Lawson ex rel. Lawson v. Fortis Ins. Co.

• Decision Date: 22 August 2002
• Docket Number: No. 01-3355.,No. 01-3316.,01-3316.,01-3355.
• Citation: 301 F.3d 159
• Parties: Joseph LAWSON; Tammy Malatak, on behalf of minor child Elena LAWSON v. FORTIS INSURANCE COMPANY, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Third Circuit

301 F.3d 159

Joseph LAWSON; Tammy Malatak, on behalf of minor child Elena LAWSON v. FORTIS INSURANCE COMPANY, Appellant/Cross-Appellee.

No. 01-3316.

No. 01-3355.

United States Court of Appeals, Third Circuit.

Argued July 15, 2002.

Filed August 22, 2002.

Andrew F. Susko (Argued), White & Williams, Philadelphia, PA, for appellant/cross-appellee.

Michael J. Salmanson (Argued), Philadelphia, PA, for appellees/cross-appellants.

Before: SCIRICA, ALITO, and FUENTES, Circuit Judges.

OPINION OF THE COURT

ALITO, Circuit Judge.

Minor child Elena Lawson ("Elena") was covered under a health insurance policy that her father bought from Defendant, Fortis Insurance Company. Two days prior to the effective date of the policy, Elena went to the emergency room for treatment of what was initially diagnosed as a respiratory tract infection, but which was discovered to be leukemia one week later, after the effective date of the policy. Fortis denied coverage of medical expenses relating to the leukemia on the ground that it was a pre-existing condition for which Elena had received treatment prior to the effective date of the policy. Elena's parents ("Plaintiffs"), acting on her behalf, sued for breach of contract, and the District Court granted their motion for summary judgment.

In this appeal, Fortis argues that the pre-existing condition language of the insurance policy does not require accurate diagnosis of the condition, but merely receipt of treatment or advice for the symptoms of it. Fortis claims that because Elena was treated for symptoms of leukemia before the effective date of the insurance policy, the leukemia was a pre-existing condition. Plaintiffs respond that the leukemia was not pre-existing because one cannot receive treatment "for" a condition without knowledge of what the condition is. We find that Plaintiffs' reading of the pre-existing condition language is reasonable and that the ambiguity in the policy should be construed against the insurance company. Therefore, we affirm the District Court's grant of summary judgment for Plaintiffs on their claim for benefits under the policy. We also affirm the District Court's grant of summary judgment for Fortis on the Plaintiffs' bad faith claim.

I.

A.

On October 7, 1998, Joseph Lawson ("Lawson") purchased the Fortis short-term medical insurance policy to cover himself and his daughter, Elena Lawson. The policy became effective two days later, on October 9. On October 7, the same day Lawson applied for the insurance policy, Elena's mother, Tammy Malatak, took Elena to the emergency room at Palmerton Hospital in Palmerton, Pennsylvania. Elena had a dry, hacking cough, a fever, an elevated pulse rate, and a swollen right eye. The emergency room physician, Dr. Shailesh Parikh, diagnosed Elena with an upper respiratory tract infection and prescribed an antibiotic and anti-allergy medication. Dr. Parikh further advised Ms. Malatak to take Elena for a follow-up visit to her family physician or to bring her back to the emergency room if the symptoms did not improve in a few days. Because the symptoms persisted, on October 13, Ms. Malatak took Elena to the family physician, Dr. Narendra Ambani.

On October 14, 1998, Elena's grandmother, a registered nurse, took Elena to a pediatrician, Dr. Mira Slizovskaya ("Dr. Slizovsky"), who ordered Elena to undergo more tests and diagnosed her with leukemia. On October 15, Elena was transferred to the Children's Hospital of Philadelphia ("CHOP") under the care of Dr. Beverly Lange. At CHOP, Elena underwent chemotherapy and other treatment that has since resulted in the remission of her leukemia.

B.

The insurance policy at issue expressly excludes coverage for a pre-existing condition, which is 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." The policy defines "sickness" as an "illness, disease or condition which is diagnosed or treated while this policy is in force." There is no dispute that the relevant sickness here is leukemia.

Lawson and Malatak, on behalf of Elena, filed a claim for payment of the CHOP medical bills under the Fortis policy. Dr. Raymond Brumblay, Fortis's Medical Director, investigated Elena's course of treatment and concluded that "[w]hile the evaluation [at the Palmerton Emergency Department] failed to diagnose leukemia, advice and treatment for those symptoms were received from a physician. This meets the policy definition of a pre-existing condition." App. at 96. Dr. Brumblay determined that Elena had a two-and-a-half week history of fever preceding her diagnosis of leukemia, and he therefore concluded that the symptoms for which she was evaluated and treated on October 7, 1998, were those of leukemia. Fortis thus denied Plaintiffs' claim pursuant to the policy's pre-existing condition exclusion.

Plaintiffs appealed the denial to Fortis's Appeal Review Committee, which concluded that the definition of a pre-existing condition does not require a correct diagnosis of the condition at the time that it is treated. Fortis thus denied Plaintiffs' appeal.

C.

Plaintiffs brought a breach of contract and bad faith action against Fortis for its denial of coverage. Plaintiffs moved for summary judgment on the breach of contract claim, and Fortis filed a cross-motion for summary judgment on both claims. The District Court heard oral argument on the motions for summary judgment. The Court granted Plaintiffs' motion on the breach of contract claim, and granted Fortis's motion on the bad faith claim. Lawson v. Fortis Insurance Co., 146 F.Supp.2d 737 (E.D.Pa.2001).

The District Court found that the definition of a pre-existing condition under the policy is ambiguous. According to the District Court, the language could be read as providing either a subjective standard requiring an accurate diagnosis of the condition at the time of treatment or an objective standard requiring only general treatment or advice, independent of an accurate diagnosis. Construing ambiguity against the drafter and choosing the contract interpretation most favorable to Plaintiffs, the District Court concluded 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." Id. at 745. Finding that nobody even suspected leukemia at the time of Elena's treatment on October 7, 1998, the District Court granted summary judgment for Plaintiffs on the breach of contract claim. The District Court then directed the parties to stipulate as to Plaintiffs' medical expenses, and on July 27, 2001, the District Court entered judgment against Fortis in the amount of $713,901.12 plus prejudgment interest. Fortis appeals from this judgment. The District Court also granted summary judgment for Fortis on Plaintiffs' bad faith claim, and Plaintiffs cross-appeal from this judgment.¹

II.

Fortis argues that the insurance policy's exclusion of pre-existing conditions contains no requirement that the condition be accurately diagnosed or appropriately treated before the effective date of the policy. Fortis claims that the pre-existing condition exclusion applies when a claimant receives medical treatment for the symptoms of a condition that later proves to be one for which coverage is sought under the policy. Thus, Fortis asserts that the District Court's decision contravened the plain meaning of the policy, principles of contract construction, and clear legal precedent. We disagree.

A.

Straightforward language in an insurance policy should be given its natural meaning. In keeping with the rule of contra proferentem, however, ambiguous terms should be strictly construed against the insurer. Medical Protective Co. v. Watkins, 198 F.3d 100, 105 (3d Cir.1999). The District Court reasoned that the contract was ambiguous as to whether the pre-existing condition exclusion required a diagnosis of the condition, and it therefore construed the policy in favor of Plaintiffs. The central issue in this case is whether receiving treatment for the symptoms of an unsuspected or misdiagnosed condition prior to the effective date of coverage makes the condition a pre-existing one under the terms of the insurance policy. In other words, we must determine whether it is possible to receive treatment "for" a condition without knowing what the condition is.

We review de novo the District Court's conclusion that the definition of a pre-existing condition in the contract is ambiguous. Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805 F.2d 96, 101 (3d Cir.1986). "A contract is ambiguous if it: (1) is reasonably susceptible to different constructions, (2) is obscure in meaning through indefiniteness of expression, or (3) has a double meaning." Cury v. Colonial Life Insurance Company of America, 737 F.Supp. 847, 853 (E.D.Pa.1990).

B.

Both state and federal courts have interpreted pre-existing condition language in health insurance contracts differently. The District Court relied most heavily on Hughes v. Boston Mutual Life Insurance Co., 26 F.3d 264 (1st Cir.1994). In Hughes, the insured claimant suffered from and was treated for non-specific symptoms of multiple sclerosis prior to the effective date of his disability policy, but the condition was not diagnosed until after the policy took effect. The First Circuit found both the insurance company's and the claimant's interpretations of the policy to be reasonable, and it therefore concluded that the pre-existing condition exclusion was ambiguous. Id. at 269-70. In particular, the ambiguity was due to the lack of clarity regarding what constitutes treatment "for" a condition. Id. at 269.

Hughes notwithstanding, some courts have interpreted language similar to the pre-existing condition provision at issue in this case not to require a diagnosis of...