Susie Bowling v. HMO Partners, Inc., d/b/a Health Advantage

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October 5, 2005



[No. CV-2002-490]






Larry D. Vaught, Judge

Susie Bowling appeals from an order of the Craighead County Circuit Court granting summary judgment to appellee HMO Partners, Inc., d/b/a Health Advantage. We find no error and affirm the circuit judge's decision.

Bowling is a retired teacher who continued to participate in appellee's group health insurance plan offered by the State of Arkansas and administered by CobraServ. CobraServ collected the premiums and forwarded them to the Employee Benefits Division of the State of Arkansas, which then paid appellee. This process normally took forty-five days. CompLink, LP, assumed CobraServ's duties on November 1, 2001. After Bowling failed to make her October 1, 2001, premium payment on time, CobraServ notified her by letter dated October 23, 2001, that it was overdue, stating:

If full payment has not yet been remitted, please be reminded that it must be postmarked no later than the date your Grace Period ends. If payment is not made by the Grace Period ending date shown above, federal law requires that your COBRA continuation coverage be terminated as of the end of the last fully-paid period for lack of full and timely payment of premium. This requirement cannot be waived, and ifyour coverage is terminated due to lack of full and timely payment, it cannot be reinstated.

Around November 5, 2001, Bowling was hospitalized in Jonesboro with cirrhosis of the liver. Her doctors requested a transfer to the University of Tennessee Bowld Hospital in Memphis; UT Bowld, however, required that her insurance coverage be confirmed before it would admit her. Bowling's husband contacted CompLink and the State's Employee Benefits Division and was told that if a premium payment was made immediately coverage would be reinstated. On November 13, 2001, Bowling's husband wrote a check for the October premium. He also paid CompLink for the months of November and December. On November 13, 2001, according to the Jonesboro hospital's records, CompLink verified that appellant's insurance would be in effect when the payment was made. On November 15, 2001, UT Bowld contacted appellee and confirmed that appellee's medical director, Dr. Connie Meeks, had approved Bowling for an out-of-network transfer. Appellee issued a pre-certification number for the transfer. According to Dr. Meeks in her deposition, this pre-certification was contingent upon Bowling's coverage being in force, in which determination she played no part. Nevertheless, Bowling was transferred to UT Bowld and received medical treatment there, incurring substantial medical bills. She submitted evidence that CompLink and appellee verified coverage to UT Bowld before her transfer.

On November 16, 2001, appellee notified UT Bowld that Bowling's payment had been accepted and that her coverage had been reinstated in error and that she had no coverage. Ashli Davis, communications manager with the Employee Benefits Division, sent Bowling the following letter on November 19, 2001:

This letter is to inform you that the State of Arkansas Employee Benefits Division has no authority to override the decision by CobraServ (in compliance with COBRA law) to cancel your coverage with Health Advantage due to non-payment of October premium. The health and prescription coverage for you and your dependents ended September 30, 2001.

During my initial conversation with your husband on November 8, 2001, I surmised the coverage lapse had arisen during the transition from CobraServ to CompLink, our new COBRA administrator as of November 1st. Therefore, our office offered to take October payment directly and facilitate transition of service from one company to another. Upon further investigation, we learned your coverage had already been cancelled before the new company took over which was a fact we could not dispute. The check you sent to our office is enclosed.

On January 21, 2002, CompLink issued a premium reimbursement to Bowling. CompLink itself was not reimbursed until 2003.

Bowling sued CompLink and Ashli Davis on July 2, 2002. Ms. Davis and CompLink were dismissed as parties, and Bowling amended her complaint to add appellee as a defendant. In a third amended complaint, she alleged actual and constructive fraud, breach of contract, waiver of lapse of coverage, estoppel, CompLink's express or apparent authority as an agent for appellee, appellee's liability for CompLink's actions under the doctrine of respondeat superior, conversion of her premium payment, negligent breach of a duty to accurately advise Bowling of her contractual rights under the insurance plan, and bad faith. Bowling sought judgment for all of her medical bills incurred before January 2002, as well as compensatory and punitive damages for her mental and emotional distress and damaged credit.

Appellee moved for summary judgment, supporting its motion with exhibits that included excerpts from several depositions. In her deposition, Bowling admitted that she would have gone to UT Bowld regardless of whether she had insurance because her condition was terminal. Although Bowling submitted evidence in response to the motion, she did not dispute her admission. After a hearing, the circuit judge granted summary judgment to appellee, stating:

The court is convinced, from the information that has been submitted, that there is no reasonable dispute about the material facts involved in this case.... [Bowling] testified in her deposition that she would have allowed herself to be transferred to UT Bowld and receive treatment regardless of whether or not she had insurance. Therefore, [Bowling's] claim that she incurred medical bills as a result of any of Health Advantage's actions fails as a matter of law based upon her own admissions.

This appeal followed.

Summary judgment should be granted only when it is clear that there are no disputed issues of material fact. Holliman v. Liles, 72 Ark. App. 169, 35 S.W.3d 369 (2000) (treating a dismissal as a summary judgment). All evidence must be viewed in the light most favorable to the party resisting the motion, who is also entitled to have all doubts and inferences resolved in her favor. Id. Summary judgment is inappropriate when facts remain in dispute or when undisputed facts may lead to differing conclusions as to whether the moving party is entitled to judgment as a matter of law. Id. When the evidence leaves room for a reasonable difference of opinion, summary judgment is not appropriate. Id. The object of summary judgment proceedings is not to try the issues but to determine if there are any issues to be tried, and if there is any doubt whatsoever, the motion should be denied. Id.

In her first point, Bowling argues that the circuit judge erred in finding that she did not incur medical bills in reliance on any actions of appellee. This point logically belongs with her fraud, waiver, and estoppel arguments found in her second, third, and fifth points. Thus, we will address them together.

Bowling asserts that, by telling UT Bowld that her coverage was reinstated and then stating that it was not, a jury could find that appellee committed fraud; at the very least, she argues, appellee had a duty to inform UT Bowld that she did not have insurance coverage. Bowling does not dispute that she failed to pay her premium on time; instead, she argues, her payment of the late premium and her incurring liability for the medical bills, which she would not have owed if she had insurance, constituted legal detriment. Bowling acknowledges that, if she had not had insurance, she would have accepted the transfer to UT Bowld anyway, because the transfer was necessary to save her life. She argues, however, that reliance did occur because UT Bowld would not have accepted her if her coverage had not been reinstated.

In order to establish fraud, the party asserting it must prove the following: (1) a false representation of a material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in reliance on the representation; (4) justifiable reliance on the representation; (5) damage suffered as a result of the reliance. Goforth v. Smith, 338 Ark. 65, 991 S.W.2d 579 (1999). Actual reliance means that the plaintiff acted or did not act by reason of the defendant's misrepresentation. Seeco, Inc. v. Hales, 341 Ark. 673, 22 S.W.3d 157 (2000).

Bowling also contends that there is a disputed fact as to whether appellee represented to UT Bowld that her insurance coverage was reinstated or, at least, failed to inform it that she did not have coverage. A material misrepresentation of fact may be established by an omission or concealment of a fact when there is a duty to speak affirmatively; this duty only arises in the presence of special circumstances, such as a confidential relationship in which one party knows another is relying on misinformation to her detriment. See Berkeley Pump Co. v. Reed-Joseph Land Co., 279 Ark. 384, 653 S.W.2d 128 (1983). For liability to arise for non-disclosure of facts, there must be reliance on the non-disclosure. Copelin v. Corter, 291 Ark. 218, 724 S.W.2d 146 (1987). Our courts have held that a person may commit fraud even in the absence of actual dishonesty, a moral wrong, or an intention to deceive. See Knight v. Day, 343 Ark. 402, 36 S.W.3d 300 (2001). This is constructive fraud, in which liability is premised on representations that are made by one who, not knowing whether they are true or not, asserts them to be true. Beatty v. Haggard, ___ Ark. App. ___, ___ S.W.3d ___ (June 16, 2004). Constructive fraud has been defined as a breach of a legal or equitable duty, which, irrespective of the moral guilt of the fraud feasor, the law declares to be fraudulent because of its tendency to deceive others. Id. Thus, neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud, and a party's lack ofknowledge of the material representations asserted by him to be true or his good faith in making the representations is no defense to liability. Id.

Bowling also contends that a question of fact remains as to whether the acceptance of the late premium payment constituted a waiver of the contract's lapse. Although the scope of coverage cannot be extended by waiver or estoppel, an insurer may, by its actions, waive, or be estopped from claiming, a defense of forfeiture. Johnson v. Encompass Ins. Co., 355 Ark. 1, 130 S.W.3d 553 (2003). If an insurance company, with knowledge of a forfeiture, neglects to insist upon it, but by its conduct recognizes and treats the policy as being in force, and induces the insured to believe that the company would not insist on the forfeiture and to incur expense and trouble by reason of such belief, then the company will be held to have waived the forfeiture. Aetna Ins. Co. v. Daggett, 177 Ark. 109, 5 S.W.2d 719 (1928). Waiver can be applied to bar the defense of noncoverage when the conduct on the part of the insurer misleads the insured into believing that coverage exists, when it does not, and the insured takes action in reliance on the misrepresentation. Harasyn v. St. Paul Guardian Ins. Co., 349 Ark. 9, 75 S.W.3d 696 (2002). Bowling cites cases holding that a failure to return a late premium within a reasonable time can reinstate a policy. See Riverside Ins. Co. v. Parker, 237 Ark. 594, 375 S.W.2d 225 (1964), where the insurance company credited its agent by adjusting their running account at the end of the month but did not return the premium to the insured. However, as explained below, in our discussion of Bowling's conversion argument, appellant's contention that appellee did not return her premium until 2003 is incorrect, because CompLink reimbursed her in January 2002.

Bowling contends in her third point that appellee is bound by the doctrine of estoppel in pais by CompLink's acceptance of her late payment and appellee's retention of the premium. Again, Bowling wrongly characterizes appellee's failure to settle its accounts long after appellant was actually reimbursed by CompLink. Estoppel in pais, or equitable estoppel,is a doctrine by which a person may be precluded by his acts or conduct, or by failure to act or speak under circumstances where he should do so, from asserting a right that he would otherwise have. Undem v. First Nat'l Bank, 46 Ark. App. 158, 879 S.W.2d 451 (1994). The elements of equitable estoppel are (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting estoppel has a right to believe the other party so intended; (3) the party asserting estoppel must be ignorant of the facts; and (4) the party asserting estoppel must rely on the other's conduct to his detriment. King v. Powell, 85 Ark. App. 212, 148 S.W.3d 792 (2004); Hendrickson v. Office of Child Support Enforcement, 77 Ark. App. 103, 72 S.W.3d 124 (2002). Estoppel involves both, not just one, of the parties; the party claiming estoppel must prove she relied in good faith on some act or failure to act by the other party and that, in reliance on that act, she changed her position to her detriment. Undem v. First Nat'l Bank, 46 Ark. App. at 165, 879 S.W.2d at 454. There is no estoppel in the absence of a change of position in reasonable reliance. Bharodia v. Pledger, 340 Ark. 547, 11 S.W.3d 540 (2000).

Thus, all of Bowling's claims involving fraud, waiver, and estoppel required her to demonstrate her reliance on appellee's actions. We agree with the circuit judge that she failed to do so and affirm on these points.

Bowling further argues that genuine issues of material fact remain as to whether a subagency relationship existed between appellee and CompLink and whether appellee ratified CompLink's acceptance of her late payment by retaining the premium and verifying coverage. Bowling contends that CompLink was a subagent of appellee, i.e., one who is employed by an agent to assist the agent in conducting the principal's affairs1. According to Bowling, the State was an agent for appellee because it collected (through CompLink) andsent the premium payments to appellee. Because the State contracted with CompLink to collect the payments, Bowling reasons, CompLink was a subagent of appellee. Bowling further asserts that, because CompLink had authority as a subagent to act for appellee, a jury could find that CompLink had apparent authority to represent that her coverage would be reinstated if she paid the premium immediately.

The relation of agency is created as the result of conduct by two parties manifesting that one of them is willing for the other to act for him subject to his control and that the other consents to so act. Reed v. Smith Steel, Inc., 77 Ark. App. 110, 78 S.W.3d 118 (2002). The two essential elements of an agency relationship are (1) that an agent have the authority to act for the principal, and (2) that the agent act on the principal's behalf and be subject to the principal's control. Id. Agency can be proved by circumstantial evidence, if the facts and circumstances introduced into evidence are sufficient to induce in the mind of the finder of fact the belief that the relation did exist and that the agent was acting for the principal in the transaction involved. Id. The law makes no distinction between direct evidence of a fact and circumstances from which a fact can be inferred. Id.

In Arkansas, apparent authority in an agent is such authority as the principal knowingly permits the agent to assume or that he holds the agent out as possessing; such authority as he appears to have by reason of the actual authority that he has, or such authority as a reasonably prudent man, using diligence and discretion, in view of the principal's conduct, would naturally suppose the agent to possess. Henry v. Gaines-Derden Enters., Inc., 314 Ark. 542, 863 S.W.2d 828 (1993). Ordinarily, whether an agent is acting within the scope of actual or apparent authority is a question of fact for the jury to determine. Crail v. N.W. Nat'l Ins. Co., 282 Ark. 175, 666 S.W.2d 706 (1984). However, where the facts are undisputed and only one inference can reasonably be drawn from them, it becomes a questionof law. First Com. Bank, N.A. v. McGaughey Bros., Inc., 30 Ark. App. 174, 785 S.W.2d 236 (1990).

There is no evidence that appellee took any action to indicate that it intended for the State to act on its behalf, subject to its control. Thus, under general agency principles, the State was not appellee's agent. Additionally, a group insurance policy is a contract between the employer and the insurer, not the employee and the insurer; therefore, the employer is not the agent of the insurer for the purpose of collecting insurance premiums from the employee. Hendrix v. Republic Nat'l Life Ins. Co., 270 Ark. 955, 606 S.W.2d 601 (Ark. App. 1980). Because the State was not appellee's agent, CompLink cannot be its subagent.

Bowling again argues that appellee's alleged retention of the premium (due CompLink, not appellant) for nearly two years ratified CompLink's acceptance of the late premium payment. She points out that, in Arkansas, a principal may ratify an unauthorized contractual decision by an agent. See Arnold v. All-Am. Assur. Co., 255 Ark. 275, 499 S.W.2d 861 (1973). However, the doctrine of ratification by which a relationship of agency may be retroactively implied is inapplicable unless an agency relationship is shown to exist by proof of authorization and control. Pledger v. Troll Book Clubs, Inc., 316 Ark. 195, 871 S.W.2d 389 (1994); E.P. Dobson, Inc. v. Richard, 17 Ark. App. 155, 705 S.W.2d 893 (1986). Because appellee had no agency relationship with the State or CompLink, the doctrine of ratification has no application here.

According to Bowling, a question of fact also remains as to whether appellee committed the tort of bad faith by changing its position on coverage and declaring that she had no insurance. The standard of establishing a claim for bad faith is rigorous and difficult to satisfy. Unum Life Ins. Co. of Am. v. Edwards, ___ Ark. ___, ___ S.W.3d ___ (June 16, 2005). In order to state a claim for bad faith, one must allege that the defendant insurance company engaged in affirmative misconduct that was dishonest, malicious, or oppressive.Id. Bad faith has been defined as dishonest, malicious, or oppressive conduct carried out with a state of mind characterized by hatred, ill will, or a spirit of revenge. Id. Mere negligence or bad judgment is insufficient so long as the insurer is acting in good faith. Columbia Nat'l Ins. Co. v. Freeman, 347 Ark. 423, 64 S.W.3d 720 (2002). The tort of bad faith does not arise from a mere denial of a claim; there must be affirmative misconduct. Id. Because Bowling offered no evidence of affirmative misconduct or ill will on appellee's part, summary judgment was properly entered on this claim.

Bowling again argues in her seventh point that appellee's retention of her insurance premium for two years constituted conversion. The tort of conversion is committed when a party commits a distinct act of dominion over the property of another that is inconsistent with the owner's rights. Dillard v. Wade, 74 Ark. App. 38, 45 S.W.3d 848 (2001). Bowling points out that an adjustment of the running account between an insurer and its agent at the end of the month is not a payment to the insured. See Riverside Ins. Co. v. Parker, 237 Ark. at 598, 375 S.W.2d at 228. However, once Bowling was reimbursed by CompLink in January 2002, she was no longer the "owner" of the money; CompLink was. Thus, Bowling has no legal basis for claiming conversion, and we also affirm on this ground.

Bowling further contends that, because summary judgment was improper, the circuit judge's implicit denial of her claim for punitive damages should also be reversed and remanded. Punitive damages may be awarded when there is evidence that a defendant knew or ought to have known, in light of the surrounding circumstances, that his conduct was about to inflict injury and that he continued such conduct with a conscious indifference to the consequences, from which malice could be inferred. D'Arbonne Constr. Co. v. Foster, 354 Ark. 304, 123 S.W.3d 894 (2003). Because Bowling offered no evidence that would support such an award, we also affirm on this point.


Gladwin and Neal, JJ., agree.

1 The authority of an agent to employ a subagent need not be expressly given and may be inferred whenever there is a necessity or when the employment of subagents is usual and customary. DeCamp v. Graupner, 157 Ark. 578, 249 S.W. 6 (1923).