Judge: Gail Killefer, Case: 23STCV24301, Date: 2024-02-22 Tentative Ruling

Case Number: 23STCV24301    Hearing Date: February 22, 2024    Dept: 37

HEARING DATE:                 Thursday, February 22, 2022

CASE NUMBER:                   23STCV24301

CASE NAME:                        Leslie Oren v. Anthem Blue Cross Life and Health Company

MOVING PARTY:                 Defendant Leslie Oren v. Anthem Blue Cross Life and Health Company

OPPOSING PARTY:             Plaintiff

TRIAL DATE:                        Not Set

PROOF OF SERVICE:           OK

PROCEEDING:                      Demurrer with Motion to Strike Complaint

OPPOSITION:                        7 February 2024

REPLY:                                  14 February 2024

TENTATIVE:                         Defendant Anthem’s demurrer is sustained with leave to amend. Defendant Anthem’s motion to strike is granted without leave to amend as to Paragraph 22 and with leave to amend as to Paragraph 34 and the Prayer for Punitive Damages.

The Plaintiff is granted 30 days leave to amend. The OSC re: amended complaint is set for __.

Defendant to give notice.

Background

On October 5, 2023, Leslie Oren (“Plaintiff”) filed a Complaint against Anthem Blue Cross Life and Health Insurance Company (“Defendant” or “Anthem”) and Does 1 to 20 for: (1) breach of contract; and (2) breach of the implied covenant of good faith and fair dealing.

Defendant Anthem filed a demurrer with a motion to strike. Plaintiff opposes the motion. The matter is now before the court.

request for JUDICIAL notice

Defendant Anthem requests judicial notice of the following:

1)     Plaintiff was insured under an Individual PPO Lumenos HAS-Compatible health insurance policy issued by Anthem (the “Policy”) on March 1, 2009. (Attached as Exhibit A to the Declaration of Kathi Loppnow);

2)     Anthem issued an Endorsement to the Policy on January 1, 2022 (the “Endorsement”). (Attached as Exhibit B to the Declaration of Kathi Loppnow);

3)     Anthem Blue Cross Life & Health Insurance Company is a health insurance company licensed by the Insurance Commissioner and regulated by the California Department of Insurance under the Insurance Code identifiable with a Company license number, and accessible through the California Department of Insurance website at https://interactive.web.insurance.ca.gov/apex_extprd/f?p=144:6:::NO:RP,6:P6_COMPANY_ID:7 008, accessed on December 1, 2023. (Attached as Exhibit B to the Declaration of Jessamyn Vedro.)

4)     Blue Cross of California dba Anthem Blue Cross is a health care service plan regulated by the California Department of Managed Health Care and subject to the Health & Safety Code, including the Knox-Keene Health Care Service Plan Act of 1975 and California Code of Regulations, title 28, as reflected in the 2017 Accusation in Enforcement Matter No. 15- 268, which is accessible at https://wpso.dmhc.ca.gov/enfactions/docs/2990/1678811202433.pdf, accessed on December 1, 2023. (Attached as Exhibit C to the Declaration of Jessamyn Vedro.)

The court may judicially notice Exhibits A and B attached to the Declaration of Kathi Loppnow because they are referenced in the Complaint. (See Salvaty v. Falcon Cable Television (1985) 165 Cal.App.3d 798, 800, fn. 1; Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 956, fn. 6; Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3.) The court may also take judicial notice of statements made to the public on a government website but not their truth. (Wood v. Superior Ct. of San Diego County (2020) 46 Cal.App.5th 562, 580, fn. 2.)

Based on the above, Defendant Anthem’s request for judicial notice is granted.

Discussion

I.         Legal Standard

A.        Demurrer 

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (CCP § 430.30(a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)¿“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.”¿(C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)¿For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)¿A demurrer “does not admit contentions, deductions or conclusions of fact or law.”¿(Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿ 

B.        Motion to Strike 

¿Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (CCP § 435(b)(1); CRC, rule 3.1322(b).) The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (CCP § 436(a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].)¿¿¿¿ 

C.        Leave to Amend 

“Where the defect raised by a motion to strike or by demurrer is reasonably capable of cure, leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question.” (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿¿¿ 

II.        Demurrer[1]

defendant Anthem demurs to the two causes of action alleged in Plaintiff’s Complaint because they fail to state sufficient facts to support a cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing.

The Complaint (“Compl.”) alleges that on February 16, 2023, Plaintiff underwent a medically necessary reconstructive plastic surgery procedure for her nose. (Compl. ¶ 6, 11.) “The surgery was performed at a surgical center under general anesthesia and took approximately six hours. The providers performing the services were Non-Participating Providers.” (Compl. ¶ 11.) “Services for the surgeon totaled $83,689.94.” (Compl. ¶ 12.)

The Complaint alleges that Anthem’s Policy requires Anthem to pay for all medically necessary health care services. (Compl. ¶ 7.) The Policy included added endorsements , including the “Maximum Allowed Amount” (MAA) which states that for services provided from a Non-Participating Provider (a provider that does not have a contract with Anthem), the following applies:

For Covered Services You receive from a Non-Participating Provider, the Maximum Allowed Amount for Your Policy will be one of the following:

1. An amount based on our Non-Participating Provider fee schedule/rate, which we have established, and which we may modify from time to time, after considering one (1) or more of the following: reimbursement amounts accepted by like/similar Providers contracted with us, reimbursement amounts paid by the Centers for Medicare and Medicaid Services for the same services or supplies, and other industry cost, reimbursement and utilization data; or

2. An amount based on reimbursement or cost information from the Centers for Medicare and Medicaid Services (“CMS”). When basing the Maximum Allowed Amount upon the level or method of reimbursement used by CMS, Anthem will update such information, which is unadjusted for geographic locality, no less than annually; or

3. An amount based on information provided by a third party vendor, which may reflect one (1) or more of the following factors: 1) the complexity or severity of treatment; 2) level of skill and experience required for the treatment; or 3) comparable Providers’ fees and costs to deliver care, or

4. An amount negotiated by Us or a third party vendor which has been agreed to by the Provider. This may include rates for services coordinated through case management, or

5. An amount based on or derived from the total charges billed by the Non- Non-Participating Provider.

(Compl. ¶ 9; RJN Ex. B at p. 5, attached to the Decl. of Kathi Loppnow.) As part of the above endorsement, Anthem changed the insured’s responsibility for “Professional Services” to “30% of the Maximum Allowed Amount plus all charges in excess of the Maximum Allowed Amount unless Special Circumstances apply.” (Comp. ¶ 10.)

After providing Anthem with the information requested related to her surgery, Anthem, through Carelon Global,  determined that the surgery was “medically necessary under your plan” but “processed the claim with an Explanation of Benefits form stating that the total MAA for Plaintiff's surgery was $1,350.36 and that Plaintiff owed $82,339.58.” (Compl. ¶¶ 14, 16.) The Complaint alleges that “Anthem has created and used unreasonable criteria for developing the MAA for various procedures including the type of surgery performed on Plaintiff. Anthem has misapplied and/or misinterpreted claims data and other information to arrive at an artificially low reimbursement amount for various procedures including Plaintiff’s surgery. These actions are part of a scheme by Anthem to use its MAA as a device to underpay claims and improve its bottom line.” (Compl. ¶ 18.)

“Anthem's offshore claims personnel at Carelon Global failed to recognize that a given surgery may be more extensive and complicated than a routine surgery of the same general type. Although they recognized the medical necessity of the surgery and had the medical records demonstrating the complexity and length of the surgery, they failed to note, understand, or apply the facts the claim and drastically underpaid it as routine.” (Compl. ¶ 19.)

Plaintiff filed a complaint about the low reimbursement amount which was handled by Anthem's Grievances & Appeals Department.  “Cynthia R,” a Grievances & Appeals Analyst, advised that “We reviewed the claim and find that claim was processed correctly according to your plan benefits for utilizing an out of network provider." (Compl. ¶ 20.) “In rejecting Plaintiff's complaint, the Grievances & Appeals Department failed to conduct any investigation into whether the MAA was a reasonable reimbursement for the surgery and failed to determine whether Carelon Global personnel had failed to review and appreciate the complexity and length of the surgery in applying the low reimbursement amount.” (Compl. ¶ 21.)

Defendant Anthem now demurs to the two causes of action alleged against it.

            A.        Breach of Contract

The elements of a claim for breach of contract are: "(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." (Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 821.) In addition, the complaint must demonstrate damages proximately caused by the breach. (St. Paul Ins. v. American Dynasty (2002) 101 Cal.App.4th 1038, 1060.) “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459 [internal citations omitted].)

Defendant Anthem alleges that Plaintiff’s breach of contract claim is insufficiently pled because it alleges that Anthem underpaid Plaintiff’s claim, not that it breached the terms of the insurance policy. The court agrees. The purported fact that Anthem sought to use the MAA endorsement to lower its financial exposure is not a sufficient fact to support a breach of contract claim unless Plaintiff seeks to void the endorsement by alleging unconscionability. (Compl. ¶¶ 8, 18.) The fact that Carelon Global employees are underpaid and not properly trained or supervised is irrelevant to this action unless Plaintiff alleges that the lack of training and supervision resulted in Plaintiff’s claim being wrongfully processed. (Compl. ¶ 15.)

Plaintiff also fails to allege Anthem wrongfully applied the MAA endorsement criteria(s) and fails to state under which of the five criteria Plaintiff’s claims was processed. Without such information, the allegation that Anthem “misapplied and/or misinterpreted claims data and other information to arrive at an artificially low reimbursement amount” is irrelevant unless Anthem used criteria 3 under the MAA. (Compl. ¶ 18.) Specifically, Plaintiff must allege what MAA endorsement criteria was applied to Plaintiff’s claim and why the applicable criteria was wrongfully applied such that Anthem breached the Policy terms.

The Complaint also alleges that the “language of Anthem's MAA provision is indefinite, vague and ambiguous as it fails to provide any useful reference for determining Anthem's payment responsibility. Anthem manipulates claims data to end up with unreasonably low reimbursement amounts. Additionally, Anthem failed to recognize that the complexity and length of Plaintiff's surgery required a higher reimbursement amount.” (Compl. ¶ 28.)

If Plaintiff alleges that the MAA is ambiguous, Plaintiff must allege what specific language in the MAA endorsement renders it ambiguous, and if the ambiguity were resolved in Plaintiff’s favor, what the MAA endorsement should state. Without such facts, the Plaintiff’s allegation is conclusory. “Conclusionary allegations without facts to support them are ambiguous and may be disregarded.” (Interior Systems, Inc. v. Del E. Webb Corp. (1981) 121 Cal.App.3d 312, 316.)

Accordingly, the demurrer to the first cause of action for breach of contract is sustained.

            B.        Breach of the Implied Covenant of Good Faith and Fair Dealing

“Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.¿The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885; see also Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349–350.)

The Complaint alleges that Anthem breached the duty of good faith and fair dealing by:

(a) Creating and using unreasonably low MAA rates for the purpose of underpaying claims and applying one such unreasonably low MAA reimbursement amount to drastically underpay Plaintiff's claim;

(b) Failing to acknowledge that Plaintiff's complicated and lengthy surgery should not be limited to any type of pre-determined reimbursement rate much less the unreasonably low rate paid by Anthem;

(c) Using offshore claims personnel who were not properly trained or supervised and who Anthem knew were making repeat errors, including failing to recognize and process complicated and lengthy surgeries with an appropriate reimbursement amount;

(d) Failing to recognize, investigate, and resolve Plaintiff’s grievance as part of a pattern and practice of a broken grievance system, as alleged herein;

(e) Misrepresenting to Plaintiff that it had reviewed the relevant information relating to her grievance when, in fact, the grievance department used template language to say they had performed an investigation when, in fact, no investigation had been performed.

(f) Other acts of which Plaintiff is currently unaware.

(Compl. ¶ 32.)

Defendant Anthem asserts that the facts as pled in the Complaint do not support a claim for breach of the implied covenant of good faith and fair dealing. That Plaintiff finds the MAA endorsement unreasonable is not sufficient to support a claim for breach of the implied covenant of good faith and fair dealing because the provision is part of the Policy and “the implied covenant is limited to assuring compliance with the express terms of the contract and cannot be extended to create obligations not contemplated in the contract. (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032.) “‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract's purpose.’ ” (Id. at p. 1031, citing Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 690.)

Here, the Complaint alleges no facts to show that Plaintiff did not agree or consent to the MAA endorsement provisions. The MAA endorsement also gives Anthem unfettered discretion to choose any of the five criteria in processing Plaintiff’s claim and the covenant of good faith and fair dealing cannot be used to impose obligations that would be at odds with the express language of the contract. (See Prager University v. Google LLC (2022) 85 Cal.App.5th 1022, 1039.)

The allegation that Anthem failed to acknowledge Plaintiff’s complicated and lengthy surgery does not show how Anthem frustrated Plaintiff’s entitlement to the benefits under the Policy or resulted in the MAA endorsement(s) being misapplied. Moreover, as previously stated, the fact that offshore claims personnel were used is irrelevant unless Plaintiff alleges that the lack of training and supervision resulted in a processing error in relation to Plaintiff’s claim. Plaintiff also fails to allege what Anthem was required to investigate apart from the fact that she used a Non-Participating Provider for the surgery, and what Anthem failed to recognize and resolve related to Plaintiff’s grievance. Plaintiff also fails to allege what specifically about her grievance claim Anthem failed to adequately investigate.

Accordingly, the demurrer to the second cause of action is sustained with leave to amend.

III.      Motion to Strike

Defendant Anthem seeks to strike Paragraphs 22 and 34 from Plaintiff’s Complaint as well as the prayer for punitive damages. In part, the relevant portions of the Complaint that Defendant Anthem seeks to strike, read as follow:

• “Anthem Blue Cross has been repeatedly cited by the California Department of Managed Health Care ("DMHC") for Anthem Blue Cross's deficient complaint procedures, causing it to pay fines and make promises to correct its practices.” ¶ 22.

• “Anthem's conduct, described herein, was intended to cause injury to Plaintiff or was conduct carried out by Anthem with a willful and conscious disregard of the rights of Plaintiff, subjected Plaintiff to cruel and unjust hardship in conscious disregard to Plaintiffs rights, and was an intentional misrepresentation, deceit, or concealment of a material fact known to Anthem with the intention to deprive Plaintiff of property, legal rights, or to otherwise cause injury, such as to constitute malice oppression or fraud under California Civil Code section 3294, thereby entitling Plaintiff to punitive damages in an amount appropriate to punish or set an example of Anthem.” ¶ 34.

• WHEREFORE, Plaintiff prays for judgment against Anthem as follows: . . . 3. Punitive damages in an amount appropriate to punish or set an example of Anthem.

the court agrees that references to the DMHC investigation are irrelevant because the enforcement action relates to a different entity, Blue Cross of California.  Defendant Anthem is not regulated by the DMHC and was not the subject of the DMHC’s investigation.

Accordingly, the request to strike Paragraph 22 in its entirety from the Complaint is granted without leave to amend.

As the demurrer to the second cause of action was sustained with leave to amend so is Plaintiff’s claim for punitive damages, as alleged in Paragraph 34 and the Prayer for Punitive Damages. 

Conclusion

Defendant Anthem’s demurrer is sustained with leave to amend. Defendant Anthem’s motion to strike is granted without leave to amend as to Paragraph 22, and with leave to amend as to Paragraph 34 and the Prayer for Punitive Damages.

The Plaintiff is granted 30 days leave to amend. The OSC re: amended complaint is set for __.

Defendant to give notice.