Bergonzi v. Central States Health and Life Company of Omaha (CSO)

U.S. District Court, South Dakota, Southern Division, Civ. No. 02-4096

Description: Kay Bergonzi purchased a cancer insurance policy from Central States (CSO). The policy provided for payment of the actual charges incurred for certain procedures, including radiation and chemotherapy, if administered to treat cancer. In December 1998, Bergonzi was diagnosed with cancer. She underwent both chemotherapy and radiation treatment. When she filed a claim with CSO, however, CSO refused to pay for certain services.

On July 24, 2000, four other people holding policies with CSO filed suit in federal court in Sioux Falls. See Johnson v. Central States Health and Life Company of Omaha, Civ. 00-4135. They held policies similar to Bergonzi's and alleged that CSO wrongly denied payment for similar cancer treatments, including chemotherapy and radiation. The court granted partial summary judgment in favor of the plaintiff on July 9, 2001, finding that CSO breached its contract by failure to fully pay for these cancer treatments. The bad faith and punitive damages claims proceeded to trial on July 24, 2001. The case was settled for a confidential amount two days into the trial.

Kay Bergonzi filed her action against CSO on May 6, 2002. She brought the action on behalf of a nationwide class that included all persons who purchased cancer insurance policies from CSO containing the subject policy language addressed in the Johnson case. The class complaint against CSO alleged breach of contract and bad faith and requested punitive damages and attorneys' fees. Bergonzi moved for summary judgment early in the case. The court denied this motion as premature, permitted additional discovery, and allowed for the refilling of the motion on April 1, 2003. On March 18, 2003, Bergonzi moved to certify the class.

Outcome: After extensive negotiations, the parties reached a stipulated settlement with an overall value of $19,600,000 on July 3, 2003. Bergonzi moved for preliminary approval of the settlement on July 10, 2003. On July 22, 2003, the court ordered preliminary approval of both the class certification and the settlement. Notice of the settlement was thereafter sent to all class members. A fairness hearing took place on November 18, 2003. Final orders approving the settlement, attorney fees and final judgment were entered on November 20, 2003.

The settlement affords the 20,000 class members nearly full relief under their insurance contracts. The settlement divides the class into two groups: 1) those that may seek future benefits (the non-opt out class) and 2) those that were denied benefits in the past (the opt out class). The non-opt out class receives injunctive relief, which prohibits CSO from changing or revoking certain payment guidelines. The policy was reformed and CSO ordered to satisfy its contractual obligations in the future. The estimated value of future benefits is $9.6 million. With regard to the opt out class, the settlement creates a $10 million fund. Under the distribution plan, class members who had chemotherapy or radiation claims during the relevant time period will be compensated $7,481,703.60. The court awarded $2,495,106.22 in attorney fees and costs representing approximately 12% of the overall value of the settlement