Title: Ahrenholtz v. Time Ins. Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Ahrenholtz v. Time Ins. Co.1998 WY 155968 P.2d 946Case Number: 98-10Decided: 12/11/1998Supreme Court of Wyoming

John 
D. AHRENHOLTZ and Pam D. Ahrenholtz, Appellants (Plaintiffs),

v.

TIME INSURANCE COMPANY, a 
Wisconsin Corporation, Appellee (Defendant).

 

Appeal from the District Court, 
Albany County, Jeffrey A. Donnell, J.

 

John E. Stanfield of 
Stanfield & Summerfield Law Office, Laramie, Wyoming, for 
Appellants.

John A. Sundahl and John A. 
Coppede of Sundahl, Powers, Kapp & Martin, Cheyenne, Wyoming, for 
Appellee.

 

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN and 
TAYLOR,* JJ.

 * Chief Justice at time of expedited conference; 
retired November 2, 1998.

 

GOLDEN, 
Justice.

 [¶1] John and Pam Ahrenholtz (Ahrenholtz) purchased a 
health insurance policy from Time Insurance Company (Time) with an effective 
date of May 1, 1994. By its terms the policy excluded coverage for treatment or 
removal of tonsils or adenoids during the first six months of coverage, except 
on an emergency basis. In June or July, 1994, Ahrenholtz' daughter began 
experiencing medical problems related to her tonsils and adenoids. Ahrenholtz' 
doctor recommended surgery in August, 1994, on a non-emergency basis.  Ahrenholtz sought health benefits for 
the surgery, but Time rejected the claims because of the policy's 
above-referenced exclusion.  
Ahrenholtz sued Time, alleging breach of contract, fraud, bad faith, and 
violation of reasonable expectations. They also sought attorneys' fees and 
interest because of alleged violations of WYO. STAT. § 25-14-124, which 
addresses a forty-five day period in which an insurer is to accept and pay or 
reject claims. The district court granted Time's motion for summary judgment 
against Ahrenholtz. We affirm that judgment.

 

                                             
ISSUES

 

[¶2] Appellant Ahrenholtz 
submits the following statement of issues presented for review:1

 

1. 
Did Time Insurance prove - when the evidence is construed against it and in 
favor of its policyholder - that all reasonable persons would conclude that Time 
exercised good faith and dealt fairly in all respects with John and Pam 
Ahrenholtz in the drafting and sale of its insurance coverage and in the 
investigation, handling and refusal to pay all claims under 
it?

 

2. 
Did Time prove that no reasonable person would find any merit in any of the 
causes of action asserted by John and Pam Ahrenholtz?

 

3. 
Do the Insurance Department regulations constitute standards of fair insurance 
practice so as to allow the jury to be instructed that they may consider 
violations as acts of bad faith?

 

4. 
Could a jury determine that Time violated § 26-15-124 (WSA, 1977) in the manner 
in which it handled the claims of John and Pam Ahrenholtz and could it conclude 
that Time acted in an unreasonable fashion?

 

Appellee Time Insurance 
Company (Time) responds with the following statement of 
issues:

 

1. 
Whether the district court properly granted summary judgment against the 
insureds' claim for policy benefits for a tonsillectomy/adenoidectomy that 
occurred within six months of the policy's coverage date where the policy 
contained an exclusion for such surgeries occurring within the first six months 
of the policy's coverage.

 

2. 
Whether the exclusion provided a reasonable basis for the insurer's decision to 
deny the insureds' claim for these benefits, entitling the insurer to summary 
judgment as a matter of law against the insureds on their claim for "bad 
faith."

 

3. 
Whether the district court properly granted summary judgment against the 
insureds on their "fraud" claim where the insureds failed to show that the 
insurer made any misrepresentation upon which the insureds relied to their 
detriment.

 

4. 
Whether the insurer's decision to deny the insureds' claim was with cause and 
reasonable where in denying the claim the insurer relied on an applicable policy 
exclusion, and thus foreclosing as a matter of law the insureds' statutory claim 
for attorneys fees.

 

                                              
FACTS

 

[¶3] Ahrenholtz purchased a 
health insurance policy from Time through an agent, Richard Williams. The policy 
was issued with an effective date of May 1, 1994. In June or July of that same 
year, Ahrenholtz' infant daughter began experiencing obstructive symptoms at 
night, sleep apnea, snoring, and failure to gain weight.

 

[¶4] Ahrenholtz contacted 
Dr. Conlon, who recommended surgery to correct the problem. The surgery was 
scheduled and performed on August 23, 1994. The policy excluded coverage 
for:

 

18. Charges for treatment or removal of tonsils or 
adenoids during the first six months of coverage, except on an Emergency 
basis.

 

The policy defined 
"Emergency" as:

 

A 
condition that arises suddenly and unexpectedly and requires immediate treatment 
to prevent permanent bodily impairment or jeopardy to 
life.

 

The surgery was performed 
within the six month exclusionary period in the policy, and there was no 
indication that the surgery was an emergency.

 

[¶5] The policy also 
required pre-authorization of medical treatment and surgery and contained the 
following disclaimer:

 

THE AUTHORIZATION PROCESS, AS DESCRIBED ABOVE, DOES 
NOT GUARANTEE THAT BENEFITS WILL BE PAID. PAYMENT OF BENEFITS WILL BE DETERMINED 
BY THE TERMS AND LIMITS OF THE PLAN, INCLUDING, BUT NOT LIMITED TO, MEDICAL 
NECESSITY, THE PREEXISTING CONDITIONS LIMITATION AND THE GENERAL EXCLUSIONS 
PROVISIONS.

 

Dr. Conlon's nurse obtained 
the necessary pre-authorization for the surgery on August 1, 1994, by calling 
ReviewTime, an independent company on contract with Time for the purpose of 
conducting medical reviews. However, the nurse's conversations with ReviewTime 
contained reminders that the review for pre-authorization was not a guarantee of 
coverage and was subject to the terms of the policy. A telegram from Time 
followed, confirming the conversations between ReviewTime and the nurse. The 
telegram indicated that the tonsillectomy/adenoidectomy had been recommended for 
approval as a non-emergency admission by Dr. Conlon.  The last paragraph of the telegram 
contained the following:

 

ReviewTime recommendations are independent of your 
specific plan terms and limitations. Plan terms and limitations, including 
eligibility, pre-existing conditions, exclusions, deductible and co-insurance 
shall govern. Coverage isn't guaranteed. Direct questions regarding plan terms 
and limitations to Time Insurance Company Member Services 
Department.

 

[¶6] After the surgery was 
performed, Ahrenholtz submitted claims related to the surgery to Time. Time 
rejected each claim and provided notice of that rejection within forty-five days 
of the date the claim was submitted. Time based its rejection of the claims on 
the policy's clause excluding tonsillectomies and adenoidectomies within six 
months of policy coverage.

 

[¶7] After several months of 
contacts between Time and Ahrenholtz, during which time Ahrenholtz continued to 
pay premiums on the policy, Ahrenholtz was unsuccessful in recovering on the 
claims for the surgery. Ahrenholtz filed suit in the state district court on May 
6, 1996. After briefing and argument on summary judgment motions filed by Time, 
the district court granted summary judgment.  Ahrenholtz timely appealed after 
post-judgment motions were denied.

 

                                       
STANDARD OF REVIEW

 

[¶8] Summary judgment is proper when no genuine 
issues of material fact exist, and the prevailing party is entitled to judgment 
as a matter of law. Eiselein v. K-Mart, Inc., 868 P.2d 893, 894 (Wyo. 1994). 
When this Court reviews the propriety of a grant of summary judgment, the record 
is reviewed in the light most favorable to the party opposing the motion, giving 
that party all favorable inferences that can be drawn from the facts. Id. * * * 
No deference is accorded to the district court's decisions on issues of law. 
Halpern. v. Wheeldon, 890 P.2d 562, 564 (Wyo. 1995).

 

Keller v. Merrick, 955 P.2d 876, 878 (Wyo. 1998). A material fact is one which, if proved, would have the 
effect of establishing or refuting an essential element of the claim or defense 
asserted by the parties. Commercial Union Ins. Co. v. Stamper, 732 P.2d 534, 535 
(Wyo. 1987) (citations omitted).

 

                                           
DISCUSSION

 

Breach of Contract and Fraud 
Claims

 

[¶9] When interpreting an 
insurance contract, we follow general tenets of contract construction. Squillace 
v. Wyo. State. Employees' and Officials' Group Ins. Bd., 933 P.2d 488, 491 (Wyo. 
1997). We delineated our rules of insurance contract construction in St. Paul 
Fire and Marine Ins. Co. v. Albany County Sch. Dist. No. 1, 763 P.2d 1255, 1258 
(Wyo. 1988) (citations omitted):

 

The interpretation of a written contract is done by 
the court as a matter of law. An exception to construing insurance policies as 
other contracts has been observed by this Court where the language of the policy 
is ambiguous, in which case the policy must be strictly construed against the 
insurer. Ambiguity, however, is not generated by a subsequent disagreement 
between the parties as to the meaning of the policy. Further, the language of an 
insurance policy will not be "tortured" in order to create an 
ambiguity.

 

If 
the policy language is clear and unambiguous, the rule of strict construction 
against the insurer does not apply, and the policy must be interpreted in 
accordance with the ordinary and usual meaning of its terms. The parties to an 
insurance contract are free to incorporate within the policy whatever lawful 
terms they desire, and the courts are not at liberty, under the guise of 
judicial construction, to rewrite the policy.

 

[¶10] Ahrenholtz asks this 
Court to overturn its long-standing precedent concerning insurance contract 
interpretation in favor of what is termed the Darner2 or Restatement approach, which 
considers the reasonable expectations of the person applying for the 
insurance.  The policy in the case 
at bar clearly and unambiguously excludes coverage "for treatment or removal of 
tonsils or adenoids during the first six months of coverage, except on an 
Emergency basis." It is undisputed that the surgery took place during the 
exclusionary period and that the surgery 
was not performed "on an Emergency basis." In light of the clear and unambiguous 
language found in the policy, we decline to consider the approach proffered by 
Ahrenholtz.

 

[¶11] This is not the first 
time we declined to apply the reasonable expectations theory of recovery in 
insurance cases. In Pribble v. State Farm Mutual Auto. Ins. Co., 933 P.2d 1108, 
1113-14 (Wyo. 1997) (citations omitted), we held:

 

The Pribbles argue that even if the "household 
exclusion" clause were clear and unambiguous, the district court should have 
permitted a jury to consider the Pribbles' "reasonable expectations" in 
determining the amount of insurance coverage available.

 

Where insurance contract terms are clear and 
unambiguous, the "reasonable expectations" of the contracting parties are 
irrelevant to contract construction issues. A rule of construction that 
considers the reasonable expectations of the parties is of no assistance where 
the policy terms are clear and unambiguous. We hold that the contract terms here 
are clear and unambiguous, and rules of construction such as the doctrine of 
reasonable expectations are inapplicable.

 

[¶12] Ahrenholtz cites 
ReviewTime's preapproval of the surgery to argue that Time breached its contract 
and fraudulently approved a surgery that Time knew was excluded under the 
policy.3 However, the telegram received by 
Ahrenholtz and each conversation between ReviewTime and the doctor's office 
contained warnings that preapproval did not constitute a guarantee of 
coverage.  Ahrenholtz was advised to 
check the policy to determine if the surgery was covered by the policy and to 
call if there were any questions. This Court may not reform an unambiguous 
contract simply because the insured failed to read the contract and ignored 
warnings concerning coverage. Given these facts, summary judgment in favor of 
Time on the breach of contract and fraud claims was appropriate and is 
affirmed.

 

Bad Faith Claim

 

[¶13] Unable to improve upon 
the district court's well-reasoned analysis, we repeat it 
here:

 

Plaintiffs next argue that Defendant acted in bad 
faith, particularly with respect to the investigation, review and handling of 
their claim.

 

The duty of good faith and fair dealing is not 
mandated by the insurance policy itself but is inherent in every contractual 
relationship.

 

It 
is the obligation, deemed to be imposed by the law, under which the insurer must 
act fairly and in good faith in discharging its contractual responsibilities. 
Where in so doing, it fails to deal fairly and in good faith with its insured by 
refusing, without proper cause, to compensate its insured for a loss covered by 
the policy, such conduct may give rise to a cause of action in tort for breach 
of an implied covenant of good faith and 
fair dealing.

 

State Farm Mut. Auto. Ins. Co. v. Shrader, 882 P.2d 813, 825 (Wyo. 1994).

 

Wyoming has adopted an objective standard of care as 
a measure of the necessary conduct of insurers. Under this standard, "where a 
claim [is] not fairly debatable, refusal to pay would be bad faith and, under 
appropriate facts, could give rise to an action for tortious refusal to honor 
the claim." [Id.] A claim will be "fairly debatable" when a reasonable insurer 
would have denied or delayed payment of benefits under the facts and 
circumstances. McCullo[ugh] v. Golden Rule Ins. Co., 789 P.2d 855, 860 (Wyo. 
1990). In order to establish a claim, therefore, Plaintiffs must show (1) the 
absence of any reasonable basis for denying the claim and (2) the insurer's 
knowledge or reckless disregard of the lack of a reasonable basis for denying 
the claim. Darlow v. Farmers Ins. Exch., 822 P.2d 820, 824 (Wyo. 1991); 
McCullo[ugh], 789 P.2d  at 860. The Supreme Court has also held that the 
subsequent payment of a denied or unreasonably delayed claim does not absolve an 
insurer from compliance with the duty of good faith and fair dealing. While such 
payment may absolve a claim for breach of contract, the tort of bad faith is 
independent. Darlow, 822 P.2d  at 826. While an insured may state claims for 
breach of contract and breach of the duty of good faith and fair dealing, the 
insured does not need to prevail on the 
contract claim to pursue the claim for bad faith. Shrader, 882 P.2d  at 
828.

 

There is simply no question in this case that the 
Plaintiffs' claim was "fairly debatable." The record indicates that the surgery 
in question was specifically excluded from coverage by the clear and unambiguous 
language of the policy, and Defendant was entitled to rely on that language in 
denying coverage. The question, therefore, is whether Plaintiffs have shown a 
material issue of fact as to bad faith in Defendant's adjustment and subsequent 
reconsideration of the claim.

 

The record indicates that there were a number of 
contacts between Plaintiffs, their counsel and Defendant through the mid-part of 
1995. In essence, Plaintiffs argued that they had not been aware of the policy 
exclusion, that they had understood the telegram of August 1, 1994 to approve 
coverage for the surgery, and/or that the surgery had been an "emergency." In 
one of his early letters, Mr. Ahrenholtz indicated that if they had known the 
surgery would not be covered, they would have waited until the exclusionary 
period expired. Medical records were forwarded to Defendant as well. In each 
case, and at each level of review, Defendant continued to deny coverage. Its 
position was essentially that the surgery occurred during the exclusionary 
period and that it had not been undertaken in emergency circumstances as 
evidenced by Mr. Ahrenholtz's comments, among others.

 

Plaintiff argues that Defendant did not honestly and 
fairly re-evaluate the claim. On the other hand, Plaintiffs concede during oral 
argument that Defendant had no obligation to discuss the matter with them at 
all. There is nothing in the record to suggest that Defendant deliberately 
misrepresented policy provisions to defeat coverage; made oppressive demands or 
imposed burdensome requirements not contained in the policy; retaliated against 
the insureds in any way; unfairly imposed premium increases; forced Plaintiffs 
to arbitrate or litigate, knowing that it had no substantial grounds to reject 
the claim; required Plaintiffs to continue premium payments while it reviewed 
their claim; or undertook any other action for which insurers have been held 
liable in first-party bad faith claims. Hatch v. State Farm Fire & Cas. Co., 
842 P.2d 1089, 1097 (Wyo. 1992). Indeed, the record indicates that Defendant's 
contacts with Plaintiffs and their counsel were uniformly professional in 
nature.

 

The Court notes that Defendant, having denied the 
claim of Plaintiffs, was faced with two alternative courses of conduct. It could 
have simply denied the claim and refused to discuss the matter further, or it 
could have advised it would consider further information and continued to 
discuss the matter. One can only speculate what might have happened had 
Defendant chosen the former alternative, but it is clear that the only result 
which would have satisfied Plaintiffs here was payment of the claim. Taking all 
the evidence in this matter in a light most favorable to Plaintiffs, the Court 
concludes there is no material issue of fact with respect to Plaintiffs' bad 
faith claim, and that Defendant is entitled to summary judgment as a matter of 
law.

 

Attorneys' Fees

 

[¶14] Ahrenholtz contends 
that the district court erred in denying his claim for attorneys' fees and 
interest pursuant to WYO. STAT. § 26-15-124. That statute 
provides:

 

(a) Claims for benefits under a . . . health 
insurance policy shall be rejected or accepted and paid by the insurer . . . 
within forty-five (45) days after receipt of the proofs of loss and supporting 
evidence. . . .

 

          
* * * * * *

 

(c) In any actions or proceedings commenced against 
any insurance company on any insurance policy . . ., if it is determined that 
the company refuses to pay the full amount of a loss covered by the policy and 
that the refusal is unreasonable or without cause, any court in which judgment 
is rendered for a claimant may also award a reasonable sum as an attorney's fee 
and interest at ten percent (10%) per year.

 

WYO. STAT. § 26-15-124 (1997).

 

[¶15] The district court 
correctly found that all of Ahrenholtz's claims were initially refused within 
the statutory forty-five day period.  
Although review of the claims continued for nearly a year thereafter, it 
is clear that Time did not violate the requirements of the statute. 
Additionally, as discussed earlier, Time's refusal to pay was not unreasonable 
or without cause. We affirm the district court's determination on the attorneys' 
fee issue as well.

 

Continuation of Coverage

 

[¶16] Ahrenholtz relies on 
one of the exceptions to the general exclusions in the policy and Chapter XII of 
the Wyoming Department of Insurance Rules and Regulations which refers to 
"Regulation Governing Replacement of Life Insurance Policies and Annuities," to 
assert that surgery should have been covered because the surgery would have been 
covered by the policy previously held by Ahrenholtz with Blue Cross. The 
exception to the exclusion was not presented to the district court for its 
determination on the merits of the summary judgment motion, and we decline to 
review issues which are presented for the first time on appeal. For obvious 
reasons, the rules and regulations concerning life insurance simply do not apply 
to this case.

 

                             
              CONCLUSION

 

[¶17] There were no genuine 
issues of material fact presented to the district court in this matter, and the 
district court properly granted summary judgment as a matter of law. Therefore, 
we affirm the district court.

 

FOOTNOTES

  1Unfortunately, Ahrenholtz does not 
address these issues in his brief, relying instead on several arguments which we 
attempt to address in the opinion.

  

  2Referring to Darner Motor Sales, 
Inc. v. Universal Underwriters Insurance Co., 140 Ariz. 383, 682 P.2d 388 (Ariz. 
1984).

  

3 See 
Long v. Great West Life & Annuity Ins., 957 P.2d 823 (Wyo. 1998) for an 
in-depth discussion of the history of the utilization review process and the 
legal ramifications of its use. Ahrenholtz does not argue that Review Time 
breached any duty to inform them of the contract terms or that Long applies in 
this case.