United States Court of Appeals,
Fifth Circuit.
No. 93-3741.
PRINCIPAL HEALTH CARE OF LOUISIANA, INC., Plaintiff-Appellant,
v.
The LEWER AGENCY, INC., and General American Life Insurance
Company, Defendants-Appellees.
Nov. 23, 1994.
Appeal from United States District Court for the Eastern District
of Louisiana.
Before REAVLEY, DeMOSS and STEWART, Circuit Judges.
STEWART, Circuit Judge:
This diversity case arising in Louisiana involves the issue of
which parent's health care insurer provides coverage for the
neonatal medical care of their illegitimate child under the
provisions of the parents' policies. Because we conclude that the
magistrate judge erroneously held that the Principal Health Care
plan provided primary coverage, and thus that the court improperly
granted summary judgment in favor of the mother's insurer, we
reverse.
FACTS
On December 27, 1991, Danielle C. Plauche (Plauche) gave birth
to Justin Plauche (Justin) at East Jefferson General Hospital. The
birth certificate listed Fred B. Pepper (Pepper) as the baby's
father. Pepper and Plauche were not married at the time of
Justin's birth, nor have they ever been married to each other or
lived together. Pepper has formally acknowledged his paternity of
1
Justin, and Plauche concurred in this acknowledgement as provided
under Louisiana law.
Pepper's employee health care plan was issued by Principal
Health Care of Louisiana, Inc. Immediately after Justin's birth,
Pepper purportedly added Justin as an additional assured and/or
member under Principal's policy. Pepper paid for the dependent
coverage himself through payroll deductions.
At the time of Justin's birth, Plauche's employee health care
plan was provided by General American Life Insurance Company
through The Lewer Agency, Inc. Immediately after Justin was born,
Plauche also added Justin to her health care policy as Pepper had
done with his plan. Plauche's dependent coverage was paid by her
employer.
Justin was born four months premature and had to remain at
East Jefferson from the date of his birth (December 27, 1991) until
April 13, 1992, incurring expensive medical bills for his neonatal
care. Fortunately, Justin eventually became healthy enough to
leave the hospital. When he was discharged, he went to live with
his mother, where he has remained. There is no evidence that there
has ever been any judicial determination involving Justin's
custody. However, in August 1992, the Juvenile Court for the
Parish of Jefferson ordered that Pepper provide child support and
maintain his current medical insurance for Justin and that he be
responsible for the health care expenses of Justin.
Because there were two employee welfare plans involved, a
dispute arose as to which employee welfare plan provided primary
2
coverage for Justin's medical expenses. Because the sum total of
the bills did not exceed the maximum limits of either plan, the
primary carrier necessarily would be responsible for the entire
amount. Plauche filed suit against Principal in state court
asserting Justin's coverage under the Principal plan and seeking
attorney's fees and penalties under La.R.S. 22:6571. After
negotiations, Plauche compromised her state court suit in exchange
for an agreement between Principal and General American whereby
each company would pay fifty (50%) percent of the outstanding
medical bills, which totalled $245,089.88. Of that amount, all but
approximately $500.00 represented expenses incurred during Justin's
hospitalization at East Jefferson. The agreement between Principal
and General American further provided that Principal would file a
declaratory judgment action to seek a determination of the
respective obligations of the parties. The prevailing party would
be entitled to reimbursement from the other party.
Pursuant to the agreement, Principal filed this declaratory
judgment action against General American and Lewer in the federal
district court for the Eastern District of Louisiana. Principal
also filed a motion for summary judgment. Lewer and General
American brought a cross-motion for summary judgment. The case was
referred to the federal magistrate. The magistrate granted General
American and Lewer's motion for summary judgment, ruling that
1
Under pertinent Louisiana statutes, an insurer can be
liable for "bad faith" penalties and attorney's fees if it
arbitrarily or capriciously denies coverage to an insured, fails
to pay a claim timely, or otherwise acts in "bad faith."
3
Justin was covered under the Principal plan as Pepper's "dependent
child" during the time that Justin was at East Jefferson, and that
Principal was the primary insurer of Justin under the so-called
"birthday rule" in the coordination of benefits provisions of the
Principal plan, because Pepper's birthday precedes Plauche's in the
calendar year. 831 F.Supp. 570. This appeal followed.
STANDARD OF REVIEW
We review a district court's grant of summary judgment de
novo. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992). Summary
judgment is proper if the pleadings, depositions, answers to
interrogatories, and admissions on file together with the
affidavits filed in support of the motion, if any, show that there
is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law. Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
Interpretation of an insurance policy is a question of law.
FDIC v. Barham, 995 F.2d 600 (5th Cir.1993). Accordingly, we
review a district court's interpretation of an insurance policy de
novo. FDIC v. Mijalis, 15 F.3d 1314 (5th Cir.1994); Harbor
Insurance Co. v. Urban Construction Co., 990 F.2d 195, 199 (5th
Cir.1993).
ANALYSIS
Resolution of this case depends solely upon an interpretation
of policy language. Neither party asserts that there are genuine
issues of material fact which would preclude summary judgment. In
fact, both parties have filed motions for summary judgment on the
4
assertion that there are no genuine issues of material fact.
Principal makes two arguments in support of its position that the
magistrate erred in granting summary judgment in favor of General
American. Principal contends that there are two separate and
distinct clauses contained within its policy which apply to this
issue and which would absolve it of any liability for the medical
expenses Justin incurred at East Jefferson.
First, Principal argues that Justin was not dependent upon
Pepper for the majority of his financial support and thus does not
qualify as a dependent pursuant to the Principal plan. Thus,
Principal contends that Justin is not in fact eligible for coverage
under the plan albeit that Pepper ostensibly added Justin to it.
Second, and alternatively, Principal argues that pursuant to the
terms of the coordination of benefits provisions in both policies,
the General American plan should provide primary coverage, even if
we determine that Justin is covered under the plan.2
As a federal court sitting in diversity, we apply Louisiana
2
In its reply brief, Principal urges for the first time a
third alternative in which coverage between the two plans should
be apportioned on a pro rata basis. Not only do we question
Principal's ability to propose this Solomonic solution for the
first time in its reply brief, we also reject this argument as
meritless because there is no policy language in either of the
two plans which would support such an allocation.
Principal also has forwarded an equal protection
argument, contending that the policy as construed by the
magistrate places a heavier burden on legitimate children
than illegitimate children. While we note in passing the
facial weakness of such an argument given an apparent lack
of state action, we do not reach the constitutional issue
because we grant relief to Principal on the basis of the
policy language.
5
rules of policy interpretation in this case. Louisiana law is
clear that the interpretation of insurance policy provisions is to
be governed by the rules pertaining to the interpretation of other
types of contracts. Battig v. Hartford Accident and Indemnity Co.,
608 F.2d 119 (5th Cir.1979).
The rules for interpreting contracts are set forth in various
articles of the Louisiana Civil Code. Article 2045 provides that
"[i]nterpretation of a contract is the determination of the common
intent of the parties." Article 2046 goes on to state that "[w]hen
the words of a contract are clear and explicit and lead to no
absurd consequences, no further interpretation may be made in
search of the parties' intent." Article 2047 provides that "[t]he
words of a contract must be given their generally prevailing
meaning." Article 2048 provides that "[w]ords susceptible of
different meanings must be interpreted as having the meaning that
best conforms to the object of the contract." Finally, Article
2050 provides that "[e]ach provision in a contract must be
interpreted in light of the other provisions so that each is given
the meaning suggested by the contract as a whole."
The coverage issue
As noted above, Principal first argues that Justin does not
qualify as a dependent under the provisions of the Principal plan.
Pursuant to the plan's terms, Justin would have to qualify as a
"dependent child" of Pepper in order to be covered under the
Principal plan. The term "dependent child" as defined in the
Principal plan includes, inter alia, "(1) the Subscriber's
6
unmarried, natural or legally adopted child residing within the
service area; ..." But the provisions go on to provide that "...
the child must be dependent upon the Subscriber for a majority of
his or her financial support ... and must be either under nineteen
(19) years of age, a full-time student, or a disabled dependent."
It is undisputed that Justin's mother has provided for her son
almost singlehandedly from the time of conception forward. Any and
all prenatal care, hospital visits and examinations prior to birth
were paid for by Plauche alone. From the time Justin was
discharged from the hospital, Plauche has provided for all of
Justin's needs, including a home, food, clothing, and emotional
nurturing. Pepper's only contributions to Justin's support for
expenses incurred during the time Justin was in the hospital were
a one-time $200.00 payment toward the medical bills and the
approximately $88 per month in insurance premiums for Justin's
dependent coverage. Overall, Pepper's only other contribution is
the approximately $13.50 per month in child support he has been
ordered to pay. Thus, Principal contends that Justin does not
qualify as Pepper's "dependent child" under the Principal plan
because he is not dependent upon Pepper for a majority of his
financial support.
The first time Principal appears to have asserted the
coverage issue was in its motion for summary judgment. In its
cross-motion for summary judgment, General American contended that
Principal had waived its right to litigate the coverage issue or
otherwise deny coverage by entering into the agreement to pay half
7
of the medical bills in order to end the state court litigation.
However, the magistrate did not reach this "waiver" issue.
Notwithstanding Principal's contentions to the contrary, the
magistrate concluded that during the time Justin was in the
hospital, he was dependent upon Pepper for a majority of his
financial support; thus, Justin was covered under the Principal
plan.
On appeal, Principal again seeks to deny coverage under the
plan, claiming that Justin is not Pepper's "dependent child"
because Justin does not depend upon Pepper for a majority of his
financial support. While General American and Lewer did not
address the waiver issue in their brief, at oral argument the
question of Principal's ability to assert non-coverage arose again.
Principal countered General American's "waiver" allegation by
pointing to a provision in the written agreement described above
between Principal and General American/Lewer which states that
"[t]he parties hereto specifically and expressly reserve any and
all rights and defenses available to them respectively." Principal
argues that, under this language of the agreement, it has the right
to assert the coverage issue. We disagree.
A careful review of the declaratory judgment complaint filed
by Principal reveals that Principal asserts therein that "[e]ach
party, that is Principal and [General American/Lewer,] have taken
the position that their plans are secondary." Principal further
states that the purpose of the action is to adjudicate "which
party's health insurance coverage is primary and which secondary."
8
In its prayer, Principal asks merely that the court "adjudicate the
rights and liabilities of the parties pursuant to the Coordination
of Benefits Provisions." (Emphasis added.) In fact, the
coordination of benefits provisions were the only provisions under
which Principal asked the court to adjudicate the rights and
liabilities of the parties. Nowhere in the declaratory judgment
complaint has Principal pleaded coverage as an issue. The motion
for summary judgment wherein Principal initially asserted
noncoverage does not qualify as a pleading. See Federal Rules of
Civil Procedure 7(a). Moreover, Principal never asserted coverage
as an affirmative defense. In fact, as noted above, Principal
specifically stated in their complaint that their contention was
that the Principal plan provided secondary coverage. By this
assertion, Principal implicitly acknowledged that there was in fact
some sort of coverage available for Justin, albeit secondary.
Principal effectuated a compromise of the state court
litigation and thereby avoided possible exposure on "bad faith"
penalties and attorney's fees; in exchange, it agreed to pay half
of the medical bills and institute a declaratory judgment action to
determine whether its coverage for Justin is primary or secondary.
Based upon the parties' agreement, the coordination of benefits
issue was to be the limited question before the lower court. In
fact, the agreement specifically provided: "As a result of
differing interpretations of each party's coordination of benefits
provisions, Principal Health Care and The Lewer Agency, on behalf
of General American Life Insurance Company have taken the position
9
of secondary health care carriers...." (Emphasis added.)
Principal cannot seek now in this appeal, nor did it have the right
to assert in the lower court via summary judgment motion, relief it
did not pray for or otherwise plead. While it may be true that
Principal reserved the right to assert coverage as a defense by
virtue of the reservation clause in the agreement with General
American/Lewer, in never asserted this right via its pleadings in
the declaratory judgment action. Thus, we hold that Justin was
covered as Pepper's dependent child under the Principal policy.
The only question that remains is whether that coverage is primary
or secondary.
The coordination of benefits provision
Although the magistrate granted summary judgment in favor of
General American, he did so on the basis of the coordination of
benefits provision of the Principal policy, ruling that the
Principal plan provided primary coverage for Justin.
The main point of contention surrounding the coordination of
benefits provisions of the Principal plan is whether the so-called
"birthday rule" or "custody rule" applies to determine whether the
plan provides primary coverage. Under the "birthday rule," the
Principal plan, by its own terms, would provide primary coverage
because Pepper's birthday precedes Plauche's in the calendar year.
Under the "custody rule," the Principal plan would require that
benefits be determined under Plauche's plan before they would be
determined under the Principal plan. Specifically, these
provisions of the Principal plan (referred to as "the Health Plan"
10
therein) state as follows, in pertinent part:
2) The Health Plan determines its order of benefits using the
first of the following rules which applies:
....
b) Except as stated in paragraph 4.1.C.2.c, when the
Health Plan and another Plan cover the same child
as a Family Dependent of different persons, called
"parents":
1. The benefits of the Plan of the parent whose
birthday falls earlier in a year are determined
before those of the Plan of the parent whose
birthday falls later in the year
....
c) If two or more Plans cover a Member as a dependent
child of divorced or separated parents, benefits
for the child are determined in this order:
1. First, the Plan of the parent with custody of
the child, ...
(Emphasis added.)3
Principal contends that, because Pepper and Plauche were never
married and living together, they should be viewed as "separated
parents" under the COB provision of the Principal policy and
therefore the "custody rule" applies. Because Plauche has had
physical custody of Justin at all times, her plan would provide
primary coverage under the "custody rule."4 General American/Lewer
3
The corresponding provision in the General American policy
is substantially the same as the Principal provision, containing
the more general "birthday rule," except in cases where the
parents are "separated or divorced and the parent with custody of
the child has not remarried," in which case the custody rule will
apply.
4
The magistrate opined in dicta that during the time Justin
was in the hospital, he was not in the custody of either parent.
We disagree. We hold that at all times relevant herein, Justin
has been in the custody of his mother. There is no evidence that
11
argues that Pepper and Plauche are not "divorced or separated"
because they were never married, and therefore the "custody rule,"
which is an exception to the more general "birthday rule," does not
apply. Pepper's birthday is April 29th, and Plauche's birthday is
December 9th. Because Pepper's birthday falls earlier in the year,
General American contends that the Principal plan should provide
primary coverage.
The magistrate agreed with General American that Pepper and
Plauche cannot be "separated" because they have never been married.
He cited a case from another jurisdiction5 as well as Louisiana
Civil Code art. 20476 in support of his conclusion and explained
there has ever been any legal determination of custody; however,
Plauche as a matter of fact always has had physical custody of
Justin. We have no difficulty determining that, in the absence
of a legal determination of custody to the contrary, that Justin
was in the custody of his mother as long as he remained at the
hospital, where she had given birth to him. After he was
released from East Jefferson, Justin went to live with Plauche,
where he has remained. Plauche is the parent with custody of the
child under the "custody rule" of the Principal plan.
5
Humana Health Insurance Company of Florida, Inc. v. Halifax
Health Network, 579 So.2d 384 (Fla.Dist.Ct.App. 5th Dist.1991)
(parents who were never married and never lived together cannot
be said to be "divorced" or "separated"). We decline to follow
Humana, particularly in light of the fact that it is a Florida
case, not a Louisiana case. Moreover, Humana involved an
interpretation of an insurance statute, not an insurance policy,
and is therefore factually distinguishable. Also, even case law
from Louisiana courts technically is not binding in this civilian
jurisdiction, because Louisiana does not recognize stare decisis.
However, as a practical matter, lower courts often do follow the
dictates of higher courts within their jurisdiction, but it is
because they choose to do so, not because they must.
6
As noted above, Louisiana Civil Code Article 2047 is a rule
of contract interpretation which provides that "[t]he words of a
contract must be given their generally prevailing meaning."
Louisiana, being the only civil law jurisdiction among the fifty
states, is unique in that its approach to solving most legal
12
that the generally prevailing meaning of the word "separated" in
the context of the phrase "dependent child of divorced or separated
parents" is married but living separately. Because he felt Justin
could not be construed as a "dependent child of divorced or
separated parents," the magistrate held that the "custody rule" did
not apply, and thus that the more general "birthday rule" applied.
Under the birthday rule, the Principal plan would provide primary
coverage. Accordingly, the magistrate granted summary judgment in
favor of General American/Lewer.
On appeal, Principal contends that the "custody rule" should
apply in lieu of the "birthday rule" because Pepper and Plauche are
"separated parents" in that they have never been married.
Principal points out that the general, common sense definition of
the term "separated" means "not together." Moreover, Principal
points out that the arbitrary "birthday rule" is only appropriate
when parents are not "separated" or divorced, i.e., when they are
living together, because assumedly both parents will have an equal
interest in, and responsibility for, the health care provided to
questions begins first and foremost with a review of the
Louisiana Civil Code. The Civil Code is thus the civilian's
"Bible." Jurists in common law jurisdictions, on the other hand,
usually begin with a review of the case law on a particular
issue. The late Judge Alvin B. Rubin lamented that Louisiana
federal courts sitting in diversity often fail to employ civilian
methodology, although they are Erie-bound to do so. In the
instant case, the magistrate's efforts to be true to Erie and
employ civilian interpretation are laudable, although we disagree
with his conclusion. For Judge Rubin's delightful and
enlightening discussion of the hazards that Louisiana federal
courts present to the civilian tradition, see Alvin B. Rubin,
Hazards of a Civilian Venturer in a Federal Court; Travel and
Travail on the Erie Railroad, 48 La.L.Rev. 1369 (1988).
13
the child. When parents are "separated" or divorced, however, the
rules state that the plan of the parent with custody is primary.
Thus, Principal contends that the obvious intent of the COB
provision is to impose primary liability on the plan of the parent
residing with the child when the two parents do not live together.
We agree.
Louisiana Civil Code Article 2048, cited above, provides that
"words susceptible of different meanings must be interpreted as
having the meaning that best conforms to the object of the
contract." Also, Article 2050, cited above, provides that "[e]ach
provision in a contract must be interpreted in light of the other
provisions...." We interpret the word "separated" as used in the
"custody rule" of the Principal plan to connote people who do not
reside together. This interpretation is most consistent with the
overall purpose of the two rules governing which plan is primary in
the event that a child is covered under both parents' plans: if
the parents are living together with the child, the arbitrary
birthday rule is an acceptable way of determining primary coverage
between two parents who have equal contact with the child and an
equal interest in its medical care and insurance coverage; if the
parents are not living together, the parent with custody of the
child has more contact with the child and perhaps a greater
interest in the medical care it receives and the insurance coverage
afforded to it. In this case, Justin's mother always has had
custody of him rather than his father. Accordingly, the Principal
plan indicates that it provides only secondary coverage for Justin
14
if he is covered under Plauche's plan. Consequently, we hold that
primary coverage for Justin is provided by General American, the
insurer of Plauche.
CONCLUSION
For the foregoing reasons, the magistrate's summary judgment
in favor of General American and Lewer is REVERSED. Under the
coordination of benefits provisions of the Principal plan, benefits
under the General American plan are to be determined before those
under the Principal plan. Having construed the language of the
policies in accordance with civilian methodology, we hold that
primary medical insurance coverage for Justin is provided by
General American Life Insurance Company. Judgment is here rendered
in favor of Principal Health Care of Louisiana, Inc. Costs of the
appeal are assessed to General American Life Insurance Company
through the Lewer Agency.
REVERSED AND RENDERED.
15
Principal Health Care of Louisiana, Inc. v. Lewer Agency, Inc.
Combined Opinion