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Byorth v. USAA Casualty Insurance Co.

United States District Court, D. Montana

November 22, 2016

PETER BYORTH and ANN McKEAN, on behalf of themselves and all those similarly situated, Plaintiffs and Appellees.
USAA CASUALTY INSURANCE COMPANY, and JOHN DOES I-X, 'Defendants and Appellants. Supreme Court of Montana office of Clerk of Supreme Court

          Submitted on Briefs: August 24, 2016

         APPEAL FROM District Court of the Thirteenth Judicial District, In and For the County of Yellowstone, Cause No. DV-15-0511 Honorable Gregory R. Todd, Presiding Judge

          Ian Mcintosh, Kelsey E. Bunkers, Crowley Fleck, PLLP, Bozeman, Montana Jessica G. Scott, Wheeler Trigg O'Donnell LLP, Denver, Colorado For Appellants

          John Heenan, Colette B. Davies, Bishop & Heenan, Billings, Montana For Appellees:

          Patricia Cotter Justice

         ¶1 USAA Casualty Insurance Company (USAA) appeals from an order of the Thirteenth Judicial District Court in Yellowstone County certifying a class action pursuant to M. R. Civ. P. 23. We reverse the order of the District Court and remand for further proceedings.


         ¶2 The question on appeal is whether the District Court abused its discretion in certifying the class pursuant to M. R. Civ. P. 23. Following the structure of Rule 23, we divide this question into two issues:

1. Did the District Court abuse its discretion in certifying the class under M. R. Civ. P. 23(a)?
2. Did the District Court abuse its discretion in certifying the class under M. R. Civ. P. 23(b)(3)?


         ¶3 In September 2011, Peter Byorth was struck by a motor vehicle while riding his bicycle. He was insured at the time by USAA under an auto insurance policy that provided $10, 000 in medical payment coverage. Byorth submitted medical payment claims totaling $85, 000, which USAA then sent to Auto Injury Solutions (AIS) for review. Due to an alleged coding error in the paperwork AIS required Byorth's physician to complete, USAA initially denied Byorth's claims as medically unnecessary. However, USAA eventually paid policy limits to Byorth.

         ¶4 Ann McKean was also insured under a USAA auto insurance policy that provided medical payments coverage. In February 2014, McKean was injured in a motor vehicle accident and incurred damages far greater than her policy limits. McKean submitted her medical bills to USAA, and USAA forwarded them to AIS for review. AIS allegedly determined several procedures McKean underwent were not medically necessary, and USAA subsequently denied coverage.

         ¶5 On April 24, 2015, Byorth and McKean filed a complaint against USAA alleging breach of fiduciary duties, breach of contract, and violations of the Unfair Trade Practices Act, § 33-18-201, MCA (UTPA). Plaintiffs argued USAA's practice of sending medical claims to AIS was "an improper cost containment scheme designed to wrongfully deprive Montana consumers of their first-party medical pay benefits." Plaintiffs sought to recover actual and punitive damages and to enjoin USAA from submitting future claims to AIS for review.

         ¶6 On June 11, 2015, USAA removed the matter to federal court. While the case was before the federal court, USAA filed its answer, wherein USAA denied all allegations relating to AIS's role in adjusting medical claims. The federal court ultimately determined that it lacked subject matter jurisdiction, and the case returned to the District Court. On November 19, 2015, Plaintiffs filed a motion to certify the proposed class. Six days later, USAA filed a motion to strike the class allegations from Plaintiffs complaint. On December 15, 2015, USAA filed its response in opposition to certification. The District Court issued its order certifying the class two weeks later, on December 29.

         ¶7 Plaintiffs' motion and brief in support of class certification recited many of the allegations of their complaint. In its motion to strike the class allegations from the complaint, USAA argued that the class was unascertainable, that individual issues predominated over common issues, and that a class action was not the superior method of litigation. USAA reasoned that no amount of discovery would ever show that Plaintiffs' class could overcome these deficiencies and satisfy the requirements of Rule 23.

         ¶ 8 In response to USAA's motion to strike, Plaintiffs repeated their allegations regarding AIS's role in reviewing medical claims. To support these allegations, Plaintiffs appended two exhibits to their brief. First, Plaintiffs provided an August 6, 2009, National Association of Insurance Commissioners (NAIC) memorandum (hereinafter the NAIC memo) discussing the status of Norton v. USAA Casualty Ins. Co., No. CV-06-02810-PHX-DGC (D. Ariz.), a class action alleging USAA relied on AIS payment recommendations to pay less than the full amount owed on medical claims. Plaintiffs also provided an excerpt from a proposed settlement agreement dated May 27, 2008, wherein USAA denied the Morton class allegations but stipulated to a class for settlement purposes. The NAIC memo indicates the parties were scheduled to file an amended settlement agreement by November 6, 2009. Plaintiffs did not provide evidence of a final settlement in Horton.

         ¶9 Second, Plaintiffs provided the District Court with an undated excerpt from a Washington Superior Court's order approving a class settlement in MySpine, PS v. USAA Casualty Ins. Co., No. 12-2-32635-5 SEA (Wash. Super. Ct). The settlement class in MySpine included USAA insureds who had medical claim payments reduced due to certain "Reason Codes." The excerpt does not mention AIS, nor does it explain what a "Reason Code" is or if the codes were used erroneously.

         ¶10 In its December 15 brief in opposition to class certification, USAA provided medical payment logs for Byorth and McKean and the results of an AIS review of one of McKean's claims. The payment logs list the dates USAA received claims from Byorth and McKean, as well as the dates USAA issued payments under the respective insurance policies. The logs indicate USAA did not pay many of the claims submitted, but they do not include any reason for the denials. The AIS review relates to coverage of an MRI McKean received. The review is signed by a physician who reviewed documentation submitted with the claim and concluded the MRI was "medically reasonable or necessary." The physician therefore recommended payment of the claim.

         ¶11 The District Court's certification order concluded that "all members of the proposed class, including Byorth and McKean, were subject to the same claims processing procedure of outsourcing claims to AIS." Thus, the common question for the class was "[w]hether or not USAA violated Montana law with respect to its med-pay claims handling practices." The District Court reasoned that although additional litigation may be needed to determine each class member's damages, the threshold question of unfair trade practices could be resolved in a single stroke. The District Court therefore certified the class as follows:

Under Mont. R. Civ. P. 23(b)(3) the Court certifies the following class: (a) all Montana consumers who (b) were insured by USAA for med pay benefits and (c) who submitted a claim for med pay benefits from April 2007 to April 2015, and (d) had their claim denied in whole or in part following a "file review" by AIS or because of an asserted "coding error."

         ¶12 The District Court analyzed each of the four elements of Rule 23(a), but did not explicitly address the requirements of Rule 23(b)(3). USAA promptly appealed from the certification order in accordance with Rule 23(f).

         STANDARD ...

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