Tennessee’s Supreme Court on Friday sided with BlueCross BlueShield of Tennessee in overturning lower court rulings that used testimony from former BlueCross executives about the insurer’s agreements with agents that sell BlueCross policies.
In a case closely watched by Tennessee’s business community, the state’s high-court held that trial courts cannot use evidence outside of the written agreement-called “extrinsic” evidence-to interpret a contract if that evidence is contrary to the contract’s written terms.
The case stems from an agreement BlueCross first made in 1999 with insurance agency Individual HealthCare Specialists, Inc., to allow Individual HealthCare to solicit applications for BlueCross insurance policies. Their business relationship lasted over 10 years, with new contracts each year that spelled out the commission rates for sales of new insurance policies and renewals of existing insurance policies.
For years, BlueCross paid Individual HealthCare commissions on renewal policies at the renewal rate in effect when the policy was first issued. In 2011, however, BlueCross cut the commissions paid on renewal policies based on the rate in effect when the policy was renewed, which was substantially less.
Individual HealthCare objected to the change, claiming that BlueCross could not change those rates without Individual HealthCare’s permission. Ultimately, the parties’ business relationship ended and Individual HealthCare sued BlueCross in Davidson County Chancery Court for breach of contract. The parties disputed, among other things, whether BlueCross had the authority to unilaterally change commission rates on renewal policies.