Loralee Fisher v. Principal Life Insurance Company ( 2020 )

IN THE COURT OF APPEALS OF IOWA
No. 19-0672
Filed November 30, 2020
LORALEE FISHER,
Plaintiff-Appellant,
vs.
PRINCIPAL LIFE INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Johnson County, Andrew B.
Chappell, Judge.
Loralee Fisher appeals the district court’s entry of summary judgment.
AFFIRMED.
L. Craig Nierman and Thomas E. Williams of Phelan Tucker Law LLP, Iowa
City, for appellant.
Jesse Linebaugh and Angela Morales of Faegre Baker Daniels LLP, Des
Moines, for appellee.
Considered by Vaitheswaran, P.J., and Mullins and Ahlers, JJ.
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VAITHESWARAN, Presiding Judge.
The University of Iowa offered employees the chance to purchase insurance
through Principal Life Insurance Company (Principal). During a period of open
enrollment in 2017, employee Loralee Fisher purchased a dependent life
insurance plan, making an initial premium payment of $12.71 in late 2017. The
policy did not require proof of good health. The effective date of the policy was
January 1, 2018.
Fisher’s husband was staying at a hospital on January 1, 2018. He died on
January 2, 2018.
Fisher applied for death benefits under the policy. Principal denied the
claim, reasoning that Fisher’s husband “was in a period of limited activity when his
coverage became effective, which means he wasn’t eligible for [l]ife insurance
benefits.” Specifically, he “was under inpatient care from 12/30/17 through his date
of death. His [l]ife coverage woul[d have] begun on 1/1/18. Since he was hospital
confined on this date, he was not eligible for the coverage.”
Fisher filed an internal appeal, in which she asserted that if “Mr. Fisher was
not eligible for the coverage and/or policy never took effect,” the premium she paid
“should have been refunded to her.” In her view, because Principal “took and kept
for more than three months the premium for a policy that never existed,” the
company “waived all rights to deny coverage.” Principal denied the appeal.
Fisher sued Principal, alleging the company breached its contract, waived
its right to rescind the policy, and acted in bad faith. She later amended the petition
to add a claim of “reasonable expectations.” Principal moved for summary
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judgment. Following a reported hearing, the district court granted the motion on
all four claims. Fisher appealed.
I. Breach of Contract
As noted, Fisher signed up for life insurance during her employer’s open
enrollment period. The insurance policy authorized open enrollment, as follows:
“An Open Enrollment Period will be available for any Member or Dependent every
year who . . . failed to enroll . . . during the first period in which he or she was
eligible to enroll; or during any previous Open Enrollment Period.” The policy
provided “[t]he effective date for any such individual requesting insurance during
the Open Enrollment Period” was to “be the Policy Anniversary that next follows
the date of completion of the Open Enrollment Period.” “No Proof of Good Health
[would] be required for Member or Dependent insurance purchased during the
Open Enrollment Period.”
As also noted, Principal’s denial of Fisher’s death-benefit claim turned on
the fact that her husband was in a “period of limited activity.” The policy defined
that phrase as “[a]ny period of time during which a person is . . . confined in a
Hospital for any cause or confined in a Nursing Facility.” A provision on
“Dependent Life Insurance” referred to the period of limited activity, as follows:
If a Dependent spouse or Domestic Partner is in a Period of Limited
Activity on the date Dependent Life Insurance . . . would otherwise
be effective, such insurance . . . will not be in force for that Dependent
spouse or Domestic Partner until the Period of Limited Activity ends.
Fisher argues the “the period of limited activity condition” did not apply to
“policies purchased during an open enrollment period.” The district court
thoroughly addressed her argument as follows:
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While it is true that the policy was slated to go into effect on January
1, 2018, the language of the policy does not exempt the new
policyholder from the terms of the insurance originally signed up for.
The Period of Limited Activity requirement was still in effect. The
clear intent of this requirement is to delay the effective date, here
January 1, 2018, until the insured is no longer hospitalized. Because
Mr. Fisher was hospitalized (in a Period of Limited Activity) on
January 1st, the effective date of the policy was delayed. Plaintiff
also points to the language exempting the new policyholder from the
Proof of Good Health requirement as evidence that the new
policyholder is also exempt from the Period of Limited Activity
requirement, but these are different provisions; exemption from the
Proof of Good Health requirement is not exemption from the Period
of Limited Activity requirement.
. . . Plaintiff argues that the absence of cross-references to the
Period of Limited Activity requirement in the Open Enrollment article
is a source of ambiguity because such cross-references are present
in [other parts of the policy]. . . .
These cross-references, however, are necessary to impose
the Period of Limited Activity requirement on Member Life Insurance,
but are not necessary to impose the Period of Limited Activity
requirement on Dependent Life Insurance. . . . Absent these [cross-
references], the Period of Limited Activity requirement would not
apply as it does not exist within the Member Life Insurance article.
In contrast, the Period of Limited Activity requirement is integrated
into Dependent Life Insurance—inclusion of the requirement in the
Open Enrollment article would be redundant. In other words, the
insurance policy need not cross-reference the Period of Limited
Activity requirement to impose it on Dependent Life Insurance
provisions because Dependent Life Insurance is already subject to
said requirement . . . .
Plaintiff’s [next] argument for interpretation of the contract in
her favor is that section headings and sub-headings within the
contract support [Mr.] Fisher’s exemption from the Period of Limited
Activity requirement. . . . But nothing in the section headings suggest
an alteration to the terms of the Dependent Life Insurance at issue
here. The Period of Limited Activity requirement is part and parcel
to the Dependent Life Insurance article; this requirement is an
integral part of the product Plaintiff purchased. Indeed, the product
Plaintiff purchased during Open Enrollment was “Dependent Life
Insurance” which is described in the correspondingly titled
“Dependent Life Insurance” article. Therefore, the section headings
do not alter the terms of the Dependent Life Insurance or give rise to
any ambiguity therein.
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The court determined the policy language was “unambiguous” and Fisher could
not “prevail on her breach of contract claim.” We discern no error in the district
court’s comprehensive analysis. See Boelman v. Grinnell Mut. Reinsurance Co.,
826 N.W.2d 494, 501, 503–04, 507 (Iowa 2013) (using an “errors at law” standard
for interpretation of an insurance policy and review of a summary judgment ruling;
reading the policy “as a whole” and finding it “unambiguous”; and concluding the
policy did “not provide coverage as a matter of law”). We affirm the court’s grant
of summary judgment to Principal on Fisher’s breach-of-contract claim.
II. Reasonable Expectations
“The reasonable expectations doctrine ‘is a recognition that insurance
policies are sold on the basis of the coverage they promise.’” Id. at 505 (citation
omitted). “[T]he doctrine is carefully circumscribed.” Id. at 506. “The doctrine is
only invoked when an exclusion ‘(1) is bizarre or oppressive, (2) eviscerates terms
explicitly agreed to, or (3) eliminates the dominant purpose of the transaction.’” Id.(citation omitted). “For the doctrine to apply, a prerequisite must first be satisfied.
‘[T]he insured must prove circumstances attributable to the insurer that fostered
coverage expectations or show that the policy is such that an ordinary layperson
would misunderstand its coverage.’” Id. (citation omitted). “[M]ost courts apply the
doctrine of reasonable expectations as an interpretive tool where the language of
a policy is deemed ambiguous,” but the doctrine also has been applied “in its
broader meaning as an independent and fundamental approach to insurance
policy interpretation.” Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903,
906 (Iowa 1973).
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Fisher contends a reasonable person “would interpret the [p]olicy in such a
way as to expect that no conditions would exist to limit the effective date of a policy
purchased during the open enrollment period.” The district court’s analysis of the
breach-of-contract claim essentially resolves this argument. The policy
unambiguously incorporated the period of limited activity into dependent insurance
policies purchased during the open enrollment period, and an ordinary layperson
would not have misunderstood its applicability.
Fisher next contends it was her understanding “based upon the information
provided to her during the open enrollment period, that the policy would be
effective as of January 1, 2018.” She asserts “Principal did not provide any
information that there could be any circumstances that would cause the policy not
to be effective on January 1, 2018.” In fact, the policy itself provided the necessary
information, and Fisher does not attest Principal made contradictory
representations. Cf. Grinnell Mut. Reinsurance Co. v. Voeltz, 431 N.W.2d 783,
789 (Iowa 1988) (holding insurance company to its “manifested intent” and
concluding “there was an agreement in accordance with what the [insured]
reasonably expected”).
We conclude the district court did not err in granting Principal’s motion for
summary judgment on Fisher’s reasonable-expectations claim.
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III. Waiver
Fisher contends Principal’s retention of the premium she paid in December
2017 constituted a waiver of the “period of limited activity” policy condition.1 “The
[waiver] theory applies where a party, knowing of an enforceable right, neglects
enforcement for such a length of time that the law implies its waiver or
abandonment.” Rubes v. Mega Life & Health Ins. Co., 642 N.W.2d 263, 272 (Iowa
2002) (citing Westfield Ins. Cos. v. Econ. Fire & Cas. Co., 623 N.W.2d 871, 880
(Iowa 2001)). “[T]he doctrine of waiver or estoppel cannot be successfully invoked
to create a liability for benefits not contracted for at all.” Westfield Ins. Cos. v.
Econ. Fire & Cas. Co., 623 N.W.2d 871, 879 (Iowa 2001) (quoting Pierce v.
Homesteaders Life Ass’n, 272 N.W. 543, 546 (Iowa 1937)).
After citing this precedent, the district court stated:
In Plaintiff’s case, as decided above, the terms of the contract
unambiguously established the effective date of the insurance policy,
the date from which Principal would be liable, as either January 1,
2018, or the first day thereafter on which Mr. Fisher was not in a
Period of Limited Activity. Principal’s retention of the $12.71
premium for several months during the internal appeal process
amounts only to retention during a period of “unresolved litigation”
comparable to that in Rubes. The factual distinction between this
case, Pierce, and Rubes (that Fisher’s life insurance claim came to
fruition before the effective date while the plaintiffs’ claims in Pierce
and Rubes came to fruition after they were no longer insured) is of
no legal consequence; all that is important is that at the time the claim
allegedly accrued none of the plaintiffs were actually insured under
their respective policies.
The only proverbial “wrinkle” in this case is that after the
premium had been refunded, a Principal employee emailed UI
requesting that the premium once again be deducted from Fisher’s
pay—although the premium was refunded for a second time.
Principal claimed in an email to the UI that this was the product of
1Fisher asserts the premium was not finally refunded until October 2018. Principal
clarifies that the sum was refunded in July 2018 but again deducted from Fisher’s
August paycheck before being refunded a second time.
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confusion surrounding a botched attempt to settle this litigation.
Whatever it was, there is no evidence in the record to indicate that
this second deduction and refund was a manifestation of Principal’s
intent to waive its right to defend this litigation. . . . Principal cannot
be said to have neglected enforcement of its right “for such a length
of time that the law implies its waiver or abandonment.” Rubes, 642
N.W.2d [at] 272.
On Fisher’s motion for reconsideration, the district court succinctly recapped why
the waiver argument failed. Citing Pierce, the court stated:
Applied here, the parties did not contract for life insurance benefits
that would go into effect while the insured was in a period of limited
activity. In fact, the opposite is true; the provisions of the insurance
contract prevented coverage from going into effect while the insured
was in a period of limited activity.
We discern no error in the court’s thorough analysis of the waiver issue.
Notably, the court addressed and distinguished an opinion cited by Fisher
in support of a contrary conclusion. See Mettner v. Nw. Nat’l Life Ins. Co., 103
N.W. 112, 114 (Iowa 1905). There, the court stated, “Receipt and retention of
premiums after forfeiture [of a policy] is a waiver thereof.” Id. The Mettner court
found that an insurance company offered “no excuse for the retention of”
premiums; and the plaintiff had a “right to assume [the company] had waived its
right” to forfeit the policy. Id. Although Mettner supports Fisher’s waiver argument,
we agree with the district court that “more recent case law” holds policy defenses
will not be waived where premiums are retained during a period of litigation. See
Rubes, 642 N.W.2d at 272. As for another opinion cited by Fisher in the district
court—Viele v. Germania Insurance Co., 26 Iowa 9, 23 (1868)—the supreme court
there held “the evidence does not establish such a state of facts as amounts to a
waiver of the forfeiture, or an estoppel on the company, or a reinstatement, renewal
or revival of the policy.”
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We are left with McDonald v. Equitable Life Assurance Society, 169 N.W.
352 (Iowa 1918), an opinion Fisher cites for the proposition that an unreasonable
delay in refunding a premium will result in waiver of the right to deny coverage
based on a policy condition. There, the court stated, “[I]f the company so acts in
the premises that the insured as an ordinarily reasonable person is led to believe
that it waives the condition or waives the forfeiture, the courts will be prompt to
declare the waiver effectual.” McDonald, 169 N.W. at 355. The court stated a jury
reasonably could have found that an agent of the insurer gave an insured more
time to send in a premium payment. Id. at 357. Based on that finding, the court
reversed a directed verdict in favor of the insurance company. Id.
In this case, Principal did not waive its right to rely on the “period of limited
activity” provision. Principal cited the provision from the outset. We conclude the
district court did not err in granting Principal’s summary judgment motion on the
waiver claim.
IV. Bad Faith
“To show a claim for bad faith, a plaintiff must show the absence of a
reasonable basis for denying benefits of the policy and defendant’s knowledge or
reckless disregard of the lack of a reasonable basis for denying the claim.” Dolan
v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). As discussed, Principal relied
on the unambiguous language of the dependent life insurance provision and its
incorporation of the “period of limited activity” requirement. Fisher failed to
establish that the company’s reliance on that provision was unreasonable as a
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matter of law. We conclude the district court did not err in granting summary
judgment on the bad faith claim.
AFFIRMED.