Opinion
Civil Action No: 01-0277, Section: R (5)
February 15, 2002
ORDER AND REASONS
Before the Court is plaintiff, Trico Marine Operators, Inc.'s motion for partial summary judgment and defendant Life Insurance Company of North America, Inc.'s ("LINA") motion for summary judgment. For the following reasons, the Court grants plaintiff's motion and denies defendant's motion.
I. Background
The facts in this case are largely undisputed. plaintiff Trico Marine Operators, Inc. established a health insurance plan for its employees. To cap its liability under the plan, Trico purchased re-insurance coverage from defendant Life Insurance Company of North America, Inc. to run from February 1, 1998 to January 31, 1999. (Pl.'s Mot. Part. Summ. J., Ex. C., Aff. Blanchat, at 4.) The parties renewed the re-insurance policy to extend through February 1, 2000. LINA set Trico's minimum aggregate deductible at $1,204,133, as listed in the policy's "Schedule of Benefits." (Def.'s Mot. Summ. J., Ex. A.)
The parties based the aggregate deductible on the number of participants enrolled in Trico's health care plan. At the time the deductible was calculated in February 1999, 627 participants were enrolled in the Trico health plan. By July 1999, only 532 employees were participating in the plan, a drop of more than 15%. The policy contained a "Changes in Terms and Conditions" provision, which provides:
Changes in Terms and Conditions
The Insurance Company reserves the right to change the terms and/or the conditions of coverage under this policy when the participation under this Policy varies by more than 15%, whenever plan changes occur or in the event of inaccurate plan Disclosures.
(Def.'s Mot. Summ. J., Ex. D.)
In October 1999, Elite Brokerage Services, LINA's Managing General Agent, sent Trico a plan participant census request. The census revealed that the reduction in plan participants occurred between February and July 1999. On December 16, 1999, Thomas Kaste, Senior Underwriter, informed Trico and its agents that LINA had reevaluated the aggregate deductible in light of the drop in participation. (Pl.'s Mot. Part. Summ. J., Ex. B.) Kaste determined that LINA required a "40% increase in the aggregate attachment factors effective 5/1/99," which was the date "when the enrollment dropped by 15%." ( Id.)
The policy also included a provision by which Trico could recover for any overpayments it had made to LINA. (Pl.'s Mot. Part. Summ. J., Ex. A., at 10.) At the end of the coverage period, on March 14, 2000, Trico's third party administrator performed an audit and concluded that TRICO had overpaid by $174,061.47. (Def.'s Mot. Summ. J., Ex. B.) On May 22, 2000, Barbara Baldwin of Trilogy Consulting Group, Inc. performed another audit and concluded that TRICO had overpaid by $146,588.51. (Pl.'s Mot. Part. Summ. J., Ex. D.)
On July 23, 2000, Elite Brokerage informed Trico's third-party administrator that those audits were flawed because they calculated the repayments based on the initial aggregate deductible of $1,204,133, rather than on the new adjusted aggregate deductible of $1,391,965.08. (Pl.'s Mot. Part. Summ. J., Ex. E.) Elite reiterated that the increase in the deductible was effective as of May 1999, when the actual drop allegedly occurred. Based on the new figures, Elite concluded that LINA did not owe Trico any overpayments. (Ex. E.)
Trico filed suit, alleging breach of the insurance contract. Specifically, Trico contends that (1) the change to the aggregate deductible was invalid because LINA failed to follow the procedure set forth by the "Policy Change" provision of the contract; (2) LINA is barred from applying a change in deductibles retroactively; and (3) the drop in participation occurred in July 1999 rather than May 1999.
Plaintiff now moves for partial summary judgment, and defendant moves for summary judgment.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2551 (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagra Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993).
If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325, 106 S.Ct. at 2552; Lavespere, 910 F.2d at 178. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts demonstrating that a genuine issue exists. See Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
The Fifth Circuit has "arguably articulated an even more lenient standard for summary judgment in certain nonjury cases." Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 273 n. 15 (5th Cir. 1987). In Nunez v. Superior Oil Co., 572 F.2d 1119, 1123 (5th Cir. 1978), the Fifth Circuit explained:
There is no litmus test that infallibly distinguishes those issues that are `factual' from those that are `legal' or `mixed.' . . . as we approach the point where facts and the application of legal rule to them blend, appraising evidentiary facts in terms of their legal consequences and `applying' law to fact become inseparable processes.
Therefore, in a non-jury case, such as this case, the Court is encouraged to draw inferences, even when they appear to be factual, if a "trial on the merits would reveal no additional data." Id. at 1124. See also Professional Geophysics, Inc. v. Placid Oil Co., 932 F.2d 394, 398 (5th Cir. 1991).
B. Law Applicable to Trico's policy
Under Louisiana law, courts construe insurance policies using the general rules of contract interpretation. See Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 269 (5th Cir., 1990) ( citing Breland v. Schilling, 550 So.2d 609, 610 (La. 1989)); Ledbetter v. Concord General Corp., 665 So.2d 1166, 1168 (La. 1996). The parties' intent, as reflected by the words of the policy, should determine the extent of coverage. See Ledbetter at 1168. Such intent is to be determined in accordance with the general, ordinary, plain and popular meaning of the words used in the policy, unless the words have acquired a technical meaning. See id; LA. CIV. CODE ANN. art. 2047 (West 2001).
The court should consider the policy as a whole, and interpret the policy to fulfill the reasonable expectations of the parties in the light of the customs and usages of the industry. See Trinity Industries, Inc., 916 F.2d at 269. If the policy wording at issue is clear and expresses the intent of the parties, it must be enforced as written. See Ledbetter, 665 So.2d at 1169 ( citing Pareti v. Sentry Indemnity Co., 536 So.2d 417, 420 (La. 1988)). If the wording of the policy is ambiguous, it should be construed to effect, not deny, coverage. See Yount v. Maisano, 627 So.2d 148, 151 (La. 1994) ( citing Breland, 550 So.2d at 610).
While ambiguous policy provisions are interpreted strictly against the insurer, the Louisiana Supreme Court has held that courts must not apply the rule of strict construction to find ambiguities where none exist:
The rule of strict construction does not authorize a perversion of language, or the exercise of inventive powers for the purpose of creating an ambiguity where none exists, nor does it authorize the court to make a new contract for the parties or disregard the evidence as expressed, or to define away terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties.Commercial Union Insurance Company v. Advance Coating Co., 351 So.2d 1183, 1185 (La. 1977) (quotations omitted). See also FDIC v. Barham, 995 F.2d 600, 603 (5th Cir. 1993) (holding that while ambiguities in insurance policies must be construed against the insured, courts have no power to alter the terms of the policy in the guise of contractual interpretation when policy provisions are couched in unambiguous language). Moreover, insurance companies have the right to limit coverage in any manner they desire, as long as the limitations do not conflict with statutory provisions or public policy. See Ledbetter, 665 So.2d at 1169 ( citing Reynolds v. Select Properties, Ltd., 634 So.2d 1180, 1183 (La. 1994)).
C. Whether Changing the Aggregate Deductible Constitutes a Change to the Policy
Trico's primary argument is that LINA was not allowed, under the language of the policy, to change the minimum aggregate deductible without the approval of one of LINA's executive officers. Trico points to the "Policy Changes" provision found under the "General Provisions" of the contract, which provides:
Policy Changes
No change in the Policy will be valid until approved by an executive officer of the Insurance Company [LINA] This approval must be endorsed on, or attached to, the Policy. No agent may change the Policy or waive any of its provisions.
(Pl.'s Mot. Part. Summ. J., Ex. A, at 12.) This is a standard provision required by Louisiana state law. See LA. REV. STAT. § 22:213.
LINA does not dispute that an executive officer did not authorize the change in deductibles. It contends, however, that it was not required to furnish executive approval for two reasons. First, LINA argues that this dispute is governed by the "Changes in Terms and Conditions" provision rather than by the "Policy Changes" provision. The "Changes in Terms and Conditions" clause states:
Changes in Terms and Conditions
The Insurance Company reserves the right to change the terms and/or the conditions of coverage under this policy when the participation under this Policy varies by more than 15%, whenever plan changes occur or in the event of inaccurate plan Disclosures.
(Pl.'s Mot. Part. Summ. J., Ex. A, at 11.) LINA argues that once the number of Trico's participants dropped by 15%, this clause allowed it to change the terms and conditions of coverage without requiring an executive officer's authorization. The Court finds that LINA's interpretation of the "Changes in Terms and Conditions" clause is unsupported by the language of the policy. The "Changes in Terms and Conditions" clause gives LINA the right to adjust Trico's aggregate deductible. Indeed, Trico concedes that LINA had the right to change the deductible because its participation had changed by more than 15%.
Although LINA had the right to change the deductible, LINA was nevertheless obliged to make the change in accordance with the contractually specified procedure, as outlined in the "Policy Changes" clause. The "Policy Changes" clause does not dictate when a term of the policy may be changed. Rather, it determines how such a change is to be effectuated. Here, it is undisputed that LINA informed Trico of the change in aggregate deductible in the December 16, 1999 letter from Thomas Kaste, a senior underwriter. Kaste is not an executive officer. The letter was neither endorsed by an Executive Officer, nor was it attached to the policy, as required by the "Policy Changes" clause.
The role of the judiciary in interpreting insurance contracts is to ascertain the common intent of the insured and the insurer as reflected by the words of the policy. See Ledbetter, 665 So.2d at 1169. When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and make no further interpretation in search of the parties' intent. See LA. Civ. CODE art. 2046.
In New York Life Insurance Company v. Deshotel, 1995 WL 555584 (E.D. La. 1995), aff'd 83 F.3d 419 (5th Cir. 1996), this Court rejected defendant's argument that a policy holder could change his beneficiary designation without strictly complying with the terms of his life insurance contract. In Deshotel, the policy stated, "No such change [of beneficiary] will take effect unless recorded in the records of the Company at its Home Office." Id. at *2. It was undisputed that New York Life's "Home Office" did not record the form, and the Court found that change of beneficiary form was not enforceable absent compliance with the recordation provision in the policy. Id. In a later motion to reconsider, the Court found the change in beneficiary invalid, even if the failure to record were due to New York Life's own negligence. New York Life Insurance Company v. Deshotel, 1995 WL 599045, at *1 (E.D. La. 1995). The Court specifically noted that "the Court is not in the position to ignore the contract terms." Id., citing New York Life Insurance Co. v. Murtagh, 69 So. 165, 166 (La. 1915) ("[T]he parties having agreed that no change of beneficiary should take effect, until indorsed on the policy by the company at the home office, the courts of this state are bound to recognize and enforce such agreement as the law of contract.").
Here, if this Court were to accept LINA's theory that "Changes in Terms and Conditions" were exempt from the procedural requirements of the "Policy Changes" clause, it would render the "Policy Changes" clause a nullity. Because an insurance contract must be considered as a whole, and because no one provision of a policy should be construed in a way that nullifies other provisions, the Court finds that the "Policy Changes" clause applies to changes authorized under the "Changes in Terms and Conditions" clause.
Further, the Court notes that a contrary interpretation would be inconsistent. Courts have interpreted this type of clause to protect insurance companies from being bound by the unauthorized representations of their agents. In Gannaway v. Standard Acc. Ins. Co. of Detroit, Mich., 85 F.3d 144, 145 (10th Cir. 1936), the Tenth Circuit addressed the impact of a similar insurance provision, in a case in which an agent represented to a policy holder that his insurance policy would not be terminated if he did not pay his premium because the insurance company would extend him a credit. In fact, the insurance company terminated the policy when the holder failed to pay the premium. Upon the policy holder's death in an automobile accident, his widow sought recovery from the insurance company arguing that the insurance company should be bound by the representations of the agent. The Tenth Circuit rejected the argument, finding that since the insurance policy contained a provision stating that "a change in the contract could be effectuated only with the approval of an executive officer of the company," an unauthorized agent could not change the terms of the policy. Id. Similarly, in Vidrine v. Reserve Life Ins. Co, 58 So.2d 251, 254 (La.App. 1 Cir. 1952), the court found that such a clause protected the insurance company from being bound by an agent's construction of the word "sickness," when it differed from the text of the policy. There, the policy contained the standard clause required by La. Rev. Stat. 22:213, which stated that no agent had the authority to change the policy. The court found that such a clause was "plain and unambiguous" and ruled in favor of the insurance company. Id.
This clause helps to assure that both the insurance company and the insured are aware of the precise scope of their obligations. In both Gannaway and Vidrine, the clause worked to the benefit of the insurance company. Indeed, if this were a case in which LINA's agent sent a letter to Trico altering a term of coverage, which was beneficial to Trico, the Court would not hesitate to find that the clause in issue prevents LINA from being bound by such a representation. LINA has provided the Court with no argument or authority to justify ignoring this clause here simply because its enforcement works to LINA's detriment. The Court concedes that the result on these facts appears inequitable because defendant was entitled to an increased deductible. But again, defendant points to no legal doctrine that would allow the Court to disregard the clear language of the policy.
LINA also argues that the "Policy Changes" clause is inapplicable here because a change to a term of the policy is not a change to the policy itself, and therefore such a change would not require compliance with the "Policy Changes" clause. The Court disagrees.
This insurance policy is made up of terms and conditions. (Pl.'s Mot. Part. Summ. J., Ex. A.) ("This Policy describes the terms and conditions of coverage.") Indeed, the drafters of the contract clearly intended to make the "Schedule of Benefits," which contains the aggregate deductible, a part of the policy. At the bottom of the "Schedule of Benefits" is the following statement:
THIS SCHEDULE OF BENEFITS AND THE AMENDMENT ATTACHED ARE A PART OF THE POLICY AND SHOULD BE ATTACHED TO IT.
(Def.'s Mot. Summ. J., Ex. A.) Accordingly, the Court rejects LINA's argument that the "Policy Change" provision does not apply to changes in the terms of the policy.
Since, it is undisputed that an Executive Officer did not authorize the change in the aggregate deductible, the Court finds that the LINA's change was invalid.
II Conclusion
For the foregoing reasons, the Court grants plaintiff's motion for partial summary judgment and denies defendant's motion for summary judgment.
Plaintiff asked for summary judgment only on liability issue. The Court does not reach the question of damages.