Long Term Care Insurance Litigation: Survey of Key Cases 2023-2024

September 9, 2024

Dentons represents some of the nation's leading insurance companies with existing long-term care (LTC) insurance blocks. In the past few years, we have litigated dozens of LTC insurance cases successfully in the areas of bad faith tort and coverage disputes, fraud waste and abuse, class actions and rate litigation. Our deep familiarity with LTC insurance products extends to qualified and non-qualified, individual and group products. To add value to our clients, we maintain an active roster of go-to independent consultants and experts nationwide with deep expertise in commonly presented LTC issues, including neurologists, neuropsychologists, psychiatrists, physiatrists, claims professionals, actuaries and private investigators.

Our team monitors and reviews all LTC court cases reported nationwide, to stay abreast of key decisions impacting insurers and provide informed advice to our clients. Below is a survey of noteworthy LTC decisions reported in the past 18 months, several of which we were involved in. Commentary in italics; case names and numbers omitted:

• US District Court for the Northern District of Iowa (May 2024). Summary judgment granted in favor of insurer against breach of contract, bad faith tort and fraud claims based on qualified LTC group policy interpretation, where the evidence demonstrated that insured had suffered loss prior to policy issuance. Policy's preexisting conditions clause did not contradict policy language requiring that claimed loss be incurred after policy issuance. This opinion shows a federal court plainly and strictly construing qualified policy language in favor of the insurer on contract and tort claims.
• US District Court for the Middle District of Florida (May 2024). Court denied insureds' motion to dismiss insurer's affirmative fraud claims alleging insureds' claim fraud, which sought invalidation of LTC policy for insureds' alleged claim fraud under federal equitable powers despite lack of express invalidation clause. Under federal and Florida law, District Court ruled that exercise of federal equitable powers was within Court's discretion, suggesting policy invalidation not prohibited as a first impression issue. An early helpful ruling in an insurer's fraud action, this builds on federal law in other states which provides that federal courts may exercise equitable power to void LTC policies for claim fraud even where policy lacks fraud cancellation clause.
• US Court of Appeals for the Ninth Circuit (February 2024). The Ninth Circuit affirmed a District Court's default judgment entered in favor of insurer for repeated discovery violations and failure to obey court orders, in a fraud case brought by insurer against insured. The Ninth Circuit held that the record amply showed that the District Court implemented "lesser sanctions" before ordering a default judgment, and that it also warned the Defendants of such a judgment if their non-compliance continued. Accordingly, the District Court did not abuse its discretion entering default judgment for the insurer. This opinion illustrates the lack of patience we sometimes see federal courts exhibit for individual insureds, who might otherwise merit sympathy, where accused of fraud.
• US Court of Appeals for the First Circuit (February 2024). In a premium rate case brought under ERISA by an enrollee in an employer-sponsored group LTC insurance plan, the First Circuit reversed a district court decision granting insurer's motion to dismiss, concluding that certain policy language was ambiguous and thus required resolution of ambiguity by a factfinder. Illustrates the complexity and uncertainty that premium rate changes can sometimes pose for insurers, notwithstanding the great success we and other insurers have had in filed-rate cases.
• Pennsylvania Supreme Court (January 2024). After Pennsylvania-domiciled insurer went into run-off status due to outstanding LTC liabilities far exceeding its assets and ability to pay, the Pennsylvania Insurance Commissioner was appointed as the statutory rehabilitator and submitted a rehabilitation plan. After various States' regulators intervened, the Pennsylvania Supreme Court held that the regulators lacked standing to assert policyholders' interests, and that although they had standing to assert that the proposed plan superseded their authority, the court found that the rehabilitation plan did not unlawfully displace the regulatory authority of other states. Illustrates one palpable justification for proper premium rate increases and more fulsome claim scrutiny (e.g., implementation of proper FWA programs), given the harm that can befall other insureds from failed lines.
• US District Court for the Northern District of California (December 2023). The Northern District of California granted insurer's motion to dismiss action alleging that the insurer breached its long-term care policy and the implied covenant of good faith and fair dealing, anticipatorily breached the contract and committed financial elder abuse when it refused to cover plaintiff's claim for benefits. The insurer denied the claim on the grounds that she only suffered from a mild cognitive impairment and did not require "Substantial Supervision," as defined by the policy. Relying on exhibits attached to the complaint, the court ruled that plaintiff did not qualify for long-term care benefits under her pure reimbursement policy because the plaintiff never submitted invoices demonstrating that she had incurred expenses for care. The Court also held that the allegations did not plausibly support the tort of bad faith as the allegations merely showed that the insurer concluded the plaintiff's mild cognitive impairment and mild dementia did not support coverage, and there was no conduct alleged showing bad faith conduct independent of the adverse claim determination based on evidence indicating mild impairment. Helpful decision illustrating a federal trial court strictly construing policy language and coverage requirements, and also applying California's genuine dispute doctrine to dismiss tort at pleading stage, which is rare.
• US District Court for the Northern District of California (November & December 2023). Two back-to-back decisions by two different District Judges of the Northern District of California in two different cases brought against insurers by bad faith counsel. After removal to federal court, each Judge denied the plaintiffs' motion to remand to state court based upon the judge-made voluntary-involuntary rule. Both actions were initially filed in state court against insurers and joining the Commissioner of the California Department of Insurance, a common tactic we have seen among plaintiff-side policyholder counsel. Insurer successfully moved to sever the plaintiffs' claim against it from the writ of mandate claim against the Commissioner (a recurring tactic by California plaintiff counsel to defeat diversity jurisdiction), and subsequently removed the case to federal court. The court determined that the voluntary-involuntary rule, while still alive in the Ninth Circuit, does not apply to a state-court severance resulting in complete diversity between the parties. These two decisions are incredibly helpful to insurers, in giving them a clear strategy to thwart bad faith counsels' longstanding tactic in California in joining a writ of mandate claim against the DOI Commissioner to claims against an insurer-defendant for purposes of defeating diversity jurisdiction and staying out of federal court.
• US District Court for the Western District of Washington (October 2023). Discovery ruling helpful to insurers. In a breach of contract and bad faith tort case involving a lapsed LTC policy, federal trial court denied overreaching discovery and deposition seeking testimony and documents concerning "all claims" and "all verdicts" against insurer in similar cases, as well as "[a]ll market conduct analyses by any insurance regulator in any state regarding practices of [Insurer] or denying benefits, failure to reinstate, bad faith, consumer protection or similar claims." The court denied this discovery on relevance and proportionality grounds, reasoning that what is relevant is the policy at-issue and the specific insured's relationship with insurer, not insurer's alleged treatment of other LTC insureds. This is a helpful discovery ruling specific to the LTC context, where we have seen overreaching discovery exactly like this served in bad faith tort cases.
• US District Court for the District of Arizona (October 2023). Court denied insurer and insured's cross-motions for summary judgment in breach of contract and bad faith tort case involving insurer's qualified individual LTC policies. Court denied insurer's motion for summary judgment where insurer denied coverage to insured previously on-claim based on video surveillance inconsistent with claimed conditions, given factual questions about insured's condition. Court also denied insured's cross-motion for summary judgment, finding that insurer could not be held to have acted in bad faith as a matter of law for, among other things, implementing a fraud waste and abuse detection program specific to LTC business. This mixed-bag ruling is helpful to insurers who have implemented FWA programs, but also illustrates the uphill battle insurers may face on summary judgment in LTC coverage and bad faith cases given the factual issues. One important takeaway is the value and importance of obtaining an independent medical examination of the insured's condition prior to denying coverage, particularly where surveillance is open to interpretation, and/or where the insured was previously approved/on-claim.
• US Court of Appeals for the Ninth Circuit (September 2023). The Ninth Circuit affirmed summary judgment in a 2-1 non-precedential decision in favor of insurer on qualified LTC policy. Plaintiffs argued that policy's inclusion of a "home again benefit" that contained a prior-institutionalization requirement violated Montana Insurance Code section 33-22-1115(3), which prohibits insurers from including a prior-institutionalization requirement in a long-term care insurance policy where the 'policy... contains a benefit advertised, marketed, or offered as a home health care benefit.'" Montana law defines "home health care" as "services provided by a licensed home health agency to an insured in the insured's place of residence that is prescribed by the insured's attending physician as part of a written plan of care." Mont. Code. Ann. § (1989). The court sided with insurer by distinguishing the home care benefits defined by Montana insurance code from the long-term care policy term, which provided "a broader array of services in a narrower set of circumstances: i.e., when coming home again after a long-term care stay." Because the statutory definition of home health care is limited to "services provided by a licensed home health agency," while the policy's home again benefit could be paid regardless of who provided the care, including family members or friends (in addition to home health care agencies), the Ninth Circuit concluded that the policy's prior institutionalization requirement was not prohibited by Montana law. Although specific to the Montana regulation at issue, here we have a federal trial court and the Ninth Circuit adopting a narrow and strict construction of a state insurance regulation in favor of insurer, where the LTC policy did not squarely violate that regulation.
• US Court of Appeal for the Second Circuit (September 2023). In securities litigation related to corporate statements made concerning an insurer's LTC block, the Second Circuit affirmed a trial court order granting insurer and its individual officers' motion to dismiss with prejudice. Plaintiffs alleged that the defendants made material misstatements to conceal the company's poor financial condition stemming from exposure to liabilities from its long-term care reinsurance business. The Second Circuit held that the plaintiffs did not adequately plead that the defendants acted with scienter. While this case presents a win for the insurer, it also illustrates the intense scrutiny insurers are under from plaintiff counsel when it comes to their existing LTC business.
• S. District Court for the Central District of California (September 2023). The insurer brought an action against its insured and his caregiver/stepson after surveillance showed that the stepson was not caring for the insured, despite the fact that the stepson was submitting Proof of Loss statements to the insurer through the stepson's employer. The Central District of California held that the insurer and stepson did not have "special relationship," and thus stepson did not owe duty to insurer for purposes of exception to economic loss rule on a negligence claim, as the relationship between the insurer and stepson was too attenuated to create such a duty for negligence purposes. Court posited, however, that insurer might have viable claim for fraud against stepson, and potentially for negligence against stepson's employer. Narrow ruling in an LTC FWA case which illustrates that courts may construe legal claims brought affirmatively by insurers strictly, but also affirming that courts do typically find that insurers have standing to redress fraud.
• US District Court for the Central District of California (July 2023). Court dismissed a LTC class action filed against insurer after denying class certification. Plaintiffs alleged fraud and fraudulent concealment, as well as violations of state consumer statutes, relating to insurer's premium rate increases on certain long-term care insurance policies. Sought full refunds of all premiums paid by the class for inflation riders. Major win for LTC insurers on class action front in premium rate case. Makes successful claims on rate increases, and class certification in LTC cases, much more difficult.
• US District Court for the Eastern District of Missouri (February 2023). Dismissal of a proposed nationwide class action against insurer relating to insurer's premium rate increases on long-term care insurance policies. Court held that the Filed-Rate Doctrine barred the claims, and that plaintiffs failed to exhaust administrative remedies for their state law claims. Another major win for LTC insurers on class action front in premium rate case.

Please reach out to us if you wish to discuss any of these cases. For FWA-specific LTC content, please see our CLE presentation Investigating and Litigating Long Term Care Insurance Fraud, Waste and Abuse, available here: https://www.dentons.com/en/about-dentons/news-events-and-awards/events/2023/august/23/in-house-counsel-cle-webinar-series-summer-session-session-4.

Alina Pavlova, Dentons Senior Managing Associate, co-authored this article.