Robert Eugene Dierkes and Emma H. Dierkes, Plaintiffs/Appellants, v. Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc. d/b/a Alliance Blue Cross Blue Shield, Defendants/Respondents.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Eastern District Case Style: Robert Eugene Dierkes and Emma H. Dierkes, Plaintiffs/Appellants, v. Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc. d/b/a Alliance Blue Cross Blue Shield, Defendants/Respondents. Case Number: 73169 Handdown Date: 06/16/1998 Appeal From: Circuit Court of the City of St. Louis, Hon. Robert H. Dierker, Jr. Counsel for Appellant: Jeffery Lowe, Robert Ritter, and Jason Dodson Counsel for Respondent: Alan Kohn, Robert Murray, and Jennifer Forsythe Opinion Summary: Plaintiffs, class action representatives, appeal from the trial court's entry of summary judgment on their contract and tort claims for insurer's failure to obtain state approval before increasing premiums as state statute and regulation require. AFFIRMED. Division Two holds: The Missouri Medicare Supplement Insurance Act does not authorize a private cause of action based on violations of that statute. Citation: Opinion Author: Kathianne Knaup Crane, Presiding Judge Opinion Vote: AFFIRMED. Rhodes Russell and J. Dowd, J., concur. Opinion: Plaintiffs Robert Dierkes and his mother, Emma Dierkes ("plaintiffs") appeal from the entry of summary judgment in favor of defendants Blue Cross and Blue Shield of Missouri and Rightchoice Managed Care, Inc. ("Blue Cross") on plaintiffs' class action petition asserting claims for breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, misrepresentation, and fraud for Blue Cross's failure to obtain state approval before enacting rate

increases and charging increased premiums under Medicare supplement insurance policies as required by state statute and regulation. The trial court held that the Missouri Medicare Supplement Insurance Act as set out in Sections 376.874 and 375.934 RSMo (1994) does not authorize a private cause of action and that plaintiffs suffered no damages as a result of the unapproved rate increases because the state later found the rate increases to be reasonable. On appeal plaintiffs challenge both conclusions. We affirm on the ground that private causes of action are preempted by the statutory enforcement scheme and do not reach the remaining question. Plaintiffs are the representatives of a class of subscribers in non-ERISA Medicare supplement health insurance plans issued by Blue Cross from 1992 to 1994. Plaintiff Robert Dierkes has maintained Medicare supplement insurance through Blue Cross since October 1993. His mother, Emma Dierkes, has maintained Medicare supplement insurance through Blue Cross from 1980 to the present. Effective July 30, 1992, the Missouri Department of Insurance (DOI) promulgated a regulation providing that no insurance company selling Medicare supplement policies in the State of Missouri can raise premiums until those premium increases are approved by the DOI. 20 CSR 400-3.600(12)(B), which provides: An issuer shall not use or change premium rates for a Medicare supplement policy or certificate unless the rates, rating schedule and supporting documentation have been filed with and approved by the director in accordance with the filing requirements and procedures prescribed by the director. This regulation was issued pursuant to the Missouri Medicare Supplement Insurance Act, (MMSIA) Section 376.874 RSMo (1994), which provides: Medicare supplement policies shall return to policyholders benefits which are reasonable in relation to the premium charged. The director shall issue reasonable regulations to establish minimum standards for loss ratios of medicare supplement policies on the basis of incurred claims experience, or incurred health care expenses where coverage is provided by a health maintenance organization on a service rather than reimbursement basis, and earned premiums in accordance with accepted actuarial principles and practices. Blue Cross sold certain Medicare supplement insurance products in the State of Missouri including pre- standardized plans and standardized plans. Effective January 1, 1993, Blue Cross increased the premiums that it charged for pre-standardized Medicare supplement policies. For the calendar year 1993 through August 10, 1994 Blue Cross did not obtain approval from the DOI for the rate increase prior to charging the increased premiums for the pre-standardized plans. From January 1, 1994 through August 10, 1994, Blue Cross increased premiums for the standardized plans in excess of those previously approved by the DOI. On August 9, 1994 the Director of the DOI filed administrative charges against Blue Cross under Section 376.889 RSMo (Supp. 1993)(FN1) alleging that Blue Cross knowingly changed premium rates for its Medicare Supplement

policies without obtaining approval from the DOI in violation of 20 CSR 400-3.600(12)(B). On the same date the Director issued an order for Blue Cross to cease marketing certain Medicare supplement policies, except at the last approved rates. Immediately thereafter, Blue Cross submitted its premium rate data to the DOI and, on August 11, 1994, the Director approved the premium rates for all Blue Cross Medicare Supplement policies effective August 11, 1994. The Director also rescinded his August 9 order requiring Blue Cross to cease marketing certain Medicare supplement policies. On September 2, 1994 Blue Cross and the DOI executed a settlement agreement in which Blue Cross promised to pay $1,000,000.00 to the Missouri State School Fund. The settlement agreement provided that the dismissal would be with prejudice if Blue Cross took no legal or administrative action against the DOI. On September 15, 1994, the DOI dismissed the charges against Blue Cross. Plaintiffs then filed their class action in which they alleged that Blue Cross illegally raised its premium rates for Medicare supplement insurance coverage without the required approval of the DOI, and that the premiums charged were excessive. In Count II of their amended petition, plaintiffs alleged that Blue Cross "breached its contract with plaintiffs and the plaintiff class by increasing rates without state approval, charging plaintiffs rates that did not, in 1992, 1993, and 1994, meet state guidelines." In Count III plaintiffs alleged that Blue Cross "raised its rates without state approval and charged plaintiffs and the plaintiff class excessive, unauthorized rates" and Blue Cross "was therefore enriched at the expense of plaintiffs and the plaintiff class." In Count VI plaintiffs alleged that Blue Cross breached its duty of good faith and fair dealing by various acts and omissions, including, but not limited to, the following: a.By engaging in the prohibited transaction of raising rates without state approval and therefore betraying plaintiffs' expectations under their contracts; b.By failing to disclose to plaintiffs and the plaintiff class the relevant information concerning the above action; c.By charging plaintiffs and the plaintiff class unauthorized excessive rates; d.By covenanting that the BCBSMo Medigap plans met all federal and state guidelines, including approved rates; and e.By violating regulations intended to protect the plaintiff class. In Count VII plaintiffs alleged that, in selling the policies to plaintiffs and the plaintiff class, Blue Cross engaged in the following acts of deception, fraud, and misrepresentation of material facts by: a.Misrepresenting to plaintiffs in writing that defendant BCBSMo's Medigap coverage met all federal and state requirements; b.Engaging in the prohibited transaction of raising rates without state approval contrary to their representations;

c.Charging plaintiffs and plaintiff class unauthorized, excessive rates contrary to their representations; and d.Violating regulations intended to protect the plaintiff class, contrary to their representations of compliance with state laws. In Count VIII plaintiffs alleged that Blue Cross "engaged in the concealment, suppression, or omission of material fact by failing to inform plaintiffs and the plaintiff class that the increased rates charged by BCBSMo were not approved by the Missouri Department of Insurance, as required." On July 25, 1997 the trial court entered its order and judgment granting Blue Cross's motion for summary judgment on these counts. The trial court found that plaintiffs' claims were preempted because the Director's "statutory enforcement mechanisms preclude plaintiffs' claims, which arise from violations of [Sections] 375.934 and 376.874 RSMo (1994)." The trial court also concluded that the "record contains no facts to support the allegation that plaintiffs sustained damage" because the DOI determined that the rate data were reasonable. For their first point plaintiffs contend that their causes of action are not preempted by the insurance statute because the Director of the DOI does not have authority to dispose of plaintiffs' claims based on Missouri common law. Each of the counts at issue in the amended petition seeks relief for Blue Cross's violation of 20 CSR 400- 3.600(12)(B) in that Blue Cross increased its rates without making the required filing with the DOI and without obtaining the Director's approval. Neither the MMSIA nor its regulations contain an express provision either establishing or prohibiting a private cause of action. Section 376.889 expressly authorizes the Director of the DOI to enforce Section 376.874 and regulations promulgated pursuant thereto. "When the Legislature has established other means of enforcement, we will not recognize a private civil action unless such appears by clear implication to have been the legislative intent." Shqeir v. Equifax, Inc., 636 S.W.2d 944, 948 (Mo. banc 1982) (construing Section 379.118), quoted in Johnson v. Kraft General Foods, Inc., 885 S.W.2d 334, 336 (Mo. banc 1994) (construing Section 454.505.10), and cited in R.L. Nichols Ins. v. Home Ins. Co., 865 S.W.2d 665, 666-67 (Mo. banc 1993) (construing Section 375.035). This rule is founded on the notion that legislative intent to create a cause of action exclusively in favor of the Division Director is implicit in the statute. The legislature manifested its intent to create such a cause of action by setting out expressly that particular means of enforcement. It follows that the legislature would have manifested its intent in like manner had it intended to create additional or alternative means of enforcement. The failure to do so gives rise to the implication that the Division Director has the exclusive right to bring suit. Johnson, 885 S.W.2d at 336. "The creation of a private right of action by implication is not favored, and the trend is away

from judicial inferences that a statute's violation is personally actionable." Shqeir, 636 S.W.2d at 947. Enforcement of the insurance statutes in particular has historically been given to the state and its administrative officers to the exclusion of private causes of action. The legislative power to authorize, supervise, regulate, and liquidate insurance companies rests on the interests of the public in the insurance business. * * * * The power was first exercised in 1869 by the enactment of an Insurance Code intended to protect policyholders, stockholders, and the public. Laws 1869, p. 23. The original Code and amendments thereto indicate an intention to regulate the business from beginning to end, thereby protecting individual and public interests. The enactment of this comprehensive Code made the state a real party in interest. The superintendent of insurance is the administrative officer in charge of that interest, and courts are without authority to interfere with his administration of the Code. State ex rel. Missouri State Life Ins. Co. v. Hall, 52 S.W.2d 174, 177 (Mo. banc 1932). Section 376.889 provides a remedy for the violation of Section 376.874 and there is no clear implication that the legislature intended to create a private cause of action for the violation of Section 376.874. Because the legislature has provided a means of enforcement for a violation of Section 376.874 and has not created a private cause of action for the violation of that section, plaintiffs have no private cause of action for the violation of Section 376.874. Plaintiffs claim that Shqeir and its progeny do not apply to their contract and fraud counts. Plaintiffs argue that a plaintiff may sue an insurer for the insurer's violation of the insurance statutes if the insurer incorporates its compliance with those statutes into its contracts or represents its compliance to its insured. Plaintiffs claim that their fraud and contract claims are independent of any statutory violation because Blue Cross represented in a booklet entitled "Your Medicare Supplement Plan" that its plans meet all federal and state guidelines for Medicare supplement coverage and in another booklet entitled "Medicare Supplement Coverage from Blue Cross and Blue Shield of Missouri" represented that its programs meet all requirements for Medicare supplement programs. Plaintiffs cite no case law or other authority that supports the contention that otherwise preempted claims for failure to comply with a penal statute can become actionable by casting them as contract or fraud claims. Plaintiffs attempt to support their contention with vexatious refusal to pay cases arising under Section 375.420 RSMo (1994). However, Section 375.420 expressly provides an insured with a private cause of action for an insurer's vexatious refusal to pay. Cases decided thereunder do not support the existence of a private cause of action under other statutes which do not expressly authorize a private cause of action. Further, cases decided under Section 375.420 hold that the existence of the statutory remedy for vexatious refusal to pay is an insured's exclusive remedy and preempts tort claims such as negligence, bad faith, tortious interference, and prima facie tort based on an insured's failure to pay a claim. See, e.g., Halford v. American Preferred Ins., 698 S.W.2d 40, 42-43 (Mo. App. 1985).

Likewise Christy v. Petrus, 295 S.W.2d 122 (Mo. banc 1956), on which plaintiffs also rely, does not support plaintiffs' claim that a private cause of action may be based on MMSIA. In Christy, the plaintiff sought to bring a private cause of action under a criminal wrongful discharge statute. The Missouri Supreme Court affirmed the dismissal of plaintiff's cause of action and stated: We think it may be correctly stated that a statute which creates a criminal offense and provides a penalty for its violation, will not be construed as creating a new civil cause of action independently of the common law, unless such appears by express terms or by clear implication to have been the legislative intent. Id. at 126. Plaintiffs argue that the clear implication of the words "independently of the common law" is that, if the cause of action is based upon the common law, then the cause of action may be allowed to proceed. We disagree. This passage means that if the offense was not civilly actionable under common law, it did not become civilly actionable when a statute made it a criminal offense. It does not allow plaintiffs to proceed with a cause of action based on breach of contract where the breach is failure to obey a penal statute. Further, in Christy the Missouri Supreme Court affirmed the trial court's dismissal of a private claim based on a statutory violation. Id. at 126-128. Plaintiffs also point to the appellate court's failure to address preemption in affirming the dismissal of common law claims based on statutory violations in Bradley v. Ray, 904 S.W.2d 302 (Mo. App. 1995). Affirmance on alternate grounds cannot be read as a decision that the claims were not preempted. Plaintiffs also argue that their fraud claim is not preempted, but again cite no case directly holding. Rather they rely only on cases involving fraud claims against an insurer which do not involve a statutory violation. These cases are not authority for an argument that failure to comply with a penal statute can be the subject of a private cause of action for fraud. Whether Blue Cross failed to comply with Section 376.874 RSMo (1994) and 20 CSR 400-3.600(12)(B) is an essential element in all of plaintiffs' claims. Blue Cross's duty to comply with MMSIA exists whether or not it represents that it meets all state requirements. Enforcement of this duty lies exclusively with the DOI. Plaintiffs do not obtain a private right to enforce this duty by virtue of Blue Cross's statements in its literature that it meets state requirements. Even though plaintiffs have stated their allegations in counts alleging various torts and breach of contract, because each count is based on Blue Cross's violation of this statute and regulation, it is preempted. See Halford, 698 S.W.2d at 43. All of plaintiffs' common law causes of action based on Blue Cross's failure to obtain DOI approval before charging increased premiums are preempted by the statutory enforcement scheme set out in Sections 376.874 and 376.889 and 20 CSR

400-3.600(12)(B). The judgment of the trial court is affirmed. Footnote: FN1.Section 376.889 RSMo (Supp. 1993), provides: In addition to any other applicable penalties, the director may require issuers violating any provision of sections 376.850 to 376.890 or regulations promulgated pursuant to sections 376.850 to 376.890 to cease marketing any medicare supplement policy or certificate in this state which is related directly or indirectly to a violation, or may require such issuer to take such actions as are necessary to comply with the provisions of sections 376.850 to 376.890, or both. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.