Blaik v. Health Care Service Corporation

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

A.B. a minor child, by and through her )

Parent and Legal Guardian SHERRI )

BLAIK, and SHERRI BLAIK, )

Individually, )

)

Plaintiffs, )

)

v. ) Case No. CIV-19-968-D

)

HEALTH CARE SERVICE )

CORPORATION, a Mutual Legal )

Reserve Company, d/b/a/ BLUE CROSS )

BLUE SHIELD OF OKLAHOMA, )

)

Defendant. )

O R D E R

Before the Court is Defendant Health Care Service Corporation’s Motion to Dismiss

Plaintiffs’ Second Amended Complaint [Doc. No. 41], filed under Fed. R. Civ. P. 12(b)(1)

and 12(b)(6).1 Plaintiffs have filed a Response [Doc. No. 44], and Defendant has replied

[Doc. No 47]. Thus, the Motion is fully briefed and at issue.

Background

The Second Amended Complaint [Doc. No. 33] was filed pursuant to the Order of

July 17, 2020, granting a prior motion to dismiss with leave to amend. See 7/17/20 Order

[Doc. No. 24] (hereafter, “July Order”). The reader’s familiarity with the July Order is

1 The Court authorized Defendant to file its Motion under seal to prevent a disclosure of

protected health information of the minor child. The parties’ subsequent briefs regarding the

Motion did not disclose protected information and were not sealed. The Court finds that this Order

also may be publicly filed.

presumed; a recitation of the factual and procedural background stated there will not be

repeated. Briefly, the original Complaint and the Amended Complaint asserted tort claims

by Plaintiff Sherri Blaik on behalf of herself and her minor child, A.B., for breach of an

insurer’s duty of good faith and fair dealing based on Defendant’s alleged mishandling of

claims submitted by A.B.’s medical care providers under a health insurance policy.2 In the

July Order, the Court found that Ms. Blaik lacked standing to bring a bad faith claim

because only A.B. was insured under the policy, and that the Amended Complaint failed

to state a plausible bad faith claim for A.B.

Plaintiffs have endeavored to cure the deficiencies found by the Court through the

Second Amended Complaint, which now asserts claims for breach of contract and bad faith

by Will Blaik and Sherri Blaik (A.B.’s parents) and by A.B. based on a number of

additional allegations. By the Motion, Defendant asserts that Plaintiffs’ effort nonetheless

fails and that the same flaws, and some new ones, doom the amended pleading. Plaintiffs,

of course, disagree. The Court proceeds to consider the issues presented, applying the same

standards of decision previously stated. See July Order at 4-5.3

2 This case rests on diversity jurisdiction and is governed by Oklahoma law.

3 The Court notes that the Second Amended Complaint is also a supplemental pleading,

providing facts that developed after the case was filed and advancing theories of recovery based

on those facts. Defendant does not object to Plaintiffs’ pleading on this basis so the Court does

not address this change.

Discussion

A. Plaintiffs Will and Sherri Blaik’s Standing

Defendant asserts that A.B.’s parents lack standing to sue for any breach of

contract or bad faith conduct because “A.B. is the only insured under the policy, and

therefore the only person who has standing to bring claims related to the policy.” See

Mot. Dismiss at 2 (internal quotation omitted); Reply Br. at 1 (“A.B. alone is an insured

under the contract.”). Defendant contends its contractual and common law duties run

only to its insured, A.B., for whom the insurance policy was purchased and who is the

only person covered by the policy. Defendant’s standing argument – although asserted

under Rule 12(b)(1) – is not a jurisdictional matter. Defendant does not challenge

whether A.B.’s parents have constitutional standing to challenge its denial of A.B.’s

health insurance claims, but whether they have a cognizable right to relief. Defendant

asserts that A.B.’s parents cannot sue for any breaches of duties owed only to A.B.4

4 Standing encompasses several doctrines, only one of which is constitutional standing –

an element of the “case or controversy” requirement of Article III of the Constitution – that

constitutes a jurisdictional requirement. See VR Acquisitions, LLC v. Wasatch Cnty., 853 F.3d

1142, 1146 (10th Cir. 2017). Other doctrines include prudential and statutory standing, which

are not jurisdictional. See Niemi v. Lasshofer, 770 F.3d 1331, 1345 (10th Cir. 2014); see also

Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1387-88 (2014). “One

element of prudential standing is the general prohibition on a litigant’s raising another person’s

legal rights.” Commonwealth Prop. Advoc., LLC v. Mortg. Elec. Registration Sys., Inc., 680 F.3d

1194, 1201 (10th Cir. 2011) (internal quotation omitted). Defendant arguably challenges the

prudential standing of A.B.’s parents to assert their child’s rights. However, in a somewhat

analogous case addressing whether a foster child of a named insured could bring a bad faith claim,

the Tenth Circuit viewed the issue as a matter of statutory or contractual standing:

[T]he term “standing,” as used by the parties and the controlling case law . . . , is

meant in its ordinary sense of statutory or contractual standing – i.e., being in a

position to assert or enforce legal rights or duties – and not in the sense of Article III

Unlike the Amended Complaint, which asserted only bad faith claims that were

dismissed by the July Order, the Second Amended Complaint also asserts breach of

contract claims and the question now presented is whether A.B.’s parents can assert such

a claim. In an apparent change of position from prior litigation and prior pleadings in

this case, Mr. and Mrs. Blaik contend they are parties to or third-party beneficiaries of

the insurance contract due to A.B.’s status as a minor and incompetent person and their

parental obligation to provide her necessary care and support. Defendant argues that

judicial estoppel prevents a change of position at this point, and that the parents lack a

sufficient basis to claim contractual rights under A.B.’s insurance policy.

1. Judicial Estoppel

Defendant asserts that the doctrine of judicial estoppel “bars [Mr. and Mrs. Blaik]

from arguing they are parties to A. B.’s policy.” See Def.’s Mot. at 14, n.6. Defendant

relies on earlier litigation between the parties, A.B. ex rel. Blaik v. Health Care Serv.

Corp., Case No. CIV-14-990-D (W.D. Okla. Sept. 14, 2014), that was ultimately settled

and dismissed. Defendant contends that, because the Court denied its motion for

summary judgment in the first case based, in part, on an assertion that A.B. was the

insured, “Plaintiffs cannot now argue that Mr. and Mrs. Blaik are the true policyholders.”

See Def.’s Mot. at 14-15 n.6.

standing. This type of standing goes to the merits of the claim and not the

jurisdiction of this Court to hear it in the first instance.

Colony Ins. Co. v. Burke, 698 F.3d 1222, 1229 n.6 (10th Cir. 2012). Regardless of terminology,

neither prudential nor statutory or contractual standing affect subject matter jurisdiction; thus, the

issue is not governed by Rule 12(b)(1). See Niemi, 770 F.3d at 1346.

“Judicial estoppel is an equitable remedy designed to protect the integrity of the

judicial process by prohibiting parties from deliberately changing positions according to

the exigencies of the moment.” Asarco, LLC v. Noranda Mining, Inc., 844 F.3d 1201,

1207 (10th Cir. 2017) (quoting New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001)).

Defendant, as the party seeking to invoke the doctrine, bears a heavy burden “to show

the need for its application” because it is “a ‘powerful weapon’ to be used only when

less forceful remedies are inadequate.” Id. at 1207-08 (quoting Vehicle Mkt. Research,

Inc. v. Mitchell Int’l, Inc., 767 F.3d 987, 993 (10th Cir. 2014)). The Tenth Circuit has

stated that “[t]hree factors typically inform a court’s decision to judicially estop a party”:

First, a party takes a position that is clearly inconsistent with its earlier

position. Second, adopting the later position would create the impression

that either the first or the second court was misled. And third, allowing the

party to change its position would give it an unfair advantage or impose an

unfair detriment on the opposing party if not estopped.

Id (internal quotations and citations omitted); see BancInsure, Inc. v. FDIC, 796 F.3d

1226, 1239-40 (10th Cir. 2015). Further, Defendant bears the burden to establish its

affirmative defense by identifying “allegations in this lawsuit that were clearly

inconsistent with [specific] statements” in the prior case. See Vehicle Mkt. Research,

767 F.3d at 999; see also BancInsure, 796 F.3d at 1240 (“judicial estoppel only applies

when the position to be estopped is one of fact, not one of law”).

Upon consideration of Defendant’s arguments regarding judicial estoppel, the

Court finds that Defendant has failed to carry its burden at this stage of the case. The

Court assumes, without deciding, that Defendant can rely on statements in the earlier

case as matters subject to judicial notice that are appropriate for consideration under

Rule 12(b)(6). Defendant does not acknowledge or address in its briefs the three factors

that guide the judicial estoppel analysis. Thus, Defendant has not shown that judicial

estoppel should bar a breach of contract claim by A.B.’s parents in this case.

2. Contractual Rights

Defendant asserts that A.B. was the applicant for the policy, the sole insured, and

thus the only party with contractual rights under the policy. To establish the first point

regarding the insurance application, Defendant provides materials outside the Second

Amended Complaint. See Def.’s Mot. at 4; McMillin Decl. [Doc. No. 41-1, ¶¶ 4-8 &

Ex. 3. Defendant does not point to any allegations in Plaintiffs’ pleading to support its

argument that A.B. was the applicant for the policy, and the Court has found none.

Defendant identifies no basis for considering this material under Rule 12(b)(6). Thus,

the Court does not reach this issue in ruling on Defendant’s Motion.

Turning to the policy itself, Plaintiffs attach to the Second Amended Complaint a

group of documents that allegedly constitute the health insurance policy covering A.B.

See Second Am. Compl., Exs. 1-3 [Doc. Nos. 33-1, 33-2 and 33-3] (hereafter cited as

the “Policy”). The documents are a form “Health Check Select Care” policy and contain

no information regarding any specific individual. Defendant agrees these documents

constitute the insurance policy. See Def.’s Mot. at 5 (describing Doc. No. 33-1 as

“A.B.’s insurance contract”). Thus, the documents can properly be considered.

Plaintiffs claim that Mr. and Mrs. Blaik have contractual rights under the policy

as either insureds or third-party beneficiaries. Under Oklahoma law, to determine an

insurer’s contractual obligations to a claimant, a court “must examine the provisions of

the policy.” See May v. Mid-Century Ins. Co., 2006 OK 100, ¶ 22, 151 P.3d 132, 140.

An insurance policy is a contract of adhesion and “is liberally construed, consistent with

the object sought to be accomplished, so as to give a reasonable effect to all of its

provisions, if possible.” Dodson v. St. Paul Ins. Co., 1991 OK 24, 812 P.2d 372, 376.

“The terms of the parties’ contract, if unambiguous, clear, and consistent, are accepted

in their plain and ordinary sense, and the contract will be enforced to carry out the

intention of the parties as it existed at the time the contract was negotiated.” Id. at 376;

see May, 2006 OK 100, ¶ 22, 151 P.3d at 140 (“Where the language of a contract is clear

and unambiguous on its face, that which stands expressed within its four corners must

be given effect.”).

The policy in this case, as noted above, does not identify any insured; it merely

contains a general certificate of coverage under a group insurance contract issued to a

financial institution. See Policy at 1. Covered persons are “called Subscribers (or you,

your)” and consist of all persons who have applied for and paid for coverage, have

satisfied conditions of eligibility and enrollment, and have been approved by “Blue

Cross and Blue Shield of Oklahoma (called the Plan, we, us, or our).” See id.; see also

id. at 71 (defining Member) and 74 (defining Subscriber). Defendant agrees to pay for

covered services, according to a schedule of benefits, that “you receive from a Hospital,”

physician, or other provider. Id. at 24, 25, 39, 42. Thus, the policy provides payment

for medical treatment that a covered person receives from a service provider. “Only

Subscribers are entitled to Benefits from [the Plan] and they may not transfer their rights

to Benefits to anyone else.” Id. at 51. Payments due under the policy may be made

directly to service providers or to the subscriber, but again, the subscriber “cannot assign

[his or her] right to receive payment to anyone else.” Id. at 52. A subscriber can

designate an authorized representative to act on his or her behalf in pursuing a claim or

appeal. Id. at 58, 62.

The factual allegations of the Second Amended Complaint make clear that the

only covered person under the policy is A.B., the individual receiving medical services.

Mr. and Mrs. Blaik purchased the policy in A.B.’s name shortly after her birth because

they were informed that separate “coverage in the child’s name would provide them

better coverage for their children’s needs” and “[t]his option was designed and marketed

to better cover the parents’ medical expenses for a child’s treatment.” See Second Am.

Compl. ¶¶ 8-9.5 A.B. is now 12 years old, but she “lacks capacity not only as a minor

but due to her permanent, physical, neurological deficit from a congenital brain defect.”

Id. ¶¶ 2, 13; see id. ¶ 35 (describing A.B.’s condition). Due to A.B.’s incapacity, her

parents “are the persons contracting with BCBS for this indemnity coverage for medical

bills, the persons that pay for this coverage for the medical expenses which they may

incur, [and] the persons that make and handle claims to BCBS pursuant to their contract

with BCBS . . . .” Id. ¶ 14.6 Plaintiffs state that having health insurance for A.B.’s

medical care serves to protect her parents’ interests and indemnifies them because they

5 Applying the Rule 12(b)(6) standard of decision (see July Order at 4), the Court accepts

as true the facts alleged in the Second Amended Complaint.

6 The omitted portion of the quoted material states that A.B.’s parents are “insured parties

that contracted with this Defendant to cover this risk of loss that falls on Mr. and Mrs. Blaik.”

Id. This allegation of insured status is a legal conclusion that need not be accepted as true.

are otherwise obligated to pay her medical expenses. Id. ¶ 18. A.B.’s parents state their

reason for purchasing the insurance policy was “to cover their legal responsibility for

the payment of any medical expenses that they incurred for the appropriate and necessary

treatment of their daughter.” Id. ¶ 19; see id. ¶¶ 29-31 (Mr. and Mrs. Blaik’s economic

interests and legal obligations were protected by the policy and their intent in purchasing

it was to benefit themselves). A.B.’s parents have “paid all the premiums for this policy

coverage, handled all claims for indemnification under the policy, authorized and

provided all necessary medical care for A.B., and were the persons legally responsible

for the medical expenses indemnified by this policy.” Id. ¶ 32.

Despite these factual allegations, the Court finds that the provisions of the policy

do not permit a conclusion that A.B.’s parents are, or should be deemed, insureds. The

policy reflects an intent to provide health insurance for A.B.; no other person’s medical

services are covered by the policy. By its terms, A.B.’s parents have no right to receive

any payment under the policy. A payment made to anyone other than a service provider

would be payable to the subscriber, A.B., and received by A.B.’s parents on her behalf.

Although A.B.’s parents benefit from the policy to the extent Defendant’s insurance

payments may satisfy their parental obligation to provide A.B.’s support, or reimburse

them for payments they have made for her medical services, the benefit to them is only

an indirect one. Thus, the insurance contract does not support a finding that A.B.’s

parents are insureds under the policy.

A.B.’s parents attempt to avoid this conclusion by alleging in the Second

Amended Complaint, and arguing in their brief, that A.B. cannot make any contracts due

to a lack of legal capacity and thus they are the contracting parties to any insurance

policy made on her behalf. See Second Am. Compl. ¶ 14 (“Because A.B. lacks the

capacity, Mr. and Mrs. Blaik are the persons contracting with BCBS . . .”), ¶ 22 (“Only

BCBS and Mr. and Mrs. Blaik could be parties to this contract.”); see also Pls.’ Resp.

Br. at 21-23. Plaintiffs primarily rely on common law doctrines regarding the parent-

child relationship and a statute that authorizes a third person to “supply [a child’s]

necessaries and recover the reasonable value thereof from the parent.” See Pls.’ Resp.

Br. at 23 (quoting Okla. Stat. tit. 43, § 209.2). As the parents liable for A.B.’s necessary

care, Mr. and Mrs. Blaik claim to stand “in a derivative policyholder position” and to

have a contractual interest in enforcing the policy against Defendant. See id. at 24-25

(quoting Ateyeh v. Volkswagen of Florence, Inc., 288 S.C. 101, 103, 341 S.E.2d 378,

379 (1986)).7

Upon consideration, the Court concludes that the only principled way of finding

the existence of a contractual relationship between A.B.’s parents and Defendant is to

deem the parents to be the contracting parties in place of A.B. due to her alleged lack of

capacity to make a contract. Plaintiffs have not persuaded the Court of a legal basis for

7 Defendant contends Ateyeh represents a minority view and should be disregarded. See,

e.g., United Fire Ins. Co. v. McClelland, 780 P.2d 193, 198 (Nev. 1989) (declining to follow Ateyeh

and adopting California view). The Court does not reach this argument because the facts of Ateyeh

are distinguishable. The plaintiff in that case was seeking to enforce her deceased spouse’s

health insurance policy. The South Carolina Supreme Court relied on the necessaries doctrine

and a state statute creating spousal liability for medical expenses, and held that the surviving

spouse could sue the insured’s health insurer for payment of his medical expenses. The court

found that a “derivative” relationship existed between the surviving spouse and the insurer that

allowed her to assume the position of policyholder and enforce the policy after his death. This

case does not present a survivorship issue.

this leap. Plaintiffs cite in their pleading a statute that prevents a minor from

disaffirming certain contracts. See Second Am. Compl. ¶ 10 (citing Okla. Stat. tit. 15,

§ 20). But Plaintiffs do not otherwise address, in any manner, Oklahoma statutes that

expressly authorize contracts by minors and mentally disabled persons. See Okla. Stat.

tit. 15, §§ 17-18, 22-23.8 Further, a finding that A.B.’s parents are insureds under the

policy would require the Court to disregard the policy language and the expressed

intention of the parties (consistent with the factual allegations of the Second Amended

Complaint) to obtain a health insurance policy that insured only A.B.

A.B.’s parents alternatively claim a contractual relationship with Defendant as

third-party beneficiaries of the insurance policy because it was made for their benefit.

See Second Am. Compl. ¶ 26. Oklahoma case law holds that a third-party beneficiary

of an insurance policy may have sufficient contractual rights to sue the insurer, such as

the named beneficiary of a life insurance policy. See Roach v. Atlas Life Ins. Co., 1989

OK 27, ¶ 8, 769 P.2d 158, 161. In assessing third-party beneficiary status, “the insured’s

reason for purchasing the insurance policy determines if the required contractual

relationship exists.” See Rednour v. JC&P P’ship, 2000 OK CIV APP 10, ¶ 6, 996 P.2d

487, 489. The third-party beneficiary need not be expressly named, but “the intention

of the parties to the contract as reflected in the contract . . . must provide the answer to

8 The statutes regarding mental disability distinguish between persons “without

understanding” and “of unsound mind;” the latter can make contracts “before his incapacity has

been judicially determined.” See Okla. Stat. tit. 15, § 23. The Second Amended Complaint makes

conclusory allegations that A.B. “lacks capacity” without attempting to identify her degree of legal

disability.

the question of whether the contracting parties intended that a third person should receive

a benefit that might be enforced by the courts.” Id. ¶ 8, 996 P.2d at 489 (quoting Keel

v. Titan Constr. Corp., 1981 Okla. 148, ¶ 5, 639 P.2d 1228, 1231); accord Gianfillippo

v. Northland Cas. Co., 1993 OK 125, ¶ 10, 861 P.2d 308, 309 (passenger was not third-

party beneficiary of driver’s insurance policy; the policy “was intended for the benefit

of the insured [driver]” and “benefitted [passenger] only incidentally).

The Court finds that for Mr. and Mrs. Blaik, like the claimant in May, the

insurance policy expressly negates any contractual relationship with the insurer, and the

analysis ends there. See May v. Mid-Century Ins. Co., 2006 OK 100, ¶ 24, 151 P.3d 132,

140. The Oklahoma Supreme Court addressed in May the question of whether the owner

of an individual condominium unit had a contractual relationship with an insurer that

provided property insurance to the condominium owners’ association. The owner was

not a named insured under the policy, but the policy provided coverage for property loss

and fire damage to her unit. The insurance policy contained a loss payment provision

that gave “Insurer the exclusive choice to settle the covered losses directly with the unit

owners or with the Association for the account of the unit owners.” May, 2006 OK 100

¶ 24, 151 P.3d at 140. Based primarily on this provision, the supreme court held that

“[t]he contract’s expressed intent to confer solely on Insurer the power to regard all

contractual obligations due under the policy as extending to the named insured

specifically negates the existence of any enforceable obligation in favor of unit owners

qua third-party beneficiaries.” Id. (emphasis omitted). The court found it “crystal-clear

from the terms of the policy” that that “the parties to the policy – Insurer and [the

insured] Association – did not intend to confer on any third-party unit owner a legally

enforceable right of recovery against Insurer.” Id. ¶ 24, 151 P.3d at 140-41.

Similarly here, the policy allowed Defendant to pay either the health care provider

or A.B., but prevented a transfer of A.B.’s benefits or assignment of her payment rights

to anyone else. A.B.’s parents had no legally enforceable right of recovery against

Defendant under the policy for payment of a covered claim. The Court is persuaded by

the Oklahoma Supreme Court’s analysis in May that A.B.’s parents cannot be treated as

third-party beneficiaries of the policy even though it may have inured to their benefit.

The supreme court summarily rejected in May a similar argument by the condominium

owner because the insurance policy’s payment provision precluded the argument: “No

obligation may be imposed upon a promissor in favor of a third party if the contract

expressly relieves that promissor of such liability to that third party.” May, 2006 OK 100

¶ 24, 151 P.3d at 140 (emphasis and footnote omitted). The court reasoned:

A third-party beneficiary’s rights depend upon, and are measured

by, the terms of the contract between the promissor and promisee. One to

whom, by the express terms of a contract, no obligation is due from its

promissor, cannot qualify for the status of an intended or implied third-

party beneficiary. The express contractual negation of the promissor’s

duty to the third-party status seeker operates to exclude that third party

from legal recognition as third-party promisee.

May, 2006 OK 100 ¶ 25, 151 P.3d at 141 (footnotes omitted).

For the same reason in this case, the Court finds that A.B.’s insurance policy

expressly bars any contractual obligation by Defendant to A.B.’s parents and thus they

cannot qualify as third-party beneficiaries of the policy.

In summary, as discussed infra, the Second Amended Complaint properly asserts

a breach of contract claim by A.B., acting through Mrs. Blaik as her parent and legal

guardian, to recover damages for unpaid claims or services allegedly covered by A.B.’s

insurance policy. Plaintiffs have failed to demonstrate a viable legal basis for Mr. and

Mrs. Blaik to personally assert their own individual breach of contract claims to recover

the same damages. Accordingly, for the reasons previously stated in the July Order,

A.B.’s parents also cannot bring their own bad faith claim against Defendant (in addition

to one on behalf of A.B.) for allegedly failing to act in good faith in handling A.B.’s

insurance claims and making coverage decisions.

For these reasons, the Court finds that Defendant’s Motion should be granted with

respect to the claims of A.B.’s parents individually for breach of A.B.’s insurance

contract and bad faith conduct by A.B.’s insurer. Mr. and Mrs. Blaik’s action against

Defendant in their individual capacities must be dismissed.

B. A.B.’s Breach of Contract Claim

1. Compliance with Policy Provisions

Defendant first seeks the dismissal of A.B.’s contract claim based on an alleged

failure of her authorized representative to comply with policy provisions that require an

insured to appeal the denial of a claim and to exhaust administrative procedures for

review of adverse decisions. Specifically, Defendant points out that the policy provides

a two-level appeal process and imposes timeliness requirements, and that the Second

Amended Complaint “does not allege A.B. pursued two appeals of the decisions at issue

in this case.” See Def.’s Mot. at 18. Defendant asserts that A.B.’s contract claim is

barred by noncompliance with these provisions of the policy that impose mandatory

preconditions to suit.9

Under federal pleading rules, a plaintiff is expressly permitted to “allege generally

that all conditions precedent have occurred or been performed.” See Fed. R. Civ. P. 9(c).

A.B. has done so here. See Second Am. Compl. ¶ 105. Then the party “denying that a

condition precedent has occurred or been performed . . . must do so with particularity.”

Fed. R. Civ. P. 9(c). Consistent with this rule, “the usual practice under the Federal

Rules is to regard exhaustion as an affirmative defense” rather than a pleading obligation

of the plaintiff. See Jones v. Bock, 549 U.S. 199, 212 (2007); see id. at 216 (“We

conclude that failure to exhaust is an affirmative defense under the PLRA, and that

inmates are not required to specially plead or demonstrate exhaustion in their

complaints.”). In the Court’s view, Defendant’s assertion that A.B.’s contract claim is

barred by her failure to complete an administrative appeals process mandated by the

policy is an affirmative defense rather than an element of her claim.

Although Defendant raises an affirmative defense in its Motion, Rule 12(b)(6)

permits the dismissal of a claim that is barred by an affirmative defense where the facts

necessary to determine the defense appear on the face of the complaint. See Fernandez

v. Clean House, LLC, 883 F.3d 1296, 1299 (10th Cir. 2018) (dismissal based on an

9 Primarily to counter these arguments, Plaintiffs have offered during the pendency of the

Motion to provide additional documentation regarding further appeal proceedings and additional

adverse decisions by Defendant during 2020 and 2021. See Pls.’ Mot. File Suppl. Evid. [Doc.

No. 50]. For reasons discussed infra, the Court finds that these documents and additional facts are

not necessary to resolve Defendant’s Motion and, thus, Plaintiffs’ Motion should be denied.

affirmative defense is proper where “the complaint itself admits all the elements of the

affirmative defense by alleging the factual basis for those elements”); accord Bistline v.

Parker, 918 F.3d 849, 876 (10th Cir. 2019); 5B C. Wright & A. Miller, Federal Practice

and Procedure § 1357, at 713 (3d. ed. 2004) (affirmative defense can succeed under

Rule 12(b)(6) if complaint has a “built-in defense and is essentially self-defeating”).

Upon careful consideration of Defendant’s arguments, the Court finds the Second

Amended Complaint does not present a self-defeating claim. Defendant instead relies

on a lack of allegations in the Second Amended Complaint to show that A.B. fully

completed the appeals process regarding her insurance claims. See Def.’s Mot. at 18

(arguing that Plaintiffs’ pleading “does not allege that A.B. pursued two appeals of the

decisions at issue in this case with respect to any adverse benefit determination”); Reply

Br. at 7 (“A.B. never alleges that she appealed the Precertification Denial”). Also,

Plaintiffs argue in opposition to dismissal that doctrines such as futility and estoppel

excuse any lack of exhaustion. Under these circumstances, Defendant’s exhaustion

defense cannot be decided based solely on the face of the Second Amended Complaint.

In short, Defendant’s challenge to the Second Amended Complaint for lack of

administrative exhaustion raises defensive matter rather than a pleading deficiency. The

Court cannot conclude on this basis that A.B. has failed to state a breach of contract

claim.

2. Elements of a Contract Claim

Defendant also asserts that the Second Amended Complaint fails to state a breach

of contract claim because it does not allege sufficient facts to support a plausible claim.10

Defendant submits documents to show it ultimately paid all benefit claims that were

allegedly denied (id. at 6-7) and later processed a precertification request from A.B.’s

service provider (id. at 8-10) and, from these facts, to argue that A.B. “has suffered no

damages based on any hypothetical denial of coverage.” Id. at 22.

Under Oklahoma law, A.B. must establish the following essential elements to

establish a breach of contract claim: a contract between the parties existed; the contract

required certain payments to be made or obligations to be performed, as alleged; and

Defendant breached the contract, and caused damages, by failing to make the payments or

perform the obligations. See Digital Design Grp., Inc. v. Info. Builders, Inc., 2001 OK 21,

¶ 33, 24 P.3d 834, 843 (“In order to recover on its breach of contract theory, [plaintiff]

needed to prove: 1) formation of a contract; 2) breach of the contract; and 3) damages as a

direct result of the breach.”); accord Cates v. Integris Health, Inc., 2018 OK 9, ¶ 11, 412

P.3d 98, 103, cert. denied, 138 S. Ct. 2659 (2018).

Assessing the Second Amended Complaint in the context of these elements and

the Rule 12(b)(6) standard, the Court is unpersuaded by Defendant’s argument that

Plaintiffs’ pleading fails to state a breach of contract claim. To avoid dismissal,

10 Defendant first argues, incorrectly, that the Court in the July Order “identified the

facts Plaintiffs needed to allege to state a claim” and that the Second Amended Complaint does

not supply all those facts. See Def.’s Mot. at 19. The July Order addressed only bad faith

claims; no breach of contract claim was asserted in the Amended Complaint.

Plaintiffs must only provide sufficient facts, accepted as true, to state a plausible claim.

Defendant cannot obtain a dismissal by arguing that documents show all properly

submitted benefit claims were eventually paid, even though Plaintiffs allege in the

Second Amended Complaint that some claims were denied, some payments were

improperly delayed, and some services were wrongly denied precertification approval.

These arguments go to the merits of A.B.’s contract claim and not the adequacy of

Plaintiffs’ pleading.

Determining whether a complaint states a plausible claim for relief is a “context-

specific task that requires the reviewing court to draw on its judicial experience and

common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The question to be decided

is “whether the complaint sufficiently alleges facts supporting all the elements necessary

to establish an entitlement to relief under the legal theory proposed.” Lane v. Simon, 495

F.3d 1182, 1186 (10th Cir. 2007). Further, “Rule 8(a)(2) still lives.” Khalik v. United Air

Lines, 671 F.3d 1188, 1191 (10th Cir. 2012). A plaintiff’s pleading “need only give the

defendant fair notice of what the . . . claim is and the grounds upon which it rests.” See

Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007)).

Assessing the Second Amended Complaint under this standard, the Court finds that

it states a plausible claim that Defendant breached its insurance contract with A.B. by

failing to pay claims for covered services in a timely manner and to process properly a

provider’s request for precertification of medically necessary services. The Court therefore

finds that A.B.’s breach of contract claim should not be dismissed and that Defendant’s

Motion should be denied with respect to this claim.

C. A.B.’s Bad Faith Claim

To establish a breach of Defendant’s duty of good faith and fair dealing with its

insured under Oklahoma law, A.B. must show that Defendant breached the insurance

contract and, in so doing, acted in a manner constituting bad faith. See Brown v. Patel,

2007 OK 16, ¶ 9, 157 P.3d 117, 121; see also Badillo v. Mid Century Ins. Co., 2005 OK

48, ¶ 25, 121 P.3d 1080, 1093 (per curiam). Generally, to state a bad faith claim, a plaintiff

must allege that: (1) the insurer was required under the insurance policy to pay a claim;

(2) the refusal to pay the claim was unreasonable under the circumstances because (a) the

insurer had no reasonable basis for refusing, (b) the insurer did not perform a proper

investigation, or (c) the insurer did not evaluate the results of the investigation properly;

(3) the insurer did not deal fairly and in good faith with the insured; and (4) the insurer’s

violation of its duty of good faith and fair dealing was the direct cause of damages sustained

by the insured. See Duensing v. State Farm Fire & Cas. Co., 2006 OK CIV APP 15, ¶ 131

P.3d 127, 138; see also Badillo, 2005 OK 48, ¶ 25, 121 P.3d at 1093 (citing OUJI–CIV

(2d) 22.3).

Upon consideration of the detailed factual allegations of the Second Amended

Complaint, the Court finds that they are sufficient to state a plausible bad faith claim on

behalf of A.B. Plaintiffs assert that the type of therapy A.B. has received for several years

is covered by the insurance policy but that Defendant has repeatedly and wrongly denied

coverage, delayed payments for covered claims submitted by A.B.’s therapy provider,

improperly pressured the provider to reduce A.B.’s services below a level that is medically

necessary, and failed to provide a fair and independent external review of the reduction in

approved services. Plaintiffs further allege that Defendant’s bad faith conduct has caused

a serious decline in A.B.’s physical and emotional health. Assessing the Second Amended

Complaint under the proper standards, the Court finds that it sufficiently states a bad faith

claim for A.B.

Conclusion

For all of these reasons, the Court finds that A.B.’s parents lack any contractual

relationship with Defendant and cannot bring their own individual claims for breach of

contract and bad faith, but that the Second Amended Complaint is minimally sufficient to

state plausible claims for breach of contract and bad faith asserted by A.B. through her

parent and legal guardian, Sherri Blaik.

IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss Plaintiffs’

Second Amended Complaint [Doc. No. 41] is GRANTED in part and DENIED in part.

The claims asserted by Plaintiffs Will Blaik and Sherri Blaik for themselves individually

are dismissed. The claims asserted on behalf of A.B. are sufficient to proceed further.

IT IS FURTHER ORDERED that Plaintiffs’ Motion to File Supplemental

Evidence in Support of Their Response in Opposition to Defendant’s Motion to Dismiss

[Doc. No. 50] and Defendant’s Motion for Leave to File Sur-Reply [Doc. No. 55] are

DENIED as moot.

IT IS SO ORDERED this 234 day of September, 2021.

Q.

TIMOTHY D. DeGIUSTI

Chief United States District Judge

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