State Comprehensive Health Ass'n v. Carmichael

District Court of Appeal of Florida
1997 Fla. App. LEXIS 14351, 706 So. 2d 319 (1997)

ELI5:

Rule of Law:

Ambiguities in insurance policy exclusions must be strictly construed against the insurer. An exclusion for expenses where benefits are 'payable under another policy of health care insurance' does not apply where the other source is an undefined, self-funded employee benefit plan that is insolvent and cannot actually pay.

Facts:

Prior to his death in 1988, Carmichael incurred significant medical expenses for leukemia treatment.
Carmichael held a health insurance policy issued by State Comprehensive Health Association ('State Comprehensive') and administered by Mutual of Omaha Insurance Company ('Mutual').
Carmichael's former employer, Best Buy Drugs, had a self-funded employee benefit plan ('Best Buy plan') that provided some health benefits.
Carmichael's medical providers submitted his expenses to both the State Comprehensive policy and the Best Buy plan.
While the Best Buy plan paid some initial expenses, it failed to pay the majority of them due to financial difficulties and a lack of funding.
Best Buy Drugs subsequently filed for bankruptcy, which included the employer contributions for its employee health plan.

Procedural Posture:

Carmichael's widow filed suit against State Comprehensive Health Association and Mutual of Omaha Insurance Company in a Florida trial court seeking payment for $37,943.31 in unpaid medical expenses.
After a non-jury trial, the trial court entered a final judgment in favor of Carmichael's widow, finding that the insurance policy's exclusion did not apply.
State Comprehensive Health Association and Mutual of Omaha Insurance Company, as appellants, appealed the trial court's judgment to the Florida Fourth District Court of Appeal, with Carmichael's widow as the appellee.

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Issue:

Does a health insurance policy exclusion for expenses for which 'benefits are payable under another policy of health care insurance' relieve an insurer of its obligation to pay when the other potential source of benefits is an insolvent, self-funded employee benefit plan that has failed to pay the expenses?

Opinions:

Majority - Pariente, J.

No. The health insurance policy exclusion does not relieve the insurer of its obligation to pay. Once the insured shows a claim is covered, the burden shifts to the insurer to prove an exclusion applies. Here, the court strictly construed the exclusionary language against the insurer for two primary reasons. First, the term 'policy of health care insurance' was not defined in the State Comprehensive policy, and the insurer, as the drafter, cannot impose a narrow interpretation to include a self-funded employee benefit plan. Second, the court upheld the trial court's finding that the Best Buy plan was insolvent, meaning benefits were not actually 'payable' as required by the exclusion's text. Therefore, the exclusion did not operate to deny coverage for Carmichael's medical expenses.

Analysis:

This decision strongly reaffirms the principle of contra proferentem, requiring courts to interpret ambiguous insurance policy terms, especially exclusions, against the drafter. It establishes that the theoretical availability of other coverage is insufficient to trigger an exclusion; the other benefits must be practically 'payable'. This protects insureds from being caught in a coverage gap where one insurer denies a claim based on the existence of another plan that is insolvent or otherwise unable to pay. The case serves as a warning to insurers to define exclusionary terms with precision or risk having them construed narrowly in favor of the policyholder.

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