The Supreme Court filed a very interesting decision on May 31, 2019 in the case of Robert W. Milas, M.D. v. Society Insurance and Angela Bonlander.
Dr. Milas brought a lawsuit against a workers’ compensation insurance company and one of its adjusters alleging that they went back on a promise to pay Dr. Milas $14,325.87 for a complex neck surgery, and that those actions constituted both breach of contract and fraudulent misrepresentation.
Dr. Milas is a board-certified neurosurgeon in the Quad Cities. The disputes began when Society Insurance hired Dr. Milas to perform a neck surgery for an injured worker.
Dr. Milas had never dealt with the work comp insurance company before and sent a written form to the adjuster for the work comp insurance company asking for pre-authorization of his fees of $14,325.87. The adjuster signed the authorization form on behalf of the insurance company and returned the signed form to Dr. Milas. A critical factor that would come back to haunt Dr. Milas was that his pre-authorization agreement could be interpreted to mean that the insurance company was authorizing the surgery, but was not necessarily promising to pay the quoted price of $14,325.87.
Dr. Milas’ lawyers presented evidence that the work comp adjuster and her supervisor did interpret the agreement to mean that they were promising to pay the $14,325.87.
Dr. Milas’ lawyers also put on evidence that the work comp insurance company never intended to pay him his full charge. Instead the insurance company’s standard procedure for dealing with all medical expenses was to have a company called Health Systems, International negotiate the medical bills down. Health Systems, International was paid 23% of the reductions that it was able to obtain from medical care providers.
Dr. Milas performed the surgery and submitted his bill for $14,325.87. The insurance company first counteroffered to Dr. Milas with a proposal to pay $4,604.99. After Dr. Milas refused to accept that amount, the work comp insurance company reduced its offer to $1,620.52.
Dr. Milas brought a lawsuit against the work comp insurance company and the adjuster arguing:
- That Dr. Milas was entitled to $14,325.87 from the Defendants based on their breach of the written agreement they had signed preauthorizing the surgery.
- That the work comp insurance company and the adjuster had committed fraudulent misrepresentation because they “tricked” Dr. Milas into performing the surgery even though the company never intended to pay Dr. Milas the $14,325.87 price he quoted. If Dr. Milas could succeed with the fraudulent misrepresentation claim he would be entitled to punitive damages above and beyond the breach of contract damages.
The lawsuit proceeded to a jury trial. The presiding trial judge ruled against submitting the fraudulent misrepresentation and punitive damages claims to the jury. The judge did allow the jury to consider whether there had been a breach of contract. The jury did find that the workers’ compensation insurance company and the adjuster had entered into a contract to pay Dr. Milas $14,325.87 for the surgery, and that Dr. Milas was entitled to damages from the insurance company and adjuster for $14,325.87.
Dr. Milas appealed to the Iowa Court of Appeals arguing that the ruling to not allow the jury to consider the fraudulent misrepresentation and punitive damages claims was incorrect.
The Court of Appeals analysis began by pointing out that Dr. Milas had to prove seven elements in order to establish fraudulent misrepresentation:
- Intent to deceive.
- Justifiable reliance.
- Resulting injury and damages.
The elements of scienter and intent to deceive are the keys to fraudulent misrepresentation and are very similar. Scienter and intent to deceive can be established when it is shown that the defendant had actual knowledge of the falsity of the representations or spoke with reckless disregard of whether those representations were true or false. The Court of Appeals felt that the fact that the adjuster knew that Dr. Milas’ bill would be submitted to a bill review company did not show a misrepresentation, because a party to a contract is always entitled to ask if the other party is willing to take a lower payment.
Dr. Milas then filed a Petition for Further Review to the Iowa Supreme Court. Only a small percentage of Petitions for Further Review are granted by the Supreme Court, but the Supreme Court did grant the request for further review in Dr. Milas’ case.
The Iowa Supreme Court has seven members. At the time Dr. Milas’ case was argued to the Supreme Court Justice Daryl Hecht was still serving on the Supreme Court. Unfortunately, Justice Hecht developed severe health problems and had to step down from the Supreme Court in December of 2018 and passed away on April 3, 2019.
Christopher McDonald was appointed to replace Justice Hecht on February 20, 2019 but had not been involved in the arguments and deliberations in Dr. Milas’ case.
Therefore, the Supreme Court’s decision was issued with just six members of the Court participating. The Supreme Court vote was three Justices in favor of affirming the Court of Appeals’ Decision; and three Justices in favor of reversing the Court of Appeals’ Decision and allowing the fraudulent misrepresentation and punitive damages claims against the work comp insurance company to be relitigated to a jury. Under Iowa law if the Supreme Court is evenly divided on a case, the previous highest court’s decision is affirmed by operation of law. Therefore, Dr. Milas will not be given the opportunity to present his misrepresentation and punitive damages arguments to a jury.