Lawson v. Fortis Ins Co

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit

8-22-2002

Lawson v. Fortis Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 01-3316

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PRECEDENTIAL

Filed August 22, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 01-3316, 01-3355

JOSEPH LAWSON; TAMMY MALATAK,
ON BEHALF OF MINOR CHILD ELENA LAWSON

v.

FORTIS INSURANCE COMPANY,

Appellant/Cross-Appellee

ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(Dist. Court No. 00-cv-06538)
District Court Judge: Marvin Katz

Argued on July 15, 2002

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

(Opinion Filed: August 22, 2002)

ANDREW F. SUSKO (Argued)
White & Williams
One Liberty Place
Suite 1800
Philadelphia, PA 19103
Counsel for Appellant/
Cross-Appellee

MICHAEL J. SALMANSON (Argued)
10th Floor
1515 Locust Street
Philadelphia, PA 19102
Counsel for Appellees/
Cross-Appellants

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.

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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

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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

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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
_________________________________________________________________

1. Our standard of review is plenary. Medical Protective Co. v. Watkins,
198 F.3d 100, 103 (3d Cir. 1999) ("When reviewing an order granting
summary judgment we exercise plenary review and apply the same test
the district court should have applied.").

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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

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language similar to the pre-existing condition provision at
issue in this case not to require a diagnosis of the
condition. See, e.g., Bullwinkel v. New England Mutual Life
Insurance Co., 18 F.3d 429 (7th Cir. 1994) (holding that
discovery of a breast lump before the defendant’s insurance
coverage began triggered the pre-existing condition
exclusion although the lump was not definitively diagnosed
as cancer until after coverage began);2 Marshall v. UNUM
Life Insurance Co., 13 F.3d 282 (8th Cir. 1994) (finding a
pre-existing condition where the claimant was treated for
muscle pain, which was later diagnosed as chronic fatigue
syndrome); McWilliams v. Capital Telecommunications Inc.,
986 F. Supp. 920 (M.D. Pa. 1997) (disagreeing with Hughes,
following Bullwinkel and Cury, and concluding that the
insurance policy language did not limit pre-existing
conditions to those that were diagnosed before the effective
date of the plan); Cury v. Colonial Life Insurance Company
of America, 737 F. Supp. 847, 854 (E.D. Pa. 1990) (holding
that treatment for symptoms of undiagnosed multiple
sclerosis activated the pre-existing condition exclusion and
stating that "[t]here is no requirement that a diagnosis,
definite or otherwise, of the pre-existing condition must be
made during the pre-existing condition period"); see also
Mutual Life Insurance Company of New York v. Bohannon,
488 S.W.2d 476 (Tex. Civ. App. 1972) (finding pre-effective
coverage date treatment for anemia, which was a
misdiagnosis of the underlying condition of blind loop
syndrome, to constitute treatment for a pre-existing
condition); Dowdall v. Commercial Travelers Mutual Accident
Association of America, 181 N.E.2d 594, 596 (Mass. 1962)
(concluding that a definitive diagnosis of multiple sclerosis
was not required for treatment of symptoms to qualify as
treatment of a pre-existing condition). The Seventh Circuit
in Bullwinkel reasoned that "even though[the claimant] did
not know the lump was cancerous in July [before the
effective date of her insurance policy], her visit with the
_________________________________________________________________

2. In Bullwinkel, however, the Seventh Circuit explicitly limited the reach
of its holding to the specific facts of that case. 18 F.3d at 433 (observing
that "this case is unique" and that the court was making "no statement
about what might happen if an attorney in a future case presents
different arguments and authority to the court").

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doctor in that month concerning the lump actually
concerned cancer. It follows that [the claimant] was ‘seen’
and ‘treated’ and incurred medical expenses for her cancer
in July." Therefore, the court concluded, "any post-policy
treatment concerning the same condition is not covered."
18 F.3d at 432. In Cury, the District Court similarly held
that "[b]ecause a diagnosis during the pre-existing
condition period is not necessary," the only issue was
whether "plaintiff received treatment, consultation, medical
care, medical services, diagnostic test, or prescribed drugs
during the pre-existing condition period." 737 F. Supp. at
855. The reasoning underlying these decisions is that the
pre-existing condition language is clear and unambiguous
that treatment for a condition does not require accurate
diagnosis of the condition.

Other courts, however, like the First Circuit in Hughes,
have reached a different result and found that treatment for
a condition requires some awareness on the part of the
insured or the physician that the insured is receiving
treatment for the condition itself. See, e.g. , Pitcher v.
Principal Mutual Life Insurance Co., 93 F.3d 407, 412 (7th
Cir. 1996) ("[W]e hold that Pitcher did not receive a
‘treatment or service’ for breast cancer prior to September
17, 1992 because--as the district court found--she was
being monitored for the longstanding fibrocystic breast
condition and not cancer during the pre-coverage period.");3
Ross v. Western Fidelity Insurance Co., 881 F.2d 142, 144
(5th Cir. 1989) ("[T]here is at least a reasonable argument
that, under [a pre-existing condition exclusion], treatment
for a specific condition cannot be received unless the
specific condition is known."); Van Volkenburg v.
Continental Casualty Insurance Co., 971 F. Supp. 117, 122
(W.D.N.Y. 1996) (finding reasonable the plaintiff ’s
argument that to obtain advice or treatment regarding a
_________________________________________________________________

3. In Pitcher, the Seventh Circuit distinguished Bullwinkel, in which the
plaintiff suffered from only breast cancer and not cystic fibrosis also, as
in Pitcher. Because Bullwinkel’s visit to the doctor was prompted solely
by a concern that the lump in her breast might be cancerous, the visit
and subsequent treatment actually "concerned" cancer. In contrast,
Pitcher thought her pre-coverage treatment was for cystic fibrosis, but
the lump actually turned out later to be cancer. Pitcher, 93 F.3d at 415.

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medical "condition," one must first have some awareness
that the "condition" exists); see also In re Estate of Monica
Ermenc v. American Family Mutual Insurance Co., 585
N.W.2d 679, 682 (Wis. Ct. App. 1998) (holding that where
the claimant’s cancer was not evident as a condition before
the coverage period began and where the symptoms before
diagnosis were non-specific, coverage should not be
excluded under the pre-existing condition clause); Mannino
v. Agway, Inc. Group Trust, 192 A.D.2d 131 (N.Y. App. Div.
1993) (finding the term "condition" to be ambiguous as to
whether it meant an actually diagnosed disease or any
symptoms of an undiagnosed disease for which coverage
was sought). All of these courts have reasoned that it is not
logical to permit non-specific symptoms, which could be
caused by a number of different sicknesses, to be used
later as a retroactive trigger for exclusion as a pre-existing
condition. These courts reached the conclusion that the
pre-existing condition clauses in insurance policies are
"susceptible to reasonable but differing interpretations" and
are therefore ambiguous. Van Volkenburg, 971 F. Supp. at
123.

All of these cases involve insurance policies with
substantially similar pre-existing condition language and
similar factual scenarios. Of the federal courts of appeals,
the First, Fifth, and Seventh Circuits have followed the
approach taken in this case by the District Court, finding
the contract language ambiguous. The Seventh and Eighth
Circuits, however, have gone the other way and interpreted
pre-existing condition language not to require diagnosis of
the condition being treated. Thus, the relevant cases do not
dictate a clear answer here.

C.

In this case, Elena did not receive advice or treatment for
leukemia before the effective date of coverage, so Plaintiffs’
interpretation of the pre-existing condition language in the
Fortis insurance policy should prevail. At a minimum, the
contract language is ambiguous, and thus it should be
construed against Fortis.

The Fortis insurance policy excludes coverage for a

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"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." There is no doubt that the "sickness" here is
leukemia. Therefore, the key word in the pre-existing
condition exclusion for our purposes is "for." Elena received
treatment "for" what were initially diagnosed as symptoms
of a respiratory tract infection. Therefore, the treatment she
received was not "for" leukemia, but "for" a respiratory tract
infection.4

The word "for" connotes intent. Webster’s Dictionary
states that "for" is "used as a function word to indicate
purpose." Webster’s Ninth New Collegiate Dictionary 481
(1986). Black’s Law Dictionary similarly states that the
word "connotes the end with reference to which anything is,
acts, serves, or is done. In consideration of which, in view
of which, or with reference to which, anything is done or
takes place." Black’s Law Dictionary 579-80 (5th ed. 1979).
The word "for" therefore has an implicit intent requirement.
Applied to this case, none of Elena, her parents, and the
treating physician, Dr. Parikh, intended or even thought on
October 7, 1998, that Elena was receiving medical advice or
treatment "for" leukemia. In short, it is hard to see how a
doctor can provide treatment "for" a condition without
knowing what that condition is or that it even exists. Thus,
in our view, the best reading of the contract language in
this case is for coverage of Elena’s leukemia treatment. At
worst, the language is ambiguous and must therefore be
read in favor of the insureds.

Although Fortis contends that its position is supported
by the district court’s decisions in Cury and McWilliams,
those cases are distinguishable. In both Cury and
McWilliams, there was no definite diagnosis, but either the
physician or the claimant had a specific concern regarding
the patient’s condition. In Cury, the doctor suspected
multiple sclerosis as "likely" or "most likely" before the
_________________________________________________________________

4. We need not resolve the factual question whether she received
treatment for what were actually symptoms of leukemia on October 7,
1998.

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effective date of Cury’s insurance policy, 737 F. Supp. at
851, and in McWilliams, the claimant received an
ultrasound on her thyroid lump, which had not yet been
diagnosed as thyroid cancer, 986 F. Supp. at 924. In these
cases, because the claimants suspected a particular
condition when they saw their physicians, it might make
sense to say that the claimants had received advice or
treatment "for" their respective conditions, although they
had not been definitively diagnosed. In both instances, a
particular condition was suspected; treatment, advice, or
testing for that suspected condition was provided; and the
pre-effective date treatment, advice, or testing turned out to
be "for" the condition that was ultimately diagnosed.

In this case, however, the treatment Elena initially
received for a respiratory tract infection was not the
appropriate treatment for leukemia, and thus it does not
make sense to say that she received treatment "for"
leukemia when the actual condition was not suspected and
the treatment was in any event wrong. In short, for the
purposes of what constitutes a pre-existing condition, it
seems that a suspected condition without a confirmatory
diagnosis is different from a misdiagnosis or an
unsuspected condition manifesting non-specific symptoms,
as was the case here. When a patient seeks advice for a
sickness with a specific concern in mind (e.g. , a thyroid
lump, as in McWilliams, or a breast lump, as in Bullwinkel)
or when a physician recommends treatment with a specific
concern in mind (e.g., a "likely" case of multiple sclerosis,
as in Cury), it can be argued that an intent to seek or
provide treatment or advice "for" a particular disease has
been manifested. But when the patient exhibits only non-
specific symptoms and neither the patient nor the
physician has a particular concern in mind, or when the
patient turns out not to have a suspected disease, it is
awkward at best to suggest that the patient sought or
received treatment for the disease because there is no
connection between the treatment or advice received and
the sickness. Here, there is no evidence that the possibility
that Elena’s condition was actually leukemia ever entered
the minds of Elena’s parents or Dr. Parikh. Therefore, it
would not make sense to say that Dr. Parikh offered
medical advice or treatment for Elena’s leukemia.

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In any event, to the extent that our decision here is at
odds with Cury and McWilliams, we find the analysis in
those cases unpersuasive because they focus primarily on
the absence of a diagnosis requirement rather than simply
construing the language of the policy. That is, Cury and
McWilliams focused exclusively on the absence of a
requirement for diagnosis in the insurance policies"without
seriously considering whether the language concerning
treatment ‘for’ a particular condition is ambiguous."
Hughes, 26 F.3d at 270 n.5.

Although we base our decision on the language of the
policy, we note that considering treatment for symptoms of
a not-yet-diagnosed condition as equivalent to treatment of
the underlying condition ultimately diagnosed might open
the door for insurance companies to deny coverage for any
condition the symptoms of which were treated during the
exclusionary period. "To permit such backward-looking
reinterpretation of symptoms to support claims denials
would so greatly expand the definition of preexisting
condition as to make that term meaningless: any prior
symptom not inconsistent with the ultimate diagnosis
would provide a basis for denial." In re Estate of Monica
Ermenc, 585 N.W.2d at 682. In Ranieli v. Mutual Life
Insurance Company of America, 413 A.2d 396 (Pa. Super.
Ct. 1979), the Pennsylvania Superior Court held that
recovery under a pre-existing condition clause was
"conditioned on the fact that prior to the stipulated date,
the sickness was not manifest, nor could it have been
diagnosed with reasonable certainty by one learned in
medicine." Id. at 401. The court found such a policy to be
"reasonable and salutary" because "[t]o deny coverage
because of an incipient disease that has not made itself
manifest . . . is to set an unconscionable trap for the
unwary insured." Id.

At a minimum, the pre-existing condition language in
Fortis’s insurance policy is susceptible to more than one
reasonable interpretation and is therefore ambiguous. See
Myrtil v. Hartford Fire Insurance Co., 510 F. Supp. 1198,
1202 (E.D. Pa. 1981) ("If reasonably intelligent people differ
as to the meaning of a policy provision, ambiguity exists.");
Cohen v. Erie Indemnity Co., 432 A.2d 596, 599 (Pa. Super.

12

Ct. 1981) ("The mere fact that several appellate courts have
ruled in favor of a construction denying coverage, and
several others have reached directly contrary conclusions,
viewing almost identical policy provisions, itself creates the
inescapable conclusion that the provision in issue is
susceptible to more than one interpretation."). Therefore,
we construe the insurance policy strictly against Fortis and
find that Elena’s leukemia was not a pre-existing condition
under the language of the policy.

III.

As to Plaintiffs’ bad faith claim, we affirm the District
Court’s grant of Fortis’s motion for summary judgment.
Although we do not find the cases on which Fortis relies to
be persuasive, this authority supports the District Court’s
decision on the bad faith issue. Plaintiffs claim that Fortis
failed to review all of the medical records and ignored
relevant evidence, but without more, this does not rise to
the level of frivolous, reckless disregard, or lack of
reasonable basis, especially in a situation, like this one,
that involves medical records lacking in certainty of
diagnosis. Cf. Terletsky v. Prudential Property and Casualty
Insurance Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994).

For the foregoing reasons, we affirm the District Court’s
judgment granting Plaintiffs’ motion for summary judgment
on the breach of contract claim and granting Fortis’s
motion for summary judgment on the bad faith claim.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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