Breland v. Louisiana Hosp. Services, Inc.

• Court: Court of Appeal of Louisiana
• Writing for the Court: LANIER; LANIER
• Citation: Breland v. Louisiana Hosp. Services, Inc., 468 So.2d 1215 (La. App. 1984)
• Decision Date: 07 December 1984
• Docket Number: No. CA,CA
• Parties: Ray W. BRELAND, Sr. v. LOUISIANA HOSPITAL SERVICES, INC., d/b/a Blue Cross of Louisiana. 83 1247. 468 So.2d 1215

Page 1215

468 So.2d 1215

Ray W. BRELAND, Sr. v. LOUISIANA HOSPITAL SERVICES, INC., d/b/a Blue Cross of Louisiana.

No. CA 83 1247.

468 So.2d 1215

Court of Appeal of Louisiana First Circuit.

Dec. 7, 1984.

On Rehearing April 16, 1985.

Ray W. Breland, Jr., Bogalusa, for plaintiff-second appellant.

Henry J. Miltenberger, Jr., Covington, for defendant-first appellant.

Before COLE, CARTER and LANIER, JJ.

LANIER, Judge.

This is a suit in contract by Ray W. Breland, Sr. (Breland) seeking to compel Louisiana Hospital Services, Inc. d/b/a Blue Cross of Louisiana (Blue Cross) to pay benefits under a group health and accident insurance policy issued to Breland Foods, Inc. Breland also sought statutory penalties pursuant to La.R.S. 22:657 for failure to pay the claim and nonpecuniary damages for breach of contract. In a supplemental and amending petition, Breland prayed that the insurance policy be continued in full force and effect. Blue Cross answered the petition and asserted the policy was validly cancelled in accordance with its own terms and the Louisiana Insurance Code (La.R.S. Title 22), and the expenses incurred by Breland were after the date of cancellation and not covered by the policy. The district court rendered judgment in favor of Breland for $3,979.50 for past due benefits, assessed a statutory penalty consisting of $3,979.50 and an attorney fee of $2,500.00 and ordered Blue Cross to maintain its policy on Breland for treatment of his continuing illness. The district court rejected Breland's claim for damages for breach of contract. Blue Cross took this suspensive appeal. Breland took a devolutive appeal contesting the portions of the district court judgment which limited the penalty attorney fee to $2,500 and rejected the claim for damages for breach of contract.

FACTS

In 1964, Blue Cross issued a contract of group health and accident insurance to Breland Foods, Inc. Breland was covered by the policy at that time.

Breland had surgery in 1973 and was found to have renal cell cancer. Apparently, this condition was arrested but reappeared in 1979 and has gotten worse since then.

Pursuant to a request for group change by Breland Foods, Inc., a revised policy was issued by Blue Cross effective March 1, 1982. Breland was still a full-time employee of Breland Foods, Inc. at that time.

By letter dated April 27, 1982, which was received by Breland Foods, Inc. on April 30, 1982, Blue Cross cancelled its policy effective June 1, 1982. This notice of cancellation read as follows:

Blue Cross of Louisiana has always been a leader in the battle against rising health care costs. Our singular goal, since our birth, has been to offer quality health care protection at an affordable price.

In an effort to moderate cost, Blue Cross has supported the collective effort of area-wide health planning and encouraged the use of alternative health care procedures, such as same-day surgery and pre-admission testing.

In spite of these efforts and the benefit and rate changes made in 1980 and 1981, the financial losses experienced by Blue Cross last year were the highest in the history of the plan.

Studies show that a substantial portion of our losses in 1981 and prior years occurred in certain segments of our group business. To reduce these losses we have revised our criteria for renewal of this segment of group business.

As a result of these revisions, we will be unable to renew the health care contract with your group; therefore, by means of this letter, we are notifying you that your group health care contract will be cancelled effective June 1, 1982.

Breland Foods, Inc. and Breland objected to the cancellation of the policy. Breland requested that the policy be continued and forwarded the June premium check, which was refused and returned by Blue Cross. Blue Cross has refused to pay the medical bills incurred by Breland after June 1, 1982. This suit was filed on September 27, 1982.

EFFECT OF POLICY PROVISIONS ON TERMINATION AND PAYMENT OF

BENEFITS AFTER TERMINATION

Blue Cross contends it had a right under the terms of its policy to cancel the contract, it was not required under the terms of the contract to pay for medical services rendered to Breland after the date of cancellation and the district court committed error by ordering it to do so. The district court relied on Cataldie v. Louisiana Health Service and Indemnity Company, 433 So.2d 367 (La.App. 3rd Cir.1983) and held "an insuror [sic] may not arbitrarily and without providing just cause terminate a health insurance policy and refuse to pay for medical expenses thereafter incurred by a person covered by such policy when the services are for a continuing illness for which the insuror [sic] had been previously paying benefits up to the time of the termination of the policy."

An insurance policy is a contract between the insured and the insurer and has the effect of law between the parties. La.C.C. art. 1901; Lambert v. Mutual Life Insurance Company of New York, 431 So.2d 23 (La.App. 1st Cir.1983), writ denied, 438 So.2d 571 (La.1983). Courts are bound to give legal effect to the terms of an insurance policy according to the true intent of the parties, and that intent is to be determined from the words of the contract when they are clear and explicit and lead to no absurd consequences. La.C.C. art. 1945. An ambiguity in a policy of insurance is construed against the insurer and in favor of the insured. La.C.C. art. 1958; Remondet v. Reserve National Insurance Company, 433 So.2d 792 (La.App. 5th Cir.1983), writ denied, 441 So.2d 216 (La.1983). Insurers may limit their liability under a policy of insurance as long as the limitation does not conflict with statutory law or offend public policy. Richard v. Board of Trustees of State Employees Group Benefits Program, 411 So.2d 491 (La.App. 1st Cir.1982).

On page one of the Blue Cross policy appears the following: "The Plan or the Group may cancel the Contract with 30 days written notice." In Article VII, Section (C) of the policy appears the following: "The Plan may change the fees for or the benefits of the Contract or may cancel the Contract at any time, by giving 30 days written notice to the Member at his last address as shown in the Plan records." The provisions for cancellation on 30 days notice are clear, explicit and unambiguous. They do not conflict with statutory law because under La.R.S. 22:636(A)(1) insurers are authorized to cancel policies on five days notice.

Article V, Section (A)(8) of the policy provides as follows: "No Health Care allowance will be provided for: ... Services after the termination of the Contract, regardless of the cause of termination, except as provided under Article VI, and for services rendered during an Admission in progress on the date the Member's Contract becomes effective;". Article VI, Section (A) provides as follows:

Notwithstanding any other provision of the Contract, if the fees are not paid to the Plan for the Contract within 30 days after they become due, the Contract is automatically terminated. Benefits, as defined under Article II, Paragraph A,1,a,1 through 23 of this contract, for Admissions beginning before the date of termination will cease at the end of the Admission or the Benefit Period, whichever occurs first. All other benefits will cease as of the date of termination.

An "admission" is defined in Article I, Section (A) as: " 'Admission' means an uninterrupted Inpatient period of time spent in Member or Non-Member Hospitals." Paragraph 5 of the Joint Stipulation of Facts states that "Blue Cross has refused to pay the medical bills incurred after June 1, 1982 attached to these stipulations as 'Exhibit 3' ". Breland does not claim that any of the charges were incurred during an "admission" which commenced prior to the termination of coverage. In Tabb v. Louisiana Health Services & Indemnity Co., 361 So.2d 862 (La.1978), a group policy clause providing that no subscriber would be paid for medical services received after termination of the contract was held not to violate statutory law or public policy. ¹

The Louisiana Supreme Court granted a writ in the Court of Appeal Cataldie case relied on by the district court. Cataldie v. Louisiana Health Service & Indemnity Company, 440 So.2d 752 (La.1983). On September 10, 1984, in a 4-3 ruling, the Court of Appeal decision was affirmed. Cataldie v. Louisiana Health Service and Indemnity Company, 456 So.2d 1373 (La.1984). However, the majority opinion declined to adopt the reasoning of the Court of Appeal. Instead, it found Cataldie had a non-group contract of health and accident insurance, the policy was subject to the provisions of La.R.S. 22:213(B)(7) providing "cancellation shall be without prejudice to any claim originating prior thereto", the Blue Cross policy termination provision was less favorable than the statutory provision, any policy provision in conflict with a statute is amended pursuant to La.R.S. 22:213(B)(8) to conform with the statute, and ruled that since Cataldie's daughter became ill during the term of the policy the cancellation did not prejudice her coverage after cancellation. The Supreme Court ruling in Cataldie is not applicable in the instant case because the policy herein is a group policy (in Cataldie the policy was a non-group policy), and pursuant to La.R.S. 22:221, the provisions of La.R.S. 22:213 are not applicable to group health and accident insurance policies.

The provisions of the Blue Cross policy in the instant case are clear, explicit, unambiguous and not prohibited by statutory law. However, when construed together the effect of these policy provisions is that if a covered risk manifests itself during the term of the policy, Blue Cross can relieve itself of liability for the risk after the 30-day cancellation period.

In Cataldie, 456 So.2d at 1376, a majority of the Louisiana Supreme Court observed in dictum as follows:

When confronted with this type of situation...