Paul v. Insurance Co. of North America

• Decision Date: 22 May 1984
• Parties: Mattie Mae PAUL, Plaintiff-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee.
• Court: Tennessee Court of Appeals

Page 481

675 S.W.2d 481

Mattie Mae PAUL, Plaintiff-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee.

Court of Appeals of Tennessee,

Middle Section, at Nashville.

May 22, 1984.

Application for Permission to Appeal

Denied by Supreme Court

Aug. 27, 1984.

Barry B. White, Lewisburg, for plaintiff-appellant.

William T. McHugh, Ben C. Fordham, Nashville, for defendant-appellee.

OPINION

LEWIS, Judge.

The determinative issue in this case is whether a group accident insurance policy which provided that coverage would be "effective on the first day of the month next following receipt of application" was in effect four days after an employee signed up for the policy with her employer. Plaintiff employee Mattie Mae Paul insists the policy was in effect. Defendant insurer, Insurance Company of North America, insists that the policy was not effective until the first day of the month following "receipt of the application."

This case is before this Court on appeal from a summary judgment for defendant and the facts are not in dispute. Plaintiff has been employed by Durango Boot Company, a subsidiary of U.S. Industries, Inc., in Chapel Hill, Tennessee, since 1972. The defendant offered a group accident policy to employees of U.S. Industries effective October 1, 1974. Plaintiff did not enroll immediately but did apply for family coverage on June 4, 1982. Her husband was killed in an automobile accident on June 8, 1982.

When plaintiff signed the enrollment form on June 4, 1982, her employer gave her a booklet explaining the policy and coverage and containing a Certificate of Insurance. The booklet-certificate was issued by the defendant.

The Certificate of Insurance does not specify when the policy is effective. However, the first paragraph of the Certificate states that the insurance is "subject to the terms, conditions and limits of liability of the policy as above specified...." A clear statement appears on the preceding page of the booklet that the "insurance will take effect on the first day of the month after receipt of your application." On the page immediately after the Certificate in the booklet, under the word "important", printed in capital letters, is the statement: "If any conflict should arise between the content of this booklet-certificate and the Master Policy ..., the terms of the Master Policy will govern in all cases." The Master Policy provides that "individual insurance shall not become effective until the first day of the month next following the date the application is received during any enrollment period." The Master Policy also provides that "in computing the premium, no charge or credit will be made for fractional parts of a policy month with respect to additions, deletions or changes in classification of insured."

After her husband's death, plaintiff filed a claim for benefits under the policy she had applied for on June 4th. She was informed by her employer that she could not collect. On or about August 14, 1982, she received an extra nine dollars ¹ in her paycheck. Plaintiff's attorney returned the nine dollars and the employer again gave the nine dollars to plaintiff, saying that plaintiff was not entitled to benefits under the policy.

Plaintiff filed suit to collect benefits under the policy. Both sides moved for summary judgment under Rule 56, Tenn.R.Civ.P. The Trial Court, determining that there was no genuine issue of material fact, granted defendant's motion and overruled plaintiff's motion.

In group insurance cases, the primary contract is between the insurer and the employer. Davis v. Metropolitan Life Insurance Co., 161 Tenn. 655, 32 S.W.2d 1034 (1930). When employees contribute part of the premium and are issued a certificate by the insurer, there is also a contractual relationship between the employee and the insurer. Smithart v. John Hancock Mutual Life Insurance Co., 167 Tenn. 513, 527, 71 S.W.2d 1059, 1064 (1934). To determine the intent of the parties, the master policy and the certificate are to be construed and enforced together. Id.

Plaintiff raises two questions in support of her insistence that the order of summary judgment for defendant be set aside and that her motion for summary judgment be sustained. Plaintiff also requests an additional twenty five percent (25%) penalty under Tenn.Code Ann. § 56-7-105(a) because the attempt to settle a $25,000 claim for $9 goes beyond interpretation of the policy and was fraudulent action by defendant; therefore, not in good faith.

In support of her request that the summary judgment in favor of defendant be reversed, plaintiff first argues that because she was issued a Certificate of Insurance she was covered under the policy. She points to language in the Master Policy that says the "Company will issue to the organization, for delivery to each insured, a certificate ...." Plaintiff argues that the language in the Master Policy does not authorize issuance of a certificate to one who is not insured. Therefore, since she was issued a certificate, she was an insured.

Contracts must be read in their entirety. The language to which plaintiff points is not concerned with the effective date of the policy, but rather with the allocation of responsibilities of the contracting parties. There is no reason to strain the language of that section of the policy so it can be read as addressing the effective date of the policy when another section of the policy application specifically says "Individual insurance shall not become effective until the first day of the month next following the date the application is received during any enrollment period."

Plaintiff also argues that the certificate contains language that indicates "that the person identified in the attached enrollment form (herein called the insured) is insured and subject to the terms, conditions and limits of the policy as above specified...." Plaintiff argues that since her enrollment form was attached to the certificate, she is unequivocably an insured under the language of the policy. Unfortunately for plaintiff, that language is in the first paragraph of the certificate and the language on the preceding page contains the terms and conditions that the "insurance will take effect on the first day of the month after receipt of your application."

Plaintiff argues that Durango Boot has authority to insure its employees without knowledge of the insurance company because it has up to forty five days in which to send the insurance company a list of additions or terminations and the applicable premium. We see nothing in this provision that indicates when an individual policy becomes effective. This provision concerns the responsibilities of the employer to forward the names of employees who sign up for insurance, to forward the list of employees who terminate their insurance, and to forward the premiums.

Plaintiff has not cited, nor have we found, any case that states that the mere issuance of a certificate means the insurance is in effect. Indeed, that would be particularly inappropriate in this case since the booklet which contains the certificate also contains information explaining the policy's terms and coverage to employees. In this case the issuance of the certificate has no effect on the commencement of coverage. Plaintiff's first issue is without merit.

Plaintiff next argues that the Master Policy's wording that "individual insurance will become effective on the first day of the month next following receipt of application" meant that the policy began on June 5, 1982, which according to plaintiff's reading is the first day of the month after June...