Blue Cross & Blue Shield of Maryland, Inc. v. Chestnut Lodge, Inc.

ROBERT M. BELL, Judge. This appeal by Blue Cross and Blue Shield of Maryland, Inc. (hereinafter sometimes referred to as “Blue Cross” and “appellant”) and this cross-appeal by appellees Chestnut Lodge, Inc. (“Chestnut Lodge”) and Gloria A. Powell (“Powell”) both involve benefits payable under a group health insurance policy issued by Blue Cross to employees of the State of Maryland and their beneficiaries. Blue Cross’s appeal challenges both the propriety and the amount of the judgment in favor of appellees. The cross-appeal, on the other hand, asserts appellees’ entitlement to pre-judgment interest.

Perceiving no error, we will affirm the judgment of the Circuit Court for Montgomery County. ¹⁵¹ On or about October 20, 1981, Ms. Powell’s minor dependent son, Anthony E. Powell, was admitted, upon medical advice, to Chestnut Lodge for treatment of his emotional problems. Her agreement to pay Chestnut Lodge $190.00 per day for his care and treatment was covered by Ms. Powell’s ex-husband’s military insurance. As a Maryland State Government employee, Ms. Powell and her dependents were eligible for enrollment in a group insurance plan offered by Blue Cross. Therefore, in January, 1983, at open enrollment, she enrolled herself and her minor daughter, but not her son, in Blue Cross’s Plan II health care program, which provided both basic and major medical coverage.

She received a program benefits booklet, and read it completely. When Ms. Powell received the booklet, she was told that it clearly described the benefits available under the plan and that it contained everything a subscriber would need to know. On the inside cover of the booklet was the following admonition: KEEP THIS BOOKLET IN A SAFE PLACE—If a Member requires care, refer to this booklet for information about benefits. This booklet is provided for descriptive purposes only and therefore, necessarily is brief.

All benefits are subject to provisions of the contracts between the State of Maryland, Blue Cross of Maryland, Inc., and Blue Shield of Maryland, Inc. (Emphasis added). The booklet represented that both the basic and the major medical plans provided coverage and benefits relating to “[c]are for nervous and mental conditions.” Under the basic plan, they are limited to up to 30 days hospitalization, while the major medical benefits would pay for the treatment of those conditions after the basic benefits were exhausted. Neither the description of the basic plan nor the major medical plan contained an “exclusion” for an admission in progress. ¹⁵² Concerned over the adequacy of the coverage provided her son by her ex-husband’s insurance, Ms. Powell sought to enroll her son in her Blue Cross plan. Preparatory to doing so, however, she reread the benefits booklet.

Finding nothing that would exclude her son from coverage, she sought further assurance from Angela Roberts, whom she believed to be a Blue Cross representative, but who was, in actuality, the Health Benefits Coordinator for the State of Maryland. When Ms. Roberts confirmed her conclusion that, despite his hospitalization, her son was eligible for coverage, Ms. Powell enrolled him in her Blue Cross Plan II health care program. Subsequently, Ms. Powell contacted Chestnut Lodge and executed an authorization and assignment of benefits to it. Chestnut Lodge then filed, with Blue Cross, a claim for services rendered to Ms. Powell’s son in March, 1984.

That claim, and those that followed, were submitted to Blue Cross’s major medical benefits division. Blue cross forwarded to Ms. Powell, in respect of the claims for her son’s care and treatment, Explanation of Benefits Forms. Each form stated: “THESE CHARGES APPEAR TO BE ELIGIBLE FOR BLUE CROSS BENEFITS. WE HAVE REFERRED THEM FOR.

YOU. IF THERE IS A BALANCE AFTER THEY HAVE BEEN PROCESSED, YOU MAY REFILE TO US.” Although, as its evidence disclosed, Blue Cross intended, by that language, to convey the message that the claims were not covered—major medical benefits do not apply until there has been an initial claim for, and exhaustion of, basic benefits—Ms. Powell interpreted it to mean that her son was covered. When she continued to receive Explanation of Benefits Forms, but no payments Ms. Powell telephoned Angela Roberts, who, after running a computer check, informed Ms. Powell that she should receive a check within a couple of days. At about the same time, someone from Chestnut Lodge spoke to Blue Cross’s Bill Gray and was informed that the claims processing would be straightened out in a ¹⁵³ couple of weeks.

Shortly thereafter, Ms. Powell received a Statement of Eligible Coverage for August, 1984 and a check, dated October 18, 1984, for $7,490.00. She turned the check over to Chestnut Lodge. The next month, Chestnut Lodge received a Statement of Eligible Coverage for September, 1984 and a check, dated November, 1984, for $7,590.00. An “open enrollment” period, during which State of Maryland Employees were permitted to choose the insurance coverage they desired, was held between August 28 and September 21, 1984.

Since Blue Cross had replaced the existing Plan II program with a new High Option Plan, effective November 1, 1984, a new benefits booklet was issued. That booklet contained a letter to State employees and retirees from Blue Cross’ Director of Account Services, which explained, “If you are currently enrolled in the existing Plan II which is comparable to the new High Option Plan, your membership will automatically continue in effect in the new High Option Plan beginning November 1, 1984. You do not need to submit an application/payroll deduction card.” Ms. Powell chose to continue her current coverage. And because she was informed that to do so, she need not do anything or make any changes in her current Blue Cross policy, she did not read the new booklet.

Both the new benefits booklet and the old one contained a statement that all benefits are subject to the provisions of the master contract between the State of Maryland and Blue Cross. Additionally, both booklets reflected that the plan chosen by Ms. Powell included within its coverage “care for nervous and mental conditions”. Whereas the old benefits booklet did not contain an exclusion for a person who was in the hospital at the time that coverage would have otherwise become effective—a hospitalization in progress—the new booklet contained such an exclusion under the basic Blue Cross coverage. Both the new benefits booklet and the old one had been reviewed by Blue Cross and approved by the State of Maryland prior to distribution to the enrollees. ¹⁵⁴ Notwithstanding that each claim form submitted to Blue Cross contained, in the box designated “date of first symptom”, the notation, “admitted to hospital October 20,1981”, Blue Cross maintained that it did not become aware, until late 1984, that Ms. Powell’s son had been an inpatient at Chestnut Lodge since October 20, 1981. 1 When it did, because the master contract and, in its view, the latest benefits booklet, excluded benefits for admissions in progress, Blue Cross notified Ms. Powell and Chestnut Lodge that Ms. Powell’s son’s treatment and care at Chestnut Lodge were not covered items.

Moreover, it demanded the return of the checks previously issued. 2 The reason given by Blue Cross for denial of coverage was “Our records indicate that the admission was prior to the effective date of coverage.” 3 Appellees filed suit against Blue ¹⁵⁵ Cross seeking to recover the amount of the claims denied by Blue Cross. They also sought a declaration of their rights under the Blue Cross Group policy and, in particular, that the policy covered “the hospitalization, care and treatment” already rendered to Ms. Powell’s son. Although appellees’ complaint contained nine counts, only three of them remained at the conclusion of the court trial: breach of contract, negligent misrepresentation and declaratory judgment counts. The trial court found in favor of appellees on both substantive counts and entered a declaratory judgment consistent therewith. 4 The trial court considered alternative grounds for concluding that appellees should prevail in this litigation: It determined that (1) Blue Cross negligently misrepresented the coverage to which Ms. Powell was entitled under the Blue Cross plan she selected; 5 (2) Blue Cross, by virtue of its omission of a significant exclusion from the benefits booklet describing the coverage and distributed to Ms. Powell, was estopped to enforce the exclusion, notwith ¹⁵⁶ standing that it was contained in the master policy; 6 and (3) Blue Cross breached its contract with Ms. Powell to provide coverage for the treatment of Ms. Powell’s minor son. 7 In its oral opinion, the trial court purported to rely upon the latter finding for its decision.

Nevertheless, as Blue Cross acknowledges, critical to each of the alternative findings is the effect of the omission from the benefits booklet of a significant exclusion which is contained in the master contract. Because it is common to each of the alternative findings discussed by the court and is, in fact, dispositive of this issue, we will address it. As the parties acknowledge, there is authority, albeit not Maryland authority, on both sides of the issue. See ANNOTATION, GROUP INSURANCE: BINDING EFFECTS OF LIMITATIONS ON OR EXCLUSIONS OF COVERAGE CONTAINED IN MASTER GROUP POLICY BUT NOT IN LITERATURE GIVEN INDIVIDUAL INSUREDS, 6 A.L.R. 4th 835 ; ANNOTATION, GROUP INSURANCE: WAIVER OR ESTOPPEL ON BASIS OF STATEMENTS IN PROMOTIONAL OR EXPLANATORY LITERATURE ISSUED TO INSUREDS, 36 A.L.R. 3rd 541.

The majority of the courts addressing the issue have refused to enforce policy exclusions contained in the master contract but which have been omitted from the benefits booklet or other explanatory materials provided to the insured. Domke v. Farmers and Mechanics Savings Bank, 363 N.W.2d 898 ¹⁵⁷ (Minn.App., 1985); Kirkpatrick v. Boston Mutual Life Insurance Co., 393 Mass. 640 , 473 N.E.2d 173 (1985); Hale v. Life Insurance Co. of North America, 750 F.2d 547 (6th Cir.1984); Martin v. Crown Life Insurance Company, 202 Mont. 461 , 658 P.2d 1099 (1983); Krauss v. Manhattan Life Insurance Company of New York, 700 F.2d 870 (2d Cir. 1983); Davis v. Crown Life Insurance Company, 696 F.2d 1343 (11th Cir.1983); Linn v. North Idaho District Medical Service Bureau, Inc., 102 Idaho 679 , 638 P.2d 876 (1981); Davey v. Louisiana Health Service & Indemnity Company, 357 So.2d 1170 (La.App.1978); Van Vactor v. Blue Cross Association, 50 Ill.App.3d 709 , 8 Ill.Dec. 400 , 365 N.E.2d 638 (1977), cert. denied, 66 Ill.2d 637 (1977); Lecker v. General American Life Insurance Company, 55 Haw. 624 , 525 P.2d 1114 (1974); Bauer v. Insurance Company of North America, 351 F.Supp. 873 (E.D.Wis.1972); Lewis v. Continental Life & Accident Company, 93 Idaho 348 , 461 P.2d 243 (1969); Lawrence v. Providential Life Insurance Company, 238 Ark. 981 , 385 S.W.2d 936 (1965). Whether expressed in terms of estoppel, e.g. Martin v. Oklahoma Farmers Union, 622 P.2d 1078, 1078-1080 (Okl.1981), or waiver, e.g., Lewis v. Continental Life & Accident Co., 461 P.2d at 249 , the underlying rationale of these cases is the unfairness of permitting an insurer, who usually drafts the benefits booklet, or at the very least, reviews it to determine its consistency with the master policy, to raise, as an impediment to coverage, a provision in the master policy which is not contained in the explanatory literature.

They recognize that, to construe the provisions in the benefits booklet indicating that coverage is determined by reference to the master contract would render such provisions “a vast, additional exclusionary condition to coverage, making their omission from the [Blue Cross] brochure inexcusable,” Van Vactor v. Blue Cross Association, 8 Ill.Dec. at 406 , 365 N.E.2d at 644 , and would “encourage insurers to withhold the master policy and include few important provisions” in the benefits booklet or other explanatory literature provided to insureds. See Davis v. Crown Life Insur ¹⁵⁸ anee Company, 696 F.2d at 1346 . Thus, language in the benefits booklet to the effect that benefits are subject to the terms of the master policy does not change the result; an insurer will not “be allowed to hide behind the technical provisions of the policy when the misleading shortcomings of his booklet are exposed.” See Bauer v. Insurance Company of North America, 351 F.Supp. at 876 . Nor does the fact that the exclusion relates to a provision in the master policy excluding conditions commencing prior to the effective date of coverage change the result.

See e.g. Lawrence v. Providential Life Insurance Company, 385 S.W.2d at 937-39 ; Davis v. Crown Life Insurance Company, 696 F.2d at 1344-46 ; Domke v. Farmers & Mechanics Savings Bank, 363 N.W.2d at 899-901 . On the other side of the issue are those cases which focus on the language in the benefits booklet or other explanatory material, conditioning the coverage upon the provisions contained in the master contract. See, e.g.

Shenandoah Life Insurance Company v. French, 236 Va. 427 , 373 S.E.2d 718 (1988); Morrison Assurance Company, Inc. v. Armstrong, 152 Ga.App. 885 , 264 S.E.2d 320 (1980) 8 ; ¹⁵⁹ Transport Life Insurance Company v. Karr, 491 S.W.2d 446 (Tex.Civ.App.1973); Trustee Life Insurance Company v. Kidd, 45 Ala.App. 364 , 231 So.2d 141 (1970); Chrysler Corporation v. Hardwick, 299 Mich. 696 , 1 N.W.2d 43 (1941); Boseman v. Connecticut General Life Insurance Company, 301 U.S. 196 , 57 S.Ct. 686 , 81 L.Ed. 1036 (1937); Page v. Prudential Insurance Company of America, 231 Ala. 405 , 165 So. 388 (1936). Illustrative of the cases in this group and the one appellant deems closest, factually, to the case sub judice is Trustee Life Insurance Company v. Kidd. There, the master group health and accident policy provided that a dependent of an insured would not be covered by the policy until the day following that dependent’s final discharge from the hospital. The certificate of insurance issued to the insured, however, did not contain that exclusion; rather, it provided that it “summarizes some of the provisions of the group policy.” (Emphasis in original) 231 So.2d at 143 .

Holding in favor of the insurance company, the court reasoned that there was no material conflict between the provisions of the group insurance policy issued to the policyholder, City of Gadsden, Alabama and the group certificate issued to its employee. It pointed out that “the difference in the provisions in the two instruments is the result of an omission of one provision from the certificate that is contained in the group policy, and, as we have seen, it was intended that the group policy contain all of the agreements of the parties of the contract, and the certificate contain only some of the provisions from the group policy.” 231 So.2d at 144 . In addition to arguing that the cases supportive of its position are more persuasive, Blue Cross asserts that they are more closely consistent with Maryland law. In that regard, it maintains that Maryland has no statutory requirement corresponding to