Martz v. Union Labor Life Ins. Co.

Decision Date12 March 1985
Docket NumberNo. 83-2632,83-2632
Citation757 F.2d 135
PartiesHerbert E. MARTZ, Plaintiff-Appellee, v. UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation, Defendant-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

James B. Davidson, Peterson, Ross, Schloerb & Seidel, Chicago, Ill., for defendant-appellant.

David A. Novoselsky, Chicago, Ill., for plaintiff-appellee.

Before WOOD and FLAUM, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge. *

HARLINGTON WOOD, Jr., Circuit Judge.

In this declaratory judgment action under 28 U.S.C. Sec. 2201 to determine the parties' respective rights under a group insurance policy issued by defendant Union Labor Life Insurance Company ("the Company") to the Trustees of the Central Laborers Welfare Fund ("the Trustees"), the Company appeals from the district court's grant of summary judgment in favor of plaintiff Martz on his claim that a subrogation amendment to the group policy has no binding legal effect on him. 573 F.Supp. 580. We reverse.

I.

Plaintiff Martz is a member of the Central Laborers Union, which maintains a welfare fund on behalf of its members. In 1975, the Trustees, who administer the fund, purchased a group insurance policy from the Company. The noncontributory policy covered medical and hospital bills up to a maximum of $100,000 per calendar year. The policy contained the following provision for its termination or modification:

On any premium due date the Policyholder may terminate this Policy or, subject to the Company's approval, may modify, amend or change the provisions, terms and conditions of this Policy. The Company's written consent shall be required to make any such modification, amendment or change, but the consent of any insured Person or any other Person referred to in this Policy shall not be required to effect such termination or any modification, amendment, or change of this Policy.

In August, 1980, Donald Dippold, Executive Administrator of the welfare fund, contacted Richard Falcone, the Company's Midwest Regional Manager of Claims and Service, for advice on how the costs of the group insurance plan might be reduced. Via a letter to Dippold, dated August 28, 1980, Falcone recommended that the cost of premiums be reduced through adoption of a subrogation provision. Falcone attached an executed copy of the Company's standard subrogation rider, which provided as follows:

The Company shall be subrogated to the extent of any benefits paid under this Contract, to the proceeds of any settlement or judgment effected against a third party and resulting from the exercise of any rights of recovery which the Person may have against any person or organization. The Person claiming benefits under this Policy shall execute and deliver such instruments and take such other action as the Company may require to implement this provision. The Person shall do nothing to prejudice the rights given the Company by this provision without its consent. EFFECTIVE DATE OF RIDER: October 28, 1980.

On October 28, 1980, the Trustees met to consider adoption of the subrogation provision. They voted unanimously to amend the policy to include the provision. On November 19, 1980, Martz was injured when the pickup truck he was driving was struck by an Illinois Central Gulf Railroad Company freight train. He sustained severe injuries and was hospitalized. On December 9, 1980, the Trustees formally signed the subrogation rider which had been approved on October 28, 1980. On December 18, 1980, Martz received notice from the Trustees that the insurance policy had been amended to provide for the Company's right to subrogation.

On March 26, 1981, Martz submitted claims to the Company for medical expenses incurred as a result of the accident. The Company paid benefits in the sum of $42,629.19. Martz, whose personal injury suit against the railroad was pending, refused to sign a subrogation agreement authorizing the company to proceed against the railroad. The Company then refused to pay further medical bills.

Martz commenced the present action, seeking a declaratory judgment that he is not legally bound by the subrogation provision. In his amended complaint, Martz raised three arguments in support of his position: (1) the subrogation provision was not adopted in accordance with the procedure set forth in the master policy for amending the policy; (2) the modification, if valid, did not take effect until December 9, 1980, the day on which the Trustees formally signed the rider; and (3) Martz did not receive advance notice of the modification of the policy as required by law.

Martz moved for summary judgment and filed a supporting memorandum. The Company also moved for summary judgment. Martz then filed an "addendum" to his memorandum in support of his motion for summary judgment, attaching letters from the Illinois Department of Insurance which purportedly established that the subrogation provision had not been approved by the Department for use with accident and health insurance policies and was therefore invalid. The Company moved to strike the addendum on the ground that the letters were inadmissible. The Company further responded (1) that the Department of Insurance had in fact approved the subrogation rider; and (2) that even if the rider had not been approved, it nevertheless was valid as between the parties under section 442 of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, Sec. 1054 (1981). The Company attached an affidavit by Robert Enoex, Jr., Chief Counsel of the Illinois Department of Insurance, in which he stated that no final decision on approval of the rider had been made by the Department. Citing section 442, he further stated that the Department's position was that the approval issue was irrelevant to the question of the contractual rights and liabilities of the parties.

The district court found the absence of notice to Martz dispositive of the issue of liability, and granted summary judgment in his favor. The district court did not rule on the Company's motion to strike.

On appeal, Martz devotes a major portion of his brief to the departmental approval issue, urging this court to affirm the judgment of the district court on this ground. We briefly address this issue before turning to those properly before this court.

II.

Martz asks this court in effect to grant summary judgment in his favor on the ground that the subrogation rider is invalid for lack of departmental approval, a claim that he failed to raise in his original or amended complaint. 1 He would have us do so on the basis of an "addendum" that was unsupported by any evidence meeting the requirements of Rule 56 of the Federal Rules of Civil Procedure.

It bears repeating that the purpose of summary judgment is to determine whether there is any genuine issue of material fact in dispute and, if not, to render judgment in accordance with the law as applied to the established facts. The facts must be established through one of the vehicles designed to ensure reliability and veracity--depositions, answers to interrogatories, admissions and affidavits. When a party seeks to offer evidence through other exhibits, they must be identified by affidavit or otherwise made admissible in evidence. 6 Moore's Federal Practice p 56.11[1.-8] (2d ed. 1983). The correspondence Martz filed with the district court was not supported by affidavit or otherwise authenticated. In the form in which it was presented, it constituted inadmissible hearsay. The district court could not properly have relied upon the exhibits as submitted and neither may we.

III.

On appeal, Martz does not pursue his claim that the modification of the policy was not effected in accordance with the procedures set forth in the master policy. He does contend, though not strenuously, that the subrogation amendment did not take effect until December 9, 1980, the day on which the Trustees formally signed the rider. 2 We disagree.

The affidavits of Richard Falcone and Donald Dippold establish that the Company and the Trustees intended the subrogation rider to be effective as of October 28, 1980. The executed copy of the rider and accompanying letter of August 28, 1980, delivered by the Company to the Trustees, clearly constituted the Company's consent to the modification of the policy. The Trustees understood this to be the case. The terms of the rider provided that it would be effective as of October 28, 1980. At a meeting on October 28, 1980, the Trustees voted unanimously to amend the policy to implement the subrogation provision as of October 28, 1980. A letter dated November 12, 1980 from Dippold to Falcone formally confirmed the Trustees' decision. The Trustees considered the December 9, 1980 signing of the rider to be a mere formality. 3

Martz cites no contractual, statutory, or case authority for the proposition that an amendment to an insurance policy is ineffective until formally signed despite the contracting parties' clear intent to the contrary. The general rule appears to be that the effective date of a policy modification will be determined by the terms of the modification or the letter accompanying it. See 13A Appleman, Insurance Law and Practice, ch. 276 Sec. 7605 (1976). The terms of the subrogation rider provided, and the parties intended, that it would be effective as of October 28, 1980. We see no valid legal basis for concluding that the subrogation rider did not become effective until December 9, 1980. This therefore is not a case in which the insurer amended the master policy after liability under that policy had attached.

IV.

We turn to the issue of notice. It is undisputed that Martz did not receive notice of the subrogation amendment until December 18, 1980, approximately two months after its adoption. The district court held that advance notice to the insured of a cancellation or modification of benefits is required by Illinois law, but did not determine who owes the insured...

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