Golden Rule Ins. Co. v. Tomlinson

• Decision Date: 24 October 2014
• Docket Number: 105,245.
• Citation: 335 P.3d 1178,300 Kan. 944
• Parties: GOLDEN RULE INSURANCE COMPANY, Appellant, v. Robert M. TOMLINSON, in his official capacity as the Assistant Commissioner of Insurance of the State of Kansas acting on behalf of the Commissioner of Insurance of the State of Kansas, and the Kansas Insurance Department, Appellees.
• Court: Kansas Supreme Court

300 Kan. 944

335 P.3d 1178

GOLDEN RULE INSURANCE COMPANY, Appellant

v.Robert M. TOMLINSON, in his official capacity as the Assistant Commissioner of Insurance of the State of Kansas acting on behalf of the Commissioner of Insurance of the State of Kansas, and the Kansas Insurance Department, Appellees.

105,245.

Supreme Court of Kansas.

Oct. 24, 2014.

Kevin M. Fowler, of Frieden, Unrein & Forbes, LLP, of Topeka, argued the cause and was on the briefs for appellant.

Amy E. Morgan, of Polsinelli PC, of Overland Park, argued the cause, and Susan Ellmaker and Brenda J. Clary, of Kansas Insurance Department, were with her on the briefs for appellees.

Opinion

The opinion of the court was delivered by BEIER, J.:

This case arises out of a Kansas Insurance Department decision imposing sanctions on appellant Golden Rule Insurance Company for unfair claim settlement practices. The Department's final order was upheld in district court. Then, on appeal to our Court of Appeals, the panel reversed. We accepted a petition for review filed by appellees, Assistant Commissioner of Insurance Robert M. Tomlinson and the Department.

Although the underlying facts in this case are undisputed, the Court of Appeals' conclusion that Dirk McClary was not acting as Golden Rule's soliciting agent when he submitted an application for health insurance that failed to disclose proposed insured Patti Denney's preexisting condition is not inevitable under the governing law. We reverse the Court of Appeals' decision on the agency question. On the further issue of whether Golden Rule engaged in unfair claim settlement practices, we affirm in part and reverse in part the district court's judgment, which means that we also affirm in part and reverse in part the Department's order. We affirm the remedy granted to Denney by the district court and the Department.

Factual and Procedural Background

The Court of Appeals' opinion effectively captures the facts of this case as well as its lengthy and somewhat unusual procedural history. The parties do not take issue with the panel's summary; we therefore adopt the summary for purposes of our decision.

“Denney and her husband, both self-employed, had family health insurance coverage through an individual policy with Blue Cross and Blue Shield of Kansas City (Blue Cross). The coverage was expensive, and Denney began looking for a more affordable policy.

“Apparently based upon her inquiries into alternative coverage, Denney's name appeared on a list of insurance prospects maintained by Design Benefits, an independent insurance brokerage firm in Wichita. Design Benefits gave Denney's name to McClary, a Kansas licensed insurance agent who officed in Overland Park, as somebody who might be interested in buying health insurance. McClary contacted Denney.

“McClary was affiliated with Design Benefits as well as another Kansas independent brokerage firm named Hosfield. He was also affiliated with USA Benefits Group, which changed its name to America's Health Care Plan, a brokerage firm located in Illinois that is licensed in Kansas and markets insurance products of Golden Rule. These brokerage firms apparently had contracts with various insurance companies to market their insurance products in Kansas.

“McClary was not a captive agent of Golden Rule; that is, he was not an employee of Golden Rule soliciting business solely for that company. McClary submitted applications for health insurance policies to several insurance companies doing business in Kansas that competed with one another for insurance business. McClary's contract with Golden Rule was entitled an ‘Independent Broker's Contract,’ and it clearly stated that McClary was not an agent of Golden Rule.

“During September 2007, Denney met with McClary in [Denney's] office to discuss Denney's insurance coverage options. [McClary] gave Denney his business card[,] which indicated he was affiliated with USA Benefits but made no reference to Golden Rule. Two of Denney's employees, JoAnn Combs and Jodi Davis, were present during the meeting because they were also interested in securing new insurance policies. Davis testified that she believed that McClary was representing Golden Rule because McClary held himself out as its representative. Combs also believed that McClary represented Golden Rule. McClary testified that he did not take the time to explain his agency agreement to Denney. McClary referred to himself as an agent rather than a broker. McClary confirmed that he received a commission from Golden Rule for obtaining Denney's medical policy. Denney did not know the difference between an agent and a broker, and she ‘placed her faith’ in McClary and the information he was providing to her.

“Denney had a history of surgeries and procedures relating to digestive issues. Denney informed McClary of her medical condition and her previous surgeries because she did not want to risk losing health insurance for her family. Combs confirmed that Denney told McClary about th[is] medical condition[ ] at the beginning of the meeting. Denney told McClary the dates of her previous surgeries, including the fact that she had hernia surgery in the previous 6 months.

“McClary first submitted Denney's application, disclosing her digestive condition[ ], to Assurant Health, a company that sells insurance products that are underwritten by the Time Insurance Company. Denney's application did not receive favorable consideration, so McClary contacted Denney by phone and received her authorization to submit an application on her behalf to another insurance company, Golden Rule, based on the information that she had previously provided to him. Golden Rule is a competitor of Assurant Health and Time Insurance Company, and these two companies are not affiliated in any way with Golden Rule. Denney testified that McClary told her ‘not to worry’ because Golden Rule would go back only 90 days into her medical history. McClary denied making any such assurance.

“The application McClary submitted to Golden Rule did not disclose Denney's preexisting medical condition. Denney did not have the opportunity to review or sign the Golden Rule application before its submission. McClary could not explain why Denney's information was not accurately reported to Golden Rule except to say that he made a mistake.

“Denney did not review the application prior to its submission because McClary received her consent to submit the application over the phone. However, the application contained a section immediately above the electronic signatures entitled ‘STATEMENT OF UNDERSTANDING’ that instructs the applicants to ‘[r]eview the completed application and read the section below carefully before signing.’ The section states:

“ ‘I certify that I have personally completed this application. I represent that the answers and statements on this application are true, complete, and correctly recorded. I Understand and Agree that: (1) this application and the payment of the initial premium do not give me immediate coverage; (2) there will be no benefits for any loss incurred in the first year of coverage due to a preexisting condition; (3) incorrect or incomplete information on this application may result in voidance of coverage or claim denial; (4) this completed application, and any supplements or amendments, will be made a part of any policy which may be issued; (5) the broker is only authorized to submit the application and initial premium, and may not change or waive any right or requirement; and (6) continuation of other coverage existing on the Golden Rule effective date for more than 90 days after the Golden Rule effective date will void this coverage.’

“The application also contains a section entitled ‘BROKER STATEMENT’ that directs the broker to ‘[r]eview the completed application before signing below.’ Directly above McClary's electronic signature, it states that ‘[e]ach question on the application was completed by the applicant(s).’ Of course this did not happen.

“On October 13, 2007, Golden Rule issued a policy covering Denney and her family members. Denney then cancelled her policy with Blue Cross.

“In January 2008, Denney's physician, Dr. Mark Strehlow, sent a letter to Golden Rule requesting advance approval of coverage under the policy for surgery for Denney. Strehlow's letter stated that Denney had an extensive medical history related to various digestive conditions. Strehlow said that Denney was scheduled to undergo ‘abdominal reconstructive surgery.’ Strehlow later testified that Golden Rule denied payment for the procedure, and he immediately requested that Golden Rule reconsider. Strehlow told Golden Rule that Denney was experiencing a number of gastric problems and she ‘certainly does not feel she can wait three to six months to have this procedure done.’ Golden Rule denied that it rejected Strehlow's request and claims that it simply took the matter under advisement pending further investigation.

“From late January 2008 into April 2008, Golden Rule conducted an investigation into Denney's medical history and her application for insurance. Golden Rule requested more information regarding Denney's medical history from Denney's various physicians.

“On April 28, 2008, Golden Rule denied coverage for Denney's proposed surgery based on the fact that the conditions documented in Denney's medical records were not disclosed in her application for insurance. Golden Rule stated that if Denney's medical history had been accurately disclosed, Golden Rule's offer of insurance would have contained a rider that excluded all coverage for digestive system diseases or disorders. Golden Rule informed Denney that ‘we need to take the same action we would have taken if we had been aware of this information when you applied for insurance.’ Golden Rule offered to keep the policy in force but exclude coverage for any digestive system problems. When Denney refused to accept the exclusionary rider, Golden Rule cancelled the policy.

“On May 5, 2008, Denney

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