Weber v. Blue Cross of Montana

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: September 1 5 , 1 9 8 1

FEB 4 - 1982
Decided: FE0 4.m
Filed:
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 Opinion of
t h e Court.
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 and wrongful cancellation by Blue
C r o s s on t h e i r medical plan contract. On September 19,

1977, the case was transferred to the Eighth Judicial
District i n Cascade County. On F e b r u a r y 9, 1 9 7 9 , Webers
moved to add punitive damages for fraud, intentional

infliction of emotional d i s t r e s s , and bad faith to their

o r i g i n a l complaint. 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 all issues of liability. The jury returned a
verdict in favor of plaintiffs for every dollar in com-

pensatory damages sought, $157,137, and for all but one
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 . Blue Cross f i l e d
motions for judgment notwithstanding the verdict, a new
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 , a l l of which were
denied. 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 , have

n i n e c h i l d r e n and l i v e i n Glasgow, Montana, where R i c h a r d
Weber has a successful dental practice. Blue Cross of

Montana, d e f e n d a n t - a p p e l l a n t , 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 member-
ship. 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. Burke asked Weber
questions and filled out the application form as Weber
answered the questions. Dr. Weber checked the application
for accuracy, and 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 "misrepre-
sentations in this application will render the contract
void." 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 infor-
mation 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. Dr. Weber contacted the local
Blue Cross agent and was told that Blue Cross did not
receive a bill. (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 com-
plain 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 reviewed, considered for cancellation, but

retained. 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 Cross had originally received the May 1972

hospital b i l l s on J u n e 22, 1972. On J u l y 1 4 , 1 9 7 2 , Dr.

S h u l l , medical d i r e c t o r f o r Blue C r o s s , reviewed t h e b i l l s

and requested a copy of the 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. Blue Cross received incomplete information,
made s e v e r a l more requests for 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 the c o n d i t i o n was p r e e x i s t i n g . Then, on J u n e 1,
1973, Blue Cross sent the Webers a letter 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.
At trial t h e r e was v o l u m i n o u s testimony concerning

whether or n o t June Weber's e s o p h a g e a l v a r i c e s were p r e -

existing. In general, t h e r e was a g r e a t d e a l o f evidence
indicating that they were not preexisting, and little

credible evidence indicating that they were 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 manifest itself
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 . All the evidence
Blue Cross p r e s e n t e d 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 dis-
agreement 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. June Weber's familial (inheritable) anemia;
2. Dr. Weber's heart condition for which he
occasionally took medication; and that Dr. Weber also sus-
pected 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 indicat-
ing 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, future medical expenses and emotional
distress. Benefits the Webers would have received between
May 1, 1972, and June 27, 1980, minus premiums, total
$24,250. 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. Thus, the total
for compensatory damages ($24,250 + $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?

2. Did 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
motion for 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. 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.

Weber 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 corporations subject to the

Montana I n s u r a n c e Code? W hold they a r e not.
e
It is evident that the legislature did not intend

health service corporations t o be bound by the insurance
code. First, in 1972, health service 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 corpora-
t 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 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 section
15-1401 [now s e c t i o n 15-23011 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, 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

20 which recognized the unique status of health service
corporations. 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 corpora-

t 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. Webers s t a t e d i n t h e i r
brief 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 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 cites Harsh v. Blue Cross of Montana
(1973), 1 6 2 Mont. 546, 514 P.2d 767, an o r d e r 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 . . . shall
not be . . . cited as authority in any subsequent
proceeding." 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, 553 P.2d 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, b r i e f s i n t h a t c a s e made no
reference whatsoever to the insurance code. Thus, the
i n s u r a n c e c o d e was n o t a t i s s u e , 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? We 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 . S t a t e ex r e l . Dimler

v. D i s t . C t . , Eleventh J . D . , Etc. ( 1 9 7 6 ) , 170 Mont. 7 7 , 550
P.2d 9 1 7 , 921. 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, R.C.M. 1947, o r ( 2 ) a c t u a l or construc-
t i v e fraud theory, s e c t i o n s 13-307 t 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 to act i n good faith."

550 P.2d a t 921. 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." First

S e c . Bank o f Bozeman v . Goddard ( 1 9 7 9 ) , 1 8 1 Mont. 407, 593

P.2d 1040, 1047, 36 St.Rep. 854. Goddard, 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 . Further, Blue Cross,
arguably, unreasonably denied t h e Webers' 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 the trial court properly exclude evidence of
insurance received 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 to introduce evidence showing
that $13,000 of Webers' medical bills were 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 the new insurance relevant to the question of
damages? Appleman's 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
- 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 ,
the th
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 is insufficient evidence in the record to

determine whether the new insurance is similar to the
c a n c e l e d Blue Cross p o l i c y . T h e r e f o r e , w e remand t h i s i s s u e
to the trial court for consideration in light of this
opinion.

V. SUBSEQUENT INSURANCE APPLICATION

Did the trial court properly refuse to a l l o w Dr.
Weber to be impeached with his subsequent Blue Shield appli-
cation? We hold the impeachment was properly denied.
Immediately after Webers' Blue Cross policy was can-
celed, 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 state-
ment. 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 i n c o m p e n s a t o r y damages and $ 9 9 9 , 9 9 9 in punitive
damages? The e r r o r s n o t e d a b o v e 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 , Montana. This

was completely i r r e l e v a n t , v e r y p r e j u d i c i a l and likely to
affect the jury's award of damages. See, Rule 402,

Mont . R . E v i d . 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 f r a u d and bad f a i t h ;

and ( 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 that the District Court
properly excluded evidence that $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 . The i s s u e

is: " 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 em-
p 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 -
under a r e p a y a b l e . I f dependents a r e includ-
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 violat-
ed this provision of Montana law by not includ-
ing 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 re-
quires that each group health insurance policy
shall contain in substance the following provi-
sion:
"'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 ef-
fecting insurance shall avoid such insurance
or reduce benefits unless contained in a writ-
ten 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

- hospital which is registered with the American Medical
any
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 propor-
tion 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 929; A s s o c i a t e d H o s p i t a l

S e r v i c e v . Mahoney ( 1 9 6 5 ) , 1 6 1 M e . 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. 63

N.W.2d 638, 43 A.L.R.2d 1167; S h a p i r a v. u n i t e d S t a t e s

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. O t h e r I n s u r a n c e Claims,

of t h e majority opinion. The q u o t a t i o n from Appleman's

Insurance - - P r a c t i c e i s not applicable.
Law and 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 . When he named t h e e l e p h a n t , he w a s

asked "Why e l e p h a n t ? " 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 . " California

-22-
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 deter-
minable 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. Section 33-1-201(6),
MCA .
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. 1261, 150 S . W .

2d 1113, a n i n s u r a n c e c a s e . 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. T h a t i n s t r u c t i o n i s based

on s e c t i o n 40-4102 ( 2 ) , R.C.M. 1947 (now s e c t i o n 33-22-502 ( 2 ) ,

MCA). 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 ) , R.C.M. was

controlling. 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 . I t was t h e

d e c i d e d law. 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
measure - damages as authority for the admissibility of
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 sidestepped that issue, but
the result is some very bad law.
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, R.C.M. 1947 ( s e t o u t i n f u l l

i n the majority opinion). 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. . . may be enforced a g a i n s t "

the plaintiffs. 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 .