Individual Healthcare Specialists, Inc. v. BlueCross BlueShield Of Tennessee, Inc.
M2015-02524-COA-R3-CV
| Tenn. Ct. App. | May 15, 2017Background
- BlueCross and IHS contracted (1999, renewed 2009) under a General Agency Agreement: IHS solicited individual policies and was paid first-year and renewal commissions per an attached Commission Schedule that BlueCross could "modify with appropriate notice."
- From 1999–2010 BlueCross changed commission schedules prospectively and each schedule stated commissions for prior sales were governed by the schedule in effect when sold.
- In May 2011 BlueCross issued a Commission Schedule that stated it "replaces any previous Commission Schedule" and applied lowered renewal rates retroactively to existing policies; IHS audited its records and concluded underpayments had occurred since 1999.
- IHS sued (July 2011) for breach of contract, unjust enrichment, conversion, accounting, damages, and attorney’s fees under the contract’s indemnity clause; BlueCross denied breach, asserted the 6-year statute of limitations, and later terminated the agreement and began paying subagents directly.
- The chancery court found (bench trial) BlueCross breached by: (a) applying the May 2011 schedule retroactively to renewals, (b) underpaying commissions systemically, and (c) paying subagents directly after termination; it tolled the limitations period as underpayments were "inherently undiscoverable." The court awarded damages but denied some extrapolated claims as speculative.
- The trial court initially rejected IHS’s indemnity claim (holding it applies to third-party claims), then amended and awarded IHS attorney’s fees after considering parol evidence; the Court of Appeals affirmed on all substantive liability/damages points but reversed the attorney-fees award, holding parol evidence was improperly considered and the indemnity clause does not cover interparty fee-shifting.
Issues
| Issue | Plaintiff's Argument (IHS) | Defendant's Argument (BlueCross) | Held |
|---|---|---|---|
| Whether BlueCross could apply May 2011 Commission Schedule retroactively to renewals | Retroactive application breached the agreement; prior practice showed rates vested for existing policies | BlueCross had contractual right to modify schedules and apply changes | Held for IHS — retroactive application breached; prior conduct and prior schedules showed parties intended prospective-only changes |
| Whether BlueCross could pay commissions directly to subagents after termination | Termination did not extinguish IHS’s right to renewal commissions; BlueCross breached by paying subagents directly | BlueCross argued IHS was not able/entitled/available to receive commissions so BlueCross could contract with subagents | Held for IHS — BlueCross breached by paying subagents directly; IHS remained able/available to receive commissions post-termination |
| Whether IHS’s claims are time-barred (6-year statute) | Underpayments were inherently undiscoverable; discovery rule tolls limitations until IHS reasonably could detect underpayments | Alleged breaches accrued when payments were made; claims before July 29, 2005 barred | Held for IHS — discovery rule applies because underpayments were inherently undiscoverable; limitations tolled |
| Whether indemnity clause authorizes recovery of attorney’s fees in dispute between contracting parties | Indemnity language (including attorney’s fees) covers claims "resulting from or arising out of" BlueCross’s actions and thus includes interparty disputes; parol evidence supports mutual intent | Indemnity is a standard hold-harmless clause applying to third-party claims only; parol evidence cannot vary an integrated, unambiguous contract | Held for BlueCross on appeal — court erred in considering parol evidence; indemnity clause does not expressly or specifically shift interparty litigation fees, so IHS not entitled to attorney’s fees |
Key Cases Cited
- Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303 (Tenn. 2009) (American rule: attorney fees recoverable only if contract/statute expressly allows)
- Colonial Pipeline Co. v. Nashville & E. R.R. Corp., 253 S.W.3d 616 (Tenn. Ct. App. 2007) (standard indemnity clauses are construed to apply to third-party claims, not interparty litigation)
- Hamblen County v. City of Morristown, 656 S.W.2d 331 (Tenn. 1983) (rule of practical construction: parties’ subsequent conduct may show contracted meaning)
- Redwing v. Catholic Bishop for Diocese of Memphis, 363 S.W.3d 436 (Tenn. 2012) (discovery rule and accrual for statute of limitations — accrual when plaintiff knew or had facts to trigger inquiry)
- Next Generation, Inc. v. Wal-Mart, 49 S.W.3d 860 (Tenn. Ct. App. 2001) (integration clauses and parol evidence: fully integrated, unambiguous writings control and may not be varied by extrinsic evidence)