Individual Healthcare Specialists, Inc. v. Bluecross Blueshield of Tennessee, Inc.
566 S.W.3d 671
| Tenn. | 2019Background
- IHS was a general insurance agent for BlueCross from 1999–2012 under written General Agency Agreements (1999, renewed 2009) that incorporated commission schedules. Commissions included first-year and renewal payments; schedules stated rates and a bolded clause reserving BlueCross’s right to modify schedules with notice.
- Prior schedules said a new schedule “supplements” prior ones and that commissions on previously sold products were governed by the schedule in force when sold; the May 1, 2011 schedule deleted that language and said it would “replace” prior schedules and apply its reduced renewal rates to policies with effective dates on/after May 1, 2011.
- IHS alleged (1) BlueCross systemically underpaid commissions since 1999 (over $15M alleged), (2) the May 2011 schedule unlawfully reduced renewal rates on existing policies, (3) BlueCross breached by paying post-termination commissions directly to subagents, and (4) IHS was entitled to attorney fees under the indemnity clause.
- Trial court found BlueCross breached by applying the May 2011 renewal reductions to existing policies, breached by cutting off IHS post-termination payments, and had systemically underpaid commissions; it later awarded attorney fees. The court of appeals affirmed most rulings but reversed the fee award.
- The Tennessee Supreme Court: held BlueCross did not breach by changing renewal rates (parol evidence barred that contrary use of negotiations), affirmed the breach for refusing to pay post-termination commissions, rejected contractual fee shifting (indemnity clause insufficiently specific), and held pre-2005 systemic-underpayment claims time-barred because the underpayments were not "inherently undiscoverable." Case remanded.
Issues
| Issue | Plaintiff's Argument (IHS) | Defendant's Argument (BlueCross) | Held |
|---|---|---|---|
| Whether BlueCross could apply May 2011 reduced renewal rates to existing policies | Parties mutually intended renewal rates to "vest" at sale; extrinsic evidence shows BlueCross agreed not to modify renewal rates for existing policies | Written modification clause allowed unilateral changes to commission schedules with notice; May 2011 schedule replaced prior ones | BlueCross may unilaterally change renewal rates; trial/court of appeals reversal on this point (parol evidence cannot be used to contradict integrated written term) |
| Whether BlueCross breached by paying post-termination commissions directly to subagents | Contract and parties’ intent required BlueCross to continue paying renewal commissions to IHS after termination unless IHS was no longer able, entitled, or available | After termination IHS was no longer "entitled" to commissions; BlueCross could contract with subagents | Breach: BlueCross must pay post-termination renewal commissions to IHS when IHS remains able, entitled, and available; affirmed in favor of IHS |
| Whether indemnity clause authorizes recovery of attorney fees in suit between the contracting parties | Indemnity language (including "attorney’s fees") and negotiation history show parties intended inter-party fee shifting | Indemnity language is boilerplate and intended for third-party claims; Tennessee requires express contractual fee-shifting language for inter-party suits | IHS not entitled to attorney fees under indemnity clause; clause insufficiently specific to overcome Tennessee’s American Rule |
| Whether the discovery rule tolled the 6-year statute of limitations for systemic underpayments (i.e., were underpayments "inherently undiscoverable") | Underpayments were complex, non-routine, BlueCross-controlled (Facets), and IHS reasonably could not discover them despite diligence | Discovery rule should not apply to commercial contract claims absent fraud; even if it could, the underpayments were discoverable with due diligence | Pre-2005 claims barred: Court declines to adopt a broad discovery exception here and finds these underpayments were not inherently undiscoverable on the record; earlier claims dismissed as time-barred |
Key Cases Cited
- Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641 (Cal. 1968) (permitting use of extrinsic evidence to determine parties’ intent and to show latent ambiguity)
- Hamblen County v. City of Morristown, 656 S.W.2d 331 (Tenn. 1983) (approving consideration of situational context and parties’ course of performance to aid interpretation but not to alter terms)
- Staub v. Hampton, 101 S.W. 776 (Tenn. 1907) (endorsing use of surrounding circumstances to interpret contracts and practical construction)
- Smithart v. John Hancock Mut. Life Ins. Co., 71 S.W.2d 1059 (Tenn. 1934) (court may not rewrite a contract; cannot make a new contract for the parties)
- Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303 (Tenn. 2009) (Tennessee adheres to the American Rule: attorney fees recoverable only where contract or statute specifically provides)