# HESTON v. INTERNATIONAL MEDICAL GROUP, INC.

> District Court, S.D. Indiana · March 24, 2021

URL: https://www.frixlaw.com/law-library/cases/10167610

## Case

- **Court:** District Court, S.D. Indiana
- **Decided:** March 24, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

)
)
BARBARA HESTON, as Executor )
of Timothy Heston's Estate, )
)
Plaintiffs, )
)
v. ) No. 1:20-cv-00479-JRS-MPB
)
INTERNATIONAL MEDICAL GROUP, )
INC., an Indiana Corporation, )
SIRIUS INTERNATIONAL INSURANCE )
CORPORATION, a foreign corporation, )
)
Defendants. )

Entry Ruling on Pending Motions

In April 2019, Timothy Mark Heston purchased insurance from Defendants. He
was diagnosed with Stage IV Bowel Cancer approximately six months later. He made
a claim for payment of medical expenses, and the claim was denied based on the pre-
existing-conditions exclusion clause in the insurance policy. Heston sued Defendants
International Medical Group, Inc. ("IMG"), and Sirius International Insurance Cor-
poration ("Sirius") for breach of contract and breach of the covenant of good faith and
fair dealing. He sought sums allegedly due under the insurance coverage, damages,
and a declaratory judgment of the parties' rights under the policy. Heston passed
away, and his wife, Barbara Heston, as Executor of Timothy Heston's Estate, has
been substituted as Plaintiff.1

1 The Court refers to Timothy Heston as Heston and refers to Barbara Heston as Plaintiff.
Pending before the Court are several motions: IMG's Motion for Judgment on the
Pleadings (ECF No. 270), Sirius's Motion for Judgment on the Pleadings (ECF No.
30), Plaintiff's Motion for Partial Summary Judgment (ECF No. 34), Defendants' Mo-

tion to Strike Plaintiff's Surreply (ECF No. 38), and the parties' Joint Motion to Reset
Pending Deadlines (ECF No. 68). The Court decides as follows:
I. Background
The following facts are taken from the pleadings and attached documents.
Timothy Heston purchased medical insurance coverage from Defendants over the
past several years. (Am. Compl. ¶ 12, ECF No. 8.) On April 17, 2019, Heston applied

for and, effective April 29, 2019, was issued health insurance coverage under a Cer-
tificate of Insurance for "Global Medical Insurance Silver without Creditable Cover-
age" ("the Certificate"), under which he was promised certain insurance benefits for
medical expenses and costs incurred by him for his health care. (Id. ¶ 13; Answer ¶
13, ECF No. 17; Application, Answer, Ex. 1 at 15, ECF No. 17-1.) A true and correct
copy of the Certificate is attached to the Amended Complaint as Exhibit 1. (Am.
Compl. ¶ 13, ECF No. 8; Answer ¶ 13, ECF No. 17.)

Heston was provided with a "Declaration of Medical Insurance," referencing Cer-
tificate GMMS382152741 showing the referenced effective date, and the annual pre-
mium charge of $1,353. (Am. Compl. ¶ 13, ECF No. 8; Answer ¶ 13, ECF No. 17.) A
true and correct copy of the Declaration is attached to the Amended Complaint as
Exhibit 2. (Am. Compl. ¶ 13, ECF No. 8; Answer ¶ 13, ECF No. 17.) The Declaration
identifies IMG as the Plan Administrator and Sirius as the Insurer: "Administered
by: International Medical Group®, Inc. as agent for the Insurer . . . Insurer: Sirius
International Insurance Corporation." (ECF No. 8-1 at 2.) The coverage Heston was
promised under the Certificate and Declaration was part of Group Insurance Cover-

age provided to insureds under a "Master Policy" referenced in the Certificate.
In September 2019, Heston became concerned about certain changes in his health
related to his stomach and digestive system. These were new symptoms that he had
not experienced previously, and they were symptoms for which he had never before
sought any medical advice or care. In September 2019, and later in October 2019,
Heston sought a medical evaluation for what was later diagnosed as Stage IV Bowel

Cancer. He immediately began treatment for this condition. (Am. Compl. ¶ 14.)
Heston made a claim for the medical insurance coverage promised in the Certifi-
cate and Declaration. His claim was denied on the basis that his underlying illness
was a "pre-existing" condition. (Id. ¶ 15.) Heston appealed the denial, which appeal
was denied on the basis of the pre-existing condition exclusion language. (Id. ¶¶ 16–
17.)
Heston filed a First Amended Complaint for breach of contract, damages, and a

declaratory judgment as to the parties' rights under the insurance policy. Plaintiff
alleges that the pre-existing condition exclusion violates the Indiana Insurance Code,
common law, Indiana law, and federal law. Plaintiff further claims the denial of
Heston's claim was a breach of contract and an unreasonable and bad faith breach of
contractual obligations. Plaintiff has not alleged that Heston's bowel cancer was not
a pre-existing condition as defined by the insurance policy. Defendants filed their
Answer to the Amended Complaint, denying all liability.
The Amended Complaint alleges that:

Plaintiff is informed and believes that at all times mentioned herein,
Defendants, and each of them, were the agents, servants, employees,
joint venturers and/or alter egos of each other, and were, as such, acting
within the course, scope and authority of said agency, employment, joint
venture and/or alter ego relationship, and that each and every Defend-
ant, as aforesaid, when acting as a principal, was negligent in the selec-
tion, hiring, acquiring, and/or creating of each and every other Defend-
ant as an agent, employee, joint venturer, and/or alter ego.

(Am. Compl. ¶ 9, ECF No. 8.) Defendants have admitted that IMG acts as the dis-
closed agent for its principal Sirius, and that at all times relevant, IMG was acting
within the course, scope and authority granted to it through that principal-agent re-
lationship. (Answer ¶ 9, ECF No. 17.)
The Application identifies IMG as Sirius's agent: "GMMI is underwritten by Sirius
International Insurance Corporation (PUBL). It is distributed, managed and admin-
istered, as agent for and on behalf of the Company, by [IMG]." (ECF No. 17-1 at 10.)
The Application also states that "[Plaintiff] purposefully initiate[s] and take[s] ad-
vantage of the privilege of conducting business with the Company in Indiana, through
IMG as its selected agent and administrator . . . ." (Id. at 6, 16.) Furthermore, the
Application contains an Acknowledgement that states: "[T]he Company, as carrier
and underwriter of the plan, is solely liable for the coverages and benefits to be pro-
vided thereunder, and IMG acts solely as agent/coverholder for the Company and has
no direct or independent liability under the Master Policy or any Certificate or policy
of insurance." (Id. at 7, 16.)
The Application provides in relevant part:
SUBSCRIPTION (For coverage issued by Sirius International Insur-
ance Corporation (publ) only): I (we) hereby apply to the Global Medical
Services Group Insurance Trust, c/o Mutual Wealth Management Group
. . . for Global Mission Medical Insurance . . . . I (we) understand and
agree that: (i) no coverage will be effective until this Application has
been duly accepted in writing by the Company, (ii) no modification or
waiver relating to this Application or the coverage applied for will be
binding upon the Company or IMG unless approved in writing by an
officer of the Company or IMG; (iii) IMG and the Company will rely on
the accuracy and completeness of the information provided herein . . . ,
(v) by submission of this Application and/or any future claim for benefits
I (we) purposefully initiate and take advantage of the privilege of con-
ducting business with the Company in Indiana, through IMG as its se-
lected agent and administrator . . . .

(ECF No. 17-1 at 6.) The Application further provides that "I (we) agree that Indiana
surplus lines law shall govern all rights and claims arising under this insurance . . .
." (ECF No. 17-1 at 6.)
The Certificate, evidencing the terms of the insurance contract, states that:
AGREEMENT: Sirius International Corporation (publ) (the Company)
promises and agrees to provide the Insured Person with the benefits de-
scribed in the Master Policy, as outlined herein and coverage for which
is certified hereunder by the Company . . . . The Company hereby rec-
ognizes International Medical Group®, Inc., as the Company's author-
ized representative and as the Plan Administrator of the Master Policy
and this Certificate.

(ECF No. 8-1, 10.) The Certificate declares: "ENTIRE AGREEMENT: The Master
Policy, the Application, the Declaration and any Riders shall constitute the entire
agreement among the Company, the Assured, and the Insured Person" (the "Policy").
(Id.) The "Master Policy" is defined as:
Master Policy: The applicable Master Policy issued by the Company
to the Assured, and under which insurance coverage and benefits are
provided by the Company to the Insured Person, subject to the Terms
thereof, and as outlined and evidenced by this Certificate and subject to
the Terms hereof. The Company, as insurance carrier and underwriter
of the Master Policy, is solely liable and responsible for the coverage and
benefits provided thereunder.

(D.E. 8-1, 31.) "Plan Administrator" is defined as:

Plan Administrator: The Plan Administrator for this insurance is In-
ternational Medical Group®, Inc. . . . . As the Plan Administrator, In-
ternational Medical Group, Inc., acts solely as the disclosed and author-
ized agent and representative for and on behalf of the Company, and
does not have, and shall not be deemed, considered or alleged to have
any, direct, indirect, joint, several, separate, individual, or independent
liability, responsibility or obligation of any kind under the Master Pol-
icy, the Declaration, any Riders or this Certificate to the Insured Person
or to any other person or entity . . . .

(Id.) But the Certificate states: "This Certificate is not part of the insurance con-
tract." The Certificate provides for certain exclusions from the Policy, including
pre-existing conditions:
EXCLUSIONS: Except as expressly provided for in the BENEFIT
SUMMARY, all Charges, costs, expenses and/or claims incurred by
the Insured Person, and directly or indirectly relating to or arising or
resulting from or in connection with any of the following acts, omis-
sions, events, conditions, Charges, consequences, claims, Treat-
ment (including diagnoses, consultations, tests, examinations and
evaluations related thereto), services and/or supplies are expressly
excluded from coverage under this insurance, and the Company shall
provide no benefits or reimbursements and shall have no liability or
obligation for any coverage thereof or therefor:

(3) PRE-EXISTING CONDITIONS: (a) Charges relating directly
or indirectly to Unknown Conditions are excluded from coverage un-
der this insurance until the Insured Person has maintained coverage
under this insurance plan continuously for the number of months
shown in the BENEFIT SUMMARY.

(ECF No. 8-1, 24–25.) An "Unknown Condition" is defined as "An Illness or Injury
that was not previously manifested, symptomatic, known to the Insured Person, di-
agnosed, or Treated prior to the Effective Date." (Id. at 33.) The Master Policy
includes these exact same terms—"Exclusions," "Pre-Existing Conditions Exclusion,"
and "Unknown Condition"—and the exact same definitions for each term. (ECF No.
17-2, 23–24, 32.)

Plaintiff cites to Plaintiff's Responses to Defendants' Motion to Strike Jury Trial
Request, Heston's Declarations of April 28, 2020, (ECF No. 26-1, ¶ 12), and of April
30, 2020, (ECF No. 26-2 ¶¶ 2 & 3), for the assertion that the Certificate and Declara-
tion were the only two documents Heston received after paying his premium for the
year. Plaintiff asserts that Heston did not see the Master Policy until the motion for
judgment on the pleadings was filed. Plaintiff also asserts that Heston did not receive

the accepted Application, which is attached as Exhibit 1 to the Answer. There is no
dispute, however, that Heston had completed and submitted the Application in order
to obtain the insurance policy at issue.
II. Discussion
A. Motion to Strike Plaintiff's Surreply
IMG filed a motion for judgment on the pleadings and a supporting brief; Sirius
also filed a motion for judgment on the pleadings and a supporting brief. Plaintiff

filed one combined response in opposition to both motions. Defendants together filed
a Combined Reply in Support of their Individual Motions for Judgment on the Plead-
ings. Then, without seeking leave of Court, Plaintiff filed Plaintiff's Sur-Reply to
Defendants' Response Regarding Defendants' Motion for Judgment on the Pleadings,
asserting that she was doing so to respond to new arguments and authorities asserted
in Defendants' Combined Reply.
The Local Rules provide for a supporting brief, response brief, and reply; they do
not authorize the filing of a surreply on a motion under Federal Rule of Civil Proce-
dure 12. S.D. Ind. L.R. 7-1. The Local Rules allow for a surreply in connection to a

summary judgment motion, and then only in the limited circumstances—"if the mo-
vant cites new evidence in the reply or objects to the admissibility of the evidence
cited in the response." S.D. Ind. L.R. 56-1(d).
Because Plaintiff failed to seek leave to file a surreply, and further because the
Combined Reply in fact does not raise any new argument, Defendants' Motion to
Strike Plaintiff's Surreply is granted. In any event, consideration of the surreply

would not have made any difference in the Court's decision on the Rule 12(c) motions.
B. Motions for Judgment on the Pleadings
1. Legal Standard
Rule 12(c) authorizes motions for judgment on the pleadings to be filed after the
pleadings are closed, but early enough not to delay trial. Fed. R. Civ. P. 12(c). The
pleadings include the complaint and the answer and any written instrument or other
document attached as an exhibit to the complaint or answer. Fed. R. Civ. P. 7(a);

Fed. R. Civ. P. 10(c). Defendants timely filed their Rule 12(c) motions.
"A motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of
Civil Procedure is governed by the same standards as a motion to dismiss for failure
to state a claim under Rule 12(b)(6)." Adams v. City of Indianapolis, 742 F.3d 720,
727–28 (7th Cir. 2014) (citing Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th
Cir. 2007)). Thus, "[t]o survive a motion for judgment on the pleadings, a complaint
must 'state a claim to relief that is plausible on its face.'" Wagner v. Teva Pharm.
USA, Inc., 840 F.3d 355, 357–58 (7th Cir. 2016) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)). A complaint meets this standard when "the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the de-
fendant is liable for the misconduct alleged.'" Id. at 358 (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)). In considering a motion for judgment on the pleadings, the
Court accepts the complaint's factual allegations as true and draws all reasonable
inferences in the plaintiff’s favor. Taylor v. JPMorgan Chase Bank, N.A., 958 F.3d
556, 562 (7th Cir. 2020).

2. IMG's Motion for Judgment on the Pleadings
In moving for judgment on the pleadings, IMG argues that Sirius is the insurer
and the party to the underlying insurance contract. IMG further argues that it is
Sirius's disclosed agent and did not take any actions outside the scope of its authority
as agent, and IMG is not a party to the insurance contract or otherwise in privity of
contract with Heston. Therefore, IMG contends it has no liability to Heston under
the insurance contract or as an insurer.

Plaintiff responds that, based on the documents Heston was sent after paying his
annual premium—that is, the Certificate and Declaration—the entity liable on the
insurance contract was unknown and the allegations raise a question of fact as to
which entity is liable. Plaintiff argues that if IMG has the authority to modify or
waive a requirement in the insurance application or coverage, it was more than a
mere agent of Sirius for liability purposes. In addition, Plaintiff asserts that IMG
drafted the Exclusionary Rider No. 1 and added it to the Policy's exclusions, evidenc-
ing that IMG was more than a mere agent. (ECF No. 17-1 at 23.) She also asserts
that IMG drafted the Appeal of Claims Determination letter to Heston advising that

his appeal had been denied. (ECF No. 8-4.)
"In Indiana, a suit for breach of contract may be brought only against 'a party to
the contract or against those in privity with the party.'" Broadhurst v. Moenning, 633
N.E.2d 326, 334 (Ind. Ct. App. 1994) (quoting Implement Serv., Inc. v. Tecumseh
Prods. Co., 726 F. Supp. 1171, 1182 (S.D. Ind. 1989)). "The parties to a particular
contract normally may be identified as a matter of law from the terms of the contract,

absent some sort of ambiguity." Id.
"Indiana recognizes the general rule that where an agent discloses the identity of
his principal and does not exceed his authority when contracting on the principal's
behalf, the agent is not personally bound by the contract unless the agent agrees to
be so bound." Boesch v. Marilyn M. Jones & Assocs., 712 N.E.2d 1061, 1062–63 (Ind.
Ct. App. 1999) (citing, inter alia, Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228,
1231 (Ind. 1994)). The Amended Complaint alleges that IMG was an agent of Sirius

and was "acting within the course, scope and authority of said agency." (Am. Compl.
¶ 9 (alleging both Defendants acted as each other's agent), ECF No. 8.) The Answer
admits that IMG acted only as the disclosed agent for its principal Sirius and that
IMG was acting within the course, scope, and authority granted to it. (Answer ¶ 9,
ECF No. 17.)
Review of the Application, Declaration, and Master Policy, the documents that
comprise the insurance contract, clearly and unambiguously establishes that the par-
ties to the insurance contract are Heston and Sirius. IMG is not the insurer and is

not a party to the insurance contract.
IMG clearly and unambiguously disclosed the identity of its principal Sirius to
Heston in the Application, Certificate, and Declaration. Heston completed and sub-
mitted the Application, and he admitted that he received the Certificate and Decla-
ration. Although the Certificate is not part of the insurance contract, it evidences
and contains the same terms, with the same definitions, as the Master Policy. The

agency relationship and Sirius's identity as principal were also disclosed in the Mas-
ter Policy, even though Heston claimed he did not review the document until this
lawsuit had been filed. To the extent the allegation in paragraph 9 of the Amended
Complaint attempts to identify IMG as the principal and Sirius as the agent, the
documents attached to the Amended Complaint and Answer belie such an allegation:
the documents clearly and unequivocally identify IMG as agent for its principal, Sir-
ius. Furthermore, none of the allegations in the pleadings raises a plausible claim

that IMG exceeded its authority when acting on Sirius's behalf. Plaintiff has not
alleged that IMG has any independent contractual obligation to Heston or otherwise
agreed to be bound by the insurance contract. Therefore, the Court concludes that
the general rule applies, and IMG is not personally bound by the insurance contract.
Plaintiff also brings a claim based on a breach of the duty of good faith and fair
dealing. "Indiana law recognizes a legal duty, implied in all insurance contracts, for
the insurer to deal in good faith with its insured." Missig v. State Farm Fire & Cas.
Co., 998 N.E.2d 216, 229 (Ind. Ct. App. 2013) (citing Freidline v. Shelby In. Co., 774
N.E.2d 37, 40 (Ind. 2002)). But IMG is not the insurer and thus owes no duty of good

faith to Heston. Accordingly, the Court finds that IMG's motion for judgment on the
pleadings should be granted.
3. Sirius's Motion for Judgment on the Pleadings
Sirius likewise moves for judgment on the pleadings, contending that it acted un-
der the pre-existing condition exclusion of the surplus lines insurance policy and did
not breach the terms of the contract.2 Sirius maintains that enforcing the terms of

the insurance contract cannot as a matter of law constitute a breach of the duty of
good faith and fair dealing. Lastly, Sirius argues that Plaintiff's claim for declaratory
relief turns on the breach of contract claim.
Plaintiff responds that the pre-existing condition exclusion in the insurance con-
tract is contrary to Indiana law, Ind. Code § 27-8-5-5.2(c), and federal law, namely
the Patient Protection and Affordable Care Act (the "ACA"), 42 U.S.C. § 300gg-3, and
is therefore unenforceable.

"An insurance policy is a contract between the parties; in determining policy lia-
bilities, the law of contract applies." Cincinnati Ins. Co. v. Mallon, 409 N.E.2d 1100,
1103 (Ind. Ct. App. 1980). To establish a breach of contract, a plaintiff must prove
these elements: the existence of a contract, the defendant's breach of that contract,

2 Its motion relies in part on an opinion from the Indiana Department of Insurance, but the
Court does not rely on that opinion in reaching its decision because the opinion is not con-
sidered part of the pleadings and is not properly before the Court.
and damages. Metro Holdings One, LLC v. Flynn Creek Partner, LLC, 25 N.E.3d 141,
157 (Ind. Ct. App. 2014). "A party breaches a contract when it fails to perform all of
the obligations that it has agreed to undertake." Breeding v. Kye's Inc., 831 N.E.2d

188, 191 (Ind. Ct. App. 2005). An insurer may "determine by its contract what risks
it is undertaking to insure, provided policy provisions do not violate statutory man-
dates or are not against public policy." Mallon, 409 N.E.2d at 1103.
The insured must prove coverage under the insurance policy. Southbend Escan
Corp. v. Federal Ins. Co., 647 F. Supp. 962, 966 (N.D. Ind. 1986). The insurer bears
the burden of proving an exception to coverage. Id.

The insurance contract at issue in this case consists of the Master Policy, Appli-
cation, Declaration, and any Riders. (ECF No. 8-1 at 10.) The Application provides
for the exclusion of pre-existing conditions. (ECF No. 17-1 at 16.) The Master Policy
provides for the same exclusion. (The Certificate does, too. (ECF No. 8-1 at 24-25.))
Plaintiff has never asserted that Heston's condition was not a pre-existing condition
as defined under the Policy.3 (See, e.g., ECF No. 8.) Plaintiff's request for declaratory
relief seeks a declaration of the parties' rights and, essentially, seeks a determination

that damages are due on the breach of contract claim. This claim necessarily stands
or falls with the breach of contract claim. And a determination of the breach of con-
tract claim depends on whether the pre-existing conditions exclusion is enforceable
under Indiana insurance law and the ACA.

3 An independent peer review determined that Heston's condition was a pre-existing condi-
tion as defined under the insurance policy. (ECF Nos. 8-4, 17-5.) Ultimately, however,
whether Heston's condition was a pre-existing condition would appear to be a question of
fact.
An insurer's duty of good faith and fair dealing "includes the obligation to refrain
from (1) making an unfounded refusal to pay policy proceeds; (2) causing an un-
founded delay in making payment; (3) deceiving the insured; and (4) exercising any

unfair advantage to pressure an insured into a settlement of his claim." Erie Ins. Co.
v. Hickman by Smith, 622 N.E.2d 515, 519 (Ind. 1993). Nonetheless, the insurer
"may, in good faith, dispute claims." Id. at 520. The antithesis of good faith is bad
faith which means "more than bad judgment or negligence." Johnston v. State Farm
Mut. Auto. Ins Co., 667 N.E.2d 802, 805 (Ind. Ct. App. 1996). "Bad faith involves the
conscious doing of wrong because of dishonest purpose or moral obliquity." Id. If the

Policy's pre-existing conditions exclusion is enforceable, then Plaintiff would be una-
ble to prove a breach of the duty of good faith and fair dealing.
The first issue for the Court, then, is whether the pre-existing exclusion in the
Policy is enforceable under Indiana law and the ACA. "Generally, a contract made in
violation of a statute is void." Duvall v. Heart of CarDon, LLC, No. 1:17-cv-04439-
JRS-MJD, 2020 WL 1274992, at *9 (S.D. Ind. March 17, 2020) (quoting Harbour v.
Arelco, Inc., 678 N.E.2d 381, 385 (Ind. 1997)). If the provision is enforceable under

Indiana law and the ACA, the failure to pay claims based on the pre-existing condi-
tion exclusion would not constitute a breach of contract or a violation of the duty of
good faith and fair dealing.
Indiana insurance law governs accident and sickness insurance and surplus lines
insurance. See generally Ind. Code §§ 27-8-5-0.1 to 27-8-5-31.5 (accident and sickness
insurance); Ind. Code §§ 27-1-15.8-1 to 27-1-15.8-4 (surplus lines producers).
Accident and sickness insurance generally insures for losses caused by accident or
sickness and is a more traditional type of insurance. Surplus lines insurance is dif-
ferent:

Most states heavily regulate typical insurers, such as by approving their rates,
examining the terms of their policies, and monitoring their financial solvency.
The insurers that are subject to such extensive regulation in a state are known
as "admitted" or "authorized" insurers. The goal of such regulation is consumer
protection. Such extensive regulation, however, creates barriers to entry into
the insurance market and reduces the types of policies available for consumers
to purchase. When a consumer has an insurance need that cannot be met by
an authorized or admitted insurer, the state will allow that consumer to pur-
chase insurance from certain unauthorized or nonadmitted insurers. These are
surplus-lines insurers, and they are regulated differently than admitted insur-
ers. While admitted insurers are regulated directly, surplus-lines insurers are
typically regulated indirectly through insurance brokers who are licensed by
the state to place surplus-lines insurance. Although nearly any insurance could
be sold on a surplus-lines basis, in general such insurance covers unusual risks
that the admitted insurance market is unprepared or unable to accept.
Midwest Com., LLC v. Cincinnati Specialty Underwriters Ins. Co., 399 F. Supp. 3d
736, 741–42 (E.D. Wis. 2019) (citations omitted).
Indiana surplus lines insurance carriers and surplus lines insurance policies are
governed by Indiana Code § 27-1-15.8 et seq. "Surplus lines producer" means "a
person who sells, solicits, negotiates, or procures from an insurance company not
licensed to transact business in Indiana an insurance policy that cannot be procured
from insurers licensed to do business in Indiana." Ind. Code § 27-1-15.6-2(20) (em-
phasis added). Surplus lines producers are required to obtain a license. See Ind.
Code §§ 27-1-15.8-1 to 27-1-15.8-4. Surplus lines producers "may receive qualifica-
tion for a license in one. . . or more of the kinds of insurance defined in Class 2
and Class 3 of IC 27-1-5-1 from insurers that are authorized to do business in one
. . . or more states of the United States of America but are not authorized to do
business in Indiana . . . . " Ind. Code § 27-1-15.8-3(a). This includes policies "[t]o

insure any persons against bodily injury, disablement or death resulting from
accident and against disablement resulting from disease and every insurance
appertaining thereto." Ind. Code § 27-1-5-1 (2)(a) ("Class 2(a) policies"). Compa-
nies eligible to issue Class 2 Policies in Indiana include foreign or alien companies
"authorized to transact business in Indiana." Ind. Code § 27-1-5-1.

"Accident and sickness insurance" is defined as "insurance described in Class 1(b),
Class 1(c)(2), or Class 2(a)" of Indiana Code § 27-1-5-1. See Ind. Code § 27-1-12.8-1.
Thus, a Class 2(a) policy could constitute "accident and sickness insurance" under
Indiana law. See Ind. Code § 27-1-5-1. Indiana law limits the restrictions that acci-
dent and sickness insurance policies may place on pre-existing conditions exclusions.
"The benefits provided by . . . [a] policy of accident and sickness insurance . . . may
not be excluded, limited, or denied for more than twelve (12) months after the effec-

tive date of the coverage because of a preexisting condition of the individual." Ind.
Code § 27-8-5-2.5(b). Furthermore, an accident and sickness insurance policy:
may not define a preexisting condition . . . more restrictively than as:
(1) a condition that would have caused an ordinarily prudent person to seek
medical advice, diagnosis, care, or treatment during the twelve (12) months
immediately preceding the effective date of the plan;
(2) a condition for which medical advice, diagnosis, care, or treatment was rec-
ommended or received during the twelve (12) months immediately preceding
the effective date of the plan; or
(3) a pregnancy existing on the effective date of the plan.
Ind. Code § 27-8-5-2.5(c). Indiana law further restricts accident and sickness insur-
ance policies: "This chapter [Chapter 5] shall be applied in conformity with the re-
quirements of the federal Patient Protection and Affordable Care Act (P.L. 111-148),

as amended by the federal Health Care and Education Reconciliation Act of 2010
(P.L. 111-152), as in effect on September 23, 2010." Ind. Code § 27-8-5-1(c). Indiana
law generally prohibits an insurer from transacting any insurance in Indiana without
a certificate of authority from the insurance commissioner. However, certain trans-
actions are excepted from this prohibition, including "[t]he lawful transaction of sur-
plus lines insurance. . . . " Ind. Code § 27-4-5-2(a). The pre-existing conditions exclu-

sion in the Policy is more restrictive than the provision in Indiana Code § 27-8-5-
2.5(c).
Thus, whether Indiana law's restrictions on pre-existing conditions apply to the
Policy at issue in this case depends on whether the Policy is a surplus lines insurance
policy or an accident and sickness insurance policy. Defendants have provided the
Court and Plaintiff with supplemental authority, namely, the court's summary judg-
ment ruling in Carvajal v. Int'l Medical Group, Inc. & Sirius Int'l Insurance Corp.,

Cause Number 49D01-1909-MI-037003 (Marion Super. Ct. Aug. 17, 2020), as
amended, (Marion Super. Ct. Nov. 2, 2020), regarding the applicability of the accident
and sickness insurance provisions of the Indiana Code and the ACA's protections for
pre-existing conditions to surplus lines insurance. The Carvajal case is on point with
this case and the Court finds persuasive that court's opinions as to the non-
applicability of Indiana's restrictions on pre-existing conditions and the ACA's pro-
tections to surplus lines insurance.
The Carvajal court determined that "accident and sickness insurance" policies un-

der Indiana Code § 27-8-5-1 include only those policies issued by insurance companies
"authorized to transact business in Indiana." (Notice Suppl. Authority, Ex. 1, Order,
11, 14–15, ECF No. 55-1.) The court also determined that because surplus lines pol-
icies are not issued by companies authorized to do business in Indiana, surplus lines
insurance policies are exempt from the requirements of Indiana Code § 27-8-5. (Id.
at 15.) The court's conclusions find support in a Seventh Circuit decision holding that

an Illinois insurance statute applied only to insurers authorized to conduct business
in the state, and the statute had no application to a policy issued by a surplus lines
insurer who was not authorized to transact business in Illinois. Corday's Dep't Store,
Inc. v. New York Fire & Marine Underwriters, Inc., 442 F.2d 100, 104 (7th Cir. 1971).
Generally, a surplus lines insurer is not authorized to transact business in Indi-
ana. See Ind. Code § 27-1-15.6-2(20) (defining "surplus lines producer" as "a person
who . . . procures from an insurance company not licensed to transact business in

Indiana an insurance policy that cannot be procured from insurers licensed to do
business in Indiana") (emphasis added); Midwest Com., 399 F. Supp. 3d at 741–42
(explaining that surplus line insurers are unauthorized or not admitted in the state
and subject to fewer regulations than authorized or admitted insurers). However,
the Court is persuaded by Carvajal's determination that "insurance properly de-
scribed as Class 2(a) insurance under Ind. Code 27-1-5-1 could potentially constitute
'accident and sickness insurance,'" which would mean that such insurance is gov-
erned by the provisions of Indiana Code § 27-8-5 et seq. (See Notice Suppl. Authority,
Ex. 1, Order Granting in Part & Denying in Part Defs.' Mot. Summ. J. & Denying

Pl.'s Partial Mot. Summ. J., 10, 13; but see id. at 14 (noting that not "all Class 2(a)
policies would necessarily be treated as 'accident and sickness insurance'"); ECF No.
55-1.) Therefore, whether Class 2(a) insurance would constitute accident and sick-
ness insurance subject to the pre-existing conditions requirements of Indiana Code §
27-8-5-2.5 turns on whether the insurer, here Sirius, is authorized to transact busi-
ness in Indiana. (See Notice Suppl. Authority, Ex. 1, Carvajal Order at 13–15.)

Although the Amended Complaint alleges, and the Answer to the Amended Com-
plaint admits, that Sirius is a surplus lines insurance carrier, (Am. Compl. ¶ 8, ECF
No. 8; Answer ¶ 8, ECF No. 17), which by definition implies that Sirius is not author-
ized to transact business in Indiana, neither the pleadings, Plaintiff's motion for par-
tial summary judgment, nor Defendants' response directly addresses whether Sirius
is in fact authorized to transact business in Indiana.4 Sirius relies heavily on the
district court's opinion in Vas v. Sirius International Insurance Corp., 2:06-cv-00097-

LLD (E.D. Pa. Jan. 19, 2007), which concluded that a similar pre-existing conditions

4 Similarly, the pleadings do not address IMG's licensure in Indiana. (See Am. Compl. ¶ 7
(IMG "was and is a corporation that is headquartered in and has its principal place of busi-
ness in Indianapolis, Indiana."), ECF No. 8.) Defendants admitted this allegation in their
Answer. (Answer ¶ 7, ECF No. 17.) The summary judgment briefing in Vas v. Sirius Int'l
Ins. Corp., 2:06-cv-00097-LLD (E.D. Pa. Jan. 19, 2007), included an affidavit establishing
that IMG was a licensed surplus lines agent, see Vas, 2:06-cv-00097-LLD, Mot. Summ. J.,
Ex. V, Kurt Kipfer Aff., ECF No. 39-23), on which the district court relied in granting Sirius
summary judgment, see Vas, Mem. and Order, 11–12, ECF No. 47). The Vas opinion is at-
tached as Exhibit 1 to Sirius' brief in support of its motion for judgment on the pleadings.
(See ECF No. 30-1.)
exclusion was enforceable under Indiana law. There, the court reasoned that Sirius
was not an authorized insurer in Indiana and was therefore "not required to comply
with Indiana insurance statutes except as they specifically may pertain to surplus

lines insurers." (Vas, Memorandum, 13, ECF No. 30-1.) The summary judgment
briefing in Vas included affidavits establishing that IMG was a licensed surplus lines
agent and that Sirius was a surplus lines insurer, (see Vas, 2:06-cv-00097-LLD, Mot.
Summ. J., Exs. S & V, Kelly Donica Aff. & Kurt Kipfer Aff., ECF Nos. 39-20 & 39-23),
on which the district court relied in granting Sirius summary judgment, see Vas,
Mem., 11–12, ECF No. 30-1.)

The Amended Complaint alleges that Defendants denied Heston's claims for ben-
efits based on a pre-existing conditions exclusion that is unenforceable under Indiana
law. If Indiana law's pre-existing conditions requirements apply to the Policy issued
to Heston, then the pre-existing conditions exclusion would be unenforceable and Sir-
ius may be held liable for breach of contract. While Sirius may bring a properly sup-
ported motion for summary judgment, the Amended Complaint has sufficiently
stated a claim for breach of contract and a breach of the duty of good faith and fair

dealing.
Plaintiff further argues that the pre-existing conditions exclusion in the Policy
contravene the ACA's prohibition on pre-existing conditions exclusions. Defendants
respond that the ACA is inapplicable to surplus line insurance policies and applies
only to "group health plans" and "health insurance issuers."
Under the ACA, "[a] group health plan and a health insurance issuer offering
group or individual health insurance coverage may not impose any preexisting con-
dition exclusion with respect to such plan or coverage." 42 U.S.C. § 300gg-3. The

ACA defines "group health plan" as "an employee welfare benefit plan (as defined in
section 3(1) of the Employee Retirement Income Security Act of 1974 ["ERISA"]) to
the extent that the plan provides medical care . . . to employees or their dependents .
. . ." 42 U.S.C. § 300gg-91(a)(1). ERISA defines "employee welfare benefit plan" as
"any plan . . . established or maintained by an employer or by an employee organiza-
tion, or by both . . . for the purpose of providing for its participants or their benefi-

ciaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hos-
pital care or benefits, or benefits in the event of sickness, accident, [or] disability . . .
." 29 U.S.C. § 1002(1). The Policy at issue in this case is not an "employee welfare
benefit plan" and was not established or maintained by an employer. The Policy
therefore is not a "group health plan" under the ACA. Rather, the Amended Com-
plaint alleges that Heston purchased the Policy. (Am. Compl. ¶ 2, ECF No. 8.)
The ACA defines "health insurance issuer" in relevant part as "an insurance com-

pany, insurance service, or insurance organization . . . which is licensed to engage in
the business of insurance in a State and which is subject to State law which regulates
insurance . . . ." 42 U.S.C. § 300gg-91(b)(2). The pleadings do not address whether
Sirius is licensed to engage in the business of insurance in Indiana. If Sirius is not
so licensed, then it would not qualify as a "health insurance issuer" under the ACA,
and the ACA's prohibition on pre-existing conditions exclusions would not apply to
the Policy.
As with the applicability of the Indiana's requirements for pre-existing conditions

exclusions, the Court is unable to determine at this pleadings stage whether the
ACA's prohibition on pre-existing conditions exclusions is applicable to the Policy. If
the ACA's prohibition is inapplicable, then the pre-existing conditions exclusion
would not be unenforceable. The issue may be decided on summary judgment, but it
cannot be said that the Amended Complaint fails to state a claim for breach of con-
tract or breach of the duty of good faith and fair dealing.

c. Plaintiff's Motion for Partial Summary Judgment
Plaintiff seeks partial summary judgment on the issue of whether Defendants are
liable for breach of contract of the insurance policy and liable for payments of medical
expenses. Plaintiff contends that the Policy's pre-existing conditions exclusion is in-
valid and unenforceable under Indiana health insurance law and the ACA, and she
asserts that the insurance policy should be construed as provided in Indiana Code
§27-8 et seq.

Plaintiff's motion must be denied for several reasons. First, the Court has deter-
mined that IMG is not liable on the Policy and should be granted judgment in its
favor. Furthermore, Plaintiff's motion hinges on whether the pre-existing conditions
exclusion is unenforceable under Indiana health insurance law and the ACA. That
remains to be determined. Defendants have argued that the Policy is a surplus lines
insurance policy and that Indiana's and the ACA's restrictions on pre-existing
conditions exclusions are inapplicable to the surplus lines insurance policies. If De-
fendants are correct, then the pre-existing conditions exclusion is enforceable and
liability would turn on whether Heston's cancer was a pre-existing condition within
the meaning of the Policy, which is a question of fact. And Plaintiff has not argued
that Heston's cancer did not constitute a pre-existing condition under the terms of
the Policy.
Conclusion
For the reasons stated, IMG's Motion for Judgment on the Pleadings (ECF No.
27) is granted; Sirius's Motion for Judgment on the Pleadings (ECF No. 29) is de-
nied; Plaintiff's Motion for Partial Summary Judgment (ECF No. 34) is denied; and
Defendants' Motion to Strike Plaintiffs Surreply (ECF No. 38) is granted. The
claims against IMG are dismissed with prejudice, and IMG is terminated as a
defendant to this action.
Because this Order resolves the pending dispositive motions, the Joint Motion to
Reset Pending Deadlines (ECF No. 68) is denied as moot.
SO ORDERED.

Date: 3/24/2021 ne wa f
JAMES R. SWEENEY I, JUDGE
United States District Court
Southern District of Indiana

Distribution to all parties of record via CM/ECF.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10167610. Public record. Not legal advice.