Albert H. Wohlers & Co. v. Bartgis

• Decision Date: 09 December 1998
• Docket Number: No. 28142,28142
• Citation: 114 Nev. 1249,969 P.2d 949
• Parties: ALBERT H. WOHLERS AND CO. and North American Life and Casualty Company, Appellants/Cross-Respondents, v. Debra BARTGIS, Respondent/Cross-Appellant.
• Court: Nevada Supreme Court

Page 949

969 P.2d 949

114 Nev. 1249

ALBERT H. WOHLERS AND CO. and North American Life and Casualty Company, Appellants/Cross-Respondents, v. Debra BARTGIS, Respondent/Cross-Appellant.

No. 28142.

Supreme Court of Nevada.

Dec. 9, 1998.

As Amended Feb. 19, 1999.

Lemons, Grundy and Eisenberg, Reno, for appellant/cross-respondent Wohlers.

Beckley, Singleton, Jemison & List and Daniel F. Polsenberg, Las Vegas; Mayer, Brown & Platt and Andrew L. Frey and John J. Sullivan, Washington, D.C., for appellant/cross-respondent North American Life and Casualty Company.

Calvin R.X. Dunlap, Reno, for respondent/cross-appellant.

Georgeson, Thompson & Angaran, Reno, for Amicus Curiae American Council of Life Insurance.

Bradley, Drendel & Jeanney, Reno, for Amicus Curiae Nevada Trial Lawyers.

Bowman & Robinson, Reno, for Amicus Curiae Association of Trial Lawyers of America.

OPINION

PER CURIAM.

This is a case involving fraud, bad faith, and violations of the Nevada Unfair Claims Practices Act by a medical insurance company and its policy administrator. Respondent/cross-appellant Debra Bartgis (Bartgis) is a court reporter who filed a medical insurance claim subsequent to having surgery. Prior to the surgery, the underwriter for her major medical policy had changed. The new underwriter became appellant/cross-respondent North American Life and Casualty, now known as Allianz Life Insurance Company of North America (Allianz).

The administrator of the policy, appellant Albert H. Wohlers & Co. (Wohlers), had notified Bartgis of the change and sent her a copy of the new insurance certificate. However, Bartgis was unaware that a new internal cost limitation in her policy effectively limited her in-patient hospitalization coverage to room and board in the event that her hospitalization exceeded twenty-four hours. When the new internal cost limitation provision was triggered, all hospital charges beyond room and board were considered "ancillary" and were covered at a substantially reduced rate.

After her surgery, Bartgis filed a claim with Allianz pursuant to her major medical policy. However, Wohlers informed Bartgis that her Allianz policy would cover only ten percent of her total hospital bill of approximately $9500.00 because her hospitalization had exceeded twenty-four hours. After Allianz's repeated refusals to pay additional amounts pursuant to her policy, Bartgis filed a civil complaint against Allianz and Wohlers, alleging breach of contract, fraud, bad faith, and violations of the Nevada Unfair Claims Practices Act.

At the conclusion of trial, the jury returned a verdict in favor of Bartgis on all claims, awarding her $8,757.75 in contract damages and $275,000.00 in non-economic compensatory damages for emotional distress. One day later, the jury assessed punitive damages against Allianz and Wohlers in the amounts of $7,500,000.00 and $500,000.00 respectively. Judgment was entered on May 19, 1995.

Allianz and Wohlers now appeal, and Bartgis cross-appeals. For the reasons set forth below, we affirm the jury's verdict in most respects. We conclude, however, that the district court erred in entering judgment against Wohlers based on the Unfair Claims Practices Act. Additionally, we hold that the punitive damages assessed against Allianz and Wohlers were excessive, and that the district court erred in denying Bartgis post-judgment interest on the punitive damages awards.

FACTS

Bartgis is a court reporter who has been a member of the National Shorthand Reporters Association (NSRA) since 1973. She worked as an employee of a Nevada court-reporting business from 1973 to 1983, and then formed a partnership with a colleague. After forming the partnership, Bartgis obtained a medical insurance policy through NSRA. The medical insurance policies offered by NSRA to its members were underwritten by Mutual of New York (MONY), and were administered by Wohlers.

On September 24, 1990, MONY informed Wohlers by letter that it planned to increase the cost of premiums by fifty-five percent effective November 15, 1990. Wohlers contacted several other major medical insurance underwriters in an attempt to secure a medical insurance policy for NSRA before MONY's premium hike went into effect. One of the underwriters Wohlers contacted was Allianz, with whom Wohlers had enjoyed a long-term business relationship.

After initially refusing Wohlers's proposal, Allianz agreed to underwrite the policy at the same monthly premium, but with additional significant internal cost limitations. The agreement between Allianz and Wohlers provided Wohlers with substantial administrative and claims management responsibilities. For example, the agreement provided that Wohlers would administer the policy, share in a percentage of the premiums paid, and share in Allianz's profits that were realized from Wohlers's efforts to keep claim costs down. Thus, Wohlers had a direct pecuniary interest in minimizing claim costs.

During their November 1990 negotiations, Wohlers and Allianz agreed to insert a new cost limitation on ancillary charges into the NSRA policy. Significantly, this "ancillary charges" cost limitation provision had not been included as a provision in NSRA's prior policy with MONY. Allianz's policy with NSRA defined the term "ancillary charges" as "a service or supply that is furnished by a Hospital or Extended Care Facility when a Member or Insured Dependent is Confined."

The maximum benefit for ancillary charges under the Allianz policy applied to a patient's confinement in a hospital and was computed as "the Daily Room Rate [multiplied by] the number of days of confinement [multiplied by] 2." Hospital confinement, for purposes of the Allianz policy, was defined as "confinement as a Registered Bed-Patient in a Hospital upon the advice of a Physician for a period of twenty-four (24) hours or longer and such confinement is for purposes other than convalescence or rehabilitation."

In November 1990, Wohlers informed Bartgis by letter that Allianz would now serve as her medical insurance policy underwriter because MONY had planned to raise its premiums by an unacceptable fifty-five percent. In its letter, Wohlers stated that Allianz had agreed to "continue this coverage offering comparable benefits without an increase in premiums," effective November 15, 1990. The letter specified that premiums were guaranteed until February 15, 1991, and assured plan participants that the "new NSRA plan [had] been carefully designed to [provide] the needed health care insurance protection at an affordable price."

Wohlers concluded its letter by encouraging all plan participants to compare the prior MONY policy benefits and coverage with those of the new Allianz policy. The policy outlines included information about deductibles and maximum coverage under the old MONY policy and the new Allianz policy. Under the new policy, Allianz would pay eighty percent of Bartgis' allowable hospital expenses up to $5,000.00. After expenses reached that amount, Allianz would pay one hundred percent. Significantly, the policy outlines did not notify plan participants of the new "ancillary charges" cost limitation provision that had been inserted into the Allianz policy, nor did the comparison outlines mention the provision or explain its intended effect. The letter was signed by Wohlers's executive vice-president James R. Malik.

Bartgis read both the letter and policy outlines in order to determine what changes had been made to her coverage. After comparing the details on the outlines, she concluded that the Allianz policy provided better coverage than her previous MONY policy. Bartgis did not read anything indicating limitations on ancillary charges.

On December 11, 1990, Allianz and Wohlers reviewed and accepted a final draft of the policy that contained the ancillary charges limitation provision. In January 1991, Wohlers sent a second letter to all NSRA members explaining the change of underwriters and providing policyholders with an insurance certificate. Bartgis read the letter, which again made no mention of the new ancillary charges limitation provision. Although the new ancillary charges limitation provision was noted in the policy certificate, there was no accompanying explanation that this provision represented a significant deviation in benefits when compared to NSRA's previous policy with MONY.

In 1991, Bartgis was diagnosed with pre-cancerous cells in her reproductive organs. On April 15, 1991, she underwent a cone biopsy, and the treating physicians removed the diseased cells. Following the half-day procedure, which was performed in a hospital, Bartgis filed a claim pursuant to her Allianz medical insurance policy. In accordance with the policy provisions outlined in the November 1990 letter from Wohlers, Allianz paid eighty percent of the medical bill, and Bartgis paid twenty percent.

Four weeks later, Bartgis experienced a medical emergency that required her to be taken to the emergency room of a local hospital. Bartgis again properly filed another claim with Allianz, and Allianz paid fifty percent of the bill, which was the coverage percentage for emergency room visits outlined in the November 1990 letter.

Bartgis' discomfort grew steadily, as did her consumption of estrogen and prescription medications in an effort to manage her pain and avoid surgery. Finally, after being told she could no longer take the hormone pills, Bartgis decided, per the recommendation of her physician, to undergo a total hysterectomy. She then perused the Allianz policy in order to determine the applicable coverage rate for the procedure. Her policy listed the procedure as an "elective" procedure, which meant that she would have to pay an additional $200.00 toward her deductible. Bartgis followed the pre-certification procedures required under the policy and obtained certification for a twenty-four hour stay. Based on her understanding of the policy, Bartgis believed that sh...