272 S.E.2d 267 (Ga. 1980), 36336, Dawes Min. Co., Inc. v. Callahan

Docket Nº:36336.
Citation:272 S.E.2d 267, 246 Ga. 531
Opinion Judge:HILL, Justice.
Party Name:DAWES MINING COMPANY, INC. v. CALLAHAN.
Attorney:[246 Ga. 538] Steven E. Scheer, Savannah, for appellant. Charles H. Brown, Susan E. Warren, Statesboro, Kenneth S. McBurnett, Pembroke, for appellee.
Case Date:October 08, 1980
Court:Supreme Court of Georgia

Page 267

272 S.E.2d 267 (Ga. 1980)

246 Ga. 531

DAWES MINING COMPANY, INC.

v.

CALLAHAN.

No. 36336.

Supreme Court of Georgia.

October 8, 1980

Argued July 14, 1980.

[246 Ga. 538] Steven E. Scheer, Savannah, for appellant.

Charles H. Brown, Susan E. Warren, Statesboro, Kenneth S. McBurnett, Pembroke, for appellee.

HILL, Justice.

Certiorari was granted to review Dawes Mining Co. v. Callahan, 154 Ga.App. 229, 267 S.E.2d 830 (1980), in which the Court of Appeals held that when an employer changes its group health insurance policy on employees and the employees are incorrectly advised that the coverage under the new policy is the same as under the old policy, an employee can sue his employer for breach of an implied contract to continue the same insurance coverage, and can recover such damages as result from the difference in coverage. The facts are set forth in the Court of Appeals' opinion and are restated here for convenience.

The evidence shows that appellee Callahan was first employed by appellant Dawes Mining Co. in 1957 as an hourly wage earner. A few years later Callahan started

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participating in Dawes' group health insurance program. The insurance paid for medical and hospital expenses incurred by Callahan and his dependents, with half the premiums paid for by Callahan by deductions from his pay and the other half by Dawes. Dawes processed employee claims under the [246 Ga. 532] policy to the insurer.

In 1975, without consulting the employees, Dawes changed coverage from the existing insurer to another insurance company. 1 The employees were told of the change and to come to the office to sign up with the new insurer. The local representative of Dawes and a representative of the new insurer were present in the office. The insurer's representative said the coverage was the same as under the former policy and said nothing about exclusion of coverage for pre-existing illnesses. 2

Callahan, who could not read but could sign his name, signed an application for insurance as directed by the insurer's representative. Some weeks later he received an insurance card as evidence of the insurance. Unknown to Callahan at the time, the new insurance master policy had a provision which prohibited payment of medical expenses incurred as a result of pre-existing illnesses until the policy had been in effect a certain period of time. 3 Within that excluded period, Callahan's wife was hospitalized for a pre-existing illness and, after six months and several hospitalizations, died. After mistakenly paying some of the expenses and demanding repayment, the new insurer invoked the pre-existing illness exclusion and refused payment of any of the medical and hospital expenses, which were in excess of $14,000.

Having no recourse against the insurer, Callahan brought this suit against Dawes. The jury returned a verdict for Callahan for an amount equal to the medical and hospital expenses incurred, Dawes' motions for judgment notwithstanding the verdict and new trial were denied, and Dawes appealed. The Court of Appeals affirmed and we granted certiorari. As the Court of Appeals noted, this is a case of first impression in this state.

Our first inquiry is as to the relationships between employee, employer and the insurer issuing a group insurance policy. Without [246 Ga. 533] undertaking to be fully comprehensive, it can be said that group insurance is insurance coverage for a number of individuals by means of a single or blanket policy usually at a lower rate than for individuals. 17 EGL 203, Insurance, § 457; Code Ann. § 56-3101. Employee groups are frequently covered by group insurance.

There is disagreement among the states as to whether an employee insured under a group contract is a party to the contract, or a third party beneficiary of the contract between the employer and the insurer. 22 Louisiana Law Rev. 169, 171 (1961). Some jurisdictions decide this question on the basis of whether the employee contributes toward payment of the premium. Id.

In Carruth v. Aetna Life Ins. Co., 157 Ga. 608(1a), 122 S.E. 226 (1924), the court held that an employee insured under a group policy was a third party beneficiary of the contract between the employer and insurer and as such was entitled to sue on the contract. In that case the employee made no contribution toward payment of the premium.

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Where, as here, the employee contributes toward payment of the premium either the employee is a party to the insurance contract or has a contract with the employer by which the employer agrees, for the consideration paid by the employee, to provide insurance coverage to the employee. We need not finally resolve the status of a contributing employee because we find that the relationship of the employee to the insurer is not controlling here. Rather, it is the status of the employer and the relationship between the employer and the employee which is controlling.

The Court of Appeals has held that for some purposes the employer is an agent of the group insurer. Equitable Life Assur. Society v. Florence, 47 Ga.App. 711, 715, 171 S.E. 317 (1933); Cason v. Aetna Life Ins. Co., 91 Ga.App. 323(1), 85 S.E.2d 568 (1954); Pilot Life Ins. Co. v. McCrary, 103 Ga.App. 549, 550 120 S.E.2d 134 (1961); Piedmont Southern Life Ins. Co. v. Gunter, 108 Ga.App. 236, 237, 132 S.E.2d 527 (1963). That court has held that for other purposes the employer is an agent of the employee. Lancaster v. Travelers Ins. Co., 54 Ga.App. 718, 724-725, 189 S.E. 79 (1936); Thigpen v. Metropolitan Life Ins. Co., 57 Ga.App. 405(1), 195 S.E. 591 (1938); see also Blaylock v. Prudential Ins. Co., 84 Ga.App. 641, 644, 67 S.E.2d 173 (1951). This difference in treatment was recognized and dealt with in Cason v. Aetna Life Ins. Co., supra.

The dividing line appears to be this: Once the group policy has been issued, the employer is the agent of the insurer in determining which persons are its employees and are thereby eligible to participate as a member of the group, Equitable Life v. Florence, supra, in determining which of its employees are regularly [246 Ga. 534] performing their duties and are thereby eligible to receive certificates of increased insurance, Cason v. Aetna Life, supra, and in determining which of its employees are employed full time, Pilot Life v. McCrary, supra. These cases are governed by the rule that the employer who obtains a group insurance policy covering its employees is the agent of the insurance company for every purpose necessary to make effective the group policy, and thus the insurance company has imputed knowledge of facts which the employer knows. Cason v. Aetna Life, supra; Piedmont Southern Life v. Gunter, supra. The Court of Appeals did not overrule or refer to these cases in Schulman v. Federated Life Ins. Co., 154 Ga.App. 479, 268 S.E.2d 704 (1980).

However, in selecting a group insurer, in selecting a policy, in selecting coverages to be afforded by the insurer, the employer is negotiating with the prospective insurer; there is no contract in force; and the employer cannot be the agent of the insurer. It has been said that " 'When procuring the policy (and) obtaining applications of employees ... employers act not as agents of the insurer but for their employees or for themselves.' " Thigpen v. Metropolitan Life, supra; Blaylock v. Prudential, supra.

Hence we find that the relationship which is decisive in this case is that in procuring the group policy and obtaining employee applications, the employer acts as an agent of the employees where the employees will be contributing toward payment of the premium. 4 Some of the cases and authorities (see below), suggest that the employer should be found to be a trustee, but the duty of the trustee would be the same as the duty of the agent as will appear hereinafter.

The duties of an agent to his principal are fairly well defined. "The duties of an agent depend initially on his contract with the principal, but in every agency relationship the law imposes certain duties whether they are expressly included in the contract or not." 1 EGL 496, Agency, § 80. "As a fiduciary the agent is required to act primarily for the benefit of the principal in matters connected with the agency. Among the agent's fiduciary duties is ... to act with proper skill and diligence, and

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not to make a personal profit from the agency. Moreover, the agent is subject to the duty of loyalty to his principal and must deal fairly with him at all times." 1 EGL 452, Agency, § 9. "The principal has the right to expect from his agent 'a full revelation of all pertinent facts which might jeopardize their [246 Ga. 535] rights in the property entrusted to the defendant (agent),' ... Thus it has been held that an agent having made a contract for his principal must pass on to him, 'all the evidence and information in reference to such contract in his possession.' ... The general rule is that all material facts within the...

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