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Claire's Stores, Inc v. Companion Life Insurance Co

March 7, 2012

CLAIRE'S STORES, INC., PLAINTIFF,
v.
COMPANION LIFE INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Judge Joan H. Lefkow

MEMORANDUM OPINION AND ORDER

Plaintiff Claire's Stores, Inc. ("Claire's") filed a five count complaint against defendant Companion Life Insurance Company ("Companion") for breach of contract (Counts II and V) and declaratory relief (Counts I, III and IV).*fn1 The complaint alleges that Companion failed to reimburse Claire's $768,562.96 in covered medical expenses pursuant to two stop loss insurance contracts: (1) the "Excess Loss Policy," effective from May 1, 2009 through April 30, 2010 (Compl. Ex. 1); and (2) the "Renewal Application," allegedly effective from May 1, 2010 through April 30, 2011 (Compl. Ex. 8). Companion has moved to dismiss all five counts under Federal Rule of Civil Procedure 12(b)(6) on the grounds that (1) Claire's did not timely pay or submit a claim for reimbursement for medical expenses during the term of the Excess Loss Policy; and (2) the Renewal Application did not create a binding contract. For the reasons stated below, the motion [#11] is granted.

BACKGROUND*fn2

Claire's offers a group health insurance plan for its employees and their dependents. Claire's pays claims under the plan to a certain amount, and then purchases stop loss insurance to limit its liability for potentially large claims. This case concerns two stop loss insurance policies allegedly purchased from Companion by Claire's and their applicability to an insurance claim submitted by a Claire's employee and her dependent.

The Excess Loss Policy

On May 1, 2009, Companion issued Claire's the Excess Loss Policy whereby Companion agreed to reimburse Claire's for certain eligible medical expenses incurred by covered employees (or their dependents) and Claire's agreed to pay premiums when due and comply with the policy's provisions. (Compl. Ex. 1.) Companion agreed to pay Claire's the "Specific Benefit," which was the amount of "eligible claims paid by [Claire's] over and above [Claire's] Specific Deductible Per Person" for the Specific Contract Basis. (Id. at 7.) Under the schedule of excess loss insurance section of the policy (the "Schedule"), the Specific Contract Basis was listed as follows:

Specific Contract Basis: Employee Benefit Plan expenses must be: Incurred from 11/1/2008 through 4/30/2010.

Paid from 5/1/2009 through 4/30/2010. (Id. at 3.) The definition section of the policy defined the Specific Contract Basis as "the dates during which Employee Benefit Plan expenses must be Incurred and must be Paid to be considered eligible for reimbursement as Specific Benefits." (Id. at 7.)(emphasis added).*fn3 The benefits section also stated that

The Specific Benefit with regard to each Covered Person was the total of the Eligible Claim Payments, on an Incurred and/or Paid basis as shown in Specific Contract Basis of the Schedule;

a. less the Specific Deductible; and

b. less amounts received from other sources;

c. multiplied by the Specific Payable Percentage.

The Contractholder shall not be entitled to any Specific Benefit unless and until the Contractholder has actually Paid the full amount of the Specific Deductible as set forth in the Schedule for Covered Person(s) for which the Specific Benefit is sought. The Contractholder shall only be entitled to a Specific Benefit up to the amount actually Paid by [the] Contractholder over and above the Specific Deductible. (Id. at 8) (emphasis added). Pursuant to these provisions, Companion agreed to reimburse Claire's for covered claims within a reasonable time after receiving a fully executed proof of loss*fn4 and reasonably necessary documentation. (Id. at 11.) By providing a proof of loss, Claire's warranted that "all monies necessary to pay for services and supplies have been paid to the respective providers of medical services or supplies to which the claim for reimbursement relates." (Id.) Claire's paid all premiums required under the policy, and pursuant to its terms, the policy automatically terminated on May 1, 2010. (See id. at 12.)

Renewal and Attempted Rescission of the Excess Loss Policy

Prior to the expiration of the Excess Loss Policy, Claire's solicited a renewal bid from Companion for the May 1, 2010 through April 30, 2011 policy period. In April 2010, Companion, through its agent, ASG Risk Management, Inc. ("ASG"), submitted a quote to Claire's for the renewal of the Excess Loss Policy (Compl. Ex. 6) and Claire's submitted a Large Claim Report to Companion (Compl. Ex. 7). The large claim report listed all claims paid by Claire's in excess of $50,000 from March 2007 through April 2010. (Id.) On or around May 14, 2010, Companion sent Claire's an unexecuted application for renewal ("Renewal Application") for renewal of the Excess Loss Policy. (Compl. Ex. 8.) The Renewal Application Schedule stated that Companion would reimburse Claire's for eligible medical expenses incurred by a covered employee (or dependent) pursuant to the Specific Contract Basis as follows:

Specific Contract Basis: Employee Benefit Plan expenses must be: Incurred from 5/1/2009 through 4/30/2011, and Paid from 5/1/2010 through 4/30/2011. (Id. ¶ 8(e)) (emphasis added). Unlike the Excess Loss Policy, the Renewal Application did not contain a definition, benefits or claims provisions section. Moreover, the Renewal Application stated that it "must be accepted and approved by [Companion] . . . prior to any Contract being in existence," and that "this Application will be a part of the Contract if accepted by [Companion] or its authorized representative." (Id. at 1 & 4.) It also stated that

Receipt of a premium and its deposit in connection with the Application shall not constitute an acceptance of liability. In the event that Companion . . . disapproves this Application, its sole obligation shall be to refund such sum to the Applicant. (Id. ¶ 11(e).)

On May 17, 2010, Claire's signed the Renewal Application (Compl. Ex. 9) and submitted its first premium payment, which Companion received on or about May 27, 2010. On or about June 15, 2010, Companion, again through its agent ASG, sent Claire's an Amended Application for Renewal ("Amended Application"), which revised the rates, deductibles, terms and conditions of the Renewal Application. (Compl. Ex. 10.) On or about June 21, 2010, Companion received Claire's June monthly premium pursuant to the Renewal Application. Companion returned Claire's premium payments for May and June to Claire's on or about July 6, 2010. On July 13, 2010, ASG informed Claire's that we have been unable to obtain a signed application for the Claire's Stores May 1, 2010 stop loss renewal. We had granted an extension to have the [amended] application signed up until July 8th, 2010. Since there has been no response from the employer or the broker, we are rescinding the stop ...


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