Tennessee Hospital Service Ass'n v. Strang

• Decision Date: 08 September 1961
• Parties: TENNESSEE HOSPITAL SERVICE ASS'N, Complainant, Appellant, v. Robert T. STRANG et al., Defendants, Appellees.
• Court: Tennessee Court of Appeals

Page 488

354 S.W.2d 488

49 Tenn.App. 263

TENNESSEE HOSPITAL SERVICE ASS'N, Complainant, Appellant, v. Robert T. STRANG et al., Defendants, Appellees.

Court of Appeals of Tennessee, Eastern Section.

Sept. 8, 1961.

Certiorari Denied by Supreme Court Feb. 8, 1962.

R. E. Armstrong, Jr., Kingsport, for appellant.

Wilson, Worley & Gamble, Kingsport, for appellees.

McAMIS, Presiding Judge.

The Tennessee Hospital Service Association, a general welfare corporation, brought this action against Joyce G. Fee, one of its policyholders, and Doctors Merritt B. Shobe and Robert T. Strang to recover $2235.00 which it claims to have paid Miss Fee upon false certificates signed by Doctors Shobe and Strang. The bill is based upon alleged fraud and deceit in signing sixteen separate certificates falsely showing as many operations, as a result of which complainant paid Miss Fee $2235.00.

A decree upon pro confesso was rendered against Miss Fee. The Chancellor found, however, that the doctors were fraudulently induced by Miss Fee to sign false certificates and that they acted innocently and received no part of the money. The Chancellor also held that complainant owed some duty to protect itself against the fraud of Miss Fee and seems to have been of opinion that, under all the circumstances, complainant should have discovered the fraud and was, therefore, not entitled to rely upon the certificates. From the dismissal of the bill as to Doctors Shobe and Strang, complainant has appealed.

There is no substantial dispute as to the facts. Defendants concede that their signatures appear upon all sixteen certificates falsely showing that they performed that number of bone operations upon Miss Fee and upon fictitious persons who were described in the certificates as being her husband and sons. Dr. Shobe's testimony is to the effect that Miss Fee was a trusted employee whose duty it was to fill out such certificates for himself and Dr. Strang; that he must have signed the eleven certificates in blank and that they must have been subsequently filled in, contrary to his express instructions, by Miss Fee. Dr. Strang's explanation as to the five certificates signed by him, as we understand, is that they must have been presented to him by Miss Fee concealed among other certificates and that he failed to detect their presence.

Complainant's home office is located in Chattanooga where claims are processed for payment. It operates over a large territory including Kingsport where Doctors Shobe and Strang have been practicing as partners for a number of years. Complainant issues two policies, the Blue Cross which obligates it to reimburse the policy holder for hospital expenses and the Blue Shield which covers physician's fees for certain operations upon the policy holder or members of his or her family. Only Blue Shield coverage is involved here.

As we understand, complainant furnishes the various surgeons practicing within its territory printed forms entitled 'Doctor's Report of Services' which are to be filled out and signed by the claimant and by the operating surgeon. The printed certificate to be signed by the holder of the policy reads:

'IF YOU WISH THE PLAN TO PAY YOU--SIGN HERE. The physician's fee has been paid and receipted bill is attached. Please reimburse me in the amount available to me, pursuant to the provisions of my contract.'

The certificate to be signed by the operating surgeon reads:

'I, a duly licensed physician (M.D.), certify that I performed the above services upon the patient. All information above shown is complete and correct to the best of my knowledge.'

The relationship between Miss Fee and the defendants, Shobe and Strang, is developed in some detail. She became their patient about 1955 when they began to treat her for almost complete paralysis from the waist down. Out of sympathy, they became interested in her case and attempted to rehabilitate her to the point she could do secretarial work. They made no charge for their services extending over a long period of time. When these efforts were successful they obtained work for her by the Doctor's Building, a corporation in which they along with other doctors owned stock, and which owned the offices they occupied.

Although employed by the Doctor's Building, Miss Fee's duties consisted of mailing statements, filling out blanks and handling mail for doctors having offices in the building, including Doctors Shobe and Strang. They trusted her and she had never previously betrayed their trust. There is no doubt that she grossly abused their confidence by using their signatures over a period of months to defraud complainant in the manner shown.

These circumstances make a strong appeal to sympathy. The question must be decided, however, upon recognized principles of law and equity hereinafter discussed and when so considered we think complainant's right to recover is clear, unless it lost the right to rely upon the certificates of Doctors Shobe and Strang by failing upon its own account to take steps to detect the fraud. These questions will be considered in order.

Defendants Shobe and Strang knew that complainant required a physician's certificate in support of claims made against it and must have known that a certificate signed by them would almost certainly be paid. In signing certificates in blank or without checking them to see whether they had performed an operation on the claimant they were guilty of a serious breach of duty to complainant amounting in equity to a constructive fraud. It is of no consequence to complainant whether defendants acted wilfully or through ignorance resulting from negligence. There would be a great moral difference but no legal difference.

'If a party innocently misrepresent a material fact by mistake, upon which another party is induced to act, it is as conclusive a ground for relief in equity as a wilful or false assertion, for it...