Health Insurance and the Courts

General Legal Doctrines of Health Insurance

In resolving health insurance contract disputes, courts will apply general doctrines of insurance policy interpretation. For example, the ambiguity doctrine, which holds that any ambiguity found in the insurance contract is to be strictly construed against the insurer, is frequently employed.

The doctrine has been used in the insured’s favor, for example, to determine whether an insured had a vested right to continue coverage under canceled group insurance. The ambiguity doctrine is routinely utilized when the contract can fairly be interpreted in more than one way.

Another doctrine employed by the courts in construing health insurance contracts is the reasonable expectations doctrine. This doctrine uses the objectively reasonable expectations of the insured regarding the terms of the contract will be honored, even if close scrutiny of the contract provisions would negate these expectations.

In one example of this, an insured actually paid a health insurance premium and received a conditional receipt which stated that coverage was conditional upon the insured’s insurability. Subsequently, the insured incurred medical expenses but was denied coverage because the statements of the insured on the application did not properly refer to a pre-existing condition.

When the insured sued, the court decided that even though the insured had not satisfied the conditions required under the receipt, he was under the impression that he had received coverage as a result of premium payment. As a result, the reasonable expectations of the insured were upheld, despite contrary language in the policy.

Pre-existing Conditions

All individual health insurance policies have strict guidelines of claims denials for pre-existing conditions. The determination of whether the condition was pre-existing creates legal issues constantly.

Some courts have developed a subjective, two-alternative test for determining whether a condition pre-dated the effective date of the insurance policy. The court may look to the point at which the illness first manifested itself or became active, or the court may look to the point at which the insured first experienced the distinct symptoms or conditions which would lead to a diagnosis of the illness.

Other courts have used an objective single prong test, where the inquiry centers upon the point at which a reasonable person should have known of the existence of the illness based on the symptoms.

Disputes arising from the pre-existing condition provision arise often, centering on the point at which the illness came into existence. Although courts uphold the pre-existing condition defense where there is convincing evidence that the condition pre-dated the contract, they will generally construe the provision strictly against the insurer.

Medical Necessity Requirements

A typical health insurance policy limits the extent of coverage to those expenses which are “medically necessary”. Conflicts arise when a doctor determines that a certain treatment or procedure is necessary, but the insurance company disagrees.

In response to this issue, many insurance companies have developed their own committees, or contracted with external companies, for the purpose of reviewing the diagnoses and recommendations of healthcare providers. Ultimately, the decision as to whether a treatment was medically necessary must be made in light of the knowledge which existed at the time the decision was rendered.

Mental Health Exceptions

Many health and disability policies limit or exclude mental illness from coverage. The exclusion is triggered once it is determined that the mental illness at issue arose from behavioral disturbances, rather than organic or physical sources. Accordingly, it has been held that autism is not subject to the exclusion but manic depression is.