Case Title: Newton v. United Chambers Insured Plans

Citation: 485 So. 2d 1147

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1986-03-07T00:00:00Z

Document:
485 So. 2d 1147 (1986)
Joyce M. NEWTON
v.
UNITED CHAMBERS INSURED PLANS.
84-1043-CER.

Supreme Court of Alabama.
March 7, 1986.
*1148 David A. Simon and Richard M. Kemmer, Jr. of Owen, Ball & Simon, Bay Minette, for petitioner.
David C. Hannan and Celia J. Collins of Johnstone, Adams, Howard, Bailey & Gordon, Mobile, for respondent.
SHORES, Justice.
The United States District Court for the Southern District of Alabama, through the Honorable Virgil Pittman, Senior Judge, has certified to us certain questions which arise out of the following facts:
Joyce Newton was an employee of Dr. William J. Hooper, a Bay Minette, Alabama, dentist. Dr. Hooper contracted with United Chambers Insured Plans (United) for group medical insurance for himself and his dependents and his employees and their dependents. Dr. Hooper paid the premiums; the employees did not contribute in any way.
The policy provided benefits for covered medical expenses. Specifically, Joyce Newton had Plan V, coverage which paid 80% of the first $3,000 of covered expenses exceeding the annual deductible of $100 and 100% of further expenses in excess of $3,000, up to a maximum benefit of $1 million.
The policy became effective on September 1, 1982. On October 2, 1982, Mrs. Newton's teenage son, Tracy, was involved in an automobile accident which left him paralyzed for life. He was rendered "totally disabled" as that term is defined in the policy.
Following the accident, Mrs. Newton began filing claims for medical expenses incurred for Tracy's treatment. The payment of these benefits was coordinated with benefits available for Tracy's expenses through his father's group insurance carrier, Blue Cross-Blue Shield, pursuant to a provision in the United policy. Under that policy, United was responsible for covered expenses not covered by the Blue Cross-Blue Shield policy, not to exceed 100% of total expenses, up to the policy limits.
*1149 The premium on the policy was payable monthly. Dr. Hooper made each payment until March 1983, when his check for the premium was returned for insufficient funds. Under the policy, coverage was automatically terminated at the end of the month in which no premium was paid. Mrs. Newton was unaware of the termination of coverage until June or July 1983. She continued to incur expenses for Tracy's medical treatment after March 31, 1983. United rejected claims for these expenses because they were for charges incurred after the termination date of the policy.
In August 1983, Mrs. Newton sought to reinstate the coverage or to convert to individual coverage under the conversion provisions of the policy. United informed her again that the policy had terminated as of March 31, 1983, and also informed her that the policy did not allow conversion under these circumstances. It also denied coverage under the extended benefits provision of the policy. United denies that any amount is due under the policy. Mrs. Newton thereupon filed this action, in which she contends that her son's medical expenses are covered under the policy. She also asks the Court to order United to permit her to convert to individual coverage under the conversion provisions of the policy.
The federal court asks us whether under Alabama law United was required to give notice of the employer's default in paying premiums to participants in the group policy under these facts and whether there is a right of conversion under these facts.
As the federal court observed, this Court has not had occasion to address the question of whether a group insurer must notify a participant of termination of the policy for non-payment of the premium where the covered employee does not contribute to the premium. We have held that a participant is entitled to notice of changes made in a group policy in a case where the employee did pay part of the premium. Harrison v. Insurance Company of North America, 294 Ala. 387, 318 So. 2d 253 (1975). A sounder basis for requiring notice to the employee of changes in or cancellation of the policy than the fact that he pays part of the premium is the fact that he has an interest in the policy which will be affected. Whether one pays part of the premium for medical coverage or whether it is a fringe benefit paid for by his employer, it is a valuable part of his compensation, and if it is cancelled or terminated, he has a right to notice of that fact.
Our cases have recognized the right to notice under some circumstances. Harrison, supra, required the insurer to give notice to the employee of a change in coverage which adversely affected the employee's coverage. Harrison relied on Shears v. All States Life Ins. Co., 242 Ala. 249, 5 So. 2d 808 (1942), and said:
"Shears was closely examined by the Court of Appeals in Metropolitan Life Ins. Co. v. Korneghy, 37 Ala.App. 497, 71 So. 2d 292 (1954). In Korneghy, the insured employee received written notice of the termination of the group coverage, but contended that it could not be terminated without his consent. The Court of Appeals held that a group policy could be terminated without the consent of the insured but said:
294 Ala. at 392-93, 318 So. 2d 258-59. (Bracketed material added in Harrison.)
It is quite true, as United argues, that we have held that a participant in a group policy is entitled to notice of cancellation of the policy where he pays a part of the premium. It is equally true, however, that we have stated that the reason for requiring notice is so that he may take advantage of any conversion privileges afforded by the policy, or to seek to obtain coverage elsewhere. We hold, therefore, that a group insurer is required to notify a participant of cancellation or modification of the policy if the interests of the participant are adversely affected thereby.
Here, the policy coverage terminated because the employer failed to pay the premium on the policy due in March 1983. We must now determine what rights, if any, would have been available under the policy had the employee received notice.
Each employee covered by the master policy was given a "Group Insurance Certificate" booklet, which contains a summary of the master policy. The medical conversion privilege provision reads as follows:
We have carefully studied this provision and must conclude that it does not entitle either Mrs. Newton or her dependent son to continue the medical coverage afforded by the policy. The privilege of conversion does not apply where the policy terminates for the reason that this policy terminated, i.e., failure to pay the monthly premium.
There is, however, another provision of the policy which applies to the facts involved here. As noted earlier, Tracy Newton, a dependent as defined in the policy, is totally disabled. The extended comprehensive medical benefits provision of the policy is summarized in the certificate booklet as follows:
When Mrs. Newton sought extended coverage for her totally disabled son under this provision, United refused to extend coverage, contending that because Tracy was covered as a dependent under his father's Blue Cross-Blue Shield group policy, paragraph (c) precluded extended coverage under United's policy. Paragraph (c) is susceptible of being read to say that extended coverage terminates at a date in the future when the insured or the *1152 dependent becomes (sometime after termination of the policy) covered by another insurer. If it means there is no extended coverage for persons who are already insured by another insurer at the time of termination, as United contends, it would have been simple to say so. United created the ambiguity, so it must accept the construction most favorable to the insured. Employers Ins. Co. of Alabama, Inc. v. Jeff Gin Co., 378 So. 2d 693 (Ala.1979); Alabama Farm Bureau Ins. Co. v. McCurry, 336 So. 2d 1109 (Ala.1976).
We hold that United was required to notify Mrs. Newton that the policy terminated on March 31, 1983, and that her dependent son is now entitled to the extended medical benefits provided for by the extended comprehensive medical benefits provision of the policy.
We acknowledge that our treatment of the issues disregards to some degree the exact questions certified to us. However, we were expressly invited by Judge Pittman to respond in this manner. In his certification of the questions, Judge Pittman wrote:
CERTIFIED QUESTIONS ANSWERED.
TORBERT, C.J., and MADDOX, FAULKNER, JONES, BEATTY, ADAMS and HOUSTON, JJ., concur.
ALMON, J., not sitting.