Insurer's Acceptance of LTD Insurance Premiums Does Not Guarantee Coverage

A federal district court has ruled, in Ward v. Aetna Life Insurance Company, that a long-term disability ("LTD") insurer's denial of the plaintiff's benefit claim was appropriate even though the plaintiff had paid the required premiums and was told in writing that he had coverage.

Background. The plaintiff's employer contracted with the defendant insurer to provide its employees LTD coverage effective January 1, 2015. Under the terms of the policy, an employee who enrolled in coverage more than 31 days after becoming eligible for LTD coverage was required to submit an evidence of insurability form that demonstrated the employee's good health at the time of enrollment.

The plaintiff, who had a history of renal cell carcinoma, chose not to enroll in his employer's LTD plan until January 1, 2016, which was more than 31 days after he became eligible for LTD coverage. The plaintiff, however, did not provide the insurer with the required evidence of insurability form. Nonetheless, the employer began to withhold the required premium amounts from the plaintiff's compensation and remitted them to the insurer. In February 2016, the plaintiff was diagnosed with metastatic renal cell carcinoma and filed a claim for LTD benefits the next month.

The insurer denied the plaintiff's claim on the basis that he had failed to provide the evidence of insurability form demonstrating good health at the time he enrolled in LTD coverage. The plaintiff appealed the insurer's benefit denial saying he had paid the premiums for coverage and was subsequently told, in writing, that he had coverage. The insurer upheld its denial and the plaintiff sued the insurer in federal court.

Federal Court. The plaintiff first argued that the LTD policy's evidence of insurability provisions were ambiguous and that contra proferentem (i.e., a doctrine of contractual interpretation providing that where a term is ambiguous, the preferred meaning should be one that works against the interest of the drafting party) should apply. The court disagreed, noting that the policy terms unambiguously provided that employees who enroll late in the LTD plan must provide evidence of insurability. Therefore, the court found the insurer's interpretation of the terms to be legally correct.

The plaintiff next argued that he was entitled to coverage because the insurer misrepresented that he had coverage and that he had paid the required premiums for such coverage. Nonetheless, the court ruled that the insurer did not waive its right to deny coverage by accepting premiums and failing to notify him that coverage was not in effect. This was because the employer had paid premiums to the insurer on an aggregate basis that did not provide data at the individual employee level. As a result, the insurer did not know what amount in premiums was being paid for which employees. Accordingly, the court found that the insurer did not intentionally and voluntarily waive its right to deny coverage.

Likewise, the court found that the insurer was not estopped from denying coverage on the basis that it misrepresented to the plaintiff that he had LTD coverage. This was due to a disclaimer contained in the written notice upon which the plaintiff had relied regarding his coverage. The disclaimer explained that the information is not intended to be all-inclusive or an exhaustive list of benefit information. Thus, the court found the plaintiff's reliance on the written notice to be unreasonable.

The court further commented that the insurer had clearly informed the plaintiff that evidence of good health was required, and it was the employer's responsibility to gather the evidence required to enroll employees. Therefore, the court dismissed the plaintiff's claims.