Church loses dispute with insurer over errors made by insurance agent
The Evangelical Presbyterian Church sued American Fidelity Assurance Company (AFA) after AFA refused to cover medical expenses through the Church's health insurance. The Church self-insured basic health expense coverage and then purchased "stop-loss" coverage through an insurer to pick up the balance of health-related expenses. In the year at issue, however, the agent working as a go-between filed an inaccuarate summary of which employees presented greater expense risk. The "stop loss" insurer required full disclosure of all employees who had incurred significant expenses in the past year or who had particular potentially expensive diagnoses, and two such employees were omitted.
The Church maintained that the go-between agent was an agent of AFA and that therefore AFA should be held responsible for his mistake. It also argued that since the policy in question spoke in terms of "reasonable inquiry," the policy should be honored because the Church had substantially complied with the contract requirement. The Court of Appeals, in an opinion typical of Judge Christopher Murray, rejected the Church's claims and upheld dismissal of the case. Even though the go-between agent "was appointed to be an agent to sell AFA's products" the Court held that he signed the Church's application as the sole agent of the Church because his employer had a prior relationship with the Church, which worked with several of [his employer's] representatives." The judges also held that the church was held to complete accuracy in filling out the insurance disclosure that accompanied the application, and that "merely" using reasonable inquiry was not adequate--despite the use of that phrase in the policy.