Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_04-cv-00045/USCOURTS-almd-3_04-cv-00045-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1330 Breach of Contract

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IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

ROBERT W. CLAYBROOK and )

MARJORIE K. CLAYBROOK, )

)

Plaintiffs, )

) CIVIL ACTION NO.

v. ) 3:04cv0045-T

) (WO)

CENTRAL UNITED LIFE )

INSURANCE COMPANY, )

)

Defendant. )

OPINION

In this diversity-of-citizenship lawsuit, 28 U.S.C.A.

§ 1332, plaintiffs Robert W. Claybrook and Marjorie K.

Claybrook sued defendant Central United Life Insurance

Company alleging Central United failed to pay, pursuant to

a cancer-treatment insurance policy, supplemental benefits

equal to the “actual charges” for Ms. Claybrook's

chemotherapy. The Claybrooks assert state-law claims for

breach of contract, fraud, bad faith, negligence and wanton

misconduct.

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 This case is now before the court on Central United’s

motion for summary judgment. For the reasons that follow,

the motion will be granted. 

I. SUMMARY-JUDGMENT STANDARD

Summary judgment is appropriate "if the pleadings,

depositions, answers to interrogatories, and admissions on

file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that the

moving party is entitled to a judgment as a matter of law."

Fed. R. Civ. P. 56(c). Under Rule 56, the party seeking

summary judgment must first inform the court of the basis

for the motion, and the burden then shifts to the non-moving

party to demonstrate why summary judgment would not be

proper. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.

Ct. 2548, 2553 (1986); see also Fitzpatrick v. City of

Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993) (discussing

burden-shifting under Rule 56). The non-moving party must

affirmatively set forth specific facts showing a genuine

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1. The parties do not dispute that, as an assignee,

(continued...)

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issue for trial and may not rest upon the mere allegations

or denials in the pleadings. Fed. R. Civ. P. 56(e).

The court's role at the summary-judgment stage is not to

weigh the evidence or to determine the truth of the matter,

but rather to determine only whether a genuine issue exists

for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

249, 106 S. Ct. 2505, 2511 (1986). In doing so, the court

must view the evidence in the light most favorable to the

non-moving party and draw all reasonable inferences in favor

of that party. Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986).

II. FACTUAL BACKGROUND

The facts of this case are relatively straightforward

and undisputed. In May 1991, Commonwealth National Life

Insurance Company issued a supplemental-benefits insurance

policy to the Claybrooks, in the event that one or both of

them would be diagnosed with cancer.1

 Commonwealth

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1. (...continued)

Central United now stands in the shoes of Commonwealth and,

thus, assumes all obligations to perform on the Claybrooks’

cancer-treatment policy.

2. Defendant’s evidentiary submission in support of

motion for summary judgment (Doc. No. 38), limited benefit

cancer treatment policy (Exhibit A, p. 4).

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subsequently assigned its contractual rights and obligations

under the Claybrooks’ policy to the Central United. The

policy does not subsidize cancer treatment per se but,

instead, pays limited supplemental benefits directly to the

policyholder. Under the terms of the policy, the amount of

supplemental benefits that the beneficiary receives is

determined by and equal to the amount of “actual charges”

that the patient incurs for cancer treatment.2

 Thus, if the

patient’s other insurance covers the treatment, the patient

recovers, in effect, twice the cost of the treatment, and

the patient can thus essentially pocket the money he or she

receives from Central United. 

Due to Medicare regulations, health care providers use

a sliding-scale fee when charging patients for medical

services rendered: Medicare patients are charged less for

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medical treatments than non-Medicare patients. The

Claybrooks are Medicare recipients, which means they are

charged a lower fee for medical services.

In August 2002, Ms. Claybrook was diagnosed with ovarian

cancer. From September 2002 to January 2003, she underwent

six chemotherapy treatments. The “actual charges” for those

treatments form the basis of this lawsuit.

Prior to February 1, 2003, Central United policyholders

seeking supplemental benefits would file a claim and attach

thereto a statement reflecting the standard fees the

physician charges for his or her services. The Claybrooks

received some supplemental benefits from Central United

using this old claims-processing procedure.

To save money, Central United changed its claimsprocessing procedure, effective February 1, 2003. Under the

new procedure, claimants were required to submit documents

reflecting the actual amount that the physician agreed to

and accepted as full payment for medical services rendered

to the patient. By requiring additional documentation

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before paying supplemental benefits, Central United

essentially paid Medicare patients benefits equal to the

amount that Medicare approved and the doctor actually agreed

to accept as payment. As such, as of February 2003, the

Claybrooks received supplemental benefits at the lower

Medicare rate, as opposed to the standard non-Medicare rate

which they had previously received. 

The relevant dates of service and charges for Ms.

Claybrook’s medical care are as follows: 

Dates of

service

Standard fee

for nonMedicare

patients

Fee for Ms.

Claybrook, as a

Medicare patient

09/11/02 $ 4,462 $ 2,714.02

10/02/02 4,462 2,812.98

10/23/02 4,462 2,812.98

11/21/02 4,462 2,812.98

12/11/02 4,325 2,677.01

01/02/03 4,188 2,521.94

Totals $ 26,361 $ 16,351.91

Notably, the parties stipulate to the following facts:

to date, Central United has paid Robert Claybrook

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$ 16,351.91 in supplemental benefits for Ms. Claybrook’s

chemotherapy treatments; this amount is equal to the entire

amount the medical provider accepted as full and final

payment for chemotherapy services rendered to her as a

Medicare patient; furthermore, because the Central United

policy is for supplemental benefits only and not actual

medical expenses, the Claybrooks have not sustained any outof-pocket costs as a result of the company’s February 2003

modification to its claims-processing procedure. 

Despite these stipulated facts, the Claybrooks contend

that they are entitled to supplemental benefits in the sum

of $ 26,361, which is equal to the amount they would have

received if Ms. Claybrook were not a Medicare recipient. As

such, they seek contract damages totaling $ 10,009.09, which

is the excess amount Central United would have paid in

chemotherapy benefits before it modified its claimsprocessing procedure in February 2003. 

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III. DISCUSSION 

As stated, the Claybrooks assert state-law claims for

breach of contract, fraud, bad faith, negligence and wanton

misconduct. Because the Claybooks’ breach-of-contract claim

is the cornerstone of their other claims as well, the court

will discuss that claim first. 

The Claybrooks argue that, by changing its claimsprocessing procedure, Central United breached its

contractual duty to pay them benefits equal to “actual

charges” under the cancer-treatment policy. In its summaryjudgment motion, Central United contends that there was no

contractual breach because “actual charges” are the amounts

that healthcare providers agreed to accept as full payment

for rendering medical services to Medicare patients such as

Ms. Claybrook. The court’s analysis will proceeds as

follows: first, the court will determine whether the

agreement of the parties is ambiguous; the court will then

determine whether, after it modified its claims-processing

procedure in February 2003, Central United breached its

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contractual duty to pay the plaintiffs supplemental benefits

for Ms. Claybrook’s cancer treatments. 

A. 

The Claybrooks may survive summary judgment if they can

demonstrate that a disputed term in the supplementalbenefits agreement is ambiguous. Where “[t]he terms of the

written contract ... are clear and unambiguous, ... the

determination of its meaning is a matter of law for the

court to decide, unaided by extrinsic evidence.” Babcock v.

Smith, 234 So.2d 573, 577 (Ala. 1970). Under Alabama law,

a contract is ambiguous “when a term is reasonably

susceptible to more than one interpretation.” Ex parte

Harris, 837 So.2d 283, 290 (Ala. 2002). “Under general

Alabama rules of contract interpretation, the intent of the

contracting parties is discerned from the whole of the

contract. Where there is no indication that the terms of

the contract are used in a special or technical sense, they

will be given their ordinary, plain, and natural meaning.”

Young v. Pimperl, 882 So.2d 828, 831 (Ala. 2003). When

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dispute arises, the legal effect of ambiguous terms are to

be construed against the insurer and in favor of the

policyholder. Continental Ins. Co. v. Roberts, 410 F.3d

1331, 1333 (11th Cir. 2005).

In this case, the gravamen of the dispute is whether the

policy is ambiguous as to what constitutes “actual charges”

for determining the amount of supplemental benefits that the

policyholder should receive. To determine what constitutes

actual charges, the court begins by looking within the four

corners of the policy itself. Kershaw v. Kershaw, 848 So.2d

942, 955 (Ala. 2002) (when deciphering the intent and

meaning of a contract, courts should “not look beyond the

four corners of an instrument unless the instrument contains

latent ambiguities”). The full-text of the chemotherapy

provision in the supplemental-benefits policy is as follows:

“Chemotherapy benefit. We will pay actual

charges for: chemical substances,

including chemicals used in immunotherapy

and hormonal therapy, and their

administration for purposes of

modification or destruction of abnormal

tissue. Such drugs and chemical substances

must be approved by the United States Food

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3. Id.

4. Id. (emphasis added).

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and Drug Administration and administered

by or under the direct supervision of a

physician. This benefit is not payable

for physical examinations, checkups,

treatment planning, diagnostic x-rays or

other laboratory tests related to the

therapy.”3

In other provisions of the policy, the term “actual charges”

is characterized as “actual charges made to you [the

insured] for all hospital, medical and surgical care

rendered.”4

 Attorneys Ins. Mut. of Ala. v. Smith, Blocker &

Lowther, P.C., 703 So.2d 866, 870 (Ala. 1996) ("Insurance

contracts, like other contracts, are construed so as to give

effect to the intention of the parties, and, to determine

this intent, a court must examine more than an isolated

sentence or term; it must read each phrase in the context of

all other provisions."). But more importantly, in everyday

and plain language, the term “actual” means “real,”

“existing,” not “potential” or “possible.” The American

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Heritage® Dictionary of the English Language, Fourth

Edition, Copyright © 2000 by Houghton Mifflin Company.

Having reviewed the chemotherapy-benefit provision and

the policy as a whole, the court finds that the term “actual

charges” is unambiguous when given its ordinary and plain

meaning in the context of the policy. Actual charges in

this case are charges actually billed to the patient (or

their insurance provider) when medical services are

rendered; such actual charges may be higher or lower

depending upon whether the patient is a Medicare recipient.

“If the policy is not ambiguous, the insurance contract must

be enforced as written, and courts should not defeat express

provisions in a policy, including exclusions from coverage,

by making a new contract for the parties.” Thorn v. Am.

States Ins. Co., 266 F. Supp. 2d 1346, 1349 (M.D. Ala. 2002)

(Thompson J.); see also Jones v. Jones, 722 So.2d 768 (Ala.

Civ. App. 1998).

To be sure, Central United paid benefits of more than

the actual charges for a period of time. But Alabama law is

clear that, “Any subsequent conduct of the parties in

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supposed observance of [a contract’s] terms, cannot be

considered by us as aids in its construction.” Babcock v.

Smith, 234 So.2d 573, 577 (Ala. 1970). 

B.

Having determined that the contract in this case is

unambiguous, to the extent that Central United was obligated

to pay the Claybrooks supplemental benefits in the amount

equal to that actually charged for Ms. Claybrook’s

chemotherapy, the court now turns to whether Central United

breached this contractual obligation. 

To establish a prima-facie case for breach of contract,

the Claybrooks must demonstrate: “(1) the existence of a

valid contract binding the parties in the action, (2)

[their] own performance under the contract, (3) the

defendant's nonperformance, and (4) damages.” Winkleblack

v. Murphy, 811 So.2d 521, 529 (Ala. 2001).

The Claybrooks’ case fails with respect to the third

element because they have not produced adequate evidence of

Central United’s nonperformance. The Claybrooks do not

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contend that Central United failed to pay benefits equal to

the Medicare-adjusted fee; indeed, the Claybrooks stipulate

that Central United remitted to them benefits equal to what

Mrs. Claybrook’s chemotherapy providers accepted in full and

final payment for their services to her as a Medicare

patient. Rather, the Claybrooks’ nonperformance argument is

based on the erroneous belief that the contract entitles

them to supplemental benefits at a rate they would be

charged if they were not Medicare recipients. The

Claybrooks, however, have failed to identify some term in

the policy that requires the type of performance that they

seek.

The court concludes that there was no contractual breach

in this case because Central United fully performed its

contractual obligation to pay the plaintiffs supplemental

benefits equal to the actual charges for Ms. Claybrook’s

cancer treatment; furthermore, the defendant was under no

contractual duty to pay the Claybrooks benefits exceeding

what was actually charged to them for such treatments.

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IV. CONCLUSION

Because the Claybooks’ evidence is insufficient to

create a triable issue of fact, summary judgment will be

entered on the Claybrooks’ breach-of-contract claim. In

addition, because there is insufficient evidence of breach,

summary judgment will be entered on the Claybrooks’

remaining state-law claims for fraud, bad faith, negligence,

and wanton misconduct.

DONE, this the 31st day of August, 2005. 

 /s/ Myron H. Thompson 

 UNITED STATES DISTRICT JUDGE

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