Commentary: When is a contract not a contract?

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INSURANCE (in-shuur-ents), n. 1. An agreement by which one party (the insurer) commits to do something of value for another party (the insured) upon the occurrence of some specified contingency; esp., an agreement by which one party assumes a risk faced by another party in return for a premium payment.” (Black’s Law Dictionary (7th ed. 1999).)

Suppose I own a home, and have an insurance policy providing that if my house burns down, the insurance company will pay to build me a new one.

One day, the local fire department comes by, and says, “If you let us burn your house down as part of a training exercise for our new recruits, we will pay you to build a new one.”

I agree to this contract (the key word being “contract,” just as the key word in the above definition of “insurance” is “risk.”). So the fire department writes me a check, burns my house down and puts out the fire.

Do you suppose my insurance company will write me another check, because the policy said they would buy me another house if mine burned down?

Certainly not. They would laugh at me, and if I were to sue them, I would rightfully be found to have filed a frivolous lawsuit.

In that instance, rather than seeking payment because a known but uncertain risk had occurred, I would instead be seeking to recover twice on a contract.

Nevertheless, on Sept. 3, the Wisconsin Court of Appeals certified a case with an identical fact pattern to the Wisconsin Supreme Court.

Two women were insured by a Wisconsin health insurance provider, and the policies provided, as required by law, that if the women became pregnant the insurer would pay for the health services they required.

One day, they entered into contracts to provide “surrogate mother services” – they were artificially inseminated and carried babies to term for others.

They then filed complaints with the Office of the Commissioner of Insurance (OCI) because their insurer refused to pay for their health care services, citing a provision that excluded surrogate mother services from maternity coverage under its policies.

OCI concluded that the insurer had violated sec. 632.895(7) by denying the benefits, reasoning, “The decision to become pregnant is an intensely personal decision. For OCI to give an insurer license to inquire into why a woman is pregnant or whether she intends to keep her baby would be improper.”

The circuit court reversed, and the issue has now been certified to the Supreme Court.

The statutory language at issue provides, “Every group disability insurance policy which provides maternity coverage shall provide maternity coverage for all persons covered under the policy. Coverage required under this subsection may not be subject to exclusions or limitations which are not applied to other maternity coverage under the policy.”

The certification asserts that the statute is susceptible to competing reasonable interpretations.

I suppose it could be reasonably argued that incorrigible bachelors are justifiably forced to either purchase maternity coverage or forego health insurance altogether.

But it cannot be reasonably argued that they should be required to purchase coverage for “surrogate mother services.” At that point, the policy ceases to be insurance, as that term is commonly understood. Instead of pooling resources to cover known but uncertain risks, such a policy would be simply a guarantee that a party to a contract gets paid twice for providing one service.