In re Wasatch Crest

2009 UT 5
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
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Chris Ann Williams Mellor, No. 20070763
individually and as guardian of
Hayden Williams,
Appellant, and
Cross-Appellee,
v.
Wasatch Crest Mutual Insurance Company,
in Liquidation, Wasatch Crest
Mutual Insurance Company in
Liquidation, and Utah Life and
Health Insurance Guaranty Association, F I L E D
Appellees, and
Cross-Appellants. January 27, 2009
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Third District, Salt Lake
The Honorable Kate A. Toomey
No. 030915527
Attorneys: Brian S. King, James L. Harris, Bradley R. Sidle,
Salt Lake City, for appellant
J. Ray Barrios, Jr., Salt Lake City, for appellee
Wasatch Crest Mutual Insurance Company
Maxwell A. Miller, Randy M. Grimshaw, Salt Lake City,
for appellee Utah Life and Health
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WILKINS, Justice:
¶1 Appellant Chris Ann Williams Mellor appeals from an
adverse order of the district court which held that her minor
son, Hayden Williams, was not covered by a Wasatch Crest Mutual
Insurance Company health plan when he suffered a near drowning
accident on August 3, 2001. Appellees Wasatch Crest and Utah
Life and Health Insurance Guaranty Association cross-appeal the
district court’s holding that Ms. Mellor has standing in this
case to bring an action on behalf of her minor son. We affirm
the district court’s holding as to standing but reverse on the
issue of coverage.

No. 20070763 2
BACKGROUND
¶2 Hayden Williams’ father, Justin Williams, was employed
by Mellor Engineering. During his employment, Mr. Williams
participated in Mellor Engineering’s employee welfare benefits
plan, which was provided through Wasatch Crest Insurance Company
(Wasatch Crest). Both Ms. Mellor and Hayden were beneficiaries
under the Wasatch Crest plan. When Mr. Williams’ employment with
Mellor Engineering terminated in August 2000, he elected to
continue health coverage for himself and his family through the
Wasatch Crest plan under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA). Mr. Williams and Ms. Mellor
divorced in March 2001. COBRA premiums continued to be paid for
Hayden, and Wasatch Crest continued to accept them, through
November 7, 2001.
¶3 On August 3, 2001, Hayden suffered a near drowning
accident which resulted in catastrophic, permanent injuries.
Because of the overwhelming medical expenses and the prospect of
ongoing expenses for Hayden’s future care, Ms. Mellor applied for
Medicaid coverage for Hayden two weeks after the accident. The
application was approved in September 2001. Under Medicaid
guidelines, and because of the need to ensure coverage for
Hayden’s past and future medical expenses, Hayden’s effective
coverage date was backdated to August 1, 2001.
¶4 The Wasatch Crest plan continued to make payments for
Hayden’s medical care until November 2001. At that time, Wasatch
Crest asserted that under language of the plan, it had no
obligation to continue coverage for Hayden after Medicaid
coverage began on August 1, 2001. Wasatch Crest requested
reimbursement from Hayden’s health care providers and collected
from many of them. In August of 2002, the Utah State Office of
Recovery Services (ORS) began an effort to collect money from
Wasatch Crest which it alleged had been improperly paid by
Medicaid and should have been paid by the Wasatch Crest plan.
A month later, ORS entered into a Collection Agreement with Ms.
Mellor which authorized Ms. Mellor to include ORS’s claim for
reimbursement with her civil claims against Wasatch Crest, with
ORS as an assignee of her rights of recovery.
¶5 On July 11, 2003, Wasatch Crest was declared insolvent.
The district court set July 31, 2004 as the deadline for filing
a proof of claim against the Wasatch Crest estate in liquidation.
Ms. Mellor filed a timely claim. The claims in liquidation are
being administered by Utah Life and Health Insurance Guaranty
Association (ULHIGA), which thus became a party to this action.

3 No. 20070763
¶6 A referee appointed to adjudicate disputes between
claimants and Wasatch Crest’s liquidator ruled that, under the
language of the Wasatch Crest Plan, Wasatch Crest had no
obligation to pay any of Hayden’s medical expenses as of August
1, 2001. Ms. Mellor filed an objection with the Third District
Court. At the subsequent hearing, Wasatch Crest and ULHIGA
alleged that Ms. Mellor did not have standing to file a claim in
the liquidation proceeding. The court agreed that Ms. Mellor did
not have standing in her own right, but ruled that Ms. Mellor did
have standing to file a claim on behalf of Hayden. The court
further determined that while some of the documents that had been
generated in connection with the claim had not always clearly
designated that Ms. Mellor was acting in Hayden’s behalf, it had
been understood since the time that Ms. Mellor first initiated
civil action that she was acting for Hayden. Nevertheless, the
court approved the referee’s findings as to Wasatch Crest’s
liability, ruling that Hayden had not been covered by the Wasatch
Crest plan at the time of his accident. Ms. Mellor appealed the
ruling on coverage to this court, and Wasatch Crest and ULHIGA
cross-appealed on the issue of standing.
STANDARD OF REVIEW
¶7 An insurance policy is a contract between the insured
and the insurer. Saleh v. Farmers Ins. Exch., 2006 UT 20 ¶ 14,
133 P.3d 428. Questions of contract interpretation which are
confined to the language of the contract itself are questions of
law, which we review for correctness. Fairbourn Commer., Inc. v.
Am. Hous. Ptns., Inc., 2004 UT 54, ¶ 6, 94 P.3d 292. Likewise, a
determination of standing is generally a question of law, which
we review for correctness. Kearns-Tribune Corp. v. Wilkinson,
946 P.2d 372, 373 (Utah 1997); see also State v. Pena, 869 P.2d
932, 936 (Utah 1994).
ANALYSIS
I. MS. MELLOR HAS STANDING ON BEHALF OF HER MINOR SON HAYDEN
¶8 As an employer sponsored welfare benefits plan, the
Wasatch Crest insurance plan at issue is governed by the Employee
Retirement Income Security Act (ERISA). See 29 U.S.C. § 1003(a)
(2008). ERISA contains a specific provision governing standing.
It provides, “A civil action may be brought . . . by a
participant or beneficiary . . . to recover benefits due to him
under the terms of his plan, to enforce his rights to future
benefits under the terms of the plan, or to clarify his rights
under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B)(2008).
¶9 Thus, the issues in this case are interdependent; if
Hayden is “a participant or beneficiary” under the Wasatch Crest

No. 20070763 4
plan, he has standing to bring an action in this case. Id. As
we discuss in detail below, we hold that Hayden was a participant
or beneficiary under the Wasatch Crest plan, a status which
entitles him to pursue recovery of any benefits which may be
owing to him under the plan through the courts. Given Hayden’s
status as a minor child, it follows that his mother, Ms. Mellor,
has standing to bring an action on his behalf. See Utah R. Civ.
P. 17(a)-(b).
¶10 Appellees have made much of the fact that Ms. Mellor
has assigned all rights of recovery in this case to ORS through a
Collection Agreement. They argue that because of this assignment
Hayden is not the real party in interest in this case and that he
therefore does not have standing to pursue a cause of action. On
the contrary, the assignment has no effect on the standing of
Hayden, or through Hayden, Ms. Mellor. The Collection Agreement
does nothing more than place a lien in favor of ORS on any
reimbursement for medical expenses that may be recovered from
Wasatch Crest. Thus, beyond its function of routing any
potential recovery, the Collection Agreement has no relevance to
the case before us.
II. HAYDEN HAD COVERAGE UNDER THE WASATCH CREST PLAN ON THE DATE
OF HIS ACCIDENT
¶11 The COBRA modifications to ERISA require that “an
employer who sponsors a group health plan . . . give the plan’s
‘qualified beneficiaries’ the opportunity to elect ‘continuation
coverage’ under the plan when the beneficiaries might otherwise
lose coverage upon the occurrence of certain ‘qualifying events,’
including . . . the termination of the covered employee’s
employment . . . .” Geissal v. Moore Med. Corp., 524 U.S. 74,
79-80 (1998) (quoting 29 U.S.C. § 1163). When Mr. Williams’
employment with Mellor Engineering terminated, Mr. Williams
elected continuation coverage for himself and his dependents,
including Hayden, pursuant to this statute. No responsible party
subsequently took any affirmative action to remove Hayden from
the Wasatch Crest plan. Appellants nonetheless argue that, under
the language of the plan, Hayden’s coverage terminated on August
1, 2001 when Hayden became covered by Medicaid. We therefore
must determine whether coverage was terminated by operation of
law.
A. Exclusion 4 and Exclusion 17 Create an Inconsistency in the
Wasatch Crest Plan and Are Therefore Ambiguous
¶12 At issue is the interplay between two exclusions to
coverage in the Wasatch Crest plan as outlined in “Part 7 -
Exclusions” of the plan:

5 No. 20070763
4. Expenses covered by programs created by
the laws of the United States, any state, or
any political subdivision of a state.
17. Services, supplies, or treatment for
which Benefits are provided under Medicare or
any other government program, except
Medicaid.
We have previously held that an insurance contract must
communicate its terms with sufficient clarity that it can be
understood by a reasonable purchaser of insurance. Farmers Ins.
Exch. v. Versaw, 2004 UT 73, ¶ 8, 99 P.3d 796. The test for
clarity in an insurance contract is as follows:
[W]ould the meaning be plain to a person of
ordinary intelligence and understanding,
viewing the matter fairly and reasonably, in
accordance with the usual and natural meaning
of the words, and in the light of existing
circumstances, including the purpose of the
policy[?]
Auto Lease Co. v. Cent. Mut. Ins. Co., 325 P.2d 264, 266 (Utah
1958). “Whether an ambiguity exists in [an insurance] contract
is a question of law.” Saleh v. Farmers Ins. Exch., 2006 UT 20,
¶ 14, 133 P.3d 428 (internal quotation marks omitted). We
therefore review for correctness. Id.
¶13 We have observed that “ambiguities typically appear in
two forms: ‘An ambiguity in a contract may arise (1) because of
vague or ambiguous language in a particular provision or (2)
because two or more contract provisions, when read together, give
rise to different or inconsistent meanings, even though each
provision is clear when read alone.’” Farmers Ins. Exch., 2004
UT 73, ¶ 9 (quoting U.S. Fid. & Guar. Co. v. Sandt, 854 P.2d 519,
523 (Utah 1993)).
¶14 The ambiguity in the present case is of the second
variety. Medicaid is clearly a “program created by the laws of
the United States, any state, or any political subdivision of a
state.” See 42 U.S.C. §§ 1396-1396w-1 (2008). Therefore,
exclusion 4 indicates that expenses covered by Medicaid, as are
the disputed expenses in this case, are not covered by the
Wasatch Crest plan. However, exclusion 17 indicates exactly the
opposite--that while “services, supplies, or treatment” covered
by “Medicare or any other government program” will not also be
covered by the Wasatch Crest plan, “services, supplies, or
treatment” covered specifically by Medicaid are not excluded from
plan coverage.

No. 20070763 6
¶15 Appellees attempt to read these two provisions
consistently by arguing that “services, supplies, or treatment”
in exclusion 17 represent a small, covered exception carved out
of the larger category of excluded “expenses” in exclusion 4.
However, Appellees are unable to provide us with a single example
of an “expense” that could not also be categorized as a “service,
supply, or treatment.” Such a distinction is surely equally
beyond the understanding of a reasonable purchaser of insurance.
We therefore hold that the two provisions when read together give
rise to inconsistent meanings and that the language of the
Wasatch Crest plan is consequently ambiguous.
¶16 Insurance contracts are generally drafted by the
insurance companies and allow no opportunity for negotiation of
the terms by the insured. Farmers Ins. Exch., 2004 UT 73, ¶ 24.
In light of this fact, and in order to assure that the purpose
for which the policy was purchased and the premiums were paid is
not defeated, we interpret insurance policies liberally in favor
of the insured. U.S. Fid. & Guar. Co., 854 P.2d at 521. We have
therefore held that when an ambiguity exists in an insurance
contract, that ambiguity is interpreted in favor of coverage.
Id. at 522-523. More specifically, “[I]f an insurance contract
has inconsistent provisions, one which can be construed against
coverage and one which can be construed in favor of coverage, the
contract should be construed in favor of coverage.” Id. at 523
(internal citations omitted). Thus, we construe the ambiguities
in the Wasatch Crest policy in favor of coverage and therefore
reverse the decision of the district court.
B. Federal and State Law Prohibit Wasatch Crest from Terminating
Coverage Because Hayden Became Covered by Medicaid
¶17 Both federal and state law evidence a clear policy of
prohibiting insurance companies from shifting their obligation
for medical expenses to the taxpayer-funded Medicaid program.
ERISA, as amended by COBRA, provides that COBRA coverage cannot
be limited by a plan beneficiary’s eligibility for or
participation in Medicaid:
A group health plan shall provide that, in
enrolling an individual as a participant or
beneficiary or in determining or making any
payments for benefits of an individual as a
participant or beneficiary, the fact that the
individual is eligible for or is provided
medical assistance under a State plan for
medical assistance approved under title XIX

1 Title XIX of the Social Security Act creates the Medicaid
program. 42 U.S.C. § 1396-1396w-1 (2008).
7 No. 20070763
of the Social Security Act[1] . . . will not
be taken into account.
29 U.S.C. § 1169(b)(2) (2008).
¶18 ERISA generally preempts state law. See 29 U.S.C.
§ 1144(a)(2008). An exception exists for state laws created to
aid in recovering state Medicaid funds from employee welfare
benefit plans. Id. § 1144(b)(8)(B). Therefore, Utah employee
benefit plans must comply with Utah Code section 26-19-9 which
prohibits employer sponsored heath insurance plans from excluding
from coverage health care expenses that are also eligible for
coverage under Medicaid:
As allowed pursuant to 29 U.S.C. Section
1144, an employee benefit plan may not
include any provision that has the effect of
limiting or excluding coverage or payment for
any health care for an individual who would
otherwise be covered or entitled to benefits
or services under the terms of the employee
benefit plan based on the fact that the
individual is eligible for or is provided
services under the state plan.
Utah Code Ann. § 26-19-9 (2007).
¶19 Appellees argue that the Wasatch Crest plan complies
with the Utah statute because it specifies in exclusion 17 that
“services” covered by Medicaid are not excluded. However, this
argument fails because regardless of whether the Wasatch Crest
plan nominally complies, if exclusion 4 precludes coverage for
any expenses covered by a government program, it “has the effect
of limiting or excluding coverage or payment for any health care
for an individual who would otherwise be covered or entitled to
benefits or services under the terms of the . . . plan.” Id.
¶20 In order to interpret the Wasatch Crest plan in
conformity with the relevant federal and state statutes, we read
exclusions 4 and 17 to operate in such a manner that they do not
preclude coverage for medical expenses which are also covered by
Medicaid. Indeed, we find additional justification for this
reading in the Wasatch Crest plan itself, which states, “If any
provision of this Policy is contrary to any law to which it is
subject, such provision is hereby amended to conform thereto.”
Therefore, we hold that the terms of the Wasatch Crest plan did

No. 20070763 8
not operate to terminate Hayden’s coverage as a matter of law
when Hayden became eligible for Medicaid coverage.
CONCLUSION
¶21 At best, exclusion 4 and exclusion 17 create an
ambiguity in the Wasatch Crest policy. At worst, they evidence
an attempt to comply with the nominal requirements of the law
while at the same time circumventing the actual requirement of
providing coverage regardless of whether a beneficiary is also
covered by Medicaid. Under either scenario, we interpret the
Wasatch Crest plan in favor of coverage. Since Hayden is a
beneficiary of the Wasatch Crest plan, he, and through him his
mother Ms. Mellor, have standing to pursue an action for recovery
of benefits owing to Hayden under the plan.
¶22 Affirmed in part and reversed in part.
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¶23 Chief Justice Durham, Associate Chief Justice Durrant,
Justice Parrish, and Justice Nehring concur in Justice Wilkins’
opinion.