North Carolina Department of Justice
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March 13, 1978 Health Accident and health insurance; group insurance; unfair discrimination; chiropractic; optometry; dentistry; podiatry; psychology; applicability of G.S. 58-260 to group insurance contracts covering North Carolina residents and written by insurers transacting insurance business in this State; G.S. 58-28; choice of law rules; conflict of laws.

Subject:

 

Requested By: N.C. Department of Insurance

 

Question: Are group accident and health insurance contracts issued by insurers transacting insurance business in this State and insuring residents of this State subject to the provisions of N.C. G.S. 58-260 (forbidding discrimination in policy benefits with respect to services of certain health care providers) although such contracts were entered into outside the State?

 

Conclusion: Such contracts are subject to the provisions of G.S. 58-260.

 

G.S. 58-260 provides as follows:

"Discrimination forbidden; right to choose services of optometrist, podiatrist, dentist or chiropractor. - Discrimination between individuals of the same class in the amount of premiums or rates charged for any policy of insurance covered by this Subchapter, or in the benefits payable thereon, or in any of the terms or conditions of such policy, or in any other manner whatsoever, is prohibited.

Whenever any policy of insurance governed by this Chapter provides for payment of or reimbursement for any service which is within the scope of practice of a duly licensed optometrist, or duly licensed podiatrist, or a duly licensed dentist, or duly licensed chiropractor, or duly licensed practicing psychologist, the insured or other persons entitled to benefits under such policy shall be entitled to payment of or reimbursement for such services, whether such services be performed by a duly licensed physician or a duly licensed optometrist, or a duly licensed podiatrist, or a duly licensed dentist or a duly licensed chiropractor, or a duly licensed practicing psychologist, notwithstanding and provision contained in such policy. Whenever any policy of insurance governed by this Chapter provides for certification of disability which is within the scope of practice of a duly licensed physician, or a duly licensed optometrist, or a duly licensed podiatrist, or a duly licensed dentist, or a duly licensed chiropractor, or a duly licensed practicing psychologist, the insured or other persons entitled to benefits under such policy shall be entitled to payment of or reimbursement for such disability whether such disability be certified by a duly licensed physician, or a duly licensed optometrist, or a duly licensed podiatrist, or a duly licensed dentist, or a duly licensed chiropractor, or a duly licensed practicing psychologist, notwithstanding any provisions contained in such policy. The policyholder, insured, or beneficiary shall have the right to choose the provider of such services notwithstanding any provision to the contrary in any other statute.

For the purposes of this section, a "duly licensed practicing psychologist" shall be defined to only include a psychologist who is duly licensed or certified in the State of North Carolina and has a doctorate degree in psychology and at least two years clinical experience in a recognized health setting, or has met the standards of the National Register of Health Providers in Psychology."

G.S.
58-28 provides as follows: "State law governs insurance contracts. - All contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof."
G.S.
58-28 has the effect of localizing all insurance contracts on property, lives, and interests within the State as well as insurance contracts for which applications are taken in this State. See Blackwell v. Life Association, 141 N.C. 117, 53 SE 833 (1906); Pace v. N.Y. Life Ins. Co., 219

N.C. 451, 14 SE 2d 411 (1941); Rossman v. N.Y. Life Ins. Co., 19 N.C. App. 651, 199 SE 2d 681 (1973). Consequently, no question arises as to what otherwise might be the proper choice of law rules to apply to such contracts. G.S. 58-28 does not exempt group insurance contracts from its provisions and, therefore, such contracts are subject thereto. While earlier decisions of the U.S. Supreme Court often found activities in the state of the forum too slight and casual to make application of local law to out-of-state insurance contracts consistent with due process (See Hartford Accident & Indemnity Co., v. Delta & Pine Land Co., 292 U.S. 143, 78 L. Ed 1178, 54 SCT 634 (1934) and Home Ins. Co. v. Dick, 281 U.S. 397, 74 L.Ed 926, 50 SCt. 338 (1930), more recent decisions indicate that this State has sufficient contact with the transactions under examination to subject group insurance contracts to the laws of this State where the insured beneficiary is a resident of the State and the insurer is transacting insurance business in this State, either by selling insurance or adjusting claims (See Pa. Lumbermen's Mutual Fire Ins. Co. v. Meyer, 197 U.S. 407, 49 L.Ed 810) (1905) therein, although such contracts were entered into outside this State.

In Clay v. Sun Ins. Office, Ltd., 377 U.S. 179, 12 L.Ed 2d 229, 84 SCT 1197 (1964), the plaintiff, while a citizen and resident of Illinois, purchased a personal property insurance policy containing a 12 month suit clause from the defendant, which was licensed to do business in both Illinois and Florida. A few months after purchasing the policy, the plaintiff became a citizen and resident of Florida, where the loss occurred two years later and where a statute nullified contract clauses which required suit to be filed in less than five years. In a suit in federal court based on diversity, the lower court held that the Florida statute applied for violated due process and that judgment should be entered for the defendant, since suit was not instituted within twelve months of the loss. The U.S. Supreme Court reversed holding that application of the Florida statute did not violate either the full faith and credit clause or the due process clause since Florida had ample contracts with the transaction. In a unanimous opinion, Justice Douglas, speaking for the Court, said: "Insurance companies, like other contractors do not confine their contractual activities and obligations within state boundaries. They sell to customers who are promised protection in States far away from the place where the contract is made. In this very case the policy was sold to Clay with knowledge that he could take his property any where in the world he saw fit without losing the protection of his insurance. . . . Shortly after the contract was made, Clay moved to Florida and there he lived for several years. His insured property was there all that time. The company knew this fact. Particularly since the company was licensed to do business in Florida, it must have known it might be sued there. . . . Florida has ample contacts with the present transaction and the parties to satisfy any conceivable requirement of full faith and credit or of due process."

What the Supreme Court said in Clay v. Sun Ins. Office, Ltd., supra, is equally applicable to insured beneficiaries under group accident and health insurance contracts, and while there are obvious advantages which would accrue from a presumed uniform interpretation that would flow from the construction of the contract by the appellate courts of one state only (presumably the state where the contract was entered into) the lack of uniformity in the choice of law rules of the various states and the interest of the forum State having jurisdiction over the claims of its residents strongly support the practicability of the application of G.S. 58-28 to the transaction in question. For example, a state having jurisdiction over a claim deriving from an out-of-state employment contract need not substitute the conflicting workmen compensation statute of the other state for its own law where the employee was injured in the course of his temporary employment in the forum State. Pacific Employers Ins. Co. v. Industrial Accident Commission, 306 U.S. 493, 83 L.Ed 940, 59 SCT 629 (1939).

In Schroeder v. John Hancock Mutual Life Ins. Co., 227 F. Supp. 622 (SD Texas, 1964) where a Texas statute provided that any contract of insurance payable to a citizen or inhabitant of the State by any insurance company doing business within Texas should be deemed to be a contract made and entered into under Texas law, it was held by a federal district court that a group insurance policy issued and delivered in a state other than Texas was governed by Texas law. This decision was affirmed in Insurance Co. v. Schroeder, 349 F2d 406 (5th Cir, 1965) the Court saying that although a prior decision of the U.S. Supreme Court (Aetna Life Ins. Co. v. Dunken, 266 U.S. 389, 45 SCT 129, 69 L.Ed.342) "looked the other way" this decision was regarded as basically inconsistent with the U.S. Supreme Court's current approach to such problems as demonstrated in Clay v. Sun Ins. Office, Ltd., supra.

(Since the Schroeder decision, the Texas Supreme Court in Austin Building Co. v. National Union Fire Ins. Co., 432 SW 2d 697 (Texas, 1968) has narrowed its interpretation of the laws which subjected the group insurance contract to the Texas law in that case; however, with respect to group insurance contracts, Schroeder is still believed to be controlling. See Howell v. American Live Stock Ins. Co., 483 F2d 1354 (5th Sir. 1973)).

Since we know of no decisions of our appellate courts limiting the scope of G.S. 58-28 we believe the reasoning expressed in Schroeder to be persuasive and consequently have reached the conclusion expressed above.

Noted, also, are the following decisions in other jurisdictions which on the basis of various

rationales have subjected out-of-state group insurance contracts to the law of the forum: Antinora v. Nationwide Life Ins. Co., 76 N.Y. Misc 2d 599, 350 NYS 2d 863 (1974) Metropolitan Life Ins. Co. v. Harper, 189 Ark. 170, 70 SW 2d 1042 (1934). Thieme v. Union Labor Life Ins. Co., 12 Ill. App. 2d 110, 138 NE 2d 857 (1956) Nelson v. Aetna Life Ins. Co., 350 F. Supp. 271 (WD Mo. 1973) For other cases pro and con, see annotation "Conflict of laws as to group insurance": 72 ALR 2d

695.

Rufus L. Edmisten Attorney General

Isham B. Hudson, Jr. Assistant Attorney General