by Roy Harmon, III, www.healthplanlaw.com

A typical plan will contain an exclusion for accidents or injuries resulting from intoxication, unlawful conduct and so forth. How the plan states the exclusion can vary quite a bit, and the distinctions can make a significant difference in outcomes.

The recent case of Ushakova v. AIG Life Ins. Co. Slip Copy, 2006 WL 2473473 (W.D.Wash.) illustrates this point. In that case, the Court had indisputable evidence that Ushakova was intoxicated. Nonetheless, the Court denied the defendant’s motion for summary judgment based upon issues of fact as to whether Ushakova’s death was caused in whole or in part by or result[ed] in whole or in part from his being under the influence of alcohol.

The need to show causation varies based upon the language of the exclusion and the attitude of the court. In Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc. Employee Health and Welfare Plan 298 F.3d 191 (3rd Cir. 2002), the court stated:

Multi-Tool refused to pay Smathers’ medical expenses arising from the accident under a provision which excludes coverage for “any charge for care, supplies, or services which are caused or contributed to by the Covered Person’s commission or attempted commission of a felony, misdemeanor, or being engaged in an illegal occupation or activity.” Multi-Tool refused Smathers’ claims because the accident occurred while he was driving while intoxicated-an admittedly illegal activity.

And yet, the Court concluded that:

Multi-Tool’s determination was arbitrary and capricious under the heightened standard. It is apparent to us that the administrator did not believe that it had to actually find a causal connection in the way we believe the plan in question requires.

Aside from the issue of causation, the actual definition itself may be inadequate. For example, a Kentucky court held that an exclusion in terms of being under the influence of alcohol (legal intoxication as defined by Kentucky law) meant that the insured must not only must not only have acted in a manner described under statute governing legal alcohol intoxication but must also have been adjudicated guilty in criminal proceeding. Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d 213 (Ky. Nov 20, 1997). Thus, questions of the need for a conviction may be inferred from the terminology of the plan exclusion.

The recurring litigation over exclusions based upon alcohol or drug use demonstrates that their application can be more complicated than it might first appear. When combined with the varying terms of exclusions in stop loss policies that might apply to the same incident, the plan fiduciary has much to consider in making the right decision as to what exclusionary language to put in the plan and how to apply the language chosen. In most cases the application of the exclusion will result in controversy, if not litigation. Therefore, it is appropriate that the TPA look to the plan administrator to bear ultimate responsibility for these decisions.

For ERISA plans, the federal courts have opened an entirely new avenue of defense to claims payment. The Fourth Circuit in Baker v. Provident Life & Accident Insurance Co., 171 F.3d 939, 942-43 (4th Cir.1999), for example, has held that intoxication may remove the event from the definition of an “accidental” injury.

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This entry was posted by Adam V. Russo on Friday, September 18th, 2009 at 3:43 pm and is filed under 3rd, 4th, ERISA, Exclusion, Third Party Administrators. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.