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HealthEast Bethesda Hospital v. United Commercial Travelers of America: US District Court : CONTRACT | INSURANCE - health insurer bore risk of mistake regarding policy validity

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 07-02398(DSD/JJK)
HealthEast Bethesda Hospital,
Plaintiff,
v. ORDER
United Commercial Travelers
of America,
Defendant.
Martin D. Kappenman, Esq. and Moore, Costello & Hart, 55
East Fifth Street, Suite 1400, St. Paul, MN 55101,
counsel for plaintiff.
Alan G. Starkoff, Esq., and Schottenstein, Zox & Dunn,
P.O. Box 165020, Columbus, OH 43216 and Jeffrey R. Ansel,
Esq., Justice E. Lindell, Esq. and Winthrop & Weinstine,
222 South Sixth Street, Suite 3500, Minneapolis, MN
55402, counsel for defendant.
This matter is before the court on the parties cross-motions
for summary judgment. Based upon a review of the file, record and
proceedings herein, and for the reasons stated, the court grants
plaintiffs motion.
BACKGROUND
This breach of contract claim arises out of a November 14,
2006, agreement between plaintiff HealthEast Bethesda Hospital
(HealthEast) and defendant United Commercial Travelers of America
(UCT). On June 2, 2005, Nels J. Hansen (Hansen) obtained a
2
Medicare Supplement Insurance policy from UCT. UCT informed
HealthEast that Hansen was covered under its policy on October 7,
2005. HealthEast admitted Hansen to the hospital on October 13,
2005, and cared for him until his death on April 21, 2006.
On October 11, 2006, UCT received a claim from HealthEast
demanding 1,893.40 for Hansens care. UCT referred the claim to
JMAT, Inc. (JMAT), UCTs authorized representative, to negotiate
a settlement. On November 13, 2006, JMAT offered HealthEast
5,514.72 in satisfaction of the 1,893.40 bill, with payment
to be made in ten business days. HealthEast accepted the offer the
next day.
On or about November 17, 2006, UCT requested Hansens medical
records from Burnett Medical Center, the healthcare provider Hansen
used prior to applying for UCT insurance. Upon review of these
records, UCT determined that Hansen had misrepresented his health
history on his June 2, 2005, insurance application. On November
22, 2006, UCT sent a letter to Hansens estate rescinding his
policy. Sometime thereafter, UCT informed HealthEast that it would
not pay the settlement. On April 19, 2007, HealthEast sued UCT in
state court for breach of contract. UCT removed the action to this
court on May 21, 2007, and both parties now move for summary
judgment.
3
DISCUSSION
I. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides
that summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law. See Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). A fact is material only when its
resolution affects the outcome of the case. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if the
evidence is such that it could cause a reasonable jury to return a
verdict for either party. See id. at 252.
On a motion for summary judgment, all evidence and inferences
are to be viewed in a light most favorable to the nonmoving party.
See id. at 255. The nonmoving party, however, may not rest upon
mere denials or allegations in the pleadings but must set forth
specific facts sufficient to raise a genuine issue for trial. See
Celotex, 477 U.S. at 324. Moreover, if a plaintiff cannot support
each essential element of his claim, summary judgment must be
granted because a complete failure of proof regarding an essential
element necessarily renders all other facts immaterial. Id. at
322-23.
4
II. Breach of Contract
UCT argues that the November 14, 2006, contract is voidable
due to alleged mistakes regarding the validity of Hansens policy
and the amount UCT was obligated to pay under the policy.
HealthEast argues that the contract is not voidable and that UCT
breached the contract by refusing to pay the settlement amount.
A mistake is a belief that is not in accord with the facts.
Carpenter v. Vreeman, 409 N.W.2d 258, 261 (Minn. Ct. App. 1987).
If both parties mistook a basic assumption on which the contract
was made [that] has a material effect on the agreed exchange of
performances, the contract is voidable by the adversely affected
party, unless [that party] bears the risk of the mistake. Winter
v. Skoglund, 404 N.W.2d 786, 793 (Minn. 1987) (citing Restatement
(Second) of Contracts 152). If only one party makes such a
mistake, the contract is still voidable, provided the mistaken
party does not bear the risk of mistake and the effect of the
mistake is such that enforcement of the contract would be
unconscionable or the other party had reason to know of the
mistake. Olson v. Shepard, 206 N.W. 711, 712 (Minn. 1926); City
of Lonsdale v. NewMech Co., No. 66-C7-03-001941, 2008 WL 186251, at
*9-10 (Minn. Ct. App. Jan. 22, 2008). A party bears the risk of
mistake when the risk is allocated to him by the agreement, by the
court on the ground that it is reasonable to do so, or if he is
aware, at the time the contract is made, that he has only limited
5
knowledge with respect to the facts to which the mistake relates
but treats his limited knowledge as sufficient. Restatement
(Second) of Contracts 154; see Hy-Vee Food Stores v. Minn. Dept
of Health, 705 N.W.2d 181, 191 (Minn. 2005) (Restatement (Second)
of Contracts used to analyze assumption of risk of mistake). The
court examines evidence of mistake with particular care and only
reluctantly allows a party to avoid a contract on the ground of
mistake. See Gethesmane Lutheran Church v. Lutheran High Sch.
Assn of Greater St. Paul, 258 N.W.2d 645, 649 (Minn. 1960);
Restatement (Second) of Contracts 152 cmt. a, 153 cmt. a.
In this case, the court assumes that the alleged mistakes
occurred and materially affected basic assumptions upon which the
contract was made. The November 14, 2006, contract, however, is
not voidable because UCT bore the risk of the mistakes. UCT, a
sophisticated party in the business of assessing risks, was in the
best position to know whether Hansens policy was valid as well as
the amount UCT was obligated to pay under the policy. See Norwest
Bank Minn., N.A. v. Verex Assurance, Inc., No. C8-95-2292, 1996 WL
363371, at *3 (Minn. Ct. App. July 2, 1996) (insurer bore risk of
mistake because in best position to evaluate); see also Zontelli &
Sons, Inc. v. City of Nashwauk, 373 N.W.2d 744, 752 (Minn. 1985)
(defendant bore risk of mistake because he could have learned of
the [mistaken] requirements, and plaintiff had no duty to
investigate and ... had the right to rely on [defendants] bid);
6
Beck v. Plastic Prods. Co., 412 N.W.2d 315, 319 (Minn. Ct. App.
1987). UCTs later acquisition of the information necessary to
assess the validity of Hansens policy and the amount UCT owed
demonstrates its ready access to such information. UCTs belated
investigation also suggests that UCT was aware of its limited
knowledge of Hansens policy at the time it negotiated the
settlement agreement, but nevertheless proceeded with the
information it had. Unlike UCT, HealthEast had no duty to
investigate the validity of Hansens policy and had a right to rely
on the representations made by UCT during the settlement
negotiations. See Zontelli & Sons, Inc., 373 N.W.2d at 752;
Restatement (Second) of Contracts 157 cmt. a (During the
negotiation stage each party is held to a degree of responsibility
appropriate to the justifiable expectations of the other.).
Therefore, the court determines that it is reasonable to allocate
the risk of the mistakes to UCT and the November 14, 2006, contract
is not voidable. Accordingly, UCTs failure to perform under that
contract constitutes a breach, and UCT is liable to HealthEast for
5,514.72, plus interest at the rate of six percent per year from
November 28, 2006. Minn. Stat. 334.01 (2008).
7
CONCLUSION
Based upon the file, record and proceedings herein, and for
the reasons stated, IT IS HEREBY ORDERED that
1. Plaintiffs motion for summary judgment [Doc. No. 42] is
granted.
2. Defendants motion for summary judgment [Doc. No. 50] is
denied.
LET JUDGMENT BE ENTERED ACCORDINGLY
Dated: October 16, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court
 

 
 
 

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