Arkansas Blue Cross & Blue Shield v. Hicky

Citations: 50 Ark. App. 173; 900 S.W.2d 598; 1995 Ark. App. LEXIS 400Docket: CA 94-184

Court: Court of Appeals of Arkansas; July 5, 1995; Arkansas; State Appellate Court

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James R. Cooper, Judge, ruled on an appeal by Arkansas Blue Cross and Blue Shield (appellant) against a summary judgment favoring the appellee, Arkansas Farm Bureau Federation Group. The appellant contended that the trial court incorrectly granted the appellee's motion for summary judgment, asserting that no public policy forbade modifications to an insurance contract and that the insurance certificate permitted benefit amendments at annual renewal. The court reversed and remanded the decision, emphasizing that summary judgment is appropriate only when no genuine issue of material fact exists.

The case involved the appellee’s son, Chris Hicky, who was diagnosed with a growth hormone deficiency in 1988, leading to a treatment plan requiring injections. The insurance certificate entailed an annual deductible and coverage terms that were modified by Farm Bureau to reduce pharmaceutical expense reimbursements to 50% effective October 1, 1989. The appellee filed suit for the remaining 50% of expenses after the insurer began paying under the modified terms.

The trial court found that the insurer had accepted the claim and commenced payments based on the original policy terms. It concluded that changing the coverage mid-treatment, especially for a pre-existing condition, violated public policy, as the appellee had relied on the initial coverage and could not secure alternative insurance for the diagnosed illness. The appellant argued against the trial court's findings related to public policy, maintaining that no such policy existed against amending the insurance contract.

The appellant's argument is supported by the language from the insurance certificate, which establishes that the agreement between Arkansas Blue Cross and Blue Shield and the Arkansas Farm Bureau Federation (Farm Bureau) is comprehensive and binds both parties. Farm Bureau acts as the agent for managing coverage changes, submitting applications, and receiving communications from the insurance plan. The Plan retains the right to amend benefits and premiums with a 30-day written notice to Farm Bureau, with changes effective as specified in the notice.

The appellant contends that the certificate permits amendments to coverage and refutes the appellee's claim that public policy prohibits contractual amendments by competent parties. It is recognized that Farm Bureau requested modifications to the coverage to mitigate rate increases for its members. The general legal principle allows insurers and insured parties to contract on mutually agreed terms, provided they do not conflict with statutes or public policy.

Public policy is defined as the interests of the public, established interests of society, good morals, and public welfare. No constitutional or statutory provision was found to directly address the current issue, although some cases have examined insurance clauses deemed contrary to public policy. For instance, in Arkansas Blue Cross v. Long, the Supreme Court ruled against an exclusionary clause that denied coverage based on the insured's discharge against medical advice, highlighting that such provisions could lead to a forfeiture of the insured's rights—something courts generally disfavor. The principles from prior cases affirm that forfeitures cannot occur once rights are vested unless explicitly stated in the insurance contract. Courts will enforce policy conditions that are clear, do not violate statutes, and align with public policy.

Insurance contracts are subject to public interest considerations, meaning that provisions that void policies must be reasonable. In this case, the appellant argues that no benefits had accrued when the policy was changed, as it covered "eligible medical expenses incurred" rather than a specific injury. The appellant claims that no rights were vested at the time of the policy modification, thus the change did not result in a forfeiture of vested rights. This distinction is drawn from Arkansas Blue Cross Blue Shield v. Foerster, which differentiates between policies covering accidents or illnesses—where benefits become vested upon the event—and those covering medical expenses, which cease upon policy termination.

A comparable case, Harvard Community Health Plan, Inc. v. Zack, involved an appellant whose children received unlimited physical therapy until a policy change limited benefits to three months per illness. Despite the change, treatment continued until the limit was enforced, leading to a dispute over whether HCHP could limit future benefits. The court ruled that each year constituted a new contract, allowing HCHP to revise benefits with notice, thereby affirming that the relationship was not perpetual but renewed annually. Zack was informed that after the upcoming open enrollment, the new limitations would apply.

The subscriber agreement has included a limitation on benefits since 1986. Although Zack had previously received "discretionary exceptions" that led her to expect unlimited physical therapy benefits, this expectation was no longer reasonable after she was notified of a change in benefits. Consequently, Zack is not entitled to unlimited future physical therapy benefits simply because she received them in the past. The contract's terms explicitly denied any "vested" rights to unlimited benefits, allowing for modifications upon proper notice. The modification did not constitute a forfeiture but rather reduced coverage at the renewal date. The court found that the policy did not create vested rights akin to those in an accident or illness policy. The appellant's motion for summary judgment was deemed valid, as the insurance certificate permitted benefit amendments at the annual renewal date. The appellee did not contest the insurer's ability to modify the policy or claim ambiguity, but only argued that such modifications would violate public policy. Given the clear language of the policy, the court ruled that it should not bind the insurer to risks that were explicitly excluded. The legal question of the insurer's right to amend the policy was straightforward, leading to the conclusion that the insurer was entitled to judgment as a matter of law. The decision is reversed and remanded for judgment in favor of the appellant, with dissent from Mayfield, J., and Pittman, J. not participating.