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First State Orthopaedics, P.A. v. Gallagher Bassett Services, Inc.

Superior Court of Delaware

May 3, 2018

FIRST STATE ORTHOPAEDICS, P.A., on behalf of itself and all others similarly situated, Plaintiff,

          Submitted: January 9, 2018

         On Defendant's Motion to Dismiss and Motion to Strike Class Allegations GRANTED

          John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Attorney for Plaintiff.

          Kevin J. Connors, Esquire, Marshall Dennehey Warner Coleman & Goggin, Nemours Building, Attorney for Defendant.

          Tiffany Powers, Esquire, Andrew Hatchett, Esquire, Alston & Bird LLP, Attorneys for Defendant.


          William C. Carpenter, Jr. Judge

          Before the Court is Defendant Gallagher Bassett Services, Inc.'s ("Gallagher Bassett" or Defendant") Motion to Dismiss First State Orthopaedics, P.A.'s ("FSO" or "Plaintiff) complaint ("Complaint") and Motion to Strike the Proposed Class Allegations. For the reasons set forth below, Defendant's Motions will be GRANTED.


         FSO brings this proposed class action on behalf of itself and "all Delaware health care providers who, at any time since June 22, 2014, submitted health care invoices to Gallagher Bassett for care provided to Delaware workers' compensation claimants...."[1] FSO filed the instant class action against Gallagher Bassett seeking recovery of statutory interest under 19 Del. C. § 2322F, punitive damages, and other relief arising from Defendant Gallagher Bassett's violations of 19 Del. C. § 2322F(h).[2] Specifically, FSO alleges that Gallagher Bassett failed:

(i) contest the sufficiency of the invoice's 'data elements, ' as that term is used in 19 Del. C. § 2322F(h), within 30 days of receipt; (ii) though ultimately paid by Gallagher Bassett, the invoice was paid only after the expiration of the 30-day period under section 2322F(h); and (iii) Gallagher Bassett's payment of the invoice was unaccompanied by the statutory interest provided under section 2322F(h).[3]

         Since June 22, 2014, Gallagher Bassett has contracted with various Delaware workers' compensation insurers, to act "as a third-party claims adjuster or claims administrator [("TPA")]"[4] "with respect to claims for workers' compensation benefits brought by FSO's patients."[5] Such a role gave Gallagher Bassett the authority to administer, evaluate, process, handle, pay, and even deny workers' compensation claims for FSO's patients by the Delaware workers' compensation insurers.[6] FSO alleges that Gallagher Bassett acted as an agent for the insurers, [7] and had a pecuniary interest to reduce and minimize the costs associated with patient's workers' compensation claims to help optimize the financial condition of the insurers it contracted with.[8] Plaintiff also alleges that Gallagher Bassett was a joint venturer with "the insurers responsible for providing workers' compensation insurance to FSO's patients."[9]

         The Complaint alleges Gallagher Bassett routinely failed to pay the statutory interest that accrued on claims Defendant failed to timely contest within 30 days of receipt as well as claims it unsuccessfully disputed in the utilization review process allowing the 30-day deadline to pass.[10] In addition to the remedies discussed above, FSO also seeks class certification, and an award of declaratory relief, compensatory and punitive damages.

         Gallagher Bassett has moved to dismiss the Complaint, asserting 19 Del. C. § 2322F(h) of the Delaware Workers' Compensation Act (the "Act") does not apply to Gallagher Bassett.[11] In the event, Gallagher Bassett does fall under the statute as an "insurance carrier, " Defendant argues that any payment disputes by healthcare providers must first be brought before the Industrial Accident Board ("IAB").[12]Additionally, Gallagher Bassett moves to strike all class allegations from the Complaint as there is no proper basis for a class action.[13]


         In considering the Motion to Dismiss for failure to state a claim filed pursuant to Rule 12(b)(6), the Court must assume the truthfulness of the complaint's well-pleaded allegations, [14] and afford plaintiff "the benefit of all reasonable inferences that can be drawn from [their] pleading."[15] Certain documents that are "integral to a plaintiffs claims.. .may be incorporated by reference without converting the motion to a summary judgment."[16] At this preliminary stage, dismissal will be granted only when the Court is able to determine with "reasonable certainty" that plaintiff would not be entitled to relief "under any set of facts that could be proven to support the claims asserted" in the complaint.[17]


         As briefly stated above, Gallagher Bassett seeks dismissal of Plaintiff s claim under 19 Del. C. § 2322F(h) (the "Prompt-Pay Statute") as well as the Plaintiffs proposed class certification. Gallagher Bassett argues that 19 Del. C. § 2322F(h) is inapplicable as Gallagher Bassett is neither an "employer" nor "insurance carrier" as defined under the statute.[18] It also argues that if the Prompt-Pay Statute is applicable to Gallagher Bassett, the IAB must first hear Plaintiffs claims.[19]

         The Plaintiff, in its answering brief, sets forth several arguments for why Defendant Gallagher Bassett should be liable for the statutory interest under 19 Del. C. § 2322F(h) to FSO and all members of the proposed class. First, FSO contends that Gallagher Bassett falls under the broad definition of "insurance carrier" because it routinely evaluates, pays, and denies worker's compensation claims on behalf of Delaware employers.[20] Second, Plaintiff asserts that Gallagher Bassett is liable for the statutory interest because it was an agent for undisclosed principals.[21] Third, Plaintiff argues that because Gallagher Bassett had a pecuniary interest, it was a joint venturer with the undisclosed insurers and should, therefore, be liable for statutory interest.[22] Finally, Plaintiff urges the Court to follow its decision in First State Orthopaedics, P.A. v. Liberty Mut. Ins. Co., and find an implied private right of action under Section 2322F(h).[23]

         Gallagher Bassett rejects Plaintiffs arguments and reiterates its claims from the Motion to Dismiss that Gallagher Bassett is not an "insurance carrier" under the Prompt-Pay Statute and if it falls under the Prompt-Pay Statute, the Plaintiffs claim must first go to the IAB.[24] It also asserts that agency law is inapplicable to this statutory claim and Plaintiffs "joint venturer" argument is flawed.[25] The Court will first turn to the language of the Prompt-Pay Statute to determine if it is applicable to Gallagher Bassett. After such determination has been made, the Court will then determine if FSO's class action allegations should be stricken from the record.


         Section 2322F(h) was enacted in 2007 along with other reforms to the Delaware Workers' Compensation Act to help create "standards for billing and payment of health care services...."[26] Section 2322F(h) specifically implements prompt payment of health care expenses for non-preauthorized care.[27] In fact, it mandates that:

[a]n employer or insurance carrier shall be required to pay a health care invoice within 30 days of receipt of the invoice as long as the claim contains substantially all the required data elements necessary to adjudicate the invoice, unless the invoice is contested in good faith. If the contested invoice pertains to an acknowledged compensable claim and the denial is based upon compliance with the health care payment system and/or health care practice guidelines, it shall be referred to utilization review. Any such referral to utilization review shall be made within 15 days of denial. Unpaid invoices shall incur interest at a rate of 1 % per month payable to the provider. A provider shall not hold an employee liable for costs related to nondisputed services for a compensable injury and shall not bill or attempt to recover from the employee the difference between the provider's charge and the amount paid by the employer or insurance carrier on a compensable injury.[28]

         Thus the viability of Plaintiffs claim against Defendant hinges on 19 Del. C. § 2322F(h) and whether Gallagher Bassett is considered an "employer" or "insurance carrier" under the Act.[29] Such a determination requires the Court to engage in statutory interpretation.

         "The goal of statutory construction is to determine and give effect to legislative intent."[30] A court must first determine if the statute is ambiguous or not. If the statute is found to be clear and unambiguous, then the plain meaning of the statutory language controls.[31] "The fact that the parties disagree about the meaning of the statute does not create ambiguity."[32] Rather, a statute is ambiguous only if it is reasonably susceptible to different interpretations, [33] or "if a literal reading of the statute would lead to an unreasonable or absurd result not contemplated by the legislature."[34] "When confronting an ambiguous statute, a court should construe it 'in a way that will promote its apparent purpose and harmonize [it] with other statutes' within the statutory scheme."[35]

         Section 2322F(h) imposes statutory interest as a penalty for insurance carriers and/or employers who fail to timely pay workers' compensation claims. The penalty is specifically limited to the two terms "employer" and "insurance carrier" which are defined in Section 2301 of the Act. However, for the purposes of this Opinion, the Court will only focus on the term "insurance carrier, " since there is no dispute that the Defendant is not an employer under the Statute.

         An "insurance carrier" is broadly defined as "any insurance corporation, mutual association or company or interinsurance exchange which insures employers against liability under this chapter or against liability at common law for accidental injuries to employees."[36] Broken down, an insurance carrier must be an entity that is in the business of providing insurance. Although the Act does not define the term "insurance, " a clear definition can be found in the Delaware Insurance Code as: "a contract whereby one undertakes to pay or indemnify another as to loss from certain specified contingencies or perils, called 'risks, ' or to pay or grant a specified amount or determinable benefit in connection with ascertainable risk contingencies or to act as surety."[37]

         In the instant case, the Court finds the statutory language to be unambiguous. The Workers' Compensation Act clearly defines the terms "insurance carrier" and "employer, " making it unsusceptible to different interpretations. FSO argues that Gallagher Bassett engages in the business of insurance by processing and paying valid claims. While they may process claims, such an attempt to rewrite the statute to include TPAs like Gallagher Bassett is flawed for several reasons.

         First, such an interpretation would be contrary to the definition itself. TPAs like Gallagher Bassett do not provide insurance for employers against liability. TPAs contract with insurers to process, determine and pay or deny workers' compensation benefits. They do take on some functions traditionally performed by the insurance carrier which have been delegated to them, but the TPAs do not engage in the actual writing or insuring of employers and their employees. Plaintiff tries to use the definition of insurance to argue that Gallagher Bassett handled one of "the most critical aspect[s] of the business of insurance... [by] processing, evaluating and paying insurance benefits [to FSO and those similarly situated]."[38] And because of its entanglement in the insurance process, Gallagher Bassett should be considered an "insurance carrier."

         The Court agrees with the Plaintiff, that Gallagher Bassett's role is more than purely administrative. The Defendant even admits that it determines if a payment should be made and that requires the insurer to delegate some of its power and authority.[39] However, because the statute is unambiguous, the Court must only rely on the plain language of the Act and Defendant Gallagher Bassett is simply not an insurance carrier. It has never provided the insurance to the employers, nor any type of indemnification. More importantly, Gallagher Bassett paid the insurance proceeds directly from bank accounts that were funded by the underlying employer or insurance carriers, never from its own funds.[40] The Court finds no convincing evidence to suggest that Gallagher Bassett is an insurance carrier as defined in Section 2301.

         Further, there is no clear legislative history or intent to suggest that the General Assembly meant to include TPAs. The Act has been amended on many occasions to reflect the current intent of the General Assembly and to ensure the Act is effectuating the original purpose of workers' compensation benefits. In various amendments since 2007, the definition Section 2301 and Section 2322F of the Act were amended, and none of these amendments contemplated TPAs. In fact, the most recent amendment in 2015, which occurred after Gallagher Bassett had already assumed the role as a TPA for insurers, did not propose a change in the definition of an "insurance carrier" to broaden the scope of statutory interest.[41] Because of the plain language of the Act and a lack of legislative intent to suggest otherwise, the Court cannot extend the scope of the definition. That is a job for the legislature. If it is necessary in order to continue to achieve the goals of the Act, especially if the insurance carriers are not making the ultimate decision to pay or deny the workers' compensation claims, then it is a legislative remedy that must be pursued and not a rewrite by the judiciary.


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