## Facts

- In 1986, Leroy Bushnell (as agent for his mother, Evelyn) obtained a “Skilled and Intermediate Nursing Policy” providing benefits for medically required skilled/intermediate nursing care, subject to a lifetime maximum.
- The policy conditioned benefits on confinement in a qualified nursing facility recommended by a physician within 14 days after at least a three-day hospital confinement for the same condition.
- The policy included (1) a renewal clause requiring renewal if premiums were timely paid (with a 31-day grace period) and (2) a conformity-to-state-law clause amending nonconforming provisions to match state law as of the policy date.
- In 1986 Washington enacted long-term care insurance legislation; in 1988 it prohibited long-term care policies from requiring prior hospitalization as a condition of coverage, and regulations implemented that prohibition for covered policies.
- The policy operated on annual terms and was renewed for many years as premiums were paid.
- On February 24, 2007, Evelyn was admitted directly to a skilled nursing facility on a physician’s recommendation without a preceding three-day hospital stay.
- Medico denied the claim, asserting (1) the hospitalization condition was unmet, (2) the 1988 prohibition did not apply because the policy was issued in 1986, and (3) coverage lapsed due to late payment of a March 2007 premium.
- The policy also contained a 20-day elimination period tied to nonpayment that began only after expiration of the 31-day grace period.

## Issues

1. Whether annual renewal of the long-term care policy, together with its conformity clause, made the 1988 statutory/regulatory ban on prior-hospitalization prerequisites applicable so that the three-day hospitalization condition was unenforceable.
2. Whether Medico was entitled to summary judgment on coverage based on alleged lapse, given the policy’s grace-period and elimination-period provisions.
3. Whether Medico was entitled to summary judgment dismissing extra-contractual claims (including bad faith) on the theory that its denial was reasonable as a matter of law.

## Decision

- The appellate court reversed summary judgment for Medico and remanded.
- The court held the three-day prior-hospitalization requirement was unenforceable as applied to the renewed policy under Washington long-term care insurance statutes and regulations.
- The court held Medico was not entitled to summary judgment on a lapse defense where the premium payment timing fell within the policy’s grace-period structure.
- The court held summary judgment dismissing bad faith and related extra-contractual claims was improper because material factual and legal questions remained regarding coverage and the reasonableness of claim handling.

## Legal Principles

- Statutory and regulatory requirements governing long-term care insurance may be incorporated into a policy upon renewal; inconsistent policy terms may be rendered unenforceable, particularly where the policy renews on defined terms and includes a conformity clause.
- Washington law bars long-term care coverage conditions requiring prior hospitalization; insurers may not enforce such prerequisites in policies subject to that prohibition through renewal and statutory incorporation.
- Where a policy provides a grace period for premium payment and an elimination period that starts only after the grace period expires, payment within the grace period generally defeats a lapse-based denial at the summary judgment stage.
- An insurer’s duty of good faith and the reasonableness of a coverage denial are commonly fact-dependent; summary judgment is improper where coverage turns on contested legal and factual questions.

## Conclusion

The court held that Washington’s long-term care insurance protections applied to the renewed policy such that the prior-hospitalization prerequisite could not be enforced, rejected summary judgment based on alleged lapse under the policy’s grace-period framework, and reinstated extra-contractual claims for further proceedings.


Bushnell v. Medico Ins. Co., 159 Wash. App. 874, 246 P.3d 856 (Wash. Ct. App. 2011)