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Home / Opinion Digests / Civil Practice / Civil Practice – Removal – Diversity – N.C. Defendant – Fraudulent Joinder Claim – Insurance – Fraud & Unfair Trade Practices

Civil Practice – Removal – Diversity – N.C. Defendant – Fraudulent Joinder Claim – Insurance – Fraud & Unfair Trade Practices

Ansley v. HealthMarkets, Inc. (Lawyers Weekly No. 11-02-1193, 14 pp.) (W. Earl Britt, Sr.J.) E.D.N.C.

Holding: The language of a health insurance policy was not so clear that, as a matter of law, plaintiffs should have figured out as soon as they read the policy that it would not pay for what the defendant-insurance agent said it would pay for. Therefore, defendants have not shown that plaintiffs’ fraud and unfair trade practices claims are time-barred.

Plaintiffs’ motion to remand to state court is granted. Plaintiffs’ request for costs and expenses is denied.

Facts

Plaintiffs asked the defendant-insurance agent for a health insurance policy that would protect their assets in the case of a catastrophic accident or illness. The agent represented that the policy at issue provided the type of coverage plaintiffs sought: it would pay up to $1,000,000 in benefits over the course of an insured’s lifetime and up to $500,000 in benefits for a single illness. Plaintiffs bought the policy, and the agent sent a copy of the policy to plaintiffs in September 2001.

In 2004, plaintiff Jerry Ansley became ill and was hospitalized several times. He accumulated over $1,000,000 in medical bills. After the insurer paid only a small fraction of Jerry’s medical bills, plaintiffs commenced this action in state court on Jan. 14, 2008, alleging fraud and unfair trade practices.

Plaintiffs and the agent are N.C. residents. The remaining defendants are residents of other states.

Defendants removed on the basis of diversity of citizenship, claiming the insurance agent was fraudulently joined. This action was transferred to Texas as part of multi-district litigation, but it has been remanded back to this court. Plaintiffs seek remand to state court.

Fraudulent Joinder

Defendants do not allege that there has been outright fraud in plaintiffs’ pleading of jurisdictional facts. Thus, the only question is whether plaintiffs have any possibility of recovering damages from the agent, the non-diverse defendant, in state court. If so, then the case must be remanded to state court for lack of diversity jurisdiction.

Defendants contend plaintiffs cannot recover damages from the agent because their claims are time-barred.

Plaintiffs contend that their lawsuit was filed within the applicable limitations periods because their fraud and unfair trade practices claims did not accrue until sometime on or after Jan. 14, 2005, when they actually discovered that Jerry’s medical bills were not being paid. Defendants insist that plaintiffs should have discovered their alleged claims upon receipt of the insurance policy in September 2001 because the terms of the policy are clear and unambiguous.

While a trier of fact may ultimately determine that the clock started running on plaintiffs’ claims when Kathleen Ansley reviewed the policy in September 2001, given the posture of the case and the strictures of the fraudulent joinder doctrine, a contrary result, i.e., a finding that the claims did not accrue until some time on or after Jan. 14, 2005, would not be impossible.

Although defendants insist that the policy is clear and unambiguous, a reasonable trier of fact could find that the policy appears to have been purposefully written in order to disguise and obfuscate the limitations on payment.

For example, the policy promises to pay 100 percent of covered expenses, with a 90-day limit, for stays in a hospital intensive care unit. However, the maximum policy benefit for such a stay is only $600 per day. Furthermore, there is no information contained in the policy from which to evaluate the real world cost of medical procedures.

As a result, a trier of fact could find that, absent additional information regarding the costs of modern medical care, Kathleen Ansley would have had no reason to suspect upon her initial review of the insurance policy in 2001 that the terms of the policy were inconsistent with the catastrophic health coverage described by the agent.

This determination, in turn, would support the conclusion that plaintiffs did not discover the alleged fraud until they actually discovered that Jerry’s medical bills were not being paid, which occurred no earlier than Jan. 14, 2005.

Defendants have failed to show that plaintiffs’ claims against the agent are clearly barred by the applicable statutes of limitations.

Defendants also contend that plaintiffs have not brought plausible fraud or unfair trade practices claims against the agent because Kathleen Ansley essentially admitted in her deposition testimony that she has no fraud claim against him.

Because Kathleen’s deposition testimony relates only to the scope of the insurance policy, the court is unwilling to find that this testimony precludes her from claiming that the agent misrepresented the nature of the insurance policy.

Thus, the court cannot declare that plaintiffs have no possibility of succeeding against the agent.

Finally, defendants contend that, because of settlements in the multidistrict litigation, res judicata bars certain aspects of plaintiffs’ claims relating to the “association method” of marketing and selling insurance. However, defendants clearly admit that res judicata does not bar plaintiffs’ claims in their entirety.

Defendants have not shown that there is no possibility that plaintiffs might be able to maintain their claims against the agent in state court. Accordingly, this case must be remanded to state court for lack of diversity jurisdiction.

Although defendants’ assertions of fraudulent joinder were not ultimately persuasive, they do not lack an objectively reasonable basis, particularly with respect to the statutes of limitations issue. Therefore, plaintiffs’ request for costs and expenses will be denied.

Remanded.


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