Hermann Hosp. v. Liberty Life Assur. Co. of Boston

• Decision Date: 21 March 1985
• Docket Number: No. C14-83-639-CV,C14-83-639-CV
• Citation: 696 S.W.2d 37
• Parties: HERMANN HOSPITAL, Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 37

696 S.W.2d 37

HERMANN HOSPITAL, Appellant, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, Appellee.

No. C14-83-639-CV.

Court of Appeals of Texas Houston (14th Dist.).

March 21, 1985.

Rehearing Denied July 18, 1985.

Mike Johnston, Mark A. McLean, James J. Hippard, Sr., Gail Magers of Sullins, Johnston, Rohrbach & Magers, Houston, for appellant.

Kurt T. Nelson of Kurt T. Nelson, P.C., Houston, for appellee.

Before JUNELL, MURPHY and SEARS, JJ.

OPINION

SEARS, Justice.

Appellant, Hermann Hospital, appeals from a take-nothing judgment in its suit to recover for medical services provided to Joseph Johnson. We affirm.

Main Lines Company took out a group health insurance policy with Appellee, Liberty Life Assurance Company of Boston. The group policy, which had an effective date of September 9, 1977, was to provide health insurance benefits for the employees of Main Lines. The policy provided that its anniversary date was September 1, 1978. The policy provided:

The company may change the rates at which further premiums shall be computed, effective at any premium due date on or after the first anniversary of the effective date of the policy, by giving notice of such change to the policyholder not less than thirty-one days before such premium due date: provided, that such changes shall not be accomplished more often than once in any twelve months.

Main Lines paid one annual premium for the policy period ending August 31, 1978. Prior to the anniversary date of the policy, Appellee notified Main Lines that there would be an increase in premium for the policy period September 1, 1978 to August 31, 1978. There was testimony by Alene Easley, an employee of Main Lines, that Main Lines did not renew the policy. Main Lines took a separate policy with Great Southern Insurance, effective September 1, 1978, for the same coverage previously provided by Appellee. Main Lines was billed for, but did not pay, premiums on the Liberty Life policy after August 31, 1978. The Liberty Life policy provided:

If a premium is not paid when due the policy shall be in default; however, a grace period of thirty-one days will be granted for the payment of every premium except the initial premium, and during such period the insurance provided under the policy shall continue in force subject to the policyholder's right to terminate the policy in accordance with Condition 15. If a premium shall remain unpaid at the end of the grace period the policy shall then automatically terminate. In the event the policy terminates for any reason, the policyholder shall be liable for any premium due and unpaid, including a pro rata premium for any time the policy is in force during the grace period (emphasis added).

The same policy provided that "[T]he policyholder may terminate this policy by giving written notice to the Company." Main Lines did not give written notice that it was terminating the policy until November 30, 1978.

On September 15, 1978, Joseph Johnson, an employee of Main Lines, was admitted to Hermann Hospital for treatment of a chronic kidney condition. Upon request at admission, he presented the newly issued Great Southern Insurance card and signed a blank insurance assignment form. Appellant contacted Main Lines and verified that Mr. Johnson had hospitalization insurance through Great Southern. Johnson remained in the hospital until his death in November, 1978.

Great Southern paid only $5,290.00 of Appellant's claims and contended the policy limitation relating to treatment of pre-existing conditions precluded full payment. Appellee first learned in February, 1979, that Appellant claimed a policy issued by Appellee was in effect and covered this period of hospitalization. Appellant brought suit against both Great Southern and Appellee. Appellant settled its claims against Great Southern and proceeded to trial against Appellee.

Appellant claimed, at the trial level, that both policies were in effect at the time of the hospitalization, and that it had a valid assignment from Johnson as to both policies. The court ruled as a matter of law that Appellee's group insurance contract was in effect on September 15, 1978, thus covering the medical expenses incurred by Mr. Johnson. In response to Special Issues Nos. Four and Five, the jury found that Mr. Johnson had incurred reasonable and necessary hospital expenses in the amount of $96,307.00 and that reasonable attorney's fees for Appellant's attorneys would be $41,000.00. The jury, in response to Special Issue No. One, failed to find that Mr. Johnson intended to assign to Hermann Hospital his benefits under Appellee's policy. The trial court entered judgment that Hermann Hospital take nothing by its suit against Appellee. Appellant raises three points of error while Appellee submits two cross-points of error.

In point of error one, Appellant argues that it was a third-party creditor beneficiary of the group insurance policy between Main Lines and Appellee. As a third-party beneficiary, Appellant believes it can enforce Appellee's performance under the policy. Appellee responds by arguing that: (1) the trial court erred in ruling that as a matter of law the insurance contract was in effect on September 15, 1978; (2) Appellee has procedurally waived its right to claim third-party beneficiary status; and (3) Appellant is not a third-party beneficiary of the group insurance policy. Because of our holding below, we need not address whether or not the trial court erred in finding Appellee's policy was in effect on September 15, 1978.

Appellant argues that it was a third-party beneficiary of the Liberty Life group health insurance policy and as such may enforce the policy without an assignment from Johnson. We believe that Appellant is procedurally precluded from raising this argument for the first time on appeal. Additionally, Appellant has failed to show that it was a third-party beneficiary of that policy.

Appellant's Sixth Amended Original Petition does not allege a cause of action on a third-party beneficiary theory. Paragraph IV of that petition alleges an assignment of benefits was executed, or in the alternative, an equitable assignment took place. In fact, the phrase "third-party beneficiary" does not appear in the petition. As to this claim, the petition does not contain "a short statement of the cause of action sufficient to give fair notice of the claim involved" and fails to comply with Tex.R.Civ.P. 47.

We agree that a third person for whose benefit a contract is made may enforce the contract against the promissor. Quilter v. Wendland, 403 S.W.2d 335, 337 (Tex.1966); Krueger v. Williams, 163 Tex. 545, 359 S.W.2d 48 (1962); Edds v. Mitchell, 143 Tex. 307, 184 S.W.2d 823, 829 (1945). Ordinarily, a stranger to an insurance policy may not sue thereon. Doss v. Roberts, 487 S.W.2d 839 (Tex.Civ.App.--Texarkana 1972, writ ref'd n.r.e.); Travelers Fire Insurance Co. v. Steinmann, 276 S.W.2d 849 (Tex.Civ.App.--Dallas 1955, writ ref'd n.r.e.). However, insurance policies are no exception to the rule that one for whose benefit a contract is made may enforce the contract. Old Colony Insurance Co. v. Messer, 328 S.W.2d 335 (Tex.Civ.App.--Beaumont 1959, writ ref'd n.r.e.).

In Key Life Insurance Co. of South Carolina v. Taylor, 456 S.W.2d 707 (Tex.Civ.App.--Beaumont 1970, writ ref'd n.r.e.) the court dealt with a suit by an employee of the holder of a "Blanket Accident Policy." The claimant was not a party to the policy. The court concluded that the employee, under a group insurance policy between the insurer and employee, is entitled to sue thereon because "it was the intention of the parties for this to be an insurance contract for the benefit of a third party...." Taylor, 456 S.W.2d at 709. The controlling factor in determining whether a third party may enforce a contract is the intention of the contracting parties. Corpus Christi Bank and Trust v. Smith, 525 S.W.2d 501 (Tex.1975).

To be able to sue as a third party beneficiary of the insurance policy, Hermann Hospital would have the burden of showing the intention of Liberty Life and Main Lines. No special issue was submitted asking about the intention of the contracting parties. On appeal, an independent ground of recovery not conclusively established by the evidence and upon which no special issue has been submitted or requested shall be deemed as waived. Tex.R.Civ.P. 279.

Appellant argues that "[S]ince there could not ever be a factual dispute over who the ultimate beneficiary of payments would be under this policy for hospital bills, it would beg the question to submit any issue on what the 'intent' of the insurance company and the policy holder was (emphasis in original)." The testimony of Mr. Brown was that the intent of a person who buys this coverage is to protect individuals from liability for hospital bills. Appellant equates "the ultimate beneficiary of payments" with the party the group insurance policy is intended to benefit. The fact that the proceeds of the insurance policy will ultimately be paid to Hermann Hospital does not mean that the policy was intended by the contracting parties for the direct benefit of the Hospital. Brown's testimony, rather than supporting the position of Appellant, indicates that group policies are intended for the benefit of the individual group members and not their creditors. Appellant, in order to sue as a third-party beneficiary, had the burden of establishing that it was the intention of the contracting parties that this contract was for the benefit of Appellant. This burden has not been met.

Appellant relies on the "Direct Payment of Benefits" clause to reach the legal conclusion that as a matter of law it is a third-party creditor beneficiary with a right to enforce the contract. The policy contains both a "Direct Payment of Benefits" clause and a "facility of payment" clause which allow the insurer to pay benefits to the third party that provides health care services to...