describing the assumption reinsurance contract which ceded all of the reinsured's insurance policies to the reinsurer, and in which the reinsurer assumed all the liabilities under those policies, agreed to send policyholders certificates of assumptions, and agreed to investigate, settle, defend, and bear expenses of all claims on those policiesSummary of this case from Executive Risk Indemnity v. Charleston Area Medical
March 4, 1963 —
April 2, 1963.
APPEAL from a judgment of the circuit court for Crawford county: RICHARD W. ORTON, Circuit Judge. Affirmed in part; reversed in part.
For the appellants there were briefs by Johns, Pappas Flaherty of La Crosse, and oral argument by Robert D. Johns.
For the respondent there was a brief by Charles C. Lubcke, collection and deportation counsel, and Clarence J. Simon and James R. Pleyte, assistant counsel, and oral argument by Mr. Lubcke.
Action by the State Department of Public Welfare, hereinafter called the "department," as assignee of John B. Zintz, to collect for costs of hospitalization under a policy insuring John B. Zintz written by defendant Central Standard Life Insurance Company, hereinafter called "Central Standard." Codefendant North American Accident Insurance Company, hereinafter called "North American" is alleged to have assumed jointly the risks imposed by the policy.
Trial was to the court on a stipulation of facts which left for determination only questions of law. The court made findings of fact and conclusions of law to the effect that both insurance companies, jointly and severally, were liable under the terms of the policy issued by Central Standard. Judgment was entered in favor of the department for the cost of Zintz's hospitalization and against the two companies. Both companies have appealed.
On November 15, 1958, Central Standard issued an insurance policy to John B. Zintz, which policy included coverage for hospitalization. An exclusion clause, section B, 8 of Part IV of the policy provides as follows:
"No benefits are payable under this policy for: Confinement in or for services rendered, by any hospital unless there is an unconditional requirement to pay any charges without regard to rights against others, contractual or otherwise."
On September 11, 1959, Central Standard entered into an agreement with North American called a "Contract of Reinsurance." The material provisions of the contract, however, provide as follows:
"Whereas, Central Standard desires to relieve itself from liability under the terms of said policies of insurance, . . .
"Central Standard does hereby cede to North American and North American does hereby reinsure and assume, all and singular, the outstanding accident, sickness, and medical expense policies of insurance of Central Standard, . . .
"Central Standard agrees that any liability, under the terms of said policies which Central Standard would have had in the event it had possessed the right to and had canceled said policies as of the effective date of this contract, remains the liability of Central Standard, except that the North American agrees to and does hereby assume all claims for pregnancy expenses or benefits under the policies hereby reinsured which are incurred on and after November 15, 1959.
"North American agrees that it will issue and mail its Certificate of Assumption in acceptable form, attached hereto and marked `Exhibit A,' as soon as reasonably possible after the effective date of this contract, to each insured whose policy of insurance is reinsured hereunder at his address last shown on the books and records of the Central Standard.
"Central Standard and North American agree that all business reinsured hereunder and all claims arising under the terms of such business, shall after the effective date of this contract be the property and responsibility of North American. Central Standard agrees to promptly transmit to North American all communications and claims it may receive pertaining to claims and the business reinsured hereunder which are the liability of North American, and Central Standard agrees to refrain from treatment of such matters or claims which are the liability of North American, except with the written consent and approval of North American.
"North American agrees by its Certificate of Assumption, with Central Standard and with the insureds under such policies of insurance, their beneficiaries, legal representatives, and assigns, to assume and carry out such policies of insurance within the terms of such policies and in accordance with the laws of the state within which each such policy is issued, holding free the Central Standard of any liability or performance in connection with such reinsured policies, except as provided in Article XI hereof.
"North American agrees that it will investigate, settle, or defend and bear the expense of all claims arising under policies with respect to which reinsurance is afforded by this agreement, . . ."
A "Certificate of Assumption" was sent to each policyholder, and it appeared on the policy owned by Zintz, presumably having been attached to it by him.
Zintz was hospitalized at Wisconsin General Hospital pursuant to an order of the county court of Crawford county, entered under authority of ch. 142, Stats. The amount due the hospital for his care is $351.60.
In response to a demand by the department, Zintz assigned his interest in the insurance policy in question to the department on February 5, 1962. Soon afterward the present suit was commenced.
On appeal the following issues are presented:
1. Whether the claim of the department is barred by the exclusion clause of the policy written by Central Standard.
2. Whether Central Standard and North American are jointly liable to the department by virtue of a "reinsurance agreement."
(1) Exclusion clause. Sec. 46.10 (2) and (3), Stats., provides as follows:
"(2) Any outpatient or patient in any charitable or curative institution of the state including the Wisconsin General Hospital or of any county or municipality, in which the state is chargeable with all or a part of the patient's maintenance, except tuberculosis patients mentioned in ch. 50 and secs. 51.27 and 58.06 (2), or heretofore or hereafter committed or admitted to any such institution, and his property and estate, including his homestead, or the husband or wife of such patient and their property or estates, including their homesteads, and in the case of a minor child the father or mother of the patient, and their property and estates, including their homesteads, shall be liable for such patient's maintenance not exceeding the actual per capita cost thereof, except as provided in secs. 51.22 (2m) and 51.37 (4), and the department may bring action for the enforcement of such liability, except that when it is shown that a husband, wife, widow, or minors, or an incapacitated person may be lawfully dependent upon such property for their support, the court shall give due regard to this fact and release all or such part of the property and estate from such charge that may be necessary to provide for such persons. The department shall make every reasonable effort to notify the relatives liable as soon as possible after the beginning of the maintenance but such notice or the receipt thereof is not a condition of liability of the relative.
"(3) After investigation of the ability to pay of the patient or relative liable for such maintenance, the department shall make collection from the patient or the person who in the opinion of the department under all of the circumstances is best able to pay, giving due regard to relationship and the present needs of the person or of his lawful dependents. However, the liability of relatives for maintenance shall be in the following order: First, the husband or wife of the patient; then, in the case of a minor, the father, and lastly the mother."
Appellants contend that the possible liability of the spouse or other relatives of Zintz would make it a conditional requirement or a right against another so that the exclusion clause would apply.
A purported exclusion clause in an insurance policy will be construed against the insurer unless the exclusion appears in plain, unambiguous language. Meiser v. Aetna Casualty Surety Co. (1959), 8 Wis.2d 233, 238, 98 N.W.2d 919, sets forth this rule, as follows:
"`Exclusion clauses are strictly construed against the insurer, especially if they are of uncertain import. An insurer may, of course, cut off liability under its policy with a clear language, but it cannot do so with that dulled by ambiguity.'"
With respect to the liability of Zintz, we must hold that it is absolute and not conditional. The creation of statutory liability in certain relatives merely authorizes the department to make collection from the patient or from these relatives who, in the opinion of the department, are best able to pay. This statute does not allow Zintz to shift his liability. Guardianship of Sykora (1956), 271 Wis. 455, 461, 74 N.W.2d 164; Steffenson v. Steffenson (1951), 259 Wis. 51, 47 N.W.2d 445. He remains unconditionally liable. We cannot hold that Zintz's liability was conditional because respondent might determine that someone else was better able to pay the bill.
The meaning of the phrase "without regard to rights against others" is not entirely clear. When read in its popular sense it means that if the requirement is unconditional it is not excluded from the coverage although there may be rights against others. However, appellants explain that the purpose of this exclusion clause was to preclude recovery under the present policy if Zintz could recover under a different policy of insurance. This clause, according to appellants, is similar to "other-insurance clauses," the purpose of which is to prevent fraud by allowing only a single recovery for a single loss. Allowing this explanation of the clause, however, it still is not sufficient to exclude the present loss. Other-insurance clauses are also construed strictly against the insurer and in favor of the insured. The statutory right of respondent to collect against another is clearly not other insurance within the meaning of those terms.
Appellants argue that the clause is to be read to exclude recovery if there is any right against another, provided the obligation is conditional. They contend sec. 46.10 (2) and (3), Stats., creates such a right against another by making it possible for the respondent to collect from the spouse of Zintz. This right of respondent to collect from another is solely within its discretion, and the exclusion clause in the present case is not sufficiently plain and concise to preclude recovery if respondent declines to pursue this alternate remedy. If an insurance company in writing its policy fails so to write a provision as to indicate with reasonable certainty what it means by the provision it has no just cause for complaint that the provision is given a reasonable construction contrary to its contention although its contention may also have reason to support it. In such case we will not do any fine or precise balancing of reasons or splitting of the hairs for the purpose of upholding the company's contention. Charette v. Prudential Ins. Co. (1930), 202 Wis. 470, 475, 476, 232 N.W. 848; Wright v. Wrightstown-Morrison Farmers Mut. Ins. Co. (1936), 222 Wis. 462, 466, 269 N.W. 317.
We conclude that the present exclusion clause does not prevent respondent's recovery upon the policy.
(2) Reinsurance or assumption agreement. The failure of the courts, attorneys, text writers, and insurance companies to be precise in their use of the word "reinsurance" has caused much confusion in the meaning of the word. It is even suggested that the term has two distinct meanings, one referring to the indemnification of an insurance company by another, and the other meaning referring to the assumption of the liabilities of an insurance company by another with consent of the policyholders. 29A Am. Jur., Insurance, p. 823, sec. 1747. However, this latter type of contract is more accurately designated as an assumption agreement, Anno. 158 A.L.R. 695, or a substitution or transfer of risk agreement. 13 Appleman, Insurance, p. 506, sec. 7741.
Generally, the original insured cannot maintain an action against the reinsurer under a reinsurance agreement because there is no privity of contract. 13 Appleman, Insurance, p. 464, sec. 7694. 29A Am. Jur., Insurance, p. 832, sec. 1757. Under an assumption agreement the assured maintains his action under the policy against the company assuming the liabilities of the original insurer. Under certain circumstances the reinsurer and the reinsured may be jointly sued by the policyholder although only one recovery for the loss is allowed, as in the case where there is both a reinsurance and an assumption contract. 29A Am. Jur., Insurance, p. 833, sec. 1758. See other illustrations in 13 Appleman, Insurance, p. 544, sec. 7755.
In the present contract between Central Standard and North American, there are no provisions in which North American agreed to indemnify the loss or liability of Central Standard either in whole or in part, which provision is essential to the contract of reinsurance. Although the term "Reinsurance" is used, the provisions indicate that Central Standard ceded to North American all its outstanding accident, sickness, and medical expense policies of insurance, that North American assumed all the liabilities under these policies, agreed to send policyholders certificate of assumption, and agreed to investigate, settle, defend, and bear expenses of all claims on the policies. In view of these provisions we hold that the present contract is an assumption agreement and not a reinsurance agreement as that term is strictly known.
An insurance company cannot transfer its liability to another company and compel policyholders to accept the new company as the insurer. Such policyholders may elect to repudiate or accept the new company. 13 Appleman, Insurance, p. 545, sec. 7756. In the case before us the retention of the original insurance policy accompanied by silence of Zintz after receiving the certificate of assumption and his payment to North American of 15 premiums after notification of transfer of liability by North American constituted an acceptance of the assumption agreement. See Couch, Insurance, p. 2831, sec. 2258-1 (1945 Cum. Supp., Vol. III). Therefore, the present action can be maintained only against North American, and Central Standard is not liable to respondent.
By the Court. — Judgment reversed, with directions to dismiss respondent's action against appellant Central Standard. Judgment affirmed against appellant North American. No costs to be allowed on this appeal.
WILKIE, J., took no part