State Law Private Cause of Action Upheld

Florida’s highest court held that there is a cause of action for breach of a third-party beneficiary contract based on allegations that a health maintenance organization (HMO) violated the state’s HMO Act.

Many states have passed strong consumer protection laws in health care and other areas.  A recent decision of the Florida Supreme Court upheld a private cause of action to enforce one such law in state court.  In addition, cases vindicating consumer rights under federal law may also involve state law claims.  This important Florida state court decision could have important and favorable application in such circumstances.

 

Florida’s highest court held that there is a cause of action for breach of a third-party beneficiary contract based on allegations that a health maintenance organization (HMO) violated the state’s HMO Act.  Foundation Health v. Westside EKG Associates, 2006 WL 2971764 (Fla. Oct. 19, 2006).  While the case involved a suit on behalf of a provider organization, the holding is equally applicable to suits by insured individuals.  Moreover, the principles in this case could be relevant nationwide, based on the common law doctrine that contracts incorporate provisions of state law. 

 

Westside EKG Associates and other providers brought suit against HMOs for violating the Florida prompt-payment provisions of the Florida HMO Act.  The HMO Act sets forth timeframes for payment of claims, mandating that HMOs pay or deny a claim no later than 120 days after receipt and that failure to do so results in an uncontestable obligation for the HMO to pay the claim to the provider.  The providers alleged that the HMOs did not comply with these statutory timeframes.  The HMOs contended that providers had no legal remedy other than administrative relief set forth in the HMO Act.  The trial court dismissed the case for lack of a cause of action to enforce the state law. 

 

The intermediate Florida appellate court reversed.  The court noted that the HMO Act explicitly stated that it did not create a private cause of action for a provider or subscriber against an HMO, but the court concluded that the provider did have a cause of action for breach of contract based on the HMOs’ failure to comply with the applicable state law.  The holding was based on “the common law principle that contracts governed by regulatory statutes are deemed to incorporate relevant portions of such statutes,” unless the contract discloses a contrary intent.  Westside EKG Associates v. Foundation Health, 932 So.2d 214, 216 (Fla. 4th DCA 2005). 

 

The Florida Supreme Court affirmed unanimously, holding that the “medical service providers may bring a breach of contract action as a third-party beneficiary of the contract between the HMO and its subscriber based upon the HMO’s failure to comply with” the HMO Act.  The court noted that the HMO Act did not mandate that the prompt payment provisions be included in the HMO contract, but found that the HMO Act “does not foreclose a common law contract action for breach of the statutorily imposed prompt payment provision.”  The court held that “unless the terms of the individual HMO contract or the HMO Act properly provides otherwise, [the prompt payment provision] may be incorporated as a term in the HMO contract for the purpose of alleging a breach of third-party beneficiary contract claim.”

 

This case is important to insured individuals (who are also third party beneficiaries of the insurance contract), since there are many provisions in the Florida HMO Act that benefit the insured.  For instance, the HMO Act prohibits HMOs from engaging in unfair or deceptive acts and from discriminating based on health status.  Moreover, there have been cases upholding the common law principle of permitting enforcement of state law in breach of contract actions in the District of Columbia and all states except Utah.  Thus, in all states but one, insured individuals may be able to enforce state insurance laws through breach of contract actions.