Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. H 79-C-206 -- McNagny and Eschbach, Judges.
Before Bauer, Cudahy and Posner, Circuit Judges.
Plaintiff Robert Sur appeals from the district court's orders granting summary judgment to defendants, Glidden-Durkee, a division of S.C.M. Corporation ("Glidden-Durkee")*fn1 and the Prudential Insurance Company of America ("Prudential"). We reverse and remand.
From October 1, 1975 to March 31, 1978, Robert Sur was an employee of defendant Glidden-Durkee and, as such, was insured under the company's group health insurance policy issued by defendant Prudential. The terms of the policy were set forth in a booklet issued to employees, a copy of which is attached to the Amendment to the Complaint.*fn2 The policy's coverage extended to Sur and to his "eligible dependents." According to the booklet, "Eligible dependents are your lawful wife or husband and your unmarried children at least 14 days old but less than 19 years old. Children are eligible from birth for Major Medical Expense Insurance." The policy's Basic Plan provided coverage, up to specified maximum amounts, for hospital, surgical, and other medical expenses. The Major Medical Plan provided coverage, subject to a deductible and to payments made under the Basic Plan, for 80% of hospital, surgical and other expenses, to an overall maximum of $100,000.00.
With respect to termination of the insurance policy, the booklet stated that insurance coverage would terminate when the employee "ceased active work," and that should the employee cease active work for any reason, he should find out from his employer what coverage if any could be continued in force. The booklet stated, further, that an employee could change to an individual policy if his group coverage terminated through termination of his employment.
Sur's wife became pregnant in August 1977. Several months previously, in anticipation of the pregnancy, Sur had consulted with Josie Sbarra, a Glidden-Durkee employee, regarding his health insurance, requesting and receiving "the necessary paperwork for the doctors and the hospital."*fn3
On March 31, 1978, when Sur's wife was eight and one-half months pregnant, Sur voluntarily terminated his employment at Glidden-Durkee. Two weeks before he left the company, he asked a Glidden-Durkee representative, Walter Wolfe, what his insurance coverage would be if he quit. Wolfe told him he "would have coverage by converting after (he) quit."*fn4 Wolfe did not say, and Sur did not ask, whether his coverage upon conversion would be the same as his coverage under the group policy. Sur believed that the coverage would be the same. Before he left Glidden-Durkee, Sur spoke to Josie Sbarra about converting his insurance policy. Sbarra provided him with the conversion application, which Sur completed and mailed to Prudential. In due course Prudential sent Sur a conversion policy.
Before Sur received the conversion policy from Prudential, his son Matthew was born. At birth, Matthew suffered from gastroschisis-in lay terms, "he was born with everything on the outside."*fn5 He has undergone several major operations, and it is expected that he will require continuous medical treatment and periodic hospitalization for the rest of his life.
The conversion policy that Sur received from Prudential after Matthew's birth included several plans from which Sur could choose. None of the plans offered the same coverage as that provided in the group policy. Sur called an attorney. After consulting with his attorney, he selected the policy that offered the most coverage of the alternatives presented to him. Under the policy he chose, Matthew was a covered dependent as of the date of his birth, but only Basic benefits, and no Major Medical benefits, were provided. Matthew's medical expenses far exceeded the maximum benefits allowable under the conversion policy's coverage. As of September 20, 1979, Prudential has paid $8,590.25 toward Matthew's medical expenses, in accordance with the conversion policy. According to the complaint, by April 1979, Matthew's actual medical expenses exceeded $60,000.00.
Sur filed the present lawsuit on April 24, 1979, basing jurisdiction on diversity of citizenship.*fn6 Prudential moved for summary judgment on September 25, 1979. The district court granted the motion, in accordance with a federal magistrate's Report and Recommendation, on August 29, 1980. On December 2, 1980, Glidden-Durkee moved for summary judgment. The district court granted the motion, upon the Report and Recommendation of the magistrate, on June 4, 1981. This appeal followed.
Sur contends that the summary judgments were improper because his claim raises a genuine issue of material fact that should be submitted to a jury. According to Sur, he failed to seek medical insurance elsewhere because he believed his coverage under the conversion policy would be the same as his coverage under the group policy. He admits he was mistaken in this belief, but he argues that his arrival at this mistaken conclusion was the result of his reasonable reliance on information contained in his group-policy booklet, and that because he reasonably relied on the booklet, the defendants should be estopped from denying group-policy coverage for Matthew's medical expenses.*fn7 He argues that whether he acted reasonably presents a genuine issue of material fact, precluding summary judgment.
Glidden-Durkee responds that the reasonableness of Sur's reliance is not material because Sur has not demonstrated that Glidden-Durkee committed any act or omission or made any misrepresentation that could form a basis for its liability to Sur. In a similar vein, Prudential argues that estoppel cannot apply here because no representations were made to Sur upon which he can claim that he relied and acted to his detriment.
We note at the outset that all three of the parties appear to assume that Glidden-Durkee and Prudential are interchangeable entities with coextensive obligations running to Sur. The assumption is incorrect. As an insurer, Prudential can be estopped from denying coverage to Sur if Sur reasonably relied to his detriment upon some act, omission or representation of Prudential or its agents. See, e.g., Wayne Chemical v. Columbus Agency Service Corp., 426 F. Supp. 316, 323 (N.D.Ind.1977); Continental Insurance Co. v. Thornburg, 141 Ind.App. 554, 219 N.E.2d 450, 454 (1966); see generally 16B J. Appleman, Insurance Law and Practice § 9088 at 556-61 (1981). Misrepresentations made by Glidden-Durkee are not imputable to Prudential because Glidden-Durkee is not Prudential's agent. Under Indiana law, when an employer negotiates a group insurance contract with an insurance company, the employer acts as the agent of its employees, not of the insurance company. Metropolitan Life Insurance Co. v. Henry, 217 Ind. 33, 36-38, 24 N.E.2d 918 (1940); Prudential Insurance Co. of America v. Lancaster, 139 Ind.App. 292, 297, 219 N.E.2d 607 (1966); Morales v. Equitable Life Assurance Society, 115 Ind.App. 565, 567, 60 N.E.2d 747 (1945); see 16 J. Appleman, Insurance Law and Practice § 8734 at 390-93 (1981). Thus, Prudential may be estopped from denying coverage only by reason of its own actions, not those of Glidden-Durkee. As for Glidden-Durkee's liability to Sur, if any, it would arise not by estoppel but because of the company's breach of a duty it owed Sur in its capacity as Sur's agent. Because each defendant is responsible only for its own acts, omissions or representations, we examine Sur's claim against each separately.
As noted above, Glidden-Durkee is deemed to be Sur's agent and may be held liable to him for the breach of a duty owed by an agent to its principal. Under Indiana law, an agent of an insured owes the insured a duty of good faith and due diligence in obtaining adequate insurance for him, e.g. Bulla v. Donahue, 174 Ind.App. 123, 366 N.E.2d 233, 236 (1977). Employers are not exempted from this duty. For example, in Sims Motor Transport Lines, Inc. v. Davis, 126 Ind.App. 344, 130 N.E.2d 82 (1955), an employer deducted money from the paycheck of an "independent contractor" retained by him, ostensibly to provide life insurance for the independent contractor. The employer failed, however, to obtain such insurance, and the independent contractor died without life insurance coverage. The court held the employer liable for the face amount of a life insurance policy that could have been purchased with the amounts deducted from the deceased's paycheck.*fn8
An employer also owes a duty to its employee to inform him of his conversion rights under the group policy. In Sheller-Globe Corp. v. Sheller, 413 N.E.2d 318 (Ind.App.1980), an employer obtained a group life insurance policy for its employees. When one of the covered employees decided to retire, the employer's representative told him, incorrectly, that he could not convert his group policy to an individual policy. He therefore made no effort to convert, and he was no longer covered when he died shortly after his retirement. His widow sued the employer and the insurance company, seeking to recover under the group policy. The Indiana appellate court affirmed the judgment against the employer. The court held that the evidence was sufficient to warrant the trial court's finding that the employer "was negligent in discharging its responsibility to inform (the employee) of his conversion right under the group policy." Id., 413 N.E.2d at 321. Because the deceased would have converted had he not been misinformed, the employer was held liable for the amount payable under the group policy.*fn9
We can only conclude, in light of Sheller-Globe, that Glidden-Durkee owed a duty to Sur to inform him about his conversion rights under the group health insurance policy, and that this duty included, at the least, a duty not to mislead Sur with regard to the extent of his conversion rights.*fn10 The question, then, is whether Glidden-Durkee ...