Opinion
IP IP02-0509-C-B/S.
September 24, 2004
Plaintiff Seymour Tubing, Inc. ("Seymour Tubing") entered into a contract with Defendant, TIG Insurance Company ("TIG") to secure excess loss insurance coverage. Seymour Tubing alleges that TIG breached the contract by failing to reimburse Seymour Tubing for medical claims it maintains were covered by the insurance policy, and further that TIG's conduct connected to the refusal to reimburse and related dealings with Seymour Tubing breached TIG's duty of good faith and fair dealing.
This matter comes before us on Defendant's Motion for Summary Judgment and Plaintiff's Cross Motion for Partial Summary Judgment as to the formation of an insurance contract in April, 2001. Defendant argues that it is entitled to a judgment as a matter of law because the loss sustained by the plaintiff does not exceed the deductible of the insurance policy and, consequently, TIG had a good faith basis for refusing to reimburse Seymour Tubing under the policy. Seymour Tubing counters that the loss it sustained exceeded the deductible of the insurance policy and that TIG attempted to unilaterally modify the policy in bad faith. Seymour Tubing's cross motion for summary judgment asserts that when Seymour Tubing accepted TIG's quote in April, 2001 a binding insurance policy was formed.
In addition, Defendant has moved to exclude portions of expert testimony by Arlene S. Cayetano as inadmissible under Federal Rules of Evidence 701 or 702 and Plaintiff has moved to exclude portions of testimony by William J. Murphy as inadmissible hearsay. Finally, Plaintiff has moved to strike claims in Defendant's Reply Brief for failure to comply with Local Rule 56.1(a).
As we explain below, there are several material facts still in dispute that support Plaintiff's case; accordingly, we DENY Defendant's Motion for Summary Judgment. However, we GRANT Plaintiff's Motion for Partial Summary Judgment to the effect that TIG entered into a binding insurance contract with Seymour Tubing in April, 2001, which contained a $45,000 deductible with regard to AB. We GRANT Plaintiff's Motion to Exclude for the purpose of Summary Judgment William J. Murphy's deposition testimony and affidavit, offered by Defendant, to the extent that they reflect hearsay assertions and a lack of personal knowledge. We WITHHOLD a ruling on Defendant's Motion to Exclude portions of Arlene S. Cayetano's affidavit, proffered by Plaintiff in support of Summary Judgment, regarding whether she has stated a legal conclusion rather than an expert opinion on a factual matter in dispute. Finally, we DENY Plaintiff's Motion to Strike Defendant's claims raised for the first time in the Reply Brief.
This ruling is not to be confused with the Partial Summary Judgment Plaintiff seeks on its claim for Breach of Contract regarding TIG's refusal to accept liability for AB's claims in excess of the $45,000 deductible. TIG/Majestic expressly reserved the right to modify the contract terms, and we decline to rule at this time on the issue of modifications to the contract because of the existence of material facts in dispute which likely would influence the outcome of such a ruling. See infra Section II(2).
The original Complaint references this individual only as AB, and we shall as well to protect the confidentiality of a minor. We determine that the other individuals redacted from the original Complaint do not warrant that protection in this entry.
We DENY Plaintiff's Motion to Strike claims raised by Defendant for the first time in its Reply Brief. Defendant's failure to flesh out its Motion to Dismiss until the Reply Brief did not prejudice Plaintiff because Plaintiff filed a Surreply Brief under Local Rule 56.1 to address the belatedly raised issues.
I. Factual Background
Seymour Tubing is an Indiana corporation with it principal place of business in Seymour, Indiana. TIG is a California corporation with its principal place of business in Irving, Texas. Compl. ¶¶ 1-2. Seymour Tubing provides self-funded group medical insurance coverage for its employees and their dependants pursuant to the Seymour Tubing Employee Benefit Plan ("Plan"). The third party administrator of the Plan is Edward B. Morris Associates, Inc. ("Morris"). To supplement the Plan, Seymour Tubing obtains excess liability insurance ("stop loss insurance") to limit its maximum potential liability with regard to aggregate claims of the group and/or claims by any particular employee or beneficiary. Id. ¶¶ 7-9.Seymour Tubing purchased a stop loss insurance policy from TIG with an effective date of April 1, 2001. At the time, AB was a dependant of a Seymour Tubing employee and covered by the Plan. Pl.'s Resp. Brief at 4, ¶¶ 4-5. During the term of the insurance policy Seymour Tubing incurred and paid medical claims for AB totaling $494,191.45. Pl.'s Resp. Brief at 3, ¶ 2. Seymour Tubing sought reimbursement from TIG in the amount of the claims exceeding $45,000, the specific deductible for AB in the final insurance policy quote ("Final Quote") prepared on March 28, 2001. TIG has refused to reimburse Seymour Tubing, relying on the $500,000 specific deductible for AB provided for in the insurance policy ("Policy") which was issued on November 6, 2001.
In early 2001, Morris, the Plan administrator, obtained price quotes from various insurance companies to provide stop loss insurance for Seymour Tubing. (Dep. of Pat Shuler at 18). One of the quotes Morris supplied to Seymour Tubing was from TIG, as provided by their underwriters Majestic Underwriters, Inc. ("Majestic"). On or about March 28, 2001, Majestic submitted to Morris the "Final Quote" for stop loss insurance provided through TIG. Pl.'s Resp. Brief at 4, ¶¶ 5-6. Majestic prepared the Final Quote based on information supplied by Morris. The Final Quote provided for an insurance policy with effective single year coverage between April 1, 2001 until March 31, 2002 that would cover claims incurred by Seymour Tubing for the prior year beginning April 1, 2000 through March 31, 2002, but which were paid by Seymour Tubing between April 1, 2001 and March 31, 2002. Id. at 3, 5, ¶¶ 1, 14. Seymour Tubing was permitted to choose from multiple policy options listed in the Final Quote, the first of which provided for a $45,000 specific deductible for each plan participant and provided a higher specific deductible ("laser") for three named individuals: Jennifer Vojkufka, Tracey Matthews, and James DeLoach. Id. at 4-5, ¶¶ 8-9. However, several clauses in the Final Quote reserved to Majestic the right to adjust the terms of the quote based upon new or updated information supplied by Morris/Seymour.
The three, relevant clauses state:
Updated Specific rates and aggregate factors based on experience through 2/28/01. Aggregate factors are bound. Specific rates are still subject to receipt and approval of a disclosure statement signed no earlier than 3/15/01. Based on the information already submitted three individual claimants as shown elsewhere will have higher specifics. All other listed claimants will be at plan deductible. Exhibit 1 at MOR000115 (emphasis added).
* * * * *
Contingency: This proposal is based on information provided by you and may be adjusted upon receipt of the following documents and/or data if there are material changes: Plan document, Service Agreement between TPA and Client, Experience to the effective date, initial enrollment, renewal rates, and TPA approval and Updated Shock Loss Information. . . . Exhibit 1 at MOR000116 (emphasis in original).
* * * * *
Any updated or additional information provided may change the conditions of this quotation. Exhibit 1 at MOR000117.
On March 29, 2001 Morris sent Seymour Tubing a memo listing various stop loss insurance options, including the information from the Final Quote provided by Majestic as well as a quote from Seymour Tubing's then-current insurance provider, United Healthcare. Pl.'s Resp. Brief at 8, ¶ 30. Seymour Tubing selected for its stop loss insurance plan the first option listed in the Final Quote from Majestic. Seymour Tubing submitted an Application for Excess Insurance ("Application") to Majestic on or about April 12, 2001, selecting that option which provided the $45,000 specific deductible and the higher, additional deductibles for Jennifer Vojkufka, Tracey Matthews, and James DeLoach. Pl.'s Resp. Brief at 5, ¶ 13. The Application was made on the standard form supplied by Majestic, filled out by Morris, and signed and submitted by Seymour Tubing. Along with the Application, Seymour Tubing signed and submitted a Plan Sponsor Disclosure Statement ("Disclosure"). Pl.'s Resp. Brief at 7, ¶ 22-23.
As mentioned earlier in this opinion the industry term for this category of coverage is "laser," which references a higher deductible being assigned to certain risks.
On April 13, 2001, Seymour Tubing submitted to Majestic its initial premium payment under the policy, and Majestic, on behalf of TIG, accepted and deposited that premium. Seymour Tubing continued to make monthly premium payments and Majestic continued to accept those premiums throughout the term of the policy. Pl.'s Resp. Brief at 6, ¶¶ 16-17.
On June 18, 2001, Morris sent to Majestic a notification of stop loss claim for AB, which informed Majestic that AB's claims for the year had reached 50% of her specific deductible of $45,000. On July 23, 2001, Majestic sent Morris a letter in reply, stating that claims below $500,000 for AB would not be covered and that Majestic would not have elected to underwrite her risk had it had access to the available information on her. Aff. of William J. Murphy at ¶¶ 8.
There are two paragraphs labeled "8" in Mr. Murphy's affidavit.
Several months later, Majestic/TIG issued the Policy on November 6, 2001, which included terms substantially different from the terms in the Final Quote. Of primary importance in this case, the Policy included a $500,000 laser for AB. Pl.'s Resp. Brief at 6, ¶ 18. However, the Policy did not alter Seymour Tubing's premium payments to cover that risk. Id. at 7, ¶ 21. Accepted industry practice is to issue policies such as the one Seymour Tubing purchased approximately 30-to-90 days after the policy's effective date, and, consistent with industry practice, Majestic's internal procedure is usually to issue the policy within two or three months of the effective date. Id. at 12-13, ¶¶ 45, 50. Seymour Tubing argues, therefore, that industry practice and Majestic's own internal guidelines dictate that the Policy should have been issued by Majestic between May 1 and July 1, 2001. Pl.'s Resp. Brief at 12, ¶¶ 45, 47, 50. TIG does not dispute that having issued the insurance policy seven months after its effective date is at variance with both accepted industry practice and with Majestic's own internal procedures; however, TIG contends that the Seymour Tubing case was not a routine case, as evidenced by a comparison with two alternative fact patterns which highlights the unusual nature of the case. Def.'s Reply Brief at 8, ¶¶ 47, 50.
There is dispute as to whether or not the seven month delay was justifiable, excusable, or committed in bad faith, which is discussed more in depth in Section II(3), infra.
TIG alleges that either: 1) Seymour Tubing did not provide full disclosure of AB's March 15, 2001 hospitalization until June, 2001, which caused the delay; or that 2) there was disclosure of the hospitalization in April, 2001, after which Majestic orally notified Morris of the laser which prompted several months of additional negotiation. Def.'s Reply Brief at 8.
As part of the process for preparing an insurance quote and applying for coverage, Morris submitted to Majestic a series of medical disclosures. In lieu of using the standard form prepared by Majestic, Morris had an agreement with Majestic to submit an alternative form created by Morris containing similar information. In essence, both forms required that the Plan Sponsor, in this case Seymour Tubing, provide certain information about "high risk" plan participants to enable the underwriters to properly evaluate the plan risk. Morris submitted medical disclosures to Majestic on January 18, 2001; February 15, 2001; March 7, 2001; and April 12, 2001. Pl.'s Resp. Brief at 7-10, ¶¶ 22-25, 31, 33, 35, 37.
The Majestic form requires the Plan Sponsor, in this case Seymour Tubing, to provide the following information about "high risk" participants: "Name, Dependent, Date of Birth, Sex, Date Disabled, Nature of Diagnosis or Disability, Current Status or Prognosis, Changes to Date."
The form created by Morris requires the Plan Sponsor to provide the following information about certain participants: "Name, Notes, Coverage [Employee or Dependant], Sex, Diagnosis, Hospitalization, Treatment, Prognosis, TOTAL Claims YTD, Specific Reimb. Last Claim Paid, Status."
The form provided by Majestic defines a high risk participant as having one or more of the following relevant conditions:
"Hospital or home confined or disabled due to illness or injury; or
. . .
Expected to or has already incurred claims that exceed 50% of the Specific Deductible for this Policy Year or Next."
The form provided by Morris does not mention the term "high risk," instead it requires disclosure about participants in one of the follow relevant categories:
1) Persons with claims exceeding 50% of the Specific deductible or $10,000, whichever is less;
2) Persons hospital or institution confined within 30 days prior to this report;
. . .
The primary controversy in this case centers on one Plan participant, AB, and the liability for her medical claims. At all relevant times, AB was a participant in the Plan. AB is the dependent child of one of Seymour Tubing's employees. Prior to 2001, she had been diagnosed with several health problems, most notably cerebral palsy, and had incurred substantial medical claims in the preceding policy year, qualifying her for necessary disclosure under either the Morris or Majestic version of the Disclosure form. Morris, in fact, included information about AB in all four medical disclosures it sent to Majestic. Relevant information that Morris disclosed to Majestic about AB included the following: (A) She was four years old at the time; (B) she had been diagnosed with multiple medical conditions including: cerebral palsy, microcephaly, seizures, gastroesophageal reflux, and other congenital birth defects; and (C) her total policy year-to-date paid claims from April 2000 through the respective dates on the disclosure forms. Pl.'s Resp. Brief at 8-10, ¶¶ 31, 33, 35, 37. However, Morris did not include in the April 12, 2001 medical disclosure that AB had been hospitalized on March 15, 2001 (the "Hospitalization"), despite having access at the time to records indicating the Hospitalization. See Dep. of Pat Shuler at 77-79. Seymour Tubing has paid $494,191 in medical claims for AB that were incurred (and paid) during the respectively applicable policy date restrictions. Pl.'s Resp. Brief at 3, ¶ 2.
April 1, 2000 to March 31, 2001.
The respective paid claims and date ranges are as follows:
(1) From April, 2000 through December, 2000 total paid claims of $59,309.
(2) From April, 2000 through January, 2001 total paid claims of $64,297.
(3) From April, 2000 through February, 2001 total paid claims of $70,537.
(4) Final year-to-date paid claims since April, 2000 totaling $87,511.
Pat Shuler, the primary Morris representative responsible for obtaining stop loss insurance for Seymour Tubing, testified that it was the policy of Morris to send a Patient Activity Report to the underwriters at the time the Disclosure was signed by the client. Dep. of Pat Shuler at 162-63. However, Pat Shuler admitted there was no evidence in Morris' files as to whether or not the Patient Activity Report was actually sent at that time. Id. at 163-64. TIG does not dispute that it was Morris' policy to prepare a Patient Activity Report and provide it to Majestic at the time the Disclosure was submitted; however, TIG notes there is no evidence in this case that the Patient Activity Report was actually sent. See Def.'s Reply Brief at 5, ¶¶ 27-28.
TIG asserts that Seymour Tubing committed a misrepresentation in its signed Disclosure by failing to list AB's Hospitalization. Def.'s Reply Brief at 16-19. In response, Seymour Tubing argues, first, that it was not required to disclose the Hospitalization (Pl.'s Resp. Brief at 19-20); and, second, that Seymour Tubing is entitled to a reasonable inference that information regarding the Hospitalization was provided to TIG/Majestic in the Patient Activity Report allegedly sent by Morris to Majestic in April, 2001. Pl.'s Resp. Brief at 20-21. Seymour Tubing further contends that industry practice would limit TIG/Majestic to using only information in existence as of April 1, 2001 to make its underwriting decisions, which presumably would include few, if any, claims from the Hospitalization. Pl.'s Resp. Brief at 12, ¶ 48. Seymour Tubing also alleges that a Morris employee informed Majestic in April, 2001 of the Hospitalization and that Majestic responded, also in April, that it planned to place a laser on AB. Pl.'s Resp. Brief at 7-8, ¶¶ 27-29. However, Majestic asserts that it first learned about AB's Hospitalization on June 18, 2001 and informed Morris of a laser on July 23, 2001. Aff. of William J. Murphy at ¶¶ 8. For purposes of Summary Judgment only, TIG has not contested this assertion. Def.'s Reply Brief at 5.
There is nothing in the record that indicates the number of claims for AB arising from the March 15, 2001 hospitalization that were incurred before April 1, 2001. The records reflect that AB spent 54 days in the hospital during that stay, indicating that the majority of that stint occurred after April 1.
II. Legal Analysis
(1) Summary Judgment Standard
On a motion for summary judgment, the burden rests on the moving party, TIG in this case (with the exception of Seymour Tubing's Cross Motion for Summary Judgment), to demonstrate "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to "go beyond the pleadings" and point to evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23. "If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in her favor on a material question, then the court must enter summary judgment against her." Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994), citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); Celotex, 477 U.S. at 322-24; Anderson, 477 U.S. at 249-52.
Summary judgment is not a substitute for a trial on the merits, nor is it a vehicle for resolving factual disputes. Waldridge, 24 F.3d at 290. Therefore, in considering a motion for summary judgment, we draw all reasonable inferences in favor of the non-movant. Venters v. City of Delphi, 123 F.3d 956, 962 (7th Cir. 1997). If genuine doubts remain and a reasonable fact-finder could find for the party opposing the motion, summary judgment is inappropriate. See Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992); Wolf v. City of Fitchburg, 870 F.2d 1327, 1330 (7th Cir. 1989). But if it is clear that a plaintiff will be unable to satisfy the legal requirements necessary to establish his or her case, summary judgment is not only appropriate, but mandated. See Celotex, 477 U.S. at 322; Waldridge, 24 F.3d at 920. A plaintiff's self-serving statements, unsupported by specific concrete facts reflected in the record, cannot preclude summary judgment. Albiero v. City of Kankakee, 246 F.3d 927, 933 (7th Cir. 2001); Slowiak v. Land O'Lakes, Inc., 987 F.2d 1293, 1295 (7th Cir. 1993).
(2) Count 1: Breach of Contract.
Count 1 of Seymour Tubing's Complaint alleges a breach by TIG of the terms of the stop loss insurance policy between TIG and Seymour Tubing. Seymour Tubing alleges that it entered into a binding insurance contract with TIG with a specific deductible of $45,000 for AB, and that TIG breached the contract by failing to reimburse Seymour Tubing for her medical claims in excess of $45,000. Compl. at ¶¶ 30-34. TIG responds contending: (A) that the insurance policy was conditioned on full disclosure by Seymour Tubing of AB's medical condition; (B) that the failure to make those disclosures constituted a material misrepresentation by Seymour Tubing, which voided the insurance policy, and (C) that, in any event, Majestic reserved the right to amend the terms of the insurance policy based on updated claims information, which, in fact, it did. Def.'s Reply Brief at 9-22.
Neither party disputes that Indiana rules of law of contract interpretation govern the insurance policy at issue. Construction of a written contract is a question of law and is particularly appropriate for resolution by summary judgment. Orem v. Ivy Tech State College, 711 N.E.2d 864, 870 (Ind.App. 1999) (citingFrancis v. Yates, 700 N.E.2d 504, 506 (Ind.App. 1998)). In interpreting a contract, we attempt to determine the intent of the parties at the time the contract was executed as expressed in the language used. Id. (citing Barrington Management Co. v. Paul E. Draper Family Ltd. Partnership, 695 N.E.2d 135, 140 (Ind.App. 1998)). Absent ambiguity, we should give the language its plain and usual meaning. Id. (citing George Uzelac Assocs., Inc. v. Guzik, 663 N.E.2d 238, 240 (Ind.App. 1996),trans. denied). If there is any ambiguity in an insurance policy, the policy is to be construed strictly against the insurer. Beam v. Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002) (quotations omitted).
The Final Quote provided by Majestic to Morris contained the following language: "This application is not binding until receipt of the initial premium deposit of ____ and acceptance by Majestic Underwriters, Inc. on behalf of TIG Insurance Company." TIG argues that this language indicates the Application was not binding until Majestic signed the Policy on behalf of TIG, which occurred in November, 2001. Seymour Tubing counters that the above-quoted language means the Application was binding once Majestic received and accepted the premium payment submitted by Seymour Tubing. We find that the word "acceptance" in this context could plausibly refer to either the acceptance of the premium payment made by Seymour Tubing or the acceptance by Majestic of the Application. Even after we examine the Application in its entirety, this ambiguity persists. See Commercial Union Ins. v. Moore, 663 N.E.2d 179, 181 (Ind.App. 1996) (finding a policy is ambiguous if "susceptible to more than one interpretation and reasonably intelligent persons would differ as to its meaning"). Consequently, we construe the Application strictly against the insurer and hold that the Application became a binding insurance contract when Majestic received and deposited Seymour Tubing's premium payment.
TIG presented this argument in its Brief in Supp. of Summ. J. at 7-8, but appears not to raise it again in the Reply Brief.
We note that the Application does have a section located below the above-quoted language that indicates the Application was accepted on "11-6-2001" by "W.J. Murphy." Rather than resolving the ambiguity in the Application, this section provides an alternative meaning for the word "acceptance," which otherwise appears to refer to the acceptance of premiums.
However, our finding that Seymour Tubing acquired an insurance policy with a $45,000 specific deductible for AB is not determinative of the ultimate issues in this case. TIG presents three separate theories under which it would not be bound to the terms in the Final Quote: (A) full disclosure of AB's medical condition was a condition precedent in both the Final Quote and the Application before coverage would become binding; (B) Seymour Tubing's material misrepresentations in the Application void coverage; (C) TIG explicitly reserved the right to review updated claims information and to modify the policy terms. We address each of these contentions in turn.
(A) Condition Precedent
TIG asserts full disclosure by Seymour Tubing was a condition precedent to the formation of the insurance contract; therefore, TIG claims Seymour Tubing's failure to disclose AB's Hospitalization absolved TIG of any obligations under the Final Quote and allowed it to present Seymour Tubing with alternative contract terms, which included a $500,000 deductible for AB. Def.'s Reply Brief at 9, 13-15. TIG classifies these alternative contract terms as an "alternative offer" which Seymour Tubing was free to accept or reject. Id. at 9. We find these arguments unpersuasive. A condition precedent is a condition that must be performed before the agreement of the parties becomes a binding contract or that must be fulfilled before the duty to perform a specific obligation arises. Indiana State Highway Comm. v. Curtis, 704 N.E.2d 1015, 1018 (Ind. 1998). Seymour Tubing satisfied the condition precedent when it provided full disclosure of AB's Hospitalization, whether this occurred in April or June, 2001. TIG neither presented evidence nor argued that at any time it attempted to rescind the insurance policy based on Seymour Tubings' failure to disclose AB's Hospitalization. In fact, TIG/Majestic continued to accept and deposit Seymour Tubing's premium payments for the entire length of the policy according to the terms in the Final Quote. Finally, the language TIG used to describe the modifications it made to the Final Quote belies that they constituted a "new offer" or "alternative contract terms;" therefore, TIG's own contractual language undermines its "condition precedent" argument illustrating that it is not grounded in fact and is thus ultimately unpersuasive.
TIG appears to have expressly reserved the right to rescind the contract if the conditions precedent in the Application were not satisfied. Immediately above the "conditions precedent" clause the Application states: "If all outstanding requirements are not met within ninety (90) days of the effective date, coverage may be rescinded and all collected premiums returned to the Policyholder."
The July 23, 2001 letter from Majestic to Morris refers to the $500,000 laser on AB as an "amendment" and not as an alternative offer or contract, and the notice of the $500,000 specific deductible for AB is attached to the Policy as an "Amendment," and is not included within the terms of the policy as would be expected if this were an entirely new contract that TIG has proposed.
(B) Material Misrepresentation by Seymour Tubing in the Disclosure.
TIG next alleges that Seymour Tubing committed a misrepresentation in its April, 2001, Disclosure by failing to list AB's Hospitalization. Def.'s Reply Brief at 16-19. TIG further argues that the failure to disclose AB's Hospitalization constituted a false representation concerning a material fact, which voids the insurance contract. Def.'s Reply Brief at 15-16, 20. Seymour Tubing counters that: first, any alleged misrepresentation is a question of fact for the jury; second, Seymour Tubing did not make any misrepresentation; and, third, that if any misrepresentation occurred it was not material. Pl.'s Resp. Brief at 18-23.
Seymour Tubing argues that: first, it did not have a duty to disclose the Hospitalization because the Majestic medical disclosure form did not explicitly request such information; and, second, assuming the Patient Activity Report was sent to Majestic in April, 2001, TIG would have had actual or constructive knowledge of AB's Hospitalization. Pl.'s Resp. Brief at 20-21.
Seymour Tubing argues that: first, Majestic overlooked AB in the underwriting process; second, Majestic would not or could not use much of the information from the Hospitalization to underwrite the policy; and, third, that, as a matter of law, TIG cannot rely on the misrepresentation because it should have investigated AB further before underwriting the policy. Pl.'s Resp. Brief at 21-23.
Under Indiana law, a material misrepresentation or omission of fact in an insurance application, which is relied on by the insurer in issuing the policy, renders the coverage voidable at the insurance company's option. Foster v. Auto Owners Insurance Co., 703 N.E.2d 657, 659 (Ind. 1998) (quotations omitted). While an insurer may rely on the representations of fact in an application without investigating further, "an insurer cannot avoid coverage where it had knowledge of the facts notwithstanding the material misrepresentations, or where a reasonable person would have investigated further." Id. at 660 (quotations omitted). The Court can determine the materiality of a misrepresentation as a matter of law if there is no reasonable difference of opinion that the misrepresentation might reasonably influence the insurer's decision to issue the policy. Bennett v. Crownlife Insurance Co., 776 N.E.2d 1264, 1270 (Ind.App. 2002). However, if there exists a reasonable difference of opinion, the materiality of the omission is a question of fact to be resolved by the jury. Colontial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 673 (Ind. 1997); Prudential Ins. Co. of Am. v. Winans, 325 N.E.2d 204, 206 (Ind. 1975).
As a preliminary matter, we agree with TIG that Seymour Tubing had a duty to include the Hospitalization in its Disclosure pursuant to the explicit language contained in the Disclosure that Seymour Tubing signed. However, we find the following four, separate reasons preclude summary judgment in favor of TIG as to the materiality of the omission by Seymour Tubing in the Disclosure: (i) there is a reasonable inference that TIG had actual knowledge of AB's Hospitalization in April, 2001; (ii) there is a reasonable inference that Majestic should have investigated AB's further before underwriting the policy; (iii) there is a reasonable inference that Majestic overlooked AB when underwriting the insurance policy; and (iv) there is a reasonable inference that the omission of the Hospitalization was not material to the underwriting process. We elaborate on each of these reasonable inferences below:
Seymour Tubing's contention that it did not need to disclose the Hospitalization because it was not specifically asked for on the Majestic disclosure form is not persuasive. Although the disclosure form created by Majestic did not specifically ask for hospitalization dates, the form prepared by Morris did request hospitalization dates, and Majestic and Morris had an agreement to use the latter's disclosure forms. Dep. of Pat Shuler at 132-33. The disclosure form created by Morris clearly stated at the top of the page that "the Plan Sponsor [Seymour Tubing] is required to disclose the following pertinent information . . ." and included a column labeled "Hospitalization." Seymour Tubing's representative, Steve Perry, signed the Morris disclosure form certifying that the disclosure was "true, complete, and accurate to the best of his/her knowledge and belief, and that nothing has been knowingly or intentionally omitted." Finally, Seymour Tubing's agent at Morris, Pat Shuler, admitted that the Hospitalization of AB should have been included on the medical disclosure form. Dep. of Pat Shuler at 107, 113-14. Seymour Tubing's argument that it did not need to disclose AB's hospitalization then directly contradicts the language of the forms it signed.
(i) Reasonable inference that TIG had actual knowledge of AB's Hospitalization.
Seymour Tubing argues that as the non-moving party it is entitled to a reasonable inference that Morris informed Majestic of AB's Hospitalization in April, 2001, either through a Patient Activity Report sent to Majestic along with the Application and Disclosure form, as per Morris' normal procedure, or through a telephone conversation between a Morris representative and Majestic about placing a laser on AB. Unfortunately, the record contains no definitive evidence indicating whether a Patient Activity Report was actually sent by Morris or received by Majestic; however, we agree with Plaintiff that there is evidence to support a reasonable inference that either Morris sent Majestic the Patient Activity Report in April, 2001, as per its usual custom, but neglected to record that the document had been sent, or that a Morris representative disclosed the Hospitalization to Majestic during a telephone conversation in April, 2001. Because of this reasonable inference that Majestic had actual knowledge of AB's Hospitalization, TIG cannot rely on the omission in the Disclosure to void coverage. See Foster, 703 N.E.2d at 660
For the purposes of Summary Judgment, TIG does not dispute that this conversation took place.
Seymour Tubing has filed a Motion to Exclude portions of the testimony of Mr. Murphy, the president of Majestic, regarding notification by Morris to Majestic of AB's Hospitalization. However, Mr. Murphy specifically testified that he did not have personal knowledge as to whether someone at Morris called Majestic in April, 2001 to advise them of AB's Hospitalization. Dep. of William J. Murphy at 87. As a result, Mr. Murphy's statements that Majestic did not receive such notification from Morris in April, 2001 reach beyond his own direct knowledge and thus are subject to exclusion. Mr. Murphy also testified he did not personally review the entire underwriting file to determine if there had been notification from Morris of the Hospitalization before June 18, 2001, but he instead relied on his underwriters' review of the file. Id. at 88-90, 116-17. Consequently, Mr. Murphy's statements that Majestic's files do not contain such a record from Morris must also be excluded. Mr. Murphy did personally review portions of the file, so to the extent he provides testimony reflecting his own personal knowledge, his statements are admissible. Given that Murphy's testimony is so limited, it cannot be seen as determinative of whether such record existed in Majestic's files.
(ii) Reasonable inference that Majestic should have investigated AB further before underwriting the policy
Seymour Tubing presented expert testimony that, based on the knowledge that Majestic possessed about AB, a reasonable underwriter should have investigated her condition further before making its decision to underwrite the policy. In addition to its proffered expert, Seymour Tubing presents substantial other evidence which creates a reasonable inference that Majestic was on notice of and should have asked for more information about AB before underwriting the policy, and TIG failed to produce any evidence to the contrary. We accept Seymour Tubing's argument that it is entitled to the reasonable inference that Majestic should have investigated AB further before underwriting the policy and that such an investigation would have revealed that she was in the hospital; therefore, under Foster, TIG cannot simply rely on any misrepresentations in the Disclosure to void coverage.
We have been asked by TIG to exclude from our consideration the affidavit of Arelene S. Cayetano proffered by Seymour Tubing as expert testimony regarding medical excess loss insurance coverage underwriting procedures. It has been offered by Seymour Tubing to support its contention that Majestic, as reasonable underwriters, should have made additional inquiry beyond the contents of the Disclosure. TIG does not challenge Ms. Cayetano's status as an expert, thus her testimony can properly be admitted to assist the trier or fact in understanding the process of underwriting and how an underwriter would treat the information provided by Morris to Majestic. To the extent Ms. Cayetano's testimony attempts to establish a legal duty on the part of Majestic/TIG, such testimony would be neither binding on the court nor relevant to a jury's verdict. However, since we are denying Summary Judgment, we withhold a final ruling on the admissibility of this testimony until trial.
Seymour Tubing points out that Majestic knew the following: AB was four years old, had been diagnosed with several chronic health problems, and had substantially exceeded $45,000 in claims for the preceding policy year. We also note that there appears to be evidence in the record that Majestic, in fact, may have requested additional information about AB after the Disclosure in or about April, 2001. Dep. of Pat Shuler at 84-85, 171. It is not clear from the deposition exactly what information was requested and what, if any, information was sent to Majestic. Neither party references these discussions in their respective briefs, nor do they provide the court with a more complete record of the information requested by and sent to Majestic.
Plaintiff lists several types of documents that Majestic could have requested in addition to the information contained in the medical disclosures submitted by Morris, including: pending claims, projected claims for future months, large claim management notes, Attending Physician Statement, diagnosis and prognosis. Pl.'s Resp. Brief at 9, ¶ 34.
(iii) Reasonable inference that Majestic overlooked AB in the underwriting process.
Seymour Tubing adduced expert opinion that Majestic had sufficient information before the issuing the Final Quote to justify placing a laser on AB. Pl.'s Resp. Brief at 11-12, ¶ 44. TIG countered that there is no basis for Seymour Tubing's expert opinion and that Majestic was not provided enough information prior to March 28, 2001, the date the Final Quote was prepared, to properly evaluate AB. Def.'s Reply Brief at 7, ¶¶ 40-42, 44. Neither party disputes that Majestic knew AB was a four-year-old child with several chronic health problems, had substantially exceeded $45,000 in claims the preceding year, and had substantially increased paid claims in the first three months of 2001; accordingly, we believe there exists a reasonable basis for the opinion of Seymour Tubing's expert, especially in light of TIG's lack of evidence to the contrary. Seymour Tubing is entitled to an inference that based on the known facts at the time a reasonable underwriter would have placed a laser on AB in the Final Quote and that TIG/Majestic instead undervalued her risk or overlooked her when preparing the Final Quote.
(iv) Reasonable inference that the omission of the Hospitalization was not material to the underwriting process.
Finally, we determine that there is ample evidence upon which a reasonable fact-finder could decide that the omission of the Hospitalization was not material to the underwriting process; such evidence includes: Majestic did not explicitly request hospitalization dates in its disclosure form; in the Final Quote, Majestic stated that adjustments to lasers would be based on a medical disclosure signed no earlier than March 15, 2001, which would not have revealed the Hospitalization; Majestic made the insurance policy contingent upon receiving updated claims experience only through April 1, 2001, which would have included only a small portion of AB's hospital stay; the industry practice is to determine lasers by looking only at claims prior to the effective date of the policy, in this case April 1, 2001; and Seymour Tubing presented expert opinion that Majestic had sufficient information provided by Seymour Tubing as of March 28, 2001 to enable Majestic to accurately evaluate the group risk. TIG argues in response that knowledge of the Hospitalization was material as a matter of law because TIG would not have extended coverage to AB if it had known about her Hospitalization. However, this self-serving and conclusory statement lacks supporting evidence and is not sufficient to allow us to find as a matter of law that the Hospitalization was material to the underwriting process, especially in light of the substantial evidence Seymour Tubing has presented to the contrary. We therefore hold that Seymour Tubing has presented sufficient evidence to demonstrate that the materiality of any omission in the Disclosure is a matter for the jury to decide. See Guzorek, 690 N.E.2d at 673; Winans, 325 N.E.2d at 206.
It is clear that the Morris disclosure form does request hospitalization dates and that Seymour Tubing should have included the March 15, 2001 hospitalization on the Morris disclosure form; however, Majestic did not explicitly request this information. TIG provided testimony from Seymour Tubing's Morris representative stating he believed, but was not sure, the Majestic form requested hospitalization dates indirectly. Dep. of Pat Shuler at 130-31. If the Majestic form does not in fact request hospitalization dates, a matter about which there appears to be a genuine dispute, then it can be inferred that Majestic does not use such information underwriting a policy.
The Final Quote at MOR000115 reserves the right to adjust lasers "subject to receipt and approval of a disclosure statement signed no earlier than 3/15/01."
The Final Quote states at MOR000116 " Contingency: This proposal is based on information provided by you and may be adjusted upon receipt of the following documents and/or data if there are material changes: . . ., Experience to the effective date, . . ." (emphasis in original). Similarly, the Application states at MOR00047 "Conditions precedent to the binding of coverage under this application: . . . claims experience to effective date, . . ."
Aff. of Arlene S. Cayetano at ¶ 20.
Aff. of Arlene S. Cayetano at ¶ 12.
See Aff. of William J. Murphy at ¶¶ 8.
(C) Modification Right by Majestic to the Terms in the Final Quote.
TIG maintains that Majestic reserved the right to review updated claims information and modify the terms of the insurance policy. Def.'s Reply Brief at 9-10, 14. We cannot quarrel with this assertion based on contract terms, and hold that the $500,000 deductible that TIG placed on AB constituted an attempted modification of the terms of the contract. However, we cannot resolve as a matter of law the validity or effect of the modification because that determination depends upon facts still in dispute.
The Final Quote states:
"SPECIFIC RATES ARE STILL SUBJECT TO RECEIPT AND APPROVAL OF A DISCLOSURE STATEMENT SIGNED NO EARLIER THAN 3/15/01." Id. at MOR 000115 (emphasis in original).
* * * * *
The Final Quote also has a contingency containing the following language:
This proposal is based on information provided by you and may be adjusted upon receipt of the following documents and/or data if there are material changes: . . . Experience to the effective date, . . .
Any updated or additional information provided may change the conditions of this quotation.
Id. at MOR000116-17.
See Section II(2)(B)(iii), supra, regarding whether TIG should have placed a laser on AB in the Final Quote andSection II(3), infra, regarding whether TIG placed the $500,000 deductible in good faith. There is also the additional legal question of whether TIG is estopped from attempting to offset its alleged underwriting error of placing a $45,000 deductible on AB. This argument was not fully developed by the parties in their respective briefs.
(3) Count 2: Breach of duty of good faith and fair dealing.
Count 2 of Seymour Tubing's Complaint alleges that TIG's refusal to reimburse Seymour Tubing for AB's medical expenses in excess of $45,000 constituted a breach of TIG's duty of good faith and fair dealing. Seymour Tubing alleges that TIG violated its duty of good faith and fair dealing by, among other things: committing an underwriting error in failing to place a laser on AB in the Final Quote, declining to divulge the underwriting error to Seymour Tubing, waiting to calculate the laser for AB until TIG had enough information to avoid any liability, coercing Seymour Tubing into accepting modifications to the insurance contract, waiting to issue the Policy until TIG was certain to avoid liability, and continuing to accept premiums for an insurance policy that TIG knew it would not uphold. Pl.'s Resp. Brief at 25-26. Seymour Tubing also alleges that TIG's actions violated provisions of the Indiana Unfair Claims Settlement Practices Act. Pl.'s Resp. Brief at 26. TIG counters again that the Final Quote was contingent on updated claims information and Majestic expressly reserved the right to modify the terms of the contract. Def.'s Reply Brief at 21. TIG also asserts that it acted in good faith as a matter of law because Majestic modified the deductible for AB consistent with the terms of the Final Quote and Application and that TIG based its refusal to reimburse Seymour Tubing on the terms of the subsequently issued Policy. Def.'s Reply Brief at 21-22.
In the Complaint, Seymour Tubing specifically alleges that TIG's bad faith conduct included, but was not limited to:
taking unfounded coverage positions, using its unfounded coverage positions to attempt to coerce its insured into accepting an amendment of the [stop loss insurance] Policy, refusing to engage in good faith settlement negotiations, refusing to pay policy claims, failing to conduct a reasonable investigation into its coverage positions, and compelling Seymour Tubing to institute litigation to recover amounts due under the [stop loss insurance] Policy by offering an amount substantially less than the amount due to Seymour Tubing. Compl. at ¶ 36.
Ind. Code § 27-4-1-4.5, entitled "Enumeration of unfair claim settlement practices," lists the following as unfair practices:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.
. . .
(8) Attempting to settle a claim for less than the amount to which a reasonable individual would have believed the individual was entitled by reference to written or printed advertising material accompanying or made part of an application.
(9) Attempting to settle claims on the basis of an application that was altered without notice to or knowledge or consent of the insured.
. . .
Indiana law expressly recognizes an implied duty of good faith and fair dealing in all insurance contracts, which requires the insurer to act in good faith with its insured. Allen v. Great American Reserve Ins. Co., (Ind. 2002) (citing Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518 (Ind. 1993)). The duty of good faith results from the "unique nature of the insured/insurer relationship, which may be at varying times arm's-length, fiduciary, and/or adversarial." Id. The Indiana Supreme Court has not provided a precise definition of the duty of good faith (Erie, 622 N.E.2d at 519 n. 2), but it has previously identified the following four, prohibited activities by an insurer with respect to discharging its contractual obligation: "(1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim."Id. at 519. Indiana courts have also looked to the Indiana Unfair Settlement Practices Act as an indication of the types of conduct by an insurer that may qualify as "bad faith."See, e.g., Michigan Mut. Ins. Co. v. Sports, Inc., 698 N.E.2d 834, 844 (Ind.App. 1998); trans denied, 706 N.E.2d 555 (Ind.) and 714 N.E.2d 168 (Ind. 1999). However, an insurer is entitled to dispute claims in good faith, even if erroneously, without incurring any tort liability. Eire, 622 N.E.2d at 520. To prove bad faith based solely on denial of a claim, a plaintiff must show by clear and convincing evidence that the insurer had knowledge that there was no legitimate basis for denying liability. Freidline v. Shelby Insurance, 774 N.E.2d 37, 40 (Ind. 2002) (citation omitted).
We cannot accept, as a matter of law, TIG's contention that because Majestic reserved the right to modify the terms of the stop loss insurance contract, TIG's refusal to reimburse claims for AB, which totaled less than the modified laser, cannot constitute bad faith. TIG mischaracterizes Seymour Tubing's bad faith claim as merely a dispute over the propriety of TIG's decision not to reimburse Seymour Tubing for AB's medical claims. Seymour Tubing's bad faith claim actually encompasses far more of TIG's conduct, including: alleged misrepresentations of coverage by TIG to Seymour Tubing, the alleged failure by TIG to advise Seymour Tubing of underwriting errors in the Final Quote, alleged unreasonable delays by TIG in placing lasers and issuing the Policy, and alleged attempts by TIG to coerce Seymour Tubing into accepting modifications to the insurance policy without its consent. We find that Seymour Tubing has presented sufficient evidence to create a reasonable inference that TIG acted in bad faith. We believe a reasonable fact-finder could determine that: (1) TIG negligently failed to place a laser on AB in the Final Quote; (2) TIG failed to notify Seymour Tubing of its underwriting error in the Final Quote; (3) Seymour Tubing/Morris provided Majestic with all relevant information concerning AB in April, 2001; (4) TIG waited to send written notification of the laser on AB until it had enough information to set a laser sufficiently high to avoid liability for her claims; (5) TIG calculated AB's laser using claims information dated after the effective date of insurance policy, in variance with the stated terms of the Final Quote and industry practice; (6) TIG waited to issue the Policy until November 6, 2001, to ensure that AB's claims would not exceed the laser; (7) TIG offered Seymour Tubing no consideration, such as lowered premium payments, in exchange for correcting their underwriting error in the Final Quote; (8) TIG offered Seymour Tubing no consideration for placing a $500,000 laser on AB; (9) TIG continued to accept Seymour Tubing's premiums and delayed issuing written confirmation of the AB's laser and the Policy, effectively precluding Seymour Tubing from switching to another insurance carrier; and (10) TIG waited to impose the modified terms in the insurance policy until Seymour Tubing could no longer switch to a different insurance carrier. Accordingly, we find that Seymour Tubing has presented enough evidence to create a reasonable inference of bad faith on the part of TIG, and, therefore, this question must be submitted to a jury for determination.
See infra Section II(2)(B)(iii).
TIG's position appears to be that there is that there is no underwriting error to disclose.
See infra Sections II(2)(B)(i) and (iv).
TIG does not dispute for purposes of Summary Judgment that Majestic was informed of AB's Hospitalization in April, 2001; however, TIG contends that it does not matter when Majestic/TIG learned about the Hospitalization because Majestic placed a laser on AB soon after acquiring such knowledge. Def.'s Mem. in Supp. of Summ. J. at 4; Def.'s Reply Brief at 14. We disagree. If Majestic learned of AB's Hospitalization in April but waited three months to send written notification of a laser on AB which was $5,809 higher than her actual claims, it is reasonable to infer that TIG waited to issue the laser until it was reasonably certain it would not incur any liability for AB. The additional time that TIG possessed complete information about AB but failed to issue a laser might also support a finding of bad faith on the part of TIG. If Majestic only learned about the Hospitalization in June, 2001, as TIG contends, and issued the laser a month later, the inference of bad faith from the delay is much less compelling. Consequently, when TIG/Majestic learned of AB's Hospitalization and subsequently conveyed to Morris its intention to laser her are material facts in dispute which should be determined by a jury.
Seymour Tubing's expert stated that based on the information existing as of April 1, 2001, the effective date of the insurance policy, there was no justification for placing a $500,000 laser on AB. Aff. of Arlene S. Cayetano at ¶ 21. TIG does not dispute this opinion, but again cites its reserved right to modify the coverage terms after a review of updated claims information. Def.'s Reply Brief at 8, ¶ 49. The Court notes that the Final Quote reserved the right to modify specific deductibles based on claims "[e]xperience to the effective date." Exhibit 1 at MOR000116. This reservation clause is consistent with industry practice only to consider claims information up to effective date of the policy. Aff. of Arlene S. Cayetano at ¶ 20. TIG failed to produce any evidence of the basis for calculating the laser for AB. Thus we find that there exists a reasonable inference that TIG considered claims information from after April, 2001 to calculate the laser.
It is undisputed that the effective date of the insurance policy is April 1, 2001, and that the Policy was actually issued on November 6, 2001. Seymour Tubing has provided sufficient evidence to create an inference that the policy should have issued between May 1 and July 1, 2001. Pl.'s Resp. Brief at 12. Seymour Tubing further asserts that a reasonable inference from TIG's delay in issuing the Policy is that TIG wanted to preclude any recoverable claims by Seymour Tubing relating to AB. Pl.'s Surreply Brief at 15-16, ¶ 47. TIG has responded that the Seymour Tubing case was not routine and for that reason the policy was issued later than normal. Def.'s Reply Brief at 8. Even if we accept TIG's contention the Seymour Tubing case was not routine, this explanation is not sufficient to explain why TIG issued the policy on November 6, 2001 and not in July, 2001, when Majestic provided written notification of the laser on AB. TIG has failed to provide any evidence or plausible explanation for why it delayed issuance of the Policy until November, 2001. Therefore, we find Seymour Tubing is entitled to an inference that the admittedly extended delay was because TIG wanted to ensure that AB's claims would not exceed her laser.
If Majestic should have placed a laser on AB in the Final Quote but failed to do so, Seymour Tubing could reasonably have expected a corresponding adjustment in its premium payments, which were based on the same underwriting error, when Majestic subsequently placed a laser on AB.
TIG contends that it accepted the risk that AB's claims would have exceeded $500,000, instead of denying coverage entirely for her claims. Def.'s Reply Brief at 4, ¶ 20. The parties fail to brief whether this could constitute sufficient consideration under Indiana law.
Seymour Tubing had quotes from its current stop loss insurance carrier, to which Seymour Tubing contends it could have switched if TIG had not delayed several months before seeking to modify the terms of the insurance policy. Pl.'s Resp. Brief at 25-26.
IV. Conclusion
For the foregoing reasons, we find that TIG has failed to satisfied its burden of establishing that undisputed material facts negate elements of either of Seymour Tubing's claims in the Complaint. Accordingly, we DENY Defendants's Motion for Summary Judgment. However, we GRANT Plaintiff's Motion for Partial Summary Judgment to the effect that TIG and Seymour Tubing entered into an insurance contract in April, 2001 with a specific deductible for AB of $45,000. We GRANT Plaintiff's Motion to Exclude for the purpose of Summary Judgment Mr. Murphy's deposition testimony and affidavit offered by Defendant to the extent that his statements reflect hearsay assertions and a lack of personal knowledge. We WITHHOLD a ruling on Defendant's motion to strike portions of Ms. Cayetano's affidavit regarding whether she has stated a legal conclusion rather than merely an opinion. Finally, we DENY Plaintiff's Motion to Strike Defendant's Claims raised in the Reply Brief.
It is so ORDERED this ____ day of October 2004.