Opinion ID: 2283535
Heading Depth: 2
Heading Rank: 1

Heading: medi-share is a contract for insurance as defined by krs 304.1-030

Text: The primary issue in this case is whether Medi-Share provides a contract for insurance as defined by KRS 304.1-030. KRS 304.1-030 defines insurance as a contract whereby one undertakes to pay or indemnify another as to loss from certain specified contingencies or perils called `risks,' or to pay or grant a specified amount or determinable benefit or annuity in connection with ascertainable risk contingencies, or to act as surety. We begin by noting that this case was tried by the circuit court sitting without a jury. It is before this Court upon the trial court's findings of fact and conclusions of law and upon the record made in the trial court. Accordingly, appellate review of the trial court's findings of fact is governed by the rule that such findings shall not be set aside unless clearly erroneous. A factual finding is not clearly erroneous if it is supported by substantial evidence. Owens-Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 414 (Ky.1998); Uninsured Employers' Fund v. Garland, 805 S.W.2d 116, 117 (Ky.1991). Substantial evidence is evidence, when taken alone or in light of all the evidence, has sufficient probative value to induce conviction in the mind of a reasonable person. Golightly, 976 S.W.2d at 414; Largent v. Largent, 643 S.W.2d 261 (Ky.1982); CR 52.01. The trial court's conclusions of law, however, are subject to independent de novo appellate determination. A & A Mechanical, Inc. v. Thermal Equipment Sales, Inc., 998 S.W.2d 505, 509 (Ky.App. 1999). Both lower court decisions correctly concluded that the shifting of risk from one party to another was a necessary component of an insurance contract. The United States Supreme Court agrees with this principle, describing insurance as, an arrangement for transferring and distributing risk. Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 211, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979). The lower court decisions, however, incorrectly determined that the Medi-Share program did not shift risk because each individual member remains personally liable for paying his own medical bills. We note that even under conventional health insurance plans a member remains personally liable to the medical provider for payment. Key to the Court of Appeals decision were the uncontroverted facts that Medi-Share disclaimed any liability for members' medical expenses and guaranteed payment of no claims, that Medi-Share informed its members that it was not a substitute for insurance, that any medical bill payments were considered voluntary donations from other members, and that Medi-Share does not pay member claims, but, rather, claims are paid by the transfer of money from one member's sub-account to another, and from there sent to the medical care provider. However, the lower court opinions overlook the risk-shifting nature of the commitment contract that members enter into when they become a part of the Medi-Share program, and thus the lower courts erroneously concluded that the process does not constitute a contract for insurance as defined by KRS 304.1-030. As discussed below, the Medi-Share program fits comfortably within the statutory definition of an insurance contract. In reviewing the commitment contract to evaluate whether it is a contract for insurance, we note that its wording, standing alone, is not controlling. It is immaterial, or at least not controlling, that the term insurance nowhere appears in the contract the nature of which is to be determined; indeed, the fact that it states that it is not an insurance policy is not conclusive, and a company may be found to be engaged in an insurance business even though it expressly disclaims any intention to sell insurance. Neither are the terms or mode of payment of the consideration determinative of the question whether the contract is one of insurance. The nature of a contract as one of insurance depends upon its contents and the true character of the contract actually entered into or issuedthat is, whether a contract is one of insurance is to be determined by a consideration of the real character of the promise or of the act to be performed, and by a consideration of the exact nature of the agreement in light of the occurrence, contingency, or circumstances under which the performance becomes requisite, and not by what it is called. 43 Am.Jur.2d Insurance § 4 (1982) (footnotes omitted); see also Barberton Rescue Mission, Inc. v. Insurance Division of the Iowa Department of Commerce, 586 N.W.2d 352 (Iowa 1999). It is the actual nature and effect of the commitment contract that determines whether it is one for insurance. See Wheeler v. Ben Hur Life Ass'n., 264 S.W.2d 289, 291 (Ky.1953) (Broadly speaking ... when a company, society, or association, either voluntary or incorporated, and known as a relief, benevolent or benefit society, or by some similar name, contracts for a consideration to pay a sum of money upon the happening of a certain contingency, and the prevalent purpose and nature of the organization is that of insurance, it will be regarded as an insurance company, and its contracts as insurance contracts, regardless of the manner or mode of payment of consideration or of loss or benefit); Allin v. Motorists' Alliance of America, 234 Ky. 714, 29 S.W.2d 19, 23 (1930) (holding that one cannot change the nature of insurance business by declaring in the contract that it is not insurance). The commitment contract, as previously quoted, obligates Medi-Share members to pay their monthly share by the first of each month because their fellow believers in Christ rely upon that payment to satisfy their medical needs. In return for paying their monthly share, Medi-Share members remain eligible to receive payment for their medical needs through the program. This process clearly shifts the risk of payment for medical expenses from the individual member to the pool of sub-accounts from which his expenses will be paid. Thus, regardless of how Medi-Share defines itself or what disclaimers it includes in its literature, in the final analysis, there is a shifting of risk. Moreover, as Medi-Share's advertising materials tout, all members' medical needs have thus far been satisfied through the program. This level of success in paying claims, the record reflects, is due to Medi-Share, using actuary tables, and setting each member's monthly share at a level commensurate with anticipated future member medical claims. Medi-Share utilizes statistical actuarial tables to shift risk the same way a traditional health insurance company sets its premiums. Clearly, this arrangement entered into via the commitment contract shifts risk between Medi-Share members in the same manner traditional health insurance contracts shift risk between policyholders. Thus, through the commitment contract Medi-Share's members undertake [] to pay or indemnify another as to loss from certain specified contingencies or perils called `risks'. KRS 304.1-030. Further, Medi-Share undertakes to actually pool the members' monthly shares together and pay the actual medical bills as claims for payment are submitted. Thus, the commitment contract is, in practice and function, one for insurance. Medi-Share argues, however, that the disclaimer in the commitment contract which states that Medi-Share takes no responsibility for the payment of the members' medical bills indicates that no risk shifting occurs. Nevertheless, this disclaimer, while perhaps shielding Medi-Share from any liability for its members' medical bills, does not overcome the fact that through the Medi-Share program the individual members pool resources together to distribute the risk of major medical bills amongst each other. As previously stated, one cannot change the nature of an insurance business by simply declaring in the contract that it is not insurance. Allin, 29 S.W.2d at 23. Medi-Share also argues that a member who joins their program is actually undertaking a charitable endeavor and not attempting to shift risk. Medi-Share compares a member's participation in their program to one who throws a dollar into a fireman's boot during the annual WHAS Crusade for Children, or makes a monthly donation to the United Way. The facts presented do not support this contention. A person in the above examples generally provides his or her gift altruistically. The giver receives no financial benefit from the gift. The only direct benefit is the joy derived from helping a person in need or supporting a worthy cause. While we do not doubt the claim that Medi-Share members are altruistically inspired, neither do we doubt that they pay shares with the expectation of a financial return based on Medi-Share's history of claims payments in the form of the payment of their own medical bills. Medi-Share's advertising, examples of which are included in the record, supports this conclusion. Medi-Share advertisements call itself an alternative to expensive health insurance [which] could save [its members] $2,000 to $4,000 a year or more. If one does qualify for Medi-Share one enjoy[s] significant savings. Further, member testimonials tout the monetary amount of their medical bills which were paid through Medi-Share and make claims such as the medical bills would have destroyed us financially, except for Medi-Share. If Medi-Share was a pure charity, it is doubtful that its advertising would focus so heavily on the personal benefits one can receive by becoming a member. Indeed, the thrust of the advertising is that it is an economical alternative to conventional health insurance programs. The conclusion that Medi-Share functions not as a charity, but as a type of insurance is well supported by the evidence in the record.