Mutual of Omaha was unsuccessful in challenging a Federal District Court Judge’s decision finding its conduct to be arbitrary and capricious.
In Smith v. United of Omaha, the Fifth Circuit Court of Appeals, deciding an appeal originating from the Southern District of Mississippi, the Court was tasked with determining whether to affirm the decision granting summary judgment to the claimant, Marcia Smith. At issue was Mutual of Omaha’s efforts to apply a pre-existing limitation clause to bar payment of any long-term disability benefits under Mrs. Smith’s ERISA disability plan.
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Mutual of Omaha had applied this limitation to bar a claim for benefits, and this was challenged in the Federal Court in Mississippi. The District Court rules in plaintiff’s favor, granting her summary judgment and concluding that the decision was an abuse of discretion. The medical issues involved centered around a claim for benefits based upon metastatic ovarian cancer, but the review of the “look back period” (a time of relevance for pre-existing claim issues), did not reveal treatment for this condition. However, the insurer attempted to utilize treatment for a recurrent right pleural effusion (fluid buildup), which was in fact a symptom of the ovarian cancer. In fact, Mrs. Smith conceded that fact, while disputing the application of the pre-existing clause.
The Court adopted the argument that the “condition” causing impairment was the ovarian cancer, and not the pleural effusion, and thus, it was improper for Mutual of Omaha to apply the pre-existing limitation. In strong language, the Court rejected the insurer’s arguments and noted that “the fact that plaintiff had some symptoms which later proved consistent with cancer is insufficient to support a denial on preexisting grounds” and noting further, these “symptoms were also consistent with a variety of other ailments she did not ultimately suffer …. To permit such backward-looking reinterpretation of symptoms to support claims denials would so greatly expand the definition of preexisting conditions as to make that term meaningless.”
The essence of the Court’s holding as most broadly applied appears to be that treatment for a specific condition cannot be received unless the specific condition is known (although not an absolute). However, it also noted that “the problem with using an ex post facto (after the fact) analysis is that a whole host of symptoms occurring before a correct diagnosis is rendered, or even suspected, one presumably can be tied to the condition once it has been diagnosed.
Thus, the Court harmonized the fact that during the look back period there was care and treatment for a symptom, but that the condition which was the disabling condition, there had not been treatment, as the diagnosis had not been rendered.
Justin Frankel is a founding partner of the disability insurance law firm Frankel & Newfield and is a highly skilled litigator and advocate. He has published numerous articles on the challenges facing clients with private or individual disability insurance policies and those who own group or ERISA disability insurance policies.
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