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Merritt Personal Lines Manual: A Difficult Case of Dependent Child Coverage

The complicated and controversial 1994 Texas Supreme Court decision Edwadine Forbau v. Aetna Life Insurance Co. considered the limits that health carriers will sometimes try to place on their policies.

In March 1983, fourteen-year old Amy Miller suffered serious, permanent and disabling injuries as a result of a motor vehicle accident. She was left a permanently disabled quadriplegic, in need of 24-hour supervision.

At the time, Amy's father, Mike Miller, was insured under an Aetna group insurance policy issued to Affiliated Foods, Inc., a cooperative of grocery stores of which his employer was a member. Miller's premiums and those for his dependents, including Amy's, were paid by his employer. Miller was eligible as an "individual" under the plan, defined as an "employee of any store owner who is a participant under this plan;" Amy was eligible for dependent coverage as an "individual's unmarried child under nineteen years of age."

After Amy's accident, Aetna paid her medical expenses as incurred until April 1985, when Affiliated terminated the group contract with Aetna. Aetna continued to pay benefits until May 1986, under the policy's one-year extension of benefits clause.

After that date, Edwadine Forbau, Amy Miller's mother, submitted claims to Safeco Life Insurance Company as Aetna's successor insurer for Affiliated's members. A dispute eventually arose between Forbau and Safeco, which resulted in a lawsuit and settlement.

After settling with Safeco, Forbau filed a lawsuit against Aetna, alleging breach of contract and of fiduciary duty and violations of the Texas Deceptive Trade Practices-Consumer Protection Act and the Insurance Code. Only the breach of contract claims were submitted to a jury in Lubbock, Texas.

In accordance with that jury's verdict, the trial court awarded Amy $238,000 in past damages, $2.5 million in future damages and $500,000 in attorneys' fees. Aetna appealed.

The court of appeals at Amarillo reversed the trial court decision, holding that under the unambiguous terms of the policy Amy's recovery was limited to those medical expenses incurred while Aetna's policy was in effect. The appeals court nullified the trial court's award. Forbau appealed to the state supreme court.

"In this case we are called upon to determine whether the insurance policy at issue created a vested right in unlimited lifetime benefits, or restricted benefits to the recovery of medical expenses incurred while the policy was in effect," the court wrote at the outset.

The court had a hard time determining the case.

Its original opinion, which sided with Amy, was filed in November 1992. That decision was withdrawn in May 1993 and substituted with one that favored Aetna. After a rehearing, that decision was withdrawn in January 1994 and substituted with one that still sided with Aetna, but fine-tuned some technical language that addressed the role of federal benefits laws.

In its final decision, the Texas Supreme Court ruled that, under a group health insurance plan, expenses "incurred" and thus covered were limited to medical supplies for services furnished before policy was terminated. In other words, the insurance company could cap what a chronically injured person could receive by terminating the group policy to which that person belonged.

The court wrote:

When construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent. This court is bound to read all parts of a contract together to ascertain the agreement of the parties. The contract must be considered as a whole. For example, when a contract provision makes a general statement of coverage and another provision specifically states the time limit for such coverage, the more specific provision will control.

The operative language in Amy's policy stated that Aetna would pay for "covered medical expenses incurred during a calendar year for treatment of a covered family member."

Under the contract, Aetna was only obligated to pay Amy's medical bills as long as she was "a covered family member." Coverage of an individual terminated when the policy was discontinued or when the individual's employment terminates. Therefore, the policy read: "Any Dependant Coverage of an individual will terminate... when the individual ceases to be in a class of individuals eligible for such Dependant Coverage."

However, it also provided that:

If coverage for a family member... terminates while he is totally disabled, any benefit provided... for that family member will continue to be available for expenses incurred while he continues to be totally disabled but not beyond 12 months from the termination date.

This section applies only to claims made under the Major Medical, Comprehensive Dental, or Comprehensive Benefit sections of the contract.

Amy's treatment, which fell under the Major Medical section, was therefore liable to be terminated.

Forbau argued that the policy afforded Amy a right to receive payment for all future medical services related to any accident occurring during the policy period. This interpretation was based on the following clause in the policy:

If any benefit ceases to apply to an individual or a dependent, coverage for that benefit will cease immediately but without prejudice to any rights under the benefit established by this person while the coverage was in force.

Forbau also argued that even if this clause did not explicitly provide Amy with coverage, it at least created an ambiguity to be interpreted in favor of coverage.

The state supreme court didn't buy these arguments. It wrote, "not every difference in the interpretation of a contract or an insurance policy amounts to an ambiguity. Both the insured and the insurer are likely to take conflicting views of coverage, but neither conflicting expectations nor disputation is sufficient to create an ambiguity."

The "without prejudice" clause preserved the right to benefits "established...while the coverage was in force." It did not create new rights or benefits beyond those afforded by the other provisions of the policy, the court ruled.

The decision so far was fairly simple, if very harsh. It got complicated when several of the supreme court judges wrote an angry dissent to the decision against Amy. They condemned what they called a "sweeping anti-consumer alteration of our longstanding method for interpreting insurance policies."

They also pointed out that the decision rejected the Texas Supreme Court's own precedents, specifically the 1991 decision Gorman v. Life Ins. Co. of North Am., which granted policyholders liberal terms for making breach of contract claims against insurance companies.

Most pointedly, the dissenting judges wrote:

Ambiguities will now be construed against the insurer only after the court attempts to remove any ambiguity through manipulation of general rules of contract interpretation. While it has never been... the law of Texas that an insured creates an ambiguity merely by filing suit..., now the majority declares that, if the insurer creates an ambiguity by taking away in specific fine print most of the rights accorded the policyholder in the big print, the fine print will control.

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