Wednesday, November 9, 2016
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Court of Appeal Rejects ‘Death Spiral’ Class Action Against Blue Shield
By KENNETH OFGANG, Staff Writer
A San Francisco Superior Court judge did not abuse his discretion in ruling that a lawsuit charging Blue Shield of California with forcing policyholders into lower-benefit and higher-deductible health coverage could not proceed as a class action, the First District Court of Appeal ruled yesterday.
Div. One, in an unpublished opinion by Justice Robert Dondero, agreed with the trial judge that the plaintiffs’ allegations raise too many individual issues for the case to be litigated on a class-wide basis.
Plaintiffs Robert Martin and Deborah Goodwin charge that Blue Shield violated state statutes regulating the closure of health plans to new membership, creating a “death spiral” in which customers who remain in the closed plans get hit with higher rates until they can no longer afford coverage.
The closure statutes require insurers to notify state regulators of plan closures, and to either implement a pooling plan to afford limited rate protection to members of the closed plan, or let members transfer into “comparable” open plans without medical underwriting, so that those with preexisting conditions can find new plans.
‘Bare-Bones’ Policy
Martin, in a press release issued by his attorneys when the suit was filed, explained:
“Blue Shield closed my family’s policy and then threatened us with a 23% premium increase. We had no choice but to switch to the only bare-bones policy Blue Shield offered us. When Blue Shield canceled the original rate increase, the company refused to let us transfer back into our old, higher benefit policy. Then, Blue Shield raised the rate of our bare bones policy by 14.8%!”
The complaint focused on three rounds of plan closures, two in March 2010 and one in July 2012. Martin’s plan was included in the first round of closures, and he transferred into a new plan without medical underwriting.
Goodwin alleged that she was implicated in the second round of closures, which occurred on the date that the Patient Protection and Affordable Care Act took effect, causing Blue Shield to “grandfather” many of its policies. Goodwin was a member of a grandfathered plan until December 2013 when, allegedly in response to improper pooling, she canceled her coverage in favor of Medicare.
The plaintiffs sought declaratory and injunctive relief, as well as Unfair Competition Law equitable relief in the form of restitution and disgorgement of all monies allegedly illegally obtained from class members by Blue Shield.
Trial Court’s Decision
In denying the class certification motion, the trial judge found that Martin and Goodwin were inadequate class representatives, with respect to declaratory relief, because neither was a member of a closed plan subject to the allegedly improper pooling practices, and therefore neither had an ongoing dispute with Blue Shield.
With respect to injunctive relief, the judge concluded a class could not be certified because of inherent conflicts among class members, and because individual issues predominated regarding whether class members would want or be entitled to an injunction. “Members of a class defined as those whose experience drive their rates up absent re-pooling (and that’s what this purported class is) all have an interest in ensuring no other class member gets the same relief,” the judge wrote.
The judge also said the plaintiffs’ claims for restitution were not appropriate for class certification because individual issues predominated over common ones.
Blue Shield moved for judgment on the pleadings, arguing that the ACA rendered the action moot. The judge denied that motion, and the Court of Appeal yesterday left the issue unresolved while ruling that the case will not proceed as a class action.
Dondero, writing for the Court of Appeal, agreed with the trial judge on the class certification issues.
By statute, the justice noted, declaratory relief requires an “actual controversy relating to the legal rights and duties of the respective parties.” That doesn’t apply here, he said, because neither plaintiff has an ongoing dispute with Blue Shield with respect to any plan.
Dondero distinguished a case holding that plaintiffs could represent a class made up of investors in six different partnerships, including one in which none of them had invested. Martin and Goodwin, unlike those plaintiffs, “do not have any interest in the relief they purport to seek on behalf of the class,” the justice said.
With respect to injunctive relief, he said, the trial judge’s “logic was inescapable” in holding that a conflict of interest might exist because some class members might not want to return to their closed plans, and might want to exclude someone like Martin, whose experience might force rates up, from their new plans.
Dondero also agreed with the trial judge that trying restitution issues in a class action would create unmanageable issues, due to the large number of different plans at issue, the possibility that individuals may have transferred out of closed plans for reasons other than premium increases alleged to be a result of the allegedly illegal conduct, and the need to determine class members’ out-of-pocket costs on an individualized basis.
The case is Martin v. California Physicians’ Service, A145374.
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