United Employer Benefit Corp. v. Department of Insurance & Finance

Citations: 133 Or. App. 477; 892 P.2d 722; 1995 Ore. App. LEXIS 515Docket: 91C-11561; CA A77744

Court: Court of Appeals of Oregon; March 21, 1995; Oregon; State Appellate Court

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Plaintiff United Employer Benefit Corporation (UEBC) appeals a directed verdict favoring defendants Oregon Department of Insurance and Finance (DIF) and Qual-Med Oregon Health Plan (Qual-Med) concerning UEBC's takings claims under both federal and state constitutions, as well as a directed verdict for Qual-Med on UEBC's claim of intentional interference with business relations. The court affirms the verdicts. UEBC, established in 1976 as an insurance marketing agency, developed an insurance trust product to facilitate group life and health insurance purchases for small businesses, which faced challenges acquiring such coverage at competitive rates. The multiemployer trust brought together similar businesses to create larger risk pools. UEBC initially marketed the North American Life and Casualty (NALAC) trust along with health and dental insurance from a California provider before launching the Oregon Employer Benefit Program (OEBP), which included life and disability insurance from NALAC and health insurance from Greater Oregon Health Service (GOHS).

UEBC primarily operated through independent insurance brokers, conducting seminars to promote OEBP. About 90% of OEBP sales were made through these brokers, while UEBC's direct sales accounted for the remaining 10%. UEBC's revenue was mainly derived from administrative fees, including a flat monthly fee per group and per individual for health and dental insurance. Each sale generated valuable customer data, which UEBC processed through United Administrators, Inc. (UAI), a related entity, leading to a substantial competitive advantage in retaining policyholders. By 1990, UEBC had amassed a customer list of 1,152 groups and approximately 11,000 individuals in the Portland area. An oral agreement established between UEBC and GOHS in the 1970s allowed UEBC to market GOHS's health insurance under OEBP, with the option to "roll over" policies to a new insurer upon termination of the agreement, which was never documented in writing.

GOHS entered receivership in March 1990 due to financial difficulties, with the Director of DIF appointed as receiver to manage its assets and facilitate rehabilitation. GOHS was prohibited from issuing new policies, and UEBC had already ceased marketing its health insurance product in 1989 due to concerns about GOHS's financial stability. The receiver identified asset sales as a key step for rehabilitation, determining that individual and employer group policies in the Portland area were the most marketable assets. In May, Qual-Med offered $2 million to purchase these policies, which was accepted after a bidding process. 

Before finalizing the agreement, Qual-Med expressed concerns about competition from Sisters of Providence Good Health Plan, which was attempting to market to GOHS policyholders. After Qual-Med requested DIF to intervene, Good Health Plan voluntarily withdrew its solicitation. Qual-Med's counsel communicated potential risks associated with UEBC possibly redirecting policyholders to other insurers. Qual-Med sought assurances from the Director about protecting the policy transfer. 

On June 22, Qual-Med and GOHS signed a binding agreement to transfer the policies, with Qual-Med agreeing to pay $2 million and assume the risk of the policies effective June 30. The agreement included provisions requiring Qual-Med to notify policyholders of the transfer and offer them replacement coverage. GOHS assured Qual-Med that at least 55% of the transferred enrollees would accept the new coverage, with additional contracts to be transferred if that percentage was not met. The Director approved the acquisition plan on July 10.

GOHS terminated the UEBC-GOHS marketing agreement in early July after UEBC began seeking a new insurance carrier due to concerns about GOHS's viability. UEBC engaged Sisters of Providence Good Health Plan for health insurance and Standard Insurance Company of Oregon for dental insurance and planned to market these offerings to former GOHS policyholders. On July 9, Qual-Med became aware of UEBC's intentions and requested DIF to prevent further solicitation. DIF responded on July 11, warning that any attempt to transition Qual-Med policies would violate the receivership order and would be treated as contempt. Following this, DIF's Director communicated with UEBC and Good Health Plan, emphasizing the need for legal consultation before continuing marketing efforts.

A week later, a meeting occurred involving UEBC, Qual-Med, GOHS, Good Health Plan, and Standard Insurance to address concerns about DIF's press release hindering marketing efforts. The Director urged UEBC to negotiate with Qual-Med, but UEBC reported unsuccessful negotiations. The Director reacted strongly, highlighting the financial implications of the situation. UEBC was subsequently instructed to cease marketing to Portland customers for six months to a year. As a result, brokers avoided rolling over GOHS policyholders for fear of losing their licenses, leading to a suspension of most marketing efforts by Good Health Plan and UEBC, though UEBC continued targeting its own customer base.

By March 1991, DIF relaxed these marketing restrictions, but by then, GOHS was being dissolved, and UEBC sought an injunction against DIF's limitations. After receiving assurances from the state regarding non-interference, UEBC found that its inability to contact GOHS policyholders resulted in a loss of its Portland customer base, estimating a retention of 90% had they been able to market effectively during the interim.

UEBC filed suit against DIF and Qual-Med for inverse condemnation, alleging deprivation of property rights related to a customer list in Portland without compensation, violating both state and federal constitutions. UEBC also claimed tortious interference by Qual-Med, which allegedly asked DIF to restrict UEBC's marketing. The trial court granted directed verdicts for the defendants after determining that UEBC lacked a protected property interest in the customer list and that Qual-Med's actions were not unlawful or tortious. On appeal, the court assessed the evidence favorably for UEBC, questioning the legality of the directed verdicts. While assuming the customer list constituted a property interest and that DIF's actions were state actions, the court rejected UEBC's characterization of those actions as a 'taking.' DIF had warned UEBC that soliciting from the list could lead to contempt proceedings, but UEBC did not challenge these actions or seek remedies, despite other brokers feeling threatened. Ultimately, the court concluded that DIF's threats did not amount to a taking under constitutional law, as they did not render UEBC's property useless.

Many brokers refrained from soliciting customers for UEBC due to fear of repercussions from the Department of Insurance and Finance (DIF), but this does not constitute a taking by DIF. UEBC claims that the trial court incorrectly ruled that Qual-Med’s actions were not wrongful in a tortious interference case. UEBC argues that Qual-Med wrongfully interfered with its business relations by preventing solicitation of Portland customers, though it remains unclear whether this pertains specifically to a contract with GOHS or general business relations. For a claim of intentional interference with prospective business advantage, UEBC must demonstrate that Qual-Med intentionally interfered, acted with improper motives or means, and caused damages beyond mere interference. 

The parties agree that Qual-Med was aware of UEBC's intent to solicit and interfered with that ability, resulting in damage to UEBC. However, they dispute whether Qual-Med’s actions were wrongful. UEBC contends that Qual-Med violated a common law rule, the constitution, and ORS 746.160, while Qual-Med maintains its conduct was lawful. Evidence suggests that the injury to UEBC stemmed from broker reactions to a press release issued by DIF, not directly from Qual-Med's actions. Although Qual-Med expressed concerns about UEBC's marketing and contacted competitors to discourage solicitation, it did not issue the press release itself. The trial court's decision to direct a verdict in favor of Qual-Med on the interference claim is affirmed.

Additionally, UEBC argues that Qual-Med's actions breached the common law rule regarding insurance agents' rights to expiration information and constituted a taking under state authority, violating Article 11, section 4. UEBC further claims violations of ORS 746.160, asserting that Qual-Med's agreement with DIF harmed competition. Qual-Med counters that its actions were a constitutionally protected right to lobby. The court concludes that since Qual-Med’s actions were not wrongful, it need not address the issue of privilege.