The U.S. Court of Appeals for the Eleventh Circuit, in Johnson v Reliance Standard, overruled an insurer’s interpretation of its own preexisting condition exclusion, stating that the interpretation was unreasonable.
Facts. An employee enrolled in long term disability (“LTD”) insurance under a policy that said the insurer would not pay benefits if the disability was “(1) caused by; (2) contributed to; or (3) resulting from; a Pre-existing Condition.” The policy went on to define “Pre-Existing Condition” as “any Sickness or Injury for which the Insured received medical Treatment, consultation, care or services, including diagnostic procedures, or took prescribed drugs or medicines,” during the lookback period of the “three (3) months immediately prior to the Insured’s effective date of insurance.”
During the three-month period, the employee went to several doctors complaining of a wide variety of symptoms. At these appointments, doctors diagnosed her with nearly a dozen ailments including fibromyalgia, borderline lupus, erythematosus, and epistaxis. However, the doctors did not diagnose the disease she actually had — scleroderma, a rare autoimmune condition that causes hardening and thickening of the skin and other tissues.
When the employee could no longer work, she applied for LTD benefits. The insurer denied benefits based on the LTD policy’s pre-existing condition exclusion rule.
When she appealed to the insurer, the employee said she could not have received medical treatment for scleroderma during the lookback period because no one even suspected she had that condition. The insurer upheld its denial, however, asserting that no benefits are due if the employee was treated for any symptoms during the lookback period that were not inconsistent with scleroderma—even if no one thought she had that condition or intended to treat it.
The employee then sued but the insurer’s denial was upheld in federal district court.
Appeals Court. The Eleventh Circuit began its deliberation by noting that “ERISA prior rulings have established that, when an insurer claims that a specific policy exclusion applies to deny the insured benefits…the burden falls on the insurer, who generally must prove the exclusion prevents coverage.”
In this case, the question is whether the disability stems from “preexisting conditions” treated during the three-month lookback period.
The Eleventh Circuit then ruled that the insurer’s interpretation of the preexisting condition rule was unreasonable. For example, the insurer’s interpretation would force the Eleventh Circuit to conclude that the insurer “could deny coverage for a brain tumor if the doctor encouraged a patient with headaches to drink more water.”
It also quoted an earlier court decision which said that, “considering treatment for symptoms of a not-yet-diagnosed condition as equivalent to treatment of the underlying condition ultimately diagnosed might open the door for insurance companies to deny coverage for any condition the symptoms of which were treated during the exclusionary period.”
The Eleventh Circuit concluded that the insurer’s interpretation overlooks the distinction between receiving medical care for symptoms that are not inconsistent with a preexisting condition and receiving medical care for the preexisting condition itself.
The Eleventh Circuit therefore ruled that the insurer’s reading of the preexisting condition exclusion was arbitrary and capricious. Accordingly, it reversed the lower court’s ruling and remanded the case for further proceedings consistent with the decision.