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How to Insure Your Income: Medical Profile

Your medical profile normally will consist of your past medical history and current physical condition. Most disability insurance companies ask you about your medical history -- and your family's -- on a policy application. They also will ask you to take a physical exam (usually at their expense).

If an applicant has to have a physical exam in lieu of simply answering medical questions, the application is normally referred to as a medical application. If the company obtains medical information by simply reviewing answers on the application, it is referred to as a non-medical application.

Depending on the medical problem, your doctor may be requested to complete an attending physician's statement (APS). The purpose of this report is to provide more detailed information about your medical history or current physical condition.

Past medical history refers to what was; current physical condition refers to what is. These two factors, plus any hereditary traits -- such as heart disease or diabetes -- would indicate what will be, or provide a prognosis for the future.

Example: Ralph has just been given a clean bill of health following a physical. A week later, he has a severe heart attack and becomes totally disabled. How can this happen? The family physician is normally looking at the patient at a specific moment in time. It's possible that at that precise moment, Ralph appeared to be in excellent condition. He came from a family with a history of heart problems, though.

And for many years he had been overweight, with a high-cholesterol diet and a sedentary lifestyle. Even though he had trimmed down a bit before his physical, he was a candidate for heart problems.

Due to the evasive nature of disability risk, an insurance company must look at your medical history, as well as your current condition, in its attempt to determine whether there is any unusual physical or medical risk involved.

The 1993 federal court decision James Campbell v. The Equitable Life Assurance Society of the United States dealt with inaccurate medical data in an application. In March 1989, Campbell completed an application for a life insurance policy to be issued by an Equitable affiliate. To obtain this life insurance, he underwent a paramedical examination and disclosed to the examining nurse that he had received counselling for depression from a psychiatrist in Chattanooga, Tennessee.

The insurance agent working with Campbell had this information in his file -- or had ready access to it -- when he and Campbell completed the application for the policy.

Sometime later, Campbell applied for a disability policy from the same insurance company. He was pressed for time, so the agent -- the same agent who had sold him the life policy -- completed the medical information portion of the application based on the data gathered earlier.

The agent did not ask Campbell any of the questions on the medical history portion of the disability application. Campbell did not state any untruth in applying for the coverage.

The effective date of the disability policy was November 27, 1989.

Printed on the application form, just above Campbell's signature, was this statement:

The statements and answers in all parts of this application are true and complete to the best of my knowledge and belief and are made to induce The Equitable to enter into this Agreement and to issue any policy which may be issued upon this application. No agent or medical examiner has authority to modify this Agreement or to waive any of The Equitable's rights or requirements.

But the answers to the medical history questions on the disability application were incorrect. Campbell had undergone psychiatric counselling and treatment with psychotropic drugs in the recent past. Had these questions been answered accurately, Equitable would have declined to issue the disability policy.

The disability policy issued to Campbell also included an incontestability clause, which stated:

After this policy has been in force during your lifetime for two years from its Effective Date we cannot contest it for misstatements in the application. We cannot contest any policy change that requires evidence of insurability, or any reinstatement of this policy, after the change or reinstatement has been in effect for two years during your lifetime. The two years will not include any period during which you are totally, partially, or residually disabled.

Campbell made a claim for benefits on November 26, 1991 -- one day shy of two years after the effective date of the policy. He sought disability insurance benefits in the monthly amount of $2,500. He claimed "a presently existing disability of indefinite duration."

Equitable began paying Campbell his benefits. But later, after it had investigated the claim and compared the disability application with the life application, it discovered Campbell's true medical history. It rescinded the policy as of October 20, 1992.

Campbell sued Equitable for reinstatement and continuation of benefits. Equitable sued Campbell, arguing that because Campbell had made misrepresentations in his application it was entitled to recover about $20,000 in benefits paid to him.

The trial court clarified the terms of the dispute. Campbell's expectation of disability benefits was based on these circumstances:

Since the registered nurse who examined [Campbell] for the [life insurance] policy had on her health questionnaire that [he] had been treated for depression ... and it was used as the basis for the Equitable policy of life insurance, [Equitable] had knowledge that [Campbell] had been ... treated for depression.

However, Equitable's argument for stopping payments and recovering what had already been sent was based on other, equally compelling circumstances:

Campbell freely admitted that he signed the application for disability insurance without reading it, and that he did not, either at the time of applying or later, after delivery of the policy, of which his application was a part, check for accuracy of the responses to the questions concerning his health and medical history.

The court ruled that no reasonable person could hold the responses stated on the application for the disability insurance policy in issue to be consonant with Campbell's actual state of health and medical history. It sided with Equitable and dismissed Campbell's claims.

Campbell filed a motion for reconsideration, claiming (among other things) that the policy's incontestability clause should have protected him from the results of any misleading information in his application.

But the court stuck by its previous ruling -- namely, that Campbell could not assert the incontestability of the policy without contradicting his assertions concerning the onset and duration of his disability. It denied his motion for reconsideration.

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