Kirkpatrick v. Boston Mutual Life Insurance

473 N.E.2d 173, 393 Mass. 640, 1985 Mass. LEXIS 1218

• Court: Massachusetts Supreme Judicial Court
• Decided: January 14, 1985
• Status: Published

Opinions

Hennessey, C.J.

The plaintiff, Oscar Kirkpatrick, was party to a group insurance contract with the defendant, Boston Mutual Life Insurance Company (Boston Mutual), through his employment with Systems Engineering And Manufacturing Corp. (Systems Corp.). He brought this action in the Superior Court alleging, in “Count One,” that Boston Mutual violated the contract by refusing to pay him long-term disability benefits and alleging, in “Count Two,” that such violations constituted an unfair and deceptive act under G. L. c. 93A. The plaintiff filed a motion for partid summary judgment on his contract claim, together with supporting affidavits. Boston Mutual opposed the motion and submitted its own affidavits. Based upon this record, a judge of the Superior Court denied the plaintiff’s motion and granted summary judgment to Boston Mutual on both counts of the complaint. Subsequently the plaintiff filed an application for direct appellate review which we allowed. We now reverse the entry of summary judgment and remand the case for trial.

We summarize the facts as presented in the judge’s findings and affidavits and exhibits of both parties. In June, 1978, Boston Mutual issued a group insurance policy to Systems Corp., the plaintiff’s employer. The group policy provided for payment of long-term disability benefits, as well as for life, accidental death and dismemberment, and accident and sickness insurance to eligible employees. In 1979, the group policy was amended to provide that the effective date of coverage for employees hired after June 25, 1978, with respect to long-term disability and accident and sickness benefits, was “the 1st day of the insurance month following one year of employment.” The policy’s long-term disability coverage was subject to a 180 day elimination period as well as a “pre-existing condition” exclusion.² Excluded from the policy’s long-term disability coverage was “any disability commencing during the first twelve months that the insurance is in force with respect to the Employee if the disability is caused or contributed to by, or is a consequence of, a disease or injury for which the Employee received medical treatment, or services, or took prescribed drugs or medicines during the three month period immediately prior to the Effective Date of such insurance.”

As self-administrator of the group policy, Systems Corp. assumed such functions as enrolling members, providing claims information, providing premium reports, and filling out and distributing to eligible employees insurance certificates supplied by Boston Mutual. Systems Corp. also submitted a monthly group transaction report to Boston Mutual informing the insurer of additions to, deletions from, and changes in the coverage of eligible employees.

The plaintiff began his employment with Systems Corp. on August 11, 1980. He was hospitalized for hepatitis from July 8 to July 24, 1981, and then from July 31 to August 8, 1981. He returned to work on a full-time basis on October 5, 1981, and was terminated due to his continued disability from hepatitis on October 13, 1981.

The plaintiff testified in his deposition that he received a group insurance certificate through his employer sometime between July 8 and July 31, 1981. The certificate, issued by Boston Mutual, showed the benefits to which he was entitled under the group policy. At the top of the first page of this certificate, Systems Corp. filled in an erroneous effective date of June 25, 1981, for the plaintiff’s long-term disability and accident and sickness coverage. The subsequent provisions of the certificate contained no further references to the effective date of coverage. However, according to the terms of the group policy, which the plaintiff never received, his effective date was September 1, 1981.³ The significance of this conflict of dates is the applicability of the policy’s pre-existing condition exclusion. If the plaintiff’s effective date was June 25, 1981, he was entitled to benefits for his July disability; if his coverage was not effective until September 1, 1981, his disability falls within his three-month exclusion.

Systems Corp. paid premiums to Boston Mutual on the plaintiff’s behalf for a period beginning June 25, 1981, and added the plaintiff’s name to its monthly transaction report as eligible for benefits as of that date. On July 31, 1981, the plaintiff filed a claim with Boston Mutual for accident and sickness benefits. On his claim form Systems Corp. again supplied the erroneous June 25 effective date. Based upon this date Boston Mutual paid the plaintiff accident and sickness benefits for the twenty-six week period between August 8, 1981, and January 7, 1982.

On March 1, 1982, the plaintiff applied to Boston Mutual for long-term disability benefits. On June 4, 1982, Boston Mutual denied his claim, alleging that the plaintiff’s disability arose within three months of his September 1, 1981, effective date and therefore was excluded from coverage. The plaintiff contends he was due benefits based upon an effective date of June 25, 1981.

On appeal the plaintiff argues: (1) That Systems Corp. acted as an agent of Boston Mutual in filling out his certificate and therefore Boston Mutual is bound by the erroneous effective date appearing on his certificate, and (2) where there is a conflict in the terms of an individual certificate and group policy, that conflict should be resolved in favor of the insured. We are presented with issues of first impression⁴ over which courts elsewhere are divided.

On a motion for summary judgment “the inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion.” Hub Assocs. v. Goode, 357 Mass. 449, 451 (1970), quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). The motion judge should enter summary judgment only if the pleadings and affidavits of the parties demonstrate “that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Mass. R. Civ. P. 56 (c), 365 Mass. 824 (1974). We will uphold an order for summary judgment on review only if “certain factors converge to convince us that the trial judge was ruling in this case on undisputed facts and, of course, that his ruling was correct as matter of law.” Community Nat’l Bank v. Dawes, 369 Mass. 550, 556 (1976).

Here, the underlying facts are virtually undisputed. The issue instead is what inferences can be drawn from these facts and whether in light of such inferences a jury “could find with reason what is required for liability in cases of this type.” Richey v. American Auto. Ass’n, 380 Mass. 835,838 (1980).

Applying these principles, we conclude that the motion judge erred in granting summary judgment to Boston Mutual. The judge ruled that Systems Corp. was not acting as Boston Mutual’s agent in filling out the plaintiff’s certificate; that Boston Mutual therefore could not be held responsible for System Corp. ’s error; and that the terms of the plaintiff’s group policy regarding his effective date must prevail over the conflicting provision in his certificate. We conclude that the crucial issue of agency presents a triable question for the jury, and if the jury were to find- such agency, the applicable law is such that a verdict for the plaintiff would be warranted on count one, sounding in contract.⁵

1. Agency.

A conflict of authority exists over whether an employer acts as agent for the insured or the insurer in administering group policies. 1 J.A. Appleman, Insurance Law and Practice § 43 (rev. ed. 1981). In arguing that Systems Corp. acted solely on behalf of its employees, Boston Mutual relies upon cases following the older “conventional” rule. Id. at 89 n.2, and cases cited. These authorities reason that an employer serves its own interests and those of its employees — rather than the adverse interests of the insurer — when it assumes administrative responsibilities. See Norby v. Bankers Life Co., 304 Minn. 464, 468-470 (1975) (discussing and rejecting characterization of employer as agent of the insured). With the tremendous expansion of the group insurance market, a growing minority of courts have come to realize that the insurer is equally benefited by employer-administered plans. “It cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in undertaking administrative functions. While a reduced premium may result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to both the employer and the employees, the insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results from employer-administration permits the insurer to realize a larger volume of sales, and at the same time the insurer’s own administrative costs are markedly reduced.” Elfstrom v. New York Life Ins. Co., 67 Cal. 2d 503, 512-513 (1967).

An agency “results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control.” Restatement (Second) of Agency § 1 (1958).

Inferring the existence of an agency, a number of courts have held insurers responsible for administrative errors committed by employers (or other group policyholders) who act on their behalf. See, e.g., John Hancock Mut. Life Ins. Co. v. Dorman, 108 F.2d 220, 222-223 (9th Cir. 1939); Clauson v. Prudential Ins. Co., 195 F. Supp. 72, 80 (D. Mass.), aff’d on other grounds, 296 F.2d 76, 79 (1st Cir. 1961) (applying Delaware law); Blue Cross-Blue Shield v. Thornton, 56 Ala. App. 678, 684 (1975); Metropolitan Life Ins. Co. v. State Bd. of Equalization, 32 Cal. 3d 649, 659 (1982); Elfstrom, supra at 512-513; Woodard v. Prudential Ins. Co., 350 So.2d 948, 952 (La. App. 1977); Norby, supra at 470; Hirsch v. Travelers Ins. Co., 153 N.J. Super. 545, 553 (1977); Baum v. Massachusetts Mut. Life Ins. Co., 357 P.2d 960, 964 (Okla. 1960); Paulson v. Western Life Ins. Co., 292 Or. 38, 48 (1981).

Whether or not the employer acts as the insurer’s agent is a factual question to be resolved on a case by case basis.⁶ Among the criteria to consider are (1) whether the task is expressly delegated to the employer by the insurer; (2) whether the employer’s performance is subject to the insurer’s supervision and control; (3) whether there is any evidence of collusion between employer and employee to defraud the insurer. Norby, supra at 472-473. Paulson, supra at 48-51. Some courts which have addressed the specific issue as to whether a group policyholder acts as an agent when filling out individual insurance certificates have held that an agency does exist for this purpose. See, e.g., Dorman, supra at 222-223; Loubat v. Audubon Life Ins. Co., 170 So.2d 745,748 (La. App. 1964).

In light of such decisions, we conclude that it is for the jury to decide whether Systems Corp. acted as Boston Mutual’s agent in completing the plaintiff’s insurance certificate. Systems Corp. acted as an intermediary in receiving these certificates from the insurer, filling in names, policy numbers, and effective dates, and distributing the certificates to eligible employees. The certificate was the only part of the insurance contract received by the employees. Systems Corp. also paid premiums to Boston Mutual, submitted claims forms, and transmitted monthly transaction reports all of which, in the plaintiff’s case, carried the incorrect effective date of his coverage. We cannot agree with the motion judge that as a matter of law no agency relationship existed by which Boston Mutual could be charged with Systems Corp.’s error.

2. Conflict Between Certificate and Policy.

Boston Mutual argues that, since it is not bound by the clerical error committed by Systems Corp., the terms of the group policy regarding the plaintiff’s effective date are controlling. The judge agreed, reasoning that the language of the certificate eliminated any ambiguity regarding the plaintiff’s effective date. On its face, the certificate states that it “is issued in accordance with and subject to the terms of the Group Policy. This certificate will in no way void any of the terms and conditions outlined in the Policy but will show the benefits to which the Employee is entitled.” In resolving the conflict between the documents by deferring to the policy’s terms, the judge adopted the rule established in such cases as Page v. Prudential Ins. Co., 231 Ala. 405, 407-408 (1936); Standard of Am. Life Ins. Co. v. Humphreys, 257 Ark. 618 (1975); Morrison Assurance Co. v. Armstrong, 152 Ga. App. 885 (1980); Adair v. General Am. Life Ins. Co., 124 S.W.2d 657 (Mo. App. 1939); Transport Life Ins. Co. v. Karr, 491 S.W.2d 446 (Tex. Civ. App. 1973).⁷ We are not persuaded by these authorities.⁸

The better view — and “the present weight of authority” — holds that where insurance certificates create ambiguities in the extent of coverage, and particularly where conflicts exist between the terms of the certificate and the group policy, the language of the certificate, where more favorable to the insured, prevails. Appleman, supra § 46, at 155-159. See, e.g., Davis v. Crown Life Ins. Co., 696 F.2d 1343, 1345 (11th Cir. 1983) (applying Florida law); Life Ins. Co. v. Lee, 519 F.2d 475, 478 (6th Cir. 1975) (applying Tennessee law); Lecker v. General Am. Life Ins. Co., 55 Hawaii 624, 632 (1974); Davey v. Louisiana Health Serv. & Indem. Co., 357 So.2d 1170, 1174-1175 (La. App. 1978); Potter v. Reliance Mut. Life Ins. Co., 21 Pa. D. & C. 2d 603, 607 (1960).

Only two reported cases concern a conflict between certificate and policy terms regarding the effective date of an employee’s coverage. In both the courts resolved the conflict in favor of the insured and found the certificate’s terms controlling. Equitable Life Assurance Soc’y v. Wagoner, 269 So.2d 747, 748 (Fla. Dist. Ct. App. 1972). Exstrum v. Union Casualty & Life Ins. Co., 167 Neb. 150, 160 (1958) (applying Illinois law). It is noteworthy that this result was reached in the Equitable Life Assurance Soc’y case despite a clause in the certificate notifying the insured that the certificate “is furnished in accordance with and subject to the terms of the Group Policy.” Id. at 748. See also Lecker, supra at 631 (insured entitled to rely on certificate despite proviso that benefits are subject to policy’s terms). The result reached in this line of cases “can be easily justified upon the ground that the individual certificate is the only instrument which the employee sees at any time, and that if the insurer chooses to draft and to issue these certificates in language selected by it, then it cannot be heard to complain that such language does not express the intention of the parties.” Appleman, supra § 46, at 158. This principle is equally applicable if the insurer acts through an agent in preparing and issuing the certificates.⁹

While this court has not had occasion to decide what terms shall apply in cases of conflict between the certificate and policy, it has long held that “ambiguities in insurance policies must be construed in favor of the insured.” Slater v. United States Fidelity & Guar. Co., 379 Mass. 801, 808 (1980). See also Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146 (1982). In Cody, supra at 148-149, we noted that marketing group insurance policies through the workplace may result in misleading contracts which violate public policy. We also warned insurers of potential liability for misleading insurance literature prepared and distributed by employer-policyholders. Id. at 150 n.14.

Boston Mutual contends that in the context of group insurance, no contract arises between the employee and insurer until the effective date of the employee’s coverage as determined by the group policy. According to this reasoning, the plaintiff could not properly accept the insurer’s contract offer until September 1, 1981, and therefore no contract existed in June, 1981, the effective date appearing on the certificate. We do not find this argument persuasive. See Shea v. Aetna Life Ins. Co., 292 Mass. 575, 580-581 (1935) (employee becomes party to insurance contract upon application and payment of premiums). See also Krause v. Washington Nat’l Ins., 255 Or. 446, 456-457 (1970). Because we agree with the motion judge that the contract formed between the plaintiff and Boston Mutual consisted of both the certificate and policy, we also reject the insurer’s contention that enforcing the June, 1981, effective date would create insurance coverage by estoppel. Courts which deny relief to the insured for this reason do not consider the certificate part of the insurance contract. Accordingly to bind an insurer to errors contained in the certificate would create coverage beyond the contract. See Morris v. Travelers Ins. Co., 546 S.W.2d 477, 481-486 (Mo. App. 1976) (because insurance contract consists of certificate and policy, general rule as to creation of coverage by estoppel does not apply); Equitable Life Assurance Soc’y, supra at 748 (where contract consists of policy and certificate construed together, conflicts between the two are resolved to provide broadest coverage).

We conclude that a verdict for the plaintiff on the count in contract would be warranted, if evidence as shown in the affidavits and exhibits of the parties is produced at the trial. We therefore reverse the order entering summary judgment for Boston Mutual and remand the case for further proceedings in accordance with this opinion.¹⁰

So ordered.

2 Neither of these provisions applied to accident and sickness coverage.

3 Since the plaintiff was not actively at work on September 1, 1981, his effective date, according to the policy, was postponed until his return to full-time employment in October, 1981.

4 We are, however, guided by certain long-standing principles of insurance law. This court was one of the earliest to recognize that a contract of insurance is formed between the individual employee and insurer under a group insurance policy. Shea v. Aetna Life Ins. Co., 292 Mass. 575,580-581 (1935). While we have not decided what constitutes this contract, we have looked to an employee’s insurance certificate “which took the place of the ordinary insurance policy” to determine contract terms. Wing v. John Hancock Mut. Life Ins. Co., 314 Mass. 269, 271 (1943).

5 The judge also ruled that the plaintiff had not relied upon the erroneous effective date in the certificate, and the parties also discuss that concept in their arguments. Presumably they are concerned with certain cases where certificates or employee literature indicated coverage different than the master policy, and the courts of several States have decided in favor of the plaintiffs based on equitable principles of reliance and estop-pel. See, e.g., Krauss v. Manhattan Life Ins. Co., 700 F.2d 870 (2d Cir. 1983); Lewis v. Continental Life & Accident Co., 93 Idaho 348 (1969); Riske v. National Casualty Co., 268 Wis. 199 (1954). We need not consider whether such reasoning would support a recovery for the plaintiff under Massachusetts law, because the proof offered here falls far short of showing that the plaintiff relied to his detriment upon the representations of the certificate as to effective date of coverage.

6 In Wing v. John Hancock Mut. Life Ins. Co., 314 Mass. 269, 271 (1943), this court found that an employer was not acting as an agent of the insurer-defendant with regard to receiving notice of an employee’s disability. The employee’s certificate stated that such notice was to be received by the insurer. Wing did not pose the question as to whether the employer acted as an agent with regard to preparing and distributing the employees’ certificates.

7 Several of these cases are factually distinguishable from the instant case. In Adair and Page, the certificates did not expressly contradict the policies but simply omitted the relevant terms. The Page, court noted, supra at 408, that “[i]f [the certificate’s] terms definitely contradict those of the master policy on a material point ... the rule of liberal construction should be applied in favor of the certificate holder.” In Standard of Am. Life Ins. Co., supra at 621, the court emphasized the certificate’s explicit reference to the challenged provision of the group policy. In this case the certificate made no reference to the policy’s effective date provisions.

8 In an influential case relied upon by the motion judge, the court readily admits that “Justice is not well served by this rule of law.” Morrison Assurance Co., supra at 888. Constrained by judicial precedent, the court criticizes the older rule for placing the burden upon the employee to obtain the policy and discover any inconsistencies within its complex provisions thereby violating “the spirit of the trend toward consumer protection now recognized in all areas of the law.” Id.

9 See cases cited supra at 645-646.

10 We need not reach the plaintiff’s G. L. c. 93A claim against Boston Mutual. The motion judge ordered summary judgment for Boston Mutual on this count based upon his decision regarding the plaintiff’s contract claim. Accordingly, we reverse and remand on this claim as well.