Health Insurance Class Action on Out-of-Network Fees: New Jersey Federal Court Addresses Commonality and Predominance in Denying Class Certification
A recent decision on class certification by a New Jersey federal court addressed commonality and predominance in a manner that may have significant implications for health insurance class actions generally, and its impact could extend more broadly to other insurance class actions. Franco v. Connecticut General Life Insurance Company, Case No. 07-cv-6039 (SRC) (PS), 2013 U.S. Dist. LEXIS 6482 (D.N.J. Jan. 16, 2013) is one of a number of class actions that have challenged how health insurers pay for services rendered by out-of-network providers, and how “reasonable and customary” charges for such services are determined. The case focuses on the use of an Ingenix computer database in assessing reasonableness of medical charges. Analogous issues have been raised in class actions against auto insurers involving Medpay and personal injury protection (PIP) benefits. The court here denied certification, finding commonality satisfied, but predominance not satisfied:
- Commonality: Under the Supreme Court’s test from Wal-Mart v. Dukes, a plaintiff seeking to establish commonality must “demonstrate that the proposed classwide proceeding is capable of generating ‘common answers apt to drive the resolution of the litigation.’” Id. at *23. In Franco, the court found this test satisfied because “Plaintiffs allege, and will attempt to prove at trial, that the Ingenix database was so flawed as to be completely incapable of generating any reliable data concerning what most providers in a relevant geographical area would charge for a health care service. Their claim that [out-of-network] benefits were improperly denied depends on the common question of whether the Ingenix data was significantly inaccurate or faulty. . . . Plaintiffs have demonstrated, as required by Dukes, that a common answer to the factual question of whether the Ingenix database was significantly and pervasively flaws will advance the resolution of the entire class’s claims.” Id. at *23-25. This type of focus on and contention about the use of a computer database in evaluation of insurance claims is typical in a wide range of insurance class actions, and thus the finding of commonality here may be of concern to insurers (although predominance was not satisfied). One strategy that a defendant might use in challenging commonality in this kind of case is to urge the court to delve more deeply into the merits with respect how the database was actually used by claim professionals, how the database was populated, etc., and how even if there were a broad-based flaw in the database it would not advance resolution of the case because of individualized issues.
- Predominance: On predominance, the court focused on the “arbitrary and capricious” standard that a court applies under ERISA in reviewing an administrator’s decision. The court also found it particularly significant that the plaintiff had failed to show that the benefit plans at issue had a uniform or consistent definition of “reasonable and customary” charge. In fact, Cigna demonstrated significant variation in such definitions. Id. at *38-41. The court concluded that, even if this variation in definitions could be addressed in some fashion by narrowing the class or using subclasses, the “arbitrary and capricious” standard for an ERISA violation could not be shown on a classwide basis. Id. at *43-44. The court also concluded that, under Third Circuit law, damages must be provable on a classwide basis. The plaintiffs contended that damages could be calculated simply based on the difference between the amount billed and the amount paid by Cigna. The court rejected this contention because the policy language would require paying the “normal charge” rather than the billed charge, and those charges might differ for a variety of reasons, which would require individualized proof. Id. at *49-50. The court also cited to the rejection of “trial by formula” in Wal-Mart v. Dukes. The court explained that to allow the plaintiff’s proposed method of calculating damages “would deprive Cigna [of] the opportunity for an accurate analysis of the amount necessary to make each class member whole and would threaten to modify the parties’ rights under ERISA.” Id. at *56. The Supreme Court’s rejection of “trial by formula” continues to be critical in lower courts’ analysis of class certification issues. The subject of how the need for an individualized determination of damages factors into a class certification decision may be addressed further by the Supreme Court in Comcast Corp. v. Behrend (for more on this case, see my November 9, 2012 blog post about the oral argument, and June 26, 2012 blog post about the grant of certiorari).