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Class Action Defense Cases–Martis v. Grinnell Mutual: Illinois State Court Reverses Class Action Certification And Orders Class Action Complaint Dismissed Because Medical Provider Not Third Party Beneficiary Of Insurance Policy

As Matter of First Impression, Class Action Complaint Against Insurance Company Alleging Breach of Contract for Paying Discounted PPO Rate to Medical Providers Without a PPO Contract with Insurer did not Warrant Class Action Treatment because Class Action Failed as a Matter of Law as Medical Providers are not Third Party Beneficiaries of Workers’ Compensation Policies and no Exception Applied Illinois State Appellate Court Holds

Plaintiff, a chiropractor, filed a class action in Illinois state court against Grinnell Mutual Reinsurance Company alleging violation of the Illinois Consumer Fraud Act, conspiracy, unjust enrichment and breach of contract; the class action complaint arose out of defendant’s decision to pay plaintiff a discounted amount for his treatment of a patient. Martis v. Grinnell Mut. Reins. Co., ___ N.E.2d ___ (Ill.App. March 27, 2009) [Slip Opn., at 1-2]. The class action sought to represent “a class of Illinois health care providers who submitted bills to defendant under workers’ compensation insurance and had bills reduced because of a PPO discount even though the providers did not have a PPO contract with defendant.” Id., at 2. The class action complaint originally contained seven causes of action, but the trial court granted defendant’s motion to dismiss all claims except the breach of contract claim, id., at 2-3. Plaintiff’s moved the trial court to certify the litigation as a class action, and the court granted plaintiff’s motion. Id., at 3. Defense attorneys sought and received leave to appeal the class action certification order, id., at 3-4. The appellate court reversed, concluding that plaintiff could not state a claim for breach of contract.

Defense attorneys argued that the trial court erred in certifying the litigation as a class action because “plaintiff’s class action [is] based on his breach of contract claim … [but] plaintiff is not an intended third-party beneficiary of the workers’ compensation policy.” Martis, at 4. The Court of Appeal noted that the legal effect of a contract is a question of law, id., and then discussed at length Illinois law governing enforcement of contracts by third parties, see id., at 4-6. The appellate court explained at page 6, “The issue we must decide in this case, whether a medical provider is a third-party beneficiary of a workers’ compensation policy, is one of first impression in this state.” The Court therefore examined the law of sister jurisdictions, see id., at 6-9, and summarized those cases as holding that “medical providers are generally not third party beneficiaries of insurance policies, particularly workers’ compensation policies,” id., at 9. The issue became, then, whether an exception to this general rule applied.

According to the Court of Appeal, “The only exceptions to this rule are when (1) the policy expressly identifies medical providers as third party beneficiaries [citations], or (2) the policy provides for payment directly to medical providers [citation].” Martis, at 9-10. The Court therefore turned to the policy language to determine whether plaintiff was an intended beneficiary thereunder, id., at 10. Based on its analysis, see id., at 10-12, the appellate court concluded that plaintiff had no right to enforce the workers’ compensation policy issued by defendant because he was not a third party beneficiary under the policy, id., at 12. The Court therefore reversed the trial court order and remanded with instructions to dismiss the class action’s breach of contract claim, id., at 14.

NOTE: The decision was not unanimous, and the opinion of Justice McDade, concurring in part and dissenting in part, may be found at pages 15-18.

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