United States District Court, Eastern District of Pennsylvania
June 20, 2001
JOSEPH LAWSON AND TAMMY MALATAK, ON BEHALF OF MINOR CHILD ELENA LAWSON, PLAINTIFFS,
FORTIS INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Marvin Katz, Senior Judge
MEMORANDUM & ORDER
This case concerns a preexisting condition exclusion contained in a
short-term medical insurance policy issued by defendant Fortis Insurance
Company and purchased by plaintiff Joseph Lawson for himself and his
daughter Elena Lawson. Plaintiffs bring claims for breach of contract and
bad faith. Now before the court are the plaintiffs' motion for partial
summary judgment and the defendant's motion for summary judgment.
Mr. Lawson obtained the Fortis policy for himself and Elena on October
7, 1998, and the policy became effective two days later on October 9. At
issue is the medical expenses incurred by Elena for the diagnosis and
ultimately successful treatment of her leukemia during the time that the
Fortis policy was in effect. Fortis denied coverage for these expenses on
the grounds that the leukemia was a preexisting condition. The policy
excludes coverage for a preexisting condition, defined as:
A Sickness, Injury, disease or physical condition
for which medical advice or treatment was
recommended by a Physician or received from a
Physician within the five (5) year period preceding
that Covered Person's Effective Date of Coverage.
P1. Mem. in Supp. of Partial Summ. J., Ex. 1 (Policy) at 3, 10.
"Sickness" is defined by the policy as: "An illness, disease or condition
which is diagnosed or treated while this policy is in force." Id. at 3.
Disease and physical condition are not defined.*fn1
On October 7, 1998, Elena's mother, plaintiff Tammy Malatak, brought
Elena to the emergency room at Palmerton Hospital. According to hospital
records, Ms. Malatak reported that Elena "was running a temperature since
yesterday, about 102 degrees F." P1. Mem. in Supp. of Partial Summ. J.,
Ex. 2. Other symptoms exhibited by Elena included a swollen eye, a dry
hacking cough, and a scratchy throat. Id. Ms. Malatak also testified at
her deposition that Elena seemed sluggish and that Tylenol had not
reduced her fever. Def. Answer to P1. Mot. for Partial Summ. J., Ex. A at
29, 42-43. Dr. Shailesh Parikh, the emergency room doctor, diagnosed an
upper respiratory inflection.*fn2 Id. He prescribed antibiotics and
allergy medicine, told Ms. Malatak to treat Elena's fever with Tylenol or
Advil, and to take Elena to her regular doctor for follow up in one or
two days. Id. Def Mem. in Supp. of Summ. J., Ex. C at 24. Dr. Parikh also
told Ms. Malatak to bring Elena back to emergency room if the fever
continued or worsened. Id.
On October 13, 1998, after the policy was effective, Elena again sought
medical treatment, this time from Dr. Narendra Ambani. According to the
doctor's treatment notes, Elena's symptoms at that time included an
on-and-off fever for one week, dizziness, lower back pain, coughing and
vomiting five times that day. P1. Mem. in Supp. of Partial Summ. J., Ex.
3. Dr. Ambani diagnosed an upper respiratory infection, gastroenteritis,
and possible bronchitis. He continued the medication prescribed by Dr.
Parikh. Id. The next day, Elena visited yet another physician, Dr. Mira
Slizovskaya. While noting that Elena exhibited signs of bronchitis, Dr.
Slizovskaya also felt that her patient "looked sick, out of proportion to
[her] physical findings" and ordered a number of tests, including a
complete blood count. Def. Mem. in Supp. of Summ. J., Ex. F at 17, 25.
The blood count revealed abnormalities and after additional testing,
Elena was transferred to Children's Hospital of Philadelphia on October
15, with the preliminary diagnosis of pneumonia, sepsis and leukemia.
After investigation, Fortis denied Elena's application for benefits on
the grounds that her leukemia was a preexisting condition within the
meaning of its policy. According to Dr. Raymond Brumblay, Fortis' medical
The leukemia began and produced symptoms for which
the patient was brought to the Palmerton Emergency
Department prior to the effective date. While the
evaluation there failed to diagnose leukemia, advice
and treatment for those symptoms were received from
a physician. This meets the policy definition of a
Def. Mem. in Supp. of Summ. J., Ex. E.
Dr. Brumblay conceded at his deposition that the symptoms Elena
presented at the emergency room October 7 would not suggest to a
reasonable physician that, at that time, Elena had leukemia. P1. Mem. in
Supp. of Partial Summ. J., Ex. 7 at 16-17. According to the medical
evidence of record, however, these symptoms were consistent with
leukemia. See. e.g., P1. Response to Def. Mot., Ex. 1 (Dr. Beverly Lange
Dep.) at 36 (stating that fever may be a sign of infection or leukemia);
P1. Mem. in Supp. of Partial Summ. J., Ex. 7 (Dr. Brumblay Dep.) at 14
(stating that Elena presented symptoms of leukemia at the emergency
room, including persistent fever); Def. Mem. in Supp. of Summ. J., Ex. C
(Dr. Parikh Dep.) at 22, 32-33 (stating that Elena presented symptoms of
a cough and cold at the emergency room, but acknowledging that those
symptoms were similar to that of leukemia at an early stage); id., Ex F
(Dr. Silzovskaya Dep.) at 66 (stating that Elena's initial complaints of
fever and cough could be attributed to a respiratory infection or
The Fortis policy provides a policy holder with the "right to have the
denial reviewed and reconsidered" by the company's "Appeal Review
Committee." Policy at 11. Mr. Lawson appealed the denial. According to
Marilyn Klein, the Fortis employee who handled the appeal, Fortis
classifies appeals as either inquires or grievances. P1. Mem. in Supp. of
Partial Summ. J., Ex. 11 at 7. An appeal is classified as an inquiry if
"the writer does not understand the basis for the for the decision that
was made," while an appeal is classified as a grievance if the writer
"understand[s] the basis for the decision, but . . . dispute[s] it." Id.
For an inquiry appeal, Fortis' practice was to review the initial
determination and if the reviewer felt the decision was correct, to send
the policy holder a detailed explanation. Id. at 8. A reviewer could, in
her discretion, refer an inquiry to her supervisor, who could, in turn,
refer it to a director. Id. Although the record is somewhat confusing
regarding the processing of a grievance, it appears to allow for
consideration of additional evidence and to encompass several potential
levels of review, the highest of which is conducted by Fortis' Grievance
Committee. Id. at 8, 25. Ms. Klein and a coworker determined that Mr.
Lawson's appeal was an inquiry because Mr. Lawson did not understand that
Fortis' definition of preexisting coverage did not require a correct
diagnosis of leukemia at the time of treatment, but "simply that the
illness that is leukemia was treated by physicians" prior to the
effective date of coverage. P1. Mem. in Supp. of Partial Summ. J., Ex. 12
at 3. Fortis denied the appeal on this basis.
Plaintiffs have moved for partial summary judgment on their breach of
contract claim. Defendant has moved for summary judgment on the breach of
contract claim and plaintiffs' bad faith claim.
A. Breach of Contract
Plaintiffs argue that the policy is ambiguous and therefore, under
Pennsylvania law, should be interpreted in their favor. Under plaintiffs'
interpretation, because Elena received treatment for an upper respiratory
infection and not for leukemia prior to the policy's effective date, the
leukemia was not a preexisting condition. On the other hand, defendant
argues that the policy is not ambiguous and that Elena's visit to, and
treatment at, the emergency room triggered the provisions of the
preexisting condition exclusion. Accordingly, the court will first
determine whether the preexisting exclusion is ambiguous.
Interpretation of an insurance contract is generally for the court
rather than the fact finder. Standard Venetian Blind Co. v. Am. Empire
Ins., 469 A.2d 563, 566 (Pa. 1983).*fn4 "[T]he interpretation of the
scope of coverage of an insurance contract . . . [is] a question of
law[.]" McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073,
1074 (3d Cir. 1990). If the language of an insurance contract is clear
and unambiguous, a court is required to enforce that language. Id.
Moreover, a court should, if possible, interpret the policy to avoid
ambiguities and give effect to all of its provisions. Medical Protective
Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999) (citation, punctuation
omitted). On the other hand, if a contract is reasonably susceptible to
more than one interpretation, it is ambiguous. Id. Ambiguous provisions
"must be construed against the insurer and in favor of the insured; any
reasonable interpretation offered by the insured, therefore, must
control." Id. at 104 (citation, punctuation omitted); see also id.
(noting that "[t]his rule has been applied liberally in Pennsylvania").
Pennsylvania courts have offered two justifications for this rule of
interpretation. First, insurance policies are contracts of adhesion
between two unequal parties "and thus equity requires their
interpretation in favor of the weaker party." Id. (citation, punctuation
omitted). Second, the well-established rule of contract construction is
that ambiguities are interpreted against the party who drafted it. Id.*fn5
As noted previously, the policy defines a preexisting condition as:
A Sickness, Injury, disease or physical condition
for which medical advice or treatment was
recommended by a Physician or received from a
Physician within the five (5) year period preceding
that Covered Person's Effective Date of Coverage.
Policy at 3. The policy defines "Sickness" as: "An illness, disease or
condition which is diagnosed or treated while this policy is in force." Id.
The parties agree that Elena's leukemia was diagnosed and treated while the
policy was in force. Therefore, according to the policy definition, the
leukemia is a Sickness."
The critical question, then, is whether "medical advice or treatment
was recommended by a Physician or received from a Physician" for the
leukemia. According to the plaintiffs, in order for Elena to receive
advice or treatment for leukemia within the meaning of the preexisting
condition exclusion, there must be some awareness that the treatment or
advice was being provided for leukemia. On the other hand, Fortis argues
that because the leukemia existed at the time Elena visited the emergency
room, and the symptoms she displayed were consistent with leukemia, the
advice and treatment she received was for the leukemia. In the
defendant's view, it is immaterial that neither the emergency room doctor
nor the plaintiffs had any suspicion that Elena had leukemia at that
time. Essentially, defendant argues that the policy does not require that
the preexisting condition be diagnosed, but simply requires that the
policy holder receives medical advice or treatment for symptoms of the
The interpretations of the policy's preexisting condition definition
offered by both the plaintiffs and the defendant are reasonable. See
Hughes v. Boston Mut. Life Ins. Co., 26 F.3d 264, 269 (1st Cir. 1994).
Because the contract is reasonably susceptible to more than one
interpretation, it is ambiguous. In holding that the language is
ambiguous, the court finds Hughes instructive. Hughes was diagnosed with
multiple sclerosis after his policy became effective. During the six
months prior to his effective date of coverage, he visited his doctor
complaining of numbness in the lower extremities, loss of balance, and
gastrointestinal problems. Id. at 266. The doctor treated the
gastrointestinal condition, but did not diagnose multiple sclerosis at
that time. Id. The court was faced with policy language similar to that
at issue here: the Hughes policy defined a preexisting condition as "a
sickness or injury for which the insured received treatment within 6
months prior to the insured's effective date."*fn6 Id. According to the
defendant, this definition meant that "treatment `for' a condition refers
to treatment of any symptom which in hindsight appears to be a
manifestation of the condition." Id. at 269. Hughes, on the other hand,
offered a definition requiring "some awareness on the part of the
physician or the insured that insured is receiving treatment for the
condition itself." Id. Finding both interpretations reasonable, and
applying the rule of construction that ambiguous terms are to be strictly
construed against the insurer, the court adopted Hughes' interpretation.
Id. at 268-70; see also Ross v. Western Fidelity Ins. Co., 881 F.2d 142,
144 (5th Cir. 1989) ("[T]here is at least a reasonable argument that . .
. treatment for a specific condition cannot be received unless the
specific condition is known."); Van Volkenburg v. Contimental Cas. Ins.
Co., 971 F. Supp. 117, 122 (W.D.N.Y. 1997) ("[P]laintiff reasonably
argues that to obtain advice or treatment regarding a medical
`condition', you must first have some awareness that the `condition'
exists."); Mannino v. Agway Inc. Group Trust, 600 N.Y.S.2d 723, 726 (2d
Dept. 1993) ("[I]t is arguable that any treatment or advice rendered
prior to diagnosis could not be considered as having been given for that
In sum, Fortis' policy's definition of a preexisting condition, like
the one at issue in Hughes, is reasonably susceptible to more than one
interpretation. It can fairly be read either to require some awareness of
preexisting condition at the time treatment or advice was provided, or to
require simply that treatment or advice was rendered for symptoms of the
condition, without a diagnosis of that condition. The court respectfully
disagrees with those courts that have found similar policy language
unambiguous. See. e.g., Pitcher v. Principal Mut. Life Ins. Co.,
93 F.3d 407, 409, 418 (7th Cir. 1996) (holding that language defining a
preexisting condition as "a sickness or injury for which a Member or
Dependent is confined or received treatment or service in the 90-day
period before he or she became insured under this policy" was not
ambiguous);*fn7 McWilliams v. Capital Telecommunications. Inc.,
986 F. Supp. 920, 921 923-26 (M.D. Pa. 1997) (holding that language
defining a preexisting condition as "any Injury or Sickness for which an
Employee either received medical treatment, services, or advice or took
prescribed drugs or medicine . . . prior to the date of coverage" was not
ambiguous). Similarly, the court does not find that the adoption of a
virtually identical preexisting condition definition by the Pennsylvania
Insurance Commissioner, see 31 Pa. Code § 88.52, conclusively
demonstrates that the definition is unambiguous.
The court is also not persuaded by those courts that have held that a
preexisting condition clause must have language specifically requiring
that the condition be diagnosed during the exclusionary period in order
to be interpreted as requiring an awareness of the condition. See, e.g.,
Kracht v. Aalfs Assocs. H.C.P., 905 F. Supp. 604, 614 (N.D. Iowa 1995)
("If the language of the policy does not require a diagnosis in order for
the subsequent treatment of the illness to be excluded under the
preexisting condition, the absence of a diagnosis is irrelevant.");
Fischman v. Blue Cross & Blue Shield, 775 F. Supp. 513, 516 (D. Conn.
1991) ("[B]y its terms [the clause] does not require that medical advice
regarding or treatment of an extant condition must be recommended or
undertaken after an accurate diagnosis of the condition in order for the
condition to be excluded from coverage.")*fn8; Cury v. Colonial Life
Ins. Co. of Am., 737 F. Supp. 847, 854 (E.D. Pa. 1990) ("There is no
requirement that a diagnosis, definite or otherwise, of the pre-existing
condition must be made during the pre-existing condition period."). While
it is reasonable to suggest that if the language of the policy does not
specify that a preexisting condition must be diagnosed, a requirement of
diagnosis should not be inferred, it is also reasonable to read the
policy as requiring an awareness of a condition in order to receive
treatment or advice for that condition. See Hughes, 26 F.3d at 270 n. 5
("[W]e obviously reject the reasoning of some other courts that have
construed similar language by focusing exclusively on the absence of a
requirement for diagnosis without seriously considering whether the
language concerning treatment `for' a particular condition is
ambiguous."). As the drafter of the policy, the onus was on the defendant
to avoid ambiguity. See McMillan, 922 F.2d at 1077 ("An insurer's failure
to utilize more distinct language which is available reinforces a
conclusion of ambiguity under Pennsylvania law."). If the defendant
wished exclude coverage for conditions for which treatment and advice was
received, regardless whether the condition was recognized by the patient
or the doctor, it could have used more exact language.
The court rejects the defendant's argument that because the leukemia
had manifested symptoms at the time Elena visited the emergency room, the
leukemia should be considered a preexisting "sickness" under the policy.
The defendant relies primarily on Ranieli v. Mutual Life Insurance
Company of America, 413 A.2d 396 (Pa. Super. 1979), to argue that a
"sickness" occurs when "the disease first becomes manifest or active, or
when there is a distinct symptom or condition from which one learned in
medicine can with reasonable accuracy diagnose the disease." Id at 401
see also Def. Mem. of Law in Supp. of Mot. for Summ. J. at 6. In
Ranieli, "sickness" was not a defined term in the policy and thus, the
court went outside the policy in order to give meaning to the term. Id.
at 400. Here, however, the defendant drafted a policy that sets forth a
more limited definition of sickness — one that defines the onset of
a sickness in terms of treatment and advice for that sickness and not in
terms of when the disease manifests itself. The defendant gives no reason
why the court should supplement the policy's definition with one in
Ranieli, and the court declines to do so.
Moreover, as plaintiffs argue, Ranieli can be further distinguished in
that the exclusion language at issue there is different from the language
at issue here. The Ranieli policy limited coverage to a "sickness
incurred during the term of the Policy which is contracted and begins
after thirty days from the effective date of this Policy." 413 A.2d at
397. Thus, the Ranieli interpreted sickness in the context of
ascertaining when it was contracted and began. Id. at 400. Here, the
triggering event is when treatment or medical advice for the sickness is
rendered or received.*fn9
Because the policy's definition of a preexisting condition is
ambiguous, the court adopts the interpretation offered by the
plaintiffs: that in order to be treated for leukemia, there must have been
some awareness that the disease existed at the time treatment or advice
was rendered. There is no dispute that when Elena visited the emergency
room on October 7, 1998, no one suspected that she was suffering from the
leukemia. The records indicate that Dr. Parikh diagnosed an upper
respiratory infection and prescribed treatment accordingly. Because Elena
did not receive advice or treatment that was directed to or concerned
with leukemia during the exclusionary period, leukemia was not a
preexisting condition. The defendant erred in denying coverage and the
court grants summary judgment for the plaintiffs on the breach of
B. Bad Faith
In Pennsylvania, an insured may bring a cause of action against an
insurer who has acted in bad faith. See 42 P.S. § 8371.*fn10 Bad
faith has been defined as
any frivolous or unfounded refusal to pay proceeds
of a policy; it is not necessary that such refusal
be fraudulent. For purposes of an action against an
insurer for failure to pay a claim, such conduct
imports a dishonest purpose and means breach of a known
duty (i.e. good faith and fair dealing), through some
motive of self-interest or ill will; mere negligence
or bad judgment is not bad faith.
Terletsky v. Prudential Property and Cas. Ins. Co., 649 A.2d 680,
688 (Pa. Super. 1994).
In order to recover on a bad faith claim, a plaintiff must show both
"(1) that the insurer lacked a reasonable basis for denying benefits; and
(2) that the insurer knew or recklessly disregarded its lack of
reasonable basis" Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230,
233 (3d Cir. 1997) (citing Terletsky, 649 A.2d at 688). Mere negligence
on the part of insurer is insufficient to sustain a bad faith claim. See
Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 751 (3d Cir.
Pennsylvania requires that an insurer act with the utmost good faith
toward its insured, see Romano v. Nationwide Mut. Fire Ins. Co.,
646 A.2d 1228, 1231 (Pa. Super. 1994), and it should "accord the
interests of its insured the same faithful consideration it gives its own
interest." See Cowden v. Aetna Cas. and Surety Co., 134 A.2d 223, 228
(Pa. 1957). However, an insurer is not required actively to submerge its
own interest. See Kosierowski v. Allstate Ins. Co., 51 F. Supp.2d 583,
588 (E.D. Pa. 1999).
A plaintiff must establish bad faith by clear and convincing evidence.
See Polselli, 23 F.3d at 750. Accordingly, in opposing a summary judgment
motion, a plaintiffs burden of proof also rises to the clear and
convincing standard. See McCabe v. State Farm Mut. Ins. Auto. Ins. Co.,
36 F. Supp.2d 666, 669 (E.D. Pa. 1999). In sum, in order to defeat a
motion for summary judgment, a plaintiff must show that a jury could find
by "the stringent level of clear and convincing evidence," Jung v.
Nationwide Mut. Fire Ins. Co., 949 F. Supp. 353, 356 (E.D. Pa. 1997),
that the insurer lacked a reasonable basis for denying the claim and that
it recklessly disregarded its unreasonableness.
Although the court finds that Fortis erred in denying coverage, Fortis
did not act in bad faith in doing so. As noted previously, Fortis'
interpretation of the preexisting condition clause is reasonable. While
the court rejects the defendant's position the clause can only be read to
support its interpretation, other courts have agreed with the defendant
that similar clauses are unambiguous. See. e.g., Pitcher, 93 F.3d at
Plaintiffs argue that Fortis acted in bad faith because, even under
defendant's interpretation of preexisting condition, the record does not
support its conclusion that Elena exhibited symptoms of leukemia when she
was treated at the emergency room. However, the record reveals that while
the various physicians who treated Elena or reviewed her medical records
do not agree on the actual cause of her symptoms on October 7, there is a
general agreement that those symptoms are consistent with leukemia. Even
assuming that plaintiffs are correct and Elena's symptoms were caused by
something other than leukemia, there was a medical basis for Fortis'
position. Accordingly, plaintiffs have not established that the defendant
acted unreasonably or recklessly denying coverage on the basis that Elena
manifested the symptoms of, and therefore received treatment for,
leukemia on October 7, 1998.
Finally, plaintiffs claim that Fortis' policy of classifying some
appeals as inquiries, bypassing review by an appeals committee,
constitutes bad faith because such a policy denied Mr. Lawson's
"contractual right to an appeal." P1. Mem. in Response to Def. Mot. at
12. According to the testimony of Ms. Klein, Fortis did review its
decision to deny coverage at Mr. Lawson's request, and, consistent with
its interpretation that a preexisting condition definition did not
require diagnosis, upheld its denial. Given that the company conducted a
reasonable review of the appeal, Fortis' failure to submit this appeal to
an committee for review, as set forth in its policy, does not constitute
clear and convincing evidence of bad faith.
The court grants summary judgment in favor of defendant on plaintiffs'
bad faith claim.
Because the Fortis' policy is ambiguous, the court adopts the
interpretation offered by the plaintiffs and finds that Elena's leukemia
was not a preexisting condition. Defendant did not, however, act in bad
faith in denying coverage.
An appropriate order follows.
AND NOW, this 20th day of June, 2001, upon consideration of the
plaintiffs' motion for partial summary judgment (doe. 8) and the defendant's
motion for summary judgment (doe. 12), the parties' responses, and after a
hearing, it is ORDERED as follows:
1. Plaintiffs' motion is GRANTED and defendant's
motion is DENIED as to count I.
2. Defendant's motion is GRANTED as to count II and
count II is DISMISSED with prejudice.
3. The parties shall stipulate to the amount of the
medical bills involved or submit a motion in that regard
within 14 days.