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Graham v. Catamaran Health Solutions LLC

United States Court of Appeals, Eighth Circuit

August 23, 2017

Kenneth Graham, on behalf of himself and all others similarly situated Plaintiff- Appellant
Catamaran Health Solutions LLC, formerly known as Catalyst Health Solutions, formerly known as Healthextras Inc.; Healthextras LLC; Alliant Services Houston Inc. DefendantsStonebridge Life Insurance Company Defendant-AppelleeVirginia Surety Company Inc. Defendant

          Submitted: June 7, 2017

         Appeal from United States District Court for the Eastern District of Arkansas - Little Rock

          Before LOKEN, MURPHY, and MELLOY, Circuit Judges.

          MELLOY, Circuit Judge.

         Plaintiff Kenneth Graham, on behalf of himself and others similarly situated, alleges the defendant insurance companies and marketing organizations advertised and sold group disability insurance policies that were void ab initio due to a failure to comply with applicable Arkansas insurance law. He seeks reimbursement of premiums, enhanced damages, and fees, alleging claims of unjust enrichment, breach of contract, and civil conspiracy. The district court granted a motion to dismiss, concluding the policies were not void ab initio because an Arkansas savings statute applied and thus rendered the policies enforceable even if not in compliance with Arkansas law. See Ark. Code Ann. § 23-79-118. The district court held in the alternative that Graham's claims were time-barred. We affirm.


         Group insurance policies differ from individual insurance policies in that individual underwriting is not required for group policies. Rather, by offering a one-size-fits-all policy to members of a qualifying group (typically, employees of a company or members of an organization formed for purposes separate and apart from obtaining insurance), the insurer accepts that individualized risks will be spread throughout the members of the group thus permitting group pricing. Often, the actual policyholder is the group itself and the insured members receive only a certificate of coverage rather than a copy of the policy.

         Consistent with this theory and practice, the group itself is the "consumer" who is presumed to comparison shop among insurers on behalf of its members to find policies deemed valuable and appropriate. In part to prevent lapses in this practical protective function, many states have passed laws defining what may qualify as an insurable group. These states typically require registration of insurers and state approval of group policy forms under statutory or regulatory regimes that grant various enforcement mechanisms to the state.

         At issue in the present suit are allegations that a marketing entity, HealthExtras, Inc., along with other entities, including different insurers, conspired to skirt these practical and statutory group-policy protections. In broad strokes, Graham alleges HealthExtras solicited names from credit-card issuers and advertised group accidental disability policies to card holders even though these card holders were not members of any stand-alone group created for a purpose apart from obtaining insurance. HealthExtras then sold group policies to the interested card holders and billed card holders through recurring charges on their cards. According to Graham, the policies at issue were void ab initio because the insurers failed to comply with an Arkansas statute defining permissible and qualifying "groups." Ark. Code Ann. §§ 23-86-101 & 23-86-106(2)(A)(iii). He also alleges the defendants illegally failed to comply with a statutory registration requirement. Id. §§ 23-86-102(b) & 23-79-109. Graham's complaint, read as a whole, alleges in the alternative that, to the extent the policies were not void, they actually provided very little coverage at a vastly inflated price. According to Graham, the conspiracy to skirt group insurance protections was successful in that the card holders did not receive the benefit of oversight by either state regulators or by a representative "group" that could have shopped for fair coverage at a fair price.

         Graham purchased coverage in 2001 and continued paying for coverage until policy termination in December 2014. On October 6, 2014, Graham filed the present class-action complaint, naming as a proposed class persons who had purchased policies marketed by HealthExtras between 1999 and the time of filing, subject to certain exclusions. Graham named as defendants the marketing organizations that spearheaded the insurance program and two insurance companies that served as underwriters, Virginia Surety Company, Inc., and Stonebridge Life Insurance Company ("Stonebridge"). The complaint raised four counts: violation of the Arkansas Trade Practices Act, unjust enrichment, conversion, and civil conspiracy.

         In November 2014, after Graham filed his suit, the defendants canceled the group policy via letter, effective December 31, 2014, stating:

Thank you for being a long standing customer of the HealthExtras Program. We are writing to notify you that the respective insurance coverages in the Program, underwritten by Stonebridge Life Insurance company ("Stonebridge Life") and Virginia Surety Company ("Virginia Surety"), are terminating as of December 31, 2014. As a result, we regret that we cannot continue the HealthExtras Program.

         In December 2014, the marketing organizations and both insurance companies filed separate motions to dismiss, challenging Graham's standing and challenging the sufficiency of his pleadings. In their standing arguments, the defendants asserted that Graham and the proposed class had not filed claims under their policies, the policies were enforceable pursuant to the Arkansas savings statute, and Graham and the proposed class, therefore, had not suffered any redressible injury. According to the defendants, Graham and the proposed class members paid for and received enforceable insurance, and the absence of claims meant allegations of invalidity were mere abstractions rather than concrete and particularized injuries.

         In its briefing to the district court, however, at least one defendant referenced the fact that Graham had made a claim on a HealthExtras policy. Stonebridge identified a prior federal district court lawsuit in which Graham alleged total disability and contested a claim denial by Stonebridge. In fact, Stonebridge asked for reassignment of the present case to the district court judge who had presided over that earlier lawsuit between Graham and Stonebridge. See Graham v. Stonebridge Life Ins. Co., No. 4:10-CV-02022-JHL ...

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