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Merritt Personal Lines Manual: No Coverage for a Pregnant Woman

None of this was true. Life Investors didn't cover women more than three months pregnant with its health insurance policies.

Although Yannacito initially told Charles Cozza that the health insurance would not be effective until the policy was approved by Life Investors, he later said the Cozzas' expected twin babies would be covered by the policy in the event the children had significant post-delivery problems.

Yannacito gave Cozza an application for a combination life and health insurance policy with Life Investors. On September 28, 1982, the application was completed by the Cozzas and returned together with the first month's premium to Yannacito, who in turn gave it to Campbell, who forwarded it to Life Investors. It was received by Life Investors on October 4. The company denied coverage, because Kim Cozza's pregnancy was more than three months along, on October 7.

On October 17, Kim Cozza prematurely delivered twin boys. On October 18, Yannacito was notified by Life Investors that it had denied the Cozzas coverage. Yannacito notified Charles Cozza about the denial of coverage on October 20.

The Cozzas filed a complaint with the Colorado Insurance Division about Life Investors' denial of health coverage. On December 12, the Insurance Division initiated administrative proceedings against Life Investors. The regulators set up two counts against Life Investors for alleged violations of the Colorado Insurance Code. The first count asserted that:

through its agent, Yannacito, respondent [Life Investors] misrepresented the benefits, advantages, conditions, or terms of its health policy coverage in violation of [Colorado law].

The second count asserted that the alleged violation in the first count was a "knowing violation" under [Colorado law].

At the conclusion of the administrative proceedings, Insurance Commissioner Smith issued a final agency order against Life Investors on both counts and imposed a $5,000 fine as a sanction for the violations.

Life Investors sought judicial review of that ruling; and the district court affirmed the Insurance Division's conclusions. The insurance company appealed, arguing that Smith had erroneously determined that Yannacito was Life Investor's agent when he was actually the Cozzas' agent. Life Investors claimed that because Yannacito was the Cozzas' agent, it could not be held responsible for his misstatements.

The appeals court ruled that Yannacito was a "soliciting agent" who acted on Life Investors' behalf in the transaction with the Cozzas. The court wrote:

The evidence indicates that Yannacito had previously sold group health insurance to Charles Cozza's employer. It was at the employer's request, not Cozza's, that he spoke with the employees. [For this reason state insurance regulators] could properly conclude that Yannacito was holding himself out, prior to any direct contact or solicitation by Cozza, as a person who worked with certain insurance companies and could provide health/life insurance to these employees.

Colorado insurance law firmly supported this conclusion. It used the following definition:

Insurance agent means a person appointed by an insurer to solicit applications for a policy of insurance or to negotiate a policy of insurance on its behalf.... Every insurance agent or limited insurance representative who solicits or negotiates an application for insurance of any kind shall be regarded as representing the insurer and not the insured or his beneficiary in any controversy between the insured or his beneficiary and the insurer.

Case law also supported the Cozzas and the regulators. In the 1983 decision Northwestern National Casualty Co. v. State, the same appeals court considered whether an insurance agent who had acted as an insurance broker was the agent of the insured. Relying largely on the language in the employment policy which stated that the agent was appointed by the insurance company and was authorized to represent the company in order to "solicit, sell and service policies on its behalf," the court had determined that the broker fell within the definition of insurance agent as set out in state law. Thus, he was determined to be an agent of the insurer.

Yannacito had signed an employment contract with Life Investors which had almost identical language.

Life Investors also argued that, if Yannacito was acting as its agent, his misrepresentations to the Cozzas concerning the availability of insurance misrepresented stated company policy and was outside the scope of his authority. Therefore, Life Investors argued, it couldn't be held liable for such statements.

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