Taqueria El Primo LLC v. Farmers Group, Inc.

Background

The plaintiffs represented a Damages Class and an Injunctive Class of people and entities that purchased certain Farmers automobile-insurance policies in Minnesota on or after January 17, 2013. They asserted claims under the Minnesota Consumer Fraud Act (MCFA), the Minnesota Uniform Deceptive Trade Practices Act (MDTPA), and for breach of contract.

Beginning in 2012, Farmers entered into confidential agreements with certain healthcare providers under which the providers agreed not to bill Farmers for treatment provided to Farmers’ insureds. Some agreements also restricted billing by people associated with the named practices. Farmers did not disclose the agreements or their billing restrictions to consumers, the Minnesota Department of Commerce, or its insurance agents. The plaintiffs alleged that the agreements reduced the value of their insurance policies and violated Minnesota’s No-Fault Automobile Insurance Act.

The parties filed cross-motions for summary judgment. The plaintiffs sought partial summary judgment for the Damages Class, leaving damages for trial, and summary judgment on all claims for the Injunctive Class. The defendants sought summary judgment on all claims. The parties also filed competing motions to exclude expert testimony under Federal Rule of Evidence 702.

Expert-testimony motions

The court denied every motion to exclude expert testimony:

- The defendants’ motion to exclude Akshay R. Rao was denied. The court found that Rao could rely on his marketing expertise and that the absence of a separate survey did not require exclusion. - The defendants’ motion to exclude Michael J. Rothman was denied. The court found that his experience in insurance regulation and industry practices supported his opinions, although some legal or speculative testimony could be addressed later through motions limiting trial testimony. - The defendants’ motion to exclude Allan I. Schwartz was denied. The court found his damages methodology reliable and helpful enough for the jury to consider, while leaving challenges to his assumptions and conclusions for cross-examination and the jury. - The plaintiffs’ motion to exclude Bruce Strombom was denied. The court found that Strombom had sufficiently participated in preparing and supporting his report, even though assistants helped him. - The plaintiffs’ motion to exclude Nancy Watkins was denied. The court found that disputes over the data inputs to her model did not undermine the methodology. However, the court granted the plaintiffs’ request to strike two changes Watkins made to her deposition errata because those changes supplied new answers rather than correcting transcription errors.

Minnesota No-Fault Automobile Insurance Act

The court held that Farmers’ billing-limitation agreements violated the Minnesota No-Fault Automobile Insurance Act. The court rejected the plaintiffs’ argument that the agreements violated the Act merely because they restricted the kinds of medical expense benefits available; the court concluded that the relevant statutory language did not address which providers could furnish those services.

The court nevertheless held that the agreements were prohibited preestablished limitations on medical expense benefits. The court interpreted the Act’s reference to “any preestablished limitations” broadly to include practices that restrict who may be reimbursed for providing covered medical services.

The court also held that the agreements had the effect of providing managed-care services, which the Act prohibits. Although Farmers contracted with providers not to provide services rather than with providers to provide services, the court concluded that the practical effect was similar: insureds could receive services from a subset of providers favored by Farmers. The court described this as reverse-engineered managed care.

Damages Class and Minnesota Consumer Fraud Act

The court held that the Damages Class’s MCFA claim was actionable. An omission-based consumer-fraud claim requires, among other things, an omitted material fact, a duty to disclose, and a causal connection between the violation and damages.

The court found that the billing limitations were material as a matter of law because they violated the No-Fault Act. It rejected the argument that materiality depended only on whether individual consumers personally cared about the restrictions or later repurchased policies after learning about them.

The court rejected the plaintiffs’ theory that the No-Fault Act itself expressly imposed a duty to disclose the billing limitations. It also rejected the theory that Minnesota law automatically imposed a heightened insurance-company duty to disclose under the cited precedent concerning substantial reductions in coverage.

The court did find, however, that special circumstances created a legal or equitable duty to disclose. Farmers actively limited disclosure, consumers had no practical way to learn of the restrictions before purchasing policies and seeking coverage, and Farmers did not disclose the restrictions to the Department of Commerce. The court therefore held that the omission was actionable under the MCFA.

The court declined to grant summary judgment to the Damages Class because factual disputes remained about the causal nexus—the required connection between Farmers’ conduct and any damages—and about whether the plaintiffs suffered damages. The jury could consider the competing expert testimony and could ultimately find that no damages were incurred. The court also left for the jury whether enforcing the private MCFA claim would benefit the public.

The court ruled that the plaintiffs could pursue damages theories involving restitution or disgorgement, meaning recovery based on improperly retained benefits or gains. It rejected Farmers’ argument that the filed-rate doctrine barred the damages theories because Farmers had not disclosed the billing limitations to the Department of Commerce and the agency had not reviewed the services that were or were not provided. The court did grant Farmers summary judgment on the specific theory seeking a full refund of all premiums, finding that the policies had at least some value and that a full-refund theory would require individualized valuation.

Injunctive Class claims

The court granted summary judgment to the Injunctive Class on its MDTPA claim. The court held that continuing to enforce the billing limitations violated the MDTPA because Farmers could no longer certify that its policies complied with the No-Fault Act. It also held that the Injunctive Class had shown the required likelihood of future harm because class members allegedly continued to receive less value from their policies while the restrictions remained in place and had no guarantee that Farmers would not enter similar agreements.

The court enjoined Farmers from enforcing current billing limitations or entering into future billing-limitation agreements in violation of the No-Fault Act.

The court granted Farmers summary judgment on the breach-of-contract claims. The plaintiffs had not identified an express policy term guaranteeing their choice of provider. The court also declined to treat every requirement of the No-Fault Act as part of the insurance contracts merely because the policies certified compliance with that statute.

Farmers Group, Inc. and Farmers Insurance Company, Inc.

The court denied Farmers’ request to dismiss all claims against Farmers Group, Inc. Genuine factual disputes remained about whether Farmers Group, Inc. was involved in the challenged conduct through administrative services, policy drafting, or marketing.

The court granted summary judgment to Farmers Insurance Company, Inc. because the plaintiffs presented no sufficient evidence that it issued automobile-insurance policies to class members or anyone in Minnesota during the class period. The court dismissed all claims against Farmers Insurance Company, Inc.

Disposition

The court granted the Damages Class’s re-filed motion for partial summary judgment and the Injunctive Class’s re-filed motion for summary judgment in part and denied them in part. The court granted the defendants’ motion for summary judgment in part and denied it in part: summary judgment was granted to Farmers Insurance Company, Inc., which was dismissed; summary judgment was granted to the defendants on the breach-of-contract claims; and summary judgment was denied as to the other defendants on the MCFA and MDTPA claims. The case was placed on the court’s next trial calendar. Judge John R. Tunheim ordered judgment entered accordingly.