The Uncertain Legal Intersection of Genetic Tests and Life InsuranceThe growth of direct-to-consumer DNA kits is a big deal with significant ramifications for the life insurance industry. Direct-to-consumer DNA kits, commonly used to track ancestry roots, increasingly allow individuals to assess their potential health risks by predicting genetic illnesses. Now, Google-backed 23andMe and Ancestry.com offer DNA test kits for $99, which can be ordered online with the click of a button. The DNA reports can recognize genetic variants associated with an increased risk of developing certain health conditions, including Alzheimer’s, Parkinson’s, and the BRCA1/BRCA2 genes, which are linked to increased risk of ovarian and breast cancer.

For life insurers, an industry that relies on its ability to manage risk-taking when it comes to health, this new DNA era could mean an information disadvantage compared to the consumer. Making matters more complicated for insurers, almost half of the states have enacted laws regulating how insurers either request genetic tests or ask for genetic information during the underwriting process. The laws are more expansive than the federal Genetic Information Nondiscrimination Act (GINA) enacted in 2008, which prevents genetic discrimination in the health insurance sector. For example, California state law both (1) regulates how an insurer may use genetic information obtained during the underwriting process (Cal. Ins. Code § 10143) and (2) restricts insurers from requiring applicants to undergo genetic testing (Cal. Ins. Code § 10148). Several other states have passed similar laws. These laws were largely enacted in the 1990s and 2000s, and they were formed on the premise of protecting genetic results as a form of private property.

Most regulation regarding genetic information was enacted long before the widespread dissemination of direct-to-consumer DNA kits, which have exploded in popularity in the last year or so. Given such regulation, most, if not all, life insurers have steered clear of the issue by not asking for genetic information or requesting genetic testing regardless of the jurisdiction. With applicants gaining the upper hand, however, insurers may be prompted to take a different approach by asking for available genetic information during the application process. The challenge will be for insurers to appropriately navigate state laws governing use of genetic information during the underwriting process.

In the meantime, there is an argument that the non-disclosure of unrequested genetic information could constitute fraud, giving rise to rescission of a life insurance policy. Life insurers rely on the honesty of applicants. The validity of a policy depends upon the full disclosure of all material information. It would seem manifestly unfair for an applicant to know that she has the BRCA1 gene, which she recently learned of through a 23andMe test, and then not disclose that information on a life insurance application. Although life insurance applicants generally have no duty to disclose unasked-for information, varying types of questions could conceivably be interpreted as seeking genetic information. For example, general questions such as “Are you in good health?” or “Have you ever received advice?” regarding a disease could arguably trigger an obligation to reveal a genetic predisposition. Similarly, questions about “family history” could arguably require disclosure of genetic information. That said, there is sufficient vagueness and ambiguity in this area that would probably undermine a rescission claim. Specifically, vagueness in an application question and its answer creates a difficult situation requiring the reconciliation of two competing standards: (1) the requirement to interpret questions in a light most favorable to the applicant; and (2) the general rule that individuals with knowledge of an omitted condition are more likely to have committed fraud. Given that rescission in most states hinges on “intent” to deceive the insurer, it is unclear whether the non-disclosure of genetic information to a non-specific application question could actually be used to prove intent to deceive. To date, this legal question is untested in the courts.

As genetic information becomes so easily accessible for individuals, the life insurance industry will need to address what is becoming an uneven playing field. Changing underwriting practices and application questions will be challenging given the patchwork of state laws regulating the use of genetic information. Rescission arguments arising from the non-disclosure of genetic information in life insurance applications will also remain murky until these complex legal questions are resolved in the courts, presumably in the near future.

Alabama’s Act Aimed at Prohibiting Financial Abuse of Elders – Should It Be Expanded to Cover Insurers and Insurance Agents?Alabama’s Elder Abuse Act attempts to protect financial abuse of elders. But by not including insurance companies and insurance agents, does the Act go far enough?

Following up on the blog post from late June concerning the intersection of elder abuse laws and long-term care litigation, this post concerns an Alabama statute aiming to prevent financial abuse of elders in the financial advisory context: “Protection of Vulnerable Adults from Financial Exploitation Act,” Ala. Code § 8-7-170, et seq. (2016) (the “Act”).  Specifically, section § 8-6-172 of the Act requires “qualified individuals” to “promptly notify” the Alabama Department of Human Resources and the Alabama Securities Commission if he or she “reasonably believes that the financial exploitation of a vulnerable adult may have occurred, may have been attempted, or is being attempted . . . .”  The Act’s definition of a “vulnerable adult” includes persons 65 year of age or older, and the Act broadly defines “financial exploitation” to include the “wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a vulnerable adult.” The definition of “financial exploitation” also includes using a power of attorney or guardianship to take advantage of a vulnerable adult’s property.

Notably, the Act currently only applies to “qualified individuals,” which it defines as any “agent, investment adviser representative, or person who serves in a supervisory, compliance, legal, or associated member capacity of a broker-dealer or investment adviser.” It gives such individuals that make a disclosure “in good faith and exercising reasonable care” immunity from administrative or civil liability as a result of making the disclosure. It also gives such individuals the authorization to delay a disbursement from an account of the vulnerable adult if there is a belief that such a disbursement “may result in financial exploitation of a vulnerable adult” and immunity for such delays, if such a delay is made based on a good faith belief.

Insurance agents and insurance companies are often in similar positions as financial advisors vis-à-vis their insureds, particularly with respect to changing beneficiaries (either at the request of the owner/insured or his or her power of attorney or guardian) and disbursing policy proceeds. So should the Act also cover insurance companies and insurance agents?

An argument can certainly be made that without this addition, the elderly could still fall victim to a whole segment of financial issues. The insurance industry frequently faces the challenges of a change in beneficiary, especially late in life for insureds. Sometimes such a change is unauthorized or results from undue influence on an elderly insured. While there is no one solution to combating such abuses, a long-term agent may have a close enough relationship to the policy owner to question or prevent such a change.

In any event, by expanding the Act in the future to include reporting obligations and accompanying immunity for insurance companies and agents that make such disclosures, the elderly might be better protected and insurance companies would have better direction and protection in these scenarios.

CNA Long-Term Care Class Action — Could It Have Long-Term Consequences?A long-term care insurance class action filed in May 2018 highlights the importance of clearly defined policy language. At dispute in the lawsuit pending in the United States District Court for the Northern District of Illinois is the definition of “premium class.” The phrase is not defined in the Continental Casualty Company (CNA) policy, which was issued through CNA’s Federal Judiciary Group Program. The plaintiff, who was a resident of the state of Washington at the time the policy was purchased, alleges that the term “premium class” refers to the “nationwide pool of insureds under the group insurance plan within a given age category.”  According to CNA, the plaintiff’s interpretation of “premium class” would render each state’s individual authority to approve premium rate increases a nullity, effectively “negat[ing] [state] insurance laws that are incorporated into the Policy as a matter of law.”

The policy states:

We cannot change the Insured’s premiums because of age or health.  We can, however, change the Insured’s premium based on his or her premium class, but only if  We change the premiums for all other Insureds in the same premium class.

CNA applied for premium rate increases for Washington participants in its group programs to the Washington State Office of the Insurance Commissioner (OIC) in 2015. The OIC approved certain rate changes. In 2017, CNA advised the plaintiff that his premium would increase by 25 percent in the first year, with a 25 percent premium increase each of the following two years. The CNA letter also indicated that the premium increase was not uniform across the premium class as laws and approval requirements varied by state, and the requested premiums might not be approved by all states. Plaintiff argues that the premium increase violates the terms of the policy because it is not uniform nationwide.

Plaintiff Took Issue with 2017 Rate Increases

Plaintiff Carlton Gunn, individually and on behalf of all others similarly situated, alleges that CNA breached the terms of the policy, breached the implied covenant of good faith and fair dealing, violated consumer protection laws, and engaged in fraudulent concealment relating to the premium increases. Plaintiff claims that both the marketing materials used in soliciting purchasers and the policy itself state that premiums would not be increased unless they were increased uniformly for everyone in the same age group. The plaintiff alleges that CNA improperly “imposed rate increases at different times and in different amounts from one state to the next.”

CNA filed a motion to dismiss arguing the complaint is not viable as a matter of law.  CNA argues that plaintiff’s interpretation of “premium class” is not reasonable and therefore cannot support the plaintiff’s claims. CNA also argues plaintiff’s interpretation would negate state authority to approve premium rate increases, which states are permitted to do with federal deference to state jurisdiction under the McCarran-Ferguson Act.

Alternatively, CNA seeks a stay of the proceedings, asserting that there is a threat of inconsistent judgments if the Washington State Office of the Insurance Commissioner is not allowed to first address plaintiff’s “challenge to [the OIC’s] authority and how the rate decision was made” since the challenged rate increase “applie[s] to policies that fall outside plaintiff’s current proposed class definition.”

Stay tuned. If the court adopts plaintiff’s interpretation, the ruling could change how and when insurers increase long-term care premium rates.