Freeman v. Bonnes Trucking, Inc.

Citation337 N.W.2d 871
Decision Date17 August 1983
Docket NumberNo. 68603,68603
PartiesClarence FREEMAN, Appellee, v. BONNES TRUCKING, INC., Oran Bonnes, and Guardian Life Insurance Company, Appellants.
CourtUnited States State Supreme Court of Iowa

Raymond E. Pogge of Pogge, Root & Steege, Council Bluffs, for appellants Bonnes Trucking and Bonnes.

Gregory G. Barnsten of Smith, Peterson, Beckman & Willson, Council Bluffs, for appellant Guardian.

Dennis M. Gray and Jan Stansberry Fuller of Peters Law Firm, P.C., Council Bluffs, for appellee.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McGIVERIN, and WOLLE, JJ.

UHLENHOPP, Justice.

This law case tried to the court involves the requirements for termination of a group medical insurance policy for nonpayment of premiums.

Viewing the evidence in the light most favorable to the judgment for plaintiff Clarence Freeman, the court could find the facts to be as follows. Defendant Oran Bonnes (Bonnes) was president and sole stockholder of defendant Bonnes Trucking, Inc. (Bonnes Trucking). As one of their benefits, employees of Bonnes Trucking received medical expense insurance coverage under a group policy Bonnes Trucking maintained with defendant Guardian Life Insurance Company. Employees could also obtain coverage for dependents by paying half the premium for them through payroll deductions, with Bonnes Trucking paying the other half.

Freeman was one of these covered employees. He also had coverage for his wife, and Bonnes Trucking deducted half of the premium for her from his wages. Bonnes Trucking held the master policy and each employee including Freeman received a "Certificate of Coverage" explaining the insurance benefits of the employees and dependents. Guardian's policy also provided life and disability insurance, but those coverages are not involved here.

In the fall of 1979, Bonnes Trucking had insufficient income to pay all its bills. It therefore failed to pay monthly premiums to Guardian, including the amounts it withheld from Freeman's wages for his wife's coverage. Guardian purported to terminate the policy for nonpayment of premiums as of November 19, 1979, by notifying Bonnes Trucking. Neither Guardian, Bonnes Trucking, nor Bonnes notified Freeman of the termination.

In January 1980, Freeman became ill with a breathing problem. Bonnes adroitly left Freeman with the impression that he had insurance, and Brenda Lewis, the office secretary at Bonnes Trucking, assured Freeman that his insurance was in effect. Freeman underwent surgery and also received post-surgery care and treatment. In addition, his wife had medical expenses from a broken elbow as a result of a fall. In all, these medical expenses came to $16,522.06 (allowing for deductibles). Guardian refused to pay these expenses, claiming that the policy had been cancelled and had expired.

Freeman brought the present action against Bonnes Trucking and Bonnes for $16,522.06 together with $25,000 for punitive damages for fraudulently leading him to believe that he had insurance and withholding information that the policy had been terminated. Through procedural steps in the case, Freeman also sued Guardian for $16,522.06. The trial court awarded him $16,522.06 jointly from Bonnes Trucking, Bonnes, and Guardian, plus $25,000 from Bonnes Trucking and Bonnes as punitive damages. All three defendants appealed. We first consider Guardian's propositions, and then the propositions of Bonnes Trucking and Bonnes.

I. Cancellation and expiration. The heart of Guardian's appeal relates to the effect of the failure to notify Freeman of the termination of the policy. Because he was not notified, Freeman had no reason to seek employment with a truck line which did provide insurance, or to take action, alone or with his co-workers, seeking to induce Bonnes Trucking to reinstate the insurance.

A. As to cancellation, we need not decide whether, as a matter of Iowa common law, a group insurer must notify the group members of policy cancellation for nonpayment of premiums by the employer. Hence we do not consider the common-law decisions from elsewhere on that subject. But see Hendrix v. Republic National Life Insurance Co., 270 Ark. 955, 958, 606 S.W.2d 601, 602 (Ark.1980) ("We might even find, were we at liberty to do so, some equitable duty on the part of the insurer to notify employees participating in the group policy when there is such a lapse resulting from the employer's failure to pay."); Elfstrom v. New York Life Insurance Co., 67 Cal.2d 503, 512, 63 Cal.Rptr. 35, 41, 432 P.2d 731, 737 (1967) ("The reasoning underlying these decisions [holding employer is agent for insurer] is that the employer carries out the functions which the insurer necessarily would perform in other types of insurance and thereby confers a substantial benefit on the insurer, and that since the individual employee has no knowledge of or control over the administrative acts performed by the employer, it would be inequitable to charge him with the employer's errors."). In this jurisdiction, the matter is covered by section 515.80 of the Iowa Code (1979):

No policy or contract of insurance provided for in this chapter shall be forfeited or suspended for nonpayment of any premium, assessment, or installment provided for in the policy, or in any note or contract for the payment thereof, unless within thirty days prior to, or on or after the maturity thereof, the company shall serve notice in writing upon the insured that such premium, assessment, or installment is due or to become due, stating the amount, and the amount necessary to pay the customary short rates, up to the time fixed in the notice when the insurance will be suspended, forfeited, or canceled, which shall not be less than thirty days after service of such notice, which may be made in person, or by mailing in a certified mail letter addressed to the insured at his post office as given in or upon the policy, and no suspension, forfeiture, or cancellation shall take effect until the time thus fixed and except as herein provided, anything in the policy, application, or a separate agreement to the contrary notwithstanding.

Guardian argues that section 515.80 does not apply to group insurance. The Iowa Code contains forty chapters relating to insurance, a number of which relate to specific kinds of insurance. Three of the chapters, however, contain general requirements. Chapter 508 relates to life insurance companies generally and chapter 511 contains various other provisions relating to life insurance companies. Correspondingly, chapter 515 relates to non-life companies generally and also contains general provisions relating to such companies. The other chapters contain additional provisions relating to specific kinds of life and non-life insurance, such as group insurance (chapter 509), fraternal benefit societies (512), mutual hospital service (514), and accident and health insurance (514A).

The part of Guardian's policy involved here is non-life--medical expense insurance. The specific chapter of the Code on group insurance is 509. The express provisions of chapter 509 control, of course, over any contrary provisions of general chapter 515. But as to group insurance questions which are not covered by an express provision in chapter 509, the problem becomes one of legislative intent: whether the General Assembly intended the provisions in general chapter 515 to apply--in this case, section 515.80.

Chapter 509 on group insurance contains no provision comparable to section 515.80; hence no express conflict exists. Guardian argues, however, that the language of section 515.80 demonstrates the section does not apply to group insurance. That section begins, "No policy or contract of insurance provided for in this chapter...." What is "provided for" in chapter 515? Section 515.1 provides that "Corporations formed for the purpose of insurance, other than life insurance, shall be governed by the provisions of chapter 491 [general corporation chapter], except as modified by the provisions of this chapter." (Emphasis added.)

A provision of chapter 509 indicates that section 515.80 applies to group medical expense insurance. Section 509.2 lists the provisions which are part of a group life policy. This section states that "the standard provisions required for individual life insurance policies shall not apply to group life insurance policies...." It also expressly exempts life insurers from including "the same nonforfeiture provisions as are required for individual life insurance policies," and it expressly gives policyholders a grace period of thirty-one days for payment of premiums except the first one. Section 509.3, on the other hand, deals with group accident and health policies such as we have here. It contains no such exemptions from the standard requirements of nonlife insurance.

Section 515.80 provides that the forfeiture notice shall be served "upon the insured." Guardian argues that Bonnes Trucking was the insured, and that notice was served upon it. But Bonnes Trucking, under the policy, was the policyholder. Iowa Code (1983) § 509.1(1) ("employer or trustee shall be deemed the policyholder"), § 509.3(2) ("company will issue to the policyholder for delivery to each person insured under such policy an individual certificate"). Bonnes Trucking would receive no insurance proceeds if an employee had medical expense. The employee would receive the proceeds. The employee's expense for injury or illness was the hazard insured against. Guardian's Certificate of Coverage given to Freeman begins by stating "that the employee named below [Freeman] is entitled to the benefits described in this Certificate...." (Emphasis added.) The second page begins, "Your insurance under the group plan is effective on the date shown on the Certificate of Coverage...." (Emphasis added.) In defining a dependent, the certificate names certain relatives but excludes "any such person who is insured as an...

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