Opinion
STANIFORTH, Acting P. J. Physician-psychiatrist Edward L. Fields' (Dr. Fields) action seeks compensatory damages from group insurer Blue Shield of California (Blue Shield) by reason of Blue Shield’s refusal to pay for medical treatment (psychoanalysis) received by Dr. Fields in 1978. Dr. Fields also seeks punitive damages for breach of the insurer’s duty of good faith and fair dealing.
During the course of the jury trial Dr. Fields moved for a directed verdict for reimbursement of the compensatory damages, arguing that as a matter [575]of law the exclusion in the 1976 plan was inoperative as to him. Dr. Fields asserted he did not receive notice of the modification as required by California law. The trial court refused to rule on the motion for directed verdict but rather submitted the question to the jury as an issue of fact. The jury by general verdict found for Blue Shield. Dr. Fields appeals, contending the exclusion relied upon by Blue Shield is invalid as a matter of law and as he is entitled to the benefits under the terms of the 1975 health plan unmodified. He also seeks a new trial on the issue relating to the breach of the insurer’s implied covenant of good faith and fair dealing.
Facts
Commencing July 1974 both Dr. and Mrs. Fields worked at the Veterans Administration Hospital, San Diego. Mrs. Fields was a federal employee eligible for an Aetna Insurance Company (Aetna) group policy. She obtained health insurance coverage under the Federal Employees’ Health Benefits Act (5 U.S.C.A. §§ 8901-8913) for herself as the employee and Dr. Fields as the dependent.
In October 1974 Dr. Fields began receiving a prescribed psychiatric treatment—psychoanalysis—from Dr. Douglas Orr who diagnosed Dr. Fields as suffering from a mental illness classified “obsessive compulsive anxiety neurosis.”
A year before, Dr. Fields, a medical doctor, determined he wanted to become a psychoanalyst. To attain such a career goal, he was required to complete 300 hours of personal psychoanalysis. This prescribed period was a training requirement requisite to becoming a psychoanalyst. Dr. Fields enrolled in San Diego Psychoanalytic Institute in September 1973 and decided to enter into psychoanalysis with Dr. Orr.1 This was commenced in October 1974. Dr. Fields did not begin his course work in the San Diego Analytic Institute until September 1975. He did however receive credit on the institute’s training analysis requirement from the time his analysis began in 1974.
By the end of 1974 both Dr. and Mrs. Fields were employed at the Veterans Administration Hospital and were eligible for hospital and medical insurance under the Blue Cross and Blue Shield Federal Employee Program. In late December 1974, the Fields, after review of the Blue Shield group policy, switched coverage from Aetna and enrolled in the Blue Shield Service Benefit Plan for 1975. Their declared reasons were: The Blue Shield [576]group policy covered 100 percent of certain hospital charges whereas Aetna covered only 80 percent. Secondly, the Aetna plan for 1975 reduced benefits available for psychoanalysis; Blue Shield did not. Premiums were deducted from Dr. Fields’ paycheck for the Blue Shield policy commencing in 1975. Dr. Fields continued receiving treatment from Dr. Orr. After some delay Blue Shield paid Dr. Fields the full amount owing under the policy for the year 1975 and continued payments for Dr. Orr’s services until April 1978 when it refused to pay for further psychoanalysis.
In 1976 Blue Shield expressly inquired of Dr. Orr whether the treatment with Dr. Orr was “credited towards earning a degree [or] furtherence [sic] of education.” Dr. Orr’s response to this question was “[T\\he training requirement [300 hours] was met during the first week of January 1976.” (Italics added.) This statement of the attending physician (Orr) was received by Blue Shield in June 1976 and Dr. Fields’ claim was reviewed at least three times thereafter in that year. Blue Shield also reviewed the claim in 1977 and continued payment for the psychoanalysis treatment until 1978. Blue Shield again reviewed Dr. Fields’ claim, then disallowed benefits for psychoanalysis in reliance upon the 1975 policy language as “clarified in the 1976 plan.”
The Policy(s)
In June 1975 when Dr. Fields enrolled in the Blue Shield group health insurance plan (policy), the policy specifically provided under Supplemental Benefits (p. 16) for psychotherapy “not exceeding a total of 2 hours per day”2 with a “lifetime maximum” benefit payable “for treatment of nervous and mental illness” of $50,000. (Italics added.)3
There is no clear, plain or express exclusion found in the 1975 policy for psychiatric care or psychoanalysis if the treatment received was also used [577]in furtherance of education or training of the subscriber. However, in the 1976 policy (p. 20) under the heading “Supplemental Benefits” this exclusion appeared: “Services not covered—. . . Psychoanalysis or psychotherapy, provided to a Subscriber or any family member, that is credited towards earning a degree or furtherance of the education or training of a Subscriber, regardless of diagnosis or symptoms that may be present.”
[576]High Option Low Option $250,000 $150,000
“Exceptions for nervous and mental illness—Under both options, the lifetime maximum Supplemental Benefits payable for treatment of nervous and mental illness is $50,000 for each subscriber. Expenses applied to this $50,000 maximum benefit also apply to the $250,000 high option or $150,000 low option lifetime maximum benefit.” (Italics added.)
[577]A brochure was. provided to the Fields each year to inform them of policy benefits. It advised them benefits may be modified or terminated. The following language appeared on page 2 of the 1975 plan brochure: “The contract may be modified or terminated. However, no such modification or termination will affect adversely any benefit for a covered service rendered prior to such modification or termination.” Identical language appeared on page 2 of the 1976, 1977 and 1978 plan brochure. In the 1976 and 1977 plan booklets the following additional language appeared at the bottom of page 2: “To the extent that benefits for a service or supply are eliminated or modified for a new contract year, benefits will not be provided for those services or supplies rendered after the effective date of the elimination or modification, even though benefits may have been provided for the same service or supply rendered before the effective date of the elimination or modification. ”
In late 1975 Dr. Fields obtained the 1976 brochure,4 “Service Benefit Plan 1976.” On page 31 of the 32-page 1976 benefit plan Blue Shield notified its insurers in bold type: “How Plan Changes in January 1976.” Blue Shield warned the brochure had been reorganized and should be read in its entirety. The booklet then stated: “In addition to many clarifications, the following benefit changes are effective January 1, 1976.” (Italics added.) Blue Shield then listed on this page 13 coverage changes effective January 1, 1976. Of the 13 specific changes listed, only 2 limited or lowered benefits. Furthermore, there is no significant benefit reduction found elsewhere in the entire 1976 brochure except on page 20 where the exclusion in issue was placed.
Significantly, page 31 notified the insureds of increased coverage for psychiatric care by reference to coverage for hypnosis and hypnotherapy which had not been covered under the 1975 benefit plan. However, none of the changes set forth at page 31 notified the insureds that psychoanalysis provided to the insured, regardless of symptoms or diagnosis, would be excluded from coverage if the insured concurrently received credit for psychoanalysis as part of an educational program. [578]Of legal significance also is the fact that pages 20-24 of the 1976 brochure, under the bold-type heading Exclusions, set forth 34 coverage exclusions from the insurance plan. There is no hint that psychoanalysis or psychotherapy received in conjunction with education or training of an insured is not covered.
However, at page 20 of the 1976 brochure under the bold-type heading “Supplemental Benefits” and under the bold-type subheading “Covered Services and Supplies,” Blue Shield placed at the end of a series of granted coverage in unremarkable type the following exclusion (called “Services not covered”): “Psychoanalysis or psychotherapy provided to a Subscriber or any family member, that is credited towards earning a degree or furtherance of the education or training of a Subscriber, regardless of diagnosis or symptoms that may be present. ” (Italics added.)
Dr. Fields testified he read the benefit booklet when first received in 1975. He read the 1976 booklet page entitled “How Plan Changes” in January 1976. (P. 31.) Dr. Fields testified he had no actual notice of the reduction in benefits in the 1976 plan because he only read the page marked “changes,” which advised him that although “clarifications” occurred throughout the plan, the entire plan should be read. Following were the specific changes represented to have been made. The deletion of benefits for psychoanalysis whether or not conjoined with furtherance of education or training of the subscriber—a significant reduction in benefits—was not listed among those specific changes or reductions of coverage. Dr. Fields further testified continued payments were made by Blue Shield from June 1976 through March 1978, after its having received Dr. Orr’s response.
Discussion
I
It is a general rule a party is bound by contract provisions and cannot complain of unfamiliarity of the language of a contract. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710 [131 Cal.Rptr. 882, 552 P.2d 1178].) Thus an insured has a duty to read his policy. (Aetna Casualty & Surety Co. v. Richmond (1977) 76 Cal.App.3d 645, 652 [143 Cal.Rptr. 75]; Taffy. Atlas Assur. Co. (1943) 58 Cal.App.2d 696, 703 [137 Cal.Rptr. 483].) This duty to read is insufficient to bind a party to unusual or unfair language unless it is brought to the attention of the party and explained. (Weaver v. American Oil Company (1971) 257 Ind. 458 [276 N.E.2d 144, 148, 49 A.L.R.3d 306]; see also Calamari, Duty to Read—A Changing Concept (1974) 45 Fordham L.Rev. 341, 351, 358.)
[579]Dr. Fields concedes a general duty to read but argues Blue Shield may not enforce the reduction of service in 1976 because as a modification, and an exclusion, it was not conspicuous, plain and clear as required by California law. It is a long-standing general principle applicable to insurance policies that an insurance company is bound by a greater coverage in an earlier policy when a renewal policy is issued but the insured is not notified of the specific reduction in coverage. (Industrial Indem. Co. v. Ind. Acc. Com. (1949) 34 Cal.2d 500, 506 [211 P.2d 857]; Sorensen v. Farmers Ins. Exch. (1976) 56 Cal.App.3d 328, 333 [128 Cal.Rptr. 400].) As this court said in Zito v. Firemen’s Ins. Co. (1973) 36 Cal.App.3d 277, 282 [111 Cal.Rptr. 392]: “[A]n insurer when renewing a policy may not change the terms of the policy, without first notifying the insured . . . .” (Italics added.)
The California Supreme Court stated in Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862, 879 [27 Cal.Rptr. 172, 377 P.2d 284]: “In standardized contracts, . . . the California courts have long been disinclined to effectuate clauses of limitation of liability which are unclear, unexpected, inconspicuous or unconscionable.” Steven declares in the case of “standardized” (insurance) contracts, made between parties of unequal bargaining strength, exceptions and limitations on coverage the insured could reasonably expect must be called to the subscriber’s attention clearly and plainly- before the exclusion will be interpreted to relieve the insurer of the liability for performance. (Logan v. John Hancock Mut. Life Ins. Co. (1974) 41 Cal.App.3d 988, 996 [116 Cal.Rptr. 528]; see Sorensen v. Farmers Ins. Exch., supra, 56 Cal.App.3d 328, 333; Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 752 [161 Cal.Rptr. 322]; Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 718 [193 Cal.Rptr. 632].) The uncontested evidence before the trial court demonstrates this limitation of coverage was placed, not in the limitation or exclusion section, but at the end of benefit granting provisions. Blue Shield did not notify Dr. Fields by a clear, conspicuous notice in an expected place that coverage he originally had was now totally withdrawn. The rules of law, these facts, required the granting of Dr. Fields’ motion for directed verdict as to the specified compensatory damages.
II
Blue Shield, however, contends the above-cited rule requiring an exclusion from coverage in a policy “ ' . . must be conspicuous, plain and clear’ ” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 271 [54 Cal.Rptr. 104, 419 P.2d 168]) has no application to group policy here, citing Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d 699, 710, for the proposition its policy is not an “adhesion” contract,[5805] therefore not governed by the “conspicuous, plain and clear” rule of notice as to exclusions.
In Madden the Board of Administration of the State Employees Retirement System (Board) negotiated a medical services contract with Kaiser Foundation Health Plan on behalf of state employees. The contract contained a provision requiring arbitration of all malpractice claims. Madden, a state employee, enrolled in the plan, claimed the arbitration provisions could not be given eifect, arguing that the medical services contract was an adhesion contract. Because she was unaware of the arbitration provision she should not be bound by it.
The California Supreme Court found the Kaiser plan was not an adhesion contract and therefore Madden’s lack of knowledge of arbitration clause did not invalidate it. The court held the plan was not an adhesion contract because three factors present in an adhesion contract were not present in the Kaiser plan. First, in all adhesion contract cases the provisions at issue were weighted in favor of the stronger party. In contrast, the Supreme Court reasoned the arbitration provision did not burden Madden more than Kaiser. It was “beneficial” to both according to the Supreme Court. Second, in an adhesion contract generally the stronger party drafts the contract and the weaker party has no opportunity to negotiate its terms. In Madden, the Board had negotiated on behalf of the state employees and had parity of bargaining strength with Kaiser. Third, a characteristic of adhesion contracts is that the weaker party must either accept the contract or forego the needed services. The Supreme Court found Madden enjoyed the opportunity, either to select among several medical plans negotiated by the Board, some of which did not include arbitration provisions, or to contract individually for medical care. (Madden v. Kaiser Foundation Hospitals, supra, 17 Cal,3d 699, 711.)
Scholars have viewed the Madden decision, in large measure, to be based upon the strong preference for arbitration as an alternative dispute resolution technique. (Note, Contracts—An Agent’s Authority to Bind a Principal to Arbitration (1977) 65 Cal.L.Rev. 355, 364 {Contracts—Arbitration).) [581]California Courts of Appeal and federal court decisions after Madden have uniformly restricted the Madden rule to its limited factual setting. (Beynon v. Garden Grove Medical Group (1980) 100 Cal.App.3d 698, 704 [161 Cal.Rptr. 146]; McLaughlin v. Connecticut General Life Ins. Co. (N.D. Cal. 1983) 565 F.Supp. 434, 448.)
The recent case of Beynon v. Garden Grove Medical Group, supra, 100 Cal.App.3d 698, held if a clause in a group health policy limits the company’s obligations or liabilities, this alone is sufficient to distinguish Madden. (Id., at p. 708.) In Beynon the contract required arbitration of malpractice claims and granted insurer the unilateral right to reject the arbitrator’s decision and demand rearbitration. The court found this provision was entirely in the defendant’s favor. On this ground alone the adhesion contract construction principles would apply. (Id., at pp. 705-706.)
In Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345 [133 Cal.Rptr. 775, 84 A.L.R.3d 343], the appeal court found an arbitration clause in a hospital admission form invalid and adhesory because the patient was not specifically informed of the clause before signing the form and because the clause was ambiguous. In its analysis, the court relied principally on Tunkl [Tunkl v. Regents of University of California (1963) 60 Cal.2d 92 (32 Cal.Rptr. 33, 383 P.2d 441, 6 A.L.R.3d 693)] rather than Madden. It read the Madden decision as grounded upon agency principles, not controlling on the adhesion issue. (Wheeler, supra, at p. 364.)
The conclusion Blue Shield would draw from Madden rests upon these further shifting sands: Madden is bottomed upon a statutory proviso making the Board agent of the insureds in negotiating the insurance contract. This fact does not apply in the federal statutes here involved. The employees at the Veterans Administration Hospital were not represented by the Office of Personnel Management as were the California employees on the California Board. The federal Office of Personnel Management is created by the employer, the United States government (5 U.S.C.A. § 8901 et seq.), who is paying only part of the premium on behalf of the employees. (Cf. Beynon v. Garden Grove Medical Group, supra, 100 Cal.App.3d 698.) Thus, the employer may have a totally separate and distinct interest, perhaps adverse to the employee in the matter of bargaining with any insurance company for a group policy for its employees. Absent a statute such as found in Madden, agency is generally a question of fact. (Metropolitan Life Ins. Co. v. State Bd. of Equalization (1982) 32 Cal.3d 649, 658-659 [186 Cal.Rptr. 578, 652 P.2d 426]; see also Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 820 [171 Cal.Rptr. 604, 623 P.2d 165]; Contracts—Arbitration, supra, 65 Cal.L.Rev. at p. 364, and fn. 48.) Here, as in Beynon v. Garden Grove [582]Medical Group, supra, at page 706, there is no evidence the employer negotiated as an agent on behalf of the employee subscribers.
California has long ago determined the employer in administering the group insurance policy is not the agent of the employee. {Elfstrom v. New York Life Ins. Co. (1967) 67 Cal.2d 503, 512 [63 Cal.Rptr. 35, 432 P.2d 731]; Metropolitan Life Ins. Co. v. State Bd. of Equalization, supra, 32 Cal.3d 649, 659.) To reach a different result to find an agency on behalf of Dr. Fields in the negotiation of this reduction of benefit in the 1976 policy without his consent and without notice to him of the exclusion in a plain, clear and conspicuous fashion by the process of implication of agency strikes at the very heart of the long-standing public policy regarding rules of construction of insurance policies where forms are standardized and designed for mass distribution. If the Madden rule of construction is applied beyond the triad of conditions there found, the effect upon millions of group policyholders in California would be disastrous.
If the Madden rule is not limited to the three articulated preconditions, then the salutary public policy long demanding the rules of construction applicable to insurance policies as adhesive contracts will be undermined. {Contracts—Arbitration, supra, 65 Cal.L.Rev., at p. 364.) This result would be contrary to long-established public policy principles in this state aimed at protection of the general public against highly refined legalistic policy carefully designed for the benefit of the insurer.6
If it be assumed, arguendo, the Blue Shield policy is not an adhesion contract, the plain, clear conspicuous rule still applies. In Jones v. Crown Life Ins. Co. (1978) 86 Cal.App.3d 630 [150 Cal.Rptr. 375, 6 A.L.R.4th 826], the appeal court held the rule construing ambiguities in a policy against the insurer applied to group life and health insurance contracts regardless of whether the contracts were deemed adhesive. The court said: “Defendant [insurer] contends that if the principles regarding the interpretation of adhesion contracts are not applied, plaintiff could not recover as a matter of law. Defendant states that if the general rules of construction of contracts are applied, the exclusionary clause in question would be interpreted against plaintiff, the insured. This is a misstatement of the law. Even if an insurance contract is not a contract of adhesion, any ‘ambiguity or uncertainty in the contract is to be resolved against the insurer.’ [Citation.]” {Jones, supra, at p. 639, fn. 3; italics added.)
The language of Ponder v. Blue Cross of Southern California, supra, 145 Cal.App.3d 709, is also applicable here. “We hold the contract between [583]Blue Cross and the Ponders was both an adhesion contract for insurance and a standard insurance contract marketed with the general public, if there is any difference. Whichever of those characterizations applies, any exclusion from coverage must be presented in such a manner that is conspicuous to the reader. [Italics added.] The exclusion also must be stated in language which is plain and clear in the sense it is ‘comprehensible to lay persons’ . . . .” (Id., at p. 727.)
Finally, Blue Shield tells the subscriber to read the entire policy; such direction is not a substitute for notice to the subscriber of a loss of benefit. In Government Employees Insurance Co. v. United States (10th Cir. 1968) 400 F.2d 172, 175, the new policy instructed the insured to carefully read the contract as submitted. “This alone is insufficient to call attention to the change in coverage” said the federal appeals court, but “a short, separately attached boldly worded modification, seems clearly appropriate. ” (Ibid.; fn. omitted.) The rule is and should be: Deletions or exclusions from a renewal group policy should be communicated and explained to the subscriber by a plain, clear and conspicuous writing. The prominent and express listing of certain specific changes whether grants or exclusions coupled with the omission of very specific exclusion of coverage, can only mislead the subscriber. Reduction of benefits, to be effective, cannot be placed in an unconspicuous place under the heading “Supplemental Benefits.” The foregoing cases and reasons compel this conclusion: The Madden rule excusing the strict requirement of notice of reduced coverage does not apply to the Fields policy.
III
The trial court concluded payment for psychoanalysis when coupled with satisfaction of a training or educational requirement was excluded under the 1975 policy language. One sentence on page 16 in the 1975 policy could be in extremis construed to possibly exclude psychoanalysis which also qualified the recipient for certification. There was an exclusion for “Marital, family, or other counseling or training services” found under Supplemental Benefits. This language if strained to the limit to exclude the coverage here in issue is at best ambiguous. In such case it must be construed against the drafter, the insurer. (Federal Leasing Consultants, Inc. v. Mitchell Lipsett Co. (1978) 85 Cal.App.3d Supp. 44, 48 [150 Cal.Rptr. 82]; Schmidt v. Pacific Mut. Life Ins. Co. (1969) 268 Cal.App.2d 735, 738 [74 Cal.Rptr. 367].) As a matter of law language in the 1975 plan was not so clear or so precise in meaning as to exclude benefits for psychoanalysis which was also used to complete a training program. Blue Shield, moreover, with full knowledge of Dr. Orr’s treatment and its educational component effect, conceded coverage, continued to pay for the psychoanal[584]ysis until 1978. Construction placed by the drafting party upon the 1975 contract language refutes its present contention.
IV
In 1975 Dr. Fields had a covered nervous or mental illness. He began to receive benefits by way of psychoanalytic treatment during the effective period of the 1975 service benefit plan. This was before the “furtherance of education” exclusion was added in the 1976 policy. Under the 1975 contract he was entitled to, upon sustaining a mental and nervous illness, individual or group therapy not exceeding a total of two hours per day and collateral visits with members of the patient’s immediate family provided by a therapist who is a physician, clinical psychologist, psychiatric nurse or psychiatric social worker, not to exceed “a lifetime maximum of $50,000.”
The 1975 booklet notified Dr. Fields the plan could be periodically modified: “The contract may be modified or terminated. However, no such modification or termination will effect adversely any benefit for a covered service rendered prior to such modification or termination. ” (P. 2; italics added.)
This latter provision is subject to the valid criticism that it is ambiguous on its face. Blue Shield confirms this language was ambiguous by the clarifying changes it made in the 1976 policy. In the 1976 and 1977 plan booklets the following language appears in bold print. “To the extent that benefits for a service or supply are eliminated or modified for a new contract year, benefits will not be provided for those services or supplies rendered after the effective date of the elimination or modification, even though benefits may have been provided for the same service or supply rendered before the effective date of the elimination or modification.” (P. 2.)
This language added in 1976 clarifies to a modest degree the clearly ambiguous language in the 1975 policy. It seeks to avoid the interpretation of the contract as to permit the vesting of rights for treatment commenced during the contract period. Whether this latter change clears or muddies the “vested right” waters, we need not address (except as these latter modifications confirm Blue Shields’ recognition the 1975 language as ambiguous), for it is the language of the 1975 policy that is critical and controlling.
The 1975 provision is not only ambiguous on its face but also it conflicts with the “lifetime maximum Supplemental Benefits . . . [of] $50,000.00” grant. By conventional contract law the ambiguity must be construed against Blue Shield, the party who created the ambiguity. Where a health insurance [585]contract is susceptible to different reasonable constructions, it is ambiguous—the insurance policy is to be strictly construed against the insurer. (Civ. Code, § 1654.)
V
Dr. Fields next contends Blue Shield cannot limit the benefits for psychoanalysis without his consent because the benefits became vested (i.e., fixed, not subject to later retraction) under the 1975 plan. He points to specific language in the 1975 plan (and repeated in subsequent plans) which grants benefits for psychiatric services (nervous and mental illness) to include “the lifetime maximum Supplemental Benefits payable for treatment of nervous and mental illness is $50,000 for each subscriber.” (P. 14.) This language evidences a clear contractual intent of Blue Shield to provide for nervous or mental illness which might persist for the lifetime of an insured; once treatment was begun for a specific mental illness Blue Shield was obligated to pay for it until a $50,000 lifetime maximum was reached. These benefits, up to $50,000 (as explained in IV ante), became vested as a matter of legal and contractual right under language of the 1975 plan.
Blue Shield would interpose this preliminary barrier to the vesting rule. Dr. Fields, it is asserted, waived his right to make this argument before the appellate court because he did not raise it at the trial court level. As a general principle of law a party may not present a new theory of liability for the first time on appeal. Where, however, the argument presented for the first time on appeal involves only a question of law determinable from a factual situation already present in the record, it may be argued to the appeal court. (Panopulos v. Maderis (1956) 47 Cal.2d 337, 340 [303 P.2d 738].) Here all the relevant facts pertinent to this legal issue were fully presented to the trial court. This case therefore falls within the exception to the general rule a party may not for the first time on appeal offer an additional basis for recovery. {Marsango v. Automobile Club of So. Cal. (1969) 1 Cal.App.3d 688, 694 [82 Cal.Rptr. 92].)
VI
Can Blue Shield cancel, withdraw, reduce benefits rights accrued under prior years contract? The general rule relevant to attempts at cancellation of vested, accrued benefits of a group policy is: “A valid cancellation or modification of a group policy . . . does not have the effect of releasing the insurer from liability which accrued prior thereto by reason of the happening of the contingency insured against. In other words, once liability has attached under a group policy—that is, after the happening of the event insured against—cancellation or modification of the master policy [586]is ineffective to preclude recovery by the employee or his beneficiary as provided by the original policy, irrespective of whether the policy is contributory or noncontributory. ” (Annot., 68 A.L.R.2d 249, § 17, pp. 278-279; italics added.)
Learned treatises on the law of insurance also give unqualified support to the rule the right to receive benefits fully vests at the time of disability and cannot be divested by subsequent termination of the policy. Appleman’s well-respected Insurance Law and Practice states: “The rights of the insured, where disability occurs prior to the lapse of the policy, are considered vested or fixed, so that recovery can be had.” (1C Appleman, Insurance Law and Practice, § 644, p. 222.) According to Couch on Insurance: “Since rights vest upon loss, a cancellation of the policy cannot destroy liability which has already attached for prior disability or death. A certificate issued under a master group policy providing for disability payments or death payments is not avoided by a cancellation of the policy by the employer where a compensable disability has occurred prior to such cancellation . . . .” (19 Couch on Insurance (2d ed.) § 82:121, p. 864.) Moreover, it was stated in 44 American Jurisprudence Second, Insurance, section 1857, page 852: “More specifically, the general rule as to the effect of such clauses is that where a loss insured against occurs before the insured’s employment is terminated within the meaning of the ‘termination of employment’ clause, the insurer is liable under the policy, but where such loss occurs after the insured’s employment has been terminated, the insurer is relieved of liability provided none of the special policy provisions extending coverage under certain circumstances is applicable.” (Fns. omitted.) This rule is widely accepted. Cases cited in 68 American Law Reports, Second, supra, sections 17 through 18, pages 279 through 282, support these learned conclusions.7
In point is Danzig v. Dikman (1980) 78 App.Div.2d 303 [434 N.Y.S.2d 217] (affd. 53 N.Y.2d 926 [440 N.Y.S.2d 925, 423 N.E.2d 402]), a case closely akin factually to Dr. Fields’. In Danzig, Blue Cross/Blue Shield provided in its booklet: “[A]fter the deductible ($100) is met, during each Benefit Period, ‘Major Medical Benefits then apply’ and Major Medical Benefits will then pay ‘80% of Covered Expenses up to a maximum allowance of $50,000’ with ‘(t)he lifetime maximum’ being ‘unlimited. ’ ” (434 N.Y.S.2d, at p. 218; italics added.) Some years later Blue Cross amended the contract to provide that the lifetime maximum of $5,000 was available for private duty nursing care in place of the prior unlimited lifetime maxi[587]mum. Danzig, while a subscriber, suffered a massive stroke and required daily nursing care.
The New York appellate court held the modification of the group health policy reducing the lifetime maximum for expenses for private duty nursing care from an unlimited amount to $5,000 was ineffective as against a policy subscriber suffering a disabling illness and receiving private duty nursing care benefits under the policy before the modification of the policy and who had not consented to the modification. The New York court reasoned: “Parenthetically, the existence of a lifetime maximum (whether limited or unlimited) discloses an awareness on the part of the insurer and all interested parties that an illness or condition might well continue indefinitely beyond any one contract term and, indeed, persist for the lifetime of an individual subscriber or his or her beneficiary.” (Danzig v. Dikman, supra, 434 N.Y.S.2d 217, 220-221.)
The New York court also applied the same general rules of construction applied here in I through V (supra) to impose liability upon Blue Cross/ Blue Shield.
In Myers v. Kitsap Physicians Service (1970) 78 Wn.2d 286 [474 P.2d 109, 113, 66 A.L.R.3d 1196], a fairly analogous situation to the instant matter was presented. Myers, after obtaining coverage under a health care service contract, suffered a chronic kidney disorder necessitating hospital hemodialysis treatments. In order to avoid an arbitration determination and a court determination which concluded the hemodialysis treatments were covered under the health care contract, defendant health care service contractor modified the health care contract during December 1966, effective February 1, 1967, to exclude chronic kidney disorder treatments from coverage. Requisite premium payments were continually made. The Supreme Court stated, in pertinent part: “[Ojur law is clear in holding that ambiguities in an insurance contract must be interpreted in the light most favorable to the insured [citation], and that the language of an insurance contract should in fact ‘be interpreted in accordance with the way it would be understood by the average man purchasing insurance.’ [Citations.]
“We therefore conclude that the contract before us, when considered for the purpose of granting or rejecting plaintiff’s claim for hemodialysis hospitalization benefits after February 1, 1967, may reasonably be given more than one interpretation. Although the contract is a health service contract, one reasonable interpretation of its provisions would be grounded on the same legal principle applied generally in cases relating to health and acci[588]dent insurance policies, i. e., that plaintiff’s rights under the contract became vested when medical treatment became necessary. Those rights being vested, the subsequent termination of the policy which created the right did not terminate the vested right of the plaintiff to payment of services rendered and to be rendered.” (474 P.2d 109, 110-111; italics added.)
The single California case found in point on the vesting issue is Wright v. Prudential Ins. Co., etc. (1938) 27 Cal.App.2d 195 [80 P.2d 752]. An insured employee became disabled while the original contributory master group policy providing coverage was in force. The employee was held not precluded from recovering disability benefits under the contract because thereafter on an anniversary date another group policy not containing such a disability benefit was substituted. In support of its conclusions this court pointed out the employee had not been notified of the change and no change was made in the deduction of premiums payable for the policy. Finally, the court said concerning the receipt of a new policy: “His receipt of the new certificate could not by any possibility in any way have misled appellant insurer to its detriment, nor have estopped him to assert any right vested in him under policy G-1904 [the earlier policy].” (27 Cal.App.2d at p. 218; italics added.)
Dr. Fields’ interpretation of the lifetime $50,000 maximum language is supported by Blue Shield’s own acts in interpretation of its own contract. It permitted Dr. Fields to obtain benefits for the years 1976 and 1977 without complaint. We conclude Dr. Fields had a vested right in $50,000 lifetime maximum benefits under his 1975 policy.8 For this further reason the judgment must be reversed with direction to enter judgment on behalf of Dr. Fields as to the compensatory damage aspect of his complaint.
[589]VII
Blue Shield urges Dr. Fields’ rights to benefits be rejected on the basis of the doctrine of “Federal Preemption.” At trial, Blue Shield counsel was unable to cite any federal law which would preclude recovery by Dr. Fields on the state action. On appeal, Blue Shield cites 5 United States Code section 8902(m)(l) which provides: “The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supercede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions. ” (Italics added.)
For the “Federal Preemption” doctrine to apply here, Dr. Fields’ claim would have to be “inconsistent with [the Blue Shield policy] contractual provisions.” No “coverage or benefit sought in his lawsuit is inconsistent with the Blue Shield policy grant in 1975 of rights in Dr. Fields that vested. Dr. Fields seeks enforcement of Blue Shield’s obligation based upon the express terms of its policy.
Moreover, this case does not involve factually or legally the “virtually unique preemption provision” as found in section 514(a) of ERISA.9 (29 U.S.C. § 1144(a).) ERISA is a comprehensive regulatory scheme intended to protect the interests of employees in fringe benefit plans offered by the employers. (See Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85, 90 [77 L.Ed.2d 490, 497, 103 S.Ct. 2890]; Provience v. Valley Clerks Trust Fund (1984) ante, pp. 249, 253, fn. 1 [207 Cal.Rptr. 276].) The limited preemption doctrine expressed in section 8902(m)(l) does not preclude recovery by Dr. Fields. The ERISA preemption language has no application to the Blue Shield contract of insurance.
VIII
Finally, Dr. Fields’ appeal seeks a new trial on his complaint for breach of the implied covenant of fair dealing. This matter was fully tried to the jury and the jury verdict returned against Dr. Fields. In light of the factual nature of this issue and the disputed evidence before this court, we are compelled to follow the traditional appellate rules of review. Where a matter has been determined as a matter of fact by a jury and substantial evidence supports that finding, we must and do conclude no lawful basis exists for reversal and granting of a new trial as to this claim.
[590]The judgment is reversed as to the directed verdict denying compensatory damages and the cause is remanded with direction to the trial court to enter judgment for Dr. Fields for the 1978 medical/psychiatric expenses incurred. The judgment is in all other respects affirmed. Each side shall bear its own costs.
WIENER, J. I agree with Justice Staniforth that Fields' benefits became vested under the 1975 plan and for that reason concur in the judgment. (See lead opn. ante, pp. 585-588.)
Little is gained by my adding further to the thoughtful dialogue between the other members of this panel. I nonetheless think it may be helpful to briefly note the following.
I believe it is important to understand how this case was tried. Interestingly, and I believe of particular significance to certain blanket assertions made in the dissenting opinion, (see dissent post, introductory par., p. 611 and the first par. of sec. Ill, p. 614), Blue Shield did not argue that Fields’ treatment was medically unnecessary. For tactical reasons undoubtedly made in light of strong evidence that there was a medical reason as well as an educational one for Fields to seek psychoanalytic services, defense counsel focused on the exclusions of the respective policies starting with the 1976 policy. Highlighting those paragraphs Blue Shield convinced the jury that even if medically necessary there was no coverage. Regardless of medical necessity the jury decided Blue Shield was not obligated to pay for Fields’ treatment because he also received it in furtherance of his education.
It is also worth noting that in reference to the 1975 plan the dissent goes further than requested by Blue Shield in characterizing the exclusion as “clear on its face.” Even Blue Shield concedes that its effort to exclude “training services” is ambiguous since that provision fails to address whether it applies when the treatment is also medically necessary. Thus, there is no factual support for the dissent’s statement that “Fields did not enter upon psychoanalysis to treat a nervous or mental illness.” Had the jury so decided I would obviously have reached a different conclusion.
I also respectfully disagree with the dissent’s implied conceptual premise in disapproving the lead opinion’s treatment of the vesting issue as one of law and not of fact. The dissent seems to assume that without further consideration a health plan subscriber gives up his or her rights to a medically necessary benefit being received for an existing and continuing condition solely because a new policy with additional exclusions may have been issued. In my view, medical and hospital benefits in an issued plan can be meaningful only if the concept of vesting is recognized. Although objective [591]analysis is not served when a decision rests on a parade of horribles I must nonetheless admit that to ignore vesting is to ignore the most traumatic human suffering. On the effective date of newly issued policies with additional exclusions unsuspecting subscribers could have their dialysis machines unplugged or blood transfusions stopped solely because of their inability to pay for those desperately needed services. I cannot quarrel with newly issued health coverage policies containing revised benefits because theoretical financial projections may have turned out to be inaccurate. It is something else, however, to renege on a legally binding bargain because that bargain was not as profitable as anticipated. I am satisfied that lacking unusual circumstances where the vested subscriber wants to negotiate a waiver of his or her rights, and the parties for additional consideration agree what should be paid either in cash or benefits for that waiver, vesting remains a legal issue and not a factual one.
Undoubtedly vesting presents administrative difficulties. I query whether the dissent’s parade of horribles is an adequate response particularly where the “horrible” here was clearly of Blue Shield’s own making. Blue Shield must assume the financial burden and pay covered benefits for those subscribers who have dutifully paid their premiums. If there are additional costs not already computed into Blue Shield’s fee structure presumably those expenses will be determined and passed on in new policies to those subscribers whose coverage has not vested. Not only is such a solution consistent with Blue Shield’s contractual commitments and one required by law, but it is also consistent with the reasonable expectations of Blue Shield subscribers who rightfully assume their contracts will be administered by Blue Shield in a fair and compassionate manner.
Dr. Orr was/is a psychiatrist and founder of the San Diego Psychoanalytic Institute, La Jolla, California.
The policy provides: “Nervous and mental illness—In addition to other services and supplies covered by Basic or Supplemental Benefits, the following services are covered under Supplemental Benefits:
“Day-night hospital services
“Individual or group therapy not exceeding a total of 2 hours per day, and collateral visits with members of the patient’s immediate family, provided by a therapist who is a physician, clinical psychologist, psychiatric nurse, or psychiatric social worker. ”
“The lifetime maximum Supplemental Benefits payable for each subscriber are:
Dr. Fields testified the brochure was not sent to him. He went to the personnel office and asked for one.
California law defines an adhesion contract as a standardized contract written entirely by a party with superior bargaining power, leaving the weaker party in a take it or leave it position. (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 269; Ponder v. Blue Cross of Southern California, supra, 145 Cal.App.3d 709, 719.) Counsel has stipulated Dr. Fields’ Blue Shield plan was not an adhesion contract. This stipulation however does not remove the conspicuous, plain and clear requirements from the contract’s enforcement. A stipulation to a legal conclusion even when made by able and competent trial counsel is not binding on the court—though it may be binding on the parties. (San Francisco Lumber Co. v. Bibb (1903) 139 Cal. 325, 326 [73 P. 864]; Burdette v. Rollefson Construction Co. (1959) 52 Cal.2d 720, 724-725 [344 P.2d 307].)
The value of the Madden opinion has been further undermined by legislative amendment prescribing form and content of arbitration provisions in health care contracts. (See Code Civ. Proc., § 1295.)
Blue Shield cites Bartulis v. Metropolitan Life Insurance Company (1966) 72 III.App.2d 267 [218 N.E.2d 225] and others in support of its no-vesting contention. The cases are not factually in point. The policy had been terminated before the insured incurred the medical expenses, before the vesting occurred.
Blue Shield points to the fact in 1976 Dr. Fields became the employee-insured on the contract and Mrs. Fields, the dependent. (She retired because of pregnancy.) Blue Shield contends there was a “new contract,” not a modification of the 1975 contract and concludes no notice of reduction of benefits was required as to this “new” policy. The cited vested right authorities and cases dispose of this precise contention. (See also Fagan v. John Hancock Mutual Life Insurance Company (D.C. D.Ka. 1961) 200 F.Supp. 142, 144; Hayes v. Equitable Life Assur. Soc. (1941) 235 Mo.App. 126 [150 S.W.2d 1113]; Lindgren v. Metropolitan Life Insurance Company (1965) 57 Ill.App.3d 315 [206 N.E.2d 734]; Myers v. Kitsap Physicians Service, supra, 474 P.2d 109, 113; Danzig v. Dikman, supra, 434 N.Y.S.2d 217, 220; Sparks v. Republic Nat. Life Ins. Co. (1982) 132 Ariz. 569 [647 P.2d 1127, 1132, 1135]; Fassio v. Montana Physicians’ Service (1976) 170 Mont. 320 [553 P.2d 998, 1001]; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 465 [113 Cal.Rptr. 711, 521 P.2d 1103]; Wright v. Prudential Ins. Co., etc., supra, 27 Cal.App.2d 195, 218; Founders Life Assur. Co. of Fla. v. Poe (1978) 242 Ga. 748 [251 S.E.2d 247, 249]; Mattis v. State Farm Fire & Cas. (1983) 118 Ill.App.3d 612 [73 Ill.Dec. 907, 454 N.E.2d 1156, 1159]; Dawes Min. Co., Inc. v. Callahan (1980) 246 Ga. 531 [272 S.E.2d 267, 271-272]; Greer v. Continental Cas. Co. (La.App. 1977) 347 So.2d 70, 72; Nick v. Travelers Ins. Co. (1945) 354 Mo. 376 [189 S.W.2d 532, 537-538]; Central Tablet Mfg. Co. v. United States (1974) 417 U.S. 673, 685 [41 L.Ed.2d 398, 407, 94 S.Ct. 2516]; 9 Couch on Insurance (2d ed. 1962) § 40.52.)
Section 514(a) of ERISA (29 U.S.C. § 1144(a)) preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." (Italics added.)