Ohio Federal Court Rebuffs Insured’s Efforts to Discover Attorney-Client Communications Occurring Prior to Claim Denial in Advance Funding Stop Loss Contract Dispute (Galion Community Hospital v. The Hartford Life & Accident Ins. Co., No. 1:08-cv-1635, in the United States District Court for the Northern District of Ohio, Eastern Division (January 29, 2010)).

Comment:  Hartford, the stop loss carrier, allegedly denied approximately $600,000 in claims submitted for reimbursement and/or advance funding by the Hospital’s TPA,  MedBen, between December 26 and December 31, 2007.  The stated rationale for the denials was a provision in the advance funding endorsement that required advance funding requests to be received at least two weeks prior to termination of the contract.  Specifically, the endorsement provided:

“If the agreement terminates,  Your request for advance reimbursement must be received by Us prior to 14 days before the date agreement terminates.”

Initially, Hartford, through one or more of its alleged agents (also named as defendants), apparently denied both claims for reimbursement of plan benefits already paid as well as claims for which advance funding had been requested.  However, Hartford soon reversed itself and appears to have paid the claims that were not advance funding requests.[1]  In any event, the ultimate dispute on the merits looks as if it will turn on whether the Hartford stop loss policy “terminated” or not on December 31.  If so, it would appear that the Hospital’s claims are not reimbursable; if not, it appears that they are.

The “termination” question is not as clear as it might first seem. In the motion that is the subject of the Court’s opinion, the Hospital argues that the stop loss contract never “terminated,” but instead simply expired of its own terms on December 31.  Thus, the Hospital reasons, the 14 Day Rule regarding advance funding requests (quoted above) does not apply, and the Hospital’s advance funding requests were timely made. [Note:  The Hartford policy attached to the Hospital’s Amended Complaint in this case has unusual termination provisions,  arguably requiring notice of a specified number of days depending upon the reason for the termination and the party declaring it.  In my experience, expiration of the policy term is typically listed as an event causing a termination, and limitations on advance funding are usually stated in terms of “no advance funding within the last 30 days of policy period” or something similar.  The atypical language used here may be the root of the trouble].

One of the exhibits attached to the Hospital’s motion is a copy of a March 5, 2008 letter to MedBen from Hartford , wherein Hartford quotes  a letter allegedly emailed from Hartford to MedBen on April 4, 2007:

“The Hartford is withdrawing all previously issued new business and renewal quotes for policies with an effective date of July 1, 2007 and later and will not be renewing any existing stop loss business thereafter.”

In its brief, the Hospital nevertheless insists that the above did not constitute notice of a termination, but instead simply a non-renewal.  Not surprisingly, we have a case where semantics may dictate the substantive outcome, the metaphysical difference between “termination” and “expiration,” if any, ruling the day.

But none of the foregoing was addressed or decided by the Court in its January 29, 2010 opinion, nor did the parties request that it be.  Instead, at issue was the discoverability of communications between Hartford and its attorneys prior to the denial of the claims.[2] ^,[3] Under a leading  Ohio case, Boone v. Vanliner Ins. Co., 744 N.E.2d 154 (Ohio 2001), pre-denial attorney-client communications were held to be discoverable if  they involved coverage issues and there were allegations in the case of bad faith denial of coverage.  The Hospital had asserted bad faith claims, and thus argued its entitlement to the documents at issue.

In response, Hartford and the other defendants pointed out that the Ohio legislature had amended the statute governing privileged communications in response to the decision in Boone to require that a plaintiff attempting to discover otherwise privileged material from an insurer in a case with bad faith claims must first make a prima facie (pronounced “prim-a face-ya” here in the South) showing of bad faith before obtaining access to the material. 

What, a normal human might ask, is a prima facie showing?  Without saying what one is or how the Hospital failed to make it, the Court denied the motion, thus protecting the communications at issue from discovery. 

I will attempt this less-than-satisfactory answer:  one makes a prima facie case when one alleges sufficient facts in sufficient detail which, if later proved, would entitle one to recover under applicable law.  Asserting “legal conclusions” is not enough.  Thus, simply alleging that an insurer is guilty of bad faith (or orneriness of a disproportionate nature, malice, or just plain meanness and being contrary) does not make a prima facie showing, and does not get one behind the cloak of attorney-client privilege.

Truth is, at the pleading stage, the “prima facie” test is essentially a smell test:  is there enough smoke here to suggest the reasonable possibility of a fire, or is the complaint smoke and mirrors only?  Reducing the Rule of Law to such banalities might seem offensive to some, and disillusioning to others, but I submit my description is generally accurate.  It’s just that they don’t teach olfactory science in law school.

  Read the Court's Opinion Here