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Hawai'i Management Alliance Association v. Prepaid Health Care Office

Intermediate Court of Appeals of Hawaii

December 16, 2013

HAWAI'I MANAGEMENT ALLIANCE ASSOCIATION, Petitioner-Appellant,
v.
PREPAID HEALTH CARE OFFICE, DISABILITY COMPENSATION DIVISION, DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS, STATE OF HAWAI'I; A-1 MASTER ROOFING, INC.; PETER TAMURA; ROBERT J. CLEMENTS; AND SUZETTE ANGUAY; JOHN DOES 1-25, Respondent-Appellees

NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 10-1-0151).

William C. McCorriston, Kenneth J. Mansfield, Jordon J. Kimura, (McCorriston Miller Mukai MacKinnon), for Petitioner-Appellant.

Gary S. Ige, Frances E.H. Lum, Deputy Attorneys General, for Respondent-AppelleeDepartment of Labor andIndustrial Relations, State of Hawai'i.

Foley, Presiding Judge, Fujise and Leonard, JJ.

SUMMARY DISPOSITION ORDER

In this secondary appeal from Referee Johnrae F. Christian's (Referee) decision that it was responsible for payment of medical benefits to certain employees of A-1 Master Roofing, Inc. (A-1), Petitioner-Appellant Hawai'i Management Alliance Association (HMAA) appeals from the September 8, 2010 Final Judgment entered by the Circuit Court of the First Circuit (Circuit Court)[1] affirming Prepaid Health Care Office, Disability Compensation Division, Department of Labor and Industrial Relations, State of Hawai'i's (Prepaid) Referee's Decision.

On appeal before this court, HMAA argues that the Circuit Court erred in affirming the Referee's decision because it (1) failed to conclude, as a matter of law, that A-1 breached its agreement with HMAA by failing to pay premiums, "thereby releasing any obligation by HMAA to pay for health care services rendered[;]" (2) concluded, as a matter of law, that based on Williams v. Hawaii Med. Servs. Ass'n, 71 Haw. 545, 798 P.2d 442 (1990) and the interpretation of Hawaii Administrative Rules (HAR) § 12-12-28[2] contained therein, that HMAA must pay for the health care benefits incurred by the employees; (3) concluded, as a matter of law, that the health care benefits incurred by the employees should not be paid by the Prepaid Health Care Premium Supplementation Fund (Fund) pursuant to Hawaii Revised Statutes (HRS) § 393-48 (1993);[3] and (4) failed to conclude, as a matter of law, "that the only possible monetary liability for HMAA's inadvertent failure to timely provide the required notice of cancellation to Prepaid is in HRS section 393-33 (b), which sets forth a $200 fine for any willful violation of the Prepaid Health Care Act."

After a careful review of the record, the issues raised and the arguments made by the parties, and the applicable authority, we affirm the Final Judgment for the following reasons:

The dispositive issue in this appeal is whether the failure of A-1 to pay premiums to HMAA, per se, released the latter from any obligation to pay medical services benefits to A-1's employees. It is undisputed that A-1 failed to pay the premiums required by its contract with HMAA and thus was in breach of that contract.[4] However, the parties also do not dispute that HMAA failed to give notice to Prepaid that it had terminated its contract with A-1. Moreover, the record reflects that HMAA gave only retroactive notice of cancellation to A-1. As a result, HMAA failed to comply with the requirements of HAR § 12-12-28(a). The Circuit Court ruled that Williams controlled in this situation, concluding that "non-compliance with rule section 12-12-28(a), HAR, effectively bars a health care contractor from cancelling the employer's group health plan."

Conclusions of law are reviewed under a de novo standard of review. AlohaCare v. Ito, 126 Hawai'i 326, 341, 271 P.3d 621, 636 (2012). "[I]nsurance policies are governed by statutory requirements in force and effect at the time such policies are written[, ]" and "[s]uch provisions are read into each policy issued thereunder, and become a part of the contract with full binding effect upon each party." AIG Hawaii Ins. Co., Inc. v. Estate of Caraanq, 74 Haw. 620, 633, 851 P.2d 321, 328 (1993) (citation and internal quotation marks omitted). Properly promulgated "[administrative] rules have the force and effect of law." State v. Kirn, 70 Haw. 206, 208, 767 P.2d 1238, 1239-40 (1989). Additionally, "[w]hen the terms of an insurance contract are in conflict with statutory language, the statute must take precedence over the terms of the contract." Sol v. AIG Hawai'i Ins. Co., 76 Hawai'i 304, 307, 875 P.2d 921, 924 (1994).

Thus, HAR § 12-12-28, effective as of May 7, 1981, sets out the specific procedure for the cancellation of prepaid health contracts and did apply to HMAA's attempt to cancel the contract with A-1. That HMAA failed to comply with this procedure meant that HMAA did not effectively cancel the contract, leaving it in force. While A-1 is still in breach of the contract, it was still incumbent on HMAA to comply with this regulation if it intends to exercise its rights under the contract. Williams, 71 Haw. at 549-50, 798 P.2d at 444-45 (rejecting the insurer's argument that despite its failure to give notice under HAR § 12-12-28(a), it had no obligation under the contract as it would render the notice provision "ineffective and superfluous"); see also, St. Paul Fire & Marine Ins. Co. v. Southwestern Improvement, Inc., 719 S.W.2d 708, 710 (Ark. Ct. App. 1986) (construing Ark. Stat. Ann. § 81-1338 (b), holding that "once a policy of insurance has been procured in satisfaction of the legislative requirement, it may not effectively be cancelled without notice to both the employer and the Commission") and Lifeline Ambulance, Inc. v. Iowa Ins. Div., 505 N.W.2d 186 (Iowa 1993) (termination of the insurance contract did not occur until the notice required by law was given). As HMAA failed to effectively terminate its contract with A-1, the Circuit Court did not err in affirming the Referee's decision.

Therefore, we affirm the September 8, 2010 Final Judgment entered by the Circuit Court of the First Circuit.


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