Jordan v. Group Health Ass'n

• Decision Date: 11 September 1939
• Docket Number: No. 7260.,7260.
• Parties: JORDAN, Superintendent of Insurance, v. GROUP HEALTH ASS'N.
• Court: U.S. Court of Appeals — District of Columbia Circuit

107 F.2d 239 (1939)

JORDAN, Superintendent of Insurance, v. GROUP HEALTH ASS'N.

No. 7260.

United States Court of Appeals for the District of Columbia.

Decided September 11, 1939.

Elwood H. Seal, Corp. Counsel, and Vernon E. West, Principal Asst. Corp. Counsel, both of Washington, D. C., for appellant.

Heber H. Rice and E. K. Neumann, both of Washington, D. C., for appellee.

Before GRONER, Chief Justice, and EDGERTON and RUTLEDGE, Associate Justices.

RUTLEDGE, Associate Justice.

This is an appeal from a declaratory decree holding that appellee, herein called Group Health, "is not engaged in the business of insurance in the District of Columbia in violation of law and is not within the purview of any of the laws in said District relating to insurance companies." Appellant is the Superintendent of Insurance for the District, substituted on appeal for the original defendant, his predecessor in office, J. Balch Moor, now deceased. The then Acting United States District Attorney, David A. Pine, now District Attorney, also was a party defendant, contending that Group Health is engaged illegally in the practice of medicine. The judgment was adverse to both defendants, and the District Attorney has not appealed. Appellant contends that Group Health is either a health or accident insurance company within the meaning of Section 653 of the Code, D.C.Code 1929, tit. 5, § 179, or a company engaged in the business of insurance or an insurance company within the meaning of various other sections of the Code,¹ that it is carrying on its operations illegally and without complying with the requirements of these statutes, and that the holdings and judgment below to the contrary were erroneous.

Group Health was incorporated on February 24, 1937, as a nonprofit corporation under Sections 121-126, Title 5, of the District of Columbia Code (1929), which authorize incorporation of associations for benevolent, charitable, scientific and other purposes, including mutual improvement.² The corporate objects, summarized, are to provide, without profit to the corporation, for medical services, preventive and curative, surgery, hospitalization, and medical and surgical supplies, exclusively for members of Group Health and their dependents.³ Under the by-laws, membership is composed "solely of civil employees of the executive branch of the United States government service."⁴ Members are elected by the Board of Trustees, who in turn are elected by the members except two chosen by the Federal Home Loan Bank Board,⁵ all from the membership. Members may resign at any time, remaining liable for thirty days' dues, and failure to pay dues for sixty days terminates membership. There are two classes of membership, family membership and individual membership. For the latter, dues are $2.20 monthly; for the former, $3.30 (now, as appears from appellee's brief, slightly more).

Control and management of corporate affairs are vested in the Trustees, who may expel a member for cause on notice and hearing. The Trustees serve without compensation. On dissolution of the company, they are empowered to liquidate its assets, wind up its affairs, and distribute remaining proceeds to members in good standing.

Group Health issues no policies, formal certificates or contracts, but does give membership cards to its members for purposes of identification. Members' rights to services are fixed by the certificate of incorporation and the by-laws, principally the latter, including various amendments made from time to time. In return for the monthly dues, Group Health undertakes to arrange for medical and surgical services⁶ to be rendered by independent practitioners, not full-time staff members,⁷ either at the clinic maintained by Group Health or, if necessary, at the home of the member or the hospital where the patient may be. Hospitalization is by arrangement with established independent hospitals, for a maximum of twenty-one days for any one illness.

The petition alleges that the contracts with physicians and others are made by Group Health "on behalf of its members", but they are not made on the occasion of each call or case, and do not purport to obligate the member to pay the physician for the service,⁸ or as a principal normally is bound in commercial transactions by his agent's agreements on his behalf. The contract between Group Health and the physician undoubtedly enters into and fixes some aspects of the legal relation between him and the member. But in this respect its role is more nearly analogous to that of a collective labor agreement in the individual contract of the union member and the employer (entering into it so as to fix some of its terms, but not others) than to the ordinary contract of a principal made by his agent. The physicians and hospitals look solely to Group Health for their compensation as to the services it undertakes to arrange for. Nor is the cost of service rendered to an individual member limited by or apportioned to his contributions. For $26.40 a year, an individual member may receive much, little or no service. In effect the plan is one by which the members by making regular, limited payments receive service and supplies in variable degrees according to their needs, within specified limitations. Although this is the practical operation and effect of the plan, it is important to note the exact nature of the obligations assumed by Group Health to its members. These are contained, so far as the record shows, exclusively in the by-laws, which, in their amended and presently controlling form, have been drawn with extreme care. The pertinent provisions are set out in the margin.⁹

The effect of the agreement or arrangement is to make available to members, if they wish to receive them, the services of the physicians contracted for by Group Health; but it is specifically provided that (1) Group Health cannot and will not regulate or control the physician in his work — he is left free, in fact required, to exercise his own judgment entirely independently as to diagnosis and treatment; (2) the only obligation which Group Health assumes toward its members is to make contracts, of the character described, with physicians and others — there is no agreement or binding obligation to provide the service or see that it is supplied; the undertaking is to contract for the rendition of the services by independent contractors, not to supply them at all events or contingently; (3) further, the Trustees may determine or modify the extent of service so made available (presumably as to all members collectively) at any time on fifteen days' written notice; (4) the Medical Director may determine the extent of the services which will be available to members in each individual case; (5) the corporation does not guarantee that any of the services will be rendered, or that any contracting physician will perform his contract to supply them; (6) the corporation assumes no liability for his failure to do so or for any act of omission or commission by him in doing so or for any breach of his contract; and (7) finally, Group Health assumes no liability, if for any reason it becomes unable to procure any or all such services when called upon to do so, or to indemnify the member for failure of the physician to keep his agreement or perform it properly, and its only obligation in such a case is "to use its best efforts to procure the needed services from another source." This is the basic contract relating to the primary service. In addition, Group Health arranges for limited hospitalization, by what specific terms does not appear, and itself furnishes facilities and services in connection with its clinic, all of which are merely incidental to the primary services and must stand or fall with them.¹⁰

Tenuous the obligation may be, but that does not render it illegal, or make of it a contract of insurance or one of indemnity. Correlatively tenuous is the member's responsibility to Group Health.¹¹ The attenuated character of the literal obligation on both sides is pertinent here, not to its essential fairness or to any question of sufficiency of consideration or mutuality of obligation (no member now questions it), but to the issue or issues before us, namely, whether the agreement is a contract of insurance or one "for the payment of indemnity on account of sickness or accident." In our view it is neither.¹²

It is unnecessary for us to attempt formulation of an all-inclusive or exclusive definition of insurance or of indemnity, or to distinguish them sharply.¹³ While the basic concepts are not identical and each has varied legal usages, they have common and primary elements which are controlling here. Fundamentally each involves contractual security against anticipated loss. Whether the contract is one of insurance or of indemnity there must be a risk of loss to which one party may be subjected by contingent or future events and an assumption of it by legally binding arrangement by another. Even the most loosely stated conceptions of insurance and indemnity require these elements. Hazard is essential and equally so a shifting of its incidence. If there is no risk, or there being one it is not shifted to another or others, there can be neither insurance nor indemnity. Insurance also, by the better view, involves distribution of the risk,¹⁴ but distribution without assumption hardly can be held to be insurance.¹⁵ These are elemental conceptions and controlling ones. How are they to be applied to Group Health's plan of operations?

As to the preventive phase of its work and some others, it does not appear that any hazard is involved. The examination of persons seeking employment with the Home Owners' Loan Corporation cannot be regarded even remotely as involving risk to others or assumption thereof by Group Health. So with its supervision of that organization's first aid service. The examination of and consultation with members who are in health, not...