Nolan v. Golden Rule Ins

• Court: Court of Appeals for the Fifth Circuit
• Decided: April 1, 1999
• Docket: 98-30435
• Status: Published

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

________________________

No. 98-30435 ________________________

REGGIE NOLAN,

Plaintiff-Counter Defendant-Appellee,

-vs-

GOLDEN RULE INSURANCE COMPANY; ET AL,

Defendants,

GOLDEN RULE INSURANCE COMPANY,

Defendant-Counter Claimant-Appellant.

____________________________________________

Appeal from the United States District Court for the Western District of Louisiana ____________________________________________ April 1, 1999

Before KING, Chief Judge, STEWART, Circuit Judge, and LITTLE, District Judge.*

LITTLE, District Judge:

Golden Rule Insurance Company (“Golden Rule”) appeals the

district court’s ruling invalidating its policy’s “rider”

under Louisiana Revised Statutes § 22:663. Golden Rule also

appeals the award of penalties and attorney fees under

* District Judge of the Western District of Louisiana, sitting by designation. Louisiana Revised Statutes § 22:657(A). Finally, Golden Rule

appeals the district court’s findings precluding a finding

that Reggie Nolan (“Nolan”) engaged in fraudulent activity

that would have justified canceling the policy. We REVERSE

the application of Louisiana Revised Statutes § 22:663 and the

award of penalties and attorney fees but AFFIRM the findings

that preclude a finding of fraud.

I.

Nolan applied for and received a group policy of health

and accident insurance from Golden Rule. Coverage commenced

on 1 October 1994. At that time, Nolan had an existing

individual health and accident policy with First National Life

Insurance Company (“First National”). Golden Rule’s

application asked Nolan whether its plan would “replace or

change any existing insurance[.]” Nolan answered in the

affirmative, so Golden Rule attached a rider to Nolan’s

policy. The rider stated:

This policy/certificate will be void and all premiums refunded (less any claims paid) if any other insurance coverage including but not limited to Health Maintenance Organizations which are disclosed on the application, or any amendment to the application, has not been terminated by December 30, 1994. Other insurance coverage as used in the Rider-Amendment does not include life insurance, automobile medical expense insurance, or homeowners medical expense insurance.

2 In December 1994, after the Golden Rule policy became

effective, Nolan injured his back. The district court found

that Nolan feared Golden Rule would deny coverage of his

treatment for back pain because the injury arose from a

preexisting condition. Therefore, Nolan did not cancel his

First National policy.

Nolan testified, and the district court found, that Nolan

merely retained the First National policy for coverage of the

Golden Rule deductible, which was $1,500. Initially, First

National paid $4,404.33, but the district court found that

Nolan returned $2,984.50 so that he would not receive

duplicate reimbursements. The district court found that the

net of all payments by First National was $1,419.83.

On 29 January 1997, Golden Rule canceled Nolan’s policy

after it discovered the continued existence of the First

National policy. Golden Rule had already paid $25,840.49 in

benefits.

On 12 May 1997, Nolan filed suit against Golden Rule

seeking reinstatement of insurance coverage and payment of

outstanding medical bills, penalties, and attorney fees.

After a bench trial on 23 and 24 March 1998, the district

court entered judgment in favor of Nolan. The district court

3 awarded $9,098.10 for outstanding medical bills, $9,098.10 in

penalties under § 22:657(A), and $10,000 in attorney fees.

In the district court’s opinion, it held the rider

invalid under § 22:663. That provision states:

[N]o group policy . . . shall be issued by any insurer doing business in this state which by the terms of such policy group contract excludes or reduces the payment of benefits to or on behalf of an insured by reason of the fact that benefits have been paid under any other individually underwritten contract or plan of insurance for the same claim determination period. Any group policy provision in violation of this section shall be invalid.

The district court rejected Golden Rule’s argument that

§ 22:663 prohibited only coordination of benefits. Rather,

the district court held that “[i]f the legislature intended to

prohibit the reduction of benefits, a fortiori, it intended to

prohibit provisions which void the policy because of other

insurance.” Nolan v. Golden Rule Ins. Co., No. 97-1269, slip

op. at 4 (W.D. La. Apr. 17, 1998).

The district court also rejected Golden Rule’s suggestion

that our previous decision in Wynn v. Washington Nat’l Ins.

Co., 122 F.3d 266 (5th Cir. 1997), controlled the case. Wynn

involved an attempt by an insurance company to limit coverage

for injuries arising out of a preexisting spinal condition

through the use of an exception endorsement. Wynn argued that

Louisiana Revised Statutes § 22:215.12, which prevents

4 insurance companies from denying coverage for harm caused by

a preexisting condition for more than twelve months following

the effective date of the policy, forbade the exception

endorsement. This court held the exception endorsement to be

valid. The district court distinguished Wynn from the case at

hand by reasoning that the condition in the exception

endorsement in Wynn was “valid on its own and is independent

of the statutory restriction [preventing insurance companies

from excluding coverage for harm caused by preexisting

conditions].” Id. at 5. Conversely, the district court

argued that “the condition imposed by Golden Rule’s rider is

not a valid condition.” Id. Therefore, the district court

held the rider invalid.

The district court did not consider Golden Rule’s

allegations of fraud, though certain of the district court’s

findings of fact would preclude a finding of fraud.

II.

We review district court findings of fact for clear

error. Fed. R. Civ. Proc. 52(a); Century Marine Inc. v.

United States, 153 F.3d 225, 229 (5th Cir. 1998). A finding

of fact is “clearly erroneous” when the reviewing court has “a

definite and firm conviction that a mistake has been

committed.” Justiss Oil Co. v. Kerr-McGee Ref. Corp., 75 F.3d

5 1057, 1062 (5th Cir. 1996) (citing United States v. United

States Gypsum Co., 333 U.S. 364, 395 (1948)).

We review the district court’s legal conclusions de novo.

Century Marine, 153 F.3d at 229. A district court’s

interpretation of a contract is a matter of law subject to de

novo review. Am. Totalisatro Co. v. Fair Grounds Corp., 3

F.3d 810, 813 (5th Cir. 1993). To conduct de novo review, we

review the record independently and under the same standard

that guided the district court. Id.

III.

A.

The district court was incorrect in its analysis of the

Wynn case; it does control the matter at hand. In Wynn, this

court considered § 22:215.12, which prevents insurance

companies from excluding or denying coverage for injuries

arising out of preexisting conditions for more than twelve

months after the policy becomes effective. So Washington

National wrote an exclusion endorsement exempting from

coverage any damage arising out of Wynn’s preexisting spinal

injury. Wynn argued that Washington National could

impermissibly circumvent the purview of § 22:215.12 if we

6 allowed it to write exclusion endorsements in this manner. We

disagreed.

We held that “[a]n exception endorsement is qualitatively

different from a pre-existing conditions limitation. . . .

[A]n insurer in Louisiana is free to limit its liability ‘just

as individuals may.’” Wynn, 122 F.3d at 269 (quoting Sargent

v. Louisiana Health Serv. & Indem. Co., 550 So.2d 843, 845

(La. App. 2d Cir. 1989)). “The pre-existing conditions

limitation operates separately and independently from the

exception endorsement because it applies to conditions for

which an endorsement has not been written and/or which were

not disclosed on the application.” Id.

We continued: “nothing in the exception endorsement

suggests that it is an extension of the policy’s pre-existing

conditions limitation. Rather, it is a separate and

independent limitation on liability that the Wynns signed of

their own accord as a condition to receiving insurance.” Id.

Critical to our decision in that case was the fact that

“Washington National would have been entitled to refuse to

insure the Wynns if they had not signed the exception

endorsement.” Id.

As in Wynn, the rider here at issue is “qualitatively

different” from the coordination of benefits limitation in

7 § 22:663. The coordination of benefits limitation operates

separately and independently from the rider because it applies

where a group policy insurer reduces benefits by the amount

paid by the individual policy insurer or where the group

policy insurer terminates the policy because an individual

policy insurer paid part or all of a claim.

No evidence in the record suggests that the rider is an

extension of the policy’s coordination of benefits limitation.

Rather, the rider reflects Golden Rule’s policy that its

insureds have only one source of insurance--Golden Rule--on

the theory that the insureds will be less likely to over-

utilize medical facilities if they have to pay their own

deductibles.

Moreover, nothing about the statutory coordination of

benefits limitation prevents Golden Rule from limiting its

liability, “just as individuals may,” by being selective about

with whom it contracts. Like Washington National, Golden Rule

would have been entitled to refuse to insure Nolan if he had

not signed the rider. See Sargent, 550 So.2d at 845

(“[I]nsurers may, by unambiguous and clearly noticeable

provisions, limit liability and impose such reasonable

conditions as they may wish upon the obligations they assume

by contract, absent conflict with a statute or public

8 policy.”); see also Oceanonics, Inc. v. Petroleum Distrib.

Co., 292 So.2d 190, 192 (La. 1974) (same). And like the

Wynns, Nolan signed the rider of his own accord as a condition

of receiving insurance.

Therefore, § 22:663 does not invalidate Golden Rule’s

rider. Under Louisiana law, Golden Rule is entitled to

contract only with people who have no other source of

insurance. Thus, Golden Rule properly terminated Nolan’s

policy pursuant to the rider. We, therefore, REVERSE the

district court’s decision invalidating the rider.

B.

Because we reverse the district court’s decision

invalidating the rider, we must also reverse its award of

statutory penalties and attorney fees under § 22:657(A).

“Provisions of LSA-R.S. 22:657 are penal in nature and

must be strictly construed. These penalties should not be

applied unless the refusal to pay is clearly arbitrary and

capricious.” Shrader v. Life Gen. Sec. Ins. Co., 588 So.2d

1309, 1317 (La. App. 2d Cir. 1991); see also Soniat v.

Travelers Ins. Co., 538 So.2d 210, 216 (La. 1989). “Whether

or not an insurer’s reasons for refusing to pay are arbitrary

and capricious is a question of fact to be determined from the

facts and circumstances of each case.” Shrader, 588 So.2d at

9 1315; see also Colville v. Equitable Life Assurance Soc’y of

United States, 514 So.2d 678, 682 (La. App. 2d Cir. 1987).

“When claiming penalties and attorney fees, the insured has

the burden of proving that any fault or failure to pay the

claim was attributable to the insurer.” Colville, 514 So.2d

at 682. “Although a beneficiary may ultimately be determined

to be entitled to policy benefits, this judicial determination

does not in and of itself justify the invocation of

penalties.” Id. at 682-83.

Though we review the district court’s factual findings

for clear error, this standard does not insulate factual

findings undergirded by an erroneous view of controlling legal

principles. Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 395

(5th Cir. 1996). Here, the district court awarded statutory

penalties and attorney fees on the theory that Golden Rule had

arbitrarily and capriciously denied coverage. We find this to

be clear error. Golden Rule terminated Nolan’s policy

consistently with a valid contractual provision in its rider;

such conduct is neither arbitrary nor capricious. Rather, it

is the bargain the parties struck.

We, therefore, REVERSE the award of statutory penalties

and attorney fees.

10 Finally, we address Golden Rule’s claim that the district

court lacked a sufficient evidentiary basis for the following

factual findings: (1) that Nolan returned all but $1,419.83

of First National’s benefit payments, and (2) that Nolan did

not act with an intent to defraud Golden Rule when he failed

to cancel his First National policy. Together, these findings

preclude a finding of fraud.

Though we might disagree with the district court if our

review was de novo, these findings do not constitute clear

error. The district court based its conclusion on evidence

presented at trial, including the testimony of Nolan. Judging

Nolan’s credibility is the role of the trial court, and we

cannot say, upon review of the record, that the district

court’s decision is so contrary to the weight of the evidence

as to be clearly erroneous.

We additionally note that Golden Rule asserted fraud as

an alternative basis for canceling the policy. Since we

reversed the district court’s decision with respect to the

validity of the rider, Golden Rule legitimately canceled the

policy. Therefore, Golden Rule need not rely on the defense

of fraud to avoid statutory penalties under § 22:657(A) by

showing that it did not act arbitrarily and capriciously in

canceling the policy.

11 We, therefore, AFFIRM the district court’s findings of

fact that preclude a finding of fraud.

IV.

In summation, we AFFIRM the district court’s findings of

fact precluding a finding of fraud, but we REVERSE its

judgment in favor of Nolan and its award of statutory

penalties and attorney fees. We therefore remand for entry of

judgment on Golden Rule’s counterclaim for reimbursement of

the claims it paid for Nolan’s benefit. Nolan will bear the

costs of this appeal.