The New York Court of Appeals, the state’s highest court, handed down an important opinion on June 27, 2007.  The decision, Benesowitz v. Metropolitan Life Insurance Co. (available from the Court of Appeals website, click here), will undoubtedly benefit many New Yorkers pursuing disability claims under individual disability policies and employer-sponsored (ERISA) long term disability plans provided through insurance policies.  The Court was asked to consider a statute, N.Y. Insurance Law §3234, which applies to disability insurance policies and provides: “No pre-existing condition provision shall exclude coverage for a period in excess of twelve months following the effective date of coverage for the covered person.”  Mr. Benesowitz, who started working for Honeywell International, Inc., on April 1, 2002, was disabled by October, 2002, as a result of kidney disease for which he had been treated within the 3-month period preceding his employment.  The kidney disease thus constituted a pre-existing condition.

 

MetLife, the insurer for Honeywell’s disability plan, argued that clauses using the language of Sec. 3234 should be interpreted to bar coverage in perpetuity for any disability arising from a pre-existing condition that starts within the 12-month period.  Mr. Benesowitz argued that Sec. 3234 should not be interpreted as barring him from ever receiving benefits, but that it only prevented him from receiving benefits for the 12-month period after his effective date.  As with most cases involving employer-sponsored benefits, governed by ERISA, the case was initially adjudicated in federal district court, which sided with MetLife.  When Mr. Benesowitz appealed, the Second Circuit Court of Appeals found the statutory language ambiguous and, in an infrequently used procedure, “certified” the question to the State’s highest court, as the final arbiter and interpreter of state statutes.  The New York Court of Appeals sided with Mr. Benesowitz.  Observing that Sec. 3234 was modeled on a similarly worded statute addressing health insurance policies, the Court concluded:  “If insurers may exclude health coverage for up to 12 months under section 3232 but must pay benefits for medical claims related to preexisting conditions after that time period, the statute should operate the same way for group disability plans under section 3234…”  In other words, “a policy may impose a 12-month waiting period during which no benefits will be paid for a disability stemming from a pre-existing condition and arising in the first 12 months of coverage,” but may not “impose … an absolute bar to benefits.”

 

Since many long term disability plans require an “elimination period” (a waiting period before benefits are payable) of anywhere from 3 to 6 months, Benesowitz will mean, in some cases, that the claimant suffers no loss in benefits whatsoever.  If the Honeywell disability plan, for example, had a 6 month elimination period, Mr. Benesowitz would normally be required to wait 6 months (from October, 2002, to April, 2003) to receive benefits.  Because the 12-month pre-existing condition period started from Mr. Benesowitz’s effective date, which likely was his hire date in April, 2002, MetLife could only refuse to pay benefits for months prior to April, 2003, so that – in fact – Mr. Benesowitz would lose no benefits at all!  Because disability insurers in New York have priced their policies with the assumption that Sec. 3234 was a complete bar to coverage of disability benefits for pre-existing conditions occurring in the first 12 months of employment, we would not be surprised to see insurers pressing for increased premiums and/or lobbying the State Legislature to amend Sec. 3234 so as to overturn the Benesowitz decision.

 

PLEASE NOTE:  New York insurance law generally governs individual, privately-purchased disability policies issued in this state, as well as employer-sponsored disability plans which are insured through group policies issued by insurance companies.  Where an employer does not purchase an insurance policy, but pays disability benefits out of its own funds, i.e., a so called “self-funded” or “self-insured” plan, the plan is not obligated to follow New York insurance law.