How long is a long-arm statute?
Should international travel insurers operating within US borders be wary of the use of long-arm statutes? Thomas L. Hudson investigates the possibility
Should international travel insurers operating within US borders be wary of the use of long-arm statutes? Thomas L. Hudson investigates the possibility
In my recent article Contracts speak when PPOs are silent (ITIJ 138, July 2012), I described the Tenet Healthcare case.[1] In December 2011, four Florida hospitals sued a large Canadian insurance company and its affiliated sales agent and assistance company. The hospitals alleged that the defendants had taken improper discounts when paying bills for their insureds. One of the interesting aspects of the case was the use of the Florida Long-Arm Statute to subject the Canadian companies to suit in Florida. Long-arm jurisdiction is based on the defendants’ contacts with the state, and the nature of the contacts will be explored below. The defendants decided not to appeal the use of the long-arm statute, but rather to fight the case on its merits. Well, the fight did not last very long. On 26 June 2012, all parties met with a court-appointed mediator and settled the litigation in a confidential Stipulation of Settlement. Efforts to learn the terms of the settlement have proved futile. Neither the parties nor their counsel will discuss the settlement.
The now-settled litigation was brought by four Tenet hospitals against Co-operators Life Insurance Co. and two of its subsidiaries, TIC Travel Insurance Coordinators Ltd. and SelectCare Worldwide Corp. The hospitals claimed that the defendants had applied unjustified discounts to hospital bills, which smacks of silent PPO (Preferred Provider Organisation) abuse. In fact, early in the litigation, Co-Operators Life filed a third-party claim against Olympus Managed Health Care, Inc., its PPO. Co-Operators Life alleged that if it was liable to the hospitals, it was the fault of its PPO. Of course, Olympus denied the allegations.
While we do not know the terms of the settlement, I am sure the reader can conjure up any number of possibilities. While silent PPO cases are often settled behind closed doors, it is difficult to imagine the Tenet hospitals agreeing to a dismissal without some sort of monetary settlement. However, enough speculation about the settlement! When the suit was dismissed with prejudice (so it cannot be refiled), the court also agreed to vacate its earlier decision to invoke the long-arm statute. The reasons are not known. Keeping this judicial volte-face in mind, this article explains some of the implications for non-US travel insurers regarding the extra-territorial jurisdiction embodied in a long-arm statute.
[1] Delray Medical Center, Inc., Palm Beach Gardens Community Hospital, Inc., Tenet St. Mary’s, Inc. and West Boca Medical Center, Inc. v. Co-Operators Life Insurance Company, TIC Travel Insurance Coordinators, Ltd. and SelectCare Worldwide Corp. v. Olympus Managed Health Care, Inc. (Third-Party Defendant).
Expectation exceptions
Typically, a foreign corporation expects that it is immune from being sued in the US. It expects to be sued where it resides. In the Tenet Healthcare case, Co-Operators and its co-defendants argued that they should be subject to suit in Ontario, Canada, where they are incorporated and headquartered. This is generally true. A corporation – whether foreign or domestic US – is subject to suit where it resides, but there are exceptions to this general rule.
Jurisdiction, or being subject to the power of a court in a place where you do not reside, is usually expanded by conduct or nexus. Conduct is jurisdiction based on some act that occurs in a jurisdiction where the actor would not otherwise be subject to jurisdiction. For example, being involved in a motor vehicle accident subjects one to the jurisdiction where the accident occurred. Jurisdiction can also flow from contractual dealings. If a foreign corporation enters into a contract in a US state, it may be subject to the jurisdiction of the state’s courts in a breach of contract action. Contracts often specify the place of contracting to avoid this result.
Jurisdiction, or being subject to the power of a court in a place where you do not reside, is usually expanded by conduct or nexus
Nexus, however, is the linchpin. It is the basis for a court’s application of a long-arm statute. Nexus is present when a defendant has sufficient contacts in the state where a court is being asked to use its long arm. A foreign insurance company selling travel insurance to policyholders who may travel to the US may find itself being subjected to the jurisdiction of a state or federal court in the US – just as Co-Operators Life was held in by the federal court in Florida. That Co-Operators Life’s sales agency, TIC Travel Insurance, and its assistance company, SelectCare, were held in may be more a plaintiff’s shotgun approach rather than the targeting of the alleged main culprit. And Co-Operators Life did bring in its PPO, Olympus Managed Health Care, and the long arm embraced the PPO as well. These defendants can serve as examples for any non-US companies in the travel insurance business, including a British or European or Latin carrier, and their subsidiaries. The normal business of these companies may fall into the standard categories of conduct covered by a long-arm statute.
Typically, a long-arm statute will grab a defendant that transacts any business or performs any character of work or service in the state in question. This is usually the first prong in any long-arm statute, and it can be the most expansive. In Tenet Healthcare, the court’s opinion stated: “By including Florida in its covered territory, [the Co-Operators Life defendants] personally availed themselves of Florida because they benefit financially from customers who purchase their policies due to the benefits of their nationwide coverage.” It seems to be a stretch to characterise the ‘availing themselves’ argument as amounting to transacting business in Florida. Nevertheless, the basis for long-arm jurisdiction appears to lie, in part, on the defendants purposefully availing themselves of the privilege of conducting business in Florida.
Nexus can also be based on what amounts to fraudulent conduct – that is, the commission of a tort (a civil wrong) in the state in question. In its order, the court stated that the hospitals had alleged sufficient facts to show misrepresentation and tortious interference by the defendants with the hospitals’ contracts with its legitimate PPOs. The court noted the existence of the PPO contracts, the defendants’ knowledge of the hospitals’ relationships with their PPOs, the intentional interference by using a silent PPO to claim a discount, and the resulting damage in lost revenue. This ruling may have had serious consequences for the Co-Operators Life defendants and Olympus, and it may have influenced the settlement. Tortious interference with a contract can support an award of punitive damages; although, in Tenet Healthcare, we do not know if the facts would have supported such an award.
Delving deeper
Another category is contracting to supply services in a state. This is where the analysis starts to get tricky because Co-Operators Life’s SelectCare assistance company probably provided services to Snowbirds inside Florida from outside Florida since SelectCare is not located in Florida. As for the PPO, it would appear that Olympus would have provided services in Florida.[1] In its decision, the court noted the hospitals’ allegations that the defendants contracted to insure persons and risks located within Florida, anticipated that the insureds would travel to Florida, and entered into contracts with third parties to process claims and make payments in Florida. In short, the hospitals described the modus operandi of any travel insurer.
Given its earlier ruling and the allegations of tortious interference, it is unlikely that the court changed its mind about jurisdiction. It is more likely that the court vacated its earlier decision as an accommodation to the Co-Operators Life defendants and Olympus because the case had been settled. However, a court declining to invoke a long-arm statute would base such a decision on those cases where the requisite quantum of minimum contacts was held to be insufficient. Examples abound: a New Jersey manufacturer of cigarette filters could not be sued in Virginia simply because the filters were sold in Virginia; a Massachusetts bank could not be sued in New Hampshire simply for sending inspectors into New Hampshire to determine the progress on a construction project; a defendant could not be held in because the revenue it derived from the forum state was too small; and a Pennsylvania ski resort could not be sued in Maryland by a Maryland resident injured on a ski lift because the resort did not commit resources to marketing in Maryland.
Comparing the Florida contacts of the Co-Operators Life defendants with the randomly selected cases described above, questions arise about the quality and quantity of the defendants’ contacts. Like the cigarette filters, the snowbirds insured by Co-Operators Life ended up in Florida. No personnel of Co-Operators Life entered Florida; only Olympus had personnel in Florida. And the Co-Operators Life revenue attributable to the snowbirds treated at the Tenet hospitals was likely a very small percentage of total revenue. The only case on point for applying Florida’s long arm is the ski resort case. Remember, the court in Tenet Healthcare stated that the Co-Operators Life defendants purposefully availed themselves of the privilege of conducting business in Florida. If the ski resort had actively marketed to Maryland residents, the resort may have been subject to Maryland jurisdiction. Similarly, no travel insurer can argue credibly that it does not market to travellers who will travel into the US.
[1] In any event, Olympus is amenable to suit in Florida because it maintains an office in Florida.
One nation
Long-arm statutes are common to all 50 US states. Frankly, I think that there is a trend in the US to employ the long-arm statute whenever there is a reasonable basis for finding minimal contacts. This may be a function of interstate commerce in the US, and it may signify a global judicial or legislative trend to protect residents when they do business with foreign vendors. Long-arm jurisdiction is embodied in the law of most countries, including all Canadian provinces, which are similar to the US states in how they interpret and apply the requisite quantum of minimum contacts. Also, in the European Union (EU), the concept was laid out in the Treaty of Rome, and it has been codified by the EU in various rulings that are applicable to the member states.
In the US, the concept of extra-territorial jurisdiction embodied in a long-arm statute has influenced lawmakers in Washington to extend personal jurisdiction in securities cases brought by the US Securities and Exchange Commission. It has also been applied in cases involving the US Foreign Corrupt Practices Act and the Sarbanes-Oxley Act with respect to corporate governance practices regulated by the Act. In addition, many aspects of foreign trade draw upon the long arm of the law to bring defendants into a US court. The implications are clear: the application of long-arm jurisdiction in the US is increasing, not shrinking.
To emphasise the trend to hold in foreign defendants by using a long-arm statute, consider the gradual change in the way that US courts have viewed the quantum of minimum contacts based on phone calls and correspondence. In many cases over the years, US courts have held that phone calls and correspondence were not enough to establish the requisite contact because the defendant did not purposefully avail itself of the privileges of conducting business in the forum state simply by using these forms of commercial communication. The court in Tenet Healthcare based its long arm decision, in part, on the allegations that the defendants made material misrepresentations to the hospitals in Florida via telephone calls and facsimiles that the patients were covered by insurance issued by Co-Operators Life and that the services provided to the patients were authorised and would be reimbursed.
there is a trend in the US to employ the long-arm statute whenever there is a reasonable basis for finding minimal contacts
Because so many companies today use email to communicate throughout a country and around the world, agreements executed in cyberspace may result in a defendant finding itself an unwilling party to litigation in a foreign forum. Recently in the US, judges in New York, New Jersey, Maryland and Virginia have held that non-resident defendants had sufficient contacts in their states based in part on email communications. On the other hand, legal trends are usually characterised by fits and starts in any particular direction, and courts in Missouri and Texas as well as other courts in New York and Virginia have reached opposite conclusions.
The implications for foreign insurers clearly include the possibility – perhaps, the likelihood – of being subject to the jurisdiction of a US court if the insurer sells a travel insurance policy to a non-US citizen for whom it pays a US hospital bill. The defenses may include those suggested above if the travel insurer can argue that it had insufficient contacts with the forum state. On the other hand, if the allegations include claims of misrepresentation and tortious interference, there is wrongful conduct being alleged, possibly fraudulent conduct. It would appear that using a silent PPO to take an improper discount would subject travel insurers to the unwelcome embrace of a long-arm statute.