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Houghton v. American Guaranty Life Insurance Co.

November 3, 1982



Seitz, Chief Judge, Rosenn, Senior Circuit Judge, and Garth, Circuit Judge.

Author: Garth


GARTH, Circuit Judge.

American Guaranty Life Insurance Company ("AGLIC"), appeals from an order which granted summary judgment for Mary D. Houghton. The district court held that the terms of the health insurance policy issued by AGLIC to Mary Houghton provided coverage for medical expenses which she incurred after the termination of the policy, where the expenses were the result of the sickness which she suffered during the life of the policy. We affirm.


Mary Houghton, a Pennsylvania resident, in response to an AGLIC advertisement, applied for a health insurance policy. The policy was advertised as a "new Federal Medicare supplemental Major Medical insurance program that pays up to $250,000.00 in benefits!" App. at 227a. After payment of the premium, AGLIC issued Houghton a "Medicare Booster" policy on January 1, 1979. The policy provided for Basic Medicare as well as Major Medical coverage. By the policy's terms, AGLIC contractually reserved the right to decline to renew the policy by giving Houghton thirty days' written notice. However, AGLIC could decline renewal but only if it also cancelled all the issued policies bearing the same form number in the insured's state. Houghton's policy, which became effective on January 1, 1979, was the only policy issued by AGLIC in Pennsylvania.*fn1

In March 1979, Houghton suffered a stroke with resulting brain damage while she was hospitalized for a hip injury. On November 30, 1979, AGLIC sent Houghton a written notice of its decision not to renew her policy as of December 31, 1979. AGLIC paid Houghton for the stroke related expenses incurred by her up to the cancellation date of the policy, but refused to make any payments for such expenses incurred after that date.

Houghton thereupon instituted an action against AGLIC in the District Court for the Eastern District of Pennsylvania. She sought payments for her continuing stroke related post-cancellation medical expenses. AGLIC moved for summary judgment claiming among other things, that it had cancelled the policy in conformance with its terms. AGLIC contended that the policy only covered expenses actually incurred during the life of the policy and that it had met this contractual obligation by compensating Houghton for her expenses incurred until the date the policy was cancelled.

Houghton filed a cross-motion for summary judgment. She argued that AGLIC was estopped from cancelling the policy because she was "lured" into buying the policy and had become an uninsurable risk after she had suffered her stroke. She also argued that the insurance policy provided coverage for all expenses incurred even after the cancellation of the policy, when the expenses resulted from a sickness which had occurred prior to the policy's cancellation. She asked the district court to reinstate the policy and to require AGLIC to pay all her claimed Allowable Expenses under the policy.

The district court denied AGLIC's motion but granted Houghton's cross-motion for summary judgment. In a memorandum opinion, it found that AGLIC had not used clear and unambiguous language in the policy to limit its liability only to medical expenses actually incurred by the insured during the term of the policy coverage. Therefore, it concluded "that the uncertainty in the policy with regard to the payment of medical expenses incurred after the policy had been cancelled but resulting from a physical injury incurred during the policy coverage period should be construed in favor of the insured." App. at 274a. Ruling in Houghton's favor, the district court ordered AGLIC to "pay the allowable expenses as provided under the insurance policy." App. at 276a. This appeal followed.


On appeal, AGLIC makes three arguments. Its primary argument is that the district court erred in finding the terms of the policy to be ambiguous regarding the risk that was insured. It claims that the plain language of the policy clearly establishes that only actual expenses incurred during the life of the policy were to be reimbursed, and therefore, the district court erred in finding that the insurance policy covered expenses incurred after the cancellation of the policy provided those expenses resulted from a pre-termination sickness.

AGLIC also argues, for the first time on appeal, that even if the district court correctly interpreted the policy in imposing liability on the insurer for certain post-termination expenses, it nevertheless erred in ordering the insurer to "pay the allowable expenses as provided under the insurance policy." App. at 276a. It contends that the court should not have granted final relief on a summary judgment motion, because there were material issues of fact as to the dollar amount and the period of time for which it was obligated to pay the Allowable Expenses.

Finally, it argues that the district court order is ambiguous as to the relief actually granted. It has asked us to modify the district court order granting judgment in favor of Houghton so that the policy is deemed to have been properly terminated rather than reinstated. We consider each argument in turn.


The principles are well settled regarding the interpretation of insurance policies under Pennsylvania law.*fn2 In interpreting an insurance policy, which is a contract, courts are required to determine the intent of the parties as disclosed by the language of the policy. Eastern Associated Coal Corp. v. Aetna Casualty & Surety Co., 632 F.2d 1068, 1075 (3d Cir. 1980), cert. denied, 451 U.S. 986, 68 L. Ed. 2d 843, 101 S. Ct. 2320 (1981) (citing Mohn v. American Casualty Co. of Reading, 458 Pa. 576, 326 A.2d 346 (1974); Lovering v. Erie Indemnity Co., 412 Pa. 551, 195 A.2d 365 (1963); Treasure Craft Jewelers, Inc. v. Jefferson Insurance Co., 583 F.2d 650, 652 (3d Cir. 1978)). If the language is clear and unambiguous, courts are to give effect to its plain and ordinary meaning. St. Paul Fire & Marine Insurance Co. v. United States Fire Insurance Co., 655 F.2d 521, 524 (3d Cir. 1981); Eastern Associated Coal Corp., supra; Pennsylvania Manufacturers' Association Insurance Co. v. Aetna Casualty & Surety Co., 426 Pa. 453, 457, 233 A.2d 548, 551 (1967). However, because insurance policies are frequently considered to be contracts of adhesion, any ambiguity in the policy " must be construed against the insurer, and in a manner which is more favorable to coverage." Buntin v. Continental Insurance Co., 583 F.2d 1201, 1207 (3d Cir. 1978) (emphasis in original). See, e.g., Alexander & Alexander, Inc. v. Rose, 671 F.2d 771, 777 (3d Cir. 1982); St. Paul Fire & Marine Insurance Co., supra, 655 F.2d at 524; Daburlos v. Commercial Insurance Co. of Newark, New Jersey, 521 F.2d 18, 25-26 (3d Cir. 1975); Mohn, supra, 458 Pa. at 586, 326 A.2d at 351; Burne v. Franklin Life Insurance Co., 451 Pa. 218, 226, 301 A.2d 799, 804 (1973); Penn-Air, Inc. v. Indemnity Insurance Co. of North America, 439 Pa. 511, 517, 269 A.2d 19, 22 (1970); Cohen v. Erie Indemnity Co., 288 Pa.Super. 445, 448, 432 A.2d 596, 597 (1981). Nevertheless, the language of the policy may not be tortured to create ambiguities where none exist. St. Paul Fire & Marine Insurance Co., supra, 655 F.2d at 524; Eastern Associated Coal, supra, 632 F.2d at 1075; Treasure Craft Jewelers, Inc., supra, 583 F.2d at 652.

Thus, under Pennsylvania law, ambiguous terms of an insurance policy are construed against the insurer. This principle stems from Pennsylvania's concern that insurance companies, because of their superior bargaining position, should not be permitted to thwart the reasonable expectations of the consumer purchaser. See Collister v. Nationwide Life Insurance Co., 479 Pa. ...

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