SEPTEMBER 2011 BAD FAITH CASES COURT DENIES MOTION TO DISMISS AS INSURED SUFFICIENTLY ALLEGED IMPROPER DENIAL OF COVERAGE ON BASIS THAT SHE FAILED TO DISCLOSE MEDICAL CONDITION (Middle District)

In Wasko v. Coventry Health & Life Insurance Company, the court was faced with a carrier’s motion to dismiss, or in the alternative, for a more definite statement.  The case stemmed from the carrier’s denial of coverage for the insured’s back surgery. 

In August 2008, the insured applied for health insurance.  The carrier issued a policy in October 2008.  However, two weeks later, the insured began to suffer intense back pain.  Doctors concluded that the insured suffered from a serious back condition that required surgery to alleviate the pain.  In January 2009, the carrier approved a procedure for surgery requested by her doctor and paid for that surgery, but rejected her benefits request for a “CAPSTONE Spinal System as not medically necessary or otherwise experimental and investigational.”

In February 2009, the carrier began to investigate the insured’s medical history, revealing a history of chronic back problems, medical examinations, and painkiller usage for back pain.  The carrier sent a letter to the insured, rescinding coverage on the basis that she lied on her application.  The carrier rejected the insured’s request for reconsideration. 

As a result, the insured brought claims for bad faith and breach of contract against the carrier, arguing that she was truthful in her application and was entitled to coverage.

The court denied the motion, finding that she properly alleged that the carrier “denied benefits…based on the…unsubstantiated claim of fraud by the insured.”  Moreover, the court agreed that the carrier “failed…to investigate [the insured’s] application until [she] filed a financially significant claim,” warranting the denial of the carrier’s motion to dismiss.

The court also ruled that the insured stated a breach of contract claim.  The parties entered into a valid contract for insurance coverage – in return for a premium, the carrier would provide benefits to the insured.  Furthermore, the plaintiff set out a claim that the carrier denied benefits due under the contract, breaching its agreement with the insured. Accordingly, the court denied the carrier’s motion to dismiss.

Wasko v. Coventry Health & Life Ins. Co., 3:11cv618, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 109946 (M.D. Pa. Sept. 27, 2011) (Munley, J.)