Potvin v. Metropolitan Life Ins. Co.
95 Cal. Rptr. 2d 496, 997 P.2d 1153, 22 Cal. 4th 1060 (2000)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a private insurer wields substantial power over physicians, its decision to remove a physician from its preferred provider list must be both substantively rational and procedurally fair, overriding contractual 'without cause' termination clauses to the extent they limit this right.
Facts:
- On September 10, 1990, Dr. Louis E. Potvin, an obstetrician and gynecologist, entered into an agreement with Metropolitan Life Insurance Company (MetLife) to be included as a participant on two of its preferred provider lists.
- The agreement between Dr. Potvin and MetLife stipulated that either party could terminate the contract 'at any time, with or without cause, by giving thirty (30) days prior written notice to the other party'.
- On July 22, 1992, MetLife notified Dr. Potvin in writing that his preferred provider status would be terminated, effective August 31, 1992.
- Dr. Potvin asked for clarification regarding his termination, and MetLife initially responded by reiterating its contractual right to terminate 'without cause'.
- MetLife subsequently informed Dr. Potvin that his 'delistment from the provider network was related to the fact that [he] did not meet [MetLife’s] current selection and retention standard for malpractice history'.
- MetLife's standard at the time precluded physicians with more than two malpractice lawsuits or an aggregate payment of $50,000 in judgment or settlement.
- Before his 1990 agreement with MetLife, Dr. Potvin had been sued for malpractice on four separate occasions; three claims were abandoned, while the fourth settled for $713,000.
- Dr. Potvin alleged that his termination from MetLife’s preferred provider lists devastated his practice, reducing his patient base to 'a small fraction' and leading to rejection by other insurers and physician groups.
Procedural Posture:
- Dr. Potvin filed a lawsuit against MetLife, asserting causes of action for violation of Business and Professions Code section 805 et seq., violation of fair procedure, and breach of his preferred provider contract.
- The trial court granted MetLife's motion for summary judgment, concluding that Dr. Potvin's complaint did not state a claim for violation of the common law right to fair procedure, that MetLife validly terminated the contract 'without cause', and that Business and Professions Code section 805 et seq. was inapplicable.
- Dr. Potvin, as appellant, appealed the trial court's grant of summary judgment to the California Court of Appeal.
- The Court of Appeal, as an intermediate appellate court, reversed the trial court's judgment, holding that the complaint did allege a claim for violation of the common law right to fair procedure and that MetLife should have provided notice and an opportunity to be heard.
- The Court of Appeal agreed with the trial court that Business and Professions Code section 805 et seq. did not apply.
- MetLife, as petitioner, filed a petition for review with the Supreme Court of California.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the common law right to fair procedure require a private insurer to provide notice and an opportunity to be heard before removing a physician from its preferred provider lists, even if the contract allows termination without cause, when the insurer possesses substantial market power that significantly impairs the physician's ability to practice?
Opinions:
Majority - Kennard, J.
Yes, the common law right to fair procedure can require a private insurer to provide notice and an opportunity to be heard before removing a physician from its preferred provider lists, even if the contract allows termination without cause, if the insurer possesses substantial market power that significantly impairs the physician's ability to practice. The court affirms the long-standing common law right to fair procedure, which prevents arbitrary decisions by private organizations affecting the public interest, citing precedents like Marinship Corp., Pinsker v. Pacific Coast Soc. of Orthodontists, and Ezekial v. Winkley. These cases established that entities with substantial power to thwart an individual's pursuit of a lawful trade must act with both substantive rationality and procedural fairness. Given the modern healthcare landscape, insurers maintaining preferred provider lists are now considered 'quasi-public' entities that significantly affect the public interest. The obligation to provide fair procedure arises 'only when the insurer possesses power so substantial that the removal significantly impairs the ability of an ordinary, competent physician to practice medicine or a medical specialty in a particular geographic area, thereby affecting an important, substantial economic interest.' The court found that Dr. Potvin's allegations regarding the devastating impact on his practice and his rejection by other entities could establish such substantial power. Furthermore, a contractual 'without cause' termination clause is unenforceable to the extent it purports to limit an otherwise existing common law right to fair procedure, as courts are reluctant to enforce contract provisions offensive to public policy.
Dissenting - Brown, J.
No, the common law right to fair procedure should not require a private insurer to provide notice and an opportunity to be heard before removing a physician from its preferred provider lists, as such a requirement represents an overreach of judicial authority and is inconsistent with established public policy principles. Justice Brown argues that the majority impermissibly declares public policy, a role properly vested in the Legislature, especially when legislative attempts to grant similar procedural rights to physicians have failed. The dissent contends that prior common law cases, particularly Marinship, were primarily rooted in a 'right to service' due to monopoly power and constitutional public policy against racial discrimination, not a generalized right to fair procedure as applied here. The majority's standard is deemed unworkable and unpredictable, creating a 'protected class' of physicians entitled to a 'minimum income' without clear definitions of 'substantial power' or 'significant impairment'. The dissent emphasizes that the 'without cause' termination provision in the contract should be enforced, aligning with the general enforceability of at-will termination clauses in California law, absent a clear, constitutionally or statutorily delineated public policy against it. Insurers should be permitted to make business judgments, such as setting malpractice history standards, to control costs, which aligns with public policy goals of affordable healthcare.
Analysis:
This case significantly expands the common law right to fair procedure in California, extending its application beyond traditional quasi-public entities to private insurers operating preferred provider networks. The ruling establishes a new standard for determining when this right applies to insurers, focusing on their 'substantial power' to impair a physician's ability to practice, thereby impacting their economic interests. It weakens the enforceability of 'without cause' termination clauses in managed care contracts, potentially increasing administrative burdens and litigation for insurers but offering greater due process protections for physicians. Future litigation will be crucial in defining the precise contours of 'substantial power' and 'significant impairment' across various geographic areas and medical specialties, and the economic impact on insurers and the healthcare market will be a significant ongoing consideration.
