District Court Affirms Unum’s Application of Long-Term Care Policy’s “Existing Loss” Exclusion to Deny Insurance Claim

In Child v. Unum Life Ins. Co. of Am., No. C22-2071-LTS-MAR, 2024 WL 2804916 (N.D. Iowa May 31, 2024), Iowa Northern District Judge Leonard T. Strand granted summary judgment to Defendant Unum Life Insurance Company of America, finding that it did not breach the long-term care contract when it denied Plaintiff’s claim based on the “Existing Loss” provision of the policy.

In 1980, Plaintiff was involved in a car accident that left her paralyzed with quadriplegia and confined to a wheelchair. Plaintiff has required substantial assistance with activities of daily living (ADLs) such as bathing, dressing, toileting, transferring, continence, eating and ambulating/mobility, and has never recovered from her loss of ADLs. In 2003, Plaintiff enrolled for long-term care (“LTC”) coverage offered through her employer with benefits at the monthly level of $5,000 and a facility benefit duration of six years. At this level, Plaintiff was not required to provide evidence of insurability or go through medical underwriting. Plaintiff understood that although coverage was guaranteed, she would still have to meet the requirements of the Policy to obtain benefits.

Plaintiff paid her monthly premiums and filed a claim for LTC benefits in 2021. In her claim form, Plaintiff acknowledged she needed assistance with her ADLs beginning back in 1982. Unum denied Plaintiff’s claim based on the “Existing Loss” provision of the Policy which excludes coverage for existing loss unless there was a recovery from that loss or impairment.

In the ensuing action, Plaintiff alleged claims for breach of contract, bad faith, and fraudulent misrepresentation. Part of the parties’ disagreement concerning whether Plaintiff was entitled to LTC benefits involved her communications with individuals at her employer who were in charge of administering the plan. Plaintiff acknowledged language in the Benefit Election Form, which stated “By signing below you signify that you have read and understand that loss of Activities of Daily Living (ADL) or Severe Cognitive Impairment must occur after your effective date of coverage under this Long Term Care plan in order to be covered and that certain limitations and exclusions apply to your coverage.” Plaintiff claimed that her employer assured her that her preexisting condition would not be a bar to benefits. Plaintiff also asserted that she received the assurances in phone calls to Unum that her preexisting condition would not exclude her from benefit coverage because the LTC policy and certificate were being issued as guaranteed issue.

The parties submitted cross-motions for summary judgment. From the outset, the Court noted that the LTC policy was not governed by ERISA, as Plaintiff’s employer is a government entity rendering ERISA inapplicable. As such, the employer was neither a plan administrator nor a plan fiduciary.

With regard to the breach of contract claim, Plaintiff argued that Unum’s intent was to use the “Existing Loss” provision to undermine controlling statutes designed to protect insureds from the exclusion of existing losses where underwriting has been waived and to prohibit post-claim underwriting to achieve a claim denial. Plaintiff cited Iowa Admin. Code § 191-39.7, which states “[i]f a long-term care insurance policy or certificate contains any limitations with respect to preexisting conditions, such limitation shall appear as a separate paragraph of the policy or certificate and shall be labeled as “Preexisting Condition Limitations.” Unum argued the statute did not apply here, noting that it required only that a policy “shall not exclude coverage for a loss or confinement which is the result of a preexisting condition unless the loss or confinement [from the pre-existing condition] begins within six months following the effective date of coverage.” Iowa Code § 514G.7(3) (2003). Unum reasoned that Plaintiff’s loss was not the result of a preexisting condition because she did not have symptoms before the effective date of coverage that had not yet resulted in a loss and her loss was not the result of a preexisting condition that began within six months after the effective date of coverage. The Court agreed with Unum, finding that Plaintiff had conflated the “Preexisting Condition” provision and the “Existing Loss” provision—they are not synonymous. The Court noted that Section 514G.7(3) says nothing about covering losses that exist at or before the effective date of coverage. Nor does it require coverage for an existing loss in the absence of medical underwriting.

The Court found Plaintiff’s second argument similarly unavailing. Plaintiff argued that she was entitled to benefits under the reasonable expectations doctrine because, despite the Policy language, her employer as an agent of Unum, assured Plaintiff that the “Existing Loss” provision did not apply to her as someone who was enrolling under guaranteed issue. The Court rejected this argument, adopting the majority view on this issue and concluding that the employer is not the agent of an insurance company that has issued a group policy, but an agent for the employees. And because the issue here concerned conditions of the Policy and not its administration—such as providing applications, collecting premiums or any of the specific tasks assigned to the plan administrator—Plaintiff failed to demonstrate that her employer was acting as Unum’s agent. Accordingly, the Court granted summary judgment to Unum on the breach of contract claim. Because Plaintiff’s breach of contract claim failed as a matter of law, her claim of bad faith also failed, as there was no genuine issue of material fact concerning whether Unum had a reasonable basis for denying Plaintiff’s claim.

Finally, with regard to the claim for fraudulent misrepresentation, Plaintiff’s main argument was that Unum failed to disclose that “‘coverage’ was never intended to be vested until after a claim was made and then through post claim underwriting determine whether the insured had an ‘existing’ loss of ADLs on the effective date of coverage.” The Court found it was undisputed that the “Existing Loss” provision was in the Benefit Enrollment Form and that Plaintiff saw it. As such, Plaintiff’s claim of fraudulent misrepresentation based on a failure by Unum to disclose material facts was not supported by the evidence.

If Unum or your insurer has denied your insurance claim, contact us for assistance.