Kirkpatrick v. Boston Mutual Life Insurance

O’Connor, J.

(dissenting). Central to the court’s analysis of the issues raised by this appeal is its conclusion — erroneous in my opinion — that there is a contract between the plaintiff and Boston Mutual. In reaching that conclusion, the court joins the trend observable in other jurisdictions, “to consider [group] insurance as something radically different from other coverages and to engender new principles to apply thereto.” 1 J.A. Ap-pleman, Insurance Law and Practice § 41, at 85 (rev. ed. 1981).

We have held that a contract of insurance is interpreted according to the same rules that govern the interpretation of all contracts. Oakes v. Manufacturers’ Fire & Marine Ins. Co., 131 Mass. 164, 165 (1881). Those rules apply equally to group insurance policies. 1 J.A. Appleman, supra. As it is with any contract, our objective in interpreting an insurance contract is to “effectuate [ ] the main manifested design of the parties.” Slater v. United States Fidelity & Guar. Co., 379 Mass. 801, 809 (1980). Joseph E. Bennett Co. v. Fireman’s Fund Ins. Co., 344 Mass. 99, 103-104 (1962). Koshland v. Columbia Ins. Co., 237 Mass. 467, 471 (1921). “What the contracting parties intended, mutually agreed to, and their minds met upon, is the measure of their obligations.” Elsey v. Prudential Ins. Co., 262 F.2d 432, 434-435 (10th Cir. 1958), quoting Mofrad v. New York Life Ins. Co., 206 F.2d 491, 493 (10th Cir. 1953).

In Shea v. Aetna Life Ins. Co., 292 Mass. 575 (1935), we held that a plaintiff employee had become a party to the contract between his employer and the insurance company under a group *651insurance policy. We based that holding on an analysis of the facts of the case, the terms of the policy, and the terms of the plaintiff’s application. Id. at 580. In Shea, the master policy held by the employer did not, in and of itself, provide coverage for any employee. Rather, the master policy contemplated that coverage would be offered to any eligible employee on the terms stated in the master policy. Employees could accept that offer by making an application and authorizing deductions from their wages. The employees provided consideration in the form of contributions toward the cost of the premiums. Id. at 581. Those facts clearly support the court’s conclusion that a contract was formed between the employee and the insurance company.

Today, the court abandons the rationale underlying our decision in Shea, and holds that under any group insurance policy, regardless of the terms of the policy or the intentions of the parties, there is a contract between the insurance company and the employee. By finding such a contract in this case, the court ignores the most basic principles of contract law.

Under the terms of the master policy held by the plaintiff’s employer, all employees of the plaintiff’s class were covered under the policy as soon as they met the requirements for eligibility. The policy did not contemplate any offer to, or acceptance by, individual employees. Although the plaintiff did fill out an application for insurance, under the terms of the contract between Systems Corp. and Boston Mutual that application was not a requisite for coverage under the policy.1 Any employee who met the eligibility requirements was covered, regardless of whether he or she had previously assented to coverage or was even aware that the policy existed. See Bass v. John Hancock Mut. Life Ins. Co., 10 Cal. 3d 792, 797 n.3 (1974).

*652Except in circumstances not relevant here,2 “the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.” Restatement (Second) of Contracts § 17 (1) (1981). Under no reasonable construction of the terms of the policy or the certificate can a contract between the plaintiff and Boston Mutual be found. The master policy does not call for or require a “manifestation of assent” to the exchange by the employees. The employees need not even be aware of the policy to be covered. The only “manifestation of assent” is between the employer and the insurance company.

Nor does the policy require that employees provide consideration for their coverage under the policy, since the premiums are paid entirely by Systems Corp. Some courts have reasoned that under a noncontributory plan, the employee gives consideration by forgoing other employment and by completing the eligibility waiting period. See, e.g., Morris v. Travelers Ins. Co., 546 S.W.2d 477, 484 (Mo. App. 1976). However, such reasoning ignores the requirement that the consideration be “bargained for” — i.e., that it induce the making of the promise and that the promise induce the furnishing of the consideration. Restatement (Second) of Contracts, supra § 71 comment b. Where the employee has no knowledge of coverage or of the length of the waiting period for eligibility, it cannot be said that he or she forgoes other employment or completes the waiting period in exchange for the promise to insure. Other courts have found consideration in the employer’s payment of premiums, noting that the economic effect is the same as if the employee had received the premium and paid the insurer directly. See, e.g., Morris, supra at 484. See also Lecker v. General Am. Life Ins. Co., 55 Hawaii 624, 631 (1974). That reasoning ignores the fact that generally the employee has no right to obtain cash in lieu of the premium payment and therefore the premium payment is not given by the employee “in exchange” for coverage. It is not consideration to give up *653something one does not have. Even if the employer is obligated to provide insurance coverage as part of the employees’ compensation under the terms of the employment contract, that does not create a contract between the insurance company and the employee. In such a case, the employee works in exchange for the employer’s promise to obtain insurance, not the insurer’s promise to insure.

The terms of the master policy indicate an intent by Systems Corp. and Boston Mutual to enter a contract which was com-. píete in and of itself. Although the policy called for Systems Corp. to deliver certificates to employees, that does not thereby make the employees parties to the contract. I am confident that the court would not hesitate to hold Boston Mutual liable to an employee who was eligible for coverage under the policy regardless of whether he or she had received a certificate from the employer. Such an employee’s rights under the policy derive not from the certificate but from his or her status as a third-party beneficiary to the contract between Systems Corp. and Boston Mutual.

Because the plaintiff is only a third-party beneficiary to a contract between Systems Corp. and Boston Mutual, it follows that Systems Corp. could not bind Boston Mutual by erroneously describing the terms of that contract to the plaintiff. The contract called for Boston Mutual to supply certificates to Systems Corp. In filling out those certificates, Systems Corp. was not doing anything on behalf of Boston Mutual. It cannot rightly be said that Systems Corp. was authorized to unilaterally change the terms of its contract with Boston Mutual.

This analysis is consistent with the results, if not the language and the express rationale, of many of the cases cited by the court. If the master policy contemplates the formation of separate contracts with individual employees, and the insurer relies on the employer to solicit employees or to provide information on the terms of the coverage, under principles of agency law the insurer may, in some circumstances, be bound by the erroneous representations of the employer. See, e.g., John Hancock Mut. Life Ins. Co. v. Dorman, 108 F.2d 220 (9th Cir. 1939); Clauson v. Prudential Ins. Co., 195 F. Supp. 72 (D. *654Mass. 1961); Blue Cross-Blue Shield v. Thornton, 56 Ala. App. 678 (1975); Elfstrom v. New York Life Ins. Co., 67 Cal. 2d 503 (1967); Paulson v. Western Life Ins. Co., 292 Or. 38, 48 (1981). Cf. Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 149 n.14 (1982). Even when the master policy does not contemplate that employees will enter separate contracts with the insurance company, if the employee relies on representations of the employer, either the employer, the insurance company, or both, may be liable under equitable principles of estoppel. “[T]he crucial consideration in dealing with [a] claim of estoppel is not what [the employer] and [the insurance company] may have thought they were doing, but the impact of their inaction and action upon a reasonable man in [the employee’s] position” (citation omitted). Clauson v. Prudential Ins. Co., 195 F. Supp. 72, 79 (D. Mass. 1961). See, e.g., Norby v. Bankers Life Co., 304 Minn. 464, 468-470 (1975); Hirsch v. Travelers Ins. Co., 153 N.J. Super. 545, 553 (1977); Baum v. Massachusetts Mut. Life Ins. Co., 357 P.2d 960, 964 (Okla. 1960); Boucher v. Valus, 298 A.2d 238 (Conn. Cir. Ct. 1972).

In a case such as this, however, where there is no contract between the plaintiff and the insurer, and no reliance on the erroneous information supplied by the employer, the terms of the master policy must determine the obligations of the parties. To the extent that the cases cited by the majority are to the contrary, I do not find their analysis persuasive and would decline to follow them.

Because the plaintiff was not eligible for long-term disability benefits under the terms of the policy, and because, as the court acknowledges, there is nothing to suggest that he relied on the erroneous information in the certificate, Boston Mutual was entitled to summary judgment on the contract claim. The Superior Court judge also granted summary judgment to Boston Mutual on the plaintiff’s G. L. c. 93A claim. Rule 56 of Mass. R. Civ. P., 365 Mass. 824 (1974), authorizes a judge to grant summary judgment only upon a motion by a party. Because neither party had moved for summary judgment on the G. L. c. 93A claim, I would reverse the entry of summary judgment on that count and remand the case for further proceedings.

The relevant portion of the policy states: “Effective Dates of Insurance: If this Policy provides insurance on a contributory basis, eligible employees may become insured only by making written application to the Company through the Policyholder on forms furnished by the Company. . . .

“If this Policy provides insurance on a non-contributory basis, the insurance of any employee shall become effective on his eligibility date.”

See Restatement (Second) of Contracts §§ 17, 82-94 (1981). As the court acknowledges, in this case there is no evidence that the plaintiff relied on the information supplied in the certificate.