Tuesday, August 18, 2015

Federal Court Applies "Doctrine of Reasonable Expectations" to Long-Term Care Insurance Policy

An interesting dispute is moving forward in federal court in California, involving interpretation of coverage under a long-term care insurance (LTCI) policy.   The case is Gutowitz v. Transamerica Life Insurance Company, (Case No. 2:14-cv-06656-MMM) in the Central District of California.   UPDATE: link to Order dated August 14, 2015. 

In 1991, plaintiff Erwin Gutowitz purchased a long-term care insurance policy, allegedly requesting the "highest level of long-term care coverage available," and presumably paying the annual premiums for more than 20 years.  Eventually, following a 2013 diagnosis of Alzheimer's, Erwin Gutowitz needed assistance, moving into an apartment at Aegis Living of Ventura, which was licensed in California as a "Residential Care Facility for the Elderly" (an RCFE).  With the help of his son as his designated health care agent, he then made a claim for long-term care benefits under his policy.  The claim was denied by Transamerica on the ground that the location was not a "nursing home" as defined in the LTCI policy.  

Insurers understandably prefer not to pay claims if they can avoid doing so.  In this case the insurer attempted to avoid the claim on the grounds that only certain types of facilities (or a higher level of care) were covered under this policy's "Daily Nursing Home Benefit." 

On August 14, 2015, United States District Judge Margaret Morrow issued a comprehensive (34 page) order, copy linked above, denying key arguments made by Transamerica in its summary judgment motions.

Judge Morrow ruled that the LTCI's policy language "does not unambiguously require that a facility provide continuous nursing care" in order to qualify for coverage.  Under California law, the court concluded that a finding of ambiguity of terms triggered application of "the doctrine of objective, reasonable expectations" of the insured, unless such expectations about coverage were clearly precluded by the policy.  Judge Morrow observed that the "policy's definition of Nursing Home permits use of an on call nurse to provide nursing services" and thus a "reasonable insured would have interpreted the policy as covering a facility that employed an on duty or on call nurse to provide nursing services in the facility on an ongoing basis to persons residing there."  Further, the court ruled that even though an RCFE was not, by statutory definition, a provider of skilled nursing services, "it appears clear that RCFEs can provide nursing care and related services on a continuous basis...."

The court considered the parties' arguments about the precedential value of two decisions on LTCI coverage, ultimately rejecting a 2007 ruling in McDermott v. Life Investors Ins., while finding persuasive a 2013 decision in Pistorese v. Transamerica Life Insurance. Both cases were decided in federal district courts in the state of Washington.

The ruling permits Gutowitz' case to proceed to trial on factual issues about breach of contract and breach of implied "covenants of good faith and fair dealing;" however, the court ruled that the plaintiff's claim for punitive damages had been waived.

For an interesting, broader discussion of the doctrine of reasonable expectations, see Richmond Law Professor Peter Nash Swisher's article, A Realistic Consensus Approach to the Insurance Law Doctrine of Reasonable Expectations.

The recent California case provides another window on the history of long-term care insurance. There is a bit of a circular problem. Consumers hope never to need long-term care and many resist buying policies while they are still young enough and healthy enough to be eligible; the mass of once-predicted "boomer" consumers eager for LTCI did not materialize.  Many of the early LTC insurers have stopped writing new policies. Consumers with older policies may find that insurers resist claims by asserting technical defenses, including definitions of covered care, especially as new "names" for senior care options emerge. The reasonable expectations of the insureds may often --  too often? -- be in tension with the companies' dissatisfaction with the troubled financial history of this insurance product.  For more commentary, see Howard Gleckman's "Who's Killing the Long Term Care Insurance Industry?"


Cognitive Impairment, Consumer Information, Dementia/Alzheimer’s, Ethical Issues, Federal Cases, Health Care/Long Term Care, Housing, State Cases, State Statutes/Regulations | Permalink


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