Peek v. Reserve Nat. Ins. Co.

• Decision Date: 09 August 1991
• Citation: 585 So.2d 1303
• Parties: Rayburn PEEK and Eve Peek v. RESERVE NATIONAL INSURANCE COMPANY and Lee Porter, Jr. 1900055.
• Court: Alabama Supreme Court

Page 1303

585 So.2d 1303

Rayburn PEEK and Eve Peek v. RESERVE NATIONAL INSURANCE COMPANY and Lee Porter, Jr.

1900055.

Supreme Court of Alabama.

Aug. 9, 1991.

Leila Hirayama of Johnson & Cory, Birmingham, for appellants.

Laura A. Woodruff of Maynard, Cooper, Frierson & Gale, Birmingham, for appellees.

PER CURIAM.

Rayburn and Eve Peek appeal from a summary judgment in favor of the defendants, Reserve National Insurance Company and Lee Porter, Jr., in their action alleging breach of contract, bad faith refusal to pay an insurance claim, and misrepresentation.

On September 3, 1985, Lee Porter, Jr., as an agent for Reserve National, met with Rayburn and Eve Peek, husband and wife, at the Peeks' home to discuss their desire to purchase a major medical health insurance policy that would provide coverage for themselves and their two minor daughters, Tina and Penny. The Peeks completed an application for coverage under Reserve National Insurance Company's group hospital-medical-surgical expense policy. As part of the application process, Porter questioned the Peeks regarding any hospital confinement or surgical operations that they had undergone. In response to these questions, the Peeks told Porter about menstrual difficulties and cramps that Tina had been experiencing since late 1984. They gave Porter a copy of the report written by Tina's physician, Dr. Snyder, following exploratory surgery that Dr. Snyder had performed on Tina in January 1985. The report including the following:

"The laparascope was then inserted through the sheath and the pelvis was visualized. Both ovaries were visualized and appeared normal. Both tubes were examined throughout their full extent and they too appeared normal. There were no adhesions present. The uterus was of normal size for this girl's age and without irregularities. There was no evidence of previous infection. There was no evidence of endometriosis or any other pelvic abnormality.... There was no evidence of injury to the bowel or to the bladder and there was no evidence of bleeding."

After the Peeks showed Dr. Snyder's report to Porter, Porter used the Peeks' telephone, read Dr. Snyder's report over the phone to someone, and questioned that person about coverage for Tina. Porter then told the Peeks that Tina would be "covered" under the policy that they were purchasing. Porter did not mention any preexisting condition exclusion to them or offer them a preexisting benefit endorsement. Porter summarized Dr. Snyder's report on the Peeks' application for the insurance with Reserve National, as follows:

"Lapiroscomy [sic] for exploration, but found no problems. Dr. Schwartz, Chattanooga, Tennessee. X-ray from local Dr. showed obstruction but specialist found no problems--was having regular period--prescribed birth control tablets about 5 months to regulate. (O.P. only)"

Also during this meeting on September 3, 1985, Eve Peek signed a document entitled "Outline of Group Hospital and Medical-Surgical Expense Coverage." That document contained the following provision regarding the waiting period for coverage for preexisting conditions:

"PREEXISTING CONDITIONS

"Pre-existing conditions disclosed on the application which are reflected on a PEB [pre-existing benefit] endorsement attached to your certificate, will be covered after 180 days. Other disclosed pre-existing conditions not specifically excluded from coverage or specific description are covered after two years from the issue date of the certificate."

The Peeks contend that they did not receive a copy of that "Outline" of coverage or see it again until discovery in this action. Mrs. Peek conceded that the signature on it might be hers, but stated by affidavit that she did not remember having seen it and that Porter did not read it to her at the time he took the application. The "Outline" of coverage expressly states that "This is not an insurance contract and only the actual certificate provisions will control."

Reserve National subsequently issued a policy to the Peeks, which was effective September 3, 1985. This policy was delivered to the Peeks by Porter. The policy contained the following pertinent provisions regarding covered sickness:

"SICKNESS DEFINED: The term 'sickness' as used in this Certificate means sickness or disease sustained by an Insured Person, which first manifests itself after the effective date of this Certificate, and which causes loss while this Certificate is in force. The term 'sickness' shall also be deemed to include all sickness or diseases suffered concurrently."

The policy also contained the following clause, entitled "Recurrent Injury or Sickness":

"If an Insured incurs no expense for an injury or sickness for a period of nine (9) consecutive months, any additional expenses incurred while this Certificate is in force for the same injury or sickness shall be considered as incurred for a new injury or sickness for the purpose of determining the limits of coverage."

The policy delivered to the Peeks did not contain any provision setting forth the definition of a "preexisting condition," nor did it contain any provision relating to the waiting periods for coverage for any expense that resulted from a preexisting condition.

In January 1986, Tina Peek consulted Dr. Blake Isbell, in Fort Payne, with complaints of pelvic pain. On January 12, 1986, Dr. Isbell admitted Tina to Baptist Medical Center in Fort Payne for exploratory surgery. The surgery revealed a left ovarian cyst, which Dr. Isbell removed. The Peeks submitted a claim to Reserve National for the costs of this operation. In considering the claim, Reserve National reviewed Dr. Isbell's summaries of the patient history and his physical examination, as well as the discharge report from Baptist Medical Center. The patient history included the following information:

"Miss Peek ... was referred to me by Dr. Elliott [her family physician] complaining of persistent left lower quadrant and pelvic pain for the past one year. She was noted to have a left ovarian cyst about 4 cms. in size documented X's 3 sonars over a period of one year."

The physical examination summary prepared by Dr. Isbell after his examination of Tina in January 1986 noted the following:

"IMPRESSION: 1. Persistent left ovarian cyst for the past one year causing pain and discomfort and limiting her from doing activities she would like to perform."

Additionally, the discharge summary, which was also prepared by Dr. Isbell, contained the following summary:

"Miss Peek is a 16 YOWF referred by Dr. Elliot for persistent left ovarian cyst. The cyst had been documented by 3 separate sonars and as mentioned had been present for the past one year giving her significant pain, discomfort and limiting her abilities to perform some of the things she would like to do in school."

Based upon this information from Dr. Isbell, Reserve National determined that Tina's ovarian cyst was a preexisting condition and, accordingly, denied the Peeks' claim for benefits. Following that denial, the Peeks filed this action for damages, alleging fraudulent misrepresentation, breach of contract, and bad faith refusal to pay a claim. The defendants, Lee Porter and Reserve National, filed a motion for summary judgment as to all claims asserted by the Peeks. That motion was granted by the trial court, and the Peeks now appeal the resulting summary judgment; they raise issues regarding all three of their claims.

Breach of Contract

Regarding the breach of contract claim, the Peeks first argue that the contract of insurance entered into between themselves and Reserve National did not contain an exclusion for preexisting conditions. As pointed out above, the policy of insurance purchased by the Peeks contained only two clauses pertaining to sickness: one clause that defined a "sickness," including the condition that a covered sickness must first manifest itself after the effective date of the policy, and a second clause that defined a "recurrent injury or sickness." The only explicit reference to preexisting conditions is the clause setting forth the waiting periods for coverage for preexisting conditions that is found in the document entitled "Outline" of coverage. The outline of coverage, however, specifically states:

"I. WHEN YOU RECEIVE YOUR CERTIFICATE, READ IT CAREFULLY! This outline of coverage provides a very brief description of some of the important features of the certificate. This is not an insurance contract and only the actual certificate provisions will control when and if the company issues the same."

The Peeks assert that they were not given a copy of the outline of coverage when they applied for coverage on September 3, that Porter did not read it to them, and that no copy of it was delivered to them with the insurance policy. Further, in order for the outline to merge with and become part of the insurance policy, it must be incorporated by reference into the insurance policy. Rochester v. Hamrick Const. Co., 481 So.2d 881 (Ala.1985), overruled on other grounds, Elmore County Comm'n v. Ragona, 540 So.2d 720 (Ala.1989). The outline of coverage is not referenced in any way in the insurance policy received by the Peeks. Thus, the language in the outline of coverage purporting to define and limit coverage for preexisting conditions is not part of the contract and cannot serve as a basis for denial of the claim.

The Peeks next argue that Tina's left ovarian cyst did not manifest itself before the effective date of the contract, or that there was at least a fact question as to whether it so manifested, and that that fact precluded a summary judgment based on the definition of a covered sickness. To support this argument, the Peeks refer to the exploratory surgery performed by Dr. Snyder in January 1985, which revealed no abnormalities. Furthermore, the Peeks contend that Reserve National failed to meet its burden of proving that the insured's sickness originated prior to the effective...