Appeal from the Circuit Court of Lake County; the Hon.
Lawrence D. Inglis, Judge, presiding.
JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:
Plaintiff, Ernie Jeczala as administrator for the estate of Andrew Hanton, brought a complaint for declaratory judgment in the circuit court of Lake County. In that complaint the plaintiff sought the court to declare that the defendant, Lincoln National Life Insurance Company, was obligated to pay full coverage under a group policy plan issued by defendant for the hospitalizations, medical expenses, and other expenses incurred by Hanton between July 6, 1982, and August 20, 1982. Subsequent to a hearing on the complaint, the trial court issued a written order finding in favor of defendant and against plaintiff. Plaintiff filed a post-judgment motion asking the court to vacate its final judgment order and enter judgment for plaintiff. In an amended order the court vacated its earlier judgment and found in plaintiff's favor. Defendant filed a timely notice of appeal.
In this court defendant raises four main contentions of error: (1) that the trial court erred in holding that section VI(M), the integration-with-Medicare provision, of the group insurance policy in question is ambiguous; (2) that the trial court erred in holding that defendant improperly applied the integration-with-Medicare provision; (3) that the trial court erred in finding that the provision violated public policy; and (4) that the trial court erred in calculating the amount of insurance benefits due to plaintiff.
Plaintiff, Ernie Jeczala, is the duly appointed administrator of the estate of Andrew Hanton, deceased. At the time of Hanton's death on August 20, 1982, Hanton was an employee of Glenkirk Association for Retarded Citizens (Glenkirk). A group insurance policy for the employees of Glenkirk, issued by the defendant, was in effect on August 20, 1982.
On or about July 6, 1982, Andrew Hanton was hospitalized at Condell Memorial Hospital and was subsequently transferred to Rush Presbyterian St. Luke's Hospital where he was treated for a heart attack until he was discharged on August 5, 1982. On August 11, 1982, Hanton became 65 years of age. On August 13, 1982, Hanton was readmitted to Rush Presbyterian St. Luke's Hospital where he underwent treatment until his death on August 20, 1982.
During his hospitalizations, Hanton incurred medical expenses totaling $29,672.68. Shortly after Hanton's death, his estate filed a claim for benefits with the defendant under the group insurance plan of Glenkirk. Defendant informed Hanton's estate that it would not extend full coverage to the deceased under the group insurance plan because Hanton had become eligible for Medicare coverage on August 1, 1982. Pursuant to a provision of the policy regarding integration with Medicare benefits, defendant claimed it was only obligated to pay $260.07 for any medical expenses occurring after August 1, 1982. The applicable provision of the policy stated:
"M. INTEGRATION WITH MEDICARE.
1. Any benefits payable under the medical expense insurance provisions of this policy will be reduced by the amount of any benefits or compensation to which the insured individual is entitled under Medicare. The reduction will apply whether or not the individual has received, or made application for, such other benefits.
2. An insured is deemed `entitled' to all Medicare benefits for which he or she is or has been eligible."
Prior to his death on August 20, 1982, Andrew Hanton did contact the Social Security Administration to apply for benefits to which he was entitled under law. Due to his illness, he did not complete the processing of his application prior to his death. After his death, his estate made application with the Social Security Administration for retirement insurance benefits. The administration denied the application, stating that since the administration had not received, prior to Hanton's death, a written statement of intent to file an application for benefits, "no benefits can or will be paid as the application was not properly or timely filed." The estate sought a reconsideration of this denial. In its "Reconsideration Determination" the Social Security Administration determined that the estate's written application was untimely as it should have been filed within the six-month period following Hanton's telephone call in August 1982 to the administration. As the estate did not file the requisite written application until June 1983, one of the requirements for entitlement to retirement insurance benefits was not met and, therefore, no benefits were payable.
Subsequently, plaintiff brought an action for declaratory judgment (Ill. Rev. Stat. 1983, ch. 110, par. 2-701) asking the court to determine that, under the group insurance policy issued by defendant to Glenkirk, defendant was obligated to provide coverage for Hanton's hospitalizations and medical expenses incurred between July 6, 1982, and August 20, 1982, and that the integration-with-Medicare provision of defendant's policy, upon which defendant based its refusal to extend full coverage to Hanton, was void as against public policy.
At an April 1, 1985, hearing on the declaratory judgment action, testimony by Ernie Jeczala established that Andrew Hanton was incapable of moving about by himself from the time of his discharge from the hospital on August 5 to his readmission on August 13 and subsequent demise on August 20. Timothy Gierke, an operations supervisor for the Social Security Administration who supervised claim representatives responsible for processing retirement and survivor insurance claims, testified for the defendant. Based on Gierke's experience and familiarity with Medicare, he opined that an individual who became 65 in August 1982 and who had made proper application for Medicare benefits would have begun receiving benefits on August 1, 1982.
Gerald Oljace, called as an expert witness for the defendant, reviewed the integration-with-Medicare clause of the insurance policy in question, stating that Medicare "carve out" provisions, such as the clause in question, were common in the insurance industry. On cross-examination Oljace stated that he had never seen a carve-out provision applied to an employee who did not receive benefits from another source.
Lisle Freinuth, a group-contract consultant with the defendant company, testified that the integration-with-Medicare clause was submitted to and approved by the Illinois Department of Insurance. Freinuth identified the department's stamp of approval on the letter defendant sent to the department at the time defendant sought approval of the clause in question as well as approval of several other provisions. Defendant's final witness, LaVera Hitzemann, a regional administrative consultant for defendant involved with the processing of claims, explained how the defendant, after estimating the ...