Merritt Personal Lines Manual: A Key Issue: Preexisting Conditions

preexisting condition: The existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment within a two (2) year period preceding the effective date of the coverage of the insured person.

A condition for which medical advice or treatment was recommended by a physician or received from a physician within a two (2) year period preceding the effective date of the coverage of the insured person.

This is a huge issue in health insurance issues. Many medical insurance policies limit or exclude coverage for preexisting conditions to keep insurance costs reasonable.

Insurance premiums are based on average expectations of loss. If people were permitted to buy insurance coverage after they were injured or developed a serious illness, healthy people would have little incentive to pay insurance premiums. Those who did buy insurance would submit a disproportionate amount of claims. This would cause insurance to be much more expensive.

Many disputes over preexisting conditions revolve around charges that an insurance company has gone "fishing" for reasons to deny coverage. If you consider every ache, mishap, oddity you've mentioned casually -- to say nothing of confidentially -- to your doctor, you begin to understand what can happen when an insurer goes fishing.

Notice that this term does not only mean a condition for which medical care was actually recommended or received in the past two years -- it also means a condition that would cause a prudent person to seek care or treatment during that time period.

The 1993 Ohio case Shelley Svec v. Enterprise Group Planning, Inc. illustrates just how difficult the term "preexisting condition" can be. (It also highlights the role of third-party health insurance administrators -- a form of insurance provider whose numbers are growing.)

Svec's coverage under the group medical insurance policy became effective October 18, 1988. She was treated by Dr. Michael Papsidero for various medical conditions from 1986 to the effective date of her insurance. Papsidero had treated Svec for recurrent rhinitis and sinusitis on two occasions in April 1988.

Her treatment on April 25, 1988 fell within the six-month exclusionary period of her group medical insurance coverage administered by Enterprise.

Svec started work at Research Organics, Inc., on August 18, 1988 and completed a group medical insurance enrollment card and individual enrollment supplement which didn't refer to the above medical conditions. The group enrollment card, which Svec completed and signed in August 1988 -- prior to obtaining coverage under the Research Organics, Inc.'s group medical insurance plan, stated in relevant part:

I hereby request coverage under the policy issued by Cincinnati Equitable Insurance Company and authorize my employer to deduct from my earnings any requested contribution for the insurance to which I am or may be entitled.... I understand that if the insurance applied for becomes effective, I will be subject to all the terms of the policy, that the agent is not authorized to alter any terms of this application or the policy and that any conflicts will be resolved solely by reference to the policy.

Enterprise received Svec's group enrollment card October 17, 1988 and approved coverage for her under the Research Organics, Inc. group medical insurance policy effective the following day. The group medical policy contained the following exclusion for expenses arising from conditions which existed prior to the effective date of the policy (the "preexisting Condition Exclusion"):

Unless specific exception is made, the provisions of this policy do not include as covered charges, or provide benefits for, charges incurred in connection with:

.... any charges in connection with a preexisting condition. Any injury or sickness or a related injury or sickness for which an insured individual has consulted with a licensed physician or dentist or received any medication or dental care or services within the 6 month period immediately preceding the effective date of insurance, unless incurred after the expiration of a period of: ... 6 consecutive months after the effective date of insurance during which such insured individual has not consulted with a licensed physician or received any medical care or services for such injury or sickness or related injury or sickness....

Svec received treatment from Papsidero six additional times for the same condition, including two extensive treatments in March 1989, for which she sought reimbursement from Enterprise under the group medical insurance policy.

The preexisting condition exclusion applied to Svec's claim for reimbursement of the March 1989 treatments by Papsidero, since she had received treatment for this same condition within six months prior to obtaining coverage under the group medical policy and six consecutive months without any treatments for the condition had not elapsed prior to undergoing the subject treatments.

Simply stated, the exclusionary period ran from April 18, 1988 to April 18, 1989. Svec had no coverage for preexisting conditions under the terms of the policy for this period.

Svec claimed that she did not receive notice of this preexisting condition exclusion. Neither the group enrollment card nor the individual enrollment supplement completed by Svec prior to obtaining coverage under the group medical policy specified the scope of medical insurance coverage under the policy or stated any exclusions from coverage.

Svec requested medical insurance information from her employer's personnel officer, Marilyn Garrett. Garrett gave her only one piece of literature concerning the group medical insurance policy and informed Svec that she was given "what you are entitled to have."

The literature Svec received from Garrett was a booklet entitled "Health Care Cost Containment... Employee Involvement" and bore the service mark "Employers Select Risk." The booklet referred to Enterprise and the "Insurance Company" and contained various modifications to Svec's medical insurance coverage under the group policy. The first sentence of the booklet read:

A new package of benefits has been added to your medical coverage.

The remainder of the booklet described an incentive plan for employees to audit medical bills submitted to the insurer and various pre-approval requirements which provided for enhanced reimbursement. The booklet explained that failure to obtain prior approval for specified treatments resulted in decreased reimbursement levels.

Svec knew this booklet did not purport to be a summary of the terms of the master group insurance policy -- like the summaries she had received in connection with her insurance coverage at her previous job. She incurred expenses in March 1989, related to her prior treatment for rhinitis and sinusitis and submitted a comprehensive medical claim form for over $5,000 in medical expenses to Enterprise. The claim was dated April 17, 1989.

Enterprise denied reimbursement for Svec's claim under the group medical insurance policy in a letter to Research Organics dated July 28, 1989.

Within a few months of the denial, Svec left Research Organics and sued Enterprise, alleging it had improperly rejected her claim for $5,304 in expenses incurred at Marymount Hospital for treatment of rhinitis and sinusitis during March 1989. She alleged this denial was based upon an undisclosed preexisting condition exclusion in the group master medical insurance policy between Enterprise and her former employer, Research Organics, Inc.

Svec's complaint against Enterprise alleged breach of contract, breach of fiduciary duty and intentional infliction of emotional distress based on Enterprise's failure to pay certain medical expenses pursuant to a group medical insurance contract.

Enterprise filed an answer and amended answer and counterclaim denying the substantive allegations of Svec's complaints. Enterprise's answers raised affirmative defenses denying liability under the group medical insurance policy based on exclusions for:

• preexisting conditions,
• conditions which arose in the course of employment and
• medical conditions for which Svec was entitled to workers' compensation benefits.

(Svec had, in fact, filed a workers' compensation claim relating to the same condition in June 1989. That claim was disallowed in December 1990.)

Enterprise also answered Svec's charges by filing a counterclaim alleging fraud. Generally it argued that Svec had knowingly misrepresented the facts surrounding her medical condition and the medical treatment for which she sought reimbursement in the medical insurance claim form submitted to Enterprise.

Enterprise sought a summary judgment in an Ohio court dismissing Svec's claims.

Each party filed additional briefs prior to the trial court's ruling. Enterprise's reply argued that Svec's coverage under the policy was void from its inception due to Svec's failure to disclose her preexisting rhinitis and sinusitis conditions and treatments in her group insurance application materials.

The trial court granted Enterprise's motion for summary judgment and dismissed Svec's complaint in July 1991. Svec appealed, basing her argument on one assignment of error:

The trial court erred when it granted [Enterprise's] motion for summary judgment when [Svec] demonstrated... that there were disputed facts as to whether delivery of the insurance certificate occurred and whether [Svec] had knowledge or notice of the insurance policy limitations and exclusions.

Svec pointed to Ohio law governing the delivery of individual certificates of insurance under group medical insurance policies. The law defined the respective duties of an insurer and employer in this context as follows:

Each such policy shall contain in substance the following provisions:

...A provision that the insurer will furnish to the policyholder [that is, the employer], for delivery to each employee or member of the insured group, an individual certificate setting forth in summary form a statement of the essential features of the insurance coverage of such employee or member and to whom benefits thereunder are payable....

Ohio law also mandated that group employers permit individuals covered by a group policy to examine the group policy as follows:

Each such policy together with any application in connection therewith shall be available for inspection during regular business hours at the office of the policyholder where such policy is on file, by any beneficiary thereunder or by an authorized representative of such beneficiary.

The duties of entities which are not insurers or group employers, such as Enterprise acting as a medical insurance administrator, weren't specifically delineated by Ohio law. And Svec presented "absolutely no evidence that Enterprise as agent for the insurer had a duty and failed in its duty to deliver a certificate of insurance coverage," the appeals court wrote. "Svec's lack of notice concerning the policy exclusions does not preclude enforcement of the policy exclusions which resulted from her own failure to obtain relevant information."

It also ruled that her failure to produce any evidence that Enterprise had a duty to deliver an individual certificate of insurance or other explanatory material to her precluded her claims for breach of a fiduciary duty and intentional infliction of emotional distress.