Farley v. Benefit Trust Life Ins. Co.
| Decision Date | 22 December 1992 |
| Docket Number | Nos. 91-3751,91-3752,s. 91-3751 |
| Citation | 979 F.2d 653 |
| Parties | 16 Employee Benefits Cas. 1154 Carl L. FARLEY, Appellant, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Appellee. Carl L. FARLEY, Appellee, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Stephen Hiotis, St. Louis, Mo., argued (Richard A. Gartner, Stephen C. Hiotis and Becky R. Eggmann, on the brief), for appellant/cross-appellee.
Keith Rabenberg, St. Louis, Mo., argued (Clark H. Cole and Keith A. Rabenberg, on the brief), for appellee/cross-appellant.
Before JOHN R. GIBSON, BEAM, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
In 1987, Judith Farley had a lesion removed from her scalp; the lesion was diagnosed as a malignant melanoma, or skin cancer. The following year, evaluation revealed that the cancer had spread; tumors were present in her lung and her brain stem. Mrs. Farley's husband, plaintiff Carl Farley, was employed by Thiel Tool and Engineering at the time of these events. He had group health insurance through his employer with Benefit Trust Life Insurance Company; Mrs. Farley was covered under his policy.
Mrs. Farley's primary physician referred her to a cancer specialist at the Washington University School of Medicine. The cancer specialist recommended that she receive high-dose chemotherapy accompanied by an autologous bone marrow transplant, a procedure in which the patient's bone marrow in the area of chemotherapy is removed temporarily in order to limit the damage to bone cells from the chemotherapy and reintroduced into the patient's body a few days later. The cancer specialist then wrote to Benefit Trust, asking if Mrs. Farley's coverage would include the treatment he was recommending for her. He included with his letter some preliminary results from a study of the same treatment on other cancer patients. Benefit Trust responded that its current information indicated that such treatment for the type of cancer Mrs. Farley had was considered "investigational/experimental." Benefit Trust further stated that Mrs. Farley's health coverage excluded "benefits for treatments that are experimental, educational, investigational or ... furnished in connection with medical or other research."
The Farleys decided to proceed with the treatment nonetheless. In the fall of 1988, Mrs. Farley underwent high-dose chemotherapy accompanied by an autologous bone marrow transplant. She died six months later.
After Mrs. Farley's treatment, Mr. Farley had submitted to Benefit Trust various bills relating to her hospitalization. Benefit Trust subsequently denied payment, asserting that the treatment was "classed as experimental, educational, informational, or given in conjunction with research" and therefore not covered under the Farleys' policy.
Mr. Farley then sued Benefit Trust in state court, alleging various common-law causes of action--breach of contract, bad faith, outrage, and unfair claim settlement practices. Benefit Trust removed the case to federal court, where the trial court dismissed the common-law claims but allowed Mr. Farley to amend to add a cause of action under the Employee Retirement Income Security Act, see 29 U.S.C. §§ 1001-1461, since the health insurance policy was an employee welfare benefit plan under federal law, see 29 U.S.C. § 1002(1)(A), § 1003(a)(1).
After a three-day bench trial and the submission of posttrial briefs, the trial court found that the original policy had been amended to add provisions describing "medically necessary" treatment and limiting benefits only to treatment considered "medically necessary" under that description; that the description contained five criteria for "medically necessary" treatment; that the treatment given to Mrs. Farley met three of those criteria; and that the treatment failed to meet two of those criteria. The trial court therefore found for Benefit Trust and dismissed Mr. Farley's claim with prejudice.
Both parties appeal. Mr. Farley appeals the trial court's findings that the policy was amended to include the provisions as to "medically necessary" treatment, that he had the burden of proof on the question of whether Mrs. Farley's treatment was "medically necessary," and that Mrs. Farley's treatment failed to meet two of the relevant criteria. Benefit Trust appeals the trial court's findings that Mrs. Farley's treatment met three of the relevant criteria. We affirm the trial court as to all issues.
The provisions defining "medically necessary" treatment and limiting benefits only to such treatment are included in a document styled "Amendment Number 8." In April, 1987, this document was sent by Benefit Trust to Thiel Tool, Mr. Farley's employer, along with two other documents, styled "Amendment Number 6" and "Amendment Number 7." The letter accompanying those documents indicates that all three are "Amendments to your Contracts showing revisions to the Schedule of Benefits, as well as the addition of medical benefits and provisions, to be effective as of May 1, 1987." The letter asks Thiel Tool to "accept by signing where indicated, keep the originals to be attached to your Master Contracts and return the copy to us for our files."
On the last page of Amendment Number 6 is a signature line signed by Arnold Munson, assistant secretary, for Benefit Trust. Also included on the last page of Amendment Number 6 are signature lines for an authorized agent of Benefit Trust and for Thiel Tool. There is no equivalent text on Amendment Number 7 or Amendment Number 8. It is apparently undisputed that a representative of Thiel Tool signed and returned only Amendment Number 6. Both Benefit Trust and Thiel Tool, however, kept all three amendments with their policy documents; in addition, the language from Amendment Number 8 was included in riders attached to a Certificate of Group Insurance distributed by Benefit Trust to employees of Thiel Tool in April, 1988.
At trial, Mr. Farley argued that because the endorsements appear only on Amendment Number 6, Amendment Number 8 never became part of the policy. Benefit Trust argued that because Amendment Number 6 refers to Amendment Number 8, the endorsements apply to Amendment Number 8 as well. The trial court found that Amendment Number 6 had been properly added to the policy. The trial court further found that Amendment Number 6 refers to Amendment Number 8 but does not specifically direct that Amendment Number 8 be added to or incorporated into the insurance contract or that it replace another provision of the insurance contract (the reference to Amendment Number 8 appears in a sentence that includes a list of riders and forms associated with Amendment Number 6, but the sentence has no verb in it). Finding, therefore, that the contract was "incomplete," the trial court turned to extrinsic evidence to determine whether the parties had intended to add the provisions of Amendment Number 8 to the insurance contract. Citing testimony that the three amendments had been sent to Thiel Tool as a package, that they had been considered and stored collectively by the parties, and that the "medically necessary" language was included in a subsequent description of policy provisions, the trial court found that the parties had intended to incorporate Amendment Number 8 as part of the insurance contract and that, as a matter of law, it had indeed been so incorporated.
On appeal, Mr. Farley argues that the insurance contract specifies the amendment procedure to be used, that the procedure specified was not followed, and therefore that any alleged amendment was invalid under the contract. Mr. Farley further argues that the trial court should not have used extrinsic evidence to determine whether the insurance contract was amended in accordance with the procedure specified, first, because there was no ambiguity in the contract itself and, second, because the use of extrinsic evidence amounted to an oral modification of the contract in contravention of principles governing insurance plans covered by ERISA. Finally, Mr. Farley argues that, in any case, the proof was insufficient to show that the language in issue was added to the policy.
The insurance contract states, See policy, General Provisions, p. 209. The trial court found that this procedure had been followed as to Amendment Number 6. For two reasons, we agree with the trial court that Amendment Number 8 became part of the insurance contract at the same time as Amendment Number 6.
First, it is undisputed that Amendment Number 8 was sent to Thiel Tool as part of a package that also included Amendment Number 6 and Amendment Number 7. Because Amendment Number 6 was properly endorsed, we find that there was substantial compliance with the contract requirements for endorsement as to Amendment Number 7 and Amendment Number 8. See, e.g., Aronson v. Servus Rubber, Division of Chromalloy, 730 F.2d 12, 15-16 (1st Cir.1984), cert. denied, 469 U.S. 1017, 105 S.Ct. 431, 83 L.Ed.2d 357 (1984); see also Huber v. Casablanca Industries, Inc., 916 F.2d 85, 105-06 (3d Cir.1990).
In the alternative, we construe the trial court's opinion as stating that because the reference in Amendment Number 6 to Amendment Number 8 is unclear, the contract is ambiguous as to which provisions are to be included. Under such circumstances, extrinsic evidence is admissible to determine the meaning of the contract. See, e.g., Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1353 (8th Cir.1980); see also Restatement (Second) of Contracts § 214(c) at 132-33, comment b at 133 (1981...
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