Pehle v. Farm Bureau Life Ins. Co., Inc., 03-8068.

• Decision Date: 09 February 2005
• Docket Number: No. 03-8068.,03-8068.
• Citation: 397 F.3d 897
• Parties: Renna PEHLE and Gary W. Pehle, Plaintiffs-Appellants, v. FARM BUREAU LIFE INSURANCE COMPANY, INC.; Labone, Inc., a Kansas corporation; J. Alexander Lowden, M.D., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

397 F.3d 897

Renna PEHLE and Gary W. Pehle, Plaintiffs-Appellants, v. FARM BUREAU LIFE INSURANCE COMPANY, INC.; Labone, Inc., a Kansas corporation; J. Alexander Lowden, M.D., Defendants-Appellees.

No. 03-8068.

United States Court of Appeals, Tenth Circuit.

February 9, 2005.

David G. Lewis, Jackson, WY, for Plaintiffs-Appellants.

R. Michael Mullikin, Mullikin, Larson & Swift LLC, Jackson, WY, for Defendant-Appellee Farm Bureau Life Insurance Company, Inc. David H. Yun, Jaudon & Avery LLP, Denver, CO, for Defendants-Appellees LabOne, Inc. and J. Alexander Lowden.

Before TACHA, Chief Judge, HOLLOWAY and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

Unbeknownst to Wyoming residents Gary and Renna Pehle, husband and wife, they were infected with the Human Immunodeficiency Virus ("HIV") at the time they applied for life insurance from Farm Bureau Life Insurance Company ("Farm Bureau") in 1999. At the time of the application, Farm Bureau collected the initial premium and arranged for blood tests from the Pehles in furtherance of the application. Blood samples were forwarded for analysis to an independent laboratory, LabOne, which in turn reported the HIV status to the insurance company. On receipt of the information, Farm Bureau sent a notice of rejection to the Pehles and advised them that it would disclose the reason for their rejection to their physician if they so wished. No action was taken by the Pehles.

Two years later, Renna Pehle was diagnosed with AIDS and on inquiry she and her husband learned that Farm Bureau records showed the HIV infection at the time of the life insurance rejection. The Pehles sued, alleging that the defendants were negligent in failing to tell them they were HIV-positive. In considering the Pehles' negligence action, the District Court found no duty on the part of Farm Bureau, LabOne, or J. Alexander Lowden, LabOne's Medical Director, and granted summary judgement to all. We agree with the decision as to LabOne and J. Alexander Lowden, but disagree as to Farm Bureau.

I

We begin our study of the tragedy that shapes this case at the point the Pehles applied for life insurance and Farm Bureau transmitted their blood specimens to LabOne. LabOne is a Kansas corporation and the largest single-site diagnostic testing laboratory in the United States. It provides lab services to insurance companies and employers throughout the country. When LabOne reported the Pehles' HIV status to Farm Bureau, it also did so to the Kansas Department of Health, as required by Kansas law. In its letter denying coverage, Farm Bureau advised each Plaintiff that the applications were denied based on blood results, and offered to send the results to the Pehles' physician upon written authorization, stating: "With your approval, we would be willing to send the results of the blood profile to your physician so that you can discuss the findings with them. Please write the name and address of the physician you want the blood report sent to at the bottom of this letter and return it to me in the enclosed envelope." The Pehles made no inquiry until Mrs. Pehle developed AIDS symptoms in June of 2001, at which point they contacted Farm Bureau and asked it to release the blood test results to their physicians. Farm Bureau duly complied with the request. The underlying action was then filed.

In its analysis of Farm Bureau's motion for Summary Judgment, the district court concluded that the Pehles' case raised no genuine question of material fact because Wyoming law would neither recognize a duty running from a life insurance company to its applicants, nor one running to those applicants from the laboratory hired by the insurance company to test the applicants' blood.

II

In analyzing the Pehles' appeal, we review the grant of summary judgment de novo, applying the same standards used by the district court. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998). Summary judgment is appropriate only when "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In making this assessment, we must construe the record liberally in favor of the party opposing the summary judgment. McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir.1988).

III

Because our jurisdiction is based on diversity of citizenship, and because the factual backdrop of this dispute occurred in Wyoming, we apply the substantive law of Wyoming.¹ Erie RR Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Under Wyoming law, for negligence to lie, defendant must owe a duty to plaintiff, and defendant's breach of that duty must be the proximate cause of the plaintiff's injuries. Duncan v. Afton, Inc., 991 P.2d 739, 742 (Wyo.1999). Wyoming law imposes on Farm Bureau a limited duty to disclose. Whether Farm Bureau breached its duty, and whether any such breach proximately caused the Pehles' injuries, are questions of fact for a jury.

The Pehles argue that a life insurance company owes a duty under Wyoming common law to notify applicants that they are infected with a sexually transmitted disease when the infection is discovered in the application process. This argument goes farther than the law warrants. Farm Bureau asks us to uphold the lower court's conclusion that there can be no duty owed by an insurance company to mere applicants for its services. This, also, is unwarranted by Wyoming precedent. Balancing all the interests involved as Wyoming law requires, we are compelled to conclude that if an insurance company, through independent investigation by it or a third party for purposes of determining policy eligibility, discovers that an applicant is infected with HIV, the company has a duty to disclose to the applicant information sufficient to cause a reasonable applicant to inquire further.

IV Duty under Contract

We are urged by the Pehles to hold that the Notice and Consent agreement they signed creates a duty on the part of Farm Bureau and LabOne to inform them of their HIV status. We decline to do so. The Notice and Consent agreement before us, in and of itself, does not impose a duty upon Farm Bureau to disclose applicants' STD statuses upon discovering them. Similarly, LabOne is not subject to a duty created or suggested by the Notice and Consent agreement.

LabOne is not a party to the Notice and Consent, a form contract that authorizes "the testing of [applicant's] blood" (significantly not specifying who would do the testing), and provides that HIV testing "may be performed," and that if there are "abnormal test results which, in the Insurer's opinion, are significant," "the Insurer may contact" the applicant. Although there were conflicting assertions in the briefs as to who drew applicants' blood, at oral argument it appeared that all parties agreed that it was Farm Bureau and not LabOne that contracted with the nurse who collected the Pehles' samples. A Farm Bureau agent presented the form contract and the nurse sent by Farm Bureau was by the Pehles' side when they signed it. Although LabOne's logo appears at the top of the form and in the Copyright notice, the contract itself does not specify that LabOne would conduct the test. In the clause providing for the invalidity of any modifications or amendments made by the insured, the agreement provides that changes will not be binding "upon the insurance company or any of its agents or contractors." (Emphasis added.) As the Wyoming courts have held, "[i]t is axiomatic that an individual not a party to a contract may not be held liable for a breach of that contract." Worman v. Farmers Coop. Ass'n, 4 F.Supp.2d 1052, 1054 (D.Wyo.1998) (adjudicating contract dispute under Wyoming law).

Unlike LabOne, Farm Bureau is a party to the Notice and Consent agreement. However, as noted, the agreement does not require the company to inform applicants of their STD status. The Pehles argue that the use of the word "may" in "may contact you" was intended to mean that applicants gave Farm Bureau permission to contact them, rather than expressing the mere possibility that they would be contacted. They also argue that they reasonably read the provision as establishing that the company's standard practice is to inform applicants of abnormalities, having thus requested applicants' permission to do so. A contextual reading of the clause, however, belies the Pehles' position. All other instances of permission employ the word "authorize." Also, in the same paragraph, "may" appears again, and is clearly expressing possibility, not permission: "The Insurer may ask you for the name of a physician or other health care provider." Even if the clause intended "may" to be permissive, permission is by definition not compulsion, and cannot be held to have created a duty on the part of Farm Bureau to inform the Pehles of their HIV status.

Duty under the Common Law

Because there is only the most attenuated relationship between the Pehles and LabOne, we cannot hold LabOne subject to a duty under a traditional common-law negligence theory. In contrast, the Pehles and Farm Bureau had a good deal of contact. Wyoming courts, however, have not decided whether an insurer has a common-law duty to disclose to insurance applicants the results of medical examinations which detect that an applicant is suffering from a life-threatening or debilitating disease. Because Wyoming has not directly addressed this issue, this court must make an Erie-guess as to how the Wyoming Supreme Court would rule. See United Parcel Service v. Weben Industries, 794 F.2d 1005, 1008 (5th Cir.1986) ("when making an Erie-guess in the absence of explicit guidance from the state courts, we must attempt to predict state law, not to create or modify it."). We are "free to consider all resources available including decisions of Wyoming Courts ... [and] the general... trend of authority." Stuart v. Colorado Interstate Gas Co., 271 F.3d 1221, 1228 (10th...