Norby v. Bankers Life Co. of Des Moines, Iowa
231 N.W.2d 665, 304 Minn. 464, 1975 Minn. LEXIS 1447 (1975)
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Rule of Law:
An employer that performs administrative functions on behalf of an insurer in connection with a group insurance policy, such as enrolling employees, is considered an agent of the insurer. Therefore, the insurer is bound by the employer's actions, including its negligence in failing to process an employee's application.
Facts:
- Fred G. Norby began working for Hoffman Brothers, Inc. (Hoffman) in August 1970.
- Hoffman was a member of an employers' association that held a group accident and sickness policy with The Bankers Life Company (Bankers Life).
- In September 1970, Norby completed an application for coverage under the policy and submitted it to his employer, Hoffman.
- Due to an oversight, Hoffman failed to forward Norby's application to Bankers Life.
- After discovering the error, Norby completed a second application on December 31, 1970, which was promptly sent to Bankers Life.
- Under the terms of the policy and due to a temporary layoff, the second application resulted in an effective coverage date of January 20, 1971.
- Norby's child was injured on January 19, 1971, incurring medical expenses.
- After Bankers Life denied Norby's claim, Hoffman paid him the full amount he would have received under the policy.
Procedural Posture:
- Fred G. Norby sued The Bankers Life Company (Bankers Life) in a state trial court to recover benefits under a group insurance policy.
- Bankers Life filed a third-party complaint against Norby's employer, Hoffman Brothers, Inc. (Hoffman), for indemnity or contribution.
- The trial court found for Norby, concluding that Hoffman was an agent of Bankers Life.
- The trial court dismissed Bankers Life's third-party complaint against Hoffman.
- Bankers Life, as appellant, appealed the judgment to the state's highest court.
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Issue:
Does an employer act as an agent for the insurer when it performs administrative functions for a group insurance policy, such as accepting employee applications, making the insurer liable for the employer's negligent failure to forward an application?
Opinions:
Majority - Peterson, Justice
Yes, an employer acts as an agent for the insurer under these circumstances. When an insurer delegates administrative functions, such as enrolling employees, to an employer, the employer acts as the insurer's agent for those specific functions. The court rejected the traditional view that an employer's interests are always adverse to the insurer's, reasoning that in the context of modern group insurance, the employee has no choice in the administration of the plan and reasonably expects that the employer and insurer will manage it properly. It is inequitable to frustrate an employee's expectations of coverage due to the employer's administrative negligence. Therefore, Hoffman's failure to forward Norby's initial application is imputed to Bankers Life, making the insurer liable for the claim as if the application had been timely processed.
Analysis:
This decision represents a significant departure from the traditional rule that employers are not agents of the insurer in group insurance plans. By adopting a functional approach, the court aligned the law with the practical realities of employer-administered insurance programs. This ruling establishes that liability follows administrative control, placing the risk of an employer's clerical errors on the insurer who delegates those tasks. This protects the reasonable expectations of employees and encourages insurers to exercise greater oversight over the employers administering their group policies. Future litigation in this area will likely focus on the specific functions delegated to the employer to determine the scope of the agency relationship.
