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ERISA policy can be revoked
Plaintiff Bradley McKinney applied for and obtained disability insurance from Plaintiff and Counterclaim Defendant, Provident Life Accident & Insurance Company (“Provident Life”). He filed a claim under the Employee Retirement Income Security Act (“ERISA”), 29 USC § 1001 a seq. McKinney subsequently filed a claim for disability benefits under the policy, but Provident Life denied his claim because McKinney made material misstatements in his application for the policy. Provident Life sued under ERISA seeking rescission of the policy, and McKinney counterclaimed seeking an injunction directing Provident Life to pay him all benefits due under the policy.
IN Provident Life & Accident Insurance Company v. Bradley D. McKinney, no. 3:19-CV-1325 (SVN), United States District Court, D. Connecticut (September 9, 2022), the USDC settled the dispute.
The parties agree on the following basic facts:
- McKinney’s employer, Anderson Tax LLC, had supplemental individual disability insurance.
- Relevant here, the plan allowed eligible employees to apply for a combination of three types of coverage: long-term disability benefits, which the defendant refers to as the “guaranteed standard issue” and which the court will refer to as “basic disability benefits”; catastrophic disability coverage (“catastrophic coverage”); and an option to convert the basic disability benefits into long-term care benefits (“long-term care benefits”).
- An employee may apply for any individual or combination of these policies on the same form.
McKinney applied for supplemental insurance through the plan. When completing the application, McKinney answered various questions about his medical history and agreed that his answers were “true and complete and accurately recorded to the best of [his] knowledge and faith. In September of that year, Provident Life issued him a policy for all three policies. The policy stipulated that “[o]assignment and inaccuracies in the application can lead to an otherwise valid claim being denied or [the policy] to be repealed.”
In August 2018, McKinney filed a claim for basic disability benefits related to a neurocognitive disorder. He first began experiencing symptoms of “confusion, severe fatigue, memory loss, challenges thinking, analyzing, [and] lack of concentration” in February 2016.
Provident Life’s claims specialist investigated McKinney’s claim, obtained certain medical records and consulted with the insurer. Subsequently, Provident Life denied McKinney’s claim and notified him that it was canceling his policy because McKinney had materially misrepresented his medical history when he applied for the policy. McKinney appealed, and after receiving more of his records, Provident Life concluded that it had properly canceled the policy.
McKinney misrepresented his medical history in applying for insurance coverage in two ways.
- In answering questions 6 and 8, he stated that he had not been diagnosed or treated by a doctor for memory loss, confusion or speech disorder in the five years preceding his application.
- in response to question 3(a), he stated that he had not missed one or more days of work or been admitted to a health care facility due to illness or injury in the 180 days preceding his application. After reviewing McKinney’s medical records, Provident Life concluded that his answers to these questions were untrue and that its denial of his claim and cancellation of his policy were correct.
The parties do not dispute that a plan administrator may obtain equitable rescission of an ERISA-regulated policy procured through material misstatements or omissions by the insured.
Termination for Material Misrepresentation
Under the federal common law developed pursuant to ERISA, an insurer may terminate a policy where the insured knowingly made a material misrepresentation in an application for an ERISA-regulated policy. Thus, Provident Life will be entitled to summary judgment if it shows that there is no genuine dispute that (1) McKinney made a misrepresentation that was (2) knowing, and (3) material to its decision to issue the policy.
As noted, Provident Life denied McKinney’s claim for basic disability benefits and subsequent appeal on the basis that he falsely represented his medical history in the coverage application. Provident Life identified two of McKinney’s answers as allegedly untrue, warranting rescission of the policy.
The court found no genuine dispute of fact that McKinney made material misrepresentations in answering questions 6 and 8 of his supplemental insurance application. McKinney claimed that the “primary condition” he was being treated for during the 2016 hospitalization was cancer related to the mass on his breast, and that his confusion and slurred speech were merely symptoms of that cancer. However, McKinney also argued that any misrepresentations in his answers to questions 6 and 8 were innocent because “he was not aware that he had been diagnosed with or treated for memory loss, confusion, or speech problems.
The court concludes that any ignorance on McKinney’s part that he had been treated for confusion and slurred speech during his 2016 hospitalization was not innocent. When questioned in connection with his claim for benefits, he admitted that he was first diagnosed with these problems in February 2016. The idea that he did not know about them when he applied for the insurance in 2017 therefore strains. credulity.
The USDC concluded that there was no genuine dispute that McKinney’s false answers to questions 6 and 8 were material to Provident Life’s issuance of the policy. Courts have repeatedly declared that certain information requested by the insurer and provided by the applicant for insurance coverage is presumptively material. [Mt. Airy Ins. Co., 928 F.Supp. at 176 (citations omitted). Accord Paul Revere Life Ins. Co. v. Pastena, 52 Conn.App. 318, 323, cert. denied, 248 Conn. 917 (1999); Continental Cas. Co. v. Bank of S.E. Conn., No. 2:91CV326 (PCD), 1995 WL 871829, at *1 (D. Conn. June 22, 1995).]
McKinney’s knowing misrepresentations were material to Provident Life’s issuance of the policy. Accordingly, McKinney was well informed that his answers to questions 6 and 8 would become part of the policy he received and thus was material to Provident Life’s issuance of the policy. The application’s special examination of the applicant’s past treatment for memory loss, confusion or speech disorder makes these issues presumptively important.
USDC may not rewrite the policy
It is not the court’s role to rewrite the terms of the insurance contract to conform to the newly revealed facts. Given the strong weight of authority establishing the materiality of an applicant’s past medical history subject to specific inquiry, as well as the fact that McKinney’s responses were incorporated into the issued policy, the court concluded that his knowing misrepresentations on questions 6 and 8 were essential. Provident Life was thus entitled to cancel the insurance according to law.
This is a classic case of the “I didn’t know the gun was loaded” defense when one person intentionally shoots another. In this case, McKinney knew the true facts about his condition both during and after his cancer treatment and lied about the application he filed for ERISA disability insurance. He claimed the lie was innocent but the evidence reviewed by the USDC showed he was neither innocent nor ignorant, he just lied. Therefore, the court affirmed Provident’s rescission of the ERISA policy.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com.
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