AULTMAN HOSP. ASSN. v. COMMUNITY MUT. INS. CO

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Docket Number

No. 88-1221

Attorney(S)

Verner, Liipfert, Bernhard, McPherson Hand, Chartered and Douglas J. Colton, pro hac vice, for appellees. Taft, Stettinius Hollister, W. Stuart Dornette and James E. Britain, Thomas B. Bassler, Vorys, Sater, Seymour Pease, Michael J. Canter and James C. Becker, for appellant. Porter, Wright, Morris Arthur, James E. Pohlman and Daniel W. Costello, urging reversal for amicus curiae Blue Cross and Blue Shield Association.

Judges

MOYER, C.J.

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Smart Summary

Factual and Procedural Background

In 1938, several hospitals in Stark County entered into a contractual arrangement with a predecessor of Community Mutual Insurance Company ("Blue Cross") to provide medical services to Blue Cross subscribers. Under the contract, hospitals billed Blue Cross directly at discounted rates, assured of payment. A new agreement was executed in 1959, later amended in 1976, which defined key terms such as "Subscriber" and "Service Contract" and contained provisions limiting Blue Cross's authority to issue contracts requiring hospitals to provide different or additional services.

The dispute arose over whether Blue Cross was limited to issuing only "traditional" subscriber contracts, where subscribers pay set premiums, or whether it could also issue "nontraditional" subscriber contracts, under which subscriber groups pay Blue Cross on a "cost plus" basis without premiums. The plaintiff hospitals contended that the contracts did not authorize nontraditional contracts and that Blue Cross was unjustly enriched by receiving discounted hospital services for these contracts without bearing the financial risk of premium collection.

The trial court ruled in favor of the hospitals, holding that the nontraditional contracts were unauthorized and Blue Cross was unjustly enriched, ordering an accounting and damages based on quantum meruit. The court of appeals affirmed, finding ambiguity in the contract terms and allowing extrinsic evidence, concluding Blue Cross breached the contract and the hospitals were entitled to quasi-contractual recovery.

The case was then brought before the Supreme Court of Ohio for review.

Legal Issues Presented

Whether the contract between Blue Cross and the hospitals permits Blue Cross to issue nontraditional subscriber contracts in addition to traditional subscriber contracts.
Whether recovery under the doctrine of quantum meruit was proper given the existence of an express written contract.

Arguments of the Parties

Appellees (Hospitals)

The 1959 and 1976 contracts limit Blue Cross to issuing only traditional subscriber contracts, under which subscribers pay set premiums.
Blue Cross exposed the hospitals to financial risk by issuing nontraditional contracts without collecting premiums.
Blue Cross was unjustly enriched by receiving discounted hospital services for nontraditional subscribers and should compensate hospitals under quantum meruit for unauthorized benefits.

Appellant (Blue Cross)

Blue Cross contends the contracts authorize issuance of both traditional and nontraditional subscriber contracts.
The contract language does not restrict Blue Cross to premium-paying subscribers only.
Issuance of nontraditional contracts does not breach the agreement with the hospitals.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Employers' Liability Assurance Corp. v. Roehm, 99 Ohio St. 343 (1919)	Contracts should be construed to give effect to the parties' intent.	Supported the principle that courts enforce clear contract language reflecting parties’ mutual promises.
Skivolocki v. East Ohio Gas Co., 38 Ohio St.2d 244 (1974)	Contracts are to be interpreted to ascertain parties' intent.	Reinforced the principle of construing contracts according to expressed intentions.
Henderson-Achert Lithographic Co. v. John Shillito Co., 64 Ohio St. 236 (1901)	Where a contract is unambiguous, extrinsic evidence is inadmissible to vary its terms.	Court held that extrinsic evidence should not limit Blue Cross’s authority beyond contract language.
Charles A. Burton, Inc. v. Durkee, 158 Ohio St. 313 (1952)	Intentions not expressed in writing are deemed non-existent; parol evidence inadmissible to alter clear terms.	Supported refusal to admit extrinsic evidence to limit contract terms.
Kachelmacher v. Laird, 92 Ohio St. 324 (1915)	No implied covenant in matters covered by written contract.	Rejected hospitals’ argument for implied limitations on Blue Cross’s authority.
Ullman v. May, 147 Ohio St. 468 (1947)	Court should not make a new contract for parties; unexpressed intentions cannot be implied absent fraud or mistake.	Affirmed that hospitals’ construction would amount to making a new contract, which courts cannot do.
Fox Associates Co., L.P.A. v. Purdon, 44 Ohio St.3d 69 (1989)	Quantum meruit awarded for benefits conferred without just compensation.	Court found no unjust enrichment outside express contract terms, thus no quantum meruit recovery.
Rice v. Wheeling Dollar Savings Trust Co., 155 Ohio St. 391 (1951)	Same as above regarding quantum meruit.	Supported the court’s analysis on compensation under the express contract.
Ohio Crane Co. v. Hicks, 110 Ohio St. 168 (1924)	A plain and unambiguous contract is not made ambiguous by hardship in its operation.	Rejected argument to rewrite contract due to financial hardship on hospitals.
Aluminum Co. of America v. Essex Group, Inc., 499 F. Supp. 53 (W.D. Pa. 1980)	Reformation of long-term service contract due to impracticality from unforeseen market forces.	Referenced by court of appeals as justification for intervention, but not adopted by Supreme Court of Ohio.

Court's Reasoning and Analysis

The Supreme Court of Ohio began by identifying the central question: whether the contract permitted Blue Cross to issue nontraditional subscriber contracts. The Court emphasized that the primary objective in contract construction is to ascertain and enforce the parties' intent as expressed in the unambiguous written contract.

The Court noted the contract contained an express integration clause limiting the agreement to the written terms. The trial court and appellate court had found ambiguity in the terms "subscriber" and "service contract" and admitted extrinsic evidence to limit Blue Cross's authority. However, the Supreme Court applied the established test for ambiguity and concluded the terms were not ambiguous, giving their ordinary meaning.

The Court highlighted the sole express limitation on Blue Cross's authority was that no contract could require hospitals to provide different or additional services than those currently provided. This restriction did not limit Blue Cross to issuing only traditional subscriber contracts where premiums are paid.

The Court rejected the hospitals' construction as effectively creating a new contract, which is outside judicial function absent fraud or mistake. It held that Blue Cross's issuance of nontraditional contracts was not a breach of the agreement.

Regarding the quantum meruit claim, the Court explained that such recovery is generally appropriate only when one party benefits without just compensation outside the terms of an express contract. Here, the written contract described services and compensation, and there was no evidence of unjust enrichment beyond the contract terms. Thus, recovery under quantum meruit was improper.

Finally, the Court declined to rewrite the contract due to economic hardship on the hospitals, reaffirming that a plain, unambiguous contract is not rendered ambiguous by such hardship.

Holding and Implications

The Supreme Court of Ohio reversed the judgment of the court of appeals and entered final judgment for the appellant, Community Mutual Insurance Company (Blue Cross).

The Court held that the contract between the hospitals and Blue Cross unambiguously permitted Blue Cross to issue both traditional and nontraditional subscriber contracts. Blue Cross's issuance of nontraditional contracts did not breach the contract, and the hospitals were not entitled to recover damages under quantum meruit. The decision emphasizes strict adherence to the plain language of integrated contracts and limits judicial intervention to modify contract terms based on economic hardship or extrinsic evidence.

No new precedent was established beyond reaffirmation of existing contract construction principles, and the direct effect is to deny the hospitals’ claims for additional compensation related to nontraditional subscriber contracts.

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AULTMAN HOSPITAL ASSOCIATION ET AL., APPELLEES, v. [COMMUNITY MUTUAL INSURANCE COMPANY, F.K.A.] HOSPITAL CARE CORPORATION, APPELLANT.

Contracts — Courts will not give an unambiguous contract a construction other than that which the plain language of the contract provides.

O.Jur 3d Contracts §§ 135, 141.

Where the parties following negotiation make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides.

MOYER, C.J.

The principal question presented by this case is whether the contract between Blue Cross and the hospitals allows Blue Cross to issue nontraditional subscriber contracts.

In construing any written instrument, the primary and paramount objective is to ascertain the intent of the parties. The general rule is that contracts should be construed so as to give effect to the intention of the parties. Employers' Liability Assurance Corp. v. Roehm (1919), 99 Ohio St. 343, 124 N.E. 223, 7 A.L.R. 182, syllabus; Skivolocki v. East Ohio Gas Co. (1974), 38 Ohio St.2d 244, 67 O.O. 2d 321, 313 N.E.2d 374, paragraph one of the syllabus. Where the parties, following negotiations, make mutual promises which thereafter are integrated into an unambiguous written contract, duly signed by them, courts will give effect to the parties' expressed intentions. Henderson-Achert Lithographic Co. v. John Shillito Co. (1901), 64 Ohio St. 236, 252, 60 N.E. 295, 298. See, also, Charles A. Burton, Inc. v. Durkee (1952), 158 Ohio St. 313, 49 O.O. 174, 109 N.E.2d 265. Intentions not expressed in the writing are deemed to have no existence and may not be shown by parol evidence. See Charles A. Burton, Inc., supra, at paragraph two of the syllabus; Steel Sanitary Co. v. Pangborn Corp. (1930), 38 Ohio App. 65, 70, 9 Ohio Law Abs. 6, 8, 175 N.E. 615, 616-617. There can be no implied covenant in a contract in relation to any matter that is specifically covered by the written terms of the contract. Kachelmacher v. Laird (1915), 92 Ohio St. 324, 110 N.E. 933, paragraph one of the syllabus.

We recognize at the outset that the parties, by an express integration provision, limited their agreement to the written contract. The trial court and the court of appeals determined that the terms "subscriber" and "subscriber contracts," as provided in the 1959 agreement, are ambiguous and, relying on extrinsic evidence, held that the parties did not intend to include nontraditional subscribers within the context of the contract. In Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 7 O.O. 3d 403, 374 N.E.2d 146, paragraph two of the syllabus, we set a test for determining whether a term or terms contained in a contract are ambiguous: "Common words appearing in a written instrument will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument."

According to the terms of the agreement at issue, a subscriber is any person to whom Blue Cross issues a contract for hospital services. We noted earlier that the terms "subscriber" and "service contracts" were defined in Article I of the agreement by mutual consent of the parties.

The only limitation on Blue Cross' ability to issue service contracts is expressly provided in the agreement between the parties. The restrictive language provides:

"* * * [N]o such contract * * * shall require the hospital[s] to provide services of a different or additional nature from those which it now provides. * * *"

This restriction does not confine Blue Cross to the issuance of contracts for which the subscriber pays a premium. It states only that the hospitals cannot be required to provide services different or additional to those currently provided by the hospitals. Where the parties expressly provide the only limitation on the issuance of service contracts, it is error for the trial court to admit extrinsic evidence providing for additional limitations, Henderson-Achert Lithographic Co., supra, at 254, 60 N.E. at 298, where the meaning is clearly evidenced from the overall contents of the instrument. Prior or contemporaneous evidence tending to vary the clear and unambiguous terms of the written contract is inadmissible. Charles A. Burton, Inc., supra.

The hospitals contend that Blue Cross is only allowed to issue traditional subscriber contracts. The contract construction urged by the hospitals would not be a construction at all but would amount to the making of a new contract for the parties which is not the function of the court. Ullman v. May (1947), 147 Ohio St. 468, 475, 34 O.O. 384, 387, 72 N.E.2d 63, 67. In the absence of fraud or mistake, the hospitals' unexpressed intention cannot be implied in the contract. The language of the written contract which was signed by the parties is clear and does not forbid Blue Cross from issuing service contracts to groups of subscribers who compensate Blue Cross in a different manner than by the payment of premiums. Blue Cross's issuance of nontraditional service contracts is therefore not a breach of the agreement with the hospitals.

The court of appeals indicated that due to "unforeseen market forces of deregulation and increased competition," the hospitals stand to lose significant amounts of money in the absence of judicial intervention. It is not the responsibility or function of this court to rewrite the parties' contract to provide for such circumstances. Where a contract is plain and unambiguous as herein, it does not become ambiguous by reason of the fact that in its operation it may work a hardship upon one of the parties. Ohio Crane Co. v. Hicks (1924), 110 Ohio St. 168, 172, 143 N.E. 388, 389; Ullman, supra, at paragraph one of the syllabus.

For the foregoing reasons, we hold that where, as here, the parties following negotiations make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides. See Henderson-Achert Lithographic Co., supra.

Having determined that the disputed contract is an express integration of mutually accepted terms and conditions and that no breach occurred, we must decide whether recovery in quantum meruit was proper.

Quantum meruit is generally awarded when one party confers some benefit upon another without receiving just compensation for the reasonable value of services rendered. See Fox Associates Co., L.P.A. v. Purdon (1989), 44 Ohio St.3d 69, 541 N.E.2d 448; Rice v. Wheeling Dollar Savings Trust Co. (1951), 155 Ohio St. 391, 44 O.O. 374, 99 N.E.2d 301. The contract here describes the nature of services to be rendered and the compensation to be paid. The record does not reveal that Blue Cross received unjust enrichment outside the parameters of the express contract. In the absence of fraud, illegality or bad faith, the hospitals are entitled to compensation only in accordance with the terms of the written agreement. Ullman, supra, at paragraph three of the syllabus.

For the foregoing reasons, the judgment of the court of appeals is reversed and final judgment is entered for appellant.

Judgment reversed.

SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.