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Pre-existing problem must substantially contribute to disability

A disability insurance policy financially protects the policyholder by making wage replacement payments, usually at the level of two-thirds of earnings, if the person cannot work because of disability. Many disability policies have a pre-existing condition clause, which excludes coverage if the insured has been seen for a medical condition during a determined timeframe called the look-back period prior to the policy’s effective date of coverage.

A legal dispute may arise if the insurance company denies a disability claim based on a pre-existing condition. The particular circumstances, the insurance contract and the applicable law determine the legal and factual issues in each case.

New Florida pre-existing limitation case
In August 2017, the U.S. Court of Appeals for the 11th Circuit issued an important unpublished opinion on the subject in Bradshaw v. Reliance Standard Life Insurance Company.
During a healthy pregnancy, plaintiff Bradshaw started a new job as a medical biller. As a benefit of employment, she bought a disability insurance policy from Reliance (the defendant). Six months later, when her pregnancy was almost full term, she suffered the onset of mild preeclampsia. According to Mayo Clinic, preeclampsia is a complication of pregnancy that causes high blood pressure, swelling and other symptoms. Because of the condition, doctors induced birth and Bradshaw delivered a healthy daughter.
A few days later, she had a disabling stroke that required brain surgery. Ongoing symptoms of balance, confusion, memory problems, pain, coordination, and dizziness that kept her from working were the basis of the claim under her long-term disability policy.
The hospital discharge summary cited high blood pressure as a contributing factor to the stroke and noted, “[t]here was likely some residual deficit from her preeclamptic childbirth.”

The pre-existing condition exclusion provision at issue
Bradshaw’s policy contained a three-month look-back period provision that applied if a disability claim was filed during the first 12 months of coverage. A claim would not be covered if it was “caused by; contributed to by; or resulting from a Pre-existing Condition” that existed during the look-back period. Pre-existing conditions were “sickness or injury,” including pregnancy.
Because Bradshaw was pregnant during the look-back period, the insurance company denied her disability claim, even though the preeclampsia that caused the high blood pressure did not develop until months later outside of the look-back period.
Bradshaw appealed the denial under the insurer’s internal appeal process. Reliance again denied her claim based on pregnancy during the look-back period. The insurer said that the pregnancy contributed to the later preeclampsia that in turn contributed to the stroke, so the pregnancy was a pre-existing condition that formed the basis of denial.

ERISA lawsuit
The Employee Retirement Income Security Act of 1974, called ERISA, is a federal law that protects workers’ rights under employee benefit plans. Bradshaw filed an ERISA lawsuit in a Florida U.S. District Court, challenging as improper Reliance’s denial of her disability claim. The court held that the insurer’s denial was “not wrong and, even if it were, it was not unreasonable.”
Bradshaw appealed to the 11th Circuit, which ultimately held in her favor and ordered her claim approved. In Bradshaw’s case, because of the insurance company’s conflict of interest in being the party that would not only pay the claim, but also decide whether to approve or deny it, the court’s task was to determine if Reliance’s decision was arbitrary and capricious, meaning an abuse of discretion.

Plain language
The court explained that ERISA does not provide instruction for how to interpret an insurance contract, but that federal courts have authority to create their own standards (called federal common law) of interpretation. Because state law can be instructive, the court looked at Florida’s contract interpretation standards.
Florida requires that an insurance contract be construed “in accordance with the plain language of the polic[y] as bargained for by the parties” and that the “language of the policy is the most important factor.” In addition, the “plain meaning” and the understanding of an “ordinary person” are the governing principles.

Contribution must be substantial
Reliance presented that they reasonably denied the claim based on the pre-existing condition exclusion because the pregnancy “contributed to” the disabling stroke. The court disagreed, finding the denial unreasonable as a matter of law, in light of ERISA’s goal of promoting employee interests.
The court conducted a long and detailed analysis of the policy language in light of other cases and decided that the denial was unreasonable. Basically, the connection between the healthy pregnancy, which was the only medical condition during the look-back period, and the later stroke was too tenuous.
The court even looked at supporting health data:
  • Only “three-hundredths of a percent” of pregnant U.S. women had strokes in 2016.
  • Between 96 and 97 percent of U.S. pregnant women do not develop preeclampsia before delivery.
The court considered the earlier case of Dixon v. Life Ins. Co. of N. Am. that had had a similar causation issue involving a car accident during which the driver had suffered a heart attack. The policy said the loss had to be from an accident “which, directly and from no other causes, resulted in a covered loss.” The issue was whether the pre-existing heart condition prevented recovery because it had contributed to the loss.
The court adopted a “substantially contributed” test. When a policy precludes recovery if there was another contributing factor to the loss, the factor must have substantially contributed to the loss. It would be unreasonable to deny coverage if the factor had only remotely contributed, effectively preventing reasonable coverage decisions.
The 11th Circuit applied the same reasoning to Bradshaw’s policy, finding that the coverage would be “essentially meaningless” if a strict but-for test were applied. The court reasoned that linking healthy pregnancy to stroke would require “four links” or “intervening stages” (healthy pregnancy, high blood pressure, preeclampsia, stroke), which the court found “simply requires too much attenuation.”
Ultimately, the court decided that the pre-existing condition of healthy pregnancy did not substantially contribute to the disability from stroke, reasoning, “[p]regnancy is neither a necessary precursor to stroke nor does pregnancy normally develop or progress into stroke.”

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