STATE OF MAINE SUPERIOR COURT CUMBERLAND, ss. CIVIL ACTION DOCKET NO: RflC - RICHARD HALL
Plaintiff DONALD L. GARBRECH~ ORDER ON DEFENDANTS' LAW LIB WAR^ MOTION TO DISMISS COUNT 11 OF PLAINTIFF'S JAN 1 7 2007 COMPLAINT v. $WTE OF MAIPJE Curfiberland, ss, Cleris's Offlee SUPERIOR COURT UNUM-PROVIDENT COW. et al. DEC 2 0 2006 Defendants
RECEIVED This case comes before the Court on Defendants' Motion to Dismiss Count
I1 of Plaintiff's Complaint pursuant to M.R. Civ. P. 12(b)(6).
BACKGROUND
Plaintiff Richard Hall ("Hall"), bought long-term disability insurance from
Defendant Provident Life and Accident Insurance Company ("Provident") in
1985. Provident Life is a Tennessee-based corporation; Defendant
UnumProvident ("Unum") is its parent corporation and is incorporated in
Delaware. One of its "primary operations centers" is based in Portland, Maine.
Hall kept h s Provident disability policy current until 2005, when he became
disabled. The policy's terms were that Hall would receive $1,800 per month
should he become and remain disabled.
For the previous five years, Hall had worked for Unum in Portland as a
vocational rehabilitation counselor. Hall contends that he suffers from an
"insidious cognitive impairment," and that he had asked the company to "institute reasonable accommodations" to help him, whch it did.' But, his
condition worsened with time, malung him unable to complete h s duties at
work, and he was ultimately terminated. After losing his job, Hall sought
disability benefits under his policy. Unum denied Hall's claim.
In April 2006, Hall filed a complaint against both Unum and Provident,
alleging breach of obligation to provide disability benefits, breach of regulatory
settlement agreement, fraud, intentional infliction of emotional distress, violation
of Maine's Unfair Claims Settlement Practices Act, and tortious interference with
contractual relationships. Unum and Provident filed a motion to dismiss Count
11, which alleges breach of a regulatory settlement agreement ("RSA"). The RSA
resulted from an investigation by insurance bureaus into claims practices in 2003,
w h c h culminated in a plan of corrective action to be implemented by the RSA.
Unum and Provident contend that the RSA does not create a cause of action for
private individuals; instead, it is to be enforced by regulators.' Hall counters
that, as a policyholder of a company that signed the agreement, he is a third-
party beneficiary of the RSA and is entitled to bring suit to enforce it.
DISCUSSION
1. Standard of Review
A motion to dismiss "tests the legal sufficiency of the complaint." Livonia
v. T o w n of Rome, 1998 ME 39, q[ 5,707 A.2d 83/85. Because the Court reviews the
complaint in the light most favorable to the plaintiff to ascertain whether it
properly sets forth elements of a cause of action, "the material allegations of the
complaint must be taken as admitted." Id. ¶ 5,707 A.2d at 85. The Court should
' Plaintiff's Complaint, p. 1-2, q[q[ 2-4. 2 Defendants' Motion to Dismiss, p. 2. dismiss a claim only "when it appears 'beyond doubt that [the] plaintiff is
entitled to no relief under any set of facts that [it] might prove in support of [its]
claim."' McAfee v. Cole, 637 A.2d 463, 465 (Me. 1994) (citations omitted).
2. Is Hall a Third-Partv Beneficiarv to the RSA Who Is Entitled to Enforce It?
The threshold question is whether Hall may bring an action to enforce the
provisions of the RSA. He claims that he is an intended third-party beneficiary
to the agreement and is entitled to sue under its regulatory scheme. Provident
claims that the agreement was intended to address regulatory concerns, not to
provide a private right of action, and that any benefit to Hall was incidental.
The Regulatory Settlement Agreement was reached in November 2004
after a multi-state investigation of several insurance companies whose parent
corporation is UnumProvident. Specifically, insurance bureaus investigated the
fairness of disability claim processing. The investigation revealed problems with
the use of in-house medical professionals, "unfair construction of attending
physician or IME reports," and improper placement of a burden of proof on
claimants, among other issues.~egulatoryauthorities addressed these concerns
through a corrective plan, whch included reassessing some claims that arose
prior to implementation of the RSA.4 The RSA was entered into by each
company with the lead regulator in its state of incorporation.
Among other provisions, the RSA creates a Regulatory Compliance
Committee and provides for regular audits of the reassessment process. It also
invests lead regulators with broad powers to ensure compliance with the
See Investigation Report prepared by Rackemann, Sawyer & Brewster, pp. 6-8. This would not include Hall's claim, which was filed in 2005. The reassessment program affected claims between January 1,1997 and the effective date of the RSA in 2004. changes to overall claims procedures. In its "remedies" section, the RSA sets
forth a schedule of fines, and also provides that companies would receive large
punitive fines in the event of future noncompliance. Lastly, the RSA explicitly
states that it is to be governed by Tennessee law and applicable federal law.
To address Hall's claim that he is a third-party beneficiary, this Court
must examine Tennessee's approach to contract enforcement. The Tennessee
Supreme Court has stated that "contracts are presumed to be 'executed for the
benefit of the parties thereto and not third persons."' Owner-Operator Ind. Drivers
Assn., Inc. v. Concord EFS, Inc., 59 S.W.2d 63/68 (Tenn. 2001) (citation omitted).
Yet, third parties may sue to enforce an agreement "if they are intended
beneficiaries;" a contract that only incidentally benefits another party, however,
does not create a right to sue. Id, Determining whether a beneficiary is intended
to benefit or only incidentally benefits necessarily involves examining the intent
of the parties. Id. at 70.
Owner-Operator involved truck drivers who sued to enforce contracts
prohibiting credit surcharges, which they claimed the defendants violated. Id. at
65. The drivers contended that they were third-party beneficiaries of the
creditors' anti-surcharge contracts; they were not actual parties to the
agreements. Id. at 66-67. After doing its best to clarify the distinction between
intended and incidental benefits, that court held that the drivers were not
intended beneficiaries and could not bring an action to enforce the contracts. Id.
at 73. The court reasoned that even though the drivers would gain a derivative
benefit from the elimination of surcharges, the creditors' contract was intended
to benefit the creditors themselves; it was not meant to assist cardholders. Id. Similarly, the RSA was not intended to directly benefit Hall, who was not
a party to the agreement. Although Hall, like the drivers who benefited from the
no-surcharge deal in Owner-Operator, may derive some general benefit from the
agreement in that it was designed to improve the company's disability claim
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STATE OF MAINE SUPERIOR COURT CUMBERLAND, ss. CIVIL ACTION DOCKET NO: RflC - RICHARD HALL
Plaintiff DONALD L. GARBRECH~ ORDER ON DEFENDANTS' LAW LIB WAR^ MOTION TO DISMISS COUNT 11 OF PLAINTIFF'S JAN 1 7 2007 COMPLAINT v. $WTE OF MAIPJE Curfiberland, ss, Cleris's Offlee SUPERIOR COURT UNUM-PROVIDENT COW. et al. DEC 2 0 2006 Defendants
RECEIVED This case comes before the Court on Defendants' Motion to Dismiss Count
I1 of Plaintiff's Complaint pursuant to M.R. Civ. P. 12(b)(6).
BACKGROUND
Plaintiff Richard Hall ("Hall"), bought long-term disability insurance from
Defendant Provident Life and Accident Insurance Company ("Provident") in
1985. Provident Life is a Tennessee-based corporation; Defendant
UnumProvident ("Unum") is its parent corporation and is incorporated in
Delaware. One of its "primary operations centers" is based in Portland, Maine.
Hall kept h s Provident disability policy current until 2005, when he became
disabled. The policy's terms were that Hall would receive $1,800 per month
should he become and remain disabled.
For the previous five years, Hall had worked for Unum in Portland as a
vocational rehabilitation counselor. Hall contends that he suffers from an
"insidious cognitive impairment," and that he had asked the company to "institute reasonable accommodations" to help him, whch it did.' But, his
condition worsened with time, malung him unable to complete h s duties at
work, and he was ultimately terminated. After losing his job, Hall sought
disability benefits under his policy. Unum denied Hall's claim.
In April 2006, Hall filed a complaint against both Unum and Provident,
alleging breach of obligation to provide disability benefits, breach of regulatory
settlement agreement, fraud, intentional infliction of emotional distress, violation
of Maine's Unfair Claims Settlement Practices Act, and tortious interference with
contractual relationships. Unum and Provident filed a motion to dismiss Count
11, which alleges breach of a regulatory settlement agreement ("RSA"). The RSA
resulted from an investigation by insurance bureaus into claims practices in 2003,
w h c h culminated in a plan of corrective action to be implemented by the RSA.
Unum and Provident contend that the RSA does not create a cause of action for
private individuals; instead, it is to be enforced by regulators.' Hall counters
that, as a policyholder of a company that signed the agreement, he is a third-
party beneficiary of the RSA and is entitled to bring suit to enforce it.
DISCUSSION
1. Standard of Review
A motion to dismiss "tests the legal sufficiency of the complaint." Livonia
v. T o w n of Rome, 1998 ME 39, q[ 5,707 A.2d 83/85. Because the Court reviews the
complaint in the light most favorable to the plaintiff to ascertain whether it
properly sets forth elements of a cause of action, "the material allegations of the
complaint must be taken as admitted." Id. ¶ 5,707 A.2d at 85. The Court should
' Plaintiff's Complaint, p. 1-2, q[q[ 2-4. 2 Defendants' Motion to Dismiss, p. 2. dismiss a claim only "when it appears 'beyond doubt that [the] plaintiff is
entitled to no relief under any set of facts that [it] might prove in support of [its]
claim."' McAfee v. Cole, 637 A.2d 463, 465 (Me. 1994) (citations omitted).
2. Is Hall a Third-Partv Beneficiarv to the RSA Who Is Entitled to Enforce It?
The threshold question is whether Hall may bring an action to enforce the
provisions of the RSA. He claims that he is an intended third-party beneficiary
to the agreement and is entitled to sue under its regulatory scheme. Provident
claims that the agreement was intended to address regulatory concerns, not to
provide a private right of action, and that any benefit to Hall was incidental.
The Regulatory Settlement Agreement was reached in November 2004
after a multi-state investigation of several insurance companies whose parent
corporation is UnumProvident. Specifically, insurance bureaus investigated the
fairness of disability claim processing. The investigation revealed problems with
the use of in-house medical professionals, "unfair construction of attending
physician or IME reports," and improper placement of a burden of proof on
claimants, among other issues.~egulatoryauthorities addressed these concerns
through a corrective plan, whch included reassessing some claims that arose
prior to implementation of the RSA.4 The RSA was entered into by each
company with the lead regulator in its state of incorporation.
Among other provisions, the RSA creates a Regulatory Compliance
Committee and provides for regular audits of the reassessment process. It also
invests lead regulators with broad powers to ensure compliance with the
See Investigation Report prepared by Rackemann, Sawyer & Brewster, pp. 6-8. This would not include Hall's claim, which was filed in 2005. The reassessment program affected claims between January 1,1997 and the effective date of the RSA in 2004. changes to overall claims procedures. In its "remedies" section, the RSA sets
forth a schedule of fines, and also provides that companies would receive large
punitive fines in the event of future noncompliance. Lastly, the RSA explicitly
states that it is to be governed by Tennessee law and applicable federal law.
To address Hall's claim that he is a third-party beneficiary, this Court
must examine Tennessee's approach to contract enforcement. The Tennessee
Supreme Court has stated that "contracts are presumed to be 'executed for the
benefit of the parties thereto and not third persons."' Owner-Operator Ind. Drivers
Assn., Inc. v. Concord EFS, Inc., 59 S.W.2d 63/68 (Tenn. 2001) (citation omitted).
Yet, third parties may sue to enforce an agreement "if they are intended
beneficiaries;" a contract that only incidentally benefits another party, however,
does not create a right to sue. Id, Determining whether a beneficiary is intended
to benefit or only incidentally benefits necessarily involves examining the intent
of the parties. Id. at 70.
Owner-Operator involved truck drivers who sued to enforce contracts
prohibiting credit surcharges, which they claimed the defendants violated. Id. at
65. The drivers contended that they were third-party beneficiaries of the
creditors' anti-surcharge contracts; they were not actual parties to the
agreements. Id. at 66-67. After doing its best to clarify the distinction between
intended and incidental benefits, that court held that the drivers were not
intended beneficiaries and could not bring an action to enforce the contracts. Id.
at 73. The court reasoned that even though the drivers would gain a derivative
benefit from the elimination of surcharges, the creditors' contract was intended
to benefit the creditors themselves; it was not meant to assist cardholders. Id. Similarly, the RSA was not intended to directly benefit Hall, who was not
a party to the agreement. Although Hall, like the drivers who benefited from the
no-surcharge deal in Owner-Operator, may derive some general benefit from the
agreement in that it was designed to improve the company's disability claim
evaluation practices, he was not an intended beneficiary. Like the Tennessee
court, this Court must examine the reason for which the RSA was created in
order to determine the parties' intent. The RSA was clearly meant to address
potentially unfair claims practices through an elaborate regulatory system, and
the remedies specified were intended to operate only witlun that system of
industry regulation. Unum and Provident correctly note that there is a palpable
difference between deriving some benefit from a contract and being an intended
beneficiary who can bring legal action to enforce the general benefit. Hall does
not fall into the latter category and is ineligible to bring suit to enforce the RSA.5
The entry is:
Defendants' motion to dismiss Count I1 is GRANTED. Judgment is entered for Defendants on the claim for breach of regulatory settlement agreement.
The clerk shall incorporate this Order into pursuant to M.R. Civ. P. 79(a).
DATE: 20,% d o 6 / ~ u s t i c ~ ~ u ~ eCourt rior
Hall brings to this Court's attention a recent decision from an Arkansas federal court, which allowed a plaintiff to amend her complaint to include a count for breach of the RSA. Jones v. Uliuni Life Iris. Co., 2006 U.S. Dist. LEXIS 87384 at **11-12(E.D. Ark. Nov. 29,2006). The federal court merely stated that Jones alleged a "cognizable claim;" the Court was not evaluating her argument on a motion to dismiss. Id. In addition to this procedural difference, Jones is also distinguishable because the plaintiff submitted a disability claim in 1999, bringing her within the applicable time period under the RSA, 1997 to 2004. Id. at *3. As stated above, Hall's claim under the RSA is not within that category because his denial of benefits occurred in 2005. ( OF COURTS )erland County 0. Box 287 Maine 041 12-0287
JON HOLDER ESQ PO BOX 238 ELLSWORTH ME 04605
OF COURTS rland County Box 287 aine 041 12-0287
RONALD SCHNEIDER ESQ PO BOX 9729 PORTLAND ME 04104