Simms v. Metropolitan Life Ins. Co.

• Citation: 9 Kan.App.2d 640,685 P.2d 321
• Decision Date: 02 August 1984
• Docket Number: No. 56072,56072
• Parties: Nelcine SIMMS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellant, and Fairfax Institute For Sobriety, Inc., Intervenor-Appellee.
• Court: Court of Appeals of Kansas

Page 321

685 P.2d 321

9 Kan.App.2d 640

Nelcine SIMMS, Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellant, and Fairfax Institute For Sobriety, Inc., Intervenor-Appellee.

No. 56072.

Court of Appeals of Kansas.

Aug. 2, 1984.

Syllabus by the Court

1. Under Kansas law the choice of which state's law is applicable to the construction of a contract depends on where the contract is made.

2. In the case of an insurance contract, its "construction" includes a determination of whether statutorily mandated provisions are to be read into the policy.

3. For choice of law purposes, a contract is "made" where the last act necessary to complete the contract occurs.

4. Ordinarily a contract of group health insurance is "made" where the master policy is delivered. The issuance of certificates of coverage to individual employees does not affect where the contract of insurance is made.

5. Kansas statutory requirements as to the contents of group health insurance policies do not govern the contents of such a policy delivered to an employer elsewhere, even if some covered employees reside in Kansas.

6. In a dispute between a Kansas alcoholism treatment center and the issuer of a Tennessee group health insurance policy, it is held: K.S.A. 40-2,105, which arguably would require coverage of the services of the treatment center if the policy had been issued in Kansas, is not applicable. Because the treatment center's services were not covered by the terms of the policy, the trial court erred in ordering the insurer to pay the treatment center's charges.

Nancy Mayer and William J. Toppeta, New York City and Jeanne Gorman Rau and Frank D. Menghini, of McAnany, Van Cleave & Phillips, P.A., Kansas City, for appellant.

Robert D. Loughbom, Kansas City, for intervenor-appellee.

Before FOTH, C.J., and PARKS and SWINEHART, JJ.

FOTH, Chief Judge:

Metropolitan Life Insurance Company appeals from a summary judgment holding it liable under a group health insurance policy for the treatment of one of its insureds in a Kansas alcohol and drug treatment facility. It relies on the fact that its policy covers only treatment in a "legally constituted hospital." The trial court imposed liability by reading into the policy the terms of K.S.A. 40-2,105, which arguably mandates broader coverage. Metropolitan contends this was error for a number of reasons, but primarily because the Kansas statute is inapplicable to a policy issued and delivered outside the state.

In 1949 plaintiff Nelcine Simms went to work in Kansas for the Church of God, which has its headquarters in Tennessee. On January 1, 1965, the Church purchased a group health insurance policy from Metropolitan, which does business in both Tennessee and Kansas. The policy was delivered in Tennessee, along with certificates of coverage to be distributed by the Church to its eligible employees, including plaintiff. On September 1, 1977, the original policy was replaced by a new policy, which was declared to be "in substitution for and in continuation of" the 1965 policy, and which bore the same number. The new policy was likewise delivered in Tennessee, as were all amendments, riders, and certificates relating to both policies.

Beginning June 25, 1981, plaintiff's dependent son received 44 days of care at the Fairfax Institute For Sobriety. It is undisputed that he was an insured under Metropolitan's policy. Fairfax is not licensed as a hospital, but is licensed by the Department of Social and Rehabilitation Services for the treatment of alcohol and drug abuse. Total charges of Fairfax amounted to $5500.00. Metropolitan paid $2182.40 of that amount under its major medical coverage, being 80% of therapy, medical supplies, and drugs for the 44 days. It declined to pay room and board charges because Fairfax is not a hospital and the policy's hospitalization coverage is limited to confinement in a "legally constituted hospital."

When plaintiff brought this action to recover the balance claimed to be due under the policy, Fairfax intervened alleging that any benefits under the policy were due directly to it. Plaintiff settled her suit, leaving Fairfax to assert her claim under the policy. On cross motions for summary judgment the court found that under Kansas law Metropolitan's policy was required to furnish 30 days of coverage in a facility like Fairfax's. It accordingly rendered judgment for Fairfax and against Metropolitan for $1567.60.

In our opinion it was erroneous to apply K.S.A. 40-2,105 to this policy. That statute was enacted in 1977. When Metropolitan's policy was reissued it read:

"Every insurer, which issues any group policy of accident and sickness, medical or hospital expense insurance which provides for reimbursement or indemnity for services rendered to a person covered by such policy in a medical care facility, must make available by affirmative offer and, if requested by the contract holder, provide reimbursement or indemnity under such policy which shall be limited to not less than thirty (30) days per year when such person is confined in either a licensed hospital for the treatment of alcoholism or a facility licensed under the provisions of K.S.A.1976 Supp. 65-4014 for the treatment of alcoholism." L.1977, ch. 161, § 1.

As may be seen, what was required was that the insurer offer coverage and provide it on request. We are not concerned with whether such an offer or request was made, nor what the effect would be if the offer was not made. The record is silent, but to our mind the questions are irrelevant. Although the statute does not state its intended geographic reach, we cannot conceive that the legislature intended to attempt to regulate insurance contracts made outside this state.

In Fagan v. John Hancock Mutual Life Insurance Company, 200 F.Supp. 142 (D.Kan.1961), Judge Stanley observed:

"It has long been the law of Kansas that the lex loci contractus governs the construction of contracts. Hefferlin v. Sinsinderfer, 2 Kan. 401 (1864). Thus Kansas sends us to the place where the contract was made, but offers no further guidance as to where that place is under the peculiar circumstances surrounding issuance and delivery of a group insurance contract."

See also Ellis and Baker v. Lead Co., 116 Kan. 144, 225 P. 1072 (1924); Denny v. Faulkner, 22 Kan. 89, Syl. p 6 (1879). Perhaps because the lex loci contractus principle is of such ancient vintage as to be commonly accepted, we do not find the issue treated in modern cases. Nevertheless, it appears that under Kansas law the choice of which state's law is applicable to the construction of a contract depends on where the contract is made. In the case of an insurance contract, its "construction" includes a determination of whether statutorily mandated provisions are to be read into the policy.

Where a contract is "made" is a settled proposition in our case law:

"A contract is made at the time when the last act necessary for its formation is done, and at the place where that final act is done." Smith v. McBride & Dehmer Construction Co., 216 Kan. 76, Syl. p 1, 530 P.2d 1222 (1975).

See also Neumer v. Yellow Freight System, Inc., 220 Kan. 607, Syl. p 2, 556 P.2d 202 (1976); and cases cited in Smith v. McBride, 216 Kan. at 79, 530 P.2d 1222.

The question then becomes, when and where was plaintiff's insurance coverage effectuated? Was it when the master policy and certificates were delivered to the Church of God in Tennessee, or when her individual certificate was delivered to her by the Church in Kansas?

Although our courts have never addressed the issue directly, in Kolich v. Travelers Ins. Co., 154 Kan. 458, 463, 119 P.2d 498 (1941), our Supreme Court quoted with apparent approval the following language from the leading case of Boseman v. Insurance Co., 301 U.S. 196, 203, 57 S.Ct. 686, 689, 81 L.Ed. 1036 (1937):

"But the certificate is not a part of the contract of, or necessary to, the insurance. It is not included among the documents declared 'to constitute the entire contract of insurance.' Petitioner was insured on the taking effect of the policy long before the issue of the certificate. It did not affect any of the terms of the policy. It was issued to the end that the insured employee should have the insurer's statement of specified facts in respect of protection to which he had become entitled under the policy. It served merely as evidence of the insurance of the employee. Petitioner's rights and respondent's liability would have been the same if the policy had not provided for issue of the certificate. And plainly delivery of the certificate by the refining company to petitioner in Texas has no bearing upon the question whether Pennsylvania law or Texas law governs in respect of the notice of claim."

In Boseman the group policy had been delivered to the employer in Pennsylvania, and the certificate had been delivered by the employer to the employee in Texas. The court held inapplicable a Texas statute governing the time for filing claims which would have invalidated a policy provision if the policy had been delivered in Texas. While the court relied on the fact that the insurer there did no business in Texas, the reliance was largely in support of its conclusion that the employer acted for itself and as agent of its employees when it procured the insurance, accepted individual applications, delivered certificates, and paid premiums. It concluded that applying the law of the state where the master policy was delivered furthered "the purpose of the parties to the contract that everywhere it shall have the same meaning and give the same protection and that inequalities and confusion liable to result from applications of diverse state laws shall be avoided." 301 U.S. at 206, 57 S.Ct. at 691.

Although Boseman was decided before Erie, and was thus an expression of the "federal common law," many courts have followed its reasoning that a group insurance contract is embodied in the...