Facts
- Valerie K. Hall had employer-provided long-term disability (LTD) insurance issued by Continental Casualty Company (Continental).
- The policy excluded coverage for disability caused by a “preexisting condition,” defined as a condition for which medical treatment or advice was rendered, prescribed, or recommended within three months before the policy’s effective date.
- During the three-month look-back period, Hall, a longtime smoker, went to the emergency room with nonspecific symptoms, including chest pain, shortness of breath, and left-arm numbness.
- She was initially assessed with conditions such as pneumonia, tachycardia, and asthma.
- Chest imaging revealed a spot on her lung; physicians considered possible lung cancer given her smoking history, but also considered pneumonia and ordered additional testing to determine the cause.
- After the policy became effective, Hall was diagnosed with lung cancer.
- Hall became disabled and submitted an LTD claim.
- Continental denied benefits, asserting the lung cancer was a preexisting condition because Hall had received medical attention and diagnostic testing during the look-back period.
- Hall sued Continental for breach of contract (wrongful denial of benefits) and for insurer bad faith under Wisconsin law.
- Continental removed the case to federal court; the court proceeded under diversity jurisdiction because the plan was a government plan exempt from ERISA.
- Continental moved for summary judgment on both claims.
Issues
- Whether Hall’s lung cancer fell within the policy’s preexisting-condition exclusion when, during the look-back period, she received medical attention for symptoms and testing that could have indicated cancer but no treatment or advice was given for lung cancer itself.
- Whether Continental was entitled to summary judgment on Hall’s Wisconsin bad-faith claim based on its handling and denial of the LTD claim.
Decision
- The court held the preexisting-condition exclusion did not apply because Hall did not receive treatment or advice for lung cancer before the policy’s effective date; the pre-policy care addressed nonspecific symptoms and possible alternative causes.
- The court denied Continental’s motion for summary judgment on the breach-of-contract claim and entered summary judgment for Hall on that claim because the material facts were undisputed and coverage existed as a matter of law.
- The court denied Continental’s motion for summary judgment on the bad-faith claim, concluding that factual disputes about the reasonableness of Continental’s conduct precluded judgment as a matter of law at that stage.
Legal Principles
- Under Wisconsin law, a preexisting-condition exclusion defined by “treatment or advice” applies when the insured received treatment or advice for the condition at issue during the look-back period, not merely care for symptoms that might later be traced to that condition.
- Medical evaluation and treatment for general or ambiguous symptoms, without a diagnosis and without treatment or advice directed to the later-diagnosed disease, may be insufficient to trigger a preexisting-condition exclusion.
- A federal court may grant summary judgment to a nonmoving party when the record shows there is no genuine dispute of material fact and that party is entitled to judgment as a matter of law.
- Under Wisconsin law, insurer bad faith generally requires showing (1) the absence of a reasonable basis for denying benefits and (2) the insurer’s knowledge or reckless disregard of the lack of a reasonable basis; where the record permits competing inferences about claim handling, summary judgment may be inappropriate.
Conclusion
Hall’s pre-policy medical visit involved nonspecific complaints and testing that did not amount to treatment or advice for lung cancer, so the court ruled the LTD policy’s preexisting-condition exclusion did not bar coverage and entered judgment for Hall on breach of contract; however, because the reasonableness of Continental’s investigation and denial presented factual questions, the court allowed Hall’s Wisconsin bad-faith claim to proceed.