Reed v. Regal Medical Group CA4/2

• Court: California Court of Appeal
• Decided: September 8, 2015
• Docket: E059895
• Status: Unpublished

Opinion

Filed 9/8/15 Reed v. Regal Medical Group CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

SHARRON L. REED et al.,

Plaintiffs and Appellants, E059895

v. (Super.Ct.No. RIC1202669)

REGAL MEDICAL GROUP, INC., OPINION

Defendant and Respondent.

APPEAL from the Superior Court of Riverside County. Dallas Holmes and

Matthew C. Perantoni, Judges. Affirmed.

Michael F. Armstrong and James F. Fleming for Plaintiffs and Appellants.

Hewitt & Truszkowski, Stephen L. Hewitt, Henry C. Truszkowski and

Kevin C. Almeter for Defendant and Respondent.

 Judge Holmes is a retired judge of the Superior Court of Riverside County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

1 INTRODUCTION

Plaintiffs Sharron L. Reed, Tammy Jane Reed, Tanya Jo Reed, and Timothy J. Reed

(referred to collectively as the Reeds), the widow and children of decedent James A. Reed,

appeal from (1) the judgment of dismissal following an order granting judgment on the

pleadings as to the causes of action for wrongful death and loss of consortium, and (2) the

trial court sustaining the demurrer of defendant Regal Medical Group, Inc., as to the causes

of action for breach of contract and breach of the implied covenant of good faith and fair

dealing in plaintiffs’ third amended complaint. The Reeds contend (1) they properly pled

the existence of a contractual relationship under which they were third-party beneficiaries

and all the elements of a breach of contract; (2) they properly pleaded the elements of a

breach of the implied covenant of good faith and fair dealing; and (3) their negligence-

based claims are subject to a two-year statute of limitations for general negligence, not a

one-year statute of limitations for medical malpractice. We find no error, and we affirm.

FACTS AND PROCEDURAL BACKGROUND

We state the facts alleged by the Reeds consistent with the presumptions that

govern our review of a judgment of dismissal following orders granting a judgment on

the pleadings and sustaining a demurrer. “We treat the pleadings as admitting all

material facts properly pleaded, but not contentions, deductions or conclusions of fact or

law.” (Hudson v. County of Los Angeles (2014) 232 Cal.App.4th 392, 408.)

Aetna Healthcare of California, Inc., (Aetna) provided health care benefits to

employees of the Temecula Valley Unified School District and their families under a

group agreement of which Sharron and James Reed were members and participants. The

2 Reeds alleged that Aetna had a contractual or joint venture relationship with Regal to

administer health care and to process medical claims on behalf of Aetna’s members. The

Reeds alleged that Regal acts as a third-party administrator to provide utilization review

services to the plan established by Aetna; such services included making determinations

as to the availability of medical benefits under the plan.

The Reeds alleged that in May 2009, James’s primary care physician requested

approval for treatment by a liver specialist and approval for a liver transplant after he

exhibited symptoms of liver failure. James and Sharron notified Regal of the existence of

a claim and presented a claim seeking authorization for medical treatment for liver

failure. Thereafter, they made several more requests for the recommended treatment, but

Regal failed to respond to or approve the claim. Regal eventually approved James’s

claim, but by then his condition had deteriorated to the point that his treating physicians

acknowledged he could not survive surgery. On February 25, 2010, James died from

complications related to liver failure.

The Reeds filed a complaint against Regal on February 24, 2012. On July 2, 2012,

the Reeds filed a first amended complaint alleging causes of action for breach of contract,

breach of the implied covenant of good faith and fair dealing, loss of consortium,

negligent infliction of emotional distress, and wrongful death.

Regal filed a demurrer and motion to strike portions of the first amended

complaint. As to the causes of action for breach of contract and breach of the implied

covenant of good faith and fair dealing, Regal contended that the first amended complaint

did not establish a contractual relationship between it and the Reeds, and neither cause of

3 action set out the essential provisions of such a contract nor attached it to the complaint.

As to the causes of action for loss of consortium and wrongful death, Regal contended the

Reeds failed to set out what duty had been breached.

The parties entered into a stipulation to allow the Reeds to file a second amended

complaint, and the trial court granted the Reeds leave to do so. The Reeds filed a second

amended complaint on November 26, 2012, in which the Reeds withdrew their cause of

action for negligent infliction of emotional distress and added a cause of action for breach

of statutory duty. Regal demurred to all but the wrongful death cause of action. The trial

court sustained the demurrer as to the causes of action for breach of contract, breach of

the implied covenant of good faith and fair dealing, and breach of statutory duty, but it

overruled the demurrer as to the cause of action for loss of consortium and granted leave

to amend.

The Reeds filed a third amended complaint on March 21, 2013, alleging causes of

action for breach of contract, breach of implied covenant of good faith and fair dealing,

wrongful death, and loss of consortium. Regal again demurred as to the causes of action

for breach of contract and breach of the implied covenant of good faith and fair dealing.

Regal contended the complaint failed to allege the applicable terms of the asserted

contract and did not attach any copy of the contract to the complaint. The trial court

sustained Regal’s demurrer as to those causes of action and granted leave to amend.

4 The Reeds filed a fourth amended complaint alleging only wrongful death and loss

of consortium. The Reeds state in their appellate brief that because they had no new facts

to allege as to the breach of contract and bad faith causes of action until they could obtain

more discovery, they elected not to amend those causes of action.

Regal filed an answer denying the allegations of the fourth amended complaint

and, thereafter, filed a motion for judgment on the pleadings. Regal asserted that it is a

health care provider, and the one-year statute of limitations imposed by the Medical

Injury Compensation Reform Act of 1975 (MICRA) under Code of Civil Procedure

section 340.5 precludes the Reeds’ claims for wrongful death and loss of consortium.

The trial court granted the motion, and a judgment of dismissal was entered.

DISCUSSION

Standard of Review

When the trial court sustains a demurrer with leave to amend, the plaintiff may

elect not to amend. The order sustaining the demurrer is treated as an intermediate order

as to that cause of action, appealable after final judgment, and the plaintiff is deemed to

have elected to stand on the validity of the cause of action as originally pleaded.

(National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group,

Inc. (2009) 171 Cal.App.4th 35, 44-45.) As noted ante, in reviewing a judgment of

dismissal following orders granting judgment on the pleadings and sustaining a demurrer,

“[w]e treat the pleadings as admitting all material facts properly pleaded, but not

contentions, deductions or conclusions of fact or law.” (Hudson v. County of Los

Angeles, supra, 232 Cal.App.4th at p. 408.)

5 Cause of Action for Breach of Contract

“A cause of action for breach of contract requires pleading of a contract,

plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage

to plaintiff resulting therefrom. [Citation.] A written contract may be pleaded either by

its terms—set out verbatim in the complaint or a copy of the contract attached to the

complaint and incorporated therein by reference—or by its legal effect. [Citation.] In

order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its

relevant terms. This is more difficult, for it requires a careful analysis of the instrument,

comprehensiveness in statement, and avoidance of legal conclusions.’” (McKell v.

Washington Mutual Inc. (2006) 142 Cal.App.4th 1457, 1489.)

In their third amended complaint, the Reeds alleged that “Aetna had a written

contractual relationship with Regal Medical and/or Aetna and Regal were engaged in a

joint venture to administer healthcare and process claims on behalf of its members.

Specifically, Regal is [a] third party administrator that provides medical utilization

review services in connection with the health plan established by Aetna with the

Temecula Valley Unified School District which services consisted of, among other

things, making a determination regarding the availability of medical benefits under the

plan. That said utilization reviews refer to external evaluations that are based on

established clinical criteria and are conducted by third party payors, purchasers or health

care organizers to evaluate the appropriateness of medical care. Thus, Regal was Aetna’s

agent and/or joint venture [sic] for the purpose of claims administration and rendering

utilization review services under the health insurance plan . . . [and a]ccordingly, Regal

6 was vested with the power to act for Aetna.” Plaintiffs further alleged that “the

intendment of the agreement is that [Sharron and James] were third party beneficiaries

for the aforementioned Regal-Aetna agreement. As such, Regal had the ability to either

approve or deny the benefits due [James].”

The Reeds alleged that Regal “breached the obligations under the subject

healthcare policy in the following manner: [¶] A. By delaying in making a

determination under all potentially applicable coverages pertaining to [James’s] claim for

treatment; [¶] B. By failing to conduct a full and complete investigation into the facts

and circumstances of the claim asserted by [James]; and [¶] C. By failing and refusing to

refer [James] to a physician for treatment as defined by the terms and provisions of the

health plan.”

Allegation of Third-Party Beneficiary Status

The Reeds contend they pled a breach of contract against Regal based on a

contract between Regal and Aetna, under which James was an express or third-party

beneficiary. A party asserting third-party beneficiary status “carries the burden of

proving that the contracting parties’ intended purpose in executing their agreement was to

confer a direct benefit on the alleged third party beneficiary.” (Alling v. Universal

Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1439.) Here, the Reeds have alleged

no more than a bald legal conclusion that Regal and Aetna were in a written contractual

relationship, the intendment of which was that Sharron and James were third-party

beneficiaries. As discussed ante, the Reeds alleged no specific provisions of that

purported contract. Moreover, the Reeds alleged that Regal breached the plan between

7 Aetna and Sharron and James, not that Regal breached the terms of its purported contract

with Aetna. We conclude the Reeds failed to adequately allege third-party beneficiary

status based on a contract between Aetna and Regal.

The Reeds have cited a number of cases for the proposition that a nonparty to a

contract may have standing to sue on the contract. In Hatchwell v. Blue Shield of

California (1988) 198 Cal.App.3d 1027, 1034, the court held that a surviving spouse had

no standing to maintain an action for wrongful denial of policy benefits against her

deceased husband’s health insurance company when she was not a party to the contract.

(Id. at p. 1034.) In Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1091, the

court held that a person injured in a slip and fall accident on property owned by the

insured was a member of the class protected under the express provisions of the policy.

In Northwestern Mut. Ins. Co. v. Farmers’ Ins. Group (1978) 76 Cal.App.3d 1031, 1041-

1042 (Fourth Dist., Div. Two), this court held that a permissive user of an automobile

was an express third-party beneficiary under the omnibus clause of the owner’s liability

policy and thus had a right of action against the insurer for bad faith refusal to effect

settlement within the policy limits. In Cancino v. Farmers Ins. Group (1978) 80

Cal.App.3d 335, 337-338, the court similarly held that the plaintiff was an express

insured under the terms of an automobile insurance policy when he was loading an

insured vehicle owned by another at the time he was struck by another vehicle driven by

an uninsured motorist. (See also San Diego Housing Com. v. Industrial Indemnity Co.

(1998) 68 Cal.App.4th 526, 536, 538-539 [addressing right to coverage in the third-party

liability insurance context]; Royal Surplus Lines Ins. Co. v. Ranger Ins. Co. (2002) 100

8 Cal.App.4th 193, 198-199 [subcontractor’s liability insurance company was properly

joined when the plaintiff property owner was an additional insured on the policy];

McLaughlin v. Connecticut General Life Ins. Co. (N.D. Cal. 1983) 565 F.Supp. 434, 453-

454, overruled on another ground by Aetna Casualty & Sur. Co. v. C.D.J.T., Inc. (9th Cir.

1995) 1995 U.S.App. Lexis 13475, at p. *7 [surviving spouse had a valid cause of action

against the health insurance company that failed to properly investigate a claim].)

In short, because none of those cited cases addressed the alleged breach of a

separate contract between an insurer and a third-party claims administrator, they are not

helpful to our analysis.

Allegation of Joint Venture

The Reeds also allege that Aetna and Regal were joint venturers as a basis for

asserting liability against Regal. Noting the absence of California authority on point, the

Reeds rely on cases from other states for the proposition that “the third-party

administrator of a health plan can be held liable for breach of contract or bad faith, even

in the absence of direct privity of contract.” The cited cases are Farr v. Transamerica

Occidental Life Insurance Co. (Ariz.App. 1984) 145 Ariz. 1 (Farr); Albert H. Wohlers &

Co. v. Bartgis (Nev. 1998) 114 Nev. 1249, 1262-1263 (Bartgis); and Cary v. United of

Omaha Life Ins. Co. (Colo. 2003) 68 P.3d 462, 469 (Cary).

In Farr, a jury awarded damages to an insured in an action against the insurer and

a claims administrator for tortious bad faith refusal to pay insurance benefits under a

group health policy. The trial court granted judgment notwithstanding the verdict to the

claims administrator on the ground that it was not a party to the insurance contract, but

9 the appellate court reversed and reinstated the verdict. (Farr, supra, 145 Ariz. at pp. 10-

11.) The court held that under Arizona law, a joint venture was established between a

claims administrator and an insurer when the claims administrator “issued certificates of

coverage, billed and collected premiums, handled the investigation of claims, and

distributed brochures to induce the purchase of policies.” (Id. at p. 11.)

In Bartgis, the court upheld judgment in favor of an insured against a medical

insurer and policy administrator based on breach of contract and bad faith. The court

held that “where a claims administrator is engaged in a joint venture with an insurer, the

administrator ‘may be held liable for its bad faith in handling the insured’s claim, even

though the organization is not technically a party to the insurance policy.’” (Bartgis,

supra, 114 Nev. at p. 1262.) The court further held that the evidence established a joint

venture when the claims administrator “developed promotional material, issued policies,

billed and collected premiums, paid and adjudicated claims, . . . assisted [the insurer] in

the development of the ancillary charges limitation provision [and] shared in [the

insurer’s] profits.” (Id. at p. 1263.)

In Cary, the court held that a special relationship existed between administrators

and the insured sufficient to impose a duty of good faith on administrators who “had

primary control over benefit determinations, assumed some of the insurance risk of loss,

undertook many of the obligations and risks of an insurer, and had the power, motive, and

opportunity to act unscrupulously in the investigation and servicing of the insurance

claims.” (Cary, supra, 68 P.3d at p. 465.)

10 Those cited cases are distinguishable because the Reeds have failed to adequately

plead a joint venture. “‘A joint venture . . . is an undertaking by two or more persons

jointly to carry out a single business enterprise for profit.’” (Unruh-Haxton v. Regents of

University of California (2008) 162 Cal.App.4th 343, 370.) “‘There are three basic

elements of a joint venture: the members must have joint control over the venture (even

though they may delegate it), they must share the profits of the undertaking, and the

members must each have an ownership interest in the enterprise. [Citation.]’” (Ibid.)

The court found the complaint in that case was adequate to allege the existence of a joint

venture when facts establishing at least two of the three requisite elements of a joint

venture were specifically pled. (Id. at pp. 370-371.) Here, in contrast, the Reeds pled

only the legal conclusion of a joint venture but failed to plead any of the elements of

control, share in profits, or ownership interest in the enterprise. We conclude the Reeds

have failed to set forth facts sufficient to allege the existence of a joint venture between

Aetna and Regal.

Cause of Action for Breach of Implied Covenant of Good Faith and Fair

Dealing

“‘The prerequisite for any action for breach of the implied covenant of good faith

and fair dealing is the existence of a contractual relationship between the parties, since

the covenant is an implied term in the contract.’ [Citation.] The covenant does not exist

independently of the underlying contract.” (Molecular Analytical Systems v. Ciphergen

Biosystems, Inc. (2010) 186 Cal.App.4th 696, 711-712.) Here, because the Reeds have

11 failed to adequately allege the existence of a contract, their cause of action for bad faith

necessarily fails as well.

Causes of Action for Wrongful Death and Loss of Consortium

The trial court granted Regal’s motion for judgment on the pleadings as to the

causes of action for wrongful death and loss of consortium on the ground the one-year

statute of limitations under Code of Civil Procedure section 340.5 applied to the Reeds’

claims. The Reeds contend that Regal negligently performed utilization review decisions

and services as a third-party administrator. They contend their action was not a medical

malpractice action subject to the one-year statute of limitations, but rather was one for

ordinary negligence subject to the two-year statute of limitations under Code of Civil

Procedure section 335.1.

Specifically, in their fourth amended complaint, the Reeds alleged that Regal

“owned, operated, and controlled a public establishment known as an Independent

Practice Association . . . which is engaged in the business of healthcare administration

and/or processing of medical claims.” The Reeds alleged that Sharron and James were

“members of and participants in a group agreement or health plan” with Aetna, and Regal

was a “third party administrator that provides medical utilization review services in

connection with the health plan established by Aetna . . . which services consisted of,

among other things, making a determination regarding the availability of medical benefits

under the plan. That said utilization reviews refer to external evaluations that are based

on established clinical criteria and are conducted by third party payors, purchasers or

health care organizers to evaluate the appropriateness of medical care. Thus, Regal was

12 Aetna’s agent and/or joint venturer [sic] for the purpose of claims administration and

rendering utilization review services under the health insurance plan . . . . Accordingly,

Regal was vested with the power to act for Aetna. As such, Regal had the ability to either

approve or deny the benefits due [to James].”

Code of Civil Procedure section 340.5 establishes a one-year statute of limitations

from the date of discovery in “an action for injury or death against a health care provider

based upon such person’s alleged professional negligence.” For purposes of the statute of

limitations, a “‘[h]ealth care provider’ means any person licensed or certified pursuant to

Division 2 (commencing with Section 500) of the Business and Professions Code, or

licensed pursuant to the Osteopathic Initiative Act, or the Chiropractic Initiative Act, or

licensed pursuant to Chapter 2.5 (commencing with Section 1440) of Division 2 of the

Health and Safety Code and any clinic, health dispensary, or health facility, licensed

pursuant to Division 2 (commencing with Section 1200) of the Health and Safety Code.

‘Health care provider’ includes the legal representatives of a health care provider.”

(Code Civ. Proc., § 340.5, subd. (1).) “‘Professional negligence’ means a negligent act or

omission to act by a health care provider in the rendering of professional services, which

act or omission is the proximate cause of a personal injury or wrongful death, provided

that such services are within the scope of services for which the provider is licensed and

which are not within any restriction imposed by the licensing agency or licensed

hospital.” (Code Civ. Proc., § 340.5, subd. (2).)

13 The term professional negligence encompasses actions related to “a matter that is

an ordinary and usual part of medical professional services.” (Central Pathology Service

Medical Clinic, Inc. v. Superior Court (1992) 3 Cal.4th 181, 192-193.) In Palmer v.

Superior Court (2002) 103 Cal.App.4th 953, the plaintiff sued his doctor, his health care

plan, and the medical corporation that provided medical utilization review for the health

care plan because they had denied him a requested prosthesis. (Id. at pp. 957-959.) The

court held that the claims of negligent utilization review services arose out of the

professional negligence of a health care provider. (Id. at p. 967.) The court reasoned that

utilization review services should be considered professional services because “statutes

require that utilization review be conducted by medical professionals, and they must

carry out these functions by exercising medical judgment and applying clinical

standards.” (Id. at p. 972.) Although Palmer dealt with a claim of punitive damages

against a health care provider under Code of Civil Procedure section 425.13, not with the

statute of limitations under Code of Civil Procedure section 340.5, the court instructed

that the definitions of health care provider and professional negligence in section 425.13

should be read together and harmonized with other MICRA statutes. (Palmer, at pp. 961-

963.)

The Reeds argue, however, that Regal is a health care service plan and, as such, is

not subject to MICRA. Under the Knox-Keene Health Care Service Plan Act of 1975

(Health & Saf. Code, § 1340 et seq.), a health care service plan is statutorily defined as

“Any person who undertakes to arrange for the provision of health care services to

subscribers or enrollees, or to pay for or to reimburse any part of the cost for those

14 services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers

or enrollees.” (Health & Saf. Code, § 1345, subd. (f)(1).) “‘Provider’ means any

professional person, organization, health facility, or other person or institution licensed

by the state to deliver or furnish health care services.” (Id., subd. (i).) Other statutes

distinguish health care service plans and health care providers. Civil Code section 3428,

subdivision (c), states: “Health care service plans . . . are not health care providers under

any provision of law, including, but not limited to, Section . . . 340.5 . . . of the Code of

Civil Procedure.” And a health care service plan’s role in determining the medical

necessity of a requested procedure “shall [not] cause a health care service plan to be

defined as a health care provider for purposes of any provision of law, including” Code of

Civil Procedure section 340.5. (Health & Saf. Code, § 1367.01, subd. (m).)

The Reeds rely on Kaiser Foundation Health Plan, Inc. v. Superior Court (2012)

203 Cal.App.4th 696, 712-714 (Kaiser). In Kaiser, the court held that the plaintiffs were

not required to comply with Code of Civil Procedure section 425.13 to allege punitive

damages against Kaiser Foundation Health Plan, Inc., which administered the plaintiff

daughter’s health care plan. Notably, Kaiser Foundation Health Plan, Inc., admitted it

was a health care service plan under Health and Safety Code section 1340 et seq., and as

such did not provide medical care itself, but contracted with other Kaiser entities to

deliver medical care to subscribers. (Kaiser, at pp. 708, 715.)

Here, in contrast, the Reeds, in the various versions of their complaint, never

alleged that Regal is a health care service plan. Rather, they alleged that Regal is an

independent practice association (IPA). This court has explained: “[A]n IPA is an

15 association of physicians that contracts to provide medical care to HMO members in the

physicians’ own offices. The IPA in turn contracts with each of its independent

practitioner members regarding the terms of participation in the IPA, including payment.”

(Inland Empire Health Plan v. Superior Court (2003) 108 Cal.App.4th 588, 590 [Fourth

Dist., Div. Two]; see Heritage Provider Network, Inc. v. Superior Court (2008) 158

Cal.App.4th 1146, 1149, fn. 2 [stating that “IPA’s contract with health maintenance

organizations (HMO’s) to provide medical care to HMO members. The IPA’s, which

provide administrative services such as the credentialing of physicians and eligibility

verifications of the HMO’s members, then contract with medical professionals to treat

members. The medical professionals are typically deemed independent contractors

responsible for their own separate medical practices”].)

Considering all those authorities, our inquiry focuses on whether the alleged acts

were those which a medical practitioner would ordinarily perform in the capacity of a

health care provider. We agree with Palmer, in which the court stated that medical

utilization review must be conducted by medical professionals who exercise medical

judgment and apply clinical standards. (Palmer, supra, 103 Cal.App.4th at p. 972.) We

thus conclude the trial court did not err in determining that the Reeds’ claims are barred

by the one-year statute of limitations under Code of Civil Procedure section 340.5.

While the Reeds cite various cases for the proposition that damages may be sought

for negligence in making benefit determinations or for wrongful denial of coverage

(McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412; Mintz v. Blue Cross of

California (2009) 172 Cal.App.4th 1594; Kotler v. PacifiCare of California (2005) 126

16 Cal.App.4th 950; Wilson v. Blue Cross of So. California (1990) 222 Cal.App.3d 660,

abrogated in Mintz v. Blue Cross of California, at p. 1607), those cases shed no light on

the statute of limitations issue before us.

DISPOSITION

The judgment is affirmed. Costs are awarded to respondent.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

McKINSTER J. We concur:

RAMIREZ P. J.

HOLLENHORST J.