provider to obtain the

Member's written authorization prior to rendering the non-covered services. 50 The

provider may bill a Member for those amounts reflected in the Notification of Payment

as owed by the Member. 51

[73] As the court has concluded, supra, covered services remain covered

notwithstanding an exhausted benefit or lifetime maximum.

[74] As such, BCBSNC's labeling of a covered service as one that is not

covered may lead causally to Members being charged more than the allowed amount

44
Dunlap Aff. ¶ 8.
45
Id. ¶¶ 12-13.
46
These documents reflect the provider’s billed charges, the allowed amount and the Member’s liability.
Id.
47
Id. ¶ 8. However, “BCBSNC may, in its discretion, process claims that exceed a benefit maximum at
the provider’s full charge rather than at the discounted or contracted rate known as the ‘allowed amount.’
BCBSNC, however, may choose to continue to process the claim at an allowed amount.” Kreidt Aff. ¶ 4.
Plaintiff contends that this use of discretion is itself a breach of BCBSNC’s Contract with the Class.
48
Dunlap Aff. ¶ 30.
49
Id. ¶ 10. See also Werner Aff., Ex. A ¶ 4.7.
50
See Werner Aff. Ex. A ¶¶ 4.7.6, 4.7.7.
51
Id. ¶ 4.7.3. The provider also may bill the Member if, prior to receipt of the notification, BCBSNC
verified that the services received were not covered. Id.
for covered services. Therefore, such labeling may constitute a breach of BCBSNC's

contract with its Members.

[75] The court concludes that Plaintiff has forecast evidence sufficient to

support the allegations of a breach of the Contract and that the Class Members have

suffered damages and the value thereof. See, e.g., Shalford v. Shelley's Jewelry, Inc.,

127 F. Supp. 2d 779, 789 (W.D.N.C. 2000). See also Standing, supra.

[76] Accordingly, with regard to Plaintiff's First Count, the court CONCLUDES

that there exist one or more genuine issues of material fact, and that BCBSNC's Motion

as to said First Count should be DENIED.

E.

SECOND COUNT – BREACH OF GOOD FAITH

[77] Defendant's Motion seeks dismissal of Plaintiff's Claim for breach of the

covenant of good faith.

[78] "In every contract there is an implied covenant of good faith and fair

dealing that neither party will do anything which injures the right of the other to receive

the benefits of the agreement." Sunset Beach Dev., LLC v. Amec, Inc., 2009 N.C. App.

LEXIS 454 **29-30 (N.C. Ct. App. 2009) (citing Bicycle Transit Auth., Inc. v. Bell, 314

N.C. 219, 228 (1985)).

[79] While an action for breach of covenant of good faith is "part and parcel" of

a claim for breach of contract, Shalford, 127 F. Supp. 2d at 787, a breach of a contract

does not, by itself, breach this implied covenant.

[80] Instead, a claim for breach of covenant of good faith suggests a party did

not act upon the principles of good faith or fair dealing to accomplish the purpose of an
agreement. Maglione v. Aegis Family Health Ctrs., 168 N.C. App. 49, 56 (2005). It

requires the wrongful intent of a party to deprive another party of its contractual rights.

See, e.g., Dull v. Mutual of Omaha Ins. Co., 85 N.C. App. 310, 318 (1987).

[81] In the case sub judice, the court concludes that the forecast evidence is

not sufficient to create a genuine issue of fact as to BCBSNC's breach of a covenant of

good faith. Id. The record discloses no evidence that BCBSNC acted with the intent to

wrongfully deprive Class Members of the benefits to which they were entitled.

[82] Accordingly, with regard to Plaintiff's Second Count, the court

CONCLUDES that there exist no genuine issues of material fact, and that BCBSNC's

Motion as to said Second Count should be GRANTED.

F.

THIRD COUNT – UNFAIR AND DECEPTIVE TRADE PRACTICES

[83] Defendant's Motion seeks dismissal of Plaintiff's Claim for unfair and

deceptive trade practices.

[84] Unfair methods of competition in or affecting commerce, and unfair or

deceptive acts or practices in or affecting commerce, are unlawful. G.S. 75-1.1(a). To

establish a violation of G.S. 75-1.1, a party must show (a) an unfair or deceptive act or

practice, or an unfair method of competition, (b) in or affecting commerce and (c)

proximately causing actual injury to the party. Sunbelt Rentals, Inc. v. Head & Engquist

Equip., LLC, 2002 NCBC 4, ¶ 67 (N.C. Super. Ct. 2002).

[85] A trade practice is unfair when "it offends established public policy as well

as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially

injurious to consumers." Marshall v. Miller, 302 N.C. 539, 548 (1981). Conduct by an
insurance company that manifests "an inequitable assertion of power or position" also

constitutes an unfair trade practice. Murray v. Nationwide Mut. Ins. Co., 123 N.C. App.

1, 9 (1996).

[86] A trade practice is deceptive if it "has the capacity or tendency to deceive."

Johnson v. Phoenix Mut. Life. Ins. Co., 300 N.C. 247, 266 (1980), overruled in part on

other grounds, Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 323 N.C. 559, 569

(1988). To prevail on a UDTP claim, plaintiffs must demonstrate that the act

"possessed the tendency or capacity to mislead, or created the likelihood of deception."

Overstreet v. Brookland, Inc., 52 N.C. App. 444, 453 (1981).

[87] An unfair or deceptive trade practice claim against an insurance company

can be based on violations of either G.S. 75-1.1 or G.S. 58-63-15. Here, Plaintiff bases

her Third Count upon G.S. 58-63-15, a violation of which has been held to constitute a

violation of G.S. 75-1.1. Country Club of Johnston County, Inc. v. United States Fid. &

Guar. Co., 150 N.C. App. 231, 244 (2002). Pearce v. Am. Defender Life Ins. Co., 316

N.C. 461, 470 (1986); Miller v. Nationwide Mut. Ins. Co., 112 N.C. App. 295, 302 (1993),

cert. denied, 335 N.C. 770 (1994); Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1,

10 (1996).

[88] Courts may look to the types of conduct prohibited by G.S. 58-63-15 for

examples of conduct that would constitute an unfair and deceptive act or practice.

Country Club of Johnston County, 150 N.C. App. at 246 (specifically discussing G.S.

58-63-15(11)). The "[m]aking, issuing, circulating, or causing to be made, issued or

circulated, any estimate, illustration, circular or statement misrepresenting the terms of
any policy issued . . . or the benefits or advantages promised thereby . . . " is one such

prohibited act. G.S. 58-63-15(1).

[89] To support a Chapter 75 claim based on violation of G.S. 58-63-15, a

plaintiff must demonstrate that the defendant's representation had the capacity or

tendency to deceive. Pearce, 316 N.C. at 470-71. Proof of actual deception, however,

is not necessary. Id. at 471. A truthful statement "may be deceptive if it has the

capacity or tendency to deceive. (citation omitted). 'In determining whether a

representation is deceptive, its effect on the average consumer is considered.'" Id.

(citing Johnson, 300 N.C. at 265-66). A plaintiff must also show that it suffered actual

injury as a proximate result of defendant's deceptive statement or misrepresentation.

Id. (citing Ellis v. Smith-Broadhurst, Inc., 48 N.C. App. 180, 184 (1980)).

[90] A breach of contract action is distinct from an action for unfair or deceptive

trade practices. Boyd v. Drum, 129 N.C. App. 586, 593 (1998). Indeed, an intentional

breach "is not sufficiently unfair or deceptive to sustain an action under N.C.G.S. §

75.1.1." Branch Banking and Trust Co. v. Thompson, 107 N.C. App. 53, 62, disc.

review denied, 332 N.C. 482 (1992). Rather, substantial aggravating circumstances

attendant to the breach must be shown to sustain such an action. Id. See also Griffith

v. Glen Wood Co., 184 N.C. App. 206, 217-18 (2007). However, neither good faith nor

lack of intent is a defense to an action for unfair and deceptive trade practices. Murray,

123 N.C. App. at 10.

[91] "The business of insurance is unquestionably 'in commerce' insofar as an

'exchange of value' occurs when a consumer purchases an insurance policy . . . ."

Pearce, 316 N.C. at 469.
[92] Neither the statutory language of G.S. 58-63-15(1) nor that of G.S. 75-1.1

require actual reliance to show causation. Cullen v. Valley Forge Life Ins. Co., 161 N.C.

App. 570, 580 (2003). Whether there is a causal relation between the violation of the

statute and the injury complained of is an issue of fact for a jury. Ellis, 48 N.C. App. at

184 (citing Lewis v. Archbell, 199 N.C. 205, 206 (1930)); Mayton v. Hiatt's Used Cars,

45 N.C. App. 206, 211 (1980).

[93] Plaintiff alleges that BCBSNC violated G.S. 58-63-15 by issuing

statements through the Booklet and promotional materials for PPO Plans that PPO

Members would not be responsible for payment of medical services provided by an in-

network provider for any amount charged above the allowed amount.

[94] BCBSNC responds that (a) its policies and promotional materials do not

state that services in excess of a benefit maximum are covered services or that

Members are entitled only to pay the allowed amount for services in excess of a benefit

maximum; (b) the allegation that BCBSNC's promotional materials state that Members

are not responsible to pay in-network providers more than the allowed amount only

applies to covered services and (c) as such, whether services in excess of a benefit

maximum are covered services under the terms of the policies is a question of contract

interpretation.

[95] That contract language can be interpreted differently does not prove the

language has the capacity or tendency to deceive. Indeed, a court must differentiate

"between contract and deceptive trade practice claims, and relegate claims regarding

the existence of an agreement, the terms contained in an agreement, and the

interpretation of an agreement to the arena of contract law." N.C. Mut. Life Ins. Co. v.
McKinley Fin. Servs., 2005 U.S. Dist. LEXIS 36308 *34 (M.D.N.C. Dec. 22, 2005) (citing

Broussard v. Meineke Disc. Muffler Shops, 155 F.3d 331, 347 (4th Cir. 1998) (holding

that given the contractual center of that dispute, plaintiffs' Chapter 75-1.1 claims were

out of place)). The arguments between the parties regarding the meaning of the

statements at issue suggest the crux of this case lies in contract interpretation, not

misleading statements constituting an unfair or deceptive trade practice.

[96] Plaintiff also argues that BCBSNC's contracts with in-network providers

are unfair, oppressive to PPO Members and injurious to PPO Members in violation of

G.S. 75-1.1. Hamm does not, however, allege facts that, if proven, would suggest such

contracts offend established public policy, are immoral, unethical, oppressive,

unscrupulous or substantially injurious to consumers or manifest an inequitable

assertion of power or position by BCBSNC.

[97] Plaintiff further argues that BCBSNC's PPO Plans and the terms of these

plans have the tendency and capacity to deceive and are in and affecting commerce in

violation of G.S. 75-1.1 because BCBSNC allows in-network providers to charge

amounts above the allowed amount to PPO Members when those Members reach their

benefit period maximums and/or lifetime maximums for medical services provided by

the in-network providers. Plaintiff has not, however, alleged facts that, if proven, would

suggest the PPO Plans and the terms thereof offend established public policy, are

immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers or

manifest an inequitable assertion of power or position by BCBSNC. Moreover, Plaintiff

has not alleged or forecast evidence that Class Members detrimentally relied upon any

of the claims adjudication documents at issue, e.g., Explanation of Benefits forms.
Rather, the record reflects that Hamm actually had inquired and received advance

notice from BCBSNC that the claim would not be adjudicated at the allowed amount. 52

[98] In contrast to the Complaint, Class Members later argue the

misrepresentation at issue is BCBSNC's representation to plan Members and in-

network providers that covered services are noncovered services, directly tying this

representation to what Class Members define as a breach of contract. 53

[99] As discussed supra, a breach of contract does not by itself establish an

unfair or deceptive trade practice. Plaintiff has not forecast evidence supporting a

finding that the PPO Plans or the actions of BCBSNC were "immoral, unethical,

oppressive, unscrupulous, or substantially injurious to consumers" for purposes of

establishing a Chapter 75 claim, or other facts that manifest an inequitable assertion of

power or position by BCBSNC.

[100] Accordingly, with regard to Plaintiff's Third Count, the court CONCLUDES

that there exist no genuine issues of material fact, and that BCBSNC's Motion as to said

Third Count should be GRANTED.

NOW THEREFORE, based upon the foregoing CONCLUSIONS, it hereby is

ORDERED that:

[101] Plaintiff's Motion for Partial Summary Judgment as to the Fourth Count –

Declaratory Judgment is GRANTED; and it is DECLARED that Class Members are not

responsible for payment of any amount above the "allowed amount," as the term is

defined by the Contracts, for services that they receive from in-network providers,

52
Def. Opp. Pl. Mot. Class Cert., Ex. 1 (Hamm Dep. at 72-73).
53
Pl. Mem. Opp. 16.
including those situations in which they have reached their benefit period maximums

and/or lifetime maximums under their PPO Plans.

[102] EXCEPTED from the Class shall be those putative Members whose

Claims are determined to have accrued more than three years prior to the

commencement of this civil action.

[103] Defendant's Motion for Summary Judgment as to the First Count – Breach

of Contract is DENIED.

[104] Defendant's Motion for Summary Judgment as to the Second Count –

Breach of Good Faith is GRANTED, and said Second Count is DISMISSED.

[105] Defendant's Motion for Summary Judgment as to the Third Count – Unfair

and Deceptive Trade Practices is GRANTED, and said Third Count is DISMISSED.

[106] The court CONCLUDES, pursuant to the provisions of Rule 54(b), that

there is no just reason for delay in the entry of this Order, and that the Order constitutes

a final judgment as to one or more, but fewer than all, of the Claims raised in this civil

action.

SO ORDERED, this the 27th day of August, 2010.