Cary v. United of Omaha Life Ins. Co.

• Decision Date: 28 February 2005
• Docket Number: No. 04SC13.,04SC13.
• Citation: 108 P.3d 288
• Parties: Thomas A. CARY and Beth Hanna, individually and on behalf of their minor daughter, Dena Cary, Petitioners, v. UNITED OF OMAHA LIFE INSURANCE COMPANY, Respondent.
• Court: Colorado Supreme Court

108 P.3d 288

Thomas A. CARY and Beth Hanna, individually and on behalf of their minor daughter, Dena Cary, Petitioners, v. UNITED OF OMAHA LIFE INSURANCE COMPANY, Respondent.

No. 04SC13.

Supreme Court of Colorado, En Banc.

February 28, 2005.

Wilcox & Ogden, P.C., Ralph Ogden, M. Anne Wilcox, Denver, for Petitioners.

Kutak Rock, LLP, Gerard V. Reardon, Amy E. Arlander, Denver, for Respondent.

RICE, Justice.

Petitioner, Thomas Cary, individually and on behalf of his minor daughter, Dena Cary, appeals a judgment of the court of appeals holding that the Arvada Medical and Disability Health Care Plan unambiguously excludes Dena's injuries from coverage.

We hold that the Plan is ambiguous because it is susceptible to more than one reasonable interpretation. Therefore, we reverse the court of appeals' holding and remand with instructions to return the case to the trial court for proceedings consistent with this opinion.

I. Facts and Procedural History

Petitioner was an employee of the City of Arvada, which provided him and his fourteen-year-old daughter, Dena, with health coverage under the Arvada Medical and Disability Health Care Plan (Plan), a partially self-funded municipal health plan overseen by the Arvada Medical and Disability Trust Fund (Trust). Like all Arvada employees, Petitioner did not receive a copy of the Plan itself. Rather, in February 1994, Arvada distributed a summary plan description (1994 SPD), which highlighted relevant aspects of the Plan.

In 1996, the Trust retained Respondent, United of Omaha Life Insurance Company (United), to administer the Plan. United was responsible for handling and processing all claims, and for determining the extent of coverage. United's determinations were appealable to the Trust. Mutual of Omaha of Colorado, Inc. (Antero) sub-contracted with United to fulfill some of United's claims investigations and appeals responsibilities.

In November 1996, Arvada distributed a flier entitled "Mutual [of] Omaha Companies Point-of-Service Plan Summary" (1996 Flier) that summarized benefits and listed general exclusions from the Plan. In or around July 1997, Arvada distributed a new summary plan description to its employees (1997 SPD) which stated that it was effective January 1, 1997. Both the 1996 Flier and the 1997 SPD contained markedly different exclusions than the 1994 SPD.

In June 1997, Dena shot herself under the chin in an unsuccessful suicide attempt. At the time, she was suffering from a major depressive episode associated with diagnosed bipolar disorder, a biologically based mental illness covered by the Plan. Dena's gunshot injuries required extensive treatment, hospitalization, and multiple surgeries.

Petitioner and Dena (Insureds) applied for benefits under the Plan, but United denied the claim. After an unsuccessful appeal to the Trust, Insureds brought suit in Denver District Court (trial court) against Arvada, the Trust, United, and Antero¹ seeking a declaration that the Plan covered Dena's injuries, as well as damages for breach of insurance contract and bad faith failure to provide insurance benefits.

On cross motions for summary judgment, the trial court held that the Plan's definitions and exclusionary provisions were ambiguous, and resolved the ambiguity in favor of coverage. Additionally, the trial court dismissed Insured's bad faith claim with prejudice, holding that claims of insurance bad faith against third-party administrators are limited to the workers' compensation arena.

Insureds appealed summary judgment on their claim of insurance bad faith, and United cross-appealed summary judgment on the issue of coverage. In Cary v. United of Omaha Life Insurance Co., 43 P.3d 655, 659 (Colo.App.2001) (Cary I), the court of appeals affirmed the trial court's grant of summary judgment on Insureds' bad faith claim. Having determined that judgment for United was proper, the court of appeals did not address United's cross-appeal. Id. at 660.

In Cary v. United of Omaha Life Insurance Co., 68 P.3d 462, 464 (Colo.2003) (Cary II), we reversed the trial court's determination that United owed no duty of good faith when investigating and servicing insurance claims under the Plan. We concluded that United "had primary control over benefit determinations, assumed some of the insurance risk of loss, undertook many of the obligations and risks of an insurer, and had the power, motive, and opportunity to act unscrupulously in the investigation and servicing of the insurance claims." Id. at 463. Accordingly, we held that a special relationship existed between United and Insureds that was sufficient to establish United's duty to act in good faith. Id. Consequently, we reinstated Insureds' bad faith claim against United and remanded the issue of coverage to the court of appeals. Id.

On remand, the court of appeals reversed the trial court's grant of summary judgment on the issue of coverage, holding that the Plan unambiguously excluded coverage for Dena's injuries. Cary v. United of Omaha Life Ins. Co., 91 P.3d 425, 428, 430 (Colo.App.2003) (Cary III). This appeal followed.

We accepted certiorari to determine (1) whether the court of appeals correctly held that the Plan unambiguously excluded coverage for Dena's injuries, and (2) if so, whether the 1994 SPD created an ambiguity that the 1996 Flier and 1997 SPD later cured.²

Because the Plan is susceptible on its face to more than one reasonable interpretation, we hold that the Plan is ambiguous and resolve the ambiguity in favor of coverage. We therefore reverse and remand to the court of appeals with instructions to return it to the trial court for proceedings consistent with this opinion.

II. Analysis

An insurance policy is a contract, the interpretation of which is a matter of law that we review de novo. State Farm Mut. Auto. Ins. Co. v. Stein, 940 P.2d 384, 387 (Colo.1997); Union Ins. Co. v. Houtz, 883 P.2d 1057, 1061 (Colo.1994). As with any contract, we construe the terms of an insurance policy to promote the intent of the parties. Houtz, 883 P.2d at 1061.

We must enforce an insurance policy as written unless the policy language contains an ambiguity. Stein, 940 P.2d at 387. An insurance policy is ambiguous if it is susceptible on its face to more than one reasonable interpretation. Houtz, 883 P.2d at 1061. Any ambiguity in an insurance policy is construed in favor of providing coverage to the insured. Am. Fam. Mut. Ins. Co. v. Johnson, 816 P.2d 952, 953 (Colo.1991). A mere disagreement between the parties concerning interpretation of the policy does not create an ambiguity. Houtz, 883 P.2d at 1061. To determine whether a policy contains an ambiguity, we must evaluate the policy as a whole. Id.; Stein, 940 P.2d at 387

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In this case, the Plan provides that it pays a specified percentage of "covered expenses" per year. To qualify as a "covered expense," a medical expense must be "Medically Necessary for the treatment of an Injury or an Illness not specifically excluded or otherwise limited under [the] Plan."³

The Plan defines "injury" and "illness" as follows:

Injury. Injury means accidental bodily Injury which occurs independently of Illness. Injury does not include self-inflicted bodily Injury, either while sane or insane,⁴ or disease or infection (except pyogenic infection occurring through an accidental cut or wound).

Illness. Illness means a physical or mental disorder, including pregnancy.

These definitions are controlling throughout the Plan.

The Plan also contains an exclusionary provision which provides that "[c]harges in connection with a self-inflicted injury, whether sane or insane" are not covered. However, because the Plan definitions are controlling throughout the Plan, this provision cannot be read in isolation, but must be read in context with the specific definitions set forth in the Plan. Accordingly, this exclusionary provision only applies to "injury" as the Plan defines that term.

United argues that the Plan language clearly and unambiguously excludes self-inflicted injuries from coverage. Insureds agree with United that this is one reasonable interpretation of the Plan. However, Insureds argue that an equally reasonable interpretation of the Plan is that if a self-inflicted injury results from an illness, treatment for that injury is covered. We agree that each interpretation is reasonable.

One reasonable interpretation of these definitions is that the first sentence in the "injury" definition ("Injury means accidental bodily Injury which occurs independently of Illness") is a definitional sentence that narrows the effect of the limitation contained in the second sentence ("Injury does not include self-inflicted bodily Injury, either while sane or insane"). Thus, the self-inflicted injury limitation in the second sentence of the "injury" definition modifies only the phrase "accidental bodily Injury which occurs independently of Illness." As a result, injuries that occur as a result of illness, even if self-inflicted, are defined out of the "injury" definition and are covered by the Plan's promise to provide coverage for treatment of an illness.

The trial court illustrated this interpretation of the language by comparing a self-inflicted injury resulting from a drunken dare with a self-inflicted injury resulting from narcolepsy. Because a drunken person does not suffer from a covered illness, the Plan does not cover self-inflicted injuries resulting from drunken behavior. Conversely, because narcolepsy is a covered illness, self-inflicted injuries resulting from a narcoleptic fall down the stairs would be covered as "Medically Necessary for the treatment of an Illness." Similarly, because Dena's bipolar disorder is a covered illness, self-inflicted injuries resulting from her bipolar disorder would be covered as well.⁵

However, an equally reasonable interpretation is that both sentences in the "injury" definition are of like definitional value, that is to say that...