IN THE SUPREME COURT OF IOWA
No. 20–0545
Submitted February 17, 2021—Filed June 11, 2021
ROBERT F. COLWELL JR.,
Appellee,
vs.
MCNA INSURANCE COMPANY and MANAGED CARE OF NORTH
AMERICA, INC. d/b/a MCNA DENTAL and MCNA DENTAL PLANS,
Appellants.
Appeal from the Iowa District Court for Pottawattamie County,
James Heckerman, Judge.
The defendants appeal the district court’s ruling in favor of the
plaintiff finding breach of contract and breach of implied covenant of good
faith and fair dealing. AFFIRMED.
McDermott, J., delivered the opinion of the court, in which all
justices joined.
Rodney C. Dahlquist Jr. (argued), Sean M. Conway, and Anne M.
Breitkreutz of Dornan, Troia, Howard, Breitkreutz & Conway PC, LLO,
Omaha, Nebraska, for appellants.
Rebecca A. Brommel (argued) of Dorsey & Whitney, LLP, Des Moines,
for appellee.
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McDERMOTT, Justice.
The State of Iowa contracts with two outside entities to manage the
dental services provided to adult participants in Iowa’s Medicaid program.
These entities, referred to as “managed care organizations,” develop and
maintain a network of dentists throughout the state to provide treatment.
One such managed care organization, Managed Care of North America,
Inc. d/b/a MCNA Dental Plans, entered into a contract with Robert
Colwell, a dentist in Council Bluffs, to deliver dental services to Medicaid
participants as a member of MCNA’s network.
Three years later, MCNA sent Colwell a letter giving “notice of non-
renewal” of the provider contract. Colwell sued, seeking a temporary
injunction to prevent MCNA from terminating the provider contract until
a final ruling on the merits and asserting claims for breach of contract,
breach of the covenant of good faith and fair dealing, and intentional
interference with his business relationships with current and prospective
patients. The district court granted the temporary injunction request.
After a bench trial, the district court ruled that the provider contract
didn’t allow MCNA to terminate Colwell through non-renewal of the
provider contract. It further held that MCNA couldn’t terminate Colwell
because doing so would have placed MCNA in breach of state and federal
laws that required MCNA to include all dentists who participated in Iowa’s
Medicaid provider network and to maintain certain coverage thresholds for
geographic areas.
In this appeal, MCNA argues that the district court misconstrued
the contract by holding that the provider contract forbids non-renewal.
MCNA further argues that the district court misapplied the state and
federal laws, which it found compelled MCNA to continue to contract with
Colwell because of Colwell’s participation as a provider in the Medicaid
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program. And MCNA argues that the district court erred in holding that
MCNA’s list of approved dental providers in Colwell’s geographic area was
insufficient to satisfy MCNA’s coverage obligations without Colwell.
This appeal requires us to decide whether MCNA properly ended the
provider contract, which renewed automatically for successive one-year
terms, by sending the notice of non-renewal. While the state and federal
laws that regulate the relationship between a managed care organization
such as MCNA and a network provider like Colwell might present
interesting areas of exploration, they’re secondary to Colwell’s breach of
contract claim. If MCNA wasn’t permitted under the provider contract to
terminate Colwell by non-renewal, then MCNA breached the contract, and
we need not explore other grounds that might sustain the district court’s
ruling. On this record, contract interpretation presents a question of law
for the court, and we review the district court’s ruling to correct legal error.
Iowa R. App. P. 6.907; see Krause v. Krause, 589 N.W.2d 721, 724 (Iowa
1999); see also Peak v. Adams, 799 N.W.2d 535, 543 (Iowa 2011)
(“Interpretation is reviewed as a legal issue unless it depended at the trial
level on extrinsic evidence.” (quoting Fashion Fabrics of Iowa, Inc. v. Retail
Invs. Corp., 266 N.W.2d 22, 25 (Iowa 1978))).
The dispute upon which this case turns centers on the
interpretation of two sections of article X of the provider contract between
MCNA and Colwell. Article X is titled “TERM AND TERMINATION.” It
states:
1. Term. This Agreement shall have an initial term of
one (1) year commencing on the Effective Date. Thereafter,
this Agreement shall automatically renew for terms of one (1)
year each. Notwithstanding the foregoing, this Agreement
may terminate in accordance with the Termination sections
below.
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2. Termination of Agreement. This Agreement may
be terminated under any of the following circumstances:
A. By either party upon ninety (90) days prior written
notice;
B. By either party upon thirty (30) days prior written
notice if the other party is in material breach of this
Agreement, except that such termination shall not take
place if the breach is cured within the thirty (30) days
following the written notice;
C. Immediately upon written notice by MCNA if there is
imminent harm to patient health, or fraud or
malfeasance is suspected;
D. Immediately upon written notice by either party if
the other party becomes insolvent or has bankruptcy
proceedings initiated against it;
E. Immediately upon written notice by Provider if
MCNA loses, relinquishes, or has materially affected its
certificate of authority to operate as an administrative
services organization; or
F. Immediately upon written notice by MCNA if
Provider fails to adhere to MCNA’s credentialing criteria,
including, but not limited to, if Provider (1) loses,
relinquishes, or has materially affected its license to
provide Covered Services in the State, (2) fails to comply
with the requirements set forth in this Agreement; or
(3) is convicted of a criminal offense related to
involvement in any Medicare, Medicaid or other
government sponsored program or has been
terminated, suspended, barred, voluntarily withdrawn
as part of a settlement agreement, or otherwise
excluded from any Medicare, Medicaid or other
government sponsored program.
The district court held that section 1 affords no opportunity to end
the contract with a notice of non-renewal and that MCNA otherwise failed
to establish any basis for termination under section 2. MCNA offers
several arguments for why the district court’s interpretation is wrong.
MCNA argues that the text of section 1 necessarily includes a right
of non-renewal because any other interpretation would make the first two
sentences ineffectual. Again, those sentences state: “This Agreement shall
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have an initial term of one (1) year commencing on the Effective Date.
Thereafter, this Agreement shall automatically renew for terms of one (1)
year each.” If the contract really provides for a term that extends in
perpetuity, MCNA argues, then the repeated references to terms of one
year (both initial and renewal) would carry no meaning. The district court
held that the contract continues in perpetuity unless the parties exercise
one of the termination rights in section 2 of article X. If that’s so, MCNA
counters, then there would have been no reason to include a one-year term
at all. Because the parties did in fact include a one-year term, its
argument continues, reference to it necessarily includes a right of non-
renewal before the next term begins separate from any of the termination
rights in section 2.
In support of its textual interpretation, MCNA cites to an
unpublished court of appeals opinion that it says stands for the
proposition that a notice of non-renewal may end an agreement at the
conclusion of its stated term. See Beal v. I.G.F. Ins., Nos. 02–0361, 02–
0007, 2003 WL 556238 (Iowa Ct. App. Feb. 28, 2003). But whether a non-
renewal notice lawfully ended the contract wasn’t pertinent to the court’s
resolution of Beal. And in any event, the contract in Beal differed in a
critical respect from the one in this case, noted in italics here:
This Agreement shall commence as of May 1, 1997 and shall
continue in effect until April 30, 2000, provided, however, that
the term of this Agreement shall automatically be extended
without further action of either party for additional one year
periods unless, not later than six months prior to the end of the
then effective term, either the Company or the Employee shall
have given written notice that such party does not intend to
extend this Agreement.
Id. (emphasis added and original emphasis omitted). Nothing like the
italicized portion of the contract from Beal that describes a non-renewal
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right (let alone a process for exercising it) appears in MCNA’s provider
contract with Colwell.
Colwell points us to a different case that our court decided, Martin
v. Waterloo Community School District, 518 N.W.2d 381 (Iowa 1994), for the
proposition that when a contract includes an automatic-renewal provision,
it continues until terminated without any right of non-renewal. The case
turned on the interpretation of two versions of the same statute: a 1991
version and an amended 1993 version. Id. at 382–83. The 1991 version
stated:
[A]n administrator’s contract shall remain in force and effect
for the period stated in the contract. The contract shall be
automatically continued in force and effect for one year
beyond the end of its term, except as modified or terminated
by mutual agreement of the board of directors and the
administrator, or until terminated as hereinafter provided.
Id. at 382 (emphasis added and original emphases omitted) (quoting Iowa
Code § 279.24 (1991)). We determined that this version gave the school
district a right of non-renewal after the “one year beyond” had ended. Id.
at 383.
But we analyzed the 1991 version in light of amendments reflected
in the 1993 version of the same statute. The amended 1993 version stated:
The contract shall be automatically continued in force and
effect for additional one-year periods beyond the end of its
original term, except and until the contract is modified or
terminated by mutual agreement of the board of directors and
the administrator, or until terminated as provided by this
section.
Id. (quoting 1993 Iowa Acts ch. 32, § 3 (codified at Iowa Code § 279.24
(1993 Supp.))). Substituting the italicized words in the amendment “for
additional one-year periods beyond the end of its original term” in place of
“for one year beyond the end of its term” materially changed the statute’s
meaning such that, under the amended version, the contract
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automatically renewed for one-year periods until the parties mutually
terminated the contract or exercised the termination procedures. Id. at
383. We determined that the school district had a right of non-renewal
after the first (and only) one-year renewal term under the 1991 version,
but had no right of non-renewal under the 1993 version because of its
unlimited automatic renewals. Id. While not directly on point, our
analysis in Martin illuminates certain facets of the case before us.
The first sentence of article X, section 1 provides an initial term of
one year. The second sentence provides that the term automatically
renews every year thereafter without limitation. The third sentence then
states: “Notwithstanding the foregoing, this Agreement may terminate in
accordance with the Termination sections below.” We read these
sentences as providing a contract with continuous one-year terms, but in
spite of this, the parties agreed on the manner in which they might end
the contract, which they set forth in the ensuing paragraphs under the
“Termination” heading. The parties agreed on their options to end the
contract in the termination provisions of section 2; they included no option
of “non-renewal.”
We attempt to interpret every word and every provision of a contract
to give it effect, if possible. See Fed. Land Bank of Omaha v. Bollin, 408
N.W.2d 56, 60 (Iowa 1987) (en banc). MCNA argues that the references to
one-year terms in the first two sentences have no effect and become
surplus language if we don’t infer a right of non-renewal. But the third
sentence with its opening clause—“Notwithstanding the foregoing”—seems
to address this point. Contrary to MCNA’s claim that the one-year terms
are ignored, the clause suggests that in spite of them something else (here,
termination rights) influences their operation. Reading the word
“notwithstanding” literally, “the foregoing” (the automatically renewed one-
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year term) does not “withstand” the termination rights the parties may
exercise. A fair reading of the full section in this manner renders no part
surplusage because it recognizes both the contract’s automatic renewal
and the parties’ agreed methods for ending their contractual relationship.
Among these methods, the parties included a right to terminate the
contract by either party upon ninety days’ written notice—a seemingly
broad right not limited to any period connected to the contract’s renewal
date.
MCNA points to other parts of the provider contract that it contends
support its interpretation. The heading of article X, “TERM AND
TERMINATION,” MCNA urges, supports the notion that sections 1 and 2
must relate to different subjects with distinct rights. MCNA highlights the
“AND” as doing important work and asks us to read the heading as
contemplating two different concepts: the specific duration of the contract
and, separately, enumerated events that permit termination at any point
during the contract term. But MCNA ignores that the provider contract
itself describes how its headings are to be used to interpret the contract’s
actual terms. Article XI, section 4 states that section headings “are
inserted merely for the purpose of convenience and do not, expressly or by
implication, limit, define, or extend the specific terms of the section so
designated.” We hold the parties to their own contract and won’t employ
headings as interpretive material where the parties expressly agreed they
couldn’t be used for that purpose.
MCNA further argues that the absence of a contract term prohibiting
non-renewal must be read to support a right to end the contract via non-
renewal. In other words, had the parties intended to bar one another from
exercising non-renewal of the contract, then the provider contract (or its
incorporated documents) would have stated as much. We will imply a
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contract term where it arises from the language used in the contract. See
Alta Vista Properties, LLC v. Mauer Vision Ctr., PC, 855 N.W.2d 722, 727
(Iowa 2014). But in this case, we can imply no right of non-renewal in
light of the express manner in which the parties specified their termination
rights. The third sentence quoted above does not state that the provider
contract “may also terminate in accordance with the Termination sections
below”—it sets forth the means of ending in straightforward fashion: via
“the Termination sections below.” It’s one thing to read silence as perhaps
neutral on this subject; it’s something else to read it as supporting an
affirmative non-renewal right.
And on this subject too, we note that our cases generally show
contracts with a non-renewal right to prescribe a deadline by which notice
must be provided to effectuate the non-renewal. See, e.g., Gansen v.
Gansen, 874 N.W.2d 617, 618 (Iowa 2016) (requiring notice of non-renewal
180 days before the contract term ended); Petty v. Faith Bible Christian
Outreach Ctr., Inc., 584 N.W.2d 303, 306 (Iowa 1998) (60 days’ notice);
Batcheller v. Iowa State Highway Comm’n, 251 Iowa 364, 367, 101 N.W.2d
30, 32 (1960) (60 days’ notice); Culavin v. Nw. Bell Tel. Co., 224 Iowa 813,
814, 276 N.W. 621, 622 (1937) (30 days’ notice). For practical reasons, a
non-renewal deadline gives the party receiving notice of non-renewal time
to adjust their plans accordingly. If we assume, as MCNA urges, that the
provider contract contains a non-renewal right separate from the
termination procedures, this contract would present an anomaly for
including no notice of non-renewal deadline. Could the provider effectuate
non-renewal by providing MCNA notice at 11:59 p.m. the night before the
automatic-renewal date? We struggle to think that MCNA intended its
standard contracts to allow providers to cancel so suddenly, especially
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considering MCNA’s separate obligation under its contract with the State
to maintain certain geographic-coverage thresholds.
MCNA points to a different section in the provider contract that it
contends clarifies the right of non-renewal. Article III, section 12 (titled
“Disparagement Prohibition”) sets forth Colwell’s agreement not to
disparage MCNA and states in part: “Provider agrees not to disparage
Payor or MCNA in any manner during the term of this Agreement or in
connection with any expiration, termination or non-renewal of this
Agreement.” MCNA points out the separate references to “termination”
and “non-renewal” and argues that the provider contract would not have
referred to “non-renewal” in article III if such a right didn’t exist in article
X.
This sentence may initially appear to be incongruent with article X,
section 1, but not solely for reasons that aid MCNA’s interpretation. Along
with “termination” and “non-renewal,” it refers to “expiration” of the
provider contract. Yet with its automatic-renewal provision, the contract
provides for no means of “expiration.” This suggests that the word that
immediately precedes the listing of “expiration, non-renewal or
termination”—any—may reasonably be read here as a modifier to mean
“as applicable.” Section 12’s purpose is to ensure that the provider doesn’t
disparage MCNA regardless of how the contract ended. But it doesn’t
mean, without more, that the contract actually provides a right to end the
contract using each listed method.
MCNA further argues that its separate contract with the State
requires a right of non-renewal on public-policy grounds. Pointing to its
duty to control costs and maintain quality services, MCNA argues that
without a non-renewal right, it could be handcuffed to continuing with
duplicative providers, which might drive up administrative costs. As an
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initial matter, the record doesn’t show how having extra providers in a
network, without more, results in additional administrative costs.
Dentists are reimbursed based on services provided, not based on their
status as members in a network. There’s seemingly little risk of cost
duplication for providing to the same patient the same procedure that
another dentist already performed. And as discussed above, without a
deadline to provide notice of non-renewal, permitting termination only
through the termination provisions potentially protects MCNA from costs
that may be incurred in scampering to find a new provider to plug a hole
in its network when a current provider decides not to renew at the last
minute. We are not persuaded that a sufficient public-policy rationale
exists to rewrite the parties’ contract and grant MCNA a non-renewal right.
The district court, having examined the provider contract and
determined MCNA possessed no right to terminate by non-renewal, next
examined whether MCNA’s actions nonetheless met the termination
requirements in article X, section 2. But MCNA has made clear—both in
its briefing and at oral argument in this case—that it did not terminate
under any provision in section 2 and thus makes no claim to have
exercised a right of termination separate from its claimed right of non-
renewal.
Because we now affirm the district court’s ruling on Colwell’s breach
of contract claim against MCNA on the grounds stated above, and because
that holding is determinative of this appeal, we need not address the other
grounds of breach that the district court found in its ruling.
AFFIRMED.