Stainback v. Investor's Consolidated Insurance

EAGLES, Judge. Defendant asserts that the trial court erred in ruling that as a matter of law plaintiff was entitled to recover damages under the group hospitalization insurance policy. The dispositive issue is whether plaintiffs noncompliance with the 75% employee coverage requirement voids this group health insurance policy contract. We hold that it does not. G.S. 58-254.4(b) provides that: “No policy or contract of group accident, group health, or group accident and health insurance shall be delivered or issued for delivery in this State unless the group of persons thereby insured conforms to the requirements of the following: . . . the group shall comprise not less than seventy-five percent (75%) of all persons, eligible of any class or classes of employees, or agents, determined by conditions pertaining to the employment or agency.” To ascertain the effect of violation of this statutory 75% rule, we look to G.S. 58-258(b). It provides as follows: A policy delivered or issued for delivery to any person in this State in violation of this Subchapter shall be held valid but shall be construed as provided in this Subchapter. When any provision in a policy subject to this Subchapter is in conflict with any provision of this Subchapter, the rights, duties and obligations of the insurer, the insured and the beneficiary shall be governed by the provisions of this Subchapter. Violation of the 75% employee coverage requirement for a group policy under G.S. 58-254.4(b) does not automatically void the policy. Pursuant to G.S. 58-258(b), a policy issued in violation of the statute “shall be held valid.” Thus, a violation merely gives the insurance company the right to cancel the policy. This conclusion is supported by language from defendant’s Master Policy which provides: [199] The Company reserves the right to terminate insurance with respect to all employees of any member if the total number of employees, with respect to said number recorded reported for insurance hereunder is less than seventy-five percent of such members employees eligible for insurance hereunder. By this language, defendant spelled out its remedy, i.e., the right to terminate coverage, if the total enrollees fell below 75% of the eligible employees, clearly defendant did not make 75% participation in the group plan a condition going to coverage or scope. To cancel this policy, the defendant would have had to take timely affirmative action. It did not do so and accordingly is bound by the clear language of the statutes and its own policy. A health insurance company cannot avoid liability on its policy by passive reliance on policy language which merely reserves for the insurance company the right to cancel the policy for noncompliance with its group enrollment minimum percentage requirement. Though not the basis for our decision here, we note that the trial court found as a fact and concluded as a matter of law that defendant company’s president had been informed by its agent Stewart of the plaintiffs failure to meet the 75% minimum enrollment criteria and that defendant’s president McKee “specifically authorized Percy Stewart to accept and submit the application of the plaintiff and deliver the policy to the plaintiff knowing that 75% of West End Used Cars, Inc., would not be covered” and that the policy was “specifically authorized for issuance in violation of N.C.G.S. (58-) 254.4(b) [sic] by George McKee.” Affirmed. Judges BECTON and JOHNSON concur.