Hendrix v. Republic Nat. Life Ins. Co., CA

• Decision Date: 29 October 1980
• Docket Number: No. CA,CA
• Citation: 270 Ark. 955,606 S.W.2d 601
• Parties: , 22 A.L.R.4th 315 Elbery HENDRIX, Appellant, v. REPUBLIC NATIONAL LIFE INSURANCE CO., Appellee. 80-245.
• Court: Arkansas Court of Appeals

Page 601

606 S.W.2d 601

270 Ark. 955, 22 A.L.R.4th 315

Elbery HENDRIX, Appellant, v. REPUBLIC NATIONAL LIFE INSURANCE CO., Appellee.

No. CA 80-245.

Court of Appeals of Arkansas.

Oct. 29, 1980.

Bradley & Coleman by Douglas Bradley, Jonesboro, for appellant.

Barrett, Wheatley, Smith & Deacon, Jonesboro, for appellee.

NEWBERN, Judge.

The question is whether an insurer may deny insurance benefits to an employee whose employer, by failure to pay group policy premiums, has allowed the policy to lapse, even though the employee's contribution to the premium has been deducted from his pay by the employer. We hold that, despite the employee's payments, the lapse of the policy prevents the employee from recovering medical expenses of his dependent which would have been covered but for the lapse.

The appellant was employed by Sales and Services, Inc., which had a group health insurance policy with the appellee. In March and April of 1978, Sales and Services, Inc., sent checks to the appellee as payment of the group insurance premiums for those months. The checks were returned because of insufficient funds in the employer's account. On May 10, 1978, the appellee sent to Sales and Services, Inc., a letter which called attention to the insufficiency problem and advised that the amount owed would be "charged back to (the Sales and Services company's) insurance billing." The letter also requested a replacement check. Apparently no replacement check was forthcoming, and a lapse notice was sent on June 5, 1978, by the appellee to Sales and Services, Inc., stating that the policy had lapsed as of March 31, 1978. No notice of the lapse was given to the employees of Sales and Services.

On May 7, 1978, the wife of the appellant, who would have been covered as a "dependent" by the policy, entered the hospital with a bladder ailment and incurred medical expenses amounting to $1,561.00. That amount was claimed under the policy, and the claim was rejected.

The court heard the matter without a jury and decided that the policy had lapsed, in accordance with its terms, for nonpayment of the premium, and that the lapse was effected March 31, 1978. The court further found specifically that the attempts by the appellee to recover the unpaid premiums represented by the insufficient checks were not inconsistent with the lapse provision of the policy and "did not operate as an extension of credit to the employer." The appellant contends that this amounted to an improper holding that the lapse notice was "retroactive."

The appellant's contention has two parts. First, we should decide whether the employer is an agent of the insurance company for the purpose of receiving premium payments from the employee. If that is the case, then the failure of the employer to forward the payments to the appellee will not result in a loss of coverage to the appellant. The second part of the appellant's argument has to do with whether, by pursuing the payment represented by the insufficient checks, the appellee waived its right to assert later that the policy had theretofore lapsed.

1. The agency problem.

The appellant cites Neider v. Continental Ins. Co., 213 La. 621, 35 So.2d 237 (1948), for the proposition that an employer is the agent of the insurer to the extent it is the employer's responsibility to keep the group policy in effect. The facts of that case, however, make it less supportive of the appellant's argument than All States Life Ins. Co. v. Tillman, 226 Ala. 245, 146 So. 393 (1933), which specifically holds that an employer is the agent of the insurance company for the purpose of collecting and forwarding monthly premium payments and that the process by which such payments are deducted from the employee's pay "is payment to the insurer so far as such employee is concerned." (146 So. at 393). Some jurisdictions have reached the same result on the basis of statutes making the employer the agent of the insurer in these circumstances. See, e. g., Shanks v. Travelers Ins. Co., 25 F.Supp. 740 (D.C.Okl.1938); and General American Life Ins. Co. v. Gant, 119 S.W.2d 693 (Tex.Civ.App.1938).

Still other jurisdictions have held, just as specifically, that the employer is not the agent of the insurance company in these circumstances. For example, in the most recent case of which we know dealing with the problem, the Supreme Court of North Carolina held that where an employer had deducted the premium payment from employee's wages, but issued a check to the insurer which was returned for insufficiency, the group policy terminated at the expiration of a grace period. Thus, the employee could not recover expenses which would otherwise have been paid had the policy been in effect when the expenses were incurred. In that case, as here, the employer had continued to deduct the premiums from the employee's wages during the crucial period, and no notice had been given to the employee that the employer had defaulted in payments of premiums due to the insurer. Boger v. Prudential Ins. Co., 259 N.C. 125, 130 S.E.2d 64 (1963). See also, Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196, 57 S.Ct. 686, 81 L.Ed. 1036 (1937) and First National Bank of LaMarque v. Smith, 436 F.Supp. 824 (S.D.Tex.1977).

If this case were one in which we felt we were free to choose whether the employer should be regarded as either the agent of the employee or of the insurer, our temptation would be to say we like the Alabama court's decision in view of the usual position of the employee which is one of lack of notice of the employer's default. 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. Given two such lines of cases and no...