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Buy-Up Coverage Not Subject to Statutory Limits on Pre-Existing Condition Exclusions; Multiple Sclerosis


A woman worked for her employer for 12 years before she was diagnosed with multiple sclerosis (MS). She worked for her employer for another eight years. The employer provided a group disability insurance plan for its employees and the plan provided long-term disability (LTD) insurance coverage and benefits to eligible employees. In the group disability plan, the employer, as the plan administrator, ceded sole discretionary authority to the insurer to construe the terms of the plan and make eligibility determinations.

 

The woman was insured under the core LTD plan (which provided benefits of up to 50% of an employee's monthly earnings or $7000, whichever was less), but in her 19th year of employment, the woman purchased an option for buy-up coverage (which provided benefits of up to 70% of monthly income or $10,000, whichever was less). The buy-up coverage provisions contained a pre-existing condition limitation that excluded buy-up coverage for a particular disability if medical treatment for that condition was rendered within twelve months prior to the effective date of the buy-up coverage. The pre-existing condition limitation dropped off after the buy-up coverage was in existence for a year without a disability claim. In the woman's case, this meant that if she was treated for her MS condition in the year prior to her purchase of the buy-up coverage and then became disabled as a result of her MS prior to one year after her purchase of the buy-up coverage, the pre-existing condition exclusion would limit her benefits to the core plan coverage.

 

The woman began experiencing problems with her MS in the month she purchased the buy-up coverage. She started working part-time about three months later. She received short-term disability benefits from a separate short-term disability plan at that time. Just under a year after she purchased the buy-up coverage, she stopped working at the employer entirely. Two months later, she applied for LTD benefits, stating her onset of disability as about three months after she purchased the buy-up coverage.

 

The insurer informed her that her LTD benefits were approved, but not payable at the buy-up plan rate, because her disability was due to a pre-existing medical condition, specifically her MS, and that she received treatment for her MS within twelve months prior to purchasing the buy-up coverage. The woman contacted the insurer and explained that her two doctor visits during the twelve-month time frame were for a yearly pap smear and a yearly routine MRI which she had received every year since her MS diagnosis. The insurer pointed to these same medical records which indicated that the woman was increasingly less able to manage her MS conditions during the 12 months prior to her purchase of buy-up coverage. The woman exhausted her administrative remedies with the insurer and brought an action pursuant to the Employee Retirement Income Security Act (ERISA).

 

The United States District Court for the District of South Dakota found that the insurer did not abuse its discretion in allowing regular core-plan benefits but denying buy-up benefits due to the pre-existing condition provision. The district court further found that state statutes in South Dakota or Minnesota did not alter this conclusion. The district court granted summary judgment in favor of the employer’s benefit plan.

 

The Eighth Circuit United States Court of Appeals affirmed. The court held that the state statutory scheme was irrelevant to the instant matter and the plan's interpretation of the policy was reasonable.

 

The state statutory scheme was irrelevant to the instant matter. The court held that Minnesota law applied generally. However, the Minnesota statute raised by the woman did not apply to the facts of this case because the disability insurer had not changed. Instead, the woman purchased enhanced, buy-up coverage from the same insurer.

 

The plan's interpretation of the policy was reasonable. To determine if the insurer’s interpretation of the policy was reasonable, the court considered whether the decision was consistent with plan goals; whether it rendered plan terms meaningless or was internally inconsistent; whether the decision complied with ERISA; whether the plan had previously interpreted the terms at issue consistently; and whether the interpretation was contrary to the clear language of the plan. The policy clause, “You will receive credit toward satisfaction of the Pre-existing Condition time periods under the Policy for the time You were covered under the Prior Policy,” dealt with providing plan participants credit for time spent satisfying a similar pre-existing condition limitation under a “prior policy.” The court reasoned that the buy-up coverage did not replace a prior policy for which the woman was insured. Therefore, the court concluded that the insurer reasonably determined that this provision did not apply to the facts of this case. The fact that the enhanced pay-out provisions did not completely replace an existing policy was further demonstrated by the fact that the woman was not denied benefits altogether. She still received LTD payments under the original core plan. The court found that the decision was not inconsistent or contrary to the clear language of the plan, but was instead compelled by the clear language of the plan. The court found the plan's interpretation was consistent with the plan goals and was not contrary to the clear language of the plan.

 

The Eighth Circuit United States Court of Appeals affirmed the district court’s grant of summary judgment in favor of the employer’s benefit plan.

 

See: Brake v. Hutchinson Technology Inc. Group Disability Income Ins. Plan, 2014 WL 7345692 (C.A.8 (S.D.), December 29, 2014) (not designated for publication).

 

 

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