Insurance Law Developments

The question of whether Mutual of Omaha discriminated against a gay man (John Doe) when it refused to issue a long-term care insurance policy due to the company’s practice of denying coverage to anyone using the HIV-prevention protocol Truvada, also called PrEP, is set to be decided by a Massachusetts court and may have an impact beyond just the parties in that case.

Two Viewpoints

For Mutual, the lawsuit is a pure insurance case because it asserts its actions are based on legitimate underwriting concerns and not bias against gay men. But for the plaintiff, the case is broader than just himself; he alleges Mutual is engaged in bias-related discrimination that, if proven, could have a disparate impact on all gay men denied insurance coverage because they use Truvada as PrEP. Not wholly unlike the situation existing during the AIDS crisis when gay men believed they were unfairly targeted by actions that insurers maintained were necessary business practices, the viewpoints of the insurer and the insured are starkly different.

Underwriting or Wrong?

The court will decide whether Doe’s claims are cognizable, and if so, whether Mutual’s decision was in violation of Massachusetts public accommodation laws. The parties argued whether jurisdiction exists and whether the specific requirements of Massachusetts public accommodation laws have been triggered. But issues related to the blanket exclusion of all Truvada users for coverage by Mutual and the plaintiff’s assertion that the exclusion is potentially discriminatory to all gay men are particularly of interest for this discussion. The plaintiff claims that Mutual relies on at least two flawed bases for its blanket decision to deny coverage to Truvada users: (1) Truvada as PrEP users are more likely to become HIV infected; and (2) there is insufficient claims experience related to the long-term effects of Truvada as PreP.

Truvada Use and Greater Chance of HIV Infection?

Does Truvada usage indicate someone is at a higher risk of HIV infection thus justifying a blanket exclusion for all Truvada as PreP users? At first glance this reasoning may seem counterintuitive given that PrEP is designed to prevent HIV infection. The concern appears to hinge on whether people taking PrEP will do so as mandated. Health authorities advocate that “people who use PrEP must commit to taking the drug every day.” Failure to do so can leave one vulnerable to HIV infection because only those who are already at high risk of HIV will even be taking Truvada as PrEP. To follow this reasoning further, someone taking Truvada as PrEP, even though not doing so as prescribed, may still feel protected from infection, and therefore, might be lulled into a false sense of security and be more likely to engage in risky behavior. Following the reasoning to conclusion, engaging in risky behavior — such as promiscuous sex or drug use –while not fully protected by PrEP, increases the chances of HIV infection. As a counterargument, Doe asserts that there is no similar blanket exclusion for other drugs requiring daily dosage to maintain their efficacy.

No Long-Term Health Information on Truvada?

Doe also attempts to rebut any assertion that there is insufficient information on long-term use of Truvada as PrEP such that a blanket exclusion is warranted. Although Truvada was first approved by the FDA in 2004, the initial approval was for HIV treatment and not for prevention. Truvada as PrEP, for long-term prevention of HIV, was not approved until 2012. The timeframe at issue in the lawsuit is 2014–2015, when the application for insurance/appeal were denied. Was there sufficient information available in 2014–2015 for Mutual to evaluate the effect that long-term use of PrEP would have on a potential insured? An argument can be made that the short period between FDA approval in 2012 and the application/appeal in 2014–2015 would have been insufficient time to answer that question as it relates to evaluating the underwriting risk. Doe attempts to thwart this argument and posits by way of expert opinion that there is no basis for a blanket exclusion for Truvada users because no scientific data exists showing adverse health risks for those who use Truvada either long-term as HIV treatment (as approved in 2004) or for those who use Truvada long-term for HIV prevention (as approved in 2012). Doe also contends it is improper for Mutual to treat Truvada differently than it does other recently FDA-approved drugs that are also without long-term safety data, such as recently approved diabetes or high blood pressure medications. Finally, Doe argues that Truvada is as safe as or safer than certain drugs that do not mandate a blanket exclusion of coverage, e.g., hormonal contraceptives and drugs used to treat depression and epilepsy. Doe contends that by not treating Truvada in the same manner as other drugs, an insurer would be unlawfully discriminating against and limiting access to public accommodation for gay men.

Regardless of why the decision was made to deny coverage in the lawsuit, the positions taken by the parties highlight the opposite characterizations put on the case by each side. Ultimately, someone will decide: Whose theory of the case is right? Believable? True? Depending on the answers, the lawsuit could be an ordinary insurance case affecting only the named parties, or it could have ramifications that affect many more than just Doe and Mutual.

We will update this blog with developments in the lawsuit and in regard to other issues related to the allegations asserted by Doe.

A Letter from the Editors

Because each state’s laws related to insurance are unique and because federal courts’ application of ERISA to a set of facts can vary from circuit to circuit, there exist myriad nuances in the law as applied to life, health, disability and long-term care insurance. To address this somewhat amorphous area of the law, we are pleased to introduce our new blog—Underwritten— to provide commentary, updates and insight on the developments that could have an impact on insurers as they seek to serve their policyholders and to mitigate risk. Our goal is to make Underwritten a valuable resource for our clients, for insurers and for those who have an interest in the insurance industry.

Bradley’s Insurance team has extensive experience representing life, health, disability and long-term care insurers in actions across the country. Our team will analyze important cases, regulations and developments, will assess their importance, and will work to provide information relevant to you. You can expect to hear from us at least twice a month on topics such as:

  • Significant federal and state cases
  • ERISA updates
  • Regulatory actions of note
  • NAIC activity
  • Cybersecurity issues

You are invited to visit Underwritten to read about significant cases and other topics related to the insurance industry. To make sure you don’t miss updates, subscribe to receive our posts via email.

If you have any questions or suggestions for Underwritten, please contact us.

Sincerely,

Gary L. Howard & Jamie L. Moore, Editors

Texas Supreme Court Issues Highly Anticipated Bad Faith OpinionOne year after its initial decision in a significant bad faith case, the Texas Supreme Court has issued its much-awaited opinion in USAA Tex. Lloyds Co. v. Menchaca. The case involved a homeowner whose post-Hurricane Ike property damage claim was denied by USAA Texas Lloyds Company (USAA). At trial, the jury found that USAA did not breach the policy, but that the company did violate the unfair settlement practices provisions of the Texas Insurance Code.

Given that “substantial confusion” existed in Texas courts regarding the relationship between contractual claims for breach of an insurance policy and statutory bad faith claims under the Texas Insurance Code, the Texas Supreme Court attempted to set clearer precedent in its original opinion in April 2017. However, the ruling was met with concern that it further muddied Texas insurance law and set negative precedent for insurers by reviving claims for treble damages under the Texas Insurance Code. In an unusual move, the Texas Supreme Court agreed to a rehearing.

In the newly released opinion, which replaces the 2017 ruling, the court reiterates the five “distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context” it previously identified last year. Importantly, the court further clarifies the critical point for insurers that generally an insured cannot recover damages under the Texas Insurance Code without establishing a breach of the policy, and that exceptions to the general rule are narrow.

The five rules developed by the Texas Supreme Court that should be applied by Texas courts to the interplay between contractual and Texas Insurance Code statutory claims are:

  1. The General Rule: An insured cannot recover policy benefits under a Texas Insurance Code violation if the insured does not have a right to those benefits under the policy. This rule derives from the fact that the Texas Insurance Code only allows an insured to recover actual damages “caused by” the insurer’s statutory violation.
  2. The Entitled-to-Benefits Rule: An insured who establishes a right to receive policy benefits can recover the benefits as “actual damages” under the Texas Insurance Code if the statutory violation causes the loss of benefits. The court refers to this rule as a “logical corollary to the general rule.”
  3. The Benefits-Lost Rule: An insured can recover benefits as actual damages under the Texas Insurance Code even if the insured has no right to those benefits under the policy if the insurer’s conduct caused the insured to lose that contractual right. This principal is recognized where an insurer misrepresented a policy’s coverage, waived its right to deny coverage or is estopped from doing so, or committed a violation that caused the insured to lose a contractual right to benefits that it otherwise would have had.
  4. The Independent-Injury Rule: This rule has two aspects:
    1. If an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for that injury even if the policy does not entitle the insured to receive benefits. However, when an insured seeks to recover damages that “are predicated on,” “flow from,” or “stem from” policy benefits, the general rule applies and precludes recovery unless the policy entitles the insured to those benefits; and
    2. An insurer’s statutory violation does not permit the insured to recover any damages beyond policy benefits unless the violation causes an injury that is independent from the loss of benefits.
  5. The No-Recovery Rule: An insured cannot recover any damages based on an insurer’s Texas Insurance Code violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits. This rule is considered “the natural corollary to the first four rules.”

The court also provided additional context and guidance for these rules. Ultimately, with respect to the claims at issue in this particular case, the court remanded the case to the trial court for a new trial consistent with its opinion.