Individual Healthcare Specialists, Inc. v. Bluecross Blueshield of Tennessee, Inc.

Individual Healthcare Specialists, Inc. v. Bluecross Blueshield of Tennessee, Inc.
M2015-02524-SC-R11-CV

We granted permission to appeal in this breach-of-contract case to address the use of extrinsic evidence in the interpretation of contracts. Tennessee judges have long used extrinsic evidence of the context and circumstances at the time the parties entered into the contract to facilitate interpretation of contractual terms in accord with the parties’ intent. However, the written words are the lodestar of contract interpretation, and Tennessee courts have rejected firmly any notion that courts may disregard the written text and make a new contract for parties under the guise of interpretation. Tennessee has consistently enforced the parol evidence rule to prohibit the use of evidence of precontract negotiations in order to vary, contradict, or supplement the contractual terms of a fully integrated agreement. Thus, in interpreting a fully integrated contract, extrinsic evidence may be used to put the written terms of the contract into context, but it may not be used to vary, contradict, or supplement the contractual terms in violation of the parol evidence rule. As applied to this case, we hold that the defendant insurance company did not breach the parties’ agreement by modifying renewal commission rates on existing policies, but it did breach the agreement by refusing to pay commissions to the plaintiff agency after their agreement was terminated. In addition, because the indemnity provision in the parties’ agreement does not specifically authorize fee shifting in a suit between the two contracting parties, we hold that the plaintiff agency is not entitled to an award of attorney fees. We further conclude that the alleged systemic commission underpayments in this case were not inherently undiscoverable under any definition of that term. Consequently, even if we were to conclude that the discovery rule applies when the contractual breach is “inherently undiscoverable,” the plaintiff agency’s claim for any underpayments would not qualify under the facts of this case. The case is remanded for further proceedings consistent with this opinion.

Authoring Judge: 
Justice Holly Kirby
Originating Judge: 
Chancellor Ellen H. Lyle
Date Filed: 
Friday, January 18, 2019