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Byorth v. USAA Casualty Insurance Co.

United States District Court, D. Montana, Billings Division

September 3, 2019

PETER BYORTH and ANN McKEAN, on behalf of themselves and all those similarly situated, Plaintiffs,
v.
USAA CASUALTY INSURANCE COMPANY and JOHN DOES I-X, Defendant.

          ORDER

          Timothy J. Cavan United States Magistrate Judge.

         Plaintiffs Peter Byorth and Ann McKean (“Plaintiffs”) bring this putative class action against USAA Casualty Insurance Company (“USAA”), alleging USAA improperly administered medical payment insurance benefits and wrongfully denied coverage to Montana consumers. Plaintiffs assert five counts against USAA: (1) breach of fiduciary duty[1]; (2) breach of contract; (3) violation of Montana's Unfair Trade Practices Act (“MUTPA”); (4) punitive damages; and (5) declaratory and injunctive relief. Presently before the Court is Plaintiffs' Motion for Class Certification. (Doc. 92.)

         I. Background

         On September 25, 2011, Byorth was struck by a motor vehicle while riding his bicycle. Byorth was insured at the time of the incident by USAA under a policy providing him with $10, 000 in “MedPay” coverage. Byorth submitted claims for his medical bills totaling $85, 000 to USAA. USAA referred the claims to Auto Injury Solutions (“AIS”) for review under a Medical Bill Audit (“MBA”) process. USAA initially denied Byorth's claims as not medically necessary and because of alleged coding errors. But USAA eventually paid Byorth's claims up to the policy limits.

         On February 10, 2014, McKean was injured in a motor vehicle accident. McKean was insured by USAA at the time of the accident under a policy that provided $30, 000 in MedPay coverage. McKean submitted her claims for medical bill payment to USAA, which USAA provided to AIS for review under the MBA process. USAA denied some of McKean's claims as not medically necessary, and reduced the reimbursement amount for others because they were not reasonable or were in excess of preferred provider rates.

         Plaintiffs contend they were both injured by USAA's claims processing practices, which they allege denies or reduces payment to its insureds in violation of the policy and the MUTPA. Specifically, Plaintiffs argue USAA's processing practices fails to “reasonably investigate” the claims submitted by its insureds, in violation of Mont. Code Ann. § 33-18-201[2] and the policy.[3] Plaintiffs allege USAA implemented its unlawful practice by contracting with AIS, who provides an “automated, third-party bill reviewing service[], that eliminate[s] the need for the insurer's adjuster or claims representative undertaking any individual or personal investigation and evaluation of reasonable and necessary medical expenses submitted on MedPay claims.” (Doc. 118 at 8.) AIS allegedly automatically denies or reduces payment by applying preset flags, codes, and other criteria. Id. at 9. This alleged practice - the automatic denial or reduction of claims without conducting a reasonable investigation - is the focus of this action.

         Specifically, Plaintiffs allege the following practices violate the UTPA and the policy:

         “RF” Denials: Plaintiffs allege that USAA directs AIS to program its computerized review to compare the amount billed by providers for a specific CPT code with the 80th percentile of charges for the same CPT procedure, and then automatically deny payment of any amount that is more than $9.99 above the 80th percentile. Plaintiffs allege USAA's adjusters do not investigate the provider's charges or determine “the reasonable fee” for that provider's services before reducing payment on the claim.

         “PPO” Denials: Plaintiffs allege USAA directs AIS to program its computer to automatically deny full payment of providers' bills, and instead pay a lower rate based upon undisclosed Preferred Provider Organization (“PPO”) agreements, even though the providers have no agreements with USAA to accept the lower PPO rate. Plaintiffs allege USAA's adjusters do not investigate whether the providers agreed to the PPO rates before reducing payment on the claim.

         “DOC” Denials: Plaintiffs allege USAA directs AIS to program its computer to automatically flag and “deny” payment of medical bills if certain documents are not attached to the bills. Instead of paying the claim, requests are sent to the insured or provider to submit additional documentation. Plaintiffs allege such “denials” are made without USAA's adjuster conducting any investigating whether the documentation was needed to substantiate the necessity of the billed treatments.

         “Duration of Care” Denials: Plaintiffs allege USAA directs AIS to program its computerized review to automatically flag and “deny” bills for certain CPT codes based on “duration of care” if the treatment exceeds the 12th similar treatment on the same claim. If a claim is flagged for this reason, it is forwarded to a medical professional for review. Plaintiffs claim the “denials” are made automatically by the computer without USAA's adjuster conducting any investigation of whether the treatments were necessary. Instead, the flagged procedures are automatically sent by the computer to an AIS nurse or physician for review.

         “90-Day Gap in Care” Denials: Plaintiffs allege USAA directs AIS to conduct its computerized review to “deny” payment of medical bills if the treatment occurred more than 90 days after the accident or the last treatment received by the insureds. If a claim is flagged for this reason, it is forwarded to a medical professional for review. Plaintiffs contend the flagged procedures are automatically sent to AIS physicians for review without any investigations by USAA's adjusters of the necessity for the treatments.

         Plaintiffs originally filed this action in state court on April 24, 2015, and USAA initially removed the case to federal court on June 10, 2015. See Byorth v. USAA Casualty Ins. Co., 15-cv-51-BMM (D. Mont. 2015). Upon determining it did not have jurisdiction over the matter, this Court remanded the case to state district court. Plaintiffs then filed a motion to certify class, which the state district court granted. On appeal, the Montana Supreme Court found the district court abused its discretion in granting certification. See Byorth v. USAA Casualty Ins. Co., 384 P.3d 455 (Mont. 2016).

         On October 23, 2017, Plaintiffs filed their First Amended Complaint in state court. USAA again removed the case to federal court on November 17, 2017. (Doc. 1.) On April 29, 2019, Plaintiffs filed their Second Amended Complaint. (Doc. 118.) Although filed prior to their Second Amended Complaint, Plaintiffs' motion in support of class certification concern the allegations in the Second Amended Complaint.

         II. Legal Standard

         The Court's decision to certify a class action is guided by Fed.R.Civ.P. 23. The party requesting certification bears the burden of proving by a preponderance of the evidence that all requirements for class certification are met. Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398 (2014). Rule 23 “does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011). The plaintiff must “affirmatively demonstrate” the rule's requirements are met. Id. Therefore, the Court cannot accept the allegations in Plaintiffs' complaint as true; Plaintiffs must prove Rule 23's requirements are “in fact” satisfied. Id. at 349; Brown v. Elextrolux Home Products, Inc., 817 F.3d 1225, 1233-34 (11th Cir. 2016). See also, Ellis v. Costco Wholsesale Corp., 657 F.3d 970, 983 (9th Cir. 2011) (finding the district court applied “impermissible legal criteria” by accepting the allegations in the complaint as true, rather than “resolving the critical factual disputes” overlapping with the Rule 23(a) requirements.)

         The Court cannot certify a class unless all requirements of Rule 23(a), and one requirement of Rule 23(b), are satisfied. Dukes, 564 U.S. at 345. Rule 23(a) requires the plaintiff to prove the proposed class is (1) sufficiently numerous (numerosity); (2) the action involves questions of law or fact common to the class (commonality); (3) the class representative's claims and defenses are typical of the class (typicality); and (4) the representative will adequately protect the interests of the class (adequacy). Fed.R.Civ.P. 23(a). The Court cannot find these factors to be satisfied without “significant proof[.]” Ellis, 657 F.3d at 983. “[P]roper analysis under Rule 23 requires rigorous consideration of all the evidence and arguments offered by the parties.” In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 321 (10th Cir. 2008).

         In addition to satisfying these requirements, the plaintiff must also meet at least one of Rule 23(b)'s requirements. Fed.R.Civ.P. 23(b); Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001). Here, Plaintiffs request certification under Rule 23(b)(2) and Rule 23(b)(3).

         Certification under Rule 23(b)(2) is proper when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Fed.R.Civ.P. 23(b)(2). Rule 23(b)(2) may be satisfied if “class members complain of a pattern or practice that is generally applicable to the class as a whole.” Rodriguez v. Hayes, 591 F.3d 1105. 1125 (9th Cir. 2010). “The key to the (b)(2) class is the indivisible nature of the injunctive or declaratory remedy warranted - the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.” Dukes, 564 U.S. at 360 (internal quotations omitted).

         A 23(b)(2) class can only be authorized if one declaratory or injunctive remedy would relieve each class member; 23(b)(2) is not applicable when individual class members “would be entitled to a different injunction or declaratory judgment against the defendant.” Id. Additionally, certification under 23(b)(2) is inappropriate “when each class member would be entitled to an individualized award of monetary damages, ” or where the court would be required to make individual determinations of class membership and liability. Id. at 361; Jamie S. v. Milwaukee Pub. Schools, 668 F.3d 481, 499 (7th Cir. 2012).

         Nevertheless, requests for monetary damages may be permissible under Rule 23(b)(2), so long as they are incidental to the litigation, and do not require an individualized determination. Dukes, 564 U.S. at 360-62. But courts “should be cautious to certify a 23(b)(2) class where significant monetary damages are available - and consequently may become unavailable if class litigation is unsuccessful - because Rule 23(b)(2) does not provide class members with an absolute right of notice or the right to opt-out of the class.” Clark v. State Farm Mut. Auto. Ins. Co., 245 F.R.D. 478, 486 (D. Colo. 2007).

         Plaintiffs also seek certification under Rule 23(b)(3). The Court may certify a class under Rule 23(b)(3) if “the court finds that questions of law or fact common to the class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods” of adjudication. These requirements serve to promote judicial economy and efficiency by uniformly adjudicating an issue raised by similarly situated class members. Anchem Products, Inc. v. Windsor, 521 U.S. 591, 615 (1997). The Ninth Circuit has held that “common questions of fact do not predominate where an individualized case must be made for each member[.]” Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 596 (9th Cir. 2012).

         As opposed to (b)(2) classes, “the (b)(3) class is not mandatory; class members are entitled to receive ‘the best notice that is practicable under the circumstances; and to withdraw from the class at their option.”' Dukes, 564 U.S. at 362 (citing Fed. R. Civ P. 23(c)(2)(B)).

         In considering certification, the Court must engage in a “rigorous analysis.” Chamberlain v. Ford Motor Co., 402 F.3d 952, 961 (9th Cir. 2005). “Merits questions may be considered [at the certification stage] to the extent - but only to the extent - that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.” See also, Dukes, 564 U.S. at 351 (noting the merits of the underlying claims may unavoidably intrude into the Rule 23 analysis); and Ellis, 657 F.3d 970, 981 (9th Cir. 2011) (“a district court must consider the merits if they overlap with the Rule 23(a) requirements . . . and resolve factual disputes necessary to determine whether there was a common pattern and practice that could affect the class as a whole.”) (Emphasis in original.) Whether to grant class certification is left to the court's discretion. Montgomery v. Rumsfeld, 572 F.2d 250, 255 (9th Cir. 1978).

         III. Discussion

         Plaintiffs seek certification of the following five classes:

(1) The RF Class: All USAA insureds who, from the starting date of the applicable statute of limitations to present, submitted a MedPay claim for payment of a medical bill and had full payment denied for one or more bill lines based on an “RF” reason code, including an “RF2, ” “RF3, ” or “RF226” or similar “RF” code, which was defined in the EOR to mean that the charge exceeded a reasonable amount for the service provided;
(2) The PPO Class: All USAA insureds who, from the starting date of the applicable statute of limitations to present, submitted a MedPay claim for payment of a medical bill and had full payment denied for one or more bill lines based on a “PPO” or similar reason code, which was defined in the EOR to mean that the charge exceeded an allowable rate set by databases containing PPO rates;
(3) The DOC Class: All USAA insureds who, from the starting date of the applicable statute of limitations to present, submitted a MedPay claim for payment of a medical bill and had a payment denied for one or more bill lines based on a “DOC 55, ” “DOC 59” or similar code, which was defined in the EOR to mean the documentation submitted did not substantiate the need for the billed treatment;
(4) The Duration of Care or Gap in Care Class: All USAA insureds who, from the starting date of the applicable statute of limitations to present, submitted a MedPay claim for payment of a medical bill and had payment denied for one or more bill lines based on a “PR 48, ” “PR 167, ” “PR 168, ” “PR 172, ” “PR 176” or similar reason code in the EOR and the insured's electronic claim file shows an “auto move” of the bill ...

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