The Third Circuit Court of Appeals affirmed a lower court’s decision that the denial of health insurance benefits based on a pre-existing condition exclusion for a child suffering from Leukemia was wrong. The parents of a minor child their health insurance company, Fortis, for breach of contract and bad faith for denying benefits based on a pre-existing condition exclusion. Prior to being covered by Fortis’s health insurance policy, Lawson’s minor daughter received medical treatment for non-specific medical symptoms. After the health insurance policy went into effect, the child was diagnosed with Leukemia.
The district court ruled in favor of the Lawsons on the breach of contract claim but did not find Fortis’s behavior amounted to bad faith. The parties appealed the decision. On cross-appeals, the Third Circuit found that:
- The pre-existing condition language in Fortis’s policy was ambiguous as applied and construed against it as requiring some awareness of the condition before the effective date of coverage; and
- Fortis’s alleged actions did not rise to the level of bad faith.
The Claim for Health Benefits
Minor child, Elena Lawson, was covered under a health insurance policy purchased by her father for him and his daughter from Fortis Insurance Company. Two days before the health insurance policy went into effect, Elena was taken into the emergency room and treated for what was initially diagnosed as a respiratory tract infection. One week later, after the policy was in effect, doctors discovered that Elena had leukemia after she was taken to a pediatrician and underwent a battery of tests. Immediately after her diagnosis, Elena was taken to Philadelphia Children’s Hospital where she underwent chemotherapy and other treatments resulting in remission of her cancer.
Elena’s parents submitted a claim to Fortis, but it denied coverage for medical expenses related to Elena’s leukemia. Fortis asserted leukemia was a pre-existing condition and, therefore, not payable under the health insurance policy.
The Policy Language
Fortis’s insurance policy excludes coverage for a pre-existing condition. A pre-existing condition is defined as a “Sickness, Injury, disease or physical condition for which medical advice or treatment was recommended by a Physician or received from a Physician within the five (5) year period preceding that Covered Person’s Effective Date of Coverage.” Fortis’s policy further defines “sickness” as an “illness, disease or condition which is diagnosed or treated while this policy is in force.”
Notably, there was no dispute among the parties that the sickness was leukemia.
The Courts’ Review of the Case
The District Court found that Fortis’s pre-existing condition language was ambiguous because it could be read as either providing:
- A subjective standard requiring an accurate diagnosis of the condition at the time of treatment; or
- An objective standard requiring only general treatment or advice, independent of an accurate medical diagnosis.
Using contract interpretation rules, the court construed this ambiguity against Fortis as the drafter of the policy and concluded that in order for Elena to have been treated for leukemia prior to the policy’s effective date there “must have been some awareness that the disease existed at the time treatment or advice was rendered.” Because no one even suspected leukemia at the time of Elena’s emergency room treatment, the claim was payable.
The Lawsons won their breach of contract claim and the court issued a judgment against Fortis for more than $700,000.00 plus prejudgment interest. Fortis appealed the judgment. The District Court also, however, ruled in Fortis’s favor on the bad faith claim, which the Lawsons appealed.
The Third Circuit Court of Appeals agreed with the lower court that Fortis’s contract language was ambiguous. Accordingly, it found that Elena’s leukemia was not pre-existing because she did not receive “advice or treatment” for this condition but, rather, for a respiratory tract infection. The appeals court also noted concern that allowing a denial for a condition that was not-yet-treated for or not even known would render coverage meaningless. While the appeals court disagreed with Fortis, it did not find its behavior rose to the level of bad faith.
Disability Insurance Companies Have Lawyers. Shouldn’t You?
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