Guardian Life Insurance Co. of America v. Insurance Commissioner

Murphy, C. J., delivered the opinion of the Court. This case involves a claim for benefits under a policy of group health insurance written by The Guardian Life Insurance Company of America (Guardian), a New York corporation licensed to do business in Maryland. The policy covers employees of Data Technology Industries, Inc. (DTI), a Maryland corporation with its principal place of business in this State. The basic issue is whether charges incurred by two DTI employees for outpatient mental health treatment — charges not covered under the terms of the Guardian policy — must nevertheless be paid by the insurer because of the provisions of Maryland Code (1957, 1979 Repl.

Vol.), Art. 48A (the Insurance Code), § 477E, which mandate the inclusion of coverage for such outpatient treatment in every group health insurance policy "delivered or issued for deliverance” in Maryland. Guardian declined to pay the charges, contending that the policy was issued and delivered in Rhode Island, and consequently it was required to make payment only to the extent that the outpatient charges were covered by the benefit provisions of the policy. 1 The Maryland Insurance Commissioner, and on appeal from his order, the Baltimore City Court, concluded that Guardian ⁶³² was required to pay the benefits mandated by § 477E to the Maryland Foundation of College Park, Inc. (the Foundation), which had provided the outpatient treatment to DTI’s employees. 2 Guardian appealed to the Court of Special Appeals. We granted certiorari prior to decision by that court to consider the important issues of statutory construction presented in the case. I "Group health insurance” is defined in § 471 of the Insurance Code as "that form of health insurance covering groups of persons [as thereafter defined in seven subsections] .. . and issued upon the following basis: (1) •• • (2) ...

(3) Under a policy issued to the trustees of a fund established by two (2) or more employers in the same or related industry .. ., which trustees shall be deemed the policyholder, to insure employees of the employers . . . .” Section 472 requires that "[e]ach such group health insurance policy” contain a provision, among others: "that the insurer will furnish to the policyholder for delivery to each employee or member of the insured group, a statement in summary form of the essential features of the insurance coverage of such employee or member and to whom benefits thereunder are payable.” ⁶³³ Section 477A provides that insurers who "substantially conform” their group health policies to any of the groups described in § 471 may solicit coverage in Maryland without prior approval of the Insurance Commissioner. Section 377A of the Insurance Code provides that no health insurance policy may be "delivered or issued for delivery in this State” if it contains, inter alia, a provision that the contract is to be construed according to the laws of another state, or that the rights and obligations of the insured are governed by other than the laws of Maryland. II The record discloses that on March 27, 1967, a trust agreement was executed between Guardian, as settlor of the trust, and the Rhode Island Hospital Trust Company (the Bank), as trustee. The stated purpose of the agreement was to implement "a group insurance plan for the benefit of employees of employers who become participants in accordance with the terms ... [of the trust agreement] through the utilization of an insurance fund created by the participants . . . .” Article II of the trust agreement entitled "Creation of the insurance fund by participants,” identified the "participants” as those employers in the services industry who agreed in writing to be bound by the agreement’s provisions and who were approved by Guardian for insurance coverage under a group insurance policy "held by the trustee.” By its terms, the trust agreement required each participating employer to pay into the insurance fund, either to the trustee, or to Guardian if the trustee appointed the insurer as its collection agent, amounts sufficient to pay premiums for the insurance coverage acquired, together with an allocable share of the trustee’s administrative charges.

The agreement specified that the trustee accepted the trust in Rhode Island and that all questions pertaining to its validity, construction and administration would be determined in accordance with the law of Rhode Island. Title to the insurance fund under the agreement was vested in the ⁶³⁴ trustee. The agreement provided that the insurance fund would be disbursed only to pay premiums for group insurance procured by the trustee and for reasonable charges made by the trustee. The agreement further provided that the trustee, "as the policyholder,” would procure group insurance of various specified types through Guardian.

Guardian was empowered by the agreement to remove the Bank as trustee upon thirty days’ written notice. Finally, Article IV provided that requests for participation from employers "shall be made by executing an adoption agreement binding said employer to the terms of this agreement and to the terms of the insurance policy or policies issued hereunder,” subject to the approval of the insurer. On June 1,1967, Guardian issued Group Insurance Policy No. 1 (the master policy), identifying the "policyholder” as the Bank acting as "Trustees of the Services Industry Insurance Trust Fund.” The master policy states on its cover page that it was delivered in Rhode Island and is governed by the laws of that state; that premiums are payable by the "policyholder” and that benefits are as specified "in the employer rider applicable to each participating employer”; that "[a]n eligible employer may become a participating employer by filing, through the trustees, with the home office of the insurance company, an agreement executed by the employer adopting the terms of the trust agreement and by receiving the insurance company’s approval, in writing, of its inclusion as a participating employer”; and that the employer becomes a "participating employer” in accordance with the terms of the employer rider, which forms a part of the master policy and which "contains details of the plan of insurance pertaining to the employees of ... [the] participating employer.” The master policy provides under the heading "Schedule of Insurance and Premium Rates” that "[t]his group policy, together with any amendments thereto, contains all the insurance coverages which may be provided by the employer rider.” Under heading of "The Contract” the policy specifies that it, and any riders and amendments thereto, "and the application of the pol ⁶³⁵ icyholder, a copy of which is attached hereto or endorsed hereon and made a part hereof, and the individual applications, if any, of the employees constitute the entire contract between the parties.” The policy provides under the heading "Employee Certificate” that Guardian "will issue to the policyholder, for delivery to each employee insured hereunder, an individual certificate which shall state the essential features of the insurance to which the employee is entitled and to whom the benefits are payable . . . .’’The master policy further provides that the certificate shall not constitute a part of the policy. Then follows a iengthy recitation of the various group coverages available to participating employers, together with detailed information covering premium rates and provisions outlining the terms and conditions pursuant to which the insurance contracts are to be governed.

On February 21, 1973, DTI, having been solicited by a licensed Guardian agent in Maryland, completed an application for group health insurance on a form prepared by Guardian. The application contained a section entitled "Request for Participation hi a certain trust agreement dated March 27,1967”; the "request” was addressed to the Bank as trustee. It stated that DTI was engaged in the services industry and sought approval as a participant "in the Fund established by other Employers engaged in the same industry for the purpose of purchasing insurance for the benefit of their employees and requests the Trustee to apply to ... Guardian ... for inclusion under the Group insurance policy(s) issued to the Trustee for the plan(s) of insurance shown in Section 1....” DTI agreed in its application, among other things, to be bound by all terms of the trust agreement, all amendments thereto, and by all provisions of the policy issued to the trustees.

In a section of the application marked "Home Office use only,” appears this statement: "Policy governed by the laws of the State of Rhode Island.” Guardian issued an "Employer Rider” to DTI, effective June 1, 1973, setting forth the details of the plan of group health insurance which DTI had selected. The rider identified the "policyholder” as the trustee of the insurance ⁶³⁶ fund and the group policy as No. G-22970-I. A "certificate” in booklet form was thereafter issued to each of DTI’s insured employees, explaining the benefits provided by DTI’s insurance plan. The certificate stated that it was not a part of the "policy contract.” It did not state that the described benefits were governed by Rhode Island law, nor did it reveal the involvement of the Rhode Island trustee in the acquisition of the group policy. Ill Upon Guardian’s refusal to pay the Foundation for outpatient mental health treatment rendered to the DTI employees, the Foundation filed a complaint with the Maryland Insurance Commissioner.

It claimed that Guardian’s limited outpatient benefits did not comply with the mandated coverage provisions of § 477E of the Insurance Code which were applicable to policies of group health insurance "delivered or issued for deliverance” to any person in this State. Guardian defended the claim on the ground that the coverage afforded to DTI’s employees was based upon a policy issued to "trustees of a fund established by two (2) or more employers in the same or related industry,” as authorized by § 471 (3); that this section provided that the "trustees shall be deemed the policyholder”; that because the policy was delivered to the trustees in Rhode Island, it was not "delivered or issued for deliverance” in Maryland, and therefore the mandated coverage provisions of § 477E had no application to the Guardian policy. At the evidentiary hearing before the Commissioner, the testimony of Robert Dobbins, Vice President of Guardian, was introduced. He indicated that Guardian had been writing group coverage in the form of multiple employer trust policies since 1964; that Guardian maintains 26 such trust plans throughout the country, with Rhode Island Hospital Trust Company acting as trustee in each instance "because of [its] expertise in handling trusts”; and that in Maryland approximately 376 employers obtained coverage ⁶³⁷ for their employees pursuant to this arrangement, resulting in annual premium payments of $2,585,000.

Dobbins explained that a multiple insurer trust is established to cover employers in a related industry so as to afford benefits to small groups that could not otherwise qualify for available high risk benefits. The trust arrangement, he said, was established to permit the insurer "to pass on to participating employers” savings resulting from the reduction in administrative costs by eliminating the need to issue a separate policy to each employer. Dobbins testified that were it not for the multiple employer trust vehicle, Guardian could not afford to underwrite small employer groups. He said that Guardian does not use this form of group coverage to avoid state regulation but rather as "a simplified plan of insurance which we can offer to most small employers in the fifty states.” Dobbins testified that the master policy is not delivered to the participating employer, but only to the trustee as the policyholder.

According to Dobbins, an employer receives only a "participation rider,” which he referred to as the "policy” for the participating employer. He acknowledged that the benefits and coverages are set forth in the employer rider which is in effect tailored to meet the needs of each individual employer. Dobbins admitted that the trustee in the present case performs no administrative duty other than to serve as the holder of the master policy, for which it receives $450 annually. He stated that the trustee appointed Guardian as its collection agent and that all premiums are paid by the employers directly to the insurer.

Dobbins acknowledged that Guardian’s "in house” documents and internal memos indicate that DTI, and not the trustee, was the "policyholder” of Group Policy G-22970-I, which was delivered in Maryland. He stated, however, that the terminology used in these internal documents was not an accurate reflection of what actually occurred because the master policy, which is controlling, was not issued or delivered in Maryland, but in Rhode Island. ⁶³⁸ The Insurance Commissioner found that the sole function served by the Guardian/Bank Trust was "to receive and hold the so-called 'master policy’ and it performs no other administrative functions”; that "the employers who obtain[ed] insurance through Guardian did not establish the trust and have no control over the trustees or the trust except to end their insurance coverage”; that consequently the trust vehicle was "not a trust established by two or more employers .. . as required by § 471(3)”; that "[t]he purpose of the trust and trust fund established by Guardian is to avoid mandated benefits”; that "the mandated benefits of § 477E ... are applicable to the policy in question which is deemed to have been delivered in Maryland”; that "[notwithstanding actual delivery of the master policy to the trust in Rhode Island, the subsequent delivery of the rider, booklet, schedule and certificates, [to DTI in Maryland] constitute[d] sufficient delivery in this State for purposes of § 477E.” The Commissioner ordered Guardian "to accept the claims in accordance with § 477E with the right to demand from the insured the proportionate amount of premium which would have been generated as a result of these two individuals.” On appeal, the Baltimore City Court (Greenfeld, J.) concluded that the trust and trust fund were illusory because the trustee’s only function was to hold the master policy, while Guardian solicited the employers, issued the employer riders, billed for and collected the premiums, and handled all inquiries and claims — that "[a]ll of the work attendant to the insurance is done exclusively by Guardian.” The court said that the legislature, in enacting § 471 (3), did not intend "to permit the creation of a totally non-functioning trust as a means to avoid regulation by the State insurance commissioner.” It stated: "The preferred status given to multiple employer group health insurance trusts but not to other multiple employer group health insurance plans which also use a