Massachusetts Mut. Life Ins. Co. v. Nails

• Decision Date: 12 September 1989
• Docket Number: No. 89-C-0550,89-C-0550
• Citation: 549 So.2d 826
• Parties: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY v. Steven F. NAILS. 549 So.2d 826
• Court: Louisiana Supreme Court

Page 826

549 So.2d 826

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY v. Steven F. NAILS.

No. 89-C-0550.

549 So.2d 826

Supreme Court of Louisiana.

Sept. 12, 1989.

Rehearing Denied Oct. 12, 1989.

Hal J. Broussard, Paul B. David, Broussard & David, for applicant.

Malcolm A. Meyer, Baldwin & Haspel, for respondent.

COLE, Justice.

Plaintiff insurer issued a group policy to defendant's employer, Exxon Corporation. Due to a non-work-related accident, defendant was rendered quadriplegic. Subsequently, defendant was terminated and thus no longer eligible for membership in the group policy. The policy provided an additional twelve months of coverage to any employee totally disabled at the date of termination. At the end of this extended benefit period, plaintiff continued to pay defendant's medical expenses but sought a declaratory judgment seeking relief from the obligation for future expenses. Defendant reconvened for the amount of unpaid medical bills plus penalties and attorney fees. He argued it would be an abuse of rights for plaintiff to exercise its contractual right to terminate coverage.

The trial court granted plaintiff's motion for partial summary judgment declaring plaintiff was entitled to terminate coverage in accord with the policy. It then severed the reconventional demand and stayed that claim pending appeal of the policy coverage issue. The court of appeal found the doctrine of abuse of rights inapplicable and affirmed. Massachusetts Mutual Life Insurance Company v. Nails, 539 So.2d 797 (La.App. 3d Cir.1989). We affirm.

FACTS

Employees of Exxon Corporation were covered under a group health and accident policy issued by plaintiff Massachusetts Mutual Life Insurance Company. On June 3, 1984, Steven Nails, an Exxon employee for six years, was involved in a non-work-related automobile accident and rendered a quadriplegic. In accordance with its employment practices, Exxon terminated Nails on October 31, 1984.

At the date of termination, Nails was totally disabled by the injuries he had suffered in the accident. Between June 3 and October 31, 1984, Nails was still an Exxon employee and under the policy terms. The costs of his treatment were fully covered. After Nails was terminated, coverage continued because the policy included an extended benefits clause, providing an additional twelve months of benefits for an employee who was disabled at the time of termination. Thus, under the policy terms Massachusetts Mutual paid for Nails' medical expenses in connection with his quadriplegia from June 3, 1984 until October 31, 1985 and during that period paid to Nails and to third parties on his behalf a total of $329,084.94.

After October 31, 1985, Massachusetts Mutual continued to pay defendant's medical expenses under protest and filed an action for declaratory judgment seeking relief from any further obligation to provide coverage for future medical expenses incurred as a result of Nails' quadriplegia. The trial court rejected Nails' argument that he was entitled to receive benefits up to the maximum policy limits of $500,000 regardless of when the expenses were incurred.

ISSUE RESOLUTION

Defendant Nails argues the termination of insurance coverage under the policy's terms is inherently unfair because it is triggered by the very event, severe injury to the insured, for which coverage is provided. If an employee becomes disabled, coverage for medical expenses associated with the disability will terminate by a self-activating policy provision, even though coverage was in effect when the disability occurred. Defendant contends enforcement of such a provision is an abuse of right by the insurer and is barred by our decision in Cataldie v. Louisiana Health Service and Indemnity Company, 456 So.2d 1373 (La.1984). We disagree and, for the following reasons, affirm the lower courts, finding plaintiff has met its obligation under the policy and is thus not liable for future medical expenses incurred by Nails in connection with his quadriplegia.

ANALYSIS

The group policy issued by Massachusetts Mutual to Exxon employees included this provision:

Except as may be provided to the contrary in this Part, an employee's Personal Insurance under any Part of this policy shall cease on the first to occur of the following dates:

....

(f) The last day of the policy month during which employment is terminated. Termination of employment, for the purpose of this section and for no other purpose, means cessation of active work as an employee in a class of employees eligible for insurance hereunder, except that

(i) If the employee ceases active work because of disability due to disease or accidental bodily injury, his employment may be continued during the continuance of such disability until terminated by the Policyholder.

In accord with this provision, Nails' coverage terminated on October 31, 1984 when his employment with Exxon terminated. However, the policy included an additional clause which provided:

If a member of a Family incurs Covered Medical Expenses within a period of twelve months immediately following the discontinuance of the insurance on such member under this Part, benefits shall be payable during said twelve months, in accordance with the following subsections, provided

. . . . .

b. the member was totally disabled by such illness on the date of such discontinuance and remained so disabled continuously until the incurrence of the expenses for which claim is made.

Since Nails was totally disabled at the date of termination, he continued to be eligible for policy benefits for the twelve months following his October 31, 1984 termination.

Also of relevance is a clause in the policy limiting the maximum benefit for covered medical expenses to $500,000. The employees' insurance handbook explains this limitation is "per person per lifetime." Nails acknowledges he was not entitled to coverage for any new injury or illness that would have arisen after the date Exxon terminated his employment. He also acknowledges that under the policy terms, Massachusetts Mutual is not obligated to pay for medical expenses incurred after the one year extended benefits period. Instead, Nails argues the policy's twelve month benefits limitation should be set aside under the abuse of rights doctrine and that he should be able to recover benefits up to the $500,000 policy maximum.

Nails reasons the termination provision is unjust because if the employee is hurt so severely that he can no longer work, coverage for medical expenses will terminate even though coverage was in effect when the injury arose. We must now determine whether, as defendant argues, the termination of insurance under these conditions constitutes an abuse of rights.

This Court recognized the doctrine of abuse of rights in holding an employer could not defeat his obligation to pay an employee the remaining portions of the employee's compensation by terminating his employment without cause. Morse v. J. Ray McDermott & Co., Inc., 344 So.2d 1353 (La.1976), on rehearing. Nevertheless, the doctrine of abuse of rights has been invoked sparingly in Louisiana. Illinois Central Gulf Railroad Company v. International Harvester Company, 368 So.2d 1009 (La.1979), rehearing denied. The doctrine is a civilian concept which is applied only in limited circumstances because its application renders unenforceable one's otherwise judicially protected rights. Truschinger v. Pak, 513 So.2d 1151, 1154 (La.1987).

The doctrine of abuse of rights has been applied only when one of the following conditions is met:

(1) if the predominant motive for it was to cause harm (2) if there was no serious or legitimate motive for refusing;

(3) if the exercise of the right to refuse is against moral rules, good faith, or elementary fairness;

(4) if the right to refuse is exercised for a purpose other than that for which it is granted.

Truschinger, supra, at 1154, citing Illinois Central Gulf Railroad Co., supra; Cueto-Rua, Abuse of Rights, 35 La.L.Rev. 965 (1975).

Some of these conditions have been mentioned in health insurance cases dealing with the impact of termination of coverage on existing claims. However, most of those cases have been decided on contract and statutory law. Massachusetts Mutual Life Ins., 539 So.2d at 798-99; see McKenzie and Johnson, 15 Civil Law Treatise--Insurance Law and Practice, Sec. 286 (1986) (hereinafter McKenzie and Johnson). In the decision relied on by defendant, Cataldie, supra, we briefly adverted to but did not apply the abuse of rights doctrine. We were able to resolve that case under contract and statutory law.

Defendant Nails acknowledges he is entitled to no relief under contract law because the policy's terms clearly and unambiguously bar further recovery. Likewise, he is entitled to no statutory relief since the policy meets the statutory requirements. Thus, he relies solely on his claim that allowing Massachusetts Mutual to enforce limitations in the policy would be an abuse of right. We, therefore, examine the conditions which might support such a claim.

1. predominant motive to cause harm

Defendant Nails does not allege that plaintiff's invocation of the policy limitations was motivated by a desire to cause him harm. Indeed, such a claim would be groundless since Massachusetts Mutual's action is not directed toward Nails. In fact, Massachusetts Mutual has not acted to terminate Nails' coverage and this case can be distinguished from those in which an insurer has attempted to cancel coverage for an ongoing illness which arose while the policy was in force. See e.g., Cataldie, supra; see also Breland v. Louisiana Hospital Services, Inc., 468 So.2d 1215 (La.App. 1st Cir.1984). In those cases the insurers took affirmative action to end their liability for medical expenses for ongoing illnesses, while here coverage has expired as provided by the terms of the insurance contract.

Nails does not complain of lack of notice since the limiting...