:: Joint Venture Liability For Medical Stop Loss Claims
Majestic has included RMTS as a defendant in Count I (declaratory relief), Count II (breach of contract), and Count IV (bad faith). RMTS argues that it should be “dismissed” from this action because it was not a party to the stop loss contracts. Majestic counters that RMTS is a proper defendant because it is a party to the contract, or alternatively, because it was engaged in a joint venture with Trustmark.
Majestic Star Casino, LLC v. Trustmark Ins. Co., 2009 U.S. Dist. LEXIS 93911 (N.D. Ill. Oct. 8, 2009)
Joint venture is likely not the first legal theory that comes to mind when considering the liability of managing general underwriters for stop loss claims by plan sponsors. The theory has been advanced in ERISA cases from time to time as a means to expand the defendant group.
Common endeavor and sharing of risks are required to sustain the claim. See, e.g., Transit Mgmt. v. Group Ins. Admin., 1998 U.S. Dist. LEXIS 15784 (E.D. La. Sept. 30, 1998). In this recent opinion, the theory survives a summary judgment motion given the factual issues implicated by the claim.
The Facts
In Majestic v. Trustmark, the plaintiff employer included a claim against RMTS, LLC based upon joint venture liability. Defendant RMTS entered the factual scenario through its submission of stop loss quotes:
Majestic operates hotels and casinos in Las Vegas, Nevada, Tunica, Mississippi, Blackhawk, Colorado, and Gary, Indiana. As part of its employee benefits packages, Majestic sponsors self-funded health benefits plans for qualifying employees and their dependents. The plans are administered by Majestic’s third party administrator, Benefit Administrative Systems (”BAS”).
In early January 2004, BAS received an “Illustrative Quote” (the “Quote”) from RMTS, a New York Limited Liability Company, outlining several specific and aggregate stop loss coverage options with either Trustmark, an Illinois insurance company, Gerber Life Insurance Company, or New York Life Insurance Company.
The coverage was eventually placed with Trustmark. The casino business, one of the industries infamous as an actuarial hazard, ended up submitting substantial claims for reimbursement.
Reimbursement Claims Denied
Majestic’s reimbursement claims, or a substantial portion thereof, were denied after scrutiny of the facts in view of the initial policy application’s requirement of 80% employee participation (designed, of course to avoid adverse selection):
In early 2006, RMTS reviewed Majestic’s public filings with the Securities and Exchange Commission and found that the number of employees listed in the filings did not correspond with the number Majestic reported to defendants as being enrolled in its health benefits plan. After reviewing the filings, Trustmark initiated an audit of Majestic on June 15, 2006, and stopped paying any pending 2005 stop loss claims until the audit was complete. Some of these claims have yet to be paid.
Litigation Ensues
As it turns out, Majestic left the initial application blank on the question as to number of eligible employees and subsequent contracts did not require the representation anyway, so the audit and its significance became the subject of controversy as well.
After approximately eight months, in early 2007, Trustmark suspended the audit because Majestic represented that it did not have information regarding the number of employees eligible to participate in the health benefit plans and the number of employees actually participating in the plans “as of” January 1, 2004, and January 1, 2005. Thereafter, Majestic filed the instant suit seeking reimbursement for $ 958,732.66 in claims that Trustmark denied under the stop loss contracts. Trustmark has filed a four count counterclaim alleging rescission based on intentional misrepresentation (Claim I), negligent misrepresentation (Claim II), breach of contract (Claim III), and declaratory relief (Claim IV).
Majestic’s included RMTS in its litigation against the stop loss carrier based upon, inter alia, a theory of joint venture liability. The Court found sufficient factual dispute to warrant denial of summary judgment on this issue. Here the Court stated:
Needless to say, a joint venture analysis under either states’ law is factually intensive. In the instant case, the parties have failed to provide the court with all of the facts necessary to complete this analysis, and many of the facts that have been supplied are contested. Because there are questions of material fact regarding the type of relationship that existed between RMTS and Trustmark relating to the stop loss policies, resolution of this matter on a motion for summary judgment is inappropriate. Consequently, Trustmark’s motion for summary judgment on this issue is denied.
Note: The direct contract claim against RMTS failed. This is because RMTS was found to be expressly acting as an agent on behalf of a principal — one of the two identified insurance companies — and thus did “not appear to have committed to writing the insurance itself; it committed only to approve and procure insurance to cover the entire period.”
Therefore, Majestic has failed to establish that the uncontested facts demonstrate that RMTS issued any insurance coverage to Majestic.
Choice Of Law - An interesting consequence of the success of the defense against the contract claim was the effect on choice of law. The contract contained a choice of law provision stipulating the applicability of Nevada law. But the contract did not apply to RTMS. Thus, on the joint venture claim, choice of law reverted to the law of the forum.
“Ordinarily, Illinois follows the Restatement (Second) of Conflict of Laws (1971) in making choice-of-law decisions.” Morris B. Chapman and Assocs v. Kitzman, 193 Ill.2d 560, 568, 739 N.E.2d 1263, 251 Ill. Dec. 141 (2000) (using Restatement (Second) Conflict of Laws §§ 6 and 221).
Under § 221 of the Restatement, the court applies the law of the forum that has the most significant relationship to the parties and the occurrence. According to the Restatement, the following factors may be considered according to their importance with respect to the issue before the court:
(a) the place where the relationship between the parties was centered, provided that the receipt of the enrichment was substantially related to the relationship;(b) the place where the benefit or enrichment was done;
(c) the place where the act conferring the benefit or enrichment was done;
(d) the domicile, residence, nationality, place of incorporation and place of business of the parties; and
(e) the place where the physical thing, such as the land or chattel, which was substantially related to the enrichment, was situated at the time of the enrichment.
Under this analysis, either New York or Illinois law could apply, but the court deferred this decision inasmuch as the factual issues precluded summary judgment under either states’ law, stating that “[n]eedless to say, a joint venture analysis under either states’ law is factually intensive.”
Joint Venture Elements - So what is the gist of the joint venture claim anyway? The Court lists the elements as follows:
In both New York and Illinois, the core definition of a joint venture is an association of two or more persons to carry out a single business enterprise for profit.
[(citing Kaufman v. Torkan, 51 A.D.3d 977, 979, 859 N.Y.S.2d 253, 2008 N.Y. Slip Op. 04838 (N.Y.A.D. 2d Dept, 2008); Barton v. Evanston Hosp., 159 Ill. App. 3d 970, 973, 513 N.E.2d 65, 111 Ill. Dec. 819 (Ill. App. Ct. 1st Dist. 1987)].
In New York, the elements of a joint venture are
[ “an agreement manifesting the intent of the parties to be associated as joint venturers,
a contribution by the coventurers to the joint undertaking (i.e., a combination of property, financial resources, effort, skill or knowledge),
some degree of joint proprietorship and control over the enterprise; and
a provision for the sharing of profits and losses.”
Kaufman, 51 A.D.3d at 979.
In Illinois, the elements of a joint venture are:
[(1) a community of interest in the purpose of the joint venture;
(2) a right to direct and govern the policy and the conduct of other joint venturers;
(3) the right to joint control of the property used in the joint venture; and
(4) a sharing in both profits and losses.
Barton v. Evanston Hosp., 159 Ill. App. 3d 970, 974, 513 N.E.2d 65, 111 Ill. Dec. 819 (1987) (noting that mutual control is possibly the most important factor).
The Court concluded that:
In the instant case, the parties have failed to provide the court with all of the facts necessary to complete this analysis, and many of the facts that have been supplied are contested. Because there are questions of material fact regarding the type of relationship that existed between RMTS and Trustmark relating to the stop loss policies, resolution of this matter on a motion for summary judgment is inappropriate. Consequently, Trustmark’s motion for summary judgment on this issue is denied.
Joint Venture Versus Partnership – The Fifth Circuit has stated that:
“The principal difference between a partnership and a joint venture is that while a partnership is ordinarily formed for the transaction of a general business of a particular kind, a joint venture is usually, but not necessarily, limited to a single transaction, although the business of conducting it to a successful termination may continue for a number of years.” Riddle v. Simmons, 589 So. 2d 89, 92 (La. App. 2nd Cir. 1991).
Transit Mgmt.of Southeast La., Inc. v. Group Ins. Admin., 226 F.3d 376 (5th Cir. La. 2000)
The existence of a common sharing of risks is often a critical factor in in determining joint venture liability. In the context of stop loss insurance that issue can be quite complex as carriers have required more risk sharing by those placing coverage in recent years.
