Dartmouth v . U.S. Life Insurance CV-99-588-M 09/19/01 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Dartmouth Hitchcock Clinic, and Hitchcock Clinic, Inc., Plaintiffs
v. Civil N o . 99-588-M Opinion N o . 2001 DNH 169 United States Life Insurance Company in the City of New York, Defendant
O R D E R
This dispute concerns an insurer’s right to cancel a group
insurance policy. Plaintiffs, Dartmouth-Hitchcock Clinic and
Hitchcock Clinic, Inc., are “participating employers” in an
insurance trust, through which they extend insurance benefits to
their employees under a group accident and health insurance
policy - policy n o . G-128,105 (the “policy”), issued by the
defendant, United States Life Insurance Company in the City of New York (“U.S. Life”). 1 Before the court are the parties’
cross-motions for summary judgment.
Background
I. General.
The University Physicians Trust (the “Trust”) was created on
July 1 , 1981, by James M. Andrew d/b/a Medical Group Financial
Services, for the purpose of holding insurance policies in trust
for the benefit of employees (and their spouses and issue) of
participating employers. The Trust agreement was amended and
restated in 1994, identifying Medical Group Financial Services,
Inc. (“MGFS”) as both settlor and trust administrator, and
Citizens Trust Company (a Rhode Island banking corporation) as
trustee. The policy was issued on July 1 , 1990, naming the
Trustee as the policyholder. See Policy at FP. Portions of the
1 Both parties attached copies of the policy to their respective motions. See Defendant’s motion for summary judgment, Ex. B ; Plaintiffs’ objection and cross-motion for summary judgment, Ex. 1 . For purposes of this order, references to the policy will cite its alpha-numerical page numbers (which correspond to specific sections of the policy).
2 policy were amended on October 1 , 1993, and again on September 1 ,
1995. See Plaintiffs’ objection and cross-motion, Ex. 1 .
Under the terms of the Trust and the policy, “participating
employers” are employers who enter into an agreement with the
settlor to participate in the Trust, thereby entitling them to
apply for insurance provided under the policy. See Defendant’s
motion for summary judgment, Ex. A , University Physicians Trust
(“Trust Agreement”); Policy at DEF-2, PE-1. The term “insured or
insured persons” refers to employees insured under the policy.
See Policy at DEF-2.
The policy describes all benefits and options available
under i t , and sets out general provisions, exclusions, and means
by which insurance coverage may be terminated. Each
participating employer’s rights under the policy are further
defined in a discrete plan of insurance (“plan”). The plan, in
conjunction with the policy, identifies the benefits and options
elected by that employer and made available to its employees.
3 The premium charged each participating employer differs depending
on coverage elections made and is set out in the respective
plans. See Policy at PLAH-1. “[U.S.] Life may change premium
rates for a Participating Employer: . . . when [the] policy is
amended; . . . when an affiliate is added to or deleted from
[the] policy; . . . [or] on the day following the Rate Guarantee
specified in the Participating Employer’s plan of insurance.”
Id. Several participating employers maintain plans under the
policy.
To summarize, then, a single, overriding policy of insurance
provides general terms, limitations, and provisions concerning
the scope, duration, and cancellation of insurance benefits.
Each participating employer’s contractual rights are further
defined in a unique “plan,” tailored specifically to that
employer’s needs. The question central to this litigation is
whether an amendment to an employer’s discrete plan necessarily
amends the terms of the overriding policy.
4 II. The Policy.
Insurance extended under the policy may terminate in several
ways, most of which are not pertinent to this case. For purposes
of this litigation, it is sufficient to note that the policy
expressly reserves U.S. Life’s “right to end [the] policy on any
policy anniversary after the first,” with sixty days advance
written notice to the policyholder. Policy at PE-1. The policy
anniversary date is July 1 .
The policy’s “General Provisions” govern changes to the
policy and unequivocally require that any changes be approved in
writing by an officer of U.S. Life, “endorsed on or attached to
[the] policy.” See Policy at GP-1. The policy also expressly
limits an agent’s authority to modify the policy, stating that
“[n]o agent may change or waive any provision of this policy.
Any change or waiver must be approved in writing by an officer of
United States Life.” See id.
5 III. Amendment of Plaintiffs’ Plan.
Throughout their participation in the Trust, plaintiffs had
no direct contact with U.S. Life. MGFS acted as a broker,
working with plaintiffs and other participating employers to
develop discrete plans of insurance under the policy, tailored to
each employer’s needs. In December of 1997, MGFS offered
plaintiffs a new premium rate “guaranteed for three years” (the
“rate guarantee”). Plaintiffs accepted the rate change on
December 1 9 , 1997, executing a “Request for Change in Plan,”
which references the policy number and provides:
Effective January 1 , 1998, the rate is renewed to $1.03 per $100 of monthly indemnity guaranteed for three years.
Premium Rate Guarantee Date Expires o n : December 3 1 , 2000.
Plaintiffs’ objection and cross-motion, Ex. 2. 2 Plaintiffs did
not solicit the rate guarantee, and apparently no policy-related
2 The quoted rate was guaranteed to The Hitchcock Clinic, Inc. Dartmouth-Hitchcock Clinic received a guaranteed rate of $1.04 per $100 of monthly indemnity.
6 discussion occurred. MGFS sent U.S. Life a fax on August 2 4 ,
1998, summarizing the renewal terms for several participating
employers, including plaintiffs’ rate guarantee. The
communication between MGFS and U.S. Life made no reference to the
specific terms of the policy.
On December 2 1 , 1998, U.S. Life notified MGFS by letter that
the policy would be cancelled on the next anniversary date (July
1 , 1999). The letter outlined how coverage issues would be
handled until the effective date of termination, and U.S. Life
informed MGFS that it was attempting to find a replacement
carrier to continue providing coverage.
Over the next several months, U.S. Life attempted to
negotiate a reinsurance agreement with Trustmark Insurance
Company (“Trustmark”), an Illinois company. Although not clearly
developed in the record, it appears that the potential agreement
with Trustmark either was not finalized, or was cancelled. In
any event, counsel for MGFS was notified in writing on October 1 ,
7 1999, that the policy termination date would be “extended one
final time to December 3 1 , 1999.” See Complaint, Ex. L.3 The
letter instructed MGFS to inform all participating groups of the
cancellation by November 1 , 1999. Plaintiffs were first notified
of the December 3 1 , 1999, termination date by letter from U.S.
Life (not MGFS) on November 2 4 , 1999. The day after plaintiffs
filed this suit, however, U.S. Life again extended the
termination date to July 1 , 2000 (the next anniversary date).
Standard of Review
When ruling upon a party’s motion for summary judgment, the
court must “view the entire record in the light most hospitable
to the party opposing summary judgment, indulging all reasonable
inferences in that party’s favor.” Griggs-Ryan v . Smith, 904
F.2d 112, 115 (1st Cir. 1990). Summary judgment is appropriate
3 The October 1 , 1999, letter is written on American General Assurance Company (“American General”) stationery. American General acquired U.S. Life in 1997. Plaintiffs’ complaint acknowledges that the letters on American General stationery are, for the purposes of this case, attributable to U.S. Life.
8 when the record reveals “no genuine issue as to any material fact
and . . . the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). In this context, “a fact is
‘material’ if it potentially affects the outcome of the suit and
a dispute over it is ‘genuine’ if the parties’ positions on the
issue are supported by conflicting evidence.” Intern’l Ass’n of
Machinists and Aerospace Workers v . Winship Green Nursing Center,
103 F.3d 196, 199-200 (1st Cir. 1996) (citations omitted).
Discussion
U.S. Life moves for summary judgment on grounds that the
policy unambiguously reserves to it the right to cancel the
policy on any anniversary date after the first and, therefore, as
a matter of law, it had the right to cancel the policy on July 1 ,
2000, notwithstanding rate guarantees extended to participating
employers in individual plans. Plaintiffs counter that by
extending a three year rate guarantee under their plan, MGFS,
acting as U.S. Life’s agent, necessarily modified the policy’s
cancellation terms, thereby precluding U.S. Life from cancelling
9 the policy during the period covered by the rate guarantee.
Plaintiffs also assert that a genuine dispute exists regarding
MGFS’s agency authority – actual, apparent, and/or implied - to
amend the terms of the policy. Accordingly, they seek additional
time to respond to defendant’s motion, in order to obtain
previously requested (but undisclosed) discovery concerning the
scope of MGFS’s authority and U.S. Life’s own understanding of
the meaning of the term “rate guarantee.” See Fed. R. Civ. P.
56(f). Plaintiffs also move for summary judgment, claiming that
the “Request for Change in Plan” that was executed to formalize
the rate guarantee, when read in conjunction with the policy,
unambiguously modified the policy’s cancellation provisions.
As an initial matter, plaintiffs’ Rule 56(f) request is
denied. It is within the court’s discretion to grant such a
motion i f :
[the] party who seeks to invoke the rule . . . (i) make[s] an authoritative and timely proffer; (ii) show[s] good cause for failure to have discovered . essential facts sooner; (iii) present[s] a plausible basis for the party’s belief that facts exist that
10 would likely suffice to raise a genuine and material issue; and (iv) show[s] that the facts are discoverable within a reasonable amount of time.
Morrissey v . Boston Five Cents Sav. Bank, 54 F.3d 2 7 , 35 (1st
Cir. 1995). Here, as discussed below, plaintiffs have not shown
that the desired information is likely to establish a material
factual dispute. Accordingly, the court turns to a consideration
of the merits of the parties’ motions.
Both parties agree that, as provided in the policy, Rhode
Island law governs their dispute and, under Rhode Island law,
insurance policies are subject to general rules of contract
construction. See, e.g., Aetna Cas. & Sur. C o . v . Sullivan, 633
A.2d 684, 686 (R.I. 1993). The policy must be read as a whole to
determine if its terms are ambiguous. See id. (noting that words
and phrases cannot be viewed in isolation or out of context when
determining whether ambiguity exists). Absent ambiguity, the
court will give effect to the language of the policy as written.
See Employers Mut. Cas. Co. v . Pires, 723 A.2d 295, 298 (R.I.
1999) (per curiam); Aetna Cas. & Sur. Co., 633 A.2d at 686. But,
11 “[i]f an ambiguity exists, the court will consider the
construction placed upon terms by the parties. The circumstances
surrounding the execution of the contract are relevant to the
determination of the parties’ intent.” Johnson v . Western Nat’l
Life Ins. Co., 641 A.2d 4 7 , 48 (R.I. 1994) (per curiam) (citation
omitted). The court will not, however, read ambiguity into an
otherwise unambiguous contract. See Aetna Cas. & Sur. Co., 633
A.2d at 686.
I. A Rate Guarantee Does Not Implicitly Amend the Policy Cancellation Provisions as a Matter of Law.
The cornerstone of plaintiffs’ argument is their contention
that “[l]egally an insure[r] 4 cannot cancel the underlying
insurance coverage during the effective period of a rate
guarantee.” Plaintiffs objection and counter motion at 1 4 . On
that basis, plaintiffs argue that an inherent ambiguity arises
when policy documents include both a rate guarantee and a broad,
4 Plaintiffs’ memorandum actually reads “an insured cannot cancel . . . during . . . a rate guarantee.” Plaintiffs’ objection and counter motion at 14 (emphasis added). Given the context, clerical error is assumed.
12 discretionary cancellation provision. See id. at 16-17. See
also Plaintiffs’ reply to defendant’s objection (document n o . 26)
at 9. The court disagrees.
Plaintiffs’ argument rests upon an interpretation of
precedent that i s , at best, stretched. None of the decisions
upon which they rely stands for the proposition that a rate
guarantee necessarily guarantees insurance coverage for a period
co-extensive with the term of the rate guarantee, or otherwise
operates, as a matter of law, to limit the terms of an express
cancellation provision. And, in this case, it is clear from the
material submitted by the parties that they plainly anticipated,
in some cases, that rate guarantees might be extended to
individual employers under their individual plans. Nothing
suggests, however, that such rate guarantees would in any way
affect or alter the policy’s termination provisions. Nor does
anything submitted suggest that the particular rate guarantee
extended in this case superceded or eliminated those termination
provisions.
13 The policy unambiguously anticipates both the possibility
that rate guarantees might be extended under various
participating employers’ plans and that U.S. Life might,
nevertheless, cancel the policy on any anniversary date after the
first, with the agreed-upon advance notice. In other words,
because it contains both provisions concerning U.S. Life’s
authority to cancel the policy and a limitation on its right to
change policy premiums during a rate guarantee period, the policy
plainly contemplates the co-existence of rate guarantees and U.S.
Life’s right to cancel in accordance with the termination
provisions. See Policy at PLAH. Nothing in the record suggests
plaintiffs negotiated for, or thought they obtained, or could
have reasonably thought they obtained non-cancellable insurance
when their plan was amended to provide for a fixed-period rate
guarantee. Nor is there any evidence that U.S. Life either
attempted to exact a higher premium rate during a rate guarantee
period, or exercised its discretion under the cancellation
provision as a means by which to circumvent the rate guarantee
and extort a higher premium (i.e., by threatening cancellation if
14 plaintiffs did not acquiesce to a higher premium rate) - facts
that might give rise to a claim that U.S. Life breached an
implied covenant of good faith and fair dealing.
In isolation, the term “rate guarantee” might be deemed
ambiguous, in the sense that one might argue that its impact on
termination is “unclear.” But, when the term is read in the
context of the entire policy, see Aetna Cas. & Sur. Co., 633 A.2d
at 686, there is nothing ambiguous about it. In context, the
only thing guaranteed was a premium rate identified in a
particular plan of insurance related to a particular
participating employer. The plans, however, are not the policy.
The policy is issued to the Trustee, is common to all
participating employers, and delineates the blanket rights and
duties of everyone involved – U.S. Life, the
Trustee/policyholder, the participating employers, and the
insured employees. Plans, on the other hand, are tailored for
each participating employer, within the framework of the policy
itself and, while they supplement and further define rights and
15 obligations, the terms of the plans do not necessarily alter the
terms of the policy. S o , in the context of this policy, as
issued, recognizing U.S. Life’s right to unilaterally cancel the
policy on any policy anniversary date is not inconsistent with it
ability to guarantee rates to discrete participating employers,
whose plans remain subject to the policy’s terms. The rates
remain guaranteed for the period specified, so long as the policy
is in effect, but subject, of course, to U.S. Life’s right to
cancel (in good faith).
II. No Evidence That The Parties’ Specifically Intended to Modify the Policy Cancellation Provisions.
Under Rhode Island law, “modification to an enforceable
contract requires that the parties assent to the essential terms
of their obligations and that an agreement embrace these terms.”
Fondedile, S.A. v . C.E. Maguire, Inc., 610 A.2d 8 7 , 92 (R.I.
1992). “The modification can be written, oral, or implied, but
the burden of proving the existence of the modification rests
with the party alleging the new contract.” Id. (citation
omitted). Accordingly, in this case the burden of proving that
16 the rate guarantee operated to modify the policy’s cancellation
provisions is on plaintiffs.
Whether a modification occurred is usually a question of
fact. See 2 Lee R. Russ & Thomas F. Segalla, Couch on Ins. §
25:27 (3d ed. Supp. 2000). But, if there is no genuine issue of
material fact, the issue can be decided at the summary judgment
stage. See id.
U.S. Life concedes that MGFS was authorized to extend rate
guarantees to participating employers, as contemplated by the
policy. Plaintiffs, however, argue that a genuine dispute exists
concerning MGFS’s authority to modify the policy, and they
contend withheld documents would reveal U.S. Life’s own
understanding of the meaning of “rate guarantees” (presumably, an
understanding that, notwithstanding the formalities required for
modification of the policy’s express cancellation provision, a
rate guarantee nullified both the modification and cancellation
17 provisions sub silentio). Because the contract is unambiguous,
however, the documents plaintiffs seek are not pertinent.
Construction of an unambiguous contract is limited to the
four corners of the policy. See, e.g., Aetna Cas. & Sur. Co.,
633 A.2d at 686 (“The necessary prerequisite to this court’s
departure from the literal language of the policy is a finding
that the policy is ambiguous.”). Moreover, any dispute about
MGFS’s authority to modify the policy is not material here
because plaintiffs have not met their burden of presenting
evidence tending to show a modification to the policy occurred at
all.
To demonstrate the existence of a modification, plaintiffs
“must show that the parties demonstrated both subjective and
objective intent to be bound by the new contract’s terms.”
Fondedile, S.A., 610 A.2d at 9 2 . Plaintiffs agree that the
pertinent Requests for Change in Plan incorporate the terms and
conditions of the policy. See Defendant’s motion for summary
18 judgment, Deposition of David Brooker (“Brooker Depo.”) at 5 5 .
Therefore, each Request for Change in Plan must be read
consistently with the policy’s terms. See 17A Am. Jur. 2d
Contracts § 400 (Cum. Supp. 2001) (“Where a written contract
refers to another instrument and makes the terms and conditions
of such other instrument a part of i t , the two will be construed
together as the agreement of the parties.”).
The record demonstrates that plaintiffs did not read the
policy before signing the Requests for Change in Plan, see
Brooker Depo. at 7 2 , and, therefore, had no specific
understanding of the term “rate guarantee” as it might relate to
the policy’s cancellation provisions. Indeed, plaintiffs were
apparently unaware that U.S. Life had reserved the right to
cancel the policy, notwithstanding the possible extension of rate
guarantees. Nonetheless, plaintiffs are charged with knowledge
of the terms of the policy. See 2 Couch on Ins. §§ 21:16,
31:113. The policy fully contemplates the extension of discrete
guaranteed rates in each participating employer’s plan, but does
19 not purport to thereby waive or modify the terms related to
cancellation. The summary judgment record does not support
plaintiffs’ claim that the parties necessarily intended to negate
the policy’s cancellation provision during any period covered by
a rate guarantee offered under an employer’s unique plan.
Significantly, plaintiffs do not assert that they either
expected or requested that the policy’s cancellation provisions
be modified or eliminated. Nor do they say they intended to
obtain non-cancellable insurance by obtaining a guaranteed rate.
They have pointed to no evidence that MGFS suggested that the
policy’s cancellation provisions would be affected by a rate
guarantee, or that insurance coverage provided under the rate
guarantee would be non-cancellable.5 Plaintiffs’ only support
for their contention that the rate guarantee necessarily
superceded or modified the policy’s cancellation provisions is
5 Plaintiffs also seek discovery related to assurances of coverage allegedly made to MGFS. Plaintiffs’ need for that discovery, however, demonstrates that they were not given such assurances by MGFS, and, therefore, did not rely on them.
20 the claim that they “assumed” a rate guarantee to be the
equivalent of a coverage guarantee for the applicable rate
period. Read in light of the entire policy, however, such an
assumption was not reasonable. A rate guarantee standing alone,
under this policy, simply imposed upon the insurer the option to
provide insurance at the agreed-upon rate for the agreed-upon
period, or cancel the policy at the next anniversary date, with
the requisite advance notice.
Furthermore, the language used in the Requests for Change in
Plan, and past course of dealing among the parties, support the
entry of summary judgment in defendant’s favor. The forms signed
by plaintiffs’ representative were clearly labeled “Requests for
Change in Plan.” Approved changes to the policy, however, were
clearly labeled “Policy Amendment.” See Plaintiffs’ objection
and counter motion, Ex. 1 (complete copy of policy including five
amendments). And, in contrast to the Requests for Change in
Plan, the Policy Amendments preserve all policy provisions not
addressed by the amendment. Moreover, in accordance with the
21 express language of the policy, Policy Amendments were
necessarily signed by the chairman of the board of U.S. Life and
attached to the policy. Requests for Change in Plan were simply
executed by the plaintiffs’ representative, and were not
“endorsed on or attached to [the] policy.” See Policy at GP-1
(stating how changes can be made). In short, it is evident from
their dealings that the parties fully understood that more than a
change in plan was necessary to effect a change in the policy.
Cf. Fondedile, S.A., 610 A.2d at 92 (“Both the express provisions
of the contract and the parties’ prior practice show that in
modifying the original contract, defendants manifested objective
intent through a written change order.”).
To the extent plaintiffs thought otherwise, they were
mistaken and that mistake was unilateral in character. Because
no evidence suggests defendant was aware of plaintiffs’
unilateral mistake, U.S. Life retained its right to cancel the
policy on any anniversary date after the first, even though it
agreed to a three year rate guarantee. C f . Hashway v . Ciba-Geigy
22 Corp., 755 F.2d 209, 211 (1st Cir. 1985) (“A mistake by one party
with knowledge thereof by the other is equivalent to a mutual
mistake; a party should not be benefitted by a mistake he knew
the other had made.”). Again, that is not to say that U.S. Life
retained the ability to cancel the policy for an improper purpose
(e.g., to extract premiums higher than those guaranteed).
Conclusion
Group policy G-128,105, issued to the Trustee of the
University Physician’s Trust, unambiguously reserves to defendant
U.S. Life the right to cancel the policy, in good faith, on any
anniversary date, notwithstanding the extension of rate
guarantees to plaintiffs under plan documents. U.S. Life thus
acted within its contractual rights, as a matter of law, when it
cancelled the policy, with appropriate advance notice, on July 1 ,
2000. Accordingly, defendant’s motion for summary judgment
(document n o . 14) is granted, and plaintiffs’ motion for summary
judgment (document no. 18) is denied. The Clerk of Court shall
23 enter judgment in accordance with the terms of this order and
close the case.
SO ORDERED.
Steven J. McAuliffe United States District Judge
September 1 9 , 2001
cc: Ronald L. Snow, Esq. Robert R. Lucic, Esq. Irwin B . Schwartz, Esq.