WEBER v BLUE CROSS OF MONTANA

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No. 80-453 I N THE SUPREME COURT OF THE STATE O M N A A F OTN 1981 RICHARD A. W B R and JUNE WEBER, EE P l a i n t i f f s and R e s p o n d e n t s , VS . BLUE CROSS OF MONTANA, a c o r p o r a t i o n , D e f e n d a n t s and A p p e l l a n t s . Appeal from: D i s t r i c t Court of t h e Eighth J u d i c i a l D i s t r i c t , I n and f o r t h e County o f C a s c a d e . H o n o r a b l e H. W i l l i a m C o d e r , J u d g e p r e s i d i n g . C o u n s e l o f Record: For Appellants: C h u r c h , H a r r i s , J o h n s o n and W i l l i a m s , G r e a t F a l l s , Montana C h a r l e s Love11 a r g u e d , G r e a t F a l l s , Montana For Respondents: R e g n i e r and L e w i s , G r e a t F a l l s , Montana James A. R e g n i e r a r g u e d and Thomas L . Lewis a r g u e d , G r e a t F a l l s , Montana Submitted: Filed: FEB 4 - 1982 Decided: September 1 5 , 1 9 8 1 FE0 4.m Mr. J u s t i c e J o h n Conway H a r r i s o n d e l i v e r e d t h e Court. t h e Opinion of R i c h a r d a n d J u n e Weber, p l a i n t i f f s and r e s p o n d e n t s , f i l e d t h i s action i n the Seventeenth J u d i c i a l D i s t r i c t , in a n d f o r V a l l e y C o u n t y , on F e b r u a r y 7 , 1 9 7 4 , s e e k i n g damages for contract benefits C r o s s on t h e i r 1977, the District moved and medical case was wrongful plan to add infliction punitive of contract. transferred i n Cascade County. to On the damages for by Blue September Eighth On F e b r u a r y emotional d i s t r e s s , o r i g i n a l complaint. cancellation 19, Judicial 9, 1 9 7 9 , Webers fraud, intentional and bad faith to their S h o r t l y b e f o r e t r i a l Webers a l s o s o u g h t t o a d d a n a d d i t i o n a l c l a i m a l l e g i n g v i o l a t i o n o f t h e Montana I n s u r a n c e Code. The c a s e was tried June 23 t h r o u g h 27, 1 9 8 0 , and t h e d i s t r i c t j u d g e a l l o w e d t h e c a s e t o go t o t h e jury on verdict all in pensatory issues favor of damages of liability. plaintiffs sought, The for every $157,137, and d o l l a r o f t h e p u n i t i v e damages, $ 9 9 9 , 9 9 9 . motions for judgment notwithstanding returned dollar for in all com- but verdict, one a new a l l of which were B l u e C r o s s now a p p e a l s . R i c h a r d a n d J u n e Weber, p l a i n t i f f s - r e s p o n d e n t s , n i n e c h i l d r e n and Weber a Blue Cross f i l e d the t r i a l , and t o amend o r a l t e r t h e j u d g m e n t , denied. jury has a l i v e i n Glasgow, successful dental Montana, d e f e n d a n t - a p p e l l a n t , Montana, practice. have where R i c h a r d Blue Cross of is a p r i v a t e , n o n p r o f i t h e a l t h s e r v i c e corporation marketing h e a l t h c a r e p l a n s throughout Montana. I n March 1972 Dr. Weber received an informational b r o c h u r e d e s c r i b i n g t h e "Montana D e n t a l P l a n , " a new g r o u p p o l i c y f o r Montana d e n t i s t s . Dr. and Mrs. Weber reviewed the plan, determined that it was less expensive than their current health insurance, and decided to apply for membership. Although every dentist in Montana could apply, only medically-qualified applicants were accepted. On April 12, 1972, Jim Burke, a Blue Cross sales representative, met with Dr. Weber at his dental office to complete the membership application. questions and filled out the application answered the questions. for Burke accuracy, and asked Weber form as Weber Dr. Weber checked the application then both Weber and Burke signed the application. The application, which Dr. Weber read once before signing, noted that "there will be a waiting period of 12 months for all preexisting conditions" and that "misrepresentations void." in this application will render the contract However, Dr. Weber was not given a copy of the application or the contract and was not advised that the application was part of the contract. Dr. Weber specifically asked Burke if Blue Cross could cancel any member's policy without canceling the whole group plan, and Burke assured him that it was noncancelable. The contract, however, allowed Blue Cross to cancel upon thirty days' notice. The "completed" application was then sent to Blue Cross for processing. Although the application requested the name of the family doctor, and the date, hospital, and physicians that had treated any medical problem, this information was not provided. Blue Cross nonetheless accepted the application and issued the Webers a membership card and a copy of the application on May 1, 1972. It is not clear whether a copy of the contract was first sent to Webers on May 1, 1972, or in 1973 when their attorney. requested one. In any event, Webers canceled their old insurance shortly after May 1, 1972. On May 25, 1972, and in October 1972, June Weber was hospitalized in Glasgow for what was initially diagnosed as a bleeding ulcer. On both occasions the bills were sent to Blue Cross but were not paid. In November 1972 June Weber went to Billings for extensive testing by Dr. Hurley, an internist. Dr. Hurley diagnosed varices of the esophagus (vericose veins in the esophagus) and a polyp in her duodenum (growth in the small intestine). This bill was also sent to Blue Cross but was not paid. In April 1973 June Weber had another bleed, and an airplane was chartered to fly her to Billings for treatment. She had surgery for the esophageal varices. Again the bill was submitted to Blue Cross and was not paid. Webers first became aware that bills were not being paid in August 1972 when Dr. Weber got a second bill for the May 1972 hospitalization. Blue Cross agent and receive a bill. Dr. Weber contacted the local was told that Blue Cross did not (In fact, Blue Cross had received the bill on June 22, 1972.) Dr. Weber asked the hospital to send Blue Cross another bill, but it too was not paid. In March 1973 Dr. Weber wrote the Montana Dental Association, the Montana legislature and Blue Cross to complain about the trouble he was having with Blue Cross. In response to this letter, Blue Cross claims manager Nehus wrote on March 23, 1973, indicating that the April 12, 1972 a p p l i c a t i o n was retained. reviewed, considered for cancellation, but B l u e C r o s s t h e n d e n i e d payment on g r o u n d s o f p r e - existing conditions. Blue hospital Cross had b i l l s on J u n e originally 22, 1972. received requested a copy of the May On J u l y 1 4 , S h u l l , medical d i r e c t o r f o r Blue C r o s s , and the 1972 1 9 7 2 , Dr. reviewed t h e b i l l s hospital history from the Glasgow h o s p i t a l i n o r d e r t o d e t e r m i n e w h e t h e r t h e c l a i m was preexisting. made Blue Cross s e v e r a l more received requests for incomplete information, information, and completed i t s f i l e s on F e b r u a r y 7 , 1 9 7 3 , when i t d e t e r m i n e d t h a t J u n e W e b e r ' s m e d i c a l c o n d i t i o n was p r e e x i s t i n g . On March 23, 1 9 7 3 , B l u e C r o s s n o t i f i e d Webers t h a t b i l l s a s s o c i a t e d w i t h e s o p h a g e a l v a r i c e s would n o t be p a i d because 1973, the Blue c o n d i t i o n was p r e e x i s t i n g . Cross sent the Webers a Then, letter on J u n e 1, unilaterally d e c l a r i n g t h e c o n t r a c t v o i d b e c a u s e Dr. Weber had m i s r e p r e sented h i s family's h e a l t h on t h e a p p l i c a t i o n . This s u i t followed. trial At whether or existing. n o t June Weber's In general, indicating credible t h e r e was v o l u m i n o u s that they evidence testimony concerning e s o p h a g e a l v a r i c e s were p r e - t h e r e was a g r e a t d e a l o f were not preexisting, indicating that they were evidence and little preexisting. The p o i n t became moot, however, when J u r y I n s t r u c t i o n No. 1 2 was g i v e n , which i n d i c a t e d t h a t a m e d i c a l c o n d i t i o n s h o u l d not be considered preexisting unless it p r i o r t o t h e e f f e c t i v e d a t e of i n s u r a n c e . Blue Cross p r e s e n t e d manifest All itself the evidence i n d i c a t e d t h a t t h e c o n d i t i o n may h a v e e x i s t e d , b u t t h e c o n d i t i o n was unknown p r i o r t o May 1, 1 9 7 2 . Therefore, Blue Cross admitted during closing argument that, based on the jury instructions, there were no preexisting conditions. However, there continues to be a great deal of disagreement as to whether Dr. Weber misrepresented the health of his family when completing the application for membership in the Montana Dentists' Group Plan. Dr. Weber did reveal that June Weber had a minor kidney infection twelve years earlier, that June Weber had her spleen and gallstones removed three years earlier, and that seven of his nine children wore glasses. Medical conditions that Dr. Weber did not - reveal include: 1. 2. June Weber's familial (inheritable) anemia; Dr. Weber's heart condition for which he occasionally took medication; and that Dr. Weber also suspected his son had a heart problem; 3. June Weber's continuing bladder trouble; 4. Removal of June Weber's ovary; 5. Five or six visits that June Weber had made to the local mental health center in the past year; 6. An ear infection and subsequent dizziness experienced by June Weber; 7. June Weber's chronic diarrhea; 8. Dr. Weber's hiatal hernia; 9. Son's dislocated shoulder; 10. Daughter's broken arm; and 11. Daughter's pneumonia. In each case Blue Cross presented testimony indicating that these conditions constituted a "departure from good health" and, therefore, it was a material misrepresentation to not disclose this information on the application. Webers presented testimony that these conditions, as they affected the Webers, were not a departure from good health and that there was no reason to mention them on the application. Dr. Weber further testified that he considered it a personal judgment call and that in his personal opinion it was not necessary to list that information. In any event, Dr. Weber testified he told Burke about June Weber's hysterectomy and anemia and that Burke did not consider it important enough to record on the application. Evidence was also presented at trial concerning past medical expenses, distress. May future medical and emotional Benefits the Webers would have received between 1, 1972, and June 27, $24,250. expenses 1980, minus premiums, total Currently, June Weber goes to Chicago once a year to treat her esophageal varices, which costs $3,500 a trip. Thus, future medical expenses are estimated at $47,887. Finally, the jury awarded $55,000 to June Weber and $30,000 to Richard Weber for emotional distress. for compensatory damages ($24,250 + Thus, the total $47,887 + $85,000 = $157,137) is $157,137. Evidence was offered, and rejected, showing that Dr. Weber made similar "misrepresentations" on an application for Blue Shield membership following cancellation of the Blue Cross membership. Blue Cross also offered, and had rejected, evidence showing that Webers collected $13,000 from an American Dental Association plan obtained after the Blue Cross cancellation. Six issues are raised on appeal: 1. Are h e a l t h s e r v i c e c o r p o r a t i o n s s u b j e c t t o t h e Montana I n s u r a n c e Code? Did 2. motion for t h e t r i a l c o u r t p r o p e r l y deny t h e d e f e n s e directed verdict on the i s s u e s of actual and constructive fraud? 3. Did t h e t r i a l c o u r t p r o p e r l y d e n y t h e d e f e n s e m o t i o n f o r d i r e c t e d v e r d i c t on t h e t o r t o f bad f a i t h ? 4. Did t h e t r i a l c o u r t p r o p e r l y e x c l u d e e v i d e n c e o f insurance received subsequently t o t h e Blue Cross p o l i c y ? 5. Weber Did t h e t r i a l c o u r t p r o p e r l y r e f u s e t o a l l o w Dr. to be impeached with his subsequent Blue Shield application? 6. Was t h e r e s u f f i c i e n t e v i d e n c e t o s u p p o r t a n award o f $ 1 5 7 , 1 3 7 i n c o m p e n s a t o r y damages and $999,999 i n p u n i t i v e damages? I. INSURANCE CODE Are health service Montana I n s u r a n c e Code? It health code. is evident in that 1972, subject to the W hold they a r e not. e service corporations First, corporations the legislature did not t o be health bound service by the intend insurance corporations were r e g u l a t e d by t h e a t t o r n e y g e n e r a l , r a t h e r t h a n t h e i n s u r a n c e commissioner. S e c t i o n 15-2304, R.C.M. 1947, provided: "All health s e r v i c e corporations organized h e r e u n d e r s h a l l be s u b j e c t t o s u p e r v i s i o n by t h e p a r t i c u l a r p r o f e s s i o n a l board or h o s p i t a l b o a r d o r a g e n c y u n d e r which members o r h o s p i t a l s a r e l i c e n s e d and t h e y s h a l l a t a l l t i m e s b e s u b j e c t t o e x a m i n a t i o n by t h e a t t o r n e y g e n e r a l on b e h a l f o f t h e s t a t e , t o a s c e r t a i n t h e c o n d i t i o n of a f f a i r s of any such corporat i o n , and t o what e x t e n t , i f a t a l l , any s u c h c o r p o r a t i o n may f a i l t o comply w i t h t r u s t s w h i c h i t h a s assumed o r may d e p a r t f r o m t h e g e n e r a l p u r p o s e s f o r which i t i s f o r m e d , and i n c a s e o f any such f a i l u r e o r d e p a r t u r e t h e a t t o r n e y g e n e r a l s h a l l i n s t i t u t e , i n t h e name of the s t a t e , the proceedings necessary t o c o r r e c t t h e same; a l l s u c h m e d i c a l , h o s p i t a l or health service corporations heretofore o r g a n i z e d and e x i s t i n g u n d e r t h e n o n p r o f i t c o r p o r a t i o n l a w s o f Montana s h a l l be s u b j e c t t o the provisions hereof . . ." Second, h e a l t h s e r v i c e c o r p o r a t i o n s were s p e c i f i c a l l y exempt f r o m t h e i n s u r a n c e c o d e by s e c t i o n 40-2611, R.C.M. 1947, which s t a t e d : "This code s h a l l n o t a p p l y t o h e a l t h service corporations, t o t h e e x t e n t t h a t t h e e x i s t e n c e and operations of 15-1401 s u c h c o r p o r a t i o n s a r e a u t h o r i z e d by [now s e c t i o n 15-23011 section and r e l a t e d s e c t i o n s o f the R e v i s e d Code o f Montana, 1.947." Third, 20 which t h e 1 9 7 1 L e g i s l a t u r e p a s s e d House R e s o l u t i o n recognized corporations. the unique status of health service HR 2 0 , 1 9 7 1 , p r o v i d e s i n p a r t : "WHEREAS, a s o f now, h e a l t h s e r v i c e c o r p o r a t i o n s a r e n o t under t h e j u r i s d i c t i o n of t h e i n s u r a n c e c o m m i s s i o n e r , and "WHEREAS, t h e s a i d c o r p o r a t i o n s a r e n o t a m e n a b l e t o t h e i n s u r a n c e c o d e , t i t l e 40, RCM 1947 . . ." Fourth, the 1 9 7 1 L e g i s l a t u r e k i l l e d House B i l l 253 which would h a v e made h e a l t h s e r v i c e c o r p o r a t i o n s s u b j e c t t o t h e i n s u r a n c e code. W t h e r e f o r e conclude t h a t t h e l e g i s l a e t u r e , p r i o r t o 1972, d i d n o t i n t e n d h e a l t h s e r v i c e corporat i o n s t o be s u b j e c t t o t h e i n s u r a n c e c o d e . F u r t h e r , B l u e C r o s s was s u r p r i s e d by t h e l a t e a d d i t i o n o f t h e i n s u r a n c e code claim. brief Webers s t a t e d i n t h e i r i n s u p p o r t o f t h e m o t i o n f o r l e a v e t o amend t h e com- plaint that, "plaintiffs are not alleging t h a t a violation of t h e [ i n s u r a n c e ] code o c c u r r e d . " Yet, the p r e t r i a l order d a t e d J u n e 23, 1 9 8 1 , t h e d a y t r i a l b e g a n , c o n t a i n e d a l l e g a t i o n s of i n s u r a n c e code v i o l a t i o n s . B l u e C r o s s was u n d e r - standably surprised and prejudiced by this addition Cross of in , v i o l a t i o n o f R u l e 6 0 ( b ) ( 1 ) M.R.Civ.P. Appellant (1973), cites 1 6 2 Mont. Harsh 546, v. 514 P.2d Blue 767, an o r d e r Montana denying a supervisory writ, a s supporting the proposition t h a t health s e r v i c e c o r p o r a t i o n s a r e n o t s u b j e c t t o t h e insurance code. However, section I, part 5, of t h e Montana Supreme C o u r t I n t e r n a l Operating Rules, provides t h a t "Orders not . . . be proceeding." cited as authority in any . . . shall subsequent Thus, t h e Harsh d e c i s i o n i s i r r e l e v a n t . R e s p o n d e n t s c i t e F a s s i o v . Montana ~ h y s i c i a n s ' s e r v i c e (1976), 1 7 0 Mont. 320, P.2d 553 998, as supporting the proposition that health service corporations are subject t o t h e i n s u r a n c e code. However, reference to whatsoever the b r i e f s i n t h a t c a s e made no insurance i n s u r a n c e c o d e was n o t a t i s s u e , code. Thus, the and any r e f e r e n c e t o t h e i n s u r a n c e code i n t h e F a s s i o d e c i s i o n is p u r e l y d i c t a . W e conclude t h a t h e a l t h s e r v i c e c o r p o r a t i o n s a r e n o t s u b j e c t t o t h e Montana I n s u r a n c e Code and t h a t J u r y I n s t r u c t i o n Nos. 17 and 1 9 , b i n d i n g B l u e C r o s s o f Montana t o t h e i n s u r a n c e code, were e r r o n e o u s . 11. DIRECTED VERDICT ON ACTUAL AND CONSTRUCTIVE FRAUD Did t h e t r i a l c o u r t p r o p e r l y d e n y t h e d e f e n s e m o t i o n f o r a d i r e c t e d v e r d i c t on t h e i s s u e s o f a c t u a l and c o n s t r u c tive fraud? W e hold the directed verdict was properly denied. When deciding a motion for directed verdict, the t r i a l judge must view t h e e v i d e n c e i n a l i g h t most f a v o r a b l e t o the plaintiff. Ferguson v. Town Pump I n c . ( 1 9 7 8 ) , 177 Mont. 1 2 2 , 580 P.2d 9 1 5 . No c a s e s h o u l d be w i t h d r a w n f r o m t h e j u r y i f r e a s o n a b l e men may d i f f e r a s t o t h e c o n c l u s i o n s drawn from t h e e v i d e n c e . S o l i c h v . H a l e ( 1 9 6 7 ) , 1 5 0 Mont. 3 5 8 , 435 P.2d 883. R e p r e s e n t a t i o n s designed t o induce one t o e x e c u t e a c o n t r a c t m u s t be made i n good f a i t h . v. D i s t . C t . , Eleventh J . D . , P.2d 9 1 7 , 921. Etc. S t a t e ex r e l . ( 1 9 7 6 ) , 170 Mont. Dimler 7 7 , 550 I f t h e r e p r e s e n t a t i o n s a r e f a l s e , a cause of a c t i o n would l i e u n d e r ( 1 ) t h e " b r e a c h o f o b l i g a t i o n " t h e o r y of s e c t i o n 17-208, t i v e fraud theory, R.C.M. 1947, o r s e c t i o n s 13-307 ( 2 ) a c t u a l or construct o 13-309, R.C.M. 1947. S e e , D i m l e r , 550 P.2d a t 921. The e v i d e n c e , v i e w e d i n a l i g h t m o s t f a v o r a b l e t o t h e r e s p o n d e n t s , i n d i c a t e s r e a s o n a b l e men c o u l d d i f f e r a s t o t h e c o n c l u s i o n s drawn f r o m t h e e v i d e n c e . Burke a l l e g e d l y r e p r e - s e n t e d t h e B l u e C r o s s p o l i c y a s n o n c a n c e l a b l e , y e t i t was canceled. Blue Cross brochures promised "comprehensive h e a l t h c a r e , " y e t c l a i m s were d e n i e d b e c a u s e o f p r e e x i s t i n g c o n d i t i o n s t h a t Blue Cross could n o t prove. Other examples e x i s t , b u t t h e p o i n t r e m a i n s t h e same: r e a s o n a b l e men c o u l d differ as to the conclusions drawn from the evidence. T h e r e f o r e , t h e d i r e c t e d v e r d i c t was p r o p e r l y d e n i e d . 111. DIRECTED VERDICT ON BAD FAITH Did t h e t r i a l c o u r t p r o p e r l y d e n y t h e d e f e n s e m o t i o n f o r d i r e c t e d v e r d i c t on t h e t o r t o f bad f a i t h ? W hold t h e e d i r e c t e d v e r d i c t was p r o p e r l y d e n i e d . T h i s Court noted in Dimler, supra, that when one p a r t y makes r e p r e s e n t a t i o n s which i n d u c e a s e c o n d p a r t y t o enter into a contract, the f i r s t party's "representations n e c e s s a r i l y contain an obligation 550 P.2d a t 921. to act i n good faith." I f t h e c o n t r a c t is subsequently breached, " [ a ] c a u s e o f a c t i o n may s o u n d i n t o r t a l t h o u g h i t a r i s e s out of a breach of contract, if a defaulting party, by b r e a c h i n g t h e c o n t r a c t , a l s o b r e a c h e s a d u t y which h e owes t o t h e o t h e r p a r t y independently of the contract." S e c . Bank o f Bozeman v . Goddard ( 1 9 7 9 ) , 1 8 1 Mont. P.2d 1040, 1047, 36 St.Rep. 854. Goddard, First 407, 593 unlike the i n s t a n t c a s e , i n v o l v e s an i n s u r a n c e c o n t r a c t , b u t t h e l e g a l p r i n c i p l e s a r e t h e same. Blue Cross h a s an o b l i g a t i o n t o a c t i n good f a i t h w i t h i t s members. This is e s p e c i a l l y t r u e b e c a u s e B l u e C r o s s i s i n a much b e t t e r b a r g a i n i n g p o s i t i o n t h a n t h o s e a p p l y i n g f o r membership i n i t s p r o g r a m . Usually t h e a p p l i c a n t h a s no v o i c e i n t h e p r e p a r a t i o n o f t h e con- tract. Further, when a c l a i m is f i l e d , o f t e n t h e member "may be i n d i r e f i n a n c i a l s t r a i t s and t h e r e f o r e may be e s p e c i a l l y v u l n e r a b l e t o o p p r e s s i v e t a c t i c s by [ a h e a l t h s e r v i c e corporation] seeking a settlement or release." G o d d a r d , 593 P.2d a t 1 0 4 7 . In the instant case, t h e e v i d e n c e viewed i n a l i g h t most f a v o r a b l e t o t h e r e s p o n d e n t s i n d i c a t e s t h a t Blue C r o s s d i d n o t g i v e Webers a w r i t t e n copy o f t h e i r c o n t r a c t r i g h t s until t h e Webers h i r e d a n a t t o r n e y . arguably, unreasonably denied Further, t h e Webers' Blue Cross, claims. Thus, r e a s o n a b l e men c a n d i f f e r a s t o t h e c o n c l u s i o n s r e a c h e d by t h e e v i d e n c e , and t h e d i r e c t e d v e r d i c t was p r o p e r l y d e n i e d . IV. OTHER INSURANCE CLAIMS Did insurance the trial received court properly exclude evidence of s u b s e q u e n t l y t o t h e Blue Cross p o l i c y ? There is i n s u f f i c i e n t evidence i n the record for t h i s Court t o d e c i d e t h i s q u e s t i o n , and w e remand. Blue Cross attempted that $13,000 of Webers' to introduce medical bills evidence were showing paid by an American D e n t a l A s s o c i a t i o n i n s u r a n c e p o l i c y r e c e i v e d s u b s e q u e n t t o t h e Webers' Blue C r o s s p o l i c y . Such e v i d e n c e would a f f e c t n o t o n l y c o m p e n s a t o r y damages f o r m e d i c a l expenses, b u t a l s o t h e c l a i m s f o r e m o t i o n a l d i s t r e s s and p s y c h o l o g i c a l p a i n c a u s e d by t h e m o u n t i n g m e d i c a l b i l l s . Is damages? the new insurance Appleman's relevant to the question of I n s u r a n c e Law and P r a c t i c e g i v e s some guidance: "The m e a s u r e o f damages f o r a w r o n g f u l b r e a c h o f i n s u r a n c e c o n t r a c t s m u s t be d e t e r m i n e d on t h e f a c t s of each case. . . "If t h e i n s u r e d can s e c u r e i n s u r a n c e of a l i k e c h a r a c t e r and v a l u e t o t h a t c a n c e l l e d , t h e d i f f e r e n c e between t h e c o s t o f c a r r y i n g the cancelled insurance for the term s t i p u l a t e d and t h e c o s t o f new i n s u r a n c e f o r a l i k e t e r m would be h i s m e a s u r e o f damages. I t s h o u l d , however, be i n s u r a n c e o f p r e c i s e l y the th - s a m e t y p e i n -e s a m e k i n d o f i n s u r e r , s i n c e the c o s t of carrying insurance i n a f r a t e r n a l a s s o c i a t i o n would n o t be t h e same a s t h a t o f a n o l d l i n e company." 20 Appleman, I n s u r a n c e Law and P r a c t i c e , 811255. ( E m p h a s i s added. ) There determine insufficient is whether the new c a n c e l e d Blue Cross p o l i c y . to the trial court for evidence in is insurance the record similar to to the T h e r e f o r e , w e remand t h i s i s s u e consideration in light refuse to of this opinion. V. SUBSEQUENT INSURANCE APPLICATION Did the trial court properly a l l o w Dr. Weber to be impeached with his subsequent Blue Shield application? We hold the impeachment was properly denied. Immediately after Webers' Blue Cross policy was canceled, they applied for similar coverage from Blue Shield. On the Blue Shield application, Dr. Weber denied that anyone in the family had ever had anemia and stated that his wife's problem with varices (for which she is still being treated today) was corrected. At trial, Blue Cross tried to intro- duce the Blue Shield application to impeach Dr. Weber with a prior inconsistent statement, and to show Dr. Weber's state of mind when completing the Blue Cross application. Rule 801(d) (1), Mont.R.Evid. Information contained in a subsequent application for insurance is not admissible. Continental Insurance Co. v. Clayton Hardtop Skiff (3rd Cir. 1966), 367 F.2d 230; Nicoll v. American Ins. Co. (1847), 3 Woodb & M 529, F. Cas. No. 10259. Further, there is no convincing evidence that the Blue Shield application is inconsistent with the Blue Cross application. Dr. Weber testified that he told the Blue Cross agent, Burke, about his wife's anemia, and Burke chose not to put it on the application. There is also evidence that Dr. Weber gave the Blue Shield agent information which the Blue Shield agent chose not to write down. If the applications are not accurate, and not inconsistent, they cannot be used as evidence of a prior inconsistent statement. Rule 801(d)(l), Mont.R.Evid. The Blue Shield appli- cation was properly excluded from evidence. VI. DArnGES Was t h e r e s u f f i c i e n t e v i d e n c e t o s u p p o r t a n award o f $157,137 damages? i n c o m p e n s a t o r y damages and $ 9 9 9 , 9 9 9 The e r r o r s n o t e d a b o v e in punitive invalidate the judgment. T h e r e f o r e , we need n o t a d d r e s s t h i s i s s u e . However, it should be noted that the trial court a d m i t t e d e v i d e n c e c o n c e r n i n g t h e p u r c h a s e a n d s a l e by B l u e C r o s s o f t h e Rainbow H o t e l i n G r e a t F a l l s , was completely i r r e l e v a n t , affect the Mont . R . E v i d . jury's award Montana. v e r y p r e j u d i c i a l and of damages. See, This likely to Rule 402, The e v i d e n c e s h o u l d n o t h a v e b e e n a d m i t t e d . I n summary, w e h o l d t h a t ( 1 ) B l u e C r o s s i s n o t s u b ject t o t h e Montana I n s u r a n c e Code; (2) directed verdicts w e r e p r o p e r l y d e n i e d on t h e i s s u e s o f and f r a u d and bad f a i t h ; ( 3 ) e v i d e n c e o f Dr. W e b e r ' s s u b s e q u e n t a p p l . i c a t i o n f o r Blue S h i e l d coverage is i n a d m i s s i b l e t o prove i n t e n t . The t r i a l c o u r t , w i t h t h e b e n e f i t of a d d i t i o n a l e v i d e n c e , s h a l l r u l e on t h e admission of evidence concerning the $13,000 t h a t t h e Webers c o l l e c t e d f r o m a n American D e n t a l A s s o c i a t i o n health insurance policy. W do n o t reach t h e i s s u e of e damages. W e reverse i n part, a f f i r m i n p a r t a n d remand f o r a new t r i a l c o n s i s t e n t w i t h t h i s o p i n i o n . We concur: G i e f Justice Justices Mr. Chief Justice Haswell specially concurring: I concur in the result. I would, however, hold properly excluded evidence that that the District Court $13,000 of Dr. Weber's medical bills were paid under a subsequent policy. The quotation in the majority opinion from Appleman's Insurance Law and Practice simply indicates that the difference in the cost of the new policy and the cost of the canceled policy is a proper item of damages if the insurance is comparable, not that the benefits paid under the subsequent policy are admissible in evidence. 4A-ad 5 b / , e Chief Justice Mr. J u s t i c e Frank B. M o r r i s o n , J r . , d i s s e n t i n g : I respectfully dissent. With r e s p e c t t o t h e t r i a l c o u r t ' s i n s t r u c t i o n s No. 17 and 1 9 , wherein t h e j u r y was i n s t r u c t e d w i t h r e s p e c t t o p r o v i s i o n s of t h e Montana i n s u r a n c e c o d e , t h e m a j o r i t y o p i n i o n frames t h e i s s u e a s f o l l o w s : "Are h e a l t h s e r v i c e c o r p o r a t i o n s s u b j e c t t o t h e i n s u r a n c e code?" The m a j o r i t y c o n c l u d e s t h a t Blue C r o s s i s , a s a h e a l t h i n s u r a n c e c o r p o r a t i o n , n o t s u b j e c t t o t h e Montana i n s u r a n c e code. I b e l i e v e t h a t t h e i s s u e h a s been m i s s t a t e d . is: The i s s u e " I s Blue C r o s s a h e a l t h s e r v i c e c o r p o r a t i o n ? " H e a l t h s e r v i c e c o r p o r a t i o n s a r e s p e c i f i c a l l y exempt from t h e i n s u r a n c e code t o t h e e x t e n t t h a t t h e i r o p e r a t i o n s a r e a u t h o r i z e d by s t a t u t e . I t s h o u l d be n o t e d p a r e n t h e t i c a l l y t h a t Blue C r o s s f a i l e d t o o f f e r e v i d e n c e showing i t was engaging i n s t a t u t o r i l y a u t h o r i z e d " h e a l t h s e r v i c e " o p e r a tions. Under t h e e v i d e n c e i n t h e r e c o r d , t h e exemption f o r such o r g a n i z a t i o n s was n o t shown t o a p p l y . However, I f e e l we must n o t a v o i d t h e i s s u e on t h i s b a s i s , b u t r a t h e r we s h o u l d d e t e r m i n e whether Blue C r o s s i s , i n f a c t , a " h e a l t h s e r v i c e c o r p o r a t i o n " o r whether it i s a n i n s u r a n c e company. The c o u r t ' s i n s t r u c t i o n No. 1 7 p r o v i d e d : "You a r e i n s t r u c t e d t h a t a s e c t i o n of Montana law known a s Montana I n s u r a n c e Code r e q u i r e s t h a t e a c h group h e a l t h i n s u r a n c e p o l i c y s h a l l contain i n substance t h e following provision: " ' A provision t h a t the insurer w i l l furnish t o t h e p o l i c y h o l d e r f o r d e l i v e r y t o e a c h emp l o y e e o r member of t h e i n s u r e d g r o u p , a s t a t e m e n t i n summary form of t h e e s s e n t i a l f e a t u r e s of t h e i n s u r a n c e c o v e r a g e of such employee o r member and t o whom b e n e f i t s t h e r e I f dependents a r e includunder a r e p a y a b l e . ed i n t h e c o v e r a g e , o n l y one c e r t i f i c a t e need be i s s u e d t o e a c h f a m i l y u n i t . ' "If you find that Blue Cross of Montana violated this provision of Montana law by not including the provision in the policy of insurance issued to Richard and June Weber, no essential feature of insurance coverage not contained in a written statement delivered to a member of the Weber family may be enforced against Richard and June Weber." The court's instruction No. 19 provided: "You are instructed that a section of Montana law known as the Montana Insurance Code requires that each group health insurance policy shall contain in substance the following provision: "'A provision that, in the absence of fraud, all statements made by applicants or the policyholder or by an insured person shall be deemed representations and not warranties, and that no statement made for the purpose of effecting insurance shall avoid such insurance or reduce benefits unless contained in a written instrument signed by the policyholder or the insured person, a copy of which has been furnished to such policyholder or to such person or his beneficiary.'" If Blue Cross is an insurance company then instructions Nos. 17 and 19, quoted above, were proper instructions to be given in this case. Facts bearing upon this question are contained in the record. Section A-I of the Blue Cross policy states the various services available to subscribers at "member" hospitals. However, paragraph A-I1 states that Blue Cross will provide payment of 100% of the charges at any - hospital which is registered with the American Medical Association or listed by the American Hospital Association. A subscriber is entitled to be "indemnified" for any hospital charges that the member should incur in any licensed hospital in the country. Section B of the policy provides for direct reimbursement to the subscriber for medical and surgical expenses. Section C of the policy provides for direct payment to the subscriber under a supplemental benefit plan. Section D of the policy provides for direct reimbursement under a major medical provision. The subject of "indemnity" and its relationship to a determination of insurance carrier status was discussed by the California Supreme Court in People v. California Mutual Association (1968), 68 Cal.Rptr. 585, 441 P.2d 97. In that case, California Mutual was a non-profit, unincorporated association. Its stated purpose was to make payments in limited amounts for medical and hospital services rendered to its members using funds derived from periodic dues. Subscribing members were primarily enlisted from labor unions. There were approximately 1,500 members. The question presented to the California court was whether California Mutual Association was an "insurer" or a "health care service plan." In resolving this issue, the California Supreme Court said: ". . . We, therefore, conclude that where indemnity is a significant financial proportion of the business, the organization must be classified as an 'insurer' for the purposes of the Knox-Mills Plan Act. The principle object and purpose test as enunciated in the California Physicians Service case does not provide for adequate financial security." Prior to this 1968 decision, California determined whether a provider was a health service organization or an insurance company on the basis of "the principle object and purpose" of the corporation or association. In People v. California Mutual Association, this test was rejected and the Supreme Court determined that the insurance code governed if indemnity was a significant feature of the business. Under either California test Blue Cross would be classified as an insurance company. Blue Cross makes payments directly to its policyholders, rather than making them to a member health care provider. This is, of course, indemnification. Indemnity is not only a significant proportion of the business, but it is the principle business of Blue Cross. The more r e s t r i c t i v e r u l e p r e v i o u s l y e x i s t i n g i n C a l i f o r n i a , t h a t b e i n g t h e " p r i m a r y p u r p o s e " r u l e , h a s been a d o p t e d and f o l l o w e d i n a number of c a s e s . For example, s e e C l e v e l a n d H o s p i t a l S e r v i c e A s s o c i a t i o n v . E b r i g h t (Ohio 1 9 5 3 ) , 45 N.E.2d 157, a f f . 49 N.E.2d S e r v i c e v . Mahoney ( 1 9 6 5 ) , 1 6 1 M e . 929; A s s o c i a t e d H o s p i t a l 391, 213 A.2d 712; Michigan H o s p i t a l S e r v i c e v. S h a r p Z ( 1 9 5 4 ) , 339 Mich. N.W.2d 63 1167; S h a p i r a v. u n i t e d S t a t e s 638, 43 A.L.R.2d Medical S e r v i c e s ( 1 9 6 5 ) , 1 5 N.Y.2d 200, 205 N.E.2d 293; S t a t e ex r e l . F i s h b a c k v . U n i v e r s a l S e r v i c e Agency ( 1 9 1 5 ) , 87 Wash. 413, 1 5 1 P. 768. The u n d i s p u t e d e v i d e n c e i n t h i s r e c o r d shows t h a t Blue Cross indemnifies i t s policyholders a s a "primary" f u n c t i o n of i t s business. Blue C r o s s , a s i t o p e r a t e s i n Montana, i s a n i n s u r a n c e company whether we a p p l y t h e " s i g n i f i c a n t " t e s t of C a l i f o r n i a o r whether w e a p p l y t h e " p r i m a r y " t e s t of other jurisdictions. I n s t r u c t i o n s Nos. 17 and 1 9 , s e t f o r t h above, w e r e properly given i n t h i s case. I a l s o d i s s e n t from S e c t i o n IV. of t h e majority opinion. O t h e r I n s u r a n c e Claims, The q u o t a t i o n from Appleman's Law and Insurance - - P r a c t i c e i s not applicable. The a u t h o r i t y c i t e d i n t h e m a j o r i t y o p i n i o n r e l a t e s t o t h e measure of damages f o r a wrongful b r e a c h of i n s u r a n c e c o n t r a c t . The i s s u e i n t h i s c a s e i s whether t h e t r i a l c o u r t e r r e d i n r e f u s i n g t o a d m i t e v i d e n c e of a c o l l a t e r a l s o u r c e where s u c h e v i d e n c e might b e r e l e v a n t t o a d e t e r m i n a t i o n of e m o t i o n a l d i s t r e s s s u f f e r e d by t h e p l a i n t i f f s . The d e f e n d a n t c o n t e n d s t h a t t h i s otherwise inadmissible c o l l a t e r a l source evidence s h o u l d be a d m i t t e d b e c a u s e , s i n c e t h e m e d i c a l b i l l s were p a i d by o t h e r i n s u r a n c e , t h e p l a i n t i f f s d i d n o t s u f f e r t h e mental and emotional distress claimed. This is a close question. The trial court was faced with a situation where the fact of plaintiffs' medical bills being paid by another insurance carrier was a collateral source and under our rules of evidence not admissible. On the other hand, such payment may have been relevant to a determination of whether the plaintiffs in fact suffered the degree of mental and emotional distress claimed. The trial court made a determination that the prejudicial effect of admission outweighed any probative value the evidence had. I would affirm this discretionary ruling on the part of the trial court. The majority admonishes the trial court to not receive evidence concerning the purchase and sale by Blue Cross of the Rainbow Hotel in Great Falls, Montana. This is consistent with the majority's holding that, as a matter of law, Blue Cross is a health service organization. In my view, Blue Cross, as a matter of law, is an insurance company. However, if the status of Blue Cross were to be determined a jury issue, its dealing in real estate would be relevant to a determination of whether, in fact, Blue Cross was a "health service organization." The evidence is overwhelming, including the evidence of its real estate dealing, that Blue Cross operated as an insurance company and not as a "health service organization." I would affirm the plaintiffs' judgment. Mr. J u s t i c e John C . Sheehy, d i s s e n t i n g : I j o i n w i t h J u s t i c e Morrison i n h i s d i s s e n t , and I wish t o make a f u r t h e r s t a t e m e n t c o n c e r n i n g t h e f l a t h o l d i n g o f t h e m a j o r i t y t h a t "Blue C r o s s i s n o t s u b j e c t t o t h e Montana I n s u r a n c e Code." I t w i l l come a s a b i t o f s u r p r i s e t o Blue C r o s s premium p a y e r s , i n c l u d i n g s e v e r a l thousand s t a t e employees, t h a t t h e c o n t r a c t under which t h e y make premium payments, o r have them d e d u c t e d from t h e i r paychecks, i s n o t a h e a l t h i n s u r a n c e p o l i c y , b u t something else t h a t l o o k s v e r y much l i k e i n s u r a n c e . I t i s s a i d t h a t i n Eden, Adam was g i v e n t h e j o b o f naming a l l t h e a n i m a l s . asked "Why e l e p h a n t ? " When he named t h e e l e p h a n t , he w a s Adam responded, "Well it l o o k s l i k e an elephant." The Blue C r o s s c o n t r a c t l o o k s s o much l i k e i n s u r a n c e t h a t t h e m a j o r i t y i n i t s opinion cannot h e l p r e f e r r i n g t o it as a " p o l i c y , " o r t o t h e b e n e f i t s a s " c o v e r a g e , " o r t h a t t h e c o v e r a g e i n t h e American D e n t a l A s s o c i a t i o n p o l i c y s h o u l d b e " i n s u r a n c e of p r e c i s e l y t h e same t y p e i n t h e s a m e k i n d o f i n s u r e r " t o determine a d m i s s i b i l i t y of evidence i n t h i s case. What Blue C r o s s d o e s - l o o k l i k e i s a " h e a l t h s e r v i c e not c o r p o r a t i o n , " t h e k i n d o f c o r p o r a t i o n r e l i e d on by t h e m a j o r i t y t o t a k e Blue C r o s s o u t of t h e o p e r a t i o n o f t h e i n s u r a n c e code. Blue C r o s s o f f e r s no m e d i c a l o r h e a l t h s e r v i c e of any k i n d , even t o t h e i s s u a n c e of a s p i r i n . What Blue C r o s s d o e s o f f e r a r e b e n e f i t s o r i n d e m n i t y f o r m e d i c a l , d e n t a l o r d r u g b i l l s i n c u r r e d , on s e r v i c e s d i s pensed by m e d i c a l p r o v i d e r s , i n r e t u r n f o r premiums assumably based o n t h e a c t u a r i a l l i k e l i h o o d t h a t such b i l l s w i l l b e incurred. I t i s n o t h i n g i f it i s n o t an " i n s u r e r . " -22- California Physicians' Service v. Garrison (1946), 28 Cal.2d 790, 172 P.2d 4, See People v. CMA et a1 (1967), 61 Cal.Rptr. 852. Blue Cross is statutorily an insurer, writing insurance contracts. "Insurance" is a contract whereby one undertakes to indemnify another or pay or provide a specified or determinable amount or benefit upon determinable contingencies. Section 33-1-201(5), MCA. "Insurer" includes every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance. MCA Section 33-1-201(6), . Blue Cross is writing "insurance" contracts, by statutory definition. It is an "insurer" by statutory definition. If in earlier years the legislature interpreted Blue Cross as something other than an insurer, it corrected that error in 1975 when it brought Blue Cross and all other "health service organizations" under the aegis of the commissioner of insurance. Chapter 30, Title 3 3 , MCA. Under Chapter 30 of the insurance code, Blue Cross is now amenable, as it always has been, to all the provisions of the insurance code, except where the provisions of Chapter 30 are incompatible with the remainder of Title 33, MCA. (Section 33-30-102, MCA.) The majority has been led merely upon suggestion, as Hamlet led Polonius, to see a "camel" or a "whale" in what is really an insurer. Likewise, the majority sees something other than an insurer in dismissing as dicta the effect of our decision in Fassio v. Montana Physician's Service (1976), 170 Mont. 320, 553 P.2d 998. That case involved an insurance contract issued by Montana Physicians Service, another "health service organization." The Fassio case turns upon the application to that case of statutory requirements found in the insurance code. Section 40-4102(2), R.C.M. 1947 (now section 33-22- 502(2), MCA) provided for delivery to the employee covered i n t h e group c o n t r a c t a summary s t a t e m e n t of t h e " e s s e n t i a l f e a t u r e s of t h e i n s u r a n c e c o v e r a g e . . ." The t u r n i n g p o i n t of o u r d e c i s i o n i n F a s s i o was t h a t t h e r e must be n o t i c e of t h e coverage p r o v i d e d s o a s t o a l l o w t h e i n s u r e d t o p r o c u r e excluded coverage elsewhere. 553 P.2d a t 1001, 1002. The c a s e t h i s C o u r t r e l i e d on i n d e c i d i n g F a s s i o was Hayes v. E q u i t a b l e L i f e Assur. Soc. ( 1 9 4 1 ) , 235 Mo.App. 2d 1113, a n i n s u r a n c e c a s e . 1261, 150 S . W . 553 P.2d a t 1002. In t h i s case, the majority dismisses the c l e a r application of i n s u r a n c e law t o a h e a l t h s e r v i c e o r g a n i z a t i o n c o n t r a c t i n Fassio a s "dicta." Why? Because " b r i e f s i n t h a t c a s e made no r e f e r e n c e w h a t s o e v e r t o t h e i n s u r a n c e c o d e . " B r i e f s , and n o t t h e language i n t h e p u b l i s h e d o p i n i o n s o f t h i s C o u r t , a r e now d e c i d i n g what i s " d i c t a " f o r t h e m a j o r i t y h e r e . J u s t i c e Morrison, i n h i s accompanying d i s s e n t , h a s s e t f o r t h i n f u l l i n s t r u c t i o n no. 17. on s e c t i o n 40-4102 ( 2 ) , R.C.M. MCA). T h a t i n s t r u c t i o n i s based 1947 (now s e c t i o n 33-22-502 ( 2 ) , I t was p r o p e r l y g i v e n by t h e c o u r t . I t i s c l e a r t h a t t h e majority has n u l l i f i e d t h e a p p l i c a t i o n of s e c t i o n 4 0 - 4 1 0 2 ( 2 ) , R.C.M. 1947 (now s e c t i o n 33-22-502 ( 2 ) , MCA) t o Blue C r o s s i n d i r e c t o p p o s i t i o n t o o u r h o l d i n g i n F a s s i o , where w e s a i d t h a t s e c t i o n 4 0 - 4 1 0 2 ( 2 ) , controlling. was The t r i a l c o u r t i n t h i s c a s e , r e a d i n g F a s s i o had no c h o i c e b u t t o g i v e i n s t r u c t i o n no. 1 7 . d e c i d e d law. R.C.M. I t was t h e No d i s t r i c t judge c o u l d have t h e p r e s c i e n c e n e c e s s a r y t o see t h i s same c o u r t make " d i c t a " o u t o f t h e c o n t r o l l i n g s t a t u t e and t h e d e c i d e d c a s e . So much f o r stare decisis. The p e o p l e o f Montana can now be w e l l a d v i s e d , i f t h e f l a t s t a t e m e n t of t h e m a j o r i t y i s t a k e n a t f a c e v a l u e , t h a t t h e r e i s no l a w i n Montana t o p r o t e c t them from t h e v a g a r i e s of Blue Cross when it decides their coverage. The repudiation by the majority of Fassio, though not directly stated, is legally traumatic, but even that is overpassed by the majority's broadaxe treatment of the long-cherished collateral source rule. There can be no logic in applying a rule for the of measure - damages as authority for the admissibility of the receipt by Webers of benefits from another insurance policy. If Blue Cross were trying to demonstrate that the same coverage claimed by Webers could have been obtained elsewhere for a different premium, then perhaps under the majority's citation of Appleman, the evidence of the cost of such claimed coverage would be admissible to establish a measure of damages. Blue Cross was not trying to establish a measure of damages in offering the evidence that Webers had received $13,000 from another insurer. Its effort was to reduce Webers' claimed damages by showing Webers had received moneys from a collateral source. Until now, this Court has never allowed that. The only real issue in this case is whether the jury acted excessively in granting the amount of punitive damages we find here. The majority has the result is some very bad law. sidestepped that issue, but Mr. J u s t i c e D a n i e l J. Shea s p e c i a l l y c o n c u r r i n g : I j o i n t h e m a j o r i t y i n r e v e r s i n g t h e judgment and o r d e r i n g a new t r i a l . I do n o t b e l i e v e , however, that the o p i n i o n h a s a d e q u a t e l y a n a l y z e d and t r e a t e d any of t h e i s s u e s raised. I w i l l , n o n e t h e l e s s , c o n f i n e m comments t o t h e i s s u e y of whether i t was p r o p e r t o i n s t r u c t t h e j u r y t h a t Blue C r o s s was governed by t h e i n s u r a n c e code. T e c h n i c a l l y , one c a n a g r e e w i t h J u s t i c e s Morrison and Sheehy t h a t t h e c o v e r a g e p r o v i d e d by Blue C r o s s i s more i n t h e n a t u r e of indemnity and t h e r e f o r e t h a t i t i s i n s u r a n c e . The q u e s t i o n i s , however, whether Blue C r o s s , a t t h e t i m e of t h e t r a n s a c t i o n i n v o l v e d i n t h i s case--1972--believed i n good f a i t h t h a t i t was n o t a n i n s u r a n c e company i n t h e s e n s e t h a t i t would b e s u b j e c t t o t h e i n s u r a n c e code. Up t o t h e t i m e t h i s l a w s u i t was p r e s e n t e d t o t h e j u r y , no one i n v o l v e d w i t h i n s u r a n c e b e l i e v e d t h a t Blue C r o s s w a s s u b j e c t t o t h e i n s u r a n c e code. A t t h e t i m e of t h e claimed insurance code v i o l a t i o n s ( 1 9 7 2 ) , h e a l t h i n s u r a n c e c o r p o r a t i o n s w e r e r e g u l a t e d by t h e a t t o r n e y g e n e r a l r a t h e r t h a n t h e i n s u r a n c e commissioner. S e c t i o n 15-2304, i n the majority opinion). R.C.M. 1947 ( s e t o u t i n f u l l And i n 1971 t h e l e g i s l a t u r e k i l l e d House B i l l 253 which would have made h e a l t h s e r v i c e c o r p o r a t i o n s s u b j e c t t o t h e i n s u r a n c e code. The same l e g i s l a t u r e p a s s e d a r e s o l u t i o n which, a l t h o u g h n o t having t h e f o r c e of l a w , c l e a r l y enunciated a l e g i s l a t i v e p o s i t i o n t h a t it t o o d i d n o t c o n s i d e r h e a l t h s e r v i c e p r o v i d e r s t o be under t h e i n s u r a n c e code, and t h a t i t d i d n o t want them t o b e under t h e i n s u r a n c e code. Until the t r i a l c o u r t r u l e d i n 1981 t h a t Blue C r o s s was c o v e r e d by t h e i n s u r a n c e code, and s o i n s t m c t e d t h e j u r y , s t a t e o f f i c i a l s and t h e companies i n v o l v e d , b e l i e v e d t h a t Blue C r o s s and s i m i l a r companies w e r e n o t s u b j e c t t o t h e i n s u r a n c e code. The a t t o r n e y g e n e r a l assumed, t h e i n s u r a n c e commissioner assumed, and Blue C r o s s assumed, t h a t Blue C r o s s was n o t s u b j e c t t o t h e i n s u r a n c e code. I n d e a l i n g w i t h t h e Webers, Blue C r o s s d i d n o t comply i n many r e s p e c t s , w i t h t h e i n s u r a n c e code. But i t i s f a i r t o s a y t h a t it d i d n o t comply w i t h t h e code b e c a u s e it b e l i e v e d t h e code d i d n o t a p p l y . N o s t a t e o f f i c i a l had e v e r t o l d Blue C r o s s t h a t i t was a n i n s u r a n c e company r a t h e r t h a n a h e a l t h s e r v i c e p r o v i d e r , and t h e r e f o r e s u b j e c t t o t h e i n s u r a n c e code. But i n p e r m i t t i n g t h e j u r y t o a p p l y t h e i n s u r a n c e code t o Blue Cross, t h e p l a i n t i f f s w e r e given an u n f a i r advantage. I n s t r u c t i o n s nos.17 and 19 were e x t r e m e l y p r e j u d i c i a l t o Blue C r o s s . By i n s t r u c t i o n no. 1 7 , t h e j u r y was t o l d t h a t i f Blue C r o s s had n o t f u r n i s h e d " a s t a t e m e n t i n a form o f t h e e s s e n t i a l f e a t u r e s o f t h e i n s u r a n c e c o v e r a g e o f such employee o r member . . ." t h a t "no e s s e n t i a l f e a t u r e o f i n s u r a n c e c o v e r a g e not contained i n a w r i t t e n statement. the plaintiffs. . . may be enforced a g a i n s t " The e f f e c t of t h i s i n s t r u c t i o n i s t o s t a t e t h a t i f Blue C r o s s had n o t p r o v i d e d t h i s summary form t o t h e p l a i n t i f f s , Blue C r o s s c o u l d n o t r e l y on any of t h e e x c l u s i o n s o r e x c e p t i o n s from c o v e r a g e c o n t a i n e d i n t h e p o l i c y . Because Blue C r o s s had n o t g i v e n t h i s s t a t e m e n t t o t h e p l a i n t i f f s , Blue C r o s s was e s s e n t i a l l y defenseless in.contending t h a t i t s policy provisions e x c l u d e d o r e x c e p t e d from c o v e r a g e , t h o s e c l a i m s made by t h e plaintiffs. I n s t r u c t i o n no. 1 9 was even more p r e j u d i c i a l . By t h i s i n s t r u c t i o n , Blue C r o s s had a d u t y t o o b t a i n a w r i t t e n i n s t r u m e n t s i g n e d by t h e p l a i n t i f f s , t o t h e e f f e c t t h a t any s t a t e m e n t s made by t h e p l a i n t i f f s c o u l d a v o i d i n s u r a n c e c o v e r a g e o r r e d u c e b e n e f i t s . I f t h i s w r i t t e n s t a t e m e n t was n o t o b t a i n e d , and it was n o t , Blue C r o s s c o u l d n o t i n t h e a b s e n c e of f r a u d , a v o i d c o v e r a g e o r r e d u c e the benefits. Blue C r o s s d i d n o t o b t a i n t h i s w r i t t e n , s i g n e d s t a t e m e n t from t h e p l a i n t i f f s because Blue C r o s s d i d n o t b e l i e v e i t was s u b j e c t t o t h e i n s u r a n c e code. P l a i n t i f f s ' c o u n s e l r e l i e d h e a v i l y on t h e s e i n s t r u c t i o n s i n arguing t h e case t o t h e jury. Not o n l y d i d t h e y a r g u e t h a t Blue C r o s s v i o l a t e d t h e i n s u r a n c e c o d e , b u t a l s o t h e y w e r e a b l e t o a r g u e t h a t c o v e r a g e under t h e p o l i c y c o u l d n o t be a v o i d e d o r reduced b e c a u s e Blue C r o s s had n o t complied w i t h t h e i n s u r a n c e code i n f u r n i s h i n g t o p l a i n t i f f s a "summary form of t h e e s s e n t i a l f e a t u r e s o f t h e i n s u r a n c e c o v e r a g e " ( i n s t r u c t i o n no. 1 7 ) and had n o t o b t a i n e d a w r i t t e n , s i g n e d s t a t e m e n t from t h e p l a i n t i f f s acknowledging t h a t any s t a t e m e n t s made f o r t h e purpose of o b t a i n i n g insurance,could r e s u l t i n a v o i d a n c e of c o v e r a g e o r a r e d u c t i o n i n coverage. P l a i n t i f f s , t h e n , had an immense a d v a n t a g e i n e x p l a i n i n g t h e i r many f a i l u r e s t o g i v e t h e c o r r e c t i n f o r m a t i o n t o t h e Blue Cross r e p r e s e n t a t i v e . On t h e o t h e r hand, Blue C r o s s c o u l d a r g u e o n l y t h a t t h e p l a i n t i f f s had made f r a u d u l e n t r e p r e s e n t a t i o n s i n t h e a p p l i c a t i o n s f o r insurance. That i s t h e o n l y way ( b e c a u s e of i n s t r u c t i o n no. 1 9 ) t h a t Blue C r o s s c o u l d a v o i d c o v e r a g e o r reduce t h e coverage. I would g r a n t a new t r i a l because i n s t r u c t i o n s nos.17 and 19 b r i n g i n g Blue C r o s s under t h e i n s u r a n c e c o d e , s h o u l d n e v e r have been g i v e n , and t h e y were m a n i f e s t l y p r e j u d i c i a l .

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