Opinion
3:20-CV-01651-AC
01-25-2022
PROVIDENCE HEALTH & SERVICES, a Washington non-profit corporation, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, an Illinois Corporation, Defendant. CONTINENTAL CASUALTY COMPANY, an Illinois corporation, Third-Party Plaintiff, v. SEDGWICK CLAIMS MANAGEMENT SERVICES, INC., an Illinois corporation, Third-Party Defendant.
FINDINGS AND RECOMMENDATION
JOHN V. ACOSTA UNITED STATES MAGISTRATE JUDGE
Introduction
On September 23, 2020, Plaintiff Providence Health & Services (“Providence”) filed this lawsuit against Defendant Continental Casualty Company (“Continental”) to recover reimbursements that Continental allegedly “wrongfully refused to pay [Providence] under an excess workers' compensation insurance policy.” (Compl. ¶¶ 1, 6, ECF No. 1). In its Answer, Continental denied that allegation, asserted affirmative defenses, and alleged counterclaims against Providence. (First Am. Answer, Affirmative Defenses, Counterclaims, and Third-Party Complaint (“FACC”) ¶¶ 22, 25, 29, 39-64, ECF No. 50). Continental also asserted a Third-Party Complaint against Third-Party Defendant, Sedgwick Claims Management Services, Inc. (“Sedgwick”). (Id. ¶¶ 65-78). Continental alleges Sedgwick, in its role as Providence's third-party administrator, failed to adequately manage billing for an employee's covered medical treatment, and it seeks contribution or indemnity from Sedgwick for the alleged overcharges. (Id. ¶¶ 70-78).
Several motions are currently before the court. First, pursuant to Federal Rule of Civil Procedure (“FRCP”) 12(b)(6), Providence moves to dismiss Continental's counterclaims for failure to state a claim upon which relief can be granted. (Plf. Mot. to Dismiss for Failure to State a Claim, Motion to Strike Counter Claim (“Providence Mot. to Dismiss”) at 1, ECF No. 53). Providence also moves to strike Continental's sixth and seventh affirmative defenses. (Id.). For the reasons stated below, this court recommends Providence's motion be GRANTED IN PART and DENIED IN PART.
Second, Sedgwick moves to dismiss Continental's third-party claims as legally insufficient. (Third-Party Def. Sedgwick Mot. to Dismiss (“Sedgwick Mot. to Dismiss”) at 2, ECF No. 52). The court recommends Sedgwick's motion to dismiss be GRANTED IN PART and DENIED IN PART.
Preliminary Procedural Matter
As a preliminary matter, the court must address a point of confusion: Providence and Continental appear to have submitted different excess insurance policies with their pleadings. (See Compl. ¶ 8; Ex. A; FACC ¶ 3, Ex. 1). Prior to oral argument on January 12, 2022, the parties were apparently not aware they had relied upon different policies. (Official Court Transcript of Proceedings (“Tr.”) at 5:4-8, ECF No. 65). This unawareness is reflected in admissions in Continental's FACC and in briefing submitted by Providence. (See FACC ¶ 5 (“Continental admits the allegations [referring to the policy submitted by Providence] in paragraph 8, 9 and 10 of Providence's Complaint”); Providence Mot. to Dismiss at 16 (responding to and citing excerpts from the policy attached to Continental's FACC, without indicating they differed from the policy alleged by Providence). Because the parties could not adequately address this discrepancy at oral argument, the court exercises it discretion to determine which policy is presumptively applicable to this dispute. See, e.g., U.S. v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011) (court may “consider materials that are submitted with and attached to the Complaint” on a motion to dismiss).
Within its Complaint, Providence refers to a policy numbered W-12857450B (“Policy B”). (Compl. ¶ 8; Ex. A). Providence also attached excerpts of Policy B, though it appears only the declarations pages have been provided so far. (See id.). In contrast-and despite its apparent admission that Policy B applied-Continental submitted a policy numbered W-128574507A (“Policy A”) with its FACC. (FACC ¶ 3, Ex. 1). The policies share some terms. For instance, both list the insured as “Sisters of Providence, Sacred Heart Province, et al” and the insurer as “Continental Casualty Company.” (Id.; Compl. ¶ 8; Ex. A).
Nevertheless, the policies differ in notable respects, such as the insured's specific retention rate for each occurrence. While Policy A lists a specific retention rate of $300,000 in Oregon, Policy B lists a retention rate of $500,000. (FACC ¶ 3, Ex. 1 at 1; Compl. ¶ 8, Ex. A at 1). The policies were also effective during different periods. Policy A was effective from January 1, 1995 to January 1, 1996. (FACC ¶ 3, Ex. 1). Policy B became effective on January 1, 1996 and remained in effect until January 1, 2000. (Compl. ¶ 8, Ex. A). Various parts of the policies also appear to differ through amended terms and conditions. (Compare FACC ¶ 3, Ex. 1 at 13) (“Part 1: Self-Insured Indemnity Coverage”) with Compl. ¶ 8, Ex. A at 12 (“Part 1: Coverage”)).
Pinpoint references to the insurance policies begin on the first page of each policy.
In determining which policy presumptively applies to this dispute, the court considered the pleadings and policies submitted by both parties, as well as the underlying occurrence that triggered coverage in this case. The parties agree that the underlying occurrence-an on-the-job injury of a Providence employee-occurred in 1997. (Compl. ¶ 12; FACC ¶ 7). That date falls within the effective period of Policy B, not Policy A. Accordingly, although some allegations in Continental's complaint rely on the terms of Policy A, the court considers Policy B the presumptive policy for purposes of this motion. To the extent Continental's pleadings rely on clauses from Policy A, Continental will have an opportunity to amend its complaint to conform with the terms of Policy B instead.
Factual Background
I. Parties' Relationships and Policy Terms
For purposes of this motion, the facts alleged in Continental's FACC are taken as true, though as discussed above, the court presumes Policy B is applicable to this case. Plaintiff Providence is a non-profit Washington corporation that “operates a network of hospitals, physicians, and other healthcare providers and facilities throughout Oregon.” (FACC ¶ 1). Providence is a self-insured employer, which means it serves as primary insurer for workers' compensation claims made by its employees. (Id. ¶ 3). Third-party defendant, Sedgwick, served as a third-party administrator for Providence. (FACC ¶ 5). In this capacity, Sedgwick was responsible for administering workers' compensation claims and negotiating pricing with medical providers on behalf of Providence. (Id.). Sedgwick's role also included requesting and collecting reimbursements from excess insurance providers for Providence. (Id. ¶¶ 40, 71).
From January 1, 1996 until January 1, 2000, defendant Continental provided excess workers' compensation insurance to Providence pursuant to a Specific Excess Workers Compensation Policy (“Policy B”). (Compl. ¶ 8, Ex. A at 1). Under the terms of Policy B, Continental agreed to “indemnify [Providence] for an amount equal to the benefits in excess of” a specific retention rate of $500,000. (Id. at ¶¶ 1, 8). In plain terms, Providence, as the primary insurer, was responsible for paying the first $500,000 expended on a workers' compensation claim and initially paying any amounts exceeding that retention rate. Continental, as the excess insurer, then reimbursed Providence for payments exceeding that amount.
II. Underlying Worker's Compensation Claim and Medical Treatment
In 1997, during the effective period of Policy B, a Providence employee suffered an on-the-job injury and his workers' compensation claim was accepted by Providence. (Id. ¶ 7).
Unfortunately, the employee's injury resulted in serious additional conditions that required medical care until his death in March 2018. (Id. ¶ 8; Compl. ¶ 13). Providence provided primary workers' compensation benefits for the employee's medical treatment and medication. (FACC ¶ 3). However, in 2007, it became apparent that the claim would trigger excess insurance coverage. (Id. ¶ 9; Compl. ¶ 14). Providence timely notified Continental of this excess claim, and Continental accepted the claim. (FACC ¶ 9, Compl. ¶ 14). Under the Policy, Providence was still required to pay initial medical costs out-of-pocket, and Continental agreed to reimburse excess amounts “allowable under Oregon law.” (FACC ¶ 8).
In January 2008, the employee began receiving treatment and medication from Gresham Dialysis/Dialysis Centers of Oregon (“DCO”). (FACC ¶ 10). In August 2010, Sedgwick, acting as Providence's third-party administrator, negotiated an agreement with DCO “to apply a flat discount rate of 19% to the total amount of DCO's monthly dialysis billing statement, going forward.” (Id. ¶ 11). Providence and Sedgwick notified Continental of this discounted rate and provided Continental with periodic reports and payment ledgers. (Id. ¶ 12).
III. Increased Charges and Notice of Nonpayment
In 2014 or 2015, charges by DCO began increasing. (Id. ¶ 14). Continental questioned Providence and Sedgwick regarding those charges in 2015 and 2016, and eventually obtained an audit of those bills. (Id.). Continental alleges this audit revealed “overpayments by Providence/Sedgwick for which Providence/Sedgwick had requested reimbursement from Continental.” (Id.). During that investigation, Continental continued sending Providence reimbursements for billing charges from DCO. (Id.).
On March 17, 2017, Continental sent Providence a “Notice of nonpayment, offset, reimbursement, and reservation of rights” (“Notice of Nonpayment). (Id. ¶ 15, Compl. ¶ 20, Ex. E). The Notice of Nonpayment asserted that, under the DCO fee arrangement negotiated by Sedgwick, Providence had overpaid DCO approximately $1,568,107.51 for services related to the employee's medical care. (FACC ¶ 15; Compl. ¶ 20, Ex. E at 1). Specifically, Continental claimed that DCO had been overcharging for an anemia medication by billing dosages in micrograms rather than milligrams. (Compl. ¶ 20, Ex. E at 2). Continental also asserted that, under the negotiated fee arrangement, DCO's charges to Providence “exceed[ed] amounts allowed under appropriate workers compensation fee tables.” (Id. at 3). Because these alleged overcharges would affect the amount Continental must pay to Providence in excess insurance reimbursements, Continental asserted a right to “offset current and future reimbursement requests against” the alleged overpayment. (Id. at 1). Continental also “strongly recommended Providence retain counsel to assist in stopping and perhaps recovering overpayments” from DCO, and it noted that Oregon law permitted insurers 180 days to request a refund from service providers. (Id. at 3). There is no indication that Providence explored reimbursement options with DCO. Since March 2017, Continental has not reimbursed Providence for expenses due to the employee's medical treatment and medication, though it has reimbursed indemnity payments related to disability and widow benefits. (FACC ¶ 17).
In the Notice of Nonpayment, Continental referred Providence to “tables within the appendices to OAR Chapter 436, Division 009” for workers' compensation fee schedules. (Compl. ¶ 20, Ex E at 3).
IV. Procedural History
To recover reimbursements for the employee's medical care at DCO, Providence filed this lawsuit against Continental in September 2020. (Compl. ¶ 1). Providence asserted claims for declaratory judgment, breach of contract, and promissory estoppel. (Id. ¶¶ 28, 31-32, 37). In its Answer, Continental denied those allegations, asserted several affirmative defenses, and alleged counterclaims against Providence for declaratory judgment, breach of contract, and breach of the duty of good faith and fair dealing. (FACC ¶ 22, 25, 29, 39-64). Continental also asserted a third-party complaint against Sedgwick, alleging it is entitled to contribution or common law indemnity for the alleged overcharges, given Sedgwick's negotiations with DCO as Providence's third-party administrator. (FACC ¶ 70-78).
In the instant motions, Providence moves to dismiss Continental's counterclaims and moves to strike two of its affirmative defenses. (Providence Mot. to Dismiss, ECF No. 53). Sedgwick moves to dismiss Continentals' third-party complaint. (Sedgwick Mot. to Dismiss, ECF No. 52).
Legal Standard
“A motion to dismiss a counterclaim brought pursuant to [Rule 12(b)(6)] is evaluated under the same standard as a motion to dismiss a complaint.” Swingless Golf Club Corp. v. Taylor, 679 F.Supp.2d 1060, 1066 (N. D. Cal. 2009). “A 12(b)(6) motion tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “Dismissal can be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dept., 901 F.3d 696, 699 (1988). To survive a motion to dismiss, the complaint must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the [party] pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). For purposes of a motion to dismiss, “[a]ll allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Am. Family Ass'n, Inc. v. City & Cnty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). However, bare assertions that amount to nothing more than a “formulaic recitation of the elements” of a claim “are conclusory and not entitled to be assumed true.” Iqbal, 556 U.S. at 681.
Discussion
I. Providence's Motion to Dismiss and Motion to Strike
Providence moves to dismiss Continental's counterclaims for declaratory judgment, breach of contract, and breach of the duty of good faith and fair dealing. Providence also moves to strike Continental's sixth and seventh affirmative defenses.
A. Declaratory Judgment
In its first counterclaim against Providence, Continental requests this court declare: (1) Providence and Sedgwick made overpayments not allowable under Oregon law; (2) the excess insurance policy between Continental and Providence does not cover those overpayments; and (3) Providence is not entitled to additional reimbursement from Continental for those overpayments. (FACC ¶¶ 45-47; Resp. in Opposition to Providence Mot. to Dismiss (“Continental Resp.”), ECF No. 55). Because Continental does not reference specific terms of Policy A under this counterclaim, the court will evaluate the counterclaim as currently alleged.
The Declaratory Judgment Act permits a federal court to “declare the rights and other legal relations” of parties to a “case of actual controversy” within the court's jurisdiction. 28 U.S.C. § 2201(a). A “dispute between an insurer and its insured is generally considered a case or controversy for purposes of conferring jurisdiction.” Century Indem. Co. v. Marine Grp., LLC, 848 F.Supp.2d 1229, 1234 (D. Or. 2012) (citing Gov't Emp. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 n.2 (9th Cir. 1998); see also United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 494 (4th Cir. 1998) (“It is well established that a declaration of parties' rights under an insurance policy is an appropriate use of the declaratory judgment mechanism.”).
Providence argues Continental's counterclaim for declaratory judgment should be dismissed for three reasons. First, Providence asserts Continental is requesting declaratory relief for a “past violation of law” and therefore does not allege a prospective actual controversy. (Providence Mot. to Dismiss at 9). This argument misinterprets Continental's counterclaim. Providence presumes Continental's counterclaim seeks to recover settled reimbursement payments that Continental previously made to Providence between 2008 and 2016. However, the counterclaim asserts only that an actual controversy exists as to “whether Providence/Sedgwick is entitled to additional reimbursement from Continental” since Continental sent the Notice of Nonpayment in 2017. (FACC ¶ 39) (emphasis added). Moreover, even to the extent Continental seeks credit on prior reimbursement payments, this counterclaim responds directly to Providence's own request that this court declare it is entitled to those same reimbursements. Therefore, Continental's counterclaim presents a prospective actual controversy.
Second, Providence argues Continental's declaratory judgment counterclaim should be dismissed because it owed no statutory duty to Continental “to adjust the claim and make payments to DCO in compliance with Oregon law.” (FACC ¶ 44; Providence Mot. to Dismiss at 12). In support of this argument, Providence cites several workers' compensation billing dispute statutes to assert that there “are no such reimbursement or offset rights conferred upon excess insurers such as Continental.” (Providence Mot. to Dismiss at 10) (emphasis omitted). This argument is unpersuasive. Continental's requested relief does not rely directly on workers' compensation billing dispute statutes, but instead implicates an insurance coverage dispute: whether payments made by Providence to DCO under the negotiated fee arrangement are covered by the parties' excess insurance Policy. Although the workers compensation fee schedules may be relevant to understand the contours of this coverage dispute, they are implicated only as part of the broader contractual/insurance relationship between Providence and Continental.
Third, Providence characterizes Continental's declaratory judgment counterclaim as an “allegation[] of negligence against Providence and Sedgwick” and asserts it is barred by the two-year statute of limitation for negligence claims because Continental discovered the alleged overcharges in 2017. (Id. at 13 (citing ORS § 12.110) (emphasis in original)). As a matter of law, this argument fails. Continental asserted claims for declaratory judgment, breach of contract, and breach of the contractual duty of good faith and fair dealing. Even if Continental believes these breaches stem from negligent administration by Providence or Sedgwick, these remain claims based on contractual/insurance coverage disputes, not negligence. Continental has not asserted a negligence claim; therefore, the negligence statute of limitations is not implicated and does not bar this counterclaim.
For the above reasons, the court should find Continental's counterclaim for declaratory judgment states a plausible claim for relief.
B. Breach of Contract
In its second counterclaim, Continental alleges Providence breached its contractual duties by failing to limit its excess insurance reimbursement requests to only losses covered under the insurance policy and failing to reasonably investigate, settle, or pay bills from DCO. (FACC ¶¶ 48-52; 56-58). Essentially, Continental asserts that the excess insurance policy incorporates a duty to comply with workers' compensation fee schedules set forth in Oregon law, and Providence therefore breached the contract in requesting payments noncompliant with those rules.
Continental cites ORS 656.403(2), which provides “[t]he claims of subject workers and their beneficiaries resulting from injuries while employed by a self-insured employer shall be handled in the manner provided by this chapter. A self-insured employer is subject to the Rules of the Director of the Department of Consumer and Business Services with respect to such claims.” (emphasis added).
While the court acknowledges that Continental has raised a critical legal question about the relationship between the fee schedules of Oregon's workers' compensation law and the applicable insurance policy, Continental's pleadings on this claim are nonetheless flawed. The problem stems from the two different insurance policies submitted in this case. Although the court has determined that Policy B is presumptively applicable to this dispute, Continental's breach of contract counterclaim relies heavily on the terms of Policy A. (See FACC ¶¶ 49, 50, 55). Given this discrepancy, Continental's counterclaim for breach of contract should be dismissed with leave to amend to conform its pleadings to the terms of Policy B. Continental should also be ordered to submit a full version of Policy B with its amended pleadings.
C. Breach of the Duty of Good Faith and Fair Dealing
In its final counterclaim, Continental alleges Providence “breached its duty of good faith and fair dealing with regard to the insurance contract.” (FACC ¶ 64). In Oregon, “the law imposes a duty of good faith and fair dealing in contracts to facilitate performance and enforcement in a manner that is consistent with the terms of the contract.” Safeco Ins. Co. of Oregon v. Masood, 264 Or.App. 173, 178 (2014) (quoting Whistler v. Hyder, 129 Or.App. 344, 348 (1994)). This duty cannot “be construed in a way that changes or insert terms into a contract.” Id. Instead, it is meant to “effectuate the reasonable contractual expectations of the parties” that are not expressly set forth in the contract. Best v. U.S. Nat. Bank of Or., 303 Or. 557, 561 (1987) (citing Comini v. Union Oil Co., 277 Or. 753, 756 (1977). Thus, a claim for the breach of the duty of good faith and fair dealing “may be pursued independently of a claim for breach of the express terms of the contract.” McKenzie v. Pacific Health & Life Ins. Co., 118 Or.App. 377, 381 (1993).
Continental alleges Providence acted contrary to its reasonable expectations by failing to (1) “comply with Oregon workers' compensation statutes, regulations, and fee schedules;” (2) “request reimbursement . . . only for payments to medical providers that . . . complied with [Oregon law];” and (3) “reasonably investigate, pay, and appeals bills from medical providers to ensure compliance with Oregon law.” (FACC ¶¶ 61-63). Although these pleadings do not rest directly on terms of Policy A, they necessarily incorporate those terms in shaping the parties' reasonable contractual expectations. (See FACC ¶ 59 (realleging paragraphs that reference terms of Policy A)). Accordingly, to the extent this counterclaim relies on terms of Policy A, it should be dismissed with leave to amend based on the terms of Policy B.
D. Motion to Strike Affirmative Defenses
Providence also moves to strike Continental's sixth and seventh affirmative defenses as legally insufficient. (Providence Mot. to Dismiss at 1). Under Rule 12(f), the “court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). Courts “must view the challenged pleading in the light most favorable to the pleader.” Wanke Cascade Distr., Ltd. v. Forbo Flooring, Inc., Case No. 3:13-cv-0768-AC, 2015 WL 1757151 *4 (D. Or. 2015). Generally, “motions to strike should be denied unless it can be shown that no evidence in support of the allegation would be admissible, or those issues could have no possible bearing on the issues in the litigation.” Id. (quoting Gay-Straight Alliance Network v. Visalia Unified Sch. Dist., 262 F.Supp.2d 1088, 1099 (E.D. Cal. 2001).
Under its sixth affirmative defense-titled “No Coverage for Overpayments”-Continental alleges
Providence's claim for reimbursement, inasmuch as they reflect payments in excess of the sums allowable under Oregon law, are precluded by the applicable terms, conditions, definitions, and limitation of [Policy A], including the Self-Insured Indemnity Coverage part, the Loss Payable part, and the Administration and Reporting Claims Part.(FACC ¶ 35). For its seventh affirmative defense-titled “Recoupment or Setoff”-Continental alleges it is “entitled to an equitable recoupment or setoff from any amounts demanded by Providence for the overpayments made by Continental, which were caused by Providence's and Sedgwick's improper adjustment and payment of the employee claim.” (FACC ¶ 38). Providence argues these defenses are legally insufficient because they “[rely] upon the same [allegedly] inapplicable workers' compensation statutes.” (Providence Mot. to Dismiss at 26).
Like Continental's breach of contract counterclaim, these affirmative defenses implicate the relationship between the excess insurance contract and Oregon workers' compensation laws- a topic poorly suited to a motion to strike. Nevertheless, to the extent these affirmative defenses rely on specific terms of Policy A, they should be dismissed with leave to amend in accordance with the terms of Policy B.
II. Sedgwick's Motion to Dismiss Continental's Third-Party Complaint
In its Third-Party Complaint against Sedgwick, Continental alleges:
Sedgwick [in its capacity as Providence's third-party administrator for workers compensation claims] failed to, or failed to adequately, review or manage the billing for the employee's medical treatment and medication, specifically including billing submitted by DCO. Due to Sedgwick's failure, Providence paid (and Continental reimbursed) bills that included errors and charges contrary to Oregon law . . . .
* * *
By forwarding proof of payment and requests for reimbursement to Continental, Sedgwick represented to Continental that the charges were correct and allowable under Oregon law, which was incorrect. When Continental asked about the charges in 2015 and 2016, Sedgwick also incorrectly reported to Continental that the charges were due to the average price of the services and medication and the frequency of treatment. As result of Sedgwick's representations, Continental reimbursed Providence in $2.7 million in overpayments.(FACC ¶¶ 72-73). Continental further alleges that, as Providence's “agent, ” Sedgwick “owed a duty to Providence to ensure that payments to the employee's medical providers” complied with Oregon law. Continental contends “as a result of Sedgwick's failure to satisfy that duty, Providence paid over $5 million in overpayments to DCO.” (Id. ¶ 74). Continental asserts claims for contribution pursuant to ORS 31.800 and common law indemnity. (Id. ¶ 76, 78). Sedgwick moves to dismiss both claims under Rule 12(b)(6).
A. Contribution Claim
Sedgwick argues that because “Providence brings no claim against Continental in tort, ” it can “therefore not be [a] joint tortfeasor of Sedgwick sufficient to establish the elements of a contribution claim.” (Sedgewick Mot. to Dismiss at 4). In response, Continental notes contribution was “originally [a] court created, equitable claim.” (Continental Resp. to Mot. to Dismiss Third-Party Complaint (“Resp. to Mot. to Dismiss TPC”) at 7, ECF No. 57). Continental also claims that it “does not assert a statutory contribution claim against Sedgwick.” (Id. at 7 n.4).
Continental's arguments against dismissal are unpersuasive. In its own pleading, Continental explicitly references ORS 31.800, a statutory contribution claim. Under that statute, “[t]here is no right of contribution from a person who is not liable in tort to the claimant.” ORS § 31.800. Continental has not alleged that either Providence or Sedgwick are liable in tort; therefore, its statutory contribution claim based on ORS 31.800 is legally insufficient.
Further, while the claim of contribution originated in equity, Continental's referenced case law does not support a cognizable contribution claim against Sedgwick. In the first case Continental cites, the Oregon Court of Appeals considered the “nature of equitable contribution among insurers” who had insured the same risk. Certain Underwriters at Lloyds's London v. Mass. Bonding, 235 Or. App 99, 113 (2010). In that underlying dispute, plaintiffs and defendants, all insurers, issued various insurance policies to a common insured (the “Insured”). Id. at 102. When the Insured was later targeted for an environmental cleanup action and denied coverage, it filed claims against the plaintiffs and defendants, seeking a declaration of coverage and reimbursement for defense and indemnity costs. Id. While defendants settled with the Insured and were dismissed from the case, plaintiffs proceeded to trial, where the court entered judgment in favor of the Insured. Id.
Following that adverse judgment, plaintiffs sued defendants, alleging that, despite the defendants' settlement agreement, the duty to defend the Insured was an obligation the parties owed jointly, and they sought a pro-rata contribution for that obligation. Id. The trial court disagreed, granting summary judgment for defendant. On appeal, the court reversed. Id. at 116. Reasoning that contribution “is a right that inures to the benefit of the insurer, ” the court concluded “defendants' settlement with [the Insured] did not operate to extinguish plaintiff's right to equitable contribution for defense costs paid prior to the settlement.” Id. at 113.
Unlike the equitable contribution claim in Certain Underwriters, which was allowed between insurers of the same risk, the contribution claim now asserted by Continental against Sedgwick does not involve two parties acting as insurers. It is undisputed that Sedgwick managed the employee's workers' compensation claim as a third-party administrator for Providence-the primary insurer of the claim. Nevertheless, Continental does not allege, nor could it plausibly allege, that Sedgwick acted as an insurer in this role. From Continental's pleadings, it is not clear whether Sedgwick even was Providence's third-party administrator-let alone an insurer-at the time the employee's injury triggered coverage. At most, Continental's allegation that Sedgwick acted as an “agent” of Providence is a legal conclusion not entitled to be taken as true.
Similarly, the other case relied on by Continental is inapposite. Without providing context or explanation, Continental quotes that “an action for contribution is normally ‘an equitable remedy used to prevent unjust enrichment.'” ((Resp. to Mot. to Dismiss TPC at 7) (quoting Bonner v. Arnold, 296 Or. 259, 262 (1984)). Despite the truth of that sentiment, the context of this quote does not support Continental's present argument. In Bonner, the Oregon Supreme Court considered whether it was proper to allow one joint owner of property to seek contribution from the estate of the other, deceased joint owner for the property's purchase price and tax expenses. Id. Reasoning that the living joint owner, who now had full interest in the property, would be unjustly enriched, the court refused to allow him to seek contribution from the deceased owner's estate. Id.
Here, while Continental alleges it “reimbursed Providence for at least $2.7 million in overpayments, ” it makes no allegation that Sedgwick, as Providence's third-party administrator, received those funds or was unjustly enriched. (FACC ¶ 73) (emphasis added). Because Continental's arguments and pleadings do not support a legally cognizable claim for contribution in this context, this claim should be dismissed without leave to amend.
B. Indemnity Claim
Although Continental denies liability to Providence, it alleges
[I]f Continental is found liable to Providence, Sedgwick should be required to indemnify Continental for any liability to Providence and for Continental's own costs and attorney fees incurred in this action because Sedgwick's fault in causing Providence's losses or
damages is active and primary, while any fault on the part of Continental is passive and secondary.(FACC ¶ 78) (emphasis added). Continental further argues that, although there is likely no case law directly analogous to the facts presented in this case, it should be allowed to assert an indemnity claim against Sedgwick based on a “basic equity principle.” (Tr. at 37:24-25). This principle, Continental argues, is that “Sedgwick had [and breached] a responsibility to Continental and to Providence . . . not to submit a bill for ten times the medication that was actually administered.” (Tr. at 38:4-6). Sedgwick moves to dismiss this claim.
To state a claim for indemnity under Oregon common law, a claimant must allege “(1) it has discharged a legal obligation owed to a third party; (2) the party against whom the indemnity claim is asserted is liable to the third party; and (3) between the claimant and the party against who indemnity is claimed, the obligations should be discharged by the latter.” Ironwood Homes, Inc. v. Bowen, 719 F.Supp. 1277, 1294 (D. Or. 2010) (citing Ore-Ida Foods, Inc. v. Indian Head Cattle Co., 290 Or. 909, 919 (1981); see also Fulton Ins. v. White Motor Corp., 261 Or. 206, 210 (1972). Generally, “[c]ommon law indemnity is a judicially created claim intended to equitably allocate liability among joint tortfeasors.” Eclectic Inv., LLC v. Patterson, 357 Or. 25, 38 (2015). More broadly, however, “[i]ndemnity, a form of restitution, is founded on equitable principles; it is allowed where one person has discharged an obligation that another should bear; it places the final responsibility where equity would lay the ultimate burden.” Id. at 35 (citing Reporters Note, Restatement (Third) of Restitution § 23 comment a) (internal quotations omitted).
Sedgwick argues Continental's indemnity claim is not cognizable because “Oregon common law no longer has joint tort liability” to support a basis for common law indemnity and because “there are no joint tortfeasors here and therefore no claim for indemnity could lie.” (Sedgwick Mot. to Dismiss at 5-6). With respect to the first argument, Sedgwick relies on Eclectic for the proposition that “the doctrine of common-law indemnity was developed before [the passage of Oregon's statutory scheme for comparative fault] and is inconsistent with its framework.” Eclectic Inv., 357 Or. at 475 (referencing the comparative fault allocation rules set forth in ORS § 31.600, ORS § 31.605, and ORS § 31.610). However, as Continental correctly notes, Eclectic “didn't eliminate indemnity in all situations.” (Tr. at 35:4-5). In Eclectic, the court held only that “a judicially created means of allocating fault and responsibility is not necessary or justified” in “cases in which the Oregon comparative negligence statues apply and in which juror's allocate fault.” Eclectic, 357 Or. at 38 (emphasis added). Because no tort claims are alleged in this case, the comparative negligence statutes are not implicated such that a claim for common law indemnity must be completely barred.
Sedgwick's second argument is similarly unpersuasive. Although claims for common law indemnity generally rely on joint tort liability, indemnity also rests on broader equitable principles. See Reporters Note, Restatement (Third) of Restitution § 23 comment a (noting “most claims to indemnity . . . rest on overlapping grounds of liability: a varying combination of implied contract, breach of duty, and unjust enrichment”). Continental's claim implicitly relies on these broader principles. Further, Continental has alleged that it discharged a legal obligation to Providence by reimbursing alleged overpayments; that Sedgwick, as Providence's third-party administrator, breached a legal obligation to Providence by failing to adequately manage billing for those same payments; and that, as between Continental and Sedgwick, the obligation to reimburse Providence should be discharged by Sedgwick. (FACC ¶¶ 36-38, 77-78). Accordingly, the court should find that Continental stated a plausible claim for common law indemnity against Sedgwick. III. Continental's Request to Amend its Third-Party Complaint
In its response briefing, Continental requests leave to amend its third-party complaint against Sedgwick to add a subrogation claim and a third-party beneficiary contract claim. At this time, the court should exercise its discretion to defer this request. If Continental wishes to amend its third-party complaint, it must do so in accordance with the procedures set forth in Rule 15 and corresponding local rules. Fed.R.Civ.P. 15(a)(1).
Conclusion
Based on the foregoing analysis, the court recommends that Providence's motion to dismiss and to strike (ECF No. 53) be GRANTED IN PART and DENIED IN PART. Continental's second and third counterclaims and sixth and seventh affirmative defense should be DISMISSED with leave to amend in accordance with insurance Policy No. W-128574507B (“Policy B”). Continental should be ordered to submit a full copy of Policy B with its amended pleadings.
The court further recommends Sedgwick's motion to dismiss Continental's third-party complaint (ECF No. 52) be GRANTED IN PART and DENIED IN PART. Continental's third-party contribution claim against Sedgwick should be DISMISSED without leave to amend.
The court recommends DEFERRING Continental's request for leave to amend its third-party complaint.
Scheduling Order
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due within 14 days. If no objections are filed, then the Findings and Recommendation will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.