William C. Brown Co. v. General American Life Ins. Co.
| Decision Date | 24 January 1990 |
| Docket Number | No. 89-54,89-54 |
| Citation | 450 N.W.2d 867 |
| Parties | WILLIAM C. BROWN COMPANY, Publisher's Employees' Medical Plan Trust, Robert W. Chesterman, Trustee, Appellees, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellant, and First National Bank of Dubuque, Iowa, Conservator for Cynthia Nichols, Defendant. |
| Court | Iowa Supreme Court |
Donald R. Breitbach of Reynolds & Kenline, Dubuque, for appellant.
James M. Heckmann of Bauer & Heckmann, P.C., Dubuque, for appellees.
Considered by CARTER, P.J., and LAVORATO, NEUMAN, SNELL, and ANDREASEN, JJ.
Insurance companies are increasingly using so-called "other insurance" provisions to limit or eliminate their liability if the insured has other insurance. In this case a claimant was covered as a dependent under her husband's employee group health plan. The claimant was also insured under an individual policy, which was issued to her after she exercised a conversion privilege in her own employee group health plan. The husband's plan had an "other insurance" provision commonly referred to in insurance industry parlance as coordination of benefits (COB). The COB provision spelled out the circumstances under which the plan would have primary or secondary responsibility to pay the claimant's medical expenses. The individual conversion policy also had an "other insurance" provision--an excess clause--that limited liability under the policy to those expenses not covered by other insurance.
The trustee of the husband's plan sued the carrier that issued the individual conversion policy for contribution for medical expenses the plan paid on behalf of the claimant. The district court determined that the COB provision was really an excess clause which meant that neither the husband's plan nor the carrier that had issued the conversion policy had primary responsibility. Under our repugnancy rule, the district court held that the COB provision and the excess clause canceled each other out. Because of this holding, the district court required the husband's plan and the carrier of the conversion policy to share the medical expenses equally.
After carefully reviewing the COB provision in the husband's plan and the excess clause in the individual conversion policy, we conclude that the husband's plan has primary responsibility under its own COB provision. So we reverse the judgment of the district court and remand for an order dismissing the trustee's petition.
On March 29, 1981, Cynthia Nichols suffered serious injuries in an automobile accident. Because of those injuries Cynthia is permanently injured.
At the time of the accident Cynthia was an employee of A.Y. McDonald Mfg. Co. Because of her employment, Cynthia was covered by a group health accident and major medical insurance plan provided by A.Y. McDonald. The plan provided Cynthia primary coverage as an employee and not as a dependent. The plan was underwritten by General American Life Insurance Company.
When the accident happened, Cynthia was married to Daniel Nichols. Daniel was, at this time, an employee of the Wm. C. Brown Company. As Daniel's dependent, Cynthia was eligible for coverage under the Brown Company's group health plan. Cynthia's coverage under this plan was conditioned upon her remaining a dependent. For example, dissolution of marriage would terminate her coverage.
Because Cynthia's injuries prevented her from working, A.Y. McDonald terminated her employment on July 31, 1981. A provision in the A.Y. McDonald health plan extended coverage, in case of termination of employment, for six months. The plan also had an "Iowa Conversion Privilege Endorsement" to comply with Iowa law. The conversion privilege allowed a plan member who ceased to be a member of the plan to obtain "insurance protection substantially similar both in type and level of coverage" to that provided by the plan.
Cynthia elected to exercise her conversion rights and purchased an individual conversion health policy from General American. General American is the same carrier that underwrote the A.Y. McDonald health plan. General American issued Cynthia the conversion policy on August 1, 1981.
There is no dispute as to expenses incurred or benefits paid from the time of the accident through January 31, 1982. During this period General American assumed primary responsibility for Cynthia's medical expenses under the conversion policy; the Brown group plan assumed secondary responsibility.
On January 31, 1982, Cynthia's extended coverage under the A.Y. McDonald health plan terminated. At that point a dispute arose between General American and representatives of the Brown group plan about who had primary responsibility to pay Cynthia's medical expenses after January 31, 1982. The two entities agreed that the Brown group plan would pay as the primary obligor without prejudicing any rights the plan might have to recover such payments from General American.
Between February 1, 1982, and August 31, 1983, Cynthia's medical expenses totaled $27,774.91. The Brown group plan paid $20,389.76 of those expenses. General American, assuming secondary responsibility, paid the remaining $7,385.15.
On September 1, 1983, Cynthia became eligible for Medicare. Acting pursuant to a termination provision in the conversion policy, General American terminated that policy effective November 1, 1983.
On January 7, 1987, Daniel and Cynthia were divorced. From this point on Cynthia was no longer eligible for dependent coverage under the Brown group plan. After the divorce, Cynthia did not apply for a conversion policy from the Brown group plan.
In March 1985 Robert W. Chesterman, as trustee for the Brown group plan, brought a declaratory judgment action in equity against General American and First National Bank of Dubuque, Cynthia's conservator. The suit is in two counts and pleads alternative theories of recovery. Count I seeks, among other things, (1) a declaratory judgment that General American is the insurer primarily responsible for Cynthia's qualified medical expenses under the conversion policy; (2) a declaratory judgment that the Brown group plan is responsible for payment of Cynthia's qualified medical expenses under its plan in excess of those covered by General American's conversion policy; and (3) a judgment against General American for reimbursement of medical expenses paid by the plan on behalf of Cynthia in an amount not less than $40,000.
Count II seeks, in the alternative, (1) a declaratory judgment that General American is liable for not less than fifty percent of all sums expended and to be expended on behalf of Cynthia for qualified medical expenses, and (2) a judgment against General American for reimbursement of medical expenses paid on behalf of Cynthia in an amount not less than fifty percent of all sums paid by the plan plus fifty percent of any such expenses paid by the plan subsequent to the commencement of the suit.
First National was included as a necessary party; however, neither the trustee for the Brown group plan nor General American sought relief from First National. First National cross-claimed against General American for monetary relief, which the district court denied. First National did not appeal.
General American answered, seeking a judgment declaring that the individual conversion policy it issued Cynthia is an excess policy, meaning that it only covers medical expenses not covered by the Brown group plan.
The parties tried the case to the court on stipulated facts and in-court testimony. The crux of the court's ruling is contained in this succinct paragraph:
A review of the General American individual conversion policy which was sold to Cynthia Nichols demonstrates that it does contain an "other insurance" clause. The clause is in direct competition with the coordination of benefits provision of the [Brown] group plan. Under these circumstances, and all other things being equal, these two clauses cancel each other out. The general coverage of each policy applies and each company is obligated to share the cost of coverage. St. Paul Insurance Companies v. Horace Mann Insurance, 231 N.W.2d 619 ( [Iowa] 1975). This cited authority deals with two "other insurance" clauses and not a coordination of benefits provision. We do not find this distinction to be significant in terms of the rules of application.
Pursuant to its findings, the district court entered judgment against General American in favor of the Wm. C. Brown Company for $6,502.30 on the theory of contribution. (Actually the judgment should have been entered in favor of the trustee who was the named plaintiff.) The court determined the amount of judgment this way:
Medical expenses paid by the Brown group plan per agreement $20,389.76
from February 1, 1982 through August 31, 1983
Plus: Medical expenses paid by General American per agreement 7,385.15
during the same period
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Total medical expenses paid by both entities during the period $27,774.91
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50% of total medical expenses attributable to each entity on $13,887.45
the basis of contribution
Less: Medical expenses paid by General American $ 7,385.15
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Amount of judgment $ 6,502.30
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One issue the district court left unresolved was whether General American lawfully terminated the conversion policy.
General American appealed, and the...
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