Case Title: Arrow Const. Co., Inc. v. Camp

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1992-03-04T00:00:00Z

Document:
Arrow Const. Co., Inc. v. Camp1992 WY 26827 P.2d 378Case Number: 91-135Decided: 03/04/1992Supreme Court of Wyoming
ARROW CONSTRUCTION CO., 
INC., 

Appellant 
(Plaintiff),

v.

Leslie W. CAMP, 

Appellee 
(Defendant).

Appeal from District 
Court, Natrona County, Dan Spangler, J.

William L. Hiser 
of Brown, Erickson & Hiser, Rawlins, for 
appellant.

Gary R. Scott of 
Hirst & Applegate, Cheyenne, for appellee.

Before 
URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, 
JJ.

CARDINE, 
Justice.

[¶1]      Arrow 
Construction Company, Inc. (Arrow) sued Leslie W. Camp (Camp) for breach of 
contract and negligence for Camp's procurement of a policy of health insurance 
for Arrow's employees, which policy was canceled because Arrow was ineligible 
for coverage. Arrow appeals the trial court's entry of summary judgment for 
Camp.

[¶2]      We 
affirm.

[¶3]      Appellant states 
the issues as follows:

"I. Does an employer, who 
agrees to provide group health insurance coverage to its employees, pursuant to 
an employment contract, have a cause of action against the insurance agent, with 
whom the employer contracted to procure such insurance, when the insurance 
agent, through his negligence or breach of contract, fails to procure such 
insurance?

"II. If the answer to No. 
I is yes: does the employer's purchase of an individual policy, on behalf of an 
employee, in an attempt to mitigate the losses incurred by that employee, which 
were to have been covered by the group policy the agent was to procure, affect 
the employer's cause of action?

"III. If the answer to 
No. II is yes: are there material issues of fact relating to the terms of the 
employment contract, the insolvency of the company issuing the individual 
policy, the issuance and terms of the individual policy and other damages 
suffered by the appellant which preclude summary judgment in this 
case?"

[¶4]      The facts from 
this abbreviated record are extracted from uncontroverted statements in the 
pleadings and from exhibits attached to appellee's motion for summary judgment. 
Where appellee failed to provide evidence to refute allegations contained in 
appellant's complaint, we have adopted these unrefuted allegations. Petersen v. 
Campbell County Memorial Hospital Dist., 760 P.2d 992, 995 (Wyo. 
1988).

[¶5]      Appellant Arrow 
is a Wyoming corporation whose principal place of business is in Rawlins. Arrow 
provides health insurance coverage for its supervisory personnel as part of 
their compensation package. Arrow does not have a written contract of employment 
or a written contract obligating it to provide insurance to these employees. 
Until October 15, 1988, Arrow had a group health insurance policy in effect with 
Continental Life and Accident (Continental). Sometime in 1988, Arrow's 
president, Michael Blaine Hickman (Hickman), became concerned about the increase 
in the premiums on the Continental policy. Shortly before the expiration date of 
the policy, he contacted appellee Camp, an insurance agent licensed to do 
business in Wyoming.

[¶6]      Camp agreed to 
search for a less expensive group health insurance policy to replace the 
Continental policy. Camp and Hickman discussed Arrow's health insurance needs, 
its number of employees, and type of business. Also discussed was the 
pre-existing medical condition (cancer) of one of Arrow's supervisory employees, 
Jerry H. Pittenger. Appellant claims that Camp agreed to obtain a policy which 
would cover Mr. Pittenger's pre-existing condition. Camp denies making such an 
agreement. This disputed fact was not material as to prevent entry of summary 
judgment.

[¶7]      Camp recommended 
a policy through the First Farwest Group Insurance Trust (First Farwest). 
Someone (the record is not clear who) filled out a "Request for Participation" 
in the First Farwest plan which Hickman signed on October 5, 1988. This document 
stated that seven of the eight eligible Arrow employees would be enrolled in the 
plan. On October 17, 1988, First Farwest notified Arrow that its coverage had 
been approved effective October 1, 1988.

[¶8]      Relying on the 
new First Farwest coverage, Arrow allowed its coverage with Continental to lapse 
on October 15, 1988. First Farwest provided coverage to Arrow's covered 
employees from October 1, 1988, through December 31, 1988. During this time 
period, Arrow paid premiums to First Farwest; and Mr. Pittenger filed a claim, 
at least a portion of which First Farwest later paid.

[¶9]      In early November 
1988, First Farwest notified Arrow that it was canceling its policy effective 
December 31, 1988. The reason given was that the plan under which Arrow was 
enrolled allowed coverage only for an employer with no more than 15 to 20 
employees. Arrow had more than 15 to 20 employees, although it provided health 
insurance only to its supervisory personnel. Arrow also learned at this time 
that First Farwest had filed for bankruptcy.

[¶10]   Arrow could have renewed its policy 
with Continental but pre-existing conditions would not have been covered. Arrow 
complained to the State Insurance Commissioner about First Farwest's conduct in 
canceling its policy. The Insurance Commissioner persuaded First Farwest to 
continue coverage for Mr. Pittenger. Arrow obtained coverage for its other 
supervisory employees through Blue Cross, Blue Shield commencing effective April 
1 or May 1, 1989 (the exact date is unclear from the 
record).

[¶11]   Arrow paid First Farwest premiums 
of about $300.00 per month from January 1989 until Pittenger's death. Mr. 
Pittenger died in November 1989. First Farwest has never paid any of Mr. 
Pittenger's claims for this time period, and Arrow never received a written 
policy for the individual coverage from First Farwest. Hickman stated he 
believed the claims were not paid because First Farwest had filed bankruptcy. At 
the time Hickman was deposed in February 1991, he estimated that these unpaid 
claims amounted to between $10,000.00 and $20,000.00.

[¶12]   At some point early in 1989, Arrow 
began sending Mr. Pittenger's wife $250.00 per month in order to assist her with 
Mr. Pittenger's unpaid medical bills. Arrow continues to send this amount each 
month. Mrs. Pittenger has not threatened Arrow with legal action because of the 
failure of First Farwest to pay her husband's claims.

[¶13]   On September 6, 1990, Arrow filed 
this action in district court against Camp seeking damages for breach of 
contract to procure insurance and negligent failure to obtain adequate group 
coverage. Camp moved for summary judgment, which the trial court granted on 
April 29, 1991. The court reasoned that summary judgment was proper because (1) 
having no legal obligation to pay Mr. Pittenger's medical bills, Arrow had not 
suffered loss, and (2) assuming Arrow did suffer damage, these damages were 
caused by the insolvency of First Farwest, for which Camp could not be held 
liable. Arrow took timely appeal from the trial court's 
order.

[¶14]   Our standard of review of the trial 
court's entry of summary judgment for Camp is as follows:

"`We review a summary 
judgment in the same light as the district court, using the same materials and 
following the same standards. Summary judgment is proper only when there are no 
genuine issues of material fact and the prevailing party is entitled to judgment 
as a matter of law.'" Clark v. Industrial Co. of Steamboat Springs, Inc., 818 P.2d 626, 628 (Wyo. 1991) (citations omitted) (quoting Zmijewski v. Wright, 809 P.2d 280, 282 (Wyo. 1991)).

Also,

"`[a] motion for summary 
judgment places an initial burden on the movant to make a prima facie showing 
that no genuine issue of material fact exists and that summary judgment should 
be granted as a matter of law. Rule 56(c), Wyoming Rules of Civil Procedure. 
Once a prima facie showing is made, the burden shifts to the party opposing the 
motion to present specific facts showing that a genuine issue of material fact 
does exist. We analyze challenges to a grant of summary judgment by reviewing 
the record in a light most favorable to the party opposing the motion giving him 
all favorable inferences that can be drawn from the facts. Conclusory statements 
or mere opinions are insufficient, however, to satisfy an opposing party's 
burden.'" TZ Land & Cattle Co. v. Condict, 795 P.2d 1204, 1208 (Wyo. 1990) 
(citations omitted) (quoting Boehm v. Cody Country Chamber of Commerce, 748 P.2d 704, 710 (Wyo. 1987)).

[¶15]   We have held that an insurance 
broker or agent who undertakes, for compensation, to procure insurance for 
another and who through fault or neglect fails to do so, will be held liable for 
any damage resulting from his failure to exercise reasonable care. Hoiness-LaBar 
Ins. v. Julien Const. Co., 743 P.2d 1262, 1273 (Wyo. 1987), quoting Hursh 
Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 32 (Wyo. 1983). The measure of 
damages in such an action is "that amount which would have been recovered had 
the insurance been furnished as agreed." Action Ads, Inc. v. Judes, 671 P.2d 309, 312 (Wyo. 1983).

[¶16]   It is undisputed that Camp 
undertook for compensation to provide Arrow with employment coverage for Arrow's 
employees and that the policy he provided was not proper for Arrow. However, the 
party who brings a suit for failure to provide insurance must also prove 
resulting damages. Arrow's complaint asserts no direct harm personal to itself. 
Instead, Arrow theorizes that had Camp obtained a valid group health insurance 
policy, Mr. Pittenger would have received insurance proceeds sufficient 
to cover his $15,000.00 in outstanding, unpaid medical bills. To the objection 
that these damages are Mr. Pittenger's and his estate is the proper party to 
bring an action for them, Arrow responds that it is a proper party for two 
reasons. First, Arrow claims, Pittenger was a third-party beneficiary of Arrow's 
contract with Camp, which makes Arrow eligible to sue on the contract in his 
behalf. Second, Arrow argues, this suit is brought as an action for 
indemnification for its own liability for failing to provide health insurance to 
Pittenger under the terms of his employment contract with Arrow. We shall 
address Arrow's second argument first, as it was the primary theory of relief 
pled at the trial court level.

[¶17]   Arrow argues that it is entitled to 
seek recovery from Camp in order to be indemnified for a claim by Pittenger's 
estate against Arrow for failure to retain a proper group insurance carrier. 
Arrow points to the $250 per month it has been paying to Mrs. Pittenger, 
presumably by way of settlement of such a claim. A party seeking indemnification 
for a settlement must show that it had actual legal liability to the injured 
party. 41 Am.Jur.2d, Indemnity § 33 (1968).

[¶18]   Arrow alleges that its employment 
agreement with Pittenger created a duty to provide Pittenger with continuous 
insurance coverage. Arrow's employment agreement with Pittenger was never 
reduced to writing. Nor did Arrow have any type of employee handbook. Whether or 
not Pittenger was an at-will employee, however, an oral agreement to provide 
insurance is not made unenforceable by the at-will doctrine. Capriulo v. Bankers 
Life Co., 178 Ga. App. 635, 344 S.E.2d 430, 434 (1986). We therefore hold that 
the oral agreement described by Hickman was sufficient, for purposes of summary 
judgment, to prove a contractual duty to provide insurance binding on 
Arrow.

[¶19]   In order to recover from Arrow, 
Pittenger would also have to show that Arrow breached this duty. The record 
reveals that Arrow provided coverage for Pittenger through Continental until 
October 15, 1988, when that policy lapsed, and thereafter through First Farwest. 
Thus, there was always insurance coverage in effect. The only possible liability 
to Pittenger on Arrow's part, therefore, would have to result from the fact that 
Arrow switched coverage from Continental to First Farwest.

[¶20]   The evidence presented does not 
demonstrate a basis on which Arrow can be held liable to Pittenger for changing 
to the First Farwest policy. An employer who acts in good faith to provide 
health insurance is not liable to the insured for the insurer's failure to pay. 
As a leading commentator on the law of insurance has 
stated:

"The employer does not, 
by reason of the peculiar position in which he is placed, become a guarantor of 
the payment of the insurance, nor an insurer. So far as direct liability upon 
the policy of insurance is concerned, he has none, and he is not a proper party 
in a suit by the employee against the insurer to recover benefits promised 
therein. If the insurer is liable, the employer is not; and this has been held 
true even where the insurer is financially unable to discharge its obligations, 
if the employer used good faith in selection of that company." 1 Appleman, 
Insurance Law and Practice § 43.25 at 108 (1981) (footnotes 
omitted).

[¶21]   In Continental Ins. Co. v. Bussell, 
498 P.2d 706 (Alaska 1972), the Alaska Supreme Court discussed the duty of an 
employer under a union contract which required him to provide life insurance for 
his employees while traveling by aircraft on company business. The court held 
that Bussell, the employer, could not fulfill his obligation to provide 
insurance by becoming a self-insurer. His employees had a right to look to an 
insurer for payment rather than to him. Conversely, the court said: 

"[H]ad Bussell in good 
faith secured an appropriate policy from a life insurance company, he would have 
complied with his duty under the union contract regardless of the financial 
ability of such company to pay the executrix in accordance with the policy 
terms. Bussell, under the contract, had no direct obligation to pay the $25,000 
as damages." Bussell, at 709.

[¶22]   We believe the Appleman treatise 
states the correct rule of liability where an employer has agreed to provide 
insurance for his employee. Arrow could be liable here only if it failed to 
exercise good faith in choosing the First Farwest policy. The fact that First 
Farwest eventually may have gone bankrupt does not establish that Arrow acted in 
bad faith. Arrow's president testified that it was not until after Arrow was 
given written notice of cancellation that Arrow discovered First Farwest had 
filed for bankruptcy.

[¶23]   Furthermore, Arrow's choice of a 
policy for which a company of its size turned out to be ineligible was not the 
cause of Pittenger's losses. Under Wyoming law, Pittenger was entitled to a 
converted policy which covered pre-existing conditions when it was later 
discovered that Arrow employees were ineligible for the First Farwest plan. Such 
policy was in fact issued. Wyoming Statute 26-22-201 (June 1991 Repl.), in 
effect at the time Arrow changed to First Farwest, states as 
follows:

"A group policy or 
certificate delivered or issued for delivery in this state which provides 
hospital, surgical or major medical expense insurance, or any combination of 
these coverages, on an expense incurred basis, but not a policy which provides 
benefits for specific diseases or for accidental injuries only, shall provide 
that an employee or member whose insurance under the group policy has been 
terminated for any reason and who has been continuously insured under 
the group policy, and under any group policy providing similar benefits which it 
replaces, for at least three (3) months immediately prior to termination, is 
entitled to have the insurer issue to him a policy of health insurance, referred 
to in this article as the converted policy. An employee or member is not 
entitled to have a converted policy issued to him if termination of his 
insurance under the group policy occurred because he failed to pay any required 
contribution, or any discontinued group coverage was replaced by similar group 
coverage within thirty-one (31) days from the date of discontinuation." 
(emphasis added)

[¶24]   Under this statute, an employee is 
entitled to a converted policy so long as he has been continuously covered, by 
either a current or prior insurance policy, for three months or more. A 
converted policy provides individual coverage either substantially similar to 
the canceled group coverage or within limits provided by statute. W.S. 
26-22-202(a)(xiv) (June 1991 Repl.). The statute says that continued coverage 
under a converted policy is available if the group policy is terminated "for any 
reason." Also, the converted policy must cover pre-existing conditions covered 
by the previous group policy. W.S. 26-22-202(a)(iii)(C) (June 1991 Repl.). There 
was thus no danger that simply switching from Continental to First Farwest would 
rob Mr. Pittenger of coverage, because even if First Farwest later terminated 
the policy, Mr. Pittenger was entitled to converted coverage through First 
Farwest.

[¶25]   Finally, Arrow did not act in bad 
faith by obtaining the converted policy to which Pittenger was entitled. Even if 
First Farwest was in bankruptcy, it did promise to issue a policy. First Farwest 
was required, by the statute cited above, to cover Pittenger's pre-existing 
conditions under the converted policy. Given the choices it had, we cannot say 
that Arrow acted in bad faith by obtaining the converted 
policy.

[¶26]   To sum up, Arrow did not act in bad 
faith. It is not liable to Pittenger's estate for the failure of First Farwest 
to cover medical costs for Pittenger's pre-existing condition. Therefore, Arrow 
cannot seek indemnity from Camp.

[¶27]   Arrow's other theory of recovery is 
that it is entitled to sue Camp to enforce its contract on behalf of Pittenger 
and its other employees. Arrow's argument on this issue fails for a different 
reason. Although, as a party to the contract to procure insurance, Arrow is 
entitled to sue for Pittenger's damages, Pittenger did not suffer any damages 
which can be traced to Camp's alleged breach of that contract. The damages 
alleged by Arrow arise because Pittenger did not receive the benefit of Arrow's 
contract with Camp.

[¶28]   Arrow points us to the general rule 
that a party to a contract may sue to enforce the rights of an intended 
third-party beneficiary. 17A Am.Jur.2d, Contracts §§ 425, 426 (1991). We have 
also said that an action need not be brought in the name of the person who will 
ultimately benefit from the recovery, so long as the party bringing the suit is 
a real party in interest. Greenough v. Prairie Dog Ranch, Inc., 531 P.2d 499, 
501 (Wyo. 1975). Appellee has pointed to no cases, and we have found none, which 
make the employer who enters a contract to procure insurance on behalf of his 
employees any less a real party in interest than any other contracting party. 
Therefore, we hold that a party to a contract to procure insurance may sue on 
the third-party insured's behalf.

[¶29]   However, the trial court's summary 
judgment must be affirmed because any damages Arrow suffered were caused by the 
insolvency of First Farwest, for which Camp cannot be held liable. Arrow argues 
strenuously that it was Camp's initial procurement of the invalid First Farwest 
policy which breached the contract and caused the harm. Arrow characterizes its 
procurement of the individual policy as "mitigation" of the damages caused by 
purchase of the group policy. The First Farwest coverage Camp obtained did not 
cause the harm, however, since First Farwest did provide coverage until its 
policy was canceled, and was thereafter obligated by law to provide a converted 
policy. It was First Farwest's subsequent failure to pay under the converted 
policy which was responsible for Pittenger's losses.

[¶30]   Indirectly, of course, Arrow ended 
up with a non-paying insurance carrier because it relied on Camp's procurement 
of a new policy to terminate the Continental coverage. However, had First 
Farwest not failed to perform, the injury alleged would not have occurred. In 
contract as well as in tort, "damages are not recoverable for injury that is too 
remote from the conduct of the defendant constituting his breach of duty." 5 A. 
Corbin, Corbin on Contracts § 997 (1964). Thus, courts have refused to award 
damages where the plaintiff fails to prove that his damages resulted from the 
defendant's conduct. See e.g. Brown v. First Federal Savings and Loan Ass'n, 154 
Mont. 79, 460 P.2d 97, 102 (1969).

[¶31]   As was mentioned earlier, damages 
from wrongful failure to pay claims could not flow to Pittenger from Camp's 
procurement of this policy because Pittenger was entitled, even in the event of 
cancellation, to individual, converted coverage through First Farwest. Had Camp 
known of First Farwest's insolvency or prospective failure to pay at the time he 
procured the group policy, Arrow might have a cause of action against Camp for 
negligence in choosing First Farwest. However Arrow's cause of action is not 
based on this theory, nor did Arrow present any evidence or argument on this 
theory to the trial court.

[¶32]   Camp's failure to properly insure 
Arrow did not cause Pittenger's loss. First Farwest's subsequent insolvency or 
wrongful failure to pay did. Camp is not liable for First Farwest's failure to 
pay Pittenger's claims, and Arrow may not sue Camp for 
them.

[¶33]   Arrow's arguments at the trial 
court level centered on the two theories mentioned above, although Arrow claimed 
that it was the injured party due to the breach of contract. In its third issue, 
Arrow claims that it has suffered compensable damages in addition to those 
suffered by Mr. Pittenger. Arrow seeks recovery for the costs incurred in 
finding new insurance coverage and for the cost of the individual benefits 
policy over the cost of group coverage. These claims were not made at the trial 
court level, and are asserted for the first time on appeal. At his deposition, 
Mr. Hickman testified as follows concerning Arrow's damages: 

"Q.       So as far as what 
Arrow Construction is out of pocket to date because of First Farwest's 
cancellation of the policy or failure to pay Mr. Pittenger's medical bills is 
the approximate $300 a month premium they paid to First Farwest from January of 
1989 until Mr. Pittenger's death?

"A.       
Yes.

"Q.       Plus the $250 
dollars [sic] a month being paid to Connie Pittenger from approximately February 
1989 to date?

"A.       
Yes.

"Q.       Anything else 
that would be included in any out-of-pocket loss or expenses incurred by Arrow 
because of the failure of First Farwest to pay claims?

"A.       Not that I am 
aware of anything."

[¶34]   No fact issue was created at the 
trial court level concerning sums paid by Arrow to engage the assistance of the 
insurance department or to obtain the individual policy. Arrow developed only 
two sources of damage personal to itself: the $250 per month paid to Mrs. 
Pittenger and the $300 per month premiums for the individual policy. As 
discussed above, the money paid to Mrs. Pittenger was a voluntary undertaking on 
Arrow's part, which it had no legal duty to perform. Therefore, it could create 
no legal duty by Camp to indemnify Arrow. As to the policy costs, there was no 
evidence presented to the trial court that Arrow paid more for the individual 
policy than it had for group coverage. On the other hand, if Arrow seeks 
recovery of the entire amount it paid for a useless policy, its claim is with 
the insurer rather than with Camp because it is the insurer who has failed to 
pay.

[¶35]   The remaining issues of fact 
described by Arrow in its third issue are not material. A material issue of fact 
is one which establishes or refutes an essential element of a cause of action or 
a defense asserted by a party. McLaughlin v. Michelin Tire Corp., 778 P.2d 59, 
63 (Wyo. 1989). None of the factual issues asserted by Arrow can change the fact 
that Camp's alleged breach of contract did not cause the losses of which 
appellant complains.

[¶36]   The trial court's order granting 
summary judgment for Camp is affirmed.