Nolan v. Golden Rule Ins

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
No. 98-30435
________________________
REGGIE NOLAN,
Plaintiff-Counter Defendant-Appellee,
-vs-
GOLDEN RULE INSURANCE COMPANY; ET AL,
Defendants,
GOLDEN RULE INSURANCE COMPANY,
Defendant-Counter Claimant-Appellant.
____________________________________________
Appeal from the United States District Court
for the Western District of Louisiana
____________________________________________
April 1, 1999
Before KING, Chief Judge, STEWART, Circuit Judge, and
LITTLE, District Judge.*
LITTLE, District Judge:
Golden Rule Insurance Company (“Golden Rule”) appeals the
district court’s ruling invalidating its policy’s “rider”
under Louisiana Revised Statutes § 22:663. Golden Rule also
appeals the award of penalties and attorney fees under
*
District Judge of the Western District of Louisiana, sitting by designation.
Louisiana Revised Statutes § 22:657(A). Finally, Golden Rule
appeals the district court’s findings precluding a finding
that Reggie Nolan (“Nolan”) engaged in fraudulent activity
that would have justified canceling the policy. We REVERSE
the application of Louisiana Revised Statutes § 22:663 and the
award of penalties and attorney fees but AFFIRM the findings
that preclude a finding of fraud.
I.
Nolan applied for and received a group policy of health
and accident insurance from Golden Rule. Coverage commenced
on 1 October 1994. At that time, Nolan had an existing
individual health and accident policy with First National Life
Insurance Company (“First National”). Golden Rule’s
application asked Nolan whether its plan would “replace or
change any existing insurance[.]” Nolan answered in the
affirmative, so Golden Rule attached a rider to Nolan’s
policy. The rider stated:
This policy/certificate will be void and all
premiums refunded (less any claims paid) if any
other insurance coverage including but not limited
to Health Maintenance Organizations which are
disclosed on the application, or any amendment to
the application, has not been terminated by
December 30, 1994. Other insurance coverage as
used in the Rider-Amendment does not include life
insurance, automobile medical expense insurance, or
homeowners medical expense insurance.
2
In December 1994, after the Golden Rule policy became
effective, Nolan injured his back. The district court found
that Nolan feared Golden Rule would deny coverage of his
treatment for back pain because the injury arose from a
preexisting condition. Therefore, Nolan did not cancel his
First National policy.
Nolan testified, and the district court found, that Nolan
merely retained the First National policy for coverage of the
Golden Rule deductible, which was $1,500. Initially, First
National paid $4,404.33, but the district court found that
Nolan returned $2,984.50 so that he would not receive
duplicate reimbursements. The district court found that the
net of all payments by First National was $1,419.83.
On 29 January 1997, Golden Rule canceled Nolan’s policy
after it discovered the continued existence of the First
National policy. Golden Rule had already paid $25,840.49 in
benefits.
On 12 May 1997, Nolan filed suit against Golden Rule
seeking reinstatement of insurance coverage and payment of
outstanding medical bills, penalties, and attorney fees.
After a bench trial on 23 and 24 March 1998, the district
court entered judgment in favor of Nolan. The district court
3
awarded $9,098.10 for outstanding medical bills, $9,098.10 in
penalties under § 22:657(A), and $10,000 in attorney fees.
In the district court’s opinion, it held the rider
invalid under § 22:663. That provision states:
[N]o group policy . . . shall be issued by any
insurer doing business in this state which by the
terms of such policy group contract excludes or
reduces the payment of benefits to or on behalf of
an insured by reason of the fact that benefits have
been paid under any other individually underwritten
contract or plan of insurance for the same claim
determination period. Any group policy provision
in violation of this section shall be invalid.
The district court rejected Golden Rule’s argument that
§ 22:663 prohibited only coordination of benefits. Rather,
the district court held that “[i]f the legislature intended to
prohibit the reduction of benefits, a fortiori, it intended to
prohibit provisions which void the policy because of other
insurance.” Nolan v. Golden Rule Ins. Co., No. 97-1269, slip
op. at 4 (W.D. La. Apr. 17, 1998).
The district court also rejected Golden Rule’s suggestion
that our previous decision in Wynn v. Washington Nat’l Ins.
Co., 122 F.3d 266 (5th Cir. 1997), controlled the case. Wynn
involved an attempt by an insurance company to limit coverage
for injuries arising out of a preexisting spinal condition
through the use of an exception endorsement. Wynn argued that
Louisiana Revised Statutes § 22:215.12, which prevents
4
insurance companies from denying coverage for harm caused by
a preexisting condition for more than twelve months following
the effective date of the policy, forbade the exception
endorsement. This court held the exception endorsement to be
valid. The district court distinguished Wynn from the case at
hand by reasoning that the condition in the exception
endorsement in Wynn was “valid on its own and is independent
of the statutory restriction [preventing insurance companies
from excluding coverage for harm caused by preexisting
conditions].” Id. at 5. Conversely, the district court
argued that “the condition imposed by Golden Rule’s rider is
not a valid condition.” Id. Therefore, the district court
held the rider invalid.
The district court did not consider Golden Rule’s
allegations of fraud, though certain of the district court’s
findings of fact would preclude a finding of fraud.
II.
We review district court findings of fact for clear
error. Fed. R. Civ. Proc. 52(a); Century Marine Inc. v.
United States, 153 F.3d 225, 229 (5th Cir. 1998). A finding
of fact is “clearly erroneous” when the reviewing court has “a
definite and firm conviction that a mistake has been
committed.” Justiss Oil Co. v. Kerr-McGee Ref. Corp., 75 F.3d
5
1057, 1062 (5th Cir. 1996) (citing United States v. United
States Gypsum Co., 333 U.S. 364, 395 (1948)).
We review the district court’s legal conclusions de novo.
Century Marine, 153 F.3d at 229. A district court’s
interpretation of a contract is a matter of law subject to de
novo review. Am. Totalisatro Co. v. Fair Grounds Corp., 3
F.3d 810, 813 (5th Cir. 1993). To conduct de novo review, we
review the record independently and under the same standard
that guided the district court. Id.
III.
A.
The district court was incorrect in its analysis of the
Wynn case; it does control the matter at hand. In Wynn, this
court considered § 22:215.12, which prevents insurance
companies from excluding or denying coverage for injuries
arising out of preexisting conditions for more than twelve
months after the policy becomes effective. So Washington
National wrote an exclusion endorsement exempting from
coverage any damage arising out of Wynn’s preexisting spinal
injury. Wynn argued that Washington National could
impermissibly circumvent the purview of § 22:215.12 if we
6
allowed it to write exclusion endorsements in this manner. We
disagreed.
We held that “[a]n exception endorsement is qualitatively
different from a pre-existing conditions limitation. . . .
[A]n insurer in Louisiana is free to limit its liability ‘just
as individuals may.’” Wynn, 122 F.3d at 269 (quoting Sargent
v. Louisiana Health Serv. & Indem. Co., 550 So. 2d 843, 845
(La. App. 2d Cir. 1989)). “The pre-existing conditions
limitation operates separately and independently from the
exception endorsement because it applies to conditions for
which an endorsement has not been written and/or which were
not disclosed on the application.” Id.
We continued: “nothing in the exception endorsement
suggests that it is an extension of the policy’s pre-existing
conditions limitation. Rather, it is a separate and
independent limitation on liability that the Wynns signed of
their own accord as a condition to receiving insurance.” Id.
Critical to our decision in that case was the fact that
“Washington National would have been entitled to refuse to
insure the Wynns if they had not signed the exception
endorsement.” Id.
As in Wynn, the rider here at issue is “qualitatively
different” from the coordination of benefits limitation in
7
§ 22:663. The coordination of benefits limitation operates
separately and independently from the rider because it applies
where a group policy insurer reduces benefits by the amount
paid by the individual policy insurer or where the group
policy insurer terminates the policy because an individual
policy insurer paid part or all of a claim.
No evidence in the record suggests that the rider is an
extension of the policy’s coordination of benefits limitation.
Rather, the rider reflects Golden Rule’s policy that its
insureds have only one source of insurance--Golden Rule--on
the theory that the insureds will be less likely to over-
utilize medical facilities if they have to pay their own
deductibles.
Moreover, nothing about the statutory coordination of
benefits limitation prevents Golden Rule from limiting its
liability, “just as individuals may,” by being selective about
with whom it contracts. Like Washington National, Golden Rule
would have been entitled to refuse to insure Nolan if he had
not signed the rider. See Sargent, 550 So. 2d at 845
(“[I]nsurers may, by unambiguous and clearly noticeable
provisions, limit liability and impose such reasonable
conditions as they may wish upon the obligations they assume
by contract, absent conflict with a statute or public
8
policy.”); see also Oceanonics, Inc. v. Petroleum Distrib.
Co., 292 So. 2d 190, 192 (La. 1974) (same). And like the
Wynns, Nolan signed the rider of his own accord as a condition
of receiving insurance.
Therefore, § 22:663 does not invalidate Golden Rule’s
rider. Under Louisiana law, Golden Rule is entitled to
contract only with people who have no other source of
insurance. Thus, Golden Rule properly terminated Nolan’s
policy pursuant to the rider. We, therefore, REVERSE the
district court’s decision invalidating the rider.
B.
Because we reverse the district court’s decision
invalidating the rider, we must also reverse its award of
statutory penalties and attorney fees under § 22:657(A).
“Provisions of LSA-R.S. 22:657 are penal in nature and
must be strictly construed. These penalties should not be
applied unless the refusal to pay is clearly arbitrary and
capricious.” Shrader v. Life Gen. Sec. Ins. Co., 588 So. 2d
1309, 1317 (La. App. 2d Cir. 1991); see also Soniat v.
Travelers Ins. Co., 538 So. 2d 210, 216 (La. 1989). “Whether
or not an insurer’s reasons for refusing to pay are arbitrary
and capricious is a question of fact to be determined from the
facts and circumstances of each case.” Shrader, 588 So. 2d at
9
1315; see also Colville v. Equitable Life Assurance Soc’y of
United States, 514 So. 2d 678, 682 (La. App. 2d Cir. 1987).
“When claiming penalties and attorney fees, the insured has
the burden of proving that any fault or failure to pay the
claim was attributable to the insurer.” Colville, 514 So. 2d
at 682. “Although a beneficiary may ultimately be determined
to be entitled to policy benefits, this judicial determination
does not in and of itself justify the invocation of
penalties.” Id. at 682-83.
Though we review the district court’s factual findings
for clear error, this standard does not insulate factual
findings undergirded by an erroneous view of controlling legal
principles. Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 395
(5th Cir. 1996). Here, the district court awarded statutory
penalties and attorney fees on the theory that Golden Rule had
arbitrarily and capriciously denied coverage. We find this to
be clear error. Golden Rule terminated Nolan’s policy
consistently with a valid contractual provision in its rider;
such conduct is neither arbitrary nor capricious. Rather, it
is the bargain the parties struck.
We, therefore, REVERSE the award of statutory penalties
and attorney fees.
III.
10
Finally, we address Golden Rule’s claim that the district
court lacked a sufficient evidentiary basis for the following
factual findings: (1) that Nolan returned all but $1,419.83
of First National’s benefit payments, and (2) that Nolan did
not act with an intent to defraud Golden Rule when he failed
to cancel his First National policy. Together, these findings
preclude a finding of fraud.
Though we might disagree with the district court if our
review was de novo, these findings do not constitute clear
error. The district court based its conclusion on evidence
presented at trial, including the testimony of Nolan. Judging
Nolan’s credibility is the role of the trial court, and we
cannot say, upon review of the record, that the district
court’s decision is so contrary to the weight of the evidence
as to be clearly erroneous.
We additionally note that Golden Rule asserted fraud as
an alternative basis for canceling the policy. Since we
reversed the district court’s decision with respect to the
validity of the rider, Golden Rule legitimately canceled the
policy. Therefore, Golden Rule need not rely on the defense
of fraud to avoid statutory penalties under § 22:657(A) by
showing that it did not act arbitrarily and capriciously in
canceling the policy.
11
We, therefore, AFFIRM the district court’s findings of
fact that preclude a finding of fraud.
IV.
In summation, we AFFIRM the district court’s findings of
fact precluding a finding of fraud, but we REVERSE its
judgment in favor of Nolan and its award of statutory
penalties and attorney fees. We therefore remand for entry of
judgment on Golden Rule’s counterclaim for reimbursement of
the claims it paid for Nolan’s benefit. Nolan will bear the
costs of this appeal.
12