Opinion
2d Civil No. B219290
08-31-2011
JESSICA BATH et al., Plaintiffs and Appellants, v. BLUE SHIELD OF CALIFORNIA, Defendant and Appellant.
Law Offices of Robert S. Gerstein, Robert S. Gerstein; Ernst & Mattison; Ernst Law Group, Don A. Ernst, Christopher D. Edgington; Mattison Law Firm, Raymond E. Mattison; Gianelli & Morris ALC, Robert S. Gianelli, Jully C. Pae for Plaintiffs and Appellants. Manatt, Phelps & Phillips, LLP, Gregory N. Pimstone, Brad W. Seiling, Becky S. Walker, Joanna S. McCallum for Defendant and Appellant.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. CV070360)
(San Luis Obispo County)
Jessica Bath purchased a health care services plan governed by the Knox-Keene Health Care Service Plan Act (Health & Saf. Code, § 1340 et seq.) (Knox-Keene Act) from California Physicians' Service dba Blue Shield of California (Blue Shield). She subsequently gave birth to a child who, under California law, was automatically covered by the plan. The child had a birth defect. When Bath sought coverage for the child's medical treatment, Blue Shield denied coverage because she had furnished erroneous information in her application.
Bath brought a class action against Blue Shield. She sought declaratory relief on two issues: (1) Whether Blue Shield was prohibited from rescinding health care coverage based on a subscriber's material misrepresentations, absent a showing that the misrepresentations were made willfully; and (2) whether a dependent's coverage can be rescinded for misrepresentations made by the subscriber.
Blue Shield filed a motion for summary adjudication on the ground that the language of the plan clearly and unambiguously informed the subscriber that the policy would be rescinded for misrepresentation of prior health issues and that, if grounds for rescission existed, the whole of the policy, including dependent coverage, would be rescinded. The trial court denied the motion for summary adjudication on the first issue but granted summary adjudication on the second issue. The trial court determined that (1) relevant language in the plan was ambiguous as to the type of misrepresentation required before Blue Shield could rescind coverage; therefore, construing the ambiguity in favor of the insured, coverage could be rescinded only if the subscriber's misrepresentation was intentional; and (2) unambiguous language in the plan gave Blue Shield the right to rescind the entire plan and deny coverage to dependents even though only the subscriber made an intentional material misrepresentation. We affirm.
Facts and Procedural History
Bath applied and was accepted for coverage under a health care services plan with Blue Shield in June 2002 (Agreement). In April 2003, she gave birth to a son, Jack, who was immediately covered under the Agreement at his birth. (Health & Saf. Code, § 1373, subd. (c).) Jack was born with a heart defect and required surgery and other medical care. Blue Shield rescinded the Agreement and refused to pay Jack's medical bills on the ground that Bath purportedly had misrepresented material facts about her health history and medical conditions in her application.
Bath filed a complaint alleging individual causes of action for breach of contract and breach of the covenant of good faith and fair dealing on behalf of herself and her son. She also sought declaratory relief on behalf of a class raising two issues: (1) Whether Blue Shield is required by the terms of the Agreement to apply an "intentional misrepresentation" standard when rescinding agreements based upon alleged misrepresentation in the application, and (2) whether Blue Shield is permitted under the terms of the Agreement to rescind coverage of one covered person based upon misrepresentations in the application of another covered person. Only the class action claims are involved in this appeal.
The trial court certified two classes: (1) All California residents who had their individual coverage with Blue Shield rescinded based upon an alleged misrepresentation in an application, and (2) all California residents who had their individual coverage with Blue Shield rescinded on the basis of an alleged misrepresentation in the application of another covered person.
Blue Shield moved for summary adjudication of the declaratory relief cause of action. Blue Shield argued that the issues raised by the class fail as a matter of law because (1) neither the terms of the Agreement nor the law requires a misrepresentation to be intentional to trigger Blue Shield's right to rescind coverage, and (2) under the express terms of the Agreement and the law, Blue Shield could rescind coverage as to all covered persons based upon any material misrepresentation or concealment.
Bath opposed the motion asserting that (1) the language in the Agreement authorizing Blue Shield to rescind coverage necessarily includes the element of intent, (2) the Agreement cannot be rescinded as to those whose health histories were not misrepresented, and (3) in the alternative, the terms of the Agreement are at least ambiguous and must be interpreted in favor of coverage.
The trial court denied summary adjudication as to the first issue, concluding that the language of the Agreement permits Blue Shield to rescind the Agreement "only where the applicant/subscriber's failure to provide all material facts in an application was accompanied by some level of intent or knowledge of a falsehood."
The court granted summary adjudication as to the second issue, concluding that the language of the Agreement permitted rescission of the entire Agreement, not just rescission of the coverage of the particular individual who made the misrepresentation, if it were shown that the misrepresentation was intentional. Following the trial court's ruling, the parties submitted a stipulated judgment on the class claims based on the trial court's summary adjudication order. Each party appeals the summary adjudication granted the other party.
DISCUSSION
Standard of Review and Contract Interpretation
"In general, interpretation of an insurance policy is a question of law and is reviewed de novo under settled rules of contract interpretation. [Citations.] 'The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' (id., § 1644), controls judicial interpretation. (Id., § 1638.)"' [Citation.]
"An insurance policy provision is ambiguous when it is susceptible of two or more reasonable constructions. [Citation.] If ambiguity exists, . . . courts must construe the provisions in the way the insurer believed the insured understood them at the time the policy was purchased. (Civ. Code, § 1649.) In addition, if, after the court evaluates the policy's language and context, ambiguities still exist, the court must construe the ambiguous language against the insurer, who wrote the policy and is held '"responsible"' for the uncertainty. [Citation.] Particularly, '[i]n the insurance context, . . . ambiguities [are resolved] in favor of coverage' so as to protect the insured's reasonable expectation of coverage. [Citations.]" (Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1377-1378.)
I. Intent to Misrepresent
A. Language of the Application and Agreement
Blue Shield's application form contains the following language immediately above the signature block:
"I have read the summary of benefits and the above conditions. I understand and agree to them. I alone am responsible for the accuracy and completeness of this application for Blue Shield Health coverage . . . . I understand that neither I nor my family will be eligible for coverage if any information is false or incomplete, and that coverage may be revoked based on such finding."
We reject Bath's contention that the application is not part of the contract. The Agreement defines the "Agreement" as "this contract, the appendices, all endorsements to it, and all applications for coverage and health statements." (Pt. I: Definitions, par. C.)
Part III, section D, of the Agreement, entitled "Termination/Cancellation of the Agreement," states in part:
"1. . . . This Agreement may be cancelled by Blue Shield of California for false representations to, or concealment of material facts from, Blue Shield of California in any health statement, application, or any written instruction furnished to Blue Shield of California by the Person at any time before or after issuance of this Agreement, or fraud or deception in enrollment, or for fraud or deception in the use of Services of this plan, or knowingly permitting such fraud or deception by another."
B. The Language of the Agreement is Ambiguous
Blue Shield asserts that the language used in the Agreement to describe the conditions under which it is permitted to rescind a policy is clear and unambiguous. Blue Shield contends that the words "false" and "incomplete" in the application and "false representations to, or concealment of material facts from" in the Agreement plainly mean that any false representation or concealment in the application is grounds for rescission of the Agreement, whether the false representation or concealment is intentional or unintentional. Bath contends that these terms are "intent-laden," and Blue Shield cannot rescind coverage unless it shows that the false representation or concealment was intentional.
The parties cite definitions contained in lay and legal dictionaries. The dictionary definition of "false" indicates that, in ordinary usage, the terms may denote conduct that is either intentional or unintentional. In Gordon v. Virtumundo, Inc. (9th Cir. 2009) 575 F.3d 1040, 1062, the court succinctly explained this dichotomy: "[T]he word 'falsity' is susceptible to differing dictionary meanings. 'Falsity' means 'quality or state of being false,' which is not itself informative. (Merriam-Webster's Collegiate Dictionary 451 (11th ed. 2005). The term 'false' is defined, however, not only as 'not true' but also as 'intentionally untrue,' 'adjusted or made so as to deceive,' and 'intended or tending to mislead.' [Citation.] We therefore acknowledge facial ambiguity in the statutory text. (See Bryan A. Garner, Dictionary of Modern Legal Usage 348 (2d ed. 1995) [stating that 'false' 'is potentially ambiguous,' since the word may mean either 'erroneous, incorrect,' or 'purposely deceptive'"].)
The Merriam-Webster's Collegiate Dictionary (10th ed. 1999) (Webster's) page 419, defines "false" as: "1: not genuine . . . 2a: intentionally untrue . . . b: adjusted or made so as to deceive . . . c: . . . tending to mislead . . . 3: not true . . . 7a: based on mistaken ideas . . . b: inconsistent with the facts."
The American Heritage College Dictionary (3d ed. 2000) (American Heritage Dictionary) page 492, defines "false" as: "1. Contrary to fact or truth. 2. Deliberately untrue. 3. Arising from mistaken ideas. 4. Intentionally deceptive."
Black's Law Dictionary (9th ed. 2009) (Black's) page 677, defines "false" as: "1. Untrue. 2. Deceitful . . . 3. Not genuine; inauthentic. What is false can be so by intent, by accident, or by mistake."
Similarly, to "conceal" may mean conduct that is either intentional or unintentional. (See, e.g., Ins. Code, § 331 ["Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance"]; see also Dinkins v. American National Ins. Co. (1979) 92 Cal.App.3d 222, 232-233 ["In Insurance Code sections 330 through 339, the Legislature deals with concealment as intentional, unintentional, or merely negligent—each type of concealment having a different effect"]; and see Lovejoy v. AT&T Corp. (2004) 119 Cal.App.4th 151, 157-159 ["'Concealment is a term of art which includes mere nondisclosure when a party has a duty to disclose. . . .' . . . Whether the disclosure was adequate to defeat a claim of concealment depends on the scope of the duty to disclose"].)
Webster's, supra, at page 238, defines "conceal" as: "1: to prevent disclosure or recognition of."
The American Heritage Dictionary, supra, at page 287, defines "conceal" as "To keep from being seen, found, or observed; hide."
Black's, supra, at page 327, defines "concealment" in the insurance context as "[t]he insured's intentional withholding from the insurer material facts that increase the insurer's risk and that in good faith ought to be disclosed."
Blue Shield argues that the term "incomplete" in the application does not suggest a requirement of willful intent. We agree that in isolation, "incomplete" does not denote intentional conduct. However, we do not construe contract language in isolation. Rather the meaning of a particular word may be restrained or enlarged by the context in which it appears. (See, e.g., Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1370-1371 ["Noscitur a sociis (it is known by its associates) is the principle that 'a word takes meaning from the company it keeps'"].) The proximity of "incomplete" and "false" could reasonably be interpreted by an applicant as denoting some element of intent. (See Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1391, fn. 14 ["Under the rule of noscitur a sociis, '"the meaning of a word may be enlarged or restrained by reference to the object of the whole clause in which it is used"'"].) Moreover, an "incomplete" response would not constitute grounds for rescission if the applicant had no present knowledge of the facts sought or failed to appreciate the significance of information related to him. ( Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916.)
Blue Shield asserts that the terms "false representation" and "concealment" and "fraud or deception in enrollment" are in close proximity and deal with the same concept; therefore the terms must have different meanings--i.e., when read in context "fraud or deception in enrollment" clearly indicates intent; therefore, "false representation" and "concealment" must not require the element of intent. (See, e.g., Queen Villas Homeowners Assn. v. TCB Property Management (2007) 149 Cal.App.4th 1, 9 ["When two words are used in a contract [--even an insurance contract--], the rule of construction is that the words have different meanings"].) This canon of construction does not apply here. As we have explained, an equally reasonable construction is that the proximity of "false representation" and "concealment" to "fraud or deception" could indicate to an average layperson that the terms all require intentional misrepresentation. This fairly places the onus for clarity upon the drafter and particularly so when it concerns questions of health insurance coverage. The consequences flowing from the sudden loss of health insurance resulting from injury or illness presents a financial and personal catastrophe to an insured as well as placing additional strain on health providers and government resources. Thus, a fair reading of words dealing with false representations that appear in context with fraudulent representations could easily be perceived as requiring a knowing intent to mislead or deceive. (Hailey v. California Physicians' Service (2007) 158 Cal.App.4th 452, 471.)
Although not raised by the parties, we note that the application contains only the words "false or incomplete." "False representation" and "concealment" and "fraud" and "deception" are contained in the policy itself, which an enrollee would not have until Blue Shield has reviewed the information in the application.
Blue Shield also argues that the court may look to statutory definitions, especially those contained in the Insurance Code regarding rescission of insurance policies and those in the Civil Code regarding rescission of contracts generally, to interpret the Agreement. Insurance Code section 330 states: "Neglect to communicate that which a party knows, and ought to communicate, is concealment." Insurance Code section 331 states: "Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance." Insurance Code section 358 states: "A representation is false when the facts fail to correspond with its assertions or stipulations." Insurance Code section 359 states: "If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false."
The problem with reliance on the Insurance Code and Civil Code provisions and cases construing them is that a health care service plan is subject to a distinct statutory scheme. (Health & Saf. Code, §§ 1340-1399.818; see Williams v. California Physicians' Service (1999) 72 Cal.App.4th 722, 728-729 [Ins. Code provision governing disability policies does not apply to health care services plan]; Hailey v. California Physicians' Service, supra, 158 Cal.App.4th at p. 470 [Ins. Code, § 331, permitting an insurer to rescind a policy for concealment, has no counterpart in the Knox-Keene Act]; Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 84-85 [same]; compare Kavruck v. Blue Cross of California (2003) 108 Cal.App.4th 773, 780, fn. 3 ["A health care service plan is not necessarily equivalent to an insurance policy for all purposes [citation], but for the purposes of the contract interpretation involved in this case, the distinctions are immaterial"].)
The Knox-Keene Act does not contain any provision relating to rescission for misrepresentation comparable to those found in the Insurance Code. At the time Blue Shield rescinded Bath's policy, the sole provisions regarding misrepresentation in an application for a health services plan was contained in Health and Safety Code section 1389.3 concerning postclaims underwriting. That statute is not applicable here.
In 2010, the Knox-Keene Act was amended in several respects, including the addition of the following language to section 1389.21: "(a) A health care service plan shall not rescind a plan contract, or limit any provisions of a plan contract, once an enrollee is covered under the contract unless the plan can demonstrate that the enrollee has performed an act or practice constituting fraud or made an intentional misrepresentation of material fact as prohibited by the terms of the contract."
In sum, the language of the plan when read as an integrated whole and including both the application and the Agreement, is ambiguous. This being so, we must and we do construe it in favor of the insured. (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 473.)
II. The Agreement Permits Blue Shield to Rescind All Coverage Under the Plan if There
Is an Intentional Misrepresentation
Blue Shield's application form contains the following language immediately above the signature block:
"I have read the summary of benefits and the above conditions. I understand and agree to them. I alone am responsible for the accuracy and completeness of this application for Blue Shield Health coverage . . . . I understand that neither I nor my family will be eligible for coverage if any information is false or incomplete, and that coverage may be revoked based on such finding."
Part III, paragraph D.1. of the Agreement, states in part: "Blue Shield . . . may terminate this Agreement together will all like Agreements by giving 90 days written notice. No Person [defined in the plan as the Subscriber or Dependent] shall be terminated individually by Blue Shield . . . for any cause other than as provided under Sections B, D and F of this PART."
Part III, paragraph D.3. of the Agreement, states: "Blue Shield of California shall not be liable for Services provided to any Person after the date of termination."
Bath argues that the language in paragraph D.1. is ambiguous because it could be read by the average person to mean that the grounds for termination stated in sections B, D, and F are to be applied "individually" to each "subscriber or dependent." Bath further contends that her interpretation is supported by the phrase "the Person" in that paragraph, rather than "a Person" or "any Person." We disagree.
Bath ignores other language in the paragraph that is inconsistent with her interpretation. Paragraph D.1. clearly states that "[t]his Agreement may be canceled by Blue Shield . . . ." There is only one agreement covering both Jessica and Jack. Bath's interpretation also ignores the language in the application that "I understand that neither I nor my family will be eligible for coverage if any information is false or incomplete, and that coverage may be revoked based on such finding." This language, together with Part III, paragraph D.3., which states: "Blue Shield of California shall not be liable for Services provided to any Person after the date of termination," unambiguously means that if a willful misrepresentation occurs, the entire policy may be rescinded. (See TIG Ins. Co. of Michigan v. Homestore, Inc. (2006) 137 Cal.App.4th 749, 757 [insurer's right to rescind applies to all insureds unless the contract provides otherwise].)
The cases Bath relies on, Watts v. Farmers Ins. Exchange (2002) 98 Cal.App.4th 1246, and Century-National Ins. Co. v. Garcia (2011) 51 Cal.4th 564, are not to the contrary. Both cases involve a fire insurance policy which was construed to permit an innocent spouse to recover on a claim despite fraudulent misrepresentations by the spouse making the claim. In reaching this conclusion, the court construed Insurance Code provisions containing mandatory requirements in a fire insurance policy which are not applicable to the Agreement.
The unambiguous language of the Agreement gives Blue Shield the right to rescind coverage to all insureds covered by the plan if one of them makes an intentional material misrepresentation.
The judgment is affirmed. The parties shall bear their own costs on appeal.
NOT TO BE PUBLISHED.
PERREN, J.
We concur:
GILBERT, P.J.
COFFEE, J.
Barry T. LaBarbera, Judge
Superior Court County of San Luis Obispo
Law Offices of Robert S. Gerstein, Robert S. Gerstein; Ernst & Mattison; Ernst Law Group, Don A. Ernst, Christopher D. Edgington; Mattison Law Firm, Raymond E. Mattison; Gianelli & Morris ALC, Robert S. Gianelli, Jully C. Pae for Plaintiffs and Appellants.
Manatt, Phelps & Phillips, LLP, Gregory N. Pimstone, Brad W. Seiling, Becky S. Walker, Joanna S. McCallum for Defendant and Appellant.