Bushnell v. MEDICO INS. CO.

Citation: 246 P.3d 856Docket: 63916-1-I

Court: Court of Appeals of Washington; February 6, 2011; Washington; State Appellate Court

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Leroy Bushnell, as the personal representative of the Estate of Evelyn Bushnell, appeals the summary judgment dismissal of his lawsuit against Medico Insurance Company regarding a nursing care insurance policy issued in 1987. Medico denied coverage for nursing care benefits, asserting that the policy's requirement for a three-day prior hospitalization was not met and that the policy had lapsed due to nonpayment. The trial court upheld the validity of the hospitalization requirement and found Medico's denial reasonable and not in bad faith, dismissing the case with prejudice. 

The relevant facts include the issuance of a "Skilled and Intermediate Nursing Policy" to Evelyn Bushnell, which required a three-day hospital stay prior to receiving nursing benefits and included a lifetime maximum of $190,000. The policy stipulated that it could not be refused renewal as long as premiums were paid timely, and it conformed to state laws. Notably, a Long-Term Care Insurance Act was enacted in November 1986, prohibiting prior hospitalization as a condition for nursing benefits effective January 1, 1988. 

Evelyn Bushnell consistently paid her premiums until December 2006, when she could no longer care for herself and moved in with Leroy. Leroy paid the renewal premium covering January and February 2007. On February 21, 2007, a doctor determined Evelyn required full-time skilled nursing care, leading to her admission to a nursing facility on February 24, 2007, the same day Leroy submitted a claim for benefits to Medico. The appellate court reversed the trial court's decision and remanded the case for further proceedings.

On June 20, Medico denied Bushnell's claim for nursing care benefits due to noncompliance with a three-day prior hospitalization requirement and policy lapse for nonpayment. The denial letter outlined conditions for benefits, including being in a nursing facility, physician recommendation, hospitalization, and continuity of treatment, noting that Bushnell was admitted directly from home without prior hospitalization. On October 12, Bushnell's attorney requested reconsideration, citing regulations against hospitalization prerequisites and a policy amendment aligning with Washington state law. Medico maintained the denial, arguing the policy was issued before the effective date of relevant regulations, thus valid under the law at issuance.

Bushnell subsequently filed a notice of violation with the Insurance Commissioner, which resulted in a notice of closure. He then sued Medico for denial of coverage, seeking a declaratory judgment that the hospitalization requirement was invalid and alleging breach of contract, violations of the Consumer Protection Act and Insurance Fair Conduct Act, and bad faith. Bushnell moved for partial summary judgment, asserting the requirement was invalid after policy renewal post-regulation enactment.

Medico countered with a cross motion for summary judgment, arguing the policy's validity based on its original issuance date and asserting proper denial due to policy lapse. The court, after a hearing, granted Medico's summary judgment motion, affirming the legitimacy of the hospitalization requirement and declaring Medico's denial was reasonable and not in bad faith. Bushnell's motion for reconsideration was denied, leading to his appeal of the summary judgment and reconsideration order.

Bushnell argues that the trial court incorrectly validated a three-day hospital stay requirement and claimed that Medico acted in good faith in denying coverage. Bushnell maintains that upon renewing the policy post-January 1988, the three-day requirement was eliminated. In contrast, Medico contends that the relevant Act and its regulations do not apply retroactively, nor do they pertain to policy renewals, thus the three-day requirement remains valid. 

Summary judgment is reviewed de novo, meaning the court assesses whether there are any genuine issues of material fact and if the moving party is entitled to judgment as a matter of law. The interpretation of insurance contracts is also reviewed de novo, with courts interpreting policies as a whole and giving terms their plain, ordinary meaning. Clear and unambiguous policy language must be enforced as written, while any ambiguities must be construed in favor of the insured.

The interpretation of statutes is similarly a question of law reviewed de novo, aiming to discern and effectuate legislative intent. The Long-Term Care Insurance Act, enacted in 1986, regulates long-term care insurance contracts, stipulating that its provisions should be liberally construed to protect purchasers from unfair practices. Additionally, insurance contracts must not contain provisions that contradict standard regulations.

RCW 48.84.910 establishes the effective date for the relevant Act, stating that RCW 48.84.060 takes effect on November 1, 1986. The insurance commissioner is required to adopt rules by this date to enforce RCW 48.84.060, including prohibitions against unfair or deceptive practices in the marketing of long-term care policies. All remaining rules must be implemented by July 1, 1987, with the provisions applying to contracts issued on or after January 1, 1988. Regulations were filed by the commissioner in July 1987, with WAC 284-54-015 outlining that these rules apply to all long-term care policies and contracts primarily marketed for prolonged care services, which include skilled medical care and assistance with daily living activities. Contracts lacking compliance with this chapter cannot be issued after December 31, 1987, and prior hospitalization cannot be mandated for coverage.

Medico contends that the nursing care policy issued to Bushnell does not qualify as a long-term care policy under the Act, but it is determined to fit the definition outlined in RCW 48.84.020(1). Both parties concur that the Act is not retroactive and that the three-day hospital stay requirement was valid when the policy was issued in January 1987. The central issue is whether the renewal of the policy after the regulations' effective date in January 1988 invalidated this requirement. Bushnell argues that the renewal constituted a new agreement, thus eliminating the hospital stay requirement, supported by the policy's self-executing conformity clause. Medico counters that the Act applies solely to new policies issued after January 1, 1988, asserting that the conformity clause implies no amendments can occur post-issuance.

The Washington Supreme Court in Tebb v. Continental Casualty Company addressed whether the renewal of an insurance policy constitutes a new contract subject to subsequently enacted laws or simply continues the original terms. The case involved Tebb, who had been paying premiums for an accident and health insurance policy since 1942, which lacked a grace period and required company consent for renewal. After a law mandating a 31-day grace period was enacted in 1951, Tebb failed to pay his premium by September 1, 1964, and died shortly thereafter. The insurance company denied benefits, claiming the policy had lapsed. 

The trial court initially ruled in favor of Tebb, but the Washington Supreme Court upheld this decision on appeal. The court established that unless explicitly stated otherwise, each renewal of an insurance policy is treated as the formation of a new contract. This interpretation is reinforced by the principle that a renewal contract is separate and distinct unless there is clear intent to treat it as a continuation of the original contract. The court concluded that the insurer's discretion to accept or reject the renewal indicated the intention to create a new contract with each premium payment, thus incorporating the statutory grace period into Tebb's policy upon renewal.

This ruling aligns with established legal principles, as noted in other legal authorities, which emphasize that the classification of a renewal as a new contract or a continuation depends on the parties' intentions as derived from the policy itself. If the parties specify otherwise, such as indicating that the original agreement remains in force, the renewal may not be treated as a new contract.

The policy language indicates that each renewal creates a new contract, with coverage starting and ending at specified times. Although Medico cannot refuse renewal if premiums are paid, it reserves the right to not renew under certain conditions. Upon payment of the renewal premium, a new contract was formed, which meant the three-day hospital stay requirement ceased to apply after regulatory changes took effect in January 1988. Medico argued that coverage was denied due to policy lapse for nonpayment; however, it was established that the final premium covered a period from January 1 to February 28, 2007, and the claim arose on February 24. Medico contended that a 20-day "elimination period" must be satisfied before benefits were payable, asserting that benefits lapsed on March 1. The policy explicitly states that during the 31-day grace period, coverage remains active, meaning benefits were still in effect despite the elimination period. The dismissal of Bushnell's claim for coverage was reversed, while the issue of Medico's potential bad faith was remanded for further fact-finding. Additionally, Bushnell is entitled to attorney fees on appeal per relevant case law.

Reversal and remand of the case were ordered, with concurrence from Judges Ellington and Grosse. Medico's motion to strike references to the "Declaration of Leroy Bushnell" and related documents in the appellant's brief was granted, as these documents were not considered during the summary judgment phase, per RAP 9.12. Following Evelyn's death in August 2008, Leroy Bushnell continued the lawsuit as the personal representative of the Estate. The court rejected Bushnell's assertion that Medico introduced a new argument on appeal regarding policy renewals constituting a continuous contract. Instead, Medico maintained that the policy terms remained unchanged upon renewal, asserting it was merely a continuation of the original policy issued in October 1986. Relevant statutes and regulations cited include WAC 284-54-150(7), RCW Chapter 19.86, and provisions regarding grace periods for premium payments.