New York Law Journal
Volume 220, Number 23
Copyright 1998 by the New York Law Publishing Company
Monday, August 3, 1998

Court Decisions
First Judicial Department
New York County Supreme Court

Ia Part 56

MAKASTCHIAN v. OXFORD HEALTH PLANS, INC. QDS:22204305

Justice Crane

Plaintiffs Varoujan Makastchian, Anastasia Makastchian and Caroline Khorsandy nee Levy, (collectively "plaintiffs") move for class certification in this action against defendants Oxford Health Plans, Inc., Oxford Health Plans (NY) Inc., and Oxford Health Insurance, Inc., (collectively, "Oxford"), which allegedly retroactively terminated health care coverage without prior notification. Plaintiffs assert claims for breach of contract, negligent misrepresentation, promissory estoppel, waiver, fraud, and deceptive business practices. They seek equitable and injunctive relief, as well as compensatory damages, attorneys' fees and expenses.

Facts

Plaintiffs obtained health care coverage from Oxford pursuant to a program known as the Freedom Plan. The plan provides the participant with a 30 day grace period to make payments if they fail to pay the monthly premium on time. Plaintiffs claim that they were improperly terminated and that defendants failed to give them proper notification in advance of the termination. Further, plaintiff Levy claims that she received prior authorization for her hospital maternity stay two weeks before delivery, in April, 1996, only to be informed in June 1996 that her coverage was terminated effective February 29, 1996. That termination date was later changed to March 31, 1996, and, after commencement of this suit, to April 30, 1996. Levy claims that throughout the time she was a subscriber, the billing statements were nearly always incorrect, and she was told repeatedly by customer service representatives that they had problems with posting payments but that her account was current.

Mrs. Makastchian was denied benefits on June 5, 1996, one day before her scheduled caesarian section, and was told that her benefits had terminated as of February 29, 1996. Her termination date was also changed to March 31, 1996. Due to the lapse of insurance coverage, the hospital required her to pay cash for her scheduled procedures prior to admission. As a result, she and her husband were forced to collect the necessary funds, and she was unable to go forward with the tubal ligation and hernia operations scheduled at the same time as the caesarian section. Like Levy, the Makastchians were never sent any notification that their coverage would be terminated.

Plaintiffs commenced this action challenging Oxford's policy of retroactively terminating coverage. They seek certification of the class of all subscribers to the Freedom Plan, with a sub class of those 6,299 subscribers who were terminated for non payment of premiums.

Plaintiffs seek injunctive relief for the several hundred thousand subscribers to the Freedom Plan, requiring Oxford to give 30 days written notice to all class members prior to termination of health coverage under the contract. With respect to terminated subscribers, plaintiffs seek to have Oxford estopped from denying coverage where:

(1) procedures were pre certified,

(2) subscribers were misled due to Oxford's inaccurate billing statements, or

(3) Oxford accepted premium payments after the alleged termination date.

In addition, plaintiffs seek a declaration that Oxford's termination of coverage to subscribers who were not given 30 days advance notice is null and void. Finally, plaintiffs seek actual damages sustained by class members, together with costs and attorneys' fees.

General Considerations For Class Action Certification

In determining whether class certification is appropriate, the court must consider the following five elements:

1. the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable;

2. there are questions of law or fact common to the class which predominate over any questions affecting only individual members;

3. the claims or defenses of the representative parties are typical of the claims or defenses of the class;

4. the representative parties will fairly and adequately protect the interest of the class; and

5. a class action is superior to other available methods for the fair and efficient adjudication of the controversy. CPLR 901.

In addition, the court must consider:

1. the interest of members of the class in individually controlling the prosecution or defense of separate actions;

2. the impracticability or inefficiency of prosecuting or defending separate actions;

3. the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;

4. the desirability or undesirability of concentrating the litigation of the claim in the particular forum;

5. the difficulties likely to be encountered in the management of a class action. CPLR 902.

The class action statute is to be liberally construed in order to carry out the legislative intent. In re Colt Indus. Shareholder Litigation v. Colt Indus., 155 AD2d 154 (1st Dept 1990), modified, 77 NY2d 185 (1991). Any error should be in favor of allowing the class action. Pruitt v. Rockefeller Center Prop., 167 AD2d 14 (1st Dept 1991).

Numerosity

Oxford maintains that the negligent misrepresentation, promissory estoppel, waiver, and fraud claims are based on the assertion that Oxford induced the class members to believe that their terminated coverage was still in effect. However, they claim that plaintiffs have made no showing that anyone has such claims against Oxford, including plaintiffs themselves, since they knew their coverage was terminated at the time they received their final billing statements and did not conclude that they still had coverage as a result of receiving that statement. Oxford also maintains that, since it eventually covered the pre authorized services, there were no damages. Therefore, Oxford contends that those causes of action cannot be certified as class claims.

This argument is unpersuasive. Not only are billing statements involved in these causes of action, but also Oxford's pre certification of medical procedures at a time when, according to Oxford's later notification, termination had already taken place. Plaintiffs were initially advised that the termination date was retroactive to a date prior to the approval and provision of pre authorized services. The fact that Oxford later changed the termination date to allow coverage for those expenses does not require denial of class certification regarding those claims even if resultant damages are nominal.

Further, the final billing statements allegedly were misleading. Plaintiffs contend that Oxford continued to send billing statements during the period when, under the retroactive termination notice, no coverage existed, without any indication that the coverage had lapsed. For example, Levy's May billing statement, sent long after the initial February termination date and subsequent March termination date, is alleged to have been misleading.

With respect to the breach of contract claim, Oxford contends that, of the 6,299 potential claimants, only those who unintentionally allowed their coverage to lapse because of Oxford's alleged failure to send them an advance notice of termination should be included in the class. Oxford also would limit the class to those who actually incurred uninsured medical expenses after their termination from the Freedom Plan, because otherwise they were not damaged.

Plaintiffs seek a declaration that Oxford was required to give notice of termination in all cases and to require Oxford to do so in the future. To that extent, all subscribers are appropriately considered in the putative class, which numbers many hundreds of thousands. While it is unknown to what extent the class may have suffered financial damage, that does not preclude class certification on the basis of numerosity. See, Weinberg v. Hertz Corp., 116 AD2d 1 (1st Dept 1986), affd 69 NY2d 979 (1987).

Oxford also claims that plaintiffs fail to establish sufficient numerosity because there have been different versions of the contract governing the Freedom Plan; only those who had plans governed by the version of the contract at issue in the complaint should be part of the class. Although Oxford states that there have been different versions, it does not indicate when they were in effect, nor does it suggest that the provisions regarding termination varied. This information is within Oxford's knowledge and ability to produce. Its failure to do so raises the presumption that, for purposes of class certification, there were no demonstrable differences regarding the notification provisions between the contract at issue and any others which may have been in effect from time to time. Thus, Oxford has failed to raise any cognizable objection on the basis of differing contractual notification obligations to including all subscribers as putative class members.

Accordingly, the number of those in the class include all subscribers to the Freedom Plan, to the extent that the action seeks declaratory and injunctive relief. Inasmuch as that number is at least several hundred thousand, numerosity has been established. The subclass of 6,299 subscribers, who were terminated for non payment of premiums, is also sufficiently large to qualify for class action certification.

Common Questions Of Law And Fact

Oxford claims that individual issues of fact regarding detrimental reliance predominate over issues of law and fact common to the entire class. Oxford further contends that detrimental reliance is a necessary element of the negligent misrepresentation, promissory estoppel and fraud causes of action and to recover compensatory damages under the breach of contract and deceptive business practice claims. Oxford argues that the issues of detrimental reliance can be determined only on an individual basis which precludes class action certification.

There is no question that each class member will have to demonstrate what, if any, monetary loss was sustained. Yet, that portion of plaintiffs' action which seeks injunctive and declaratory relief affects all members of the class. The rules require that common issues predominate. They do not require identity or unanimity among class members. The fact that questions peculiar to each individual may remain after resolution of the common questions is not fatal to a class action. Friar v. Vanguard Holding Corp., 78 AD2d 83, 98 (2d Dept 1980). Where the actual damages of each individual member may easily be computed, differing proof of actual damages among members is insufficient to defeat certification of an otherwise appropriate class. Vickers v. Home Fed. Sav. & Loan Assn., 62 AD2d 1171 (4th Dept 1978). If it develops that the differences are significant, subclasses may be created if needed. Weinberg v. Hertz Corp., supra.

The cases upon which defendants rely are distinguishable. In each of them the individual plaintiffs were seeking only monetary relief based upon their individual reliance upon a representation of the defendants. See, Strauss v. Long Island Sports, 60 AD2d 501 (2d Dept 1978) (plaintiff sought refund of season tickets where advertised star was later traded); Morgan v. A.O. Smith Corp., 233 AD2d 375 (2d Dept 1996) (purchasers of silos not certified as a class since there was no evidence that misrepresented feature was decisive of each purchasing decision); Karlin v. IVF America, 239 AD2d 560 (2d Dept 1997) (class certification denied where misrepresentations of fertility clinic were made individually to each patient making them individual issues); Katz v. NVF Co., 100 AD2d 470 (1st Dept 1984) (class certification denied where plaintiff improperly assumed all shareholders held their stock solely in reliance upon contemplated merger between defendant and another entity).

Here, in contrast, plaintiffs have demonstrated that the overwhelming issue is whether Oxford gives proper notification regarding termination of benefits to people covered under their Freedom Plan. Issues regarding notification apply to all members, past, present and future, regardless of whether they intended to let their policies lapse or whether they suffered any monetary damages. Similarly, the question of Oxford's obligation to notify subscribers of termination is separate from the question of whether a particular member relied upon such a requirement, and qualifies as a common question of law. Reliance would be implicated only as to damages which are secondary. Accordingly, individual questions of reliance, to the extent that they are relevant here, do not justify denial of class status. See, Pruitt v. Rockefeller Center Properties, supra. Additionally, it currently appears that any issues regarding damages of each individual member of the class can be computed easily. Denial of class certification would be improper under such circumstances. See, Vickers v. Home Federal Savings and Loan Assn, supra. Therefore, the common questions predominate over the individual ones.

Typicality Of Named Plaintiffs

Defendant contends that the named plaintiffs are not typical of the class because their individual claims against Oxford are not the same as those they are asserting on behalf of the class. Specifically, Oxford claims that the Makastchians have no claims for fraud, negligent misrepresentation, promissory estoppel, and deceptive business practices because they admitted that Oxford never misled them. Further, Oxford contends that the Makastchians' breach of contract claim is not typical because they allege that they paid their premiums, so Oxford should not have terminated them at all, while, for the class, the complaint alleges that Oxford terminated coverage of individuals who had failed to pay their premiums. Oxford also relies on Mr. Makastchian's deposition testimony in which he admitted that he did not read his contract. It concludes that he could not have relied upon the contract provisions. Besides, Oxford charges that the Makastchians allowed their coverage to lapse "choosing to self insure."

Oxford argues that Levy is also not typical because she, too, claims she paid all of her premiums. It contends that Levy did not rely on the billing statements because she knew her coverage had been terminated. Oxford further maintains, without citing support in the record, that Levy did not have enough money to continue her health insurance. Therefore, even if she had relied on representations by Oxford, this was not to her detriment since she could not pay the premiums.

Oxford has the facts wrong. Levy testified that, although she could not afford coverage from the other plans she investigated after Oxford terminated her, she could afford Oxford's plan. The other plans were $100 or higher per month than Oxford's. (Levy deposition, at 67 68). This is not evidence that Levy was unable to pay her Oxford premiums. In fact, she did pay her May premium.

Oxford's characterization that the Makastchians "chose" to self insure is highly misleading as well. They had no choice but to self insure when, on the eve of childbirth, they discovered that their Oxford insurance was canceled. Finally, the complaint addresses "Class members who were allegedly in arrears," without differentiating between Class members who had, or had not, in fact, paid their premiums. Therefore, Oxford's distinction between the named plaintiffs and the class on the basis of whether premiums were paid is irrelevant.

Oxford is, once again, basing its arguments on the particulars of the individual cases rather than on the broader question plaintiffs present whether Oxford could cancel coverage without providing prior notification. To that extent, the issue of whether the premiums were paid is irrelevant. This question is also unaffected by whether or not the plaintiffs read or relied upon the contract. Stellema v. Vantage Press, 109 AD2d 423 (1st Dept 1985); Weinberg v. Hertz Corp., supra.

It is unnecessary for the claim of a named plaintiff to be identical to those of the class, so long as the representative parties and counsel will adequately protect the interests of the class. Branch v. Crabtree, 197 AD2d 557 (2d Dept 1993). Here, the plaintiffs were both terminated without notice. Each has different potential damages as a result, but both satisfy the requirement of being "typical;" they received no prior notice of termination; they were informed that their termination was retroactive to a date prior to when procedures were pre authorized. Plaintiffs also received billing statements after the termination date which did not indicate that their coverage had been terminated. While Oxford eventually changed Levy's termination date covering her childbirth, its method of termination is still called into question.

Adequate And Fair Representation

Oxford argues that plaintiffs are inadequate class representatives because, on the basis of marital privilege and upon counsel's advice, they refused to answer certain questions at their depositions. Levy refused to answer questions regarding discussions with her husband about her problems with bills from Oxford, her termination of coverage, and her decision to bring this lawsuit. Oxford claims that the assertion of the privilege was improper and is indicative of plaintiffs' inability to provide adequate and fair representation of the class.

In attacking plaintiffs' assertion of marital privilege, Oxford relies on Prink v. Rockefeller Center, (48 NY2d 309 [1979]). There, the Court of Appeals acknowledged that a spousal privilege attaches to conversations during marriage which would not have taken place but for the confidence induced by the marital relationship. Yet, the court refused to allow a surviving spouse to assert this privilege to bar a question relating to her husband's state of mind concerning his suicide. Had the deceased survived, he would not have been entitled to claim a privilege as to his state of mind about an attempt at suicide. So too, his spouse could not claim such a privilege. The circumstances here are not analogous.

The state of mind of no named plaintiff is an issue in this case. Oxford has failed to demonstrate on what basis the marital privilege should be considered waived. Oxford did not seek a court ruling on whether the marital privilege had been waived. Counsel's vigilance in protecting that privilege is indicative of no lack in plaintiffs' ability to protect the interests of class members. Further, contrary to Oxford's assertions, plaintiffs are not refusing to provide Oxford with information relevant to their claims. Oxford may depose Levy's husband as a non party witness, if need be, regarding the billing statements and payments. Therefore, Oxford has failed to demonstrate that plaintiffs' assertion of the marital privilege warrants denial of class certification.

In terms of adequate and fair representation, Oxford repeats its arguments that, since plaintiffs allege that they paid their monthly premiums, their claims are different from those of the proposed class, and they will advance only their own interests, not those of the class. Oxford has not explained, nor can the court discern, how plaintiffs' interests are different from the class interests, and in what respect they will be advancing their own interests rather than those of the class. Further, some of the class members whose health insurance was terminated may also have paid their premiums. As discussed earlier, the named plaintiffs are not required to have claims identical to all the members of the class so long as their interests are not conflicting, and the common questions of law and fact predominate. Here, no conflict has been revealed.

Oxford contends that plaintiffs have failed to demonstrate the necessary financial resources to pursue this action and to answer questions directed to that issue at their depositions, again on the advice of counsel. Oxford is correct that the named plaintiffs must demonstrate that they have the necessary financial resources and that defendants are charged with eliciting the necessary information to make that determination. Pruitt v. Rockefeller Center Prop., supra. However, where a responsible third party has agreed to bear the costs for the plaintiff certification can be granted. Brandon v. Chefetz, 106 AD2d 162, 170 (1st Dept 1985). If the attorney for the class agrees to advance all the costs of litigation, and the plaintiff is obligated to reimburse counsel should the plaintiff lose, the questions concerning the plaintiff's financial status are irrelevant on the issue of class certification. Stern v. Carter, 82 AD2d 321, 341 (2d Dept 1981). Here, plaintiffs acknowledge their ultimate responsibility for the costs of the action and testified that they do not have to pay anything until the case is over. This should suffice for class certification.

Finally, Oxford contends that plaintiffs have failed to pursue this action diligently. Depositions were delayed. Plaintiffs failed to produce requested documents. Plaintiffs strenuously object to this contention. They complain about Oxford's own dilatory tactics and improper practices. Thus, it appears that, at worst, delays have been caused by both sides and do not indicate that plaintiffs are failing to pursue the action with dispatch. Indeed, there already has been substantial litigation. There is no reason to believe that plaintiffs will not continue to be diligent. They are, therefore, appropriate class representatives.

Oxford argues that plaintiffs' counsel already has failed to protect the interests of the class. This demonstrates that he would not be an appropriate class attorney. Oxford maintains that counsel's failure to produce documents concerning other class actions in which he has acted as counsel, and any grievance proceeding or malpractice action brought against him, demonstrate his lack of qualification to represent the class. Oxford's demands regarding documents concerning other class actions are extremely broad; they are improper. Brandon v. Chefetz, 101 AD2d 786 (1st Dept 1984); Mijatovic v. Noonan, 172 AD2d 806 (2d Dept 1991). Accordingly, plaintiffs' counsel was not required to respond to the demands. Furthermore, in his affirmation, he denies the existence of any sanctions, disciplinary actions or malpractice suits against him; he quotes praises from a United States District Judge regarding his handling of a recent class action suit. Additionally, Oxford has failed to justify asking for such information.

Finally, Oxford contends that plaintiffs' counsel places his own pecuniary interests above those of his clients claiming that counsel refused to settle the action unless he received $300,000 in attorneys' fees. Plaintiffs' counsel contradicts this assertion, stating that defendants refused to submit the question of attorneys' fees to the court; this caused the settlement to fall through. Furthermore, counsel's zealous protection of his clients' interests do not reveal him to be incompetent and have not subjected his clients' claims to dismissal, as claimed by defendants. Accordingly, Oxford has failed to demonstrate that plaintiffs' counsel would be inadequate for the class.

Superiority Of Class Action Over Other Available Methods

Oxford contends that a class action would not be superior to individual actions, and that a class action would result in no judicial economy by combining many individual actions. Oxford observes that no other actions have been filed and that the complaint alleges huge medical expenses, as opposed to the relatively small sums which would make a class action more appropriate.

Oxford's arguments are rejected. At the time the action was commenced, Oxford had denied benefits to cover Levy's caesarian section. She was left with several thousand dollars of medical expenses. Later, Oxford reconsidered and paid those pre authorized expenses. Even if Oxford had not paid them, the amount invo1vd was not significant enough necessarily to warrant the expense of an individual legal action.

In determining the propriety of class certification, the court must consider the unlikelihood of claims being filed for what may be a small amount for each class member. Weinberg v. Hertz Corp., supra. Here, there are many class members who have no financial stake in the outcome but do have an interest in resolving whether Oxford is required to provide notice of termination 30 days in advance. This class of people would, obviously, be unlikely to commence separate actions. For those who may have monetary damages, the amounts at issue are likely to be relatively small compared to the expense of individual litigation. Accordingly, not only is a class action superior to any other method, it is the only method that would be practical and effective to address the claims raised. See, Branch v. Crabtree, supra.

Costs Of Notification

Plaintiffs seek to have Oxford bear the costs of notification to class members. They base this on Oxford's causing the problem by a policy of retroactive termination of coverage, and, they claim, plaintiffs' likelihood of success is high. Plaintiffs contend that issuing the notices would not be a major undertaking for Oxford since it has the equipment and staff to contact hundreds of thousands of subscribers every month. The cost would be less burdensome to defendants than to the named plaintiffs.

Oxford argues that notification is usually borne by the plaintiff and the burden should not be shifted. Oxford boasts that it will ultimately prevail because the notice requirement in the policy does not apply to termination for non payment.

CPLR 904(a) provides:

In class actions brought primarily for injunctive or declaratory relief, notice of the pendency of the action need not be given to the class unless the court finds that notice is necessary to protect the interests of the represented parties and that the cost of notice will not prevent the action from going forward.

Only declaratory and injunctive relief is sought for current subscribers to the Freedom Plan. Therefore, they need not be notified. The 6,299 subscribers who were terminated for nonpayment of their premiums, and potentially have a financial stake in the outcome, must be notified.

CPLR 904(c) provides that the court should determine by what method notice should be given. The parties here have not suggested alternative means of notification. They assume that notification should be mailed to individuals whose policies were canceled due to non payment. Oxford has the names and addresses of these people. Therefore, mailing notices to their last known address is appropriate.

Unless the court orders otherwise, the plaintiff is generally required to bear the expense of notification. CPLR 904(d). However, the statute specifically provides for the court to exercise discretion in reaching a determination on this issue "as justice requires." Id. Plaintiffs are people of relatively modest means. Defendants are large corporations involved in mass mailings on a regular basis. Defendants do not deny that their burden would be relatively minimal.

The court must also consider "the likelihood that each will prevail upon the merits." Id. Defendants contend that Part X(B)(2)(a), the termination provisions of the contract requiring Oxford to provide 30 days written notice, does not apply to nonpayment. However, that provision does not specifically exclude non payment from its notification requirements. Additionally, in discussing termination, the policy provides: "If Subscriber fails to make any timely premium payment, coverage shall terminate as set forth in Part X(B)." Accordingly, plaintiffs have shown a likelihood of success on the merits. Under these circumstances, it is appropriate for Oxford to bear the costs of disseminating the class notice, without prejudice to making an application at the conclusion of trial for a reapportionment of such costs, should it be warranted. See, Voelker v. Empire Blue Cross and Blue Shield, 155 AD2d 229 (1st Dept 1989).

Accordingly, class certification is granted. The parties are to settle an order describing the class, providing a copy of the proposed notice, and including details of how notice will be effectuated.

The parties shall appear in Part 56, Room 228, at 10:00 a.m. on July 14, 1998 for the scheduled disclosure conference.

8/3/98 NYLJ 28, (col. 1)

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