NOTE
Undermining the Protection of Health Insurance: The Preexisting Condition Clause
Introduction
Healthy young people are searching for doctors who will perform genetic tests on patients under assumed names.(1) Millions of people stricken with illnesses are being forced to stay with their current employers.(2) Families are being financially drained and torn apart because they are denied insurance coverage.(3) The cause of the familiar and unfortunate stories mentioned above is the preexisting condition exclusion in many health and hospitalization insurance policies.(4)
The escalating costs of health care and the insecurity of health insurance have prompted several proposals to reform the current health care system in America.(5) "One common element [of the proposals], known as `guaranteed issue,' would require insurers to extend and renew coverage to people with chronic illnesses or preexisting conditions."(6) The goal of the proposed reforms is to assure people that they will be protected and secure if they are in need of health care services.(7) In 1994, there were approximately thirty-nine million uninsured Americans.(8) The U.S. Census Bureau estimates that "guaranteed issue" would benefit approximately one million uninsured Americans.(9)
"[T]he United States is the only industrialized country without national health insurance."(10) Since the insurance industry is currently regulated by state government, some states have banned or limited the use of preexisting condition exclusions.(11) Also, individual insurance companies have taken the initiative and dropped some or all health exclusions from their coverage.(12)
This Note focuses on how the judicial system has dealt with preexisting condition exclusions in health and hospitalization insurance policies.(13) Part II of this Note provides a background explanation of preexisting condition exclusions.(14) Part III discusses the diverse court opinions regarding the interpretation and use of preexisting condition exclusions.(15) The discussion in Part III focuses primarily upon the various circuit court interpretations of when an illness exists.(16) Part IV analyzes how courts should construe preexisting condition clauses.(17) Particular emphasis will be placed on the proposal for coverage of diagnostic procedures and unknown conditions,(18) as well as the contract interpretation rules regarding ambiguity,(19) adhesion contracts,(20) and the reasonable expectations doctrine.(21) Finally, Part V contains a conclusion.(22)
Background
A. Health Insurance Policies and the Preexisting Condition Clause
When health insurance policies are purchased, the money is pooled together and shared among all of the applicants.(23) Healthy people pay into a fund and receive benefits when they are sick.(24) Health insurance allows people to save money by contributing to a fund that is shared and used whenever someone needs health care.(25) "In most traditional insurance, the insurer estimates the risk of expenses from various applicants and charges different prices according to those risks, a practice known as risk rating."(26) Risk rating is used by insurers to deny insurance benefits or to charge exorbitant rates to people with preexisting conditions.(27)
"It is of the essence of insurance that a policy normally covers only losses caused while the policy is in force."(28) Therefore, a health or hospitalization policy would only cover losses due to an illness contracted and commencing during the effectiveness of the policy.(29) A preexisting condition clause is drafted to prohibit, restrict, or postpone coverage for an illness which either predated the insurance contract or developed during a prescribed waiting period after the insurance contract has been executed.(30)
A preexisting condition can be defined in many different ways.(31) The National Association of Insurance Commissioners (NAIC) has issued a model definition of a preexisting condition:
"[T]he existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment" or "a condition for which medical advice or treatment was recommended by a physician or received from a physician within a 5-year period preceding the effective date of coverage of the insured person."(32)
Provisions for a preexisting condition can be drafted in several different ways, including:
(1) a restriction that remains until a designated period after the date of the insurance policy;(33)
(2) a restriction that remains until the insured has not received medical treatment for the condition during a designated period;(34) or
(3) a limitation of the amount of coverage provided for insured conditions associated with a preexisting condition.(35)
Theoretically, there is no reimbursement for an exclusion prescribed in a preexisting condition clause.(36)
B. The Preexisting Condition and the Inception of an Illness
The foundation of the preexisting condition standard is that "every major condition has a distinct origin and readily identifiable manner of manifestation."(37) The general rule is that a condition (an illness or a disease) will have its inception when it first manifests itself or becomes active.(38) Alternatively, the origin of an illness is defined as a distinct symptom or condition which can be diagnosed by a medical professional with reasonable accuracy.(39) Courts, however, conflict when deciding precisely what constitutes the manifestation of a disease.(40) Consequently, courts have defined the origin or manifestation of an illness in one of three ways: "(1) at the time of its medical inception; (2) when the condition impaired the normal function of the body; or (3) when a person had actual knowledge of the condition's presence."(41)
Analysis by the Courts
The Fifth Circuit interpreted the preexisting condition clause of a newborn's insurance policy in Ross v. Western Fidelity Insurance Co.(42) On the day Jennifer Ross was born--February 19, 1986--she experienced respiratory problems and began to turn blue.(43) After testing Ross in an intensive care unit, a pediatric cardiologist determined that Ross suffered from pulmonary hypertension.(44) As a precautionary measure, the cardiologist ordered further diagnostic testing.(45) Meanwhile, Ross began to recover rapidly, and was released from the hospital in one week.(46)
On August 21, 1986, Ross was rushed back to the hospital where a heart murmur was detected for the first time.(47) The same diagnostic test performed during the first week of Ross's life clearly showed congestive heart failure.(48) After Ross underwent successful heart surgery, Ross's parents expected to receive insurance benefits from Western Fidelity.(49) The insurer denied the claim based on "`The Insuring Clause'"(50) and the "`Pre-existing Condition Limitations'"(51) contained in Ross's policy.
The Ross family filed suit for the payment of benefits under the insurance policy, but the district court granted Western Fidelity summary judgment.(52) The district court held that Western Fidelity had not breached its contract with Ross because the heart defect was clearly excluded by the terms of the policy.(53)
On appeal, the Fifth Circuit decided that, "[Ross's] heart defect was not, under [the Preexisting Condition Limitation], a preexisting condition for the simple reason that her defect was not diagnosed or treated until August 1986."(54) The court further concluded that a sickness or disease has "manifest[ed]," when it is "apparent, obvious, or plain."(55) On petition for rehearing, the Fifth Circuit stated that "there is at least a reasonable argument that . . . treatment for a specific condition cannot be received unless the specific condition is known."(56)
In Kirk v. Provident Life & Accident Insurance Co.,(57) the Court of Appeals for the Eighth Circuit was confronted with the issue of whether an employee was entitled to recover insurance benefits under a policy excluding coverage for preexisting conditions.(58) David Kirk received coverage under his employer-sponsored insurance plan as of May 1, 1988.(59) In July 1988, Kirk was diagnosed with bacterial endocarditis and had surgery to replace his aortic valve.(60) Provident denied having to pay for Kirk's surgery based on the preexisting condition exclusion contained in Kirk's policy.(61) Provident claimed that although Kirk had not been diagnosed with endocarditis before the policy became effective, medical records demonstrated that the condition existed prior to the effectiveness of the policy.(62) Kirk filed suit and the district court agreed with Provident, finding that "under the terms of the policy, the relevant inquiry was when the illness began, not the point of diagnosis."(63)
On appeal, the Eighth Circuit examined Kirk's medical records as well as the deposition testimony of his doctors.(64) The medical records indicated that Kirk had been examined by a doctor throughout the month of March.(65) Kirk was treated for infections with antibiotics, and tests revealed no sign of bacterial growth.(66) After two symptom-free months, Kirk experienced signs of infection and was eventually admitted to the hospital on July 15, 1988.(67) On July 22, 1988, Kirk underwent surgery for a bacterial valve infection that was determined to have been present for approximately three months prior to surgery.(68)
Although doctors agreed that no objective data existed to confirm a diagnosis until an echocardiogram was performed, Kirk's symptoms indicated that an infection had been present for three months.(69) On appeal, Kirk argued that his symptoms had not been specific enough to enable a reasonable diagnosis of endocarditis before his coverage began.(70) Therefore, Kirk argued that the preexisting condition exclusion did not apply.(71)
The Eighth Circuit agreed with the district court and denied Kirk's insurance benefits.(72) The court determined that the interpretation of a preexisting condition focuses on the time at which an illness begins.(73) Both the district court and the circuit court applied the following standard set out in State National Life Insurance Co. v. Stamper:(74)
[A] sickness should be deemed to have had its inception at the time it first manifested itself or became active, or when sufficient symptoms existed to allow a reasonably accurate diagnosis of the case, so that recovery can be had, even though the disease, germs or infection was [sic] present in the body prior to the excluded time, if the condition was latent, inactive, and perhaps not discovered.(75)
Since Kirk experienced symptoms of bacterial endocarditis in March (before the insurance coverage began), the court determined that the disease had manifested itself, or became active, in March.(76) Therefore, the Eighth Circuit determined that Kirk's illness was a preexisting condition.(77)
The dissenting opinion of Senior Circuit Judge Bright stated that the majority was focused on answering the wrong question.(78) Rather than focusing on when the illness actually began, the majority, according to Judge Bright, should have determined when Kirk's symptoms could have been accurately diagnosed.(79) Judge Bright maintained that because there were no allegations that Kirk's doctors were negligent in failing to administer an echocardiogram earlier, symptoms sufficient to render an accurate diagnosis must not have been present until the test was given in July 1988--after coverage began.(80)
The dissent based its opinion on the latter part of the Stamper rule(81) used by the Kirk majority.(82) Judge Bright believed that Kirk's precondition should be construed as "`latent, inactive, and . . . not discovered'" during the month of March or prior to the policy.(83)
Judge Bright concluded that the majority erroneously relied on the hindsight of doctors who examined Kirk's medical history.(84) In deciding that benefits should be given to Kirk, the dissent argued:
The issue turns on when a reasonable diagnosis could have been made, not when, with the benefit of subsequent testing, a doctor can ascertain the illness began. Certainly, with the incubation period of some diseases, a doctor could determine how long the disease has been present even though, at the date of onset, the disease was virtually undetectable.(85)
In the case of Bullwinkel v. New England Mutual Life Insurance Co.,(86) the Seventh Circuit determined that a lump in Madelaine Bullwinkel's breast was a preexisting condition, notwithstanding the fact that the breast lump was not diagnosed as malignant cancer until after coverage commenced.(87)
Bullwinkel's new health insurance was to begin providing coverage on July 31, 1991.(88) Bullwinkel had discovered a lump in her left breast in February 1991, but a mammogram did not reveal any abnormality.(89) In July 1991, Bullwinkel felt another lump on her left breast.(90) After visiting her physician, Bullwinkel was diagnosed as having a cyst.(91) Although the doctor assured her that the cyst was more than likely benign, he recommended that she see a surgeon.(92) On September 6, 1991, the lump was removed from Bullwinkel's left breast.(93) The lump was determined to be cancerous, forcing Bullwinkel to undergo radiation treatment and chemotherapy.(94) Bullwinkel sought payment from New England Mutual, her insurance carrier, for medical expenses incurred in the treatment of her cancer.(95) The insurer denied Bullwinkel's claim on the basis of the preexisting condition exclusion contained in her policy.(96) Bullwinkel filed suit for the payment of benefits under her insurance policy, but New England Mutual was granted summary judgment.(97)
On appeal, Bullwinkel argued that her breast cancer was not a preexisting condition because the lump was not known to be cancerous in July.(98) "In short, [Bullwinkel] argue[d] that while the lump may have been a pre-existing condition under the policy, the cancer was not since it was not actually diagnosed."(99) New England Mutual, however, argued that it was reasonable to infer that the lump was cancerous when it was discovered.(100) Therefore, New England Mutual maintained, any treatment for the lump was actually treatment for cancer.(101) Thus, according to New England Mutual, Bullwinkel's treatment for cancer was a preexisting condition excluded by her insurance policy.(102)
The Seventh Circuit concluded that Bullwinkel's cancer was a preexisting condition under the terms of her policy.(103) As a basis for this conclusion, the court examined the case of Kirk v. Provident Life & Accident Insurance Co.(104) In Kirk, the Eighth Circuit was unpersuaded by the fact that a diagnosis of bacterial endocarditis was not accurately made until after the policy came into effect.(105) Furthermore, the Kirk decision made a distinction between trivial symptoms that later proved to be latent aspects of a serious illness, and symptoms that are inescapably conclusive symptoms of a particular illness.(106) Consequently, the Seventh Circuit felt that a lump in Bullwinkel's breast was anything but trivial, and that the undiagnosed lump could reasonably have been inferred to be cancerous.(107)
Less than six months after the Bullwinkel decision, the Fourth Circuit was faced with a similar situation in Hardester v. Lincoln National Life Insurance Co.(108) In Hardester, a lump in the plaintiff's breast was treated as fibrocystic disease prior to the effective date of medical insurance coverage.(109) After Barbara Hardester became covered under her insurance, she was diagnosed with breast cancer.(110) Upon being denied benefits due to a preexisting condition clause in her insurance policy,(111) Hardester sued Lincoln National to recover payment.(112) Subsequently, Hardester was granted summary judgment by the district court.(113)
The district court concluded that while it can be assumed that Hardester had cancer prior to the effectiveness of the policy, she had never received any "medical attention" for it.(114) Since the plaintiff was not diagnosed with cancer prior to the policy date, the court reasoned that any treatment received was for the fibrocystic disease.(115) Finally, the district court stated that a preexisting condition clause should not be used to deny an innocent premium-paying plaintiff coverage for unknown conditions.(116)
On appeal, the Fourth Circuit reversed the decision of the district court and remanded with instructions to find for Lincoln National.(117) The circuit court stated that the insurance policy terms must be examined to determine that there had been a meeting of the minds between the parties.(118) After examining Hardester's policy, the court determined that the plain language clearly excluded coverage for her cancer treatments.(119)
The court found that a biopsy of the breast mass indicated the existence of a cancerous tumor contained within the benign fibrocystic mass.(120) Therefore, the court followed the reasoning in Bullwinkel(121) and determined that although Hardester was oblivious to the fact that she had cancer, any treatment concerning the mass was actually treatment for cancer.(122) In turning to both Bullwinkel and Kirk, the Fourth Circuit decided that an undiagnosed illness prior to policy coverage did not mean that Hardester did not have a preexisting condition.(123)
The dissenting opinion of Judge Hall characterized the majority decision as an unjust result.(124) The dissent agreed with the district court's finding that the small cancerous tumor encased in the fibrocystic mass was a separate and coincidental condition.(125)
In reviewing the majority opinion's focus on Bullwinkel, the dissent indicated that it might not agree with the decision reached by the Seventh Circuit.(126) Regardless of the disagreement with the Bullwinkel decision, the dissent found that case to be easily distinguishable from Hardester.(127) The dissent also agreed with the district court's public policy concern in finding for the insurer.(128)
At the request of Hardester, the panel decision was vacated and the case was reheard by the Fourth Circuit en banc.(129) The en banc opinion favored Hardester by determining that her breast cancer was not a preexisting condition and, thus, not excluded from insurance coverage.(130) By citing to the dissenting opinion of Judge Hall, the per curiam decision affirmed the district court's granting of summary judgment to Hardester.(131) Five judges of the en banc court signed the dissenting opinion of Judge Hamilton.(132) "Following rehearing en banc, [the dissent] remain[ed] firmly convinced that the district court's grant of summary judgment in favor of the Hardesters should be reversed and judgment should be entered in favor of [Lincoln National]."(133)
The First Circuit considered the ambiguous terms of a preexisting condition clause in the case of Hughes v. Boston Mutual Life Insurance Co.(134) In Hughes, the district court granted Boston Mutual summary judgment and the United States Court of Appeals for the First Circuit vacated and remanded.(135)
George Hughes was denied disability benefits under a preexisting condition exclusion(136) due to medical treatment received for symptoms of multiple sclerosis (MS).(137) The effective date of coverage for Hughes's insurance was February 1, 1988.(138) The relevant and undisputed facts indicate that Hughes suffered from symptoms of MS before the policy became effective.(139) However, Hughes was never diagnosed by the various physicians treating him.(140) Hughes was not diagnosed until after the probationary period in his policy became effective.(141)
Once it became extremely difficult for Hughes to continue working, he terminated his employment and sought disability compensation from Boston Mutual.(142) Boston Mutual denied coverage based on the preexisting condition clause in Hughes's policy and Hughes filed suit.(143) After determining that there was no issue of fact to be decided, the district court granted summary judgment to Boston Mutual.(144)
The First Circuit stated that the preexisting condition in Hughes's policy could be more accurately termed a "recent treatment" exclusion.(145) The court noted that the recent treatment exclusion was not activated by all medical treatment, just treatment "for" a condition that resulted in disability.(146) In addition, the court noted that "the exclusion does not explicitly require diagnosis."(147) The court, however, was troubled because the exclusionary clause did not define "what constitutes treatment `for' a particular condition."(148)
According to Boston Mutual, treatment "for" a condition was explained(149) in Bullwinkel v. New England Mutual Life Insurance Co.(150) Therefore, any symptom treated by a physician which in hindsight appeared to be a manifestation of the condition is excluded.(151) Hughes, however, maintained that Ross v. Western Fidelity Insurance Co.'s(152) interpretation controlled.(153) Consequently, Hughes argued "that the exclusion require[d] some awareness on the part of the physician or the insured that the insured [was] receiving treatment for the condition itself."(154)
The First Circuit decided that the exclusion was ambiguous because it was subject to "reasonable but differing interpretations."(155) Since ambiguities are construed against the insurer, the court accepted Hughes's interpretation for the purposes of summary judgment.(156) Finally, the court acknowledged that it had rejected the reasoning of other courts that had interpreted similar exclusions solely on the absence of a requirement for diagnosis without contemplating whether the language was ambiguous.(157)
Analysis and Critique of the Court Opinions
A. Diagnostic Procedures Should Not Trigger an Insurance Exclusion
"[A] medical insurance system that covers only well persons and those sick persons who have not vigilantly monitored their health makes sense only if viewed through the looking glass."(158) In Bullwinkel, however, the majority decided that diagnostic testing to rule out malignant cancer was, in fact, "medical attention" for cancer.(159) Treating diagnostic procedures as treatment "badly distorts the manner in which preventive care is administered to women in this country."(160) Moreover, "[t]wo-thirds of all disease and premature death is preventable."(161) Doctors order diagnostic tests such as mammograms because every woman is at risk of having breast cancer.(162) The threat of death associated with cancer motivates doctors to be very liberal in ordering tests as a precautionary measure.(163) The Bullwinkel holding, however, seems to indicate that these precautions may be used by insurance companies as evidence of a preexisting condition.(164)
While therapeutic procedures may be considered medical treatment, diagnostic procedures should be excluded from the preexisting condition defense.(165) A diagnosis refers to "the discovery of the source of a patient's illness or the determination of the nature of his disease from a study of its symptoms."(166) The term "treatment" can either be interpreted very broadly to consider all facets of the doctor-patient relationship, or very narrowly to only include when a physician acts on the diagnosis of a determined condition.(167) "Medical diagnosis is an inexact art."(168) Diagnostic tests are performed on patients because they do not know the cause of their distinct symptoms.(169)
B. Knowledge of the Condition Should Be Required
In interpreting preexisting condition clauses, courts should focus on the fundamental purpose of these exclusions. The primary objective of the preexisting condition exclusion is to act as a safeguard against fraudulent insurance applicants.(170) Preexisting condition exclusions prevent the public from having to pay the cost for applicants "`who, knowing that they were already suffering from a disease or health condition, purchase[] coverage hoping to get the insurer to pay for the preexisting condition.'"(171) Therefore, "preexisting conditions are necessary to protect companies from people who only want to pay for insurance when they need it."(172)
Potential insurance applicants are faced with a tough decision regarding the disclosure of their medical history. If applicants disclose all of their ailments to an insurance company, they could be denied coverage.(173) On the other hand, if an applicant does not provide insurance companies with a complete medical history, a future claim may be denied for the applicant's failure to have provided full disclosure.(174) It is significant to note that insurance companies are not required to have applicants examined by physicians in order to rely on the preexisting condition defense.(175)
In addition to protecting against fraudulent applicants, preexisting condition clauses are designed to "`protect[] innocent premium paying insureds from being deprived of benefits for preexisting conditions of which they have no knowledge.'"(176) The goal of protecting innocent insureds will be distorted if insurers are allowed to deny coverage based on unknown preexisting conditions.(177) The insured's knowledge of a disease or ailment is crucial to the defense of preexistence.(178) Likewise, "`to consider a disease to exist at a time when the victim is blissfully unaware of the medical "seeds" visited upon his body, is to set a trap for the unwary purchaser of health insurance policies.'"(179) The requirement of knowledge is harmonious with the medical fact that there are many latent origins of illnesses which do not manifest themselves for many years.(180)
"It is said that everyone is dying in some degree every day he lives from the day of his [or her] birth."(181) The average person, however, does not consider himself or herself to have a condition until he or she is aware of specific symptoms.(182) Accordingly, courts should reject the rationale of decisions like Kirk,(183) which disregard the requirement of knowledge and focus on the physician's hindsight interpretation of an illness's medical origin.(184)
C. The Ambiguous Nature of Policy Terms
In Hughes, the First Circuit found that treatment "for" a condition was subject to more than one plausible interpretation.(185) Likewise, the district court in Bullwinkel acknowledged that reasonable people might view the term "condition" as only something that requires healing, not as a characteristic of a person's body.(186)
"Insurers frequently [seek] to construe words in the policy as terms of art despite the fact that few policyholders could be expected to understand their meaning."(187) If the preexisting condition clause "appears clear on its face, its meaning will be determined from the four corners of the [insurance contract]."(188) If a term or portion of the clause is found to be unclear, the court should apply the doctrine of ambiguity.(189)
As the Hughes decision indicates, if terms contained in the exclusionary clause are found to be susceptible to more than one reasonable interpretation, courts should find the exclusion ambiguous.(190) The doctrine of contra proferentem asserts that ambiguities are construed against the insurer.(191) "The rules governing interpretation of the terms of a policy exclusion are even more trenchant. Any limitation on coverage or any exclusion in the policy must be clearly stated in order to apprise the insured of such limitations."(192) Therefore, unsuspecting insureds will be covered if the preexisting condition clause is found to be misleading.(193) "The focus is not on what the insurer intended but rather what a reasonably prudent policyholder would understand."(194)
D. Insurance Policies Are `Adhesion' Contracts
Most insureds do not read their insurance policies.(195) Policy terms are usually written in such a way that only lawyers can understand the meaning.(196) "Indeed, even though courts presume that everyone reads his [or her] own insurance policy, common sense informs us that even the judges who make that statement do not always read their own insurance policies."(197)
Insurance policies are contracts written in a standardized and preprinted form.(198) The insurer receives several benefits from standardization: reduced transaction costs from economies of sale,(199) consistency,(200) facilitation of regulation,(201) mitigation of destructive competition,(202) aid to small insurers,(203) and ease of setting rates.(204) Also, the insureds receive some advantages from standardization: reduced prices,(205) greater security,(206) greater competition,(207) and meeting unarticulated needs.(208) The disadvantages of standardization suffered by the insured are the inability to negotiate terms and the impossibility of a customized contract.(209)
As the drafter, the insurer is in a position of power.(210) The individual policyholder, on the other hand, is not equipped to handle the bargaining process.(211) "Almost by definition, insurance policies are harder to understand and evaluate than most contracts, bringing the bargain model to its lowest ebb."(212) Thus, there is unequal bargaining power inherent in insurance policies.(213)
The primary dangers of adhesion contracts are the "lack of understanding and [the] lack of true consent [by the insured]."(214) An insurer trying to enforce a preexisting condition clause should be required to prove that the exclusion was explained to the insured in a manner in which the insured understood the terms.(215) It should be proven that "`there was in fact a real and voluntary meeting of the minds and not merely an objective meeting.'"(216)
E. The Reasonable Expectations Doctrine
"By recognizing that the [insured] may have expectations of coverage different from the explicit language of the policy, courts further protect policyholders from their lack of bargaining power [with the reasonable expectations doctrine]."(217) The reasonable expectations doctrine is used to impose liability on the insurer for misleading the insured.(218) The court also uses the doctrine when it believes that insurance coverage is necessary for a fair and equitable result.(219)
As a last resort, courts should use the reasonable expectations doctrine to give legal effect to the insured's expectations of coverage under the policy.(220) After examining the actual terms in the preexisting condition clause and surrounding facts and circumstances, the court should use an objective standard.(221) Therefore, emphasis should be placed on a reasonable policyholder's understanding of the preexisting condition clause; not the interpretation of an experienced and sophisticated underwriter.(222) If the court examines the expectations of a policyholder, it may protect the insured by providing a fair and equitable decision that is favored by the public.(223)
Conclusion
There are severe financial ramifications suffered by an innocent insured who cannot reasonably comprehend his insurance benefits and exclusions. Insurance companies should be compelled to draft insurance policies, particularly preexisting condition clauses, in language that a reasonable person is able to understand. "Health insurance must be free of obfuscation, nasty surprises, and senseless exclusions."(224) Courts should be sensitive to the ambiguities inherent in the non-negotiable terms typically used by insurers to escape liability.
Until the federal government restructures the health care system or mandates insurers to provide insurance on a "guaranteed issue" basis, the judiciary should construe preexisting condition clauses in a light most favorable to the insureds.
Jennifer M. Franco*
1. Richard Saltus, Fear of Insurers Leading to Gene Testing in Secret, Boston Globe, Sept. 12, 1994, at 1.
2. Paul Cotton, Preexisting Conditions `Hold Americans Hostage' to Employers and Insurance, 265 JAMA 2451, 2451 (1991).
3. Mike Barnicle, This is a Story About Dignity, Boston Globe, June 14, 1994, at 19.
4. Saltus, supra note 1, at 10 ("Their greatest fear is that a positive test for a gene that is silent now but may cause a disease later will be considered a `preexisting condition' and used to deny insurance."); Cotton, supra note 2, at 2451-52. Preexisting condition exclusions cause employees to continue at their place of employment for fear that a new employer's insurance would not cover their illnesses. Id.; Barnicle, supra note 3, at 19. For instance, a 49-year-old man with bone cancer committed suicide because his insurance would not cover his medical bills due to a preexisting condition exclusion. Id. The motivation for killing himself was the fear that his wife would lose their home and would be financially ruined after paying for his treatment. Id.
5. Note, Universal Access to Health Care, 108 Harv. L. Rev. 1323, 1324-25 (1995) [hereinafter Note, Universal Access]. Congress has still not passed any health care reform legislation. Id. at 1323.
6. Id.; see also California Insurer Ends Some Health Exclusions, Wash. Post, Dec. 29, 1993, at A4 [hereinafter California Insurer]. "Guaranteed issue" is at the heart of President Clinton's health plan proposals and would compel insurers to accept applicants regardless of their medical history. California Insurer, supra, at A4. "[Some] [i]nsurers, fearing that their role will be diminished or eliminated by federal revisions, are trying to . . . [offer coverage on a `guaranteed issue' basis to] cure many of the ills that the government is proposing to address by law." Id.; see also Steven Pearlstein, Adjusting Insurance: Is it Health Reform? Steps Toward Expanding Coverage Could Involve `Guaranteed Issue' and `Community Rating,' Wash. Post, June 19, 1994, at A4. A major criticism of "guaranteed issue" is that it "invites generally healthy consumers to move in and out of the insurance system, going without insurance when they are young and healthy but signing up as soon as they get sick or get ready to have a baby." Id.
7. The Health Care Study Group, Report, Understanding the Choices in Health Care Reform, 19 J. Health Pol. Pol'y & L. 499, 506 (1994).
8. Pearlstein, supra note 6, at A4.
10. Note, Universal Access, supra note 5, at 1325.
11. See, e.g., Md. Code Ann., Ins. § 701 (Supp. 1994):
(a) In general. -- (1) Until December 31, 1994, carriers may limit coverage under any health benefit plan under a preexisting condition provision, but only for a period not exceeding 6 months from the effective date of coverage for any enrollee, for any preexisting condition that existed within the 6 months preceding the date of coverage for the enrollee under the health benefit plan.
. . . .
(3) An exclusion of coverage for preexisting conditions may not be applied to health care services furnished for pregnancy or newborns.
(4) On and after January 1, 1995, a carrier may not limit coverage under a health benefit plan for a preexisting condition.Id.; see also Sandra P. Greenblatt & Michael J. Cherniga, New Florida Health Reform Plan is First Large-Scale Test of Clinton's Managed Competition Theory, 10 HealthSpan 7 (1993).
12. California Insurer, supra note 6, at A4. "Hoping to get a jump on competitors and on government health reformers, Blue Shield of California has announced that it will drop all health exclusions from its coverage plans for individual enrollees and their families, without raising rates." Id.
13. See infra notes 42-157 and accompanying text.
14. See infra notes 23-41 and accompanying text.
15. See infra notes 42-157 and accompanying text.
16. See infra notes 42-157 and accompanying text. Federal circuit court opinions are analyzed because many health insurance claims are based on employer-provided insurance, which is governed under a federal statute, The Employee Retirement Income Security Act of 1974 (ERISA). See 29 U.S.C. §§ 1001-1461 (1994).
17. See infra notes 158-223 and accompanying text.
18. See infra notes 158-84 and accompanying text.
19. See infra notes 185-94 and accompanying text.
20. See infra notes 195-216 and accompanying text.
21. See infra notes 217-23 and accompanying text.
23. The Health Care Study Group, supra note 7, at 519.
28. William F. Meyer, Life and Health Insurance Law § 17:1 (1972).
30. Alan I. Widiss, To Insure or Not to Insure Persons Infected with the Virus that Causes AIDS, 77 Iowa L. Rev. 1617, 1714 (1992).
32. Robert Lowe, Genetic Testing and Insurance: Apocalypse Now?, 40 Drake L. Rev. 507, 521 (1991) (quoting United States Congress Office of Technology Assessment, Medical Testing and Health Insurance 84 (1988) (quoting 1 NAIC, Model Laws, Regulations & Guidelines: Individual Accident & Sickness Insurance Minimum Standards Act (1986))).
33. Widiss, supra note 30, at 1715.
37. Barbara L. Pedersen, Comment, HIV/AIDS and the Pre-existing Health Condition Standard: Teaching an Old Dog New Tricks, 24 J. Marshall L. Rev. 653, 666 (1990) (citing John C. Williams, Annotation, Construction and Application of Provision in Health or Hospitalization Policy Excluding or Postponing Coverage of Illness Originating Prior to Issuance of Policy or Within Stated Time, 94 A.L.R.3d 990, 995-97 (1979)).
38. Meyer, supra note 28, § 17:5, at 553.
40. See id. § 17:5, at 553-54.
41. Pedersen, Comment, supra note 37, at 666.
42. Ross v. Western Fidelity Ins. Co., 872 F.2d 665, clarified, 881 F.2d 142 (5th Cir. 1989).
44. Id. Pulmonary hypertension is "high blood pressure in the blood circulating between the heart and the lungs." Id.
45. Id. Ross was given a two-dimensional echocardiogram to rule out a condition where the four veins from the lung to the heart feed into the right side of the heart, rather than into the left (total anomalous pulmonary drainage). Id. The test result revealed that at least one vein was working correctly. Id. Therefore, the cardiologist concluded that Ross did not have a cardiac defect. Id.
48. Id. Ross had a form of congestive heart failure referred to as "`left-to-right shunt.'" Id.
49. Id. The record indicates that Ross's parents purchased medical insurance after realizing the expensive cost of caring for their daughter during the first week of her life. Id.
50. Id. at 668. Western Fidelity agreed to insure expenses resulting from "`pre-existing conditions . . . only if the loss occurs after this policy has been in force for twenty-four months . . . .'" Id. (omissions in original).
51. Id. The "`Pre-existing Condition Limitations'" repeats the language of "`The Insuring Clause.'" See supra note 50. Under "Definitions," the policy states:
Pre-existing condition means the existence of symptoms which would cause an ordinary prudent person to seek diagnosis, care or treatment within a five year period prior to the Effective Date of the policy; or a condition for which medical advice or treatment was recommended by or received from a physician within a five year period prior to the Effective Date of the policy.Ross, 872 F.2d at 668.
54. Id. at 669. The circuit court reasoned that because there had been no diagnosis of Ross's heart defect when she was treated at birth, the treatment she received during that time could not have been for that condition. Id. During Ross's first week in the hospital, the only condition she was diagnosed with and treated for was pulmonary hypertension. Id. "Thus, the plain language of the clause leads to the conclusion that it does not exclude coverage of the heart defect." Id.
55. Id. The court determined that Ross's heart condition did not manifest until after the excluded period. Id. The court reasoned that "[d]espite the presence of symptoms that may have been caused by the heart defect, the heart defect itself was not diagnosed and therefore was not apparent, obvious or plain." Id.
56. Ross v. Western Fidelity Ins. Co., 881 F.2d 142, 144 (5th Cir. 1989). The court further stated that the clause was ambiguous. Id. For a discussion of ambiguous terms, see infra notes 185-94 and accompanying text.
57. Kirk v. Provident Life & Accident Ins. Co., 942 F.2d 504 (8th Cir. 1991).
61. Id. Kirk's policy contained the following provision: "`[n]o benefits [were] payable for expenses due to any Injury or Illness beginning before the effective date of the coverage.'" Id. (alterations in original).
65. Id. These examinations began exactly two months before the Provident policy became effective. Id. Kirk had been complaining of night sweats, aches and pains. Id. The doctor prescribed antibiotics, which temporarily alleviated Kirk's symptoms. Id. Later that March, during another visit to the doctor, redness and swelling of the medical cubital vein were observed and treated with antibiotics. Id. On his fourth visit to the doctor during the month of March, Kirk tested negative for bacterial growth in the lining of the heart. Id.
67. Kirk, 942 F.2d at 506. An echocardiogram revealed that Kirk was suffering from a vegetation of his aortic valve. Id. Kirk was referred to various doctors and was diagnosed with bacterial endocarditis, an infection of the heart valve. Id.
74. State Nat'l Life Ins. Co. v. Stamper, 312 S.W.2d 441, 442 (Ark. 1958).
75. Kirk, 942 F.2d at 506 (second alteration in original) (quoting Stamper, 312 S.W.2d at 442).
78. Id. at 507 (Bright, J., dissenting). In the opening line of his dissent, Judge Bright stated: "`Ask the wrong question and you will get the wrong answer.'" Id. at 506 (Bright, J., dissenting).
79. Id. at 507 (Bright, J., dissenting).
80. Kirk, 942 F.2d at 507-08 (Bright, J., dissenting).
81. See supra notes 74-75 and accompanying text.
83. Id. at 507 (Bright, J., dissenting) (omission in original) (quoting Stamper, 312 S.W.2d at 442).
84. Id. at 508 (Bright, J., dissenting). In one doctor's opinion, Kirk's medical history indicated that Kirk probably had the infection for approximately three months before surgery. Id. (Bright, J., dissenting). Another doctor testified that Kirk's statements about his illness indicated that he had been sick for about three months. Id. (Bright, J., dissenting).
85. Id. at 508 (Bright, J., dissenting).
86. Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429 (7th Cir. 1994).
91. Bullwinkel, 18 F.3d at 430.
92. Id. The doctor assured Bullwinkel by saying, "Lets be safe and take it out." Id. The doctor informed Bullwinkel that eighty to ninety percent of all women experience some "fibrocystic changes" and that approximately "one-tenth of one percent of all women in Mrs. Bullwinkel's age group (ages forty to forty-nine) develop breast cancer." Bullwinkel v. New England Mut. Life Ins. Co., No. 92-C2528, 1993 U.S. Dist. LEXIS 934, at *2 (N.D. Ill. Jan. 29, 1993) (emphasis added).
93. Bullwinkel, 18 F.3d at 430. The surgery was performed more than one month after the new insurance policy took effect. See id.
96. Id. The preexisting condition clause in Bullwinkel's insurance policy stated the following: "No benefits are payable for a condition, sickness, or injury for which you or your dependent were seen, treated, diagnosed, or incurred medical expense in the six-month period just before insurance starts . . . [or] the end of a period of twelve consecutive months after insurance starts." Id. The policy stated that a "sickness" was a "bodily disorder, disease, or mental infirmity or complication of pregnancy." Id.
97. Bullwinkel v. New England Mut. Life Ins. Co., No. 92-C2528, 1993 U.S. Dist. LEXIS 934, at *8 (N.D. Ill. Jan. 29, 1993).
98. Bullwinkel, 18 F.3d at 431.
103. Bullwinkel, 18 F.3d at 433.
104. Kirk v. Provident Life & Accident Ins. Co., 942 F.2d 504 (8th Cir. 1991); see also supra notes 57-85 and accompanying text. The Bullwinkels actually cited Kirk to the court "[b]y way of contrast," but the court interpreted Kirk as supporting New England Mutual's argument. Bullwinkel, 18 F.3d at 432.
105. Bullwinkel, 18 F.3d at 432 (citing Kirk, 942 F.2d at 506).
106. Id. (citing Kirk, 942 F.2d at 506 (quoting Lincoln Income Life Ins. Co. v. Milton, 412 S.W.2d 291, 292 (Ark. 1967))); see also supra notes 74-76 and accompanying text.
In Bullwinkel, the Seventh Circuit reasoned that her symptoms "were not trivial and inconclusive--like a cough or a rash which might imply any of a variety of maladies, or none at all. The breast lump was anything but trivial; in September it was determined to be cancer." Bullwinkel, 18 F.3d at 432. The Seventh Circuit further considered a hypothetical case in which the plaintiff complained of a cough and took cough medicine one month before his insurance policy became effective. Id. at 433. In the hypothetical, if the patient/plaintiff later discovered that he had lung cancer, the previous month's cough could have been caused by several different ailments. Id. Therefore, in the hypothetical situation, lung cancer would not have been considered the absolute cause of the cough. Id.
107. Bullwinkel, 18 F.3d at 433.
108. Hardester v. Lincoln Nat'l Life Ins. Co., 841 F. Supp. 714 (D. Md.), rev'd 33 F.3d 330 (4th Cir. 1994), reh'g en banc granted and opinion vacated (4th Cir. Oct. 13, 1994), aff'd per curiam, 52 F.3d 70 (4th Cir.), and cert. denied, 116 S. Ct. 177 (1995).
109. Hardester, 841 F. Supp. at 715. Hardester was diagnosed with fibrocystic disease in August 1981. Id. Hardester's insurance coverage began at 12:01 a.m. on May 1, 1992. Id. Fibrocystic disease is common in women in their thirties and forties. Id. Characteristics of the disease include "benign cysts, masses, and formations of fibrous tissue in the breasts." Id. Although it is considered a disease, it does not affect the patient's health, nor does it develop into cancer. Id.
111. See id. at 716. Under Hardester's policy, a preexisting condition was defined as: "a Sickness or Bodily Injury for which You have received medical attention (care, treatment, services, medication, diagnosis or consultation) prior to: 1. The effective date of Your medical or loss of time coverage under this Policy . . . ." Id. The policy further defined sickness as: "a disturbance in the function or structure of Your body which causes physical signs and/or symptoms and which, if left untreated, will result in a deterioration of the health state of the structure or system(s) of Your body." Id.
114. Hardester, 841 F. Supp. at 716. The district court held that the simultaneous presence of both fibrocystic disease and cancer was coincidental. Hardester, 33 F.3d at 333.
115. Hardester, 33 F.3d at 333.
116. Hardester, 841 F. Supp. at 716. Preexisting condition exclusions are used to protect insurance companies from applicants who lie about known conditions. Id. (citing Mogil v. California Physicians Corp., 267 Cal. Rptr. 487, 491 (Ct. App. 1990)). "`[T]o consider a disease to exist at a time when the victim is blissfully unaware of the medical `seeds' visited upon his body, is to set a trap for the unwary purchaser of health insurance policies.'" Id. (quoting Mutual Hosp. Ins., Inc. v. Klapper, 288 N.E.2d 279, 282 (Ind. 1972)). "To dispense with the requirement of knowledge is so perverse that even if a pre-existing condition clause expressly voided coverage for unknown conditions, it might be unenforceable as a matter of public policy." Id. at 717 n.4.
117. Hardester, 33 F.3d at 337. In less than two months, however, the divided panel's decision was vacated and the case was reheard en banc. Hardester v. Lincoln Nat'l Life Ins. Co., 52 F.3d 70 (4th Cir.) (per curiam), cert. denied, 116 S. Ct. 177 (1995).
118. Hardester, 33 F.3d at 334 (citing Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 432 (7th Cir. 1994)). The words of a contract must be given their plain meaning, regardless of public policy considerations. Id. (citing Bullwinkel, 18 F.3d at 432). "`[C]ourts are not at liberty to disregard the plain language of a plan in order to demand that insurers provide coverage . . . .'" Id. (quoting Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 57 (4th Cir. 1992), cert. denied, 113 S. Ct. 1051 (1993)). However, any ambiguity in the preexisting condition clause is strictly construed against the insurer. Bullwinkel v. New England Mut. Life Ins. Co., No. 92-C2528, 1993 U.S. Dist. LEXIS 934, at *4 (N.D. Ill. Jan. 29, 1993) (quoting Hammond v. Fidelity & Guar. Life Ins. Co. 965 F.2d 428, 430 (7th Cir. 1992)).
119. Hardester, 33 F.3d at 334.
121. See supra notes 103-07 and accompanying text.
122. Hardester, 33 F.3d at 335 (citing Bullwinkel, 18 F.3d at 432).
124. Id. at 337 (Hall, J., dissenting). "There are times when the law compels such an unjust result, but not this time." Id. (Hall, J., dissenting).
125. Id. at 338 (Hall, J., dissenting). The dissent demonstrated its position by proposing a hypothetical: Suppose a woman was in the same position as Hardester, except that she did not have fibrocystic disease. Id. (Hall, J., dissenting). During a routine breast exam, the small tumor would have gone undetected. Id. (Hall, J., dissenting). It might take several months or years for the small tumor to be diagnosed as cancer. Id. (Hall, J., dissenting). The insurance company could not deny coverage by relying on the fact that the woman had received "medical attention" for having a routine breast exam months or years ago. Id. at 338-39 (Hall, J., dissenting). The dissenting justice then asked, "[w]hy, then, should the result be any different just because Mrs. Hardester had a benign, unrelated condition that was treated on April 6 and that, through sheer luck, led to the timely discovery of her cancer? The answer is simple: it should not make any difference." Id. at 339 (Hall, J., dissenting).
126. Id. at 339 (Hall, J., dissenting).
127. Hardester, 33 F.3d at 339 (Hall, J., dissenting). While Hardester's cancer was accidently discovered while treating an unrelated condition, Bullwinkel only had one lump which either was or was not cancerous. Id. (Hall, J., dissenting). "In other words, the cancerous lump was discovered before the effective date in Bullwinkel; here, the cancerous lump was discovered after the effective date." Id. (Hall, J., dissenting).
128. Id. (Hall, J., dissenting); see also supra note 116 and accompanying text.
129. Hardester v. Lincoln Nat'l Life Ins. Co., 33 F.3d 330 (4th Cir. 1994), aff'd per curiam, 52 F.3d 70 (4th Cir. 1995), and cert. denied, 116 S. Ct. 177 (1995).
130. Hardester, 52 F.3d at 71.
132. Id. (Hamilton, J., dissenting).
133. Id. at 72 (Hamilton, J., dissenting).
134. Hughes v. Boston Mutual Life Ins. Co., 26 F.3d 264 (1st Cir. 1994).
136. Id. at 267. Hughes's policy contained the following preexisting condition clause:
This policy will not cover any total disability:
1. which is caused or contributed to by, or results from a pre-existing condition; and
2. which begins in the first 12 months after the insured's effective date ["the probationary period"], unless he received no treatment of the condition for 6 consecutive months after his effective date.
"Treatment" means consultation, care or services provided by a physician including diagnostic measures and taking prescribed drugs and medicines.
"Pre-existing Condition" means a sickness or injury for which the insured received treatment within 6 months prior to the insured's effective date ["the pre-probationary period"].Id. at 266 (alterations in original).
137. Id. at 266. Since MS cannot be diagnosed with certainty, doctors diagnosed it as "most likely," "likely [or probable]," or "possible" MS. Id. This "slow, progressive disease" that attacks the nervous system is characterized by the following symptoms: fatigue, weakness, incoordination, depression, spastic paraparesis ("stiffness, weakness, or spasticity in the lower extremities") and difficulty walking. Id.
145. Id. at 269. The court of appeals stated that a preexisting condition clause focuses on the "prior origination or prior manifestation of the condition." Id. On the other hand, Hughes's policy excluded coverage for disability during the probationary period resulting from conditions that occurred before the policy took effect. Id.
147. Id. (citing Marshall v. UNUM Life Ins. Co., No. CIV.A.3-91-201, 1992 WL 554314, at *2 (D.N.D. Nov. 6, 1992), aff'd, 13 F.3d 282 (8th Cir. 1994); Cury v. Colonial Life Ins. Co. of Am., 737 F. Supp. 847, 854 (E.D. Pa. 1990)).
149. Hughes, 26 F.3d at 269 (citing Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 432-33 (7th Cir. 1994)).
150. Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429 (7th Cir. 1994); see also supra notes 98-107 and accompanying text.
152. Ross v. Western Fidelity Ins. Co., 881 F.2d 142, 144 (5th Cir. 1989).
154. Id.; see also supra notes 54-56 and accompanying text.
155. Hughes, 26 F.3d at 270 (citing Rodriquez-Abreu v. Chase Manhattan Bank, NA, 986 F.2d 580, 586 (1st Cir. 1993)).
156. Id. (citing Rodriquez-Abreu, 986 F.2d at 586).
158. Hardester, 33 F.3d at 339 n.5 (Hall, J., dissenting) (emphasis added).
159. Bullwinkel, 18 F.3d 429, 432 (7th Cir. 1994). For a discussion of Bullwinkel, see supra notes 86-107 and accompanying text.
160. Hardester, 33 F.3d at 339 n.5 (Hall, J., dissenting) (recognizing that all women should take precautions and be distressed by the threat of breast cancer).
161. Joseph A. Califano, Jr., Rationing Health Care: The Unnecessary Solution, 140 U. Pa. L. Rev. 1525, 1535 (1992) (citing Richard D. Lamm, Brave New World of Health Care, 52 Annals of Thoracic Surgery 369, 373 (1991) ("Our health care dollars too often treat symptoms instead of attempting to eliminate causes.")).
162. Hardester, 33 F.3d at 339 n.5 (Hall, J., dissenting) (noting that physicians routinely order these tests, not because the risk is so great in any one patient, but because the risk is present in every woman).
163. Id. (Hall, J., dissenting) (stating that a doctor who avoids the minute risk of breast cancer in all of his female patients "can be assured that several will die every year").
164. See id. (Hall, J., dissenting); see also Cotton, supra note 2, at 2452 (stating that some people delay seeking needed medical care because they are afraid their record will hinder their ability to get health insurance).
165. See Franceschi v. American Motorists Ins. Co., 852 F.2d 1217, 1220 (9th Cir. 1988) (holding that the term "medical treatment" used in a health insurance policy excluded diagnostic procedures with no therapeutic value).
166. Indiana Comprehensive Health Ins. Ass'n v. Dye, 531 N.E.2d 505, 508 (Ind. Ct. App. 1988) (quoting Black's Law Dictionary 408 (5th ed. 1979)).
167. Id. (citing Modern Woodmen of Am. v. Miles, 97 N.E. 1009, 1010 (Ind. 1912)).
168. Golden Rule Ins. Co. v. Atallah, 45 F.3d 512, 519 (1st Cir. 1995).
170. Hardester v. Lincoln Nat'l Life Ins. Co., 841 F. Supp. 714, 716 (D. Md. 1994); see also Ithamar D. Weed, Pre-Existing Disease as a Defense in Accident and Sickness Policies, 15 Ass'n Life Ins. Couns. 419, 419 (1960-1961).
171. Weed, supra note 170, at 419 (footnote omitted); see also Pearlstein, supra note 6, at A4 (stating that the elimination of preexisting condition clauses would increase the cost of insurance premiums for everyone).
172. Cotton, supra note 2, at 2452.
175. Weed, supra note 170, at 427.
176. Hardester v. Lincoln Nat'l Life Ins. Co., 841 F. Supp. 714, 716 (D. Md.) (citing Mogil v. California Physicians Corp., 267 Cal. Rptr. 487, 491 (Ct. App. 1990)), rev'd 33 F.3d 330 (4th Cir. 1994), reh'g en banc granted and opinion vacated (4th Cir. Oct. 13, 1994), aff'd per curiam, 52 F.3d 70 (4th Cir.), and cert. denied, 116 S. Ct. 177 (1995).
177. Id. "To dispense with the requirement of knowledge is so perverse that even if a preexisting condition clause expressly voided coverage for unknown conditions, it might be unenforceable as a matter of public policy." Id. at 717 n.4.
178. Weed, supra note 170, at 421 ("An `unknown and undisclosed condition which did not manifest itself in any way until many years' after the policy had been issued is not a disease occurring and originating prior to the policy." (quoting Reiser v. Metropolitan Life Ins. Co., 43 N.E.2d 534, 534 (N.Y. 1942))).
179. Hardester, 841 F. Supp. at 716 (quoting Mutual Hosp. Ins., Inc. v. Klapper, 288 N.E.2d 279, 282 (Ind. App. 1972)); see also Hardester, 33 F.3d at 339 (Hall, J., dissenting).
180. Mutual Hosp. Ins., Inc. v. Klapper, 312 N.E.2d 482, 484 (Ind. 1974).
It appears quite unfair to hold that when one takes out an insurance policy when one is unaware of any symptoms and has no symptoms manifest to the average person and later when one becomes ill, for the insurance company to refuse to pay because the company can get a medical expert or physician to testify that the insured has had a condition for many years prior to the effective date of the policy, which results in his present sickness or disability, and therefore, under the terms of the policy, the insured is not covered.Id.
183. Kirk v. Provident Life & Accident Ins. Co., 942 F.2d 504 (8th Cir. 1991); see also supra notes 57-85 and accompanying text.
184. Kirk, 942 F.2d at 508 (Bright, J., dissenting).
185. Hughes v. Boston Mut. Life Ins. Co., 26 F.3d 264, 269 (1st Cir. 1994). In Hughes, the insurer argued that treatment "for" a condition pertains to any treatment of symptoms which subsequently are attributed to the condition. Id. On the other hand, the insured argued that treatment "for" a condition requires that the patient or doctor know that treatment was for the actual condition. Id.; see also supra notes 135-39 and accompanying text.
186. Bullwinkel v. New England Mut. Life Ins. Co., No. 92-C2528, 1993 U.S. Dist. LEXIS 934, at *4 (N.D. Ill. Jan. 29, 1993).
187. Laurie K. Fett, Note, The Reasonable Expectations Doctrine: An Alternative to Bending and Stretching Traditional Tools of Contract Interpretation, 18 Wm. Mitchell L. Rev. 1113, 1116 (1992).
188. Id. at 1117 (citing Restatement (Second) of Contracts §§ 200-04 (1981)).
189. Id. "However, inventing ambiguities to arrive at a `proper' result undermines confidence in the judicial system by creating unpredictability and giving an impression of judicial prejudice in favor of the policyholder." Id. at 1118 (citing Robert F. Keeton & Alan I. Widiss, Insurance Law 629 (1978)).
190. Hughes v. Boston Mut. Life Ins. Co., 26 F.3d 264, 270 (1st Cir. 1994).
191. Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy for Insurers and Policyholders § 5.1, at 173 (1994). Contra proferentem is sometimes called the "contra-insurer" doctrine. Id. § 5.2, at 181. Contra proferentem applies to ambiguous terms, as well as to vague terms. Id. § 5.1, at 177. "An ambiguous term suggests two or more different connotations that are available . . . ." Id. (citing E. Allan Farnsworth, Contracts § 7.8 (2d ed. 1990)). "A vague term is often regarded as generally clear but becoming unclear in a particular application . . . ." Id. (citing Farnsworth, supra, § 7.8).
192. Castro v. Fireman's Fund Am. Life Ins. Co., 253 Cal. Rptr. 833, 835 (Ct. App. 1988) (citing State Farm Mut. Auto. Ins. Co. v. Jacober, 514 P.2d 953 (Cal. 1973)); see also Underwriters Ins. Co. v. Purdie, 193 Cal. Rptr. 248, 252 (Ct. App. 1983) (stating that exclusions and limitations of insurance coverage must be called to the insured's attention in a clear and plain manner; mere receipt of the policy is not enough (citing Logan v. John Hancock Mut. Life Ins. Co., 116 Cal. Rptr. 528, 528 (Ct. App. 1974))).
193. Hughes, 26 F.3d at 270; see also Stempel, supra note 191, § 5.2, at 184.
Because insured losses are potentially disastrous, a coverage decision favoring the insurer may make the policyholder destitute or destroy a family. Thus, insurance contract construction may more frequently touch upon public policy themes of contract interpretation as well. Rather than plainly invoke public policy doctrine (normally the last resort of courts), the judiciary can often serve these values through use of a less obviously normative and redistributive method of deciding cases: contra proferentem.Stempel, supra note 191, § 5.2, at 184 (footnote omitted).
194. Stempel, supra note 191, § 5.3, at 186.
If a term is technical or has a specialized meaning occasioned by usage in trade, other context, or admissible extrinsic evidence, courts may find a term ambiguous even when the term would be clear to . . . an insurer. Mere complexity alone does not constitute ambiguity, nor is the mere existence of controversy proof of ambiguity.Id. (footnotes omitted).
195. Mutual Hosp. Ins., Inc. v. Klapper, 312 N.E.2d 482, 483 (Ind. 1974); see also Stempel, supra note 191, § 3.5.2, at 99.
[T]he typical policyholder has applied for a policy without ever seeing a copy of it. The policyholder's knowledge of the policy comes from statements by the salesperson and personal experience. After receiving the policy, the policyholder is free to read it but the time for negotiation has past. . . . [T]he typical insurance contract is one of super-adhesion in that the contract is completely standardized and not even reviewed prior to contract formation.Stempel, supra note 191, § 3.5.2, at 99 (first emphasis added); see also Fett, Note, supra note 187, at 1113 n.2 (noting that insureds usually do not obtain their policies prior to paying the first premium (citing Robert H. Jerry, II, Understanding Insurance Law § 25C, at 104-05 (1987))).
196. Klapper, 312 N.E.2d at 483; see also Fett, Note, supra note 187, at 1119.
[Insurance contracts are drafted] with the aid of skillful and highly paid legal talent, from which no deviation desired by an applicant will be permitted. The established underwriter is magnificently qualified to understand and protect its own selfish interests. In contrast, the applicant is a shorn lamb driven to accept whatever contract may be offered on a "take-it-or-leave-it" basis if he [or she] wishes insurance protection.Fett, Note, supra note 187, at 1119 (quoting Samuel Williston, A Treatise on the Law of Contracts § 90, at 19-20 (W. Jaeger ed., 3d ed. 1973)) (alteration in original).
197. Klapper, 312 N.E.2d at 483 ("It is time the legislature order the writing of insurance policies in plain understandable language.").
198. Id. An "adhesion" contract is offered to consumers on a "take it or leave it" basis without mutual bargaining between the parties. Black's Law Dictionary 40 (6th ed. 1990). "Recognizing that these contracts are not the result of traditionally `bargained' contracts, the trend is to relieve parties from onerous conditions imposed by such contracts." Id. "Insurance policies are not only standardized throughout a company, they are standardized throughout the industry." Stempel, supra note 191, § 10.6, at 300.
199. Stempel, supra note 191, § 10.1, at 283 ("[I]nsurers save by writing essentially one contract and using it repeatedly rather than drafting new contracts for each transaction.").
200. Id. Agents do not customize and negotiate various contracts. Id.
202. Id. § 10.1, at 285 ("[S]ome restrictions on short-run competition are healthier for consumers and the economy in the long run.").
203. Id. § 10.1, at 288 (recognizing that standardization helps small insurance companies that could not effectively draft and maintain their own contracts).
204. Stempel, supra note 191, § 10.1, at 288 ("[T]he standardization of basic insurance policies enables carriers to compare loss experience both nationally and locally.").
205. Id. § 10.2, at 289 ("Where the economies of scale from standardization are in fact passed through to determine premium rates, consumers benefit.").
207. Id. Since standardization allows the smaller insurers to stay in business, the consumer has more choices. Id.
208. Id. "[I]nsurers using standard forms often give the policyholder something it would not have thought about, would not have insisted upon, or would not have been willing to pay for had the coverage been optional." Id.
209. Stempel, supra note 191, § 10.2, at 289.
210. Mutual Hosp. Ins., Inc. v. Klapper, 312 N.E.2d 482, 483 (Ind. 1974); see also Stempel, supra note 191, § 5.2, at 183 ("`[A]ny pro-insured language within the insurance contract is not merely a coincidence.'" (quoting Mark C. Rahdert, Reasonable Expectations Reconsidered, 18 Conn. L. Rev. 323, 328 (1986))).
211. Fett, Note, supra note 187, at 1114 n.3 (citing Rahdert, supra note 210, at 326).
212. Stempel, supra note 191, § 7.1, at 240.
213. Klapper, 312 N.E.2d at 483; see also Stempel, supra note 191, § 10.3, at 291 ("Bargaining power is the ability of a contracting party to dictate the terms of the transaction . . . ."). Adhesion contracts are so named because it is mandatory that the party with less bargaining power adhere to the terms fixed by the party in a more powerful position. Stempel, supra note 191, § 3.5.1, at 97.
214. Stempel, supra note 191, § 3.5.4, at 105. To combat the disadvantages suffered by the insured, the court will apply the doctrine of "contra proferentem." Id.; see also supra notes 191-94 and accompanying text.
215. Klapper, 312, N.E.2d at 483.
216. Id. (quoting Weaver v. American Oil Co. 276 N.E.2d 144, 148 (Ind. 1971)). "[M]ost . . . `adhesion' contracts . . . are never read by the party receiving them, unless some specific provision is called to his [or her] attention." Id.
217. Fett, Note, supra note 187, at 1114. A major criticism of the reasonable expectations doctrine is that it replaces the traditional contract notion of express bargains by making insurance law a matter of status. Stempel, supra note 191, § 11.4, at 322-23.
218. Fett, Note, supra note 187, at 1114.
220. Id. at 1117. The reasonable expectations doctrine should be used after the court has rejected the traditional contract interpretation tools of ambiguity and adhesion. Id.
222. Robert E. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv. L. Rev. 961, 967 (1970).
223. See Stempel, supra note 191, § 11.4.3, at 337.
224. The Health Care Study Group, Report, supra note 7, at 537.
* To my family for always being there with love, guidance, and encouragement.