Loralee Fisher v. Principal Life Insurance Company

• Court: Court of Appeals of Iowa
• Decided: November 30, 2020
• Docket: 19-0672
• Status: Published

Opinion

IN THE COURT OF APPEALS OF IOWA

No. 19-0672 Filed November 30, 2020

LORALEE FISHER, Plaintiff-Appellant,

vs.

PRINCIPAL LIFE INSURANCE COMPANY, Defendant-Appellee. ________________________________________________________________

Appeal from the Iowa District Court for Johnson County, Andrew B.

Chappell, Judge.

Loralee Fisher appeals the district court’s entry of summary judgment.

AFFIRMED.

L. Craig Nierman and Thomas E. Williams of Phelan Tucker Law LLP, Iowa

City, for appellant.

Jesse Linebaugh and Angela Morales of Faegre Baker Daniels LLP, Des

Moines, for appellee.

Considered by Vaitheswaran, P.J., and Mullins and Ahlers, JJ. 2

VAITHESWARAN, Presiding Judge.

The University of Iowa offered employees the chance to purchase insurance

through Principal Life Insurance Company (Principal). During a period of open

enrollment in 2017, employee Loralee Fisher purchased a dependent life

insurance plan, making an initial premium payment of $12.71 in late 2017. The

policy did not require proof of good health. The effective date of the policy was

January 1, 2018.

Fisher’s husband was staying at a hospital on January 1, 2018. He died on

January 2, 2018.

Fisher applied for death benefits under the policy. Principal denied the

claim, reasoning that Fisher’s husband “was in a period of limited activity when his

coverage became effective, which means he wasn’t eligible for [l]ife insurance

benefits.” Specifically, he “was under inpatient care from 12/30/17 through his date

of death. His [l]ife coverage woul[d have] begun on 1/1/18. Since he was hospital

confined on this date, he was not eligible for the coverage.”

Fisher filed an internal appeal, in which she asserted that if “Mr. Fisher was

not eligible for the coverage and/or policy never took effect,” the premium she paid

“should have been refunded to her.” In her view, because Principal “took and kept

for more than three months the premium for a policy that never existed,” the

company “waived all rights to deny coverage.” Principal denied the appeal.

Fisher sued Principal, alleging the company breached its contract, waived

its right to rescind the policy, and acted in bad faith. She later amended the petition

to add a claim of “reasonable expectations.” Principal moved for summary 3

judgment. Following a reported hearing, the district court granted the motion on

all four claims. Fisher appealed.

I. Breach of Contract

As noted, Fisher signed up for life insurance during her employer’s open

enrollment period. The insurance policy authorized open enrollment, as follows:

“An Open Enrollment Period will be available for any Member or Dependent every

year who . . . failed to enroll . . . during the first period in which he or she was

eligible to enroll; or during any previous Open Enrollment Period.” The policy

provided “[t]he effective date for any such individual requesting insurance during

the Open Enrollment Period” was to “be the Policy Anniversary that next follows

the date of completion of the Open Enrollment Period.” “No Proof of Good Health

[would] be required for Member or Dependent insurance purchased during the

Open Enrollment Period.”

As also noted, Principal’s denial of Fisher’s death-benefit claim turned on

the fact that her husband was in a “period of limited activity.” The policy defined

that phrase as “[a]ny period of time during which a person is . . . confined in a

Hospital for any cause or confined in a Nursing Facility.” A provision on

“Dependent Life Insurance” referred to the period of limited activity, as follows:

If a Dependent spouse or Domestic Partner is in a Period of Limited Activity on the date Dependent Life Insurance . . . would otherwise be effective, such insurance . . . will not be in force for that Dependent spouse or Domestic Partner until the Period of Limited Activity ends.

Fisher argues the “the period of limited activity condition” did not apply to

“policies purchased during an open enrollment period.” The district court

thoroughly addressed her argument as follows: 4

While it is true that the policy was slated to go into effect on January 1, 2018, the language of the policy does not exempt the new policyholder from the terms of the insurance originally signed up for. The Period of Limited Activity requirement was still in effect. The clear intent of this requirement is to delay the effective date, here January 1, 2018, until the insured is no longer hospitalized. Because Mr. Fisher was hospitalized (in a Period of Limited Activity) on January 1st, the effective date of the policy was delayed. Plaintiff also points to the language exempting the new policyholder from the Proof of Good Health requirement as evidence that the new policyholder is also exempt from the Period of Limited Activity requirement, but these are different provisions; exemption from the Proof of Good Health requirement is not exemption from the Period of Limited Activity requirement. . . . Plaintiff argues that the absence of cross-references to the Period of Limited Activity requirement in the Open Enrollment article is a source of ambiguity because such cross-references are present in [other parts of the policy]. . . . These cross-references, however, are necessary to impose the Period of Limited Activity requirement on Member Life Insurance, but are not necessary to impose the Period of Limited Activity requirement on Dependent Life Insurance. . . . Absent these [cross- references], the Period of Limited Activity requirement would not apply as it does not exist within the Member Life Insurance article. In contrast, the Period of Limited Activity requirement is integrated into Dependent Life Insurance—inclusion of the requirement in the Open Enrollment article would be redundant. In other words, the insurance policy need not cross-reference the Period of Limited Activity requirement to impose it on Dependent Life Insurance provisions because Dependent Life Insurance is already subject to said requirement . . . . Plaintiff’s [next] argument for interpretation of the contract in her favor is that section headings and sub-headings within the contract support [Mr.] Fisher’s exemption from the Period of Limited Activity requirement. . . . But nothing in the section headings suggest an alteration to the terms of the Dependent Life Insurance at issue here. The Period of Limited Activity requirement is part and parcel to the Dependent Life Insurance article; this requirement is an integral part of the product Plaintiff purchased. Indeed, the product Plaintiff purchased during Open Enrollment was “Dependent Life Insurance” which is described in the correspondingly titled “Dependent Life Insurance” article. Therefore, the section headings do not alter the terms of the Dependent Life Insurance or give rise to any ambiguity therein. 5

The court determined the policy language was “unambiguous” and Fisher could

not “prevail on her breach of contract claim.” We discern no error in the district

court’s comprehensive analysis. See Boelman v. Grinnell Mut. Reinsurance Co.,

826 N.W.2d 494, 501, 503–04, 507 (Iowa 2013) (using an “errors at law” standard

for interpretation of an insurance policy and review of a summary judgment ruling;

reading the policy “as a whole” and finding it “unambiguous”; and concluding the

policy did “not provide coverage as a matter of law”). We affirm the court’s grant

of summary judgment to Principal on Fisher’s breach-of-contract claim.

II. Reasonable Expectations

“The reasonable expectations doctrine ‘is a recognition that insurance

policies are sold on the basis of the coverage they promise.’” Id. at 505 (citation

omitted). “[T]he doctrine is carefully circumscribed.” Id. at 506. “The doctrine is

only invoked when an exclusion ‘(1) is bizarre or oppressive, (2) eviscerates terms

explicitly agreed to, or (3) eliminates the dominant purpose of the transaction.’” Id.

(citation omitted). “For the doctrine to apply, a prerequisite must first be satisfied.

‘[T]he insured must prove circumstances attributable to the insurer that fostered

coverage expectations or show that the policy is such that an ordinary layperson

would misunderstand its coverage.’” Id. (citation omitted). “[M]ost courts apply the

doctrine of reasonable expectations as an interpretive tool where the language of

a policy is deemed ambiguous,” but the doctrine also has been applied “in its

broader meaning as an independent and fundamental approach to insurance

policy interpretation.” Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903,

906 (Iowa 1973). 6

Fisher contends a reasonable person “would interpret the [p]olicy in such a

way as to expect that no conditions would exist to limit the effective date of a policy

purchased during the open enrollment period.” The district court’s analysis of the

breach-of-contract claim essentially resolves this argument. The policy

unambiguously incorporated the period of limited activity into dependent insurance

policies purchased during the open enrollment period, and an ordinary layperson

would not have misunderstood its applicability.

Fisher next contends it was her understanding “based upon the information

provided to her during the open enrollment period, that the policy would be

effective as of January 1, 2018.” She asserts “Principal did not provide any

information that there could be any circumstances that would cause the policy not

to be effective on January 1, 2018.” In fact, the policy itself provided the necessary

information, and Fisher does not attest Principal made contradictory

representations. Cf. Grinnell Mut. Reinsurance Co. v. Voeltz, 431 N.W.2d 783,

789 (Iowa 1988) (holding insurance company to its “manifested intent” and

concluding “there was an agreement in accordance with what the [insured]

reasonably expected”).

We conclude the district court did not err in granting Principal’s motion for

summary judgment on Fisher’s reasonable-expectations claim. 7

III. Waiver

Fisher contends Principal’s retention of the premium she paid in December

2017 constituted a waiver of the “period of limited activity” policy condition.1 “The

[waiver] theory applies where a party, knowing of an enforceable right, neglects

enforcement for such a length of time that the law implies its waiver or

abandonment.” Rubes v. Mega Life & Health Ins. Co., 642 N.W.2d 263, 272 (Iowa

2002) (citing Westfield Ins. Cos. v. Econ. Fire & Cas. Co., 623 N.W.2d 871, 880

(Iowa 2001)). “[T]he doctrine of waiver or estoppel cannot be successfully invoked

to create a liability for benefits not contracted for at all.” Westfield Ins. Cos. v.

Econ. Fire & Cas. Co., 623 N.W.2d 871, 879 (Iowa 2001) (quoting Pierce v.

Homesteaders Life Ass’n, 272 N.W. 543, 546 (Iowa 1937)).

After citing this precedent, the district court stated:

In Plaintiff’s case, as decided above, the terms of the contract unambiguously established the effective date of the insurance policy, the date from which Principal would be liable, as either January 1, 2018, or the first day thereafter on which Mr. Fisher was not in a Period of Limited Activity. Principal’s retention of the $12.71 premium for several months during the internal appeal process amounts only to retention during a period of “unresolved litigation” comparable to that in Rubes. The factual distinction between this case, Pierce, and Rubes (that Fisher’s life insurance claim came to fruition before the effective date while the plaintiffs’ claims in Pierce and Rubes came to fruition after they were no longer insured) is of no legal consequence; all that is important is that at the time the claim allegedly accrued none of the plaintiffs were actually insured under their respective policies. The only proverbial “wrinkle” in this case is that after the premium had been refunded, a Principal employee emailed UI requesting that the premium once again be deducted from Fisher’s pay—although the premium was refunded for a second time. Principal claimed in an email to the UI that this was the product of

1Fisher asserts the premium was not finally refunded until October 2018. Principal clarifies that the sum was refunded in July 2018 but again deducted from Fisher’s August paycheck before being refunded a second time. 8

confusion surrounding a botched attempt to settle this litigation. Whatever it was, there is no evidence in the record to indicate that this second deduction and refund was a manifestation of Principal’s intent to waive its right to defend this litigation. . . . Principal cannot be said to have neglected enforcement of its right “for such a length of time that the law implies its waiver or abandonment.” Rubes, 642 N.W.2d [at] 272.

On Fisher’s motion for reconsideration, the district court succinctly recapped why

the waiver argument failed. Citing Pierce, the court stated:

Applied here, the parties did not contract for life insurance benefits that would go into effect while the insured was in a period of limited activity. In fact, the opposite is true; the provisions of the insurance contract prevented coverage from going into effect while the insured was in a period of limited activity.

We discern no error in the court’s thorough analysis of the waiver issue.

Notably, the court addressed and distinguished an opinion cited by Fisher

in support of a contrary conclusion. See Mettner v. Nw. Nat’l Life Ins. Co., 103

N.W. 112, 114 (Iowa 1905). There, the court stated, “Receipt and retention of

premiums after forfeiture [of a policy] is a waiver thereof.” Id. The Mettner court

found that an insurance company offered “no excuse for the retention of”

premiums; and the plaintiff had a “right to assume [the company] had waived its

right” to forfeit the policy. Id. Although Mettner supports Fisher’s waiver argument,

we agree with the district court that “more recent case law” holds policy defenses

will not be waived where premiums are retained during a period of litigation. See

Rubes, 642 N.W.2d at 272. As for another opinion cited by Fisher in the district

court—Viele v. Germania Insurance Co., 26 Iowa 9, 23 (1868)—the supreme court

there held “the evidence does not establish such a state of facts as amounts to a

waiver of the forfeiture, or an estoppel on the company, or a reinstatement, renewal

or revival of the policy.” 9

We are left with McDonald v. Equitable Life Assurance Society, 169 N.W.

352 (Iowa 1918), an opinion Fisher cites for the proposition that an unreasonable

delay in refunding a premium will result in waiver of the right to deny coverage

based on a policy condition. There, the court stated, “[I]f the company so acts in

the premises that the insured as an ordinarily reasonable person is led to believe

that it waives the condition or waives the forfeiture, the courts will be prompt to

declare the waiver effectual.” McDonald, 169 N.W. at 355. The court stated a jury

reasonably could have found that an agent of the insurer gave an insured more

time to send in a premium payment. Id. at 357. Based on that finding, the court

reversed a directed verdict in favor of the insurance company. Id.

In this case, Principal did not waive its right to rely on the “period of limited

activity” provision. Principal cited the provision from the outset. We conclude the

district court did not err in granting Principal’s summary judgment motion on the

waiver claim.

IV. Bad Faith

“To show a claim for bad faith, a plaintiff must show the absence of a

reasonable basis for denying benefits of the policy and defendant’s knowledge or

reckless disregard of the lack of a reasonable basis for denying the claim.” Dolan

v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). As discussed, Principal relied

on the unambiguous language of the dependent life insurance provision and its

incorporation of the “period of limited activity” requirement. Fisher failed to

establish that the company’s reliance on that provision was unreasonable as a 10

matter of law. We conclude the district court did not err in granting summary

judgment on the bad faith claim.