Pre-Existing Condition Exclusion Bars Employee’s Claim For Long Term Disability Benefits

September 30, 2011 | Appeals | Insurance Coverage

The plaintiff in this case, a chiropractor, worked for Alcott Staff Leasing, Inc., as a medical peer reviewer. In August 2006, she stopped working for Alcott and applied for long term disability benefits; her request was denied based on a pre-existing condition exclusion in the policy, which defined a pre-existing condition as a sickness or injury for which the insured received treatment during the three months before the effective date of the policy.

The plaintiff, who had been diagnosed with multiple sclerosis (MS) several years before, filed suit and argued that the pre-existing condition exclusion should not bar her claim because she had been told in late 2005 by Alcott representatives that no pre-existing condition exclusion applied to its long term disability plan. Moreover, she contended, a letter dated December 23, 2005, from a supervisor stated that “the benefit plans The Alcott Group offers are not subject to pre-existing conditions.”

The insurance company that had issued the plan moved to dismiss her complaint based on the pre-existing condition exclusion. The insurer also argued that Alcott had neither sought nor received a waiver or amendment of the plan language.

The court agreed with the insurer, noting that the plaintiff had been treated for MS in the three months prior to the policy’s effective date. The court therefore decided that, under applicable Rhode Island law, the plaintiff’s claim fell within the plan’s exclusion for pre-existing conditions. It added that Alcott could not make changes to the policy as provided in the policy, which stated that, “[n]o agent may change or waive any of the policy provisions; nor can an agent make any agreement that would be binding on” the insurer.

Accordingly, the court found that the insurer’s decision to deny disability benefits to the plaintiff was not erroneous as a matter of law. [Boyle v. Genworth Life and Health Ins. Co., 2011 U.S. Dist. Lexis 74885 (W.D.N.Y. July 12, 2011).]

Circuit Affirms Attorney’s Fee Award In Favor Of Insurer In Dispute With Assignee Of Life Insurance Benefits

The plaintiff in this case, 1 Lincoln Financial Company, attempted to recover a portion of life insurance benefits under a benefits plan governed by ERISA. Lincoln filed its claim after an individual had assigned her interest in life insurance benefits to a funeral home and the funeral home, in turn, assigned the interest to Lincoln. The insurer denied the claim, Lincoln sued the insurer, and the insurer moved for summary judgment. Lincoln failed to oppose the motion and a federal district court granted summary judgment in favor of the insurer.

The insurer subsequently asked the district court to award it reasonable attorney’s fees. Lincoln opposed the motion, but the district court disagreed with Lincoln and awarded the insurer $17,842.21 in attorney’s fees and costs.

On appeal to the U.S. Court of Appeals for the Fifth Circuit, Lincoln argued that the district court had erred because ERISA only permits fee awards to be awarded to a party that has achieved “some degree of success on the merits” when the lawsuit was brought by a “participant, beneficiary, or fiduciary” of a benefits plan governed by ERISA. Lincoln asserted that it was not a participant, beneficiary, or fiduciary.

The Fifth Circuit found Lincoln’s argument to be “flawed.” The circuit court explained that Lincoln’s claim existed because the original participant and beneficiary had assigned her interest to a business, which in turn had assigned that interest to Lincoln. As an assignee, Lincoln stood “in the shoes of” the original beneficiary and plan participant and therefore ERISA permitted an award of attorney’s fees, the Fifth Circuit ruled. It then affirmed the district court’s award of attorney’s fees to the insurer. [1 Lincoln Financial Co. v. Metropolitan Life Ins. Co., 2011 U.S. App. Lexis 12136 (5th Cir. June 15, 2011).]

Insurer’s Decision To Deny Coverage For Experimental Treatment Upheld By Circuit Court

The plaintiff in this case sought pre-authorization from her insurer for Interarterial chemotherapy with blood brain barrier disruption (BBBD) for treatment of her rare, malignant brain tumor. After the insurer denied coverage on the ground that the BBBD treatment was “experimental/investigational,” the plaintiff brought suit. The district court granted judgment in favor of the plaintiff, and the insurer appealed to the U.S. Court of Appeals for the Ninth Circuit.

In its decision, the circuit court explained that it could not overturn the insurer’s decision if it was “reasonable.” The circuit court then explained that “reasonableness” did not mean that it had to agree with the decision or that it would have made the same decision, but only required it to determine whether the insurer had abused its discretion because its decision was “illogical” or “implausible.”

The appellate court stated that it did not find any implausibility or the absence of logic in the insurer’s decision to deny coverage. Moreover, it continued, the insurer’s decision that the plaintiff’s treatment was experimental, and therefore not covered, was supported by facts in the record.

The Ninth Circuit therefore reversed the district court’s decision and concluded that the insurer did not have to pay for the plaintiff’s treatment. [Lafferty v. Providence Health Plans, 2011 U.S. App. Lexis 11682 (9th Cir. June 7, 2011).]

Where Driving Was An Essential Function Of His Position, Blind Technician Failed To Show That He Was A ‘Qualified Individual’ Under The ADA

The plaintiff in this case, employed by AT&T and its predecessor Bell South from 1970 to 2008, was legally blind since 1995 due to a condition known as choroideremia that severely constricted his field of vision, was an Electronic Technician (ET) for AT&T. He complained in a lawsuit he filed that AT&T had violated the Americans with Disabilities Act (ADA) by failing to accommodate his blindness.

AT&T responded that the plaintiff’s ADA claim should be dismissed on the ground that he was not a qualified individual as defined by the law because driving an automobile was an essential function of the ET position and he could not drive.

The court agreed with AT&T. The court pointed out that AT&T had introduced evidence showing that the job requirements and expectations for ETs had changed dramatically in late 2007 due to AT&T’s acquisition of BellSouth Telecommunications, Inc. The court continued by noting that before the acquisition, there were separate groups of ETs who specialized in different fields and were responsible for servicing three central offices, and that one of those groups also was responsible for servicing two satellite offices. After the acquisition, the ET groups were consolidated and merged, so that all ETs became responsible for servicing all three main offices and the two satellite offices. The ETs in the newly consolidated groups were expected to work as “four walls” technicians, meaning they were required to handle any ET work within the four walls of the central and satellite offices. On any given day, and especially on weekends when fewer ETs were on the work schedule, any ET could be asked to “rove” to one of the main offices or satellite locations, the court found.

Accordingly, the court ruled that after the acquisition and consolidation of the ET work groups, the ability to drive became an essential function of the ET position, which the plaintiff was unable to perform.

The court then considered the plaintiff’s argument that even if the ability to drive were an essential function, having his wife serve as his driver and guide would be a “reasonable accommodation.” AT&T argued that permitting the plaintiff’s wife – who was not an AT&T employee – to drive him on AT&T business, thus potentially exposing AT&T to liability for her actions, and requiring AT&T to authorize her to enter a central office or other work site such that she could serve as the plaintiff’s guide, would subject it to undue hardship and was not feasible.

The court again agreed with AT&T, noting that the one time the plaintiff’s wife had driven him was for a special project where there were two other AT&T employees on-site to act as his visual guides while working at the new location and the plaintiff had informed his supervisor that he and his wife were planning to travel to visit family near the location that weekend. This special situation was “not indicative” of AT&T’s regular practice or representative of a regular weekend shift the plaintiff would be expected to perform as an ET where his wife would potentially be driving him to multiple sites specifically for AT&T business and there would be no other ETs at the job sites to serve as guides for him.

The court therefore ruled that AT&T’s decision to deny the plaintiff’s request to permit his wife to serve permanently as his driver and guide was not unreasonable. It concluded that the plaintiff had failed to establish a case under the ADA because he could not show that he could perform the essential functions of his job with reasonable accommodation, and it granted summary judgment to AT&T. [Hendrix v. AT&T, 2011 U.S. Dist. Lexis 60566 (D.S.C. June 6, 2011).]

House Parents In Alaska’s “Therapeutic Family Homes” Fail In Bid For Overtime Pay

Five married couples who worked as “house parents” in the “Therapeutic Family Homes” run by Family Centered Services of Alaska (FCSA) sued FCSA for overtime pay under the Fair Labor Standards Act (FLSA). They argued that each of the FCSA homes in which they worked was covered by the FLSA as “an institution primarily engaged in the care of . . . the mentally ill . . . who reside on the premises of such institution,” and that they therefore were entitled to overtime pay under the statute.  The district court agreed with their position and the FCSA appealed.

The court of appeals disagreed with the district court and reversed the district court’s decision, for two principal reasons.

First, the court found that the homes were not “primarily engaged” in providing “care,” as that term was used in the FLSA. The statute referred to “care” in relation to groups with special needs, namely “the sick, the aged, the mentally ill or defective.” As such, the court said, the term “care” included something more like treatment. What the homes primarily provided, it found, was a home or a residence, as their names suggested. The children attended school, engaged in activities, and received most of their medical and psychological treatment from medical and mental health professionals outside the homes. The court acknowledged that the children presumably benefitted from the plaintiffs’ “care” as house parents, but added that they were not medical or social service professionals and were not primarily focused on providing the type of “care” that those professionals provided.

In the court’s view, the FLSA required that a covered institution provide more than the general care provided by a residence. In addition to requiring that the institution’s patrons “reside on the premises of [the] institution,” the statute required that the institution provide “care” of the type that is provided to “the sick, the aged, the mentally ill or defective.” If residing on the premises were enough by itself to define the given premises as covered by the FLSA, then the requirement that the institution be “primarily engaged” in the “care” of the individuals residing there would be superfluous, the court reasoned.

The second reason the court rejected the plaintiffs’ position was that none of the homes appeared to be an “institution” such as a hospital or a school for purposes of the FLSA. Those facilities, the court noted, were “staffed by professionals” and provided “more comprehensive medical, psychological, or educational programs, usually for a much larger population.” The FCSA homes, run by two house parents and housing no more than five children each, seemed by comparison out of place, the court decided. It therefore concluded that they were not meant to be included within that list of establishments.

Accordingly, the court ruled that the homes operated by FCSA were not covered by the FLSA’s overtime provisions. [Probert v. Family Centered Services of Alaska, Inc., 2011 U.S. App. Lexis 12691 (9th Cir. June 23, 2011).]

Widow Fails In Bid For Benefits Following Husband’s Death From Malignant Mesothelioma Almost 14 Years After His Retirement

In this case, the plaintiff was the widow of a man who had been employed by Eastman Kodak from 1968 until he retired in May 1992. On February 20, 2006, almost 14 years after his retirement, the plaintiff’s husband died of malignant mesothelioma, which the plaintiff alleged had been caused by his exposure to asbestos while he was employed at Eastman Kodak. The plaintiff claimed that her husband qualified as an employee by virtue of having posthumously received workers compensation benefits and subsequently applied for benefits under two Eastman Kodak employee welfare benefit plans: an occupational accidental death insurance plan (KOADI) and a medical assistance plan (KMA).

The KOADI plan paid a specified death benefit for qualifying employees, which included an employee who was a workers compensation recipient. The KOADI plan stated that benefits would be payable in the event that an employee sustained a bodily injury in the course of his or her employment with the company and, within one year of the injury, died as a direct result of the injury. It also specifically excluded coverage for “[d]eath which is caused wholly or partly, directly or indirectly, by disease, or bodily or mental infirmity.”

With regard to the KMA plan, the plaintiff applied for benefits under the provision concerning “SE7/Survivors.” The KMA plan paid a portion of a survivor’s health care insurance costs where the deceased employee’s death qualified for a death benefit under KOADI.

Following her husband’s death, the plaintiff sent a letter to Kodak indicating that his death was from malignant mesothelioma caused by his exposure to asbestos while working for Kodak and seeking benefits under both KOADI and KMA. The plaintiff, through her attorney, contended that she was entitled to receive a benefit under KOADI because her husband had been diagnosed with work-related malignant mesothelioma in June 2005 and died “less than one year after his injury was diagnosed.”

The plaintiff’s claims were denied on the grounds that her husband was not a Kodak employee at the time of his death and that, even if he had been employed at the time of his death, he would not be eligible for KOADI benefits because he did not die within one year of his injury given that he had retired in 1992 but did not die until 2006. Moreover, the plaintiff was informed, KOADI did not provide benefits for death resulting from “disease or bodily infirmity.” As for the KMA plan, the plaintiff was told that she did not qualify as an “SE7/Survivor” because her husband was not an employee at the time of his death and because he did not die from an occupational accident as defined by KOADI.

The plaintiff filed suit against the plan, which moved to dismiss. 

In its decision granting the plan’s motion to dismiss, the court found that the nature of the plaintiff’s husband’s death excluded coverage under the plan. It explained that he died from an occupational disease, malignant mesothelioma, 14 years after he retired from Kodak. Because the disease apparently resulted from his exposure to asbestos between 1968 and 1978, his death “was not from a sudden accident” and did not occur within one year after being injured “while working,” as required by the KOADI plan.

In addition, the court decided that the plaintiff’s husband’s date of injury would appear to be the date or dates that he was exposed to asbestos while working at Kodak, which was approximately 27 years before he was diagnosed. Moreover, it was undisputed that he died of a disease, malignant mesothelioma, and deaths from “disease” or “bodily infirmity” were specifically excluded under KOADI. Finally, the court ruled, because her husband’s death was not covered by KOADI, the plaintiff was not able to receive benefits under KMA. [Hall v. Kodak Occupational Accidental Death Ins. Plan, 2011 U.S. Dist. Lexis 65202 (W.D.N.Y. June 8, 2011).]

Courts Uphold Insurer’s Decision That Premium Waiver Applied To Life Insurance But Not To AD&D Benefits

While Timothy Letter was employed by PepsiAmericas, Inc., he participated in a group insurance plan that included both life insurance coverage and coverage for accidental death and dismemberment (AD&D). When he stopped working due to disability, he stopped paying premiums. Sometime later he died, and the plaintiff in this case, the decedent’s wife, filed a life insurance claim under the plan. The insurance company determined that the plaintiff was entitled to life insurance benefits under a “waiver of premium” term in the plan’s life insurance provisions that provided that in the event the insured became disabled while covered under the policy, the insurer would waive the premiums for as long as the insured was disabled. Accordingly, the insurer paid life insurance benefits under the plan.

The plaintiff then provided her husband’s medical records to show that his death was accidental and to recover AD&D benefits. The insurer denied that claim because the AD&D portion of the policy did not provide for a waiver of premiums.

A federal district court granted the insurer’s motion for summary judgment, concluding that the insurance company had not abused its discretion in concluding that the waiver of premium provision applied only to the life insurance portion of the plan. The plaintiff appealed, arguing that the district court had erred by concluding that the insurer had acted within its discretion in denying the claim for AD&D benefits. The plaintiff argued that the plan did not clearly establish that the waiver of premium provision applied only to life insurance coverage, and that the plan should be construed against the insurer as the drafter. The insurance company countered that the life insurance and AD&D portions of the plan were clearly delineated, and that the waiver of premium provision applied only to the life insurance coverage. The insurer contended that it had acted within its discretion in construing the plan, and was entitled to summary judgment.

The U.S. Court of Appeals for the Fifth Circuit affirmed the district court’s decision, explaining that a document that referred to itself as the “Summary of Benefits” contained a number of different sections, including ones setting forth the specific terms of life insurance and AD&D coverage. The waiver of premium provision appeared in the life insurance section, but did not appear in the AD&D section. Moreover, the circuit court pointed out, the waiver was referred to as a “life insurance premium waiver.” In the circuit court’s view, the “obvious implication” was that a waiver was available for the life insurance coverage and not for AD&D coverage.

The appellate court considered the plaintiff’s argument that the terms of the plan were inconsistent with what the plaintiff characterized as the summary plan description, and that the pages that the plaintiff called a summary plan description did not adequately inform policyholders that coverage could be lost when a covered employee became disabled.

The insurance company disputed whether the pages on which the plaintiff relied were a summary plan description for the plan. The insurance company pointed out that the plaintiff identified only a few pages of the much longer Summary of Benefits described above. The plaintiff, the insurance company suggested, has misidentified a section that was intended to provide certain ERISA-required information but not to serve as a standalone summary plan description. The insurer pointed out that the plaintiff provided no affidavit or other evidence to suggest that the pages were distributed to the decedent or any other Pepsi employees as a summary plan description. By contrast, the insurer provided an affidavit by a senior contract specialist explaining that the section was not intended as a standalone description of all the terms and provisions of applicable coverage.

The circuit court agreed with the insurance company. It pointed out that the pages relied on by the plaintiff omitted key information, such as basic eligibility criteria, that had to be included in a summary plan description. It added that the section read “like a mix of miscellaneous details,” not a description intended to be sufficiently comprehensive to reasonably apprise participants and beneficiaries of their rights and obligations under the plan.

In the face of the insurance company’s affidavit establishing that the section was not intended to stand alone, and the fact that the content of the section seemed to confirm that characterization, the circuit court concluded that the pages were not a summary plan description. Accordingly, it concluded that it did not have to consider whether it was inconsistent with the policy, and it affirmed the district court’s decision in favor of the insurance company. [Letter v. UnumProvident Corp., 2011 U.S. App. Lexis 11893 (5th Cir. June 9, 2011).]

Reprinted with permission from the October 2011 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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