Eleventh Circuit Limits Insurer's Denial of Coverage on Pre-Existing Conditions in ERISA LTD Case

The Eleventh Circuit Court issued a significant ruling in Johnson v. Reliance Standard Life Insurance Company regarding the interpretation of pre-existing condition exclusions in ERISA long-term disability (LTD) policies. The dispute centered on whether treatment for symptoms of an underlying disease without a formal diagnosis of that disease constitutes a pre-existing condition. The plaintiff suffered from scleroderma, a rare autoimmune disease, but before the policy was in effect, doctors only treated symptoms and misdiagnosed various ailments without identifying scleroderma specifically. After the policy commenced, the correct diagnosis was made, raising the question of coverage denial under the pre-existing condition clause. The majority opinion held that the insurer's denial of coverage based on pre-existing conditions was unreasonable because the insured was not treated for the named disease before policy inception, only for symptoms later identified as related to scleroderma. This interpretation diverged from previous rulings and a dissenting opinion, which argued that treatment for symptoms inherently tied to a specific disease should count as treatment for that disease. Notably, the court applied its unique six-step arbitrary-and-capricious review process, concluding that the insurer’s interpretation was not just incorrect but exceeded the bounds of reasonableness. This decision highlights the complex interplay between judicial standards of review in ERISA cases and policy language interpretation. The Eleventh Circuit’s approach begins with a de novo review of policy interpretation, influencing its determination of whether the insurer’s decision was arbitrary and capricious. The majority criticized the insurer for an overly broad stance that would deny coverage if any symptoms were consistent with a later diagnosis, considering that unreasonable. Looking forward, insurers should monitor potential en banc reviews which may address the court’s multi-step review process, seen by some as overly complicated and prone to cognitive bias. The ruling also underscores the ambiguity in determining what constitutes a pre-existing condition when symptoms precede formal diagnoses, leaving room for variability in lower courts’ application. Key implications for insurers include revisiting policy language clarity regarding pre-existing conditions and preparing for increased judicial scrutiny over discretionary authority related to policy interpretation. The case exemplifies challenges in balancing deferential reviews of insurer decisions against protecting insureds from unreasonable coverage denials, emphasizing the need for precise underwriting and claim adjudication practices.