Morris v. Health Net of California, Inc.
Annotate this Casepublication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
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Raphael Morris, Jr.,
and Gregory Morris,
Plaintiffs and Appellants,
v.
Health Net of California,
Inc.,
Defendant and Appellee.
No. 980163
F I L E D
October 5, 1999
1999 UT 95
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Third District, Salt Lake
County
The Honorable Tyrone E.
Medley
Attorneys:
M. David Eckersley, Salt
Lake City, for plaintiff
Jack L. Schoenhals, Salt
Lake City, for defendant
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HOWE, Chief Justice:
¶1
Plaintiffs Raphael Morris,
Jr. ("Morris"), and Gregory Morris appeal from the trial court's grant
of partial summary judgment ruling that defendant Health Net of California,
Inc., was not liable for breach of the covenant of good faith and fair
dealing.
BACKGROUND
¶2
Morris, a school teacher,
resides in Oakland, California, where he works for the Oakland Unified
School District ("School District"). Health Net, a California Health Maintenance
Organization under an agreement with the School District, provided health
care benefits to School District employees and their families, including
Morris and his two sons. Under this agreement, Health Net, through a number
of approved physicians, would provide certain prepaid health care benefits.
Health Net also agreed to provide reimbursement for emergency "out-of-area"
services in limited circumstances.(1)
¶3
Morris's two sons resided
with their mother, Carol Morris, in Salt Lake City, Utah. On October 23,
1992, after experiencing vision problems with his left eye, Morris's son,
Gregory, went to an eye specialist for examination and treatment. Gregory
endured several months of treatment and numerous tests, including blood
tests and a vitrectomy.(2) Gregory's Salt
Lake City physicians eventually concluded that because the malignant cells
could potentially spread, it was urgent that Gregory undergo an enucleation.(3)
Following the enucleation, Health Net denied reimbursement for either the
vitrectomy or the enucleation on the basis that the procedures were not
covered by the EOC emergency services clause. Morris subsequently filed
this action seeking, first, reimbursement of the medical expenses and,
second, damages for breach of the covenant of good faith and fair dealing.
¶4
Both Morris and Health Net
moved for summary judgment on the question of whether Gregory's surgery
was an emergency treatment. The trial court denied the parties' cross-motions
for summary judgment, ruling that "[g]enuine issues of material fact preclude
summary judgment for either party." Soon thereafter, Health Net moved for
partial summary judgment, arguing that under Utah law, the existence of
genuine issues of material fact made Morris's benefits claim "fairly debatable"
and precluded a cause of action for breach of the covenant of good faith
and fair dealing. The trial court granted Health Net's motion. The remainder
of the case was tried to a jury; the jury found that the enucleation was
an emergency service and awarded expenses accordingly. Morris now brings
this appeal.
¶5
The issues Morris raises
on appeal are: whether the trial court erred in (1) applying Utah case
law to an alleged breach of the covenant of good faith and fair dealing
and (2) granting Health Net partial summary judgment on the question of
breach of the covenant of good faith and fair dealing. Both issues present
questions of law which we review for correctness without deference to the
decisions of the trial court. See Utah R. Civ. P. 56(c); American
Nat'l Fire Ins. Co. v. Farmers Ins. Exch., 927 P.2d 186, 188 (Utah
1996). We will address each issue in turn.
ANALYSIS
¶6
Morris seeks to recover
tort and contract damages for Health Net's alleged breach of the covenant
of good faith and fair dealing. He asserts that the trial court erroneously
applied Utah law to this portion of his case when California law actually
governed. In American National, we observed that "'a choice-of-law
problem arises whenever a contract has a substantial relationship to two
or more states with different local law rules on the subject.'" 927 P.2d
at 188 (quoting Restatement (Second) Conflict of Laws § 205 cmt. a
(1971)).
¶7
Health Net asserts that
the existence of a factual dispute makes a claim "fairly debatable," thereby
precluding an action for breach of the covenant of good faith and fair
dealing. We agree that under Utah law, "when an insured's claim is fairly
debatable, the insurer is entitled to debate it and cannot be held to have
breached the implied covenant if it chooses to do so." Billings v. Union
Bankers Ins. Co., 918 P.2d 461, 465 (Utah 1996) (citations omitted);
see also S.W. Energy Corp. v. Continental Ins. Co., 974 P.2d 1239, 1243 (Utah 1999). Morris asserts, however, that California law is
applicable to the present case. He argues that California law does not
allow the "fairly debatable" defense, but would hold Health Net to a higher
standard.
¶8
We are therefore obliged
to determine what law applies to the case at hand. We have held that the
"most significant relationship" test, explained in Restatement (Second)
Conflict of Laws section 188 is the "appropriate rule for Utah courts to
apply to a conflict of laws question in a contract dispute." American
National, 927 P.2d at 190. The Restatement provides:
(1) The rights and
duties of the parties with respect to an issue in contract are determined
by the local law of the state which, with respect to that issue, has
the most significant relationship to the transaction and the parties
under the principles stated in § 6.[(4)]
(2) In the absence of an effective choice of law by the parties . . . , the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicile, residence, nationality, place of incorporation and place of business of the parties. Restatement (Second) Conflict of Laws § 188 (1971) (emphasis added). Thus, the trial court correctly applied Utah law only if Utah has the most significant relationship to the transaction and the parties in this case.
¶9
Two California entities,
the School District and Health Net, negotiated and entered into the contract
at issue in California. The primary subject matter of the contract was
the provision of medical services in California to School District employees.
Morris, a resident of California, and his two sons were beneficiaries of
the contract. These facts show a significant relationship between California
and the contract. The only connection between Utah and the contract is
the fact that Gregory happened to be residing in Utah at the time when
his claim for benefits under the contract arose. Because California has
a more significant relationship to the transaction and the parties than
does Utah, California law should apply in this case. Accordingly, we hold
that the trial court erroneously applied Utah law to Morris's breach of
the covenant of good faith and fair dealing argument.
¶10
Morris also assigns as error
the trial court's grant of Health Net's summary judgment motion. Summary
judgment is appropriate only where no disputed issue of material fact is
present and the moving party is entitled to judgment as a matter of law.
See Utah R. Civ. P. 56(c); Utah Farm Bureau Ins. Co. v. Crook,
980 P.2d 685, 686 (Utah 1999); American Nat'l, 927 P.2d at 188.
The trial judge determined that because Morris's claim was "fairly debatable,"
his cause of action for breach of the covenant of good faith and fair dealing
was precluded, and ruled that as a matter of law Health Net was entitled
to partial summary judgment.
¶11
Again, while Utah law recognizes
the "fairly debatable" defense to actions for the breach of the covenant
of good faith and fair dealing, Utah law is irrelevant on this point. California
law, not Utah law, should apply; thus, the trial court applied an incorrect
legal standard to Morris's action. We therefore reverse the trial court's
grant of partial summary judgment and remand the case to the trial court
for a determination of Morris's claim of breach of the covenant of good
faith and fair dealing under California law.
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¶12
Associate Chief Justice
Durham, Justice Stewart, Justice Zimmerman, and Justice Russon concur in
Chief Justice Howe's opinion.
1. The "Evidence of Coverage" ("EOC") booklet Health Net provided to School District employees defined "out-of-area" services as services provided outside a 30-mile radius from Morris's primary care physicians. Furthermore, the plan defined "emergency services" as those services "provided in connection with an emergency, which is a sudden, serious and unexpected illness, injury or condition, including severe pain, requiring immediate medical attention."
2. A vitrectomy is the taking of a biopsy of the fluid within the eye.
3. Enucleation is the removal of an eyeball in its entirety.
4. Restatement (Second) Conflict of Laws § 6 outlines choice-of-law principles for courts to follow.
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