Litigation Under Construction: Recent Life Insurance and Long-Term Care Developments

Long-Term Care Insurance

In Potovsky v. Lincoln Benefit Life Co., the Ninth Circuit Court of Appeals affirmed the dismissal of the insureds’ complaint for failure to sufficiently allege damages regarding the denial of a long-term care claim.

After the insured wife was diagnosed with dementia, her husband filed a claim because he intended to hire a caregiver. The policy covered “actual expenses incurred” for qualified long-term care should one of the insureds become “chronically ill.” The policy defined “chronically ill” as requiring “substantial supervision to protect [insureds] from threats to health and safety due to severe cognitive impairment.” It did not cover long-term care provided by spouses or children.

The insurer denied the claim, reasoning that the wife’s condition did not satisfy the policy’s “chronically ill” definition. The husband did not want to pay out of pocket for a caregiver and did not hire one. The insureds then filed suit, arguing they were entitled to the cost of health care services that the wife would have received or the cost of the care that the husband provided instead. The Ninth Circuit concluded that the insureds’ request for alleged damages in the form of health care services the wife would have received was too speculative, and the cost of the care provided by the husband was not covered by the policy. The court explained: “Their complaint seeks only damages which they never incurred.” Accordingly, the court affirmed the district court’s dismissal of the insureds’ breach of contract claim. Because their other claims for bad faith and elder abuse were predicated on the breach of contract claim, those claims were also properly dismissed.

Agent Misrepresentations

The Eleventh Circuit Court of Appeals affirmed summary judgment for an insurer in Gonzalez v. The Independent Order of Foresters, where the insured alleged material misrepresentations were made by agents.

The insured claimed he relied on material misrepresentations by two independent agents affiliated with the insurer when he purchased two life insurance policies. According to the insured, the agents represented that an accelerated death benefits rider would pay between 90% and 100% of the policies’ face value if the insured satisfied the terms for chronic illness. After submitting chronic illness claims, the insurer offered substantially less; the insured rejected the offers, claiming they were inconsistent with the agents’ representations.

The district court concluded, inter alia, that the agents had no authority to bind the insurer and that the insured’s reliance on the agents’ representations was not justified, and it granted summary judgment to the insurer. The Eleventh Circuit affirmed. The insured’s breach of contract claim failed because he was put on notice by language in the policies’ applications that agents had no authority to bind the insurer to terms not in the contracts. In addition, since the insured reviewed the policies and disclosures and further inquired about contradictory terms with the agents, the court found that the insured investigated the alleged misrepresentations and that a reasonable jury could not return a verdict against the insurer for fraudulent inducement.

Illinois Genetic Information Privacy Act

The U.S. District Court for the Southern District of Illinois dismissed a putative class action against a life insurer under the Illinois Genetic Information Privacy Act (GIPA) in Thompson v. Prudential Insurance Co. of America.

GIPA, among other things, prohibits insurers from seeking “information derived from genetic testing for use in connection with a policy of accident and health insurance.” The plaintiff claimed the life insurer violated her right to privacy regarding genetic information when it asked questions about her family medical history, including family members’ inheritable diseases and disorders, during the life insurance application and medical examination process. The plaintiff sought to represent a class of individuals who applied for insurance coverage in Illinois and who provided genetic information to a health care provider used by the insurer for underwriting purposes.

The court dismissed the case with prejudice, holding that GIPA “does not apply to the underwriting practices concerning life insurance policies” and noting there was no indication that the Illinois legislature intended to apply GIPA to life insurance underwriting.