Insurance – Long-Term Care – Breach of Contract – Assisted-Living Facility – ‘Substantial Supervision’ – Bad Faith

Newman v. Bankers Life & Casualty Co. (Lawyers Weekly No. 002-078-12, 15 pp.) (William O. Bertelsman, J.) 2:10-cv-02135; D.S.C.

Holding: Pursuant to a long-term care policy, the defendant-insurer recognized that its policyholder was suffering from a covered condition and was admitted to a covered assisted-living facility. The insurer breached the policy when it denied coverage because the policyholder did not ultimately receive the intended degree of care.

Plaintiff’s motion for summary judgment is granted on her breach of contract claim related to the policyholder’s stay at the assisted-living facility. Plaintiff’s motion for summary judgment is denied as to her bad faith claim. Defendant’s motion for summary judgment is denied.

The policy at issue is ambiguous in several respects.

First, while the insurer denied coverage for the assisted-living facility stay on the basis that the policyholder did not receive “substantial supervision” during her stay there, it is not at all apparent that such is a requirement for coverage under the policy.

The definition of “Cognitive Impairment” means, in relevant part, only that the policyholder “requires Substantial Supervision.” Dr. Teichner’s diagnosis of the policyholder included the observation that she “requires 24-hour monitoring” due to her dementia. Indeed, the insurer agreed that the policyholder “required care due to [her] Cognitive Impairment.” The insurer further conceded that the policyholder “meets the policy requirement” for an Assisted Living Facility.

The court finds no basis in the policy – and the insurer cited none in its denial letter – which precludes coverage because, although the policyholder was placed at the covered facility with the intent that she receive covered “Assisted Living Facility” services, she did not “receive” such services because the level of monitoring there did not meet expectations.

The insurer also argues that the alleged “receives” requirement is present by virtue of the second prong of the definition of “Qualified Long-Term Care Services,” which states that services must be “provided under a Plan of Care prescribed by a Licensed Health Care Practitioner.” The court is not persuaded.

The insurer did not, in fact, invoke this definition when it denied the claim.

Moreover, to interpret this clause as excluding coverage because the policyholder, although suffering from a covered condition and admitted to a covered facility, does not ultimately receive the intended degree of care requires the court to supply terms not found in this provision.

Second, the definition of “Substantial Supervision” is internally inconsistent. By its very definition, the word “substantial” means something less than total. However, the policy defines “Substantial Supervision” as “continual” supervision. This definition creates a patent ambiguity.

Further, the policy is ambiguous by reason of listing an “Assisted Living Facility” under the heading “Covered Expenses.” This implies that the type of supervision usually provided in such a facility meets the supervision requirements for one who, like the policyholder, has a “cognitive impairment.”

The policy is patently ambiguous, and the policyholder was entitled to coverage for the assisted-living facility stay as a matter of law.

There are genuine issues of material fact as to whether the insurer acted in bad faith in its handling of the assisted-living facility claim and as to whether the insurer breached its contract and acted in bad faith in its handling of the policyholder’s claim for her stay at a skilled nursing facility.

Motions granted in part, denied in part.