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Understanding Pre-Existing Clauses in the Disability Insurance Context

People buy disability insurance, or are offered it through their employment, for protection from the financial insecurity and emotional stress that would be caused in the unfortunate happenstance of becoming unable to work due to disability. What many people do not expect, however, is that the protection they have purchased is subject to several exclusion clauses that will place limits on that protection and thereby limit the risk to the insurance company. Each exclusion clause is tailored to a specific risk. Pre-existing condition clauses are designed to exclude or restrict claims based on conditions which pre-date the policy.  This limits the risk to the insurer of adverse selection or, in other words, limits the risk to the insurer that someone will sign up for disability insurance knowing that they will soon be making a claim.

A typical pre-existing clause will provide that during the first six months to a year of the policy, there will be no coverage for an illness for which the insured received “medical advice or treatment” during the six months to a year preceding the issuance of the policy.  This creates a pre-existing condition window before and after the commencement of coverage.  Both elements must exist for the clause to be operable: (1) the person must have received medical advice or treatment in the specific time period before commencement of the policy, and (2) the date of disability (inability to work) must fall within the specific time period after commencement of the policy.  The length of the time periods may vary between policies and some policies have much longer periods of up to two years before and after the policy commencement; however, under most policies, a pre-existing condition that does not cause disability for over a year from the start of coverage will not be considered a pre-existing condition.

Policies of insurance are reactive to the case law and therefore the wording of these exclusion clauses is ever evolving.  New wording typically follows effective plaintiffs’ counsel avoiding such clauses at trial. The changes are typically designed to make the exclusions more and more broad and to offer the insurer more and more protection.  This is the case even when the modification no longer suits the initial purpose of avoiding adverse selection. For example, some insurers have expanded their pre-existing condition clauses to include undiagnosed disabilities at the time of policy commencement.  An undiagnosed condition is not known to the insured and therefore does nothing to affect the risk of adverse selection.  

This does not mean that current policies capture all pre-existing conditions or that the decision of the insurer to deny your insurance coverage based on an exclusion clause was correct.  There are many cases where the insurer misapplies the exclusion.  Further, the insurer bears the onus of proving a causative link between the prior illness or injury and the disability which is the subject of the present claim. This becomes quite difficult when there is multi-factorial disability. Also, where there is ambiguity in the clause, the courts follow legal principles of contractual interpretation which dictate that the ambiguity should be interpreted against the drafter. This narrows the breadth of the provisions when their application and interpretation are disputed.

With the fallibilities of pre-existing condition clauses, and other exclusion clauses in general, it is always advisable to discuss any disability claim denial with a lawyer experienced in disability law. You can contact our lawyers here.

by John Andreassen