Larkey v. Health Net

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE ALAN LARKEY, an Arizona resident, Plaintiff/Appellant, v. HEALTH NET LIFE INSURANCE COMPANY, a foreign insurer; HEALTH NET OF ARIZONA, INC., an Arizona corporation; SHERI LYNN EDDY and JOHN DOE EDDY, husband and wife, Defendants/Appellees. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. DIVISION ONE FILED: 06/14/2012 RUTH A. WILLINGHAM, CLERK BY: sls 1 CA-CV 11-0523 DEPARTMENT A MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure Appeal from the Superior Court in Maricopa County Cause No. CV2010-024014 The Honorable J. Richard Gama, Judge REVERSED AND REMANDED ________________________________________________________________ Surrano Law Offices By Charles J. Surrano, III John N. Wilborn Attorneys for Plaintiffs/Appellant Phoenix Brownstein Hyatt Farber Schreck LLP By John C. West Attorneys for Defendants/Appellees Health Net Phoenix Law Offices of William Vose PC Phoenix By William G. Vose Attorneys for Defendants/Appellees ________________________________________________________________ T I M M E R, Presiding Judge ¶1 Plaintiff/Appellant Alan Larkey appeals the superior court s dismissal of his claims for consumer fraud and negligent misrepresentation against Defendants/Appellees Health Net Life Insurance Company, Health Net of Arizona, Inc. (collectively, Health Net ), and Sheri Lynn Eddy. For the following reasons, we reverse and remand this matter for further proceedings. BACKGROUND 1 ¶2 Health transact business Net in is an insurance Arizona. Eddy company is licensed a licensed with Blue to insurance agent and representative of Health Net. ¶3 Larkey previously contracted Shield ( Blue Cross ) for health insurance. Cross Blue In 2001, Larkey determined he wished to replace his Blue Cross health insurance policy with an equal policy in terms of benefits but which had a smaller or lower deductible. Larkey s mother contacted Eddy for the purpose of assisting Larkey in purchasing a new health insurance policy. insurance policy. his 1 Blue policy Eddy represented that Health Net s health was just as good as Larkey s Blue Cross In reliance on this representation, Larkey cancelled Cross policy and purchased Health Net s health We assume the truth of all facts alleged and construe them in the light most favorable to Larkey. Albers v. Edelson Tech. Partners L.P., 201 Ariz. 47, 50, ¶ 7, 31 P.3d 821, 824 (App. 2001). 2 insurance policy (the Policy ). According to Larkey s allegations, neither Health Net nor Eddy provided him with a copy of the Policy at the time of the transaction. ¶4 In October 2009, Larkey was diagnosed with advanced Hepatitis C and requested precertification from Health Net for liver transplant surgery. Health Net denied coverage for the procedure on the basis that the Policy specifically excludes adult liver transplants from its covered services. Larkey later verified that his previous Blue Cross health insurance policy provided coverage for liver transplants for persons with Larkey s condition. ¶5 Larkey filed this action for violation of Arizona s Consumer Fraud Act, Arizona Revised Statutes ( A.R.S. ) sections 44-1521 to -1534 (West 2012), 2 and negligent misrepresentation. 3 In particular, he alleged that Eddy, while acting as Health Net s agent, had misrepresented the Policy s coverage by stating the Policy was just as good as Larkey s Blue Cross insurance and that he had reasonably relied to his detriment on that misrepresentation. 2 Absent material revision after the events at issue, we cite a statute's current version. 3 Larkey also asked the court to declare that he was entitled to coverage of his liver transplant under the Policy based upon the doctrines of waiver, estoppel, and reasonable expectations. That claim is not at issue in this appeal. 3 ¶6 Eddy moved to dismiss both counts on the basis they failed to state a claim upon which relief could be granted. She argued Larkey s allegation that Eddy made a misrepresentation of fact failed as a matter of law because the statement Larkey attributed to her - that the Health Net Policy was just as good as Larkey s Blue Cross policy - was too vague to constitute a factual misrepresentation. ¶7 Health Net joined the motion. The superior court ruled, as a matter of law, Larkey had not pled facts that could establish he justifiably relied on Eddy s alleged misrepresentation. In addition, the court determined that Eddy s alleged statement was overly vague and not sufficiently specific to establish the requisite elements for liability motion to under dismiss either and theory. entered The its court decision granted as a the final, appealable order pursuant to Arizona Rule of Civil Procedure 54(b). Larkey timely appealed. DISCUSSION ¶8 We review an order dismissing a complaint for failure to state a claim for an abuse of discretion, although we review issues of law and statutory interpretation de novo. Dressler v. Morrison, 212 Ariz. 279, 281, ¶ 11, 130 P.3d 978, 980 (2006). We will affirm [Larkey] would only not if be satisfied entitled 4 as a to matter relief of law that under any interpretation of the facts susceptible of proof. Jeter v. Mayo Clinic Ariz., 211 Ariz. 386, 391, ¶ 18, 121 P.3d 1256, 1261 (App. 2005) (citation omitted). A. ¶9 Consumer fraud Arizona s drafted remedial Consumer provision Fraud Act designed ( Act ) to is a eliminate practices in merchant-consumer transactions. broadly unlawful Madsen v. W. Am. Mortg. Co., 143 Ariz. 614, 618, 694 P.2d 1228, 1232 (App. 1985). It provides: The act, use or employment by any person of any deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. A.R.S. § 44-1522(A). Thus, a party violates the Act if, in connection with the sale or advertisement of merchandise, it either performs material omission. fact a with deceptive the act intent or that practice, the buyer or omits rely on any the State ex rel. Horne v. AutoZone, Inc., 634 Ariz. Adv. Rep. 42, ¶ 12 (May 15, 2012). ¶10 Larkey alleged in his complaint that Health Net, through its agent Eddy, violated the Act by representing the 5 Policy was insurance as policy. determining requisite just he good He had element argues not of as pled Larkey s the superior facts justifiable Blue that court could reliance Cross health erred establish because in the Arizona s consumer fraud law does not require that a plaintiff s reliance have been justifiable. determination he had We agree with Larkey that the court s not pled facts from which he could establish that he justifiably relied on Eddy s statement did not defeat his consumer fraud claim as a matter of law. See Kuehn v. Stanley, 208 Ariz. 124, 129, ¶ 16, 91 P.3d 346, 351 (App. 2004) ( An injury occurs when a consumer relies, even unreasonably, on false or misrepresented information. ); Peery v. Hansen, 120 Ariz. 266, 270, 585 P.2d 574, 578 (App. 1978) (holding, the right to rely, though a necessary element in a common law fraud action, is not essential to a statutory fraud action in Arizona. ). ¶11 In addition to ruling that Larkey s reliance was not justified, however, the court also determined Eddy s alleged statement [was] overly vague and not sufficiently specific to establish liability. We therefore consider whether to affirm the court s ruling on that basis. Long v. Napolitano, 203 Ariz. 247, 253, ¶ 12, 53 P.3d 172, 178 (App. 2002) (holding appellate 6 court will affirm the superior court s judgment if it is correct on any ground). ¶12 The term deceptive, as used in the Act, has been interpreted to include representations that have a tendency and capacity to convey misleading impressions to consumers even though interpretations that would not be misleading also are possible. meaning Madsen, 143 Ariz. at 618, 694 P.2d at 1232. and impression are to be taken from all The that is reasonably implied, not just from what is said . . . and in evaluating the representations, the test is whether the least sophisticated reader would be misled. ¶13 According to the Id. (citations omitted). complaint, Larkey, through his mother, informed Eddy he wished to purchase a policy that was as good as Blue Cross Blue Shield, only one that had a lower deductible. Eddy was licensed to sell insurance such as health insurance in the State of Arizona and [held] herself out as an insurance agent with superior knowledge in the realm of insurance. In response to Larkey s inquiry, Eddy recommended the Policy and represented it was just as good as the Blue Cross policy Larkey desired to replace. Eddy s representation, combined with her expertise in evaluating policies and Larkey s explicit inquiry, investigated the could coverage convey the contained 7 in impression Larkey s Eddy Blue had Cross policy and determined the Policy offered the same coverage. Larkey alleges Health Net and Eddy knew the Policy was inferior to his Blue Cross policy but intentionally promoted it in a deceptive manner to induce Larkey to purchase the Policy. This is sufficient to state a claim pursuant to the Act. ¶14 Health Net and Eddy argue that Eddy s statement that the Policy was just as good as Larkey s Blue Cross policy is mere opinion or puffery and therefore non-actionable under the Act. Puffing denotes the exaggerations reasonably to be expected of a seller as to the degree of quality of his or her product, the determined. truth or Avery falsity v. of which cannot State Farm Mut. Auto. be precisely Ins. Co., 835 N.E.2d 801, 846 (2005); see also Speakers of Sport, Inc. v. ProServ, Inc., 178 F.3d 862, 866 (7th Cir. 1999) ( Puffing in the usual sense reasonable signifies person would take actionable as fraud. ). that a claim for meaningless seriously, superlatives and so that it no is not Arizona courts have repeatedly held fraud may not be based on subjective characterizations of value, which are regarded as mere puffing. See, e.g., Law v. Sidney, 47 Ariz. 1, 4, 53 P.2d 64, 66 (1936) (stating that fraud cannot be predicated upon the mere expression of an opinion or upon representations in regard to matters of estimate or judgment ; 8 seller s statements or puffing, do not amount to actionable misrepresentations ); Sorrells v. Clifford, 23 Ariz. 448, 457-60, 204 P. 1013, 1017 (1922) (holding seller s statement that his cattle were as good as another brand was a representation as to value that could not constitute fraud because it was an opinion or trade talk ); Ellis v. First Nat l Bank, 19 Ariz. 464, 471, 172 P. 281, 284 (1918) ( When persons are compos mentis and deal at arm s length, the law does not regard mere puffing as to the value of stock as an investment the same as a false representation or the positive affirmation of a specific fact, but rather as a mere expression of opinion or trade talk which men of ordinary intelligence in their business dealings always receive cum grano salis. ). 4 ¶15 In this case, under the circumstances as pled in the complaint, the statement Larkey attributes to Eddy was not a subjective characterization of Health Net s Policy that any reasonable person would recognize as puffing or sales talk. 4 Health Net and Eddy cite Stanley Fruit Co. v. Ellery, 42 Ariz. 74, 77, 22 P.2d 672, 674 (1933), to support their argument that Eddy s alleged statement was, as a matter of law, an unactionable opinion. They contend the Arizona Supreme Court held in that case that a statement to a prospective ranch buyer that the ranch was as good as an adjacent ranch was not actionable in fraud. In fact, the court s opinion in Stanley Fruit reveals it was the buyer s employee, not the seller, who made the as good as statement and the court referenced it simply to show the buyer made his own evaluation of the property. Id. The court did not hold that such a statement was not actionable as a matter of law. 9 Larkey advised Eddy he was seeking a health insurance policy as good as his Blue Cross policy with a lower deductible and Eddy represented the Policy satisfied those requirements. We recognize Eddy s statement was not specific concerning in what respect the Policy was just as good as Larkey s Blue Cross policy, but this is not fatal to Larkey s claim at this stage in the proceedings. Albers v. Edelson Tech. Partners L.P., 201 Ariz. 47, 50, ¶ 7, 31 P.3d 821, 824 (App. 2001) (when reviewing an order granting a motion to dismiss for failure to state a claim, appellate court construes all facts alleged complaint in the light most favorable to the plaintiff). in the Eddy s statement, when viewed in the light most favorable to Larkey, could be construed as a representation that the Policy offered the same coverage as the Blue Cross policy. reject Health statement was Net s not and the Eddy s type of Accordingly, we argument that the alleged statement that could induce reliance by a reasonable consumer. ¶16 Larkey adequately stated a claim for consumer fraud and the superior court erred in dismissing that claim. B. ¶17 Negligent misrepresentation Larkey next argues the superior court dismissed his negligent misrepresentation claim. 10 improperly ¶18 Arizona recognizes a claim for negligent misrepresentation: One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 29, 945 P.2d 317, 340 (App. 1996) (quoting Restatement (Second) of Torts § 552(1) (1977)); Donnelly Const. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 188-89, 677 P.2d 1292, 1296-97 (1984), overruled on other grounds, Gipson v. Kasey, 214 Ariz. 141, 150 P.3d 228 (2007). ¶19 Larkey argues the court erred because he alleged in his complaint that Eddy, while acting as Health Net s agent, negligently misrepresented the Policy was just as good as his Blue Cross policy and he justifiably misrepresentation to his detriment. relied on this Health Net and Eddy argue Larkey s claim for negligent misrepresentation fails as a matter of law because Eddy s statement was not in the nature of a misrepresentation of material fact. 11 ¶20 As construed as discussed, an Eddy s affirmative alleged may be representation factual statement that the Policy offered the same coverage as Larkey s Blue Cross policy. Albers, 201 Ariz. at 50, ¶ 7, 31 P.3d at 824. claim for negligent information given misrepresentation in the form of (Second) of Torts § 552 cmt. b. Section existence applies of not facts only but to also an may be based opinion. on false Restatement ( The rule stated in this information to In addition, a an opinion given given as to upon the facts equally well known to both the supplier and the recipient. ). 5 ¶21 Health Net and Eddy also argue that Eddy s statement the Policy was just as good as Larkey s Blue Cross policy was mere opinion or puffery and therefore Larkey s reliance was not justified as required for a negligent misrepresentation claim. As discussed, under the circumstances alleged in the complaint, Eddy s statement was not a subjective characterization of Health 5 We are not persuaded by Eddy s citation to DeWyngaerdt v. Bean Ins. Agency, Inc., 855 A.2d 1267 (2004). In that negligence case, the New Hampshire Supreme Court held that an insured must make a specific request for a particular type of insurance coverage in order to impose a duty upon an agent to procure that particular coverage or to inform the insured that such coverage is excluded, and rejected the notion that the agent s knowledge of the plaintiff s business, coupled with its request for full coverage was sufficient to create a duty. Id. at 1271. Viewing the complaint in the light most favorable to Larkey, Albers, 201 Ariz. at 50, ¶ 7, 31 P.3d at 824, he did not make a vague request as discussed in DeWyngaerdt, but he specifically asked Eddy for a policy that was as good as his Blue Cross policy. 12 Net s Policy that any reasonable person would recognize as puffing or sales talk. ¶22 Moreover, we disagree with Health Net and Eddy that Larkey s reliance because coverage the for on Eddy s representation Policy terms placed him on adult liver transplants. was not notice In the it justified excluded absence of circumstances putting a reasonable person on inquiry, a person is justified in relying on a misrepresentation of a material fact without making further inquiry. St. Joseph's Hosp. & Med. Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307, 316, 742 P.2d 808, 817 (1987). Larkey alleged in the complaint he communicated to Eddy the type of health insurance policy he desired to purchase and, in response to his inquiry, Eddy provided the allegedly false information for Larkey s guidance with the intention that he rely on it when deciding whether to purchase the Policy. Under such circumstances, including the fact Eddy was a licensed agent with expertise in recommending health coverage policies, Larkey was entitled to rely on Eddy s representation the Policy was just as good as his Blue Cross policy without conducting his own investigation. Cf. Carrel v. Lux, 101 Ariz. 430, 435, 420 P.2d 564, 569 (1966) (citing Restatement (Second) of Torts § 540) (stating the recipient of a false representation of fact in a business transaction may rightfully rely on the truth of the 13 representation, even when he may have discovered the falsity of the statement by making an investigation). to Larkey s allegations, he was unable Further, according to investigate the Policy s coverage because Health Net did not provide a copy of the Policy to him until nine years after he purchased it when it denied coverage of his liver transplant surgery. ¶23 Assuming the truth of all facts alleged and construing them in the light most favorable to Larkey, see Albers, 201 Ariz. at 50, ¶ 7, 31 P.3d at 824, we decide the complaint sets forth a cause of action for negligent misrepresentation. 6 CONCLUSION ¶24 For the foregoing reasons, we reverse and remand this matter for further proceedings. /s/ Ann A. Scott Timmer, Presiding Judge CONCURRING: /s/ Patricia K. Norris, Judge 6 /s/ Donn Kessler, Judge We reject Eddy s argument that allowing Larkey s consumer fraud and negligent misrepresentation claims to proceed will result in an illogical and unfair anomaly because his declaratory judgment claim regarding coverage under the Policy based upon the doctrine of reasonable expectations will require him to show that he would not have accepted the Policy if he had known that it contained the particular exclusion for adult liver transplants. Whether Larkey may ultimately prevail on his claim for declaratory judgment is irrelevant to whether he has properly stated a claim for relief for consumer fraud and negligent misrepresentation. 14

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