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Pre-Existing Condition Exclusions

Pre-Existing Condition Exclusion Clause: Substantial Factor or Plain Meaning? The Arruda Case.

Courts have interpreted the pre-existing condition exclusion clause using two tests: (1) the substantial factor test and (2) the literal or plain meaning test. Which interpretation courts apply may determine whether benefits are awarded or denied.

The case of Arruda v. Zurich American Ins. Co., 366 F.  Supp. 3d 175 (D.Mass.2019) is instructive as to how courts interpret the language of a pre-existing condition exclusion clause.

In that case, Mr. Arruda sustained severe injuries in a motor vehicle accident. Unfortunately, they proved fatal, and his family filed a claim to recover benefits under an accidental death policy.

However, Zurich refused to pay contending that Mr. Arruda had a pre-existing cardiac condition (including an implantable defibrillator) and that "Mr. Arruda experienced a cardiac event at the time of the accident which resulted in his death.” An EMS report supported Zurich's contention that the primary cause of death was cardiac arrest and that the motor vehicle accident was a secondary cause.

Zurich determined that Arruda's pre-existing cardiac condition was a contributory cause of his death, and his death was not “accidental.”

Litigation followed resulting with an appeal to the First Circuit where the court applied a “plain meaning” analysis to the policy's exclusionary language. In so doing, it rejected the “substantial factor” test.

What is the difference?

Substantial Factor Test

The Fourth, Ninth, and Eleventh Circuits apply the substantial factor test because, unlike the plain meaning analysis, it arguably protects the interests of employees, promotes the uniform distribution of insurance benefits, and conforms with the doctrine of reasonable expectations.

Under the substantial factor test, a pre-existing condition is not a cause of the loss unless it substantially contributed to the death or disability. Adkins v. Reliance Standard Life Ins. Co., 917 F. 2d 794, 797 (4th Cir. 1990) (addressing whether a pre-existing condition precludes insurance coverage and applying the substantial factor test). The insurer initially denied Adkins' claim on the ground that the claimant's disability was not independent of all natural causes. The court held that such an interpretation would essentially require the plan participant to be in perfect health at the time of the accident for the policy to provide coverage. Accordingly, a literal interpretation of the exclusionary language would rarely result in a finding of liability.

In 1996, the Ninth Circuit in McClure v. LINA, 84 F 3d 1129, 1135-1136 (9th Cir. 1996) applied the substantial factor test and established a two-step review process: (1) does the claimant have a pre-existing condition and (2) whether the pre-existing condition is a substantial cause of the loss.

In Dixon v. LINA, 389 F.3d 1179,1184 (11th Cir. 2004), the Eleventh Circuit joined the Fourth and Ninth Circuits in adopting the substantial factor test as part of its federal common law. The court reasoned that the substantial factor test allows the exemption clause to maintain its function without being unreasonably restrictive. See: Bradshaw v. Reliance Standard Life Ins. Co., 707 F. App'x 599, 609-610 (11th Cir. 2017) – holding that the link between a healthy pregnancy and a later stroke is too attenuated and unreasonable as a matter of law in light of ERISA's goal of promoting employee interests.

Plain Meaning Test

The Sixth Circuit, in Criss v. Hartford Accident & Indemnity Co., 963 F.2d 373 (6th Cir. 1992), held that because the insured's dearth was at least partially due to his pre-existing heart condition, the unambiguous policy language precluded coverage for the loss. The Fourth Circuit in Arruda followed the Sixth Circuit and held that the decedent's death occurred from a combination of underlying medical conditions, including injuries sustained in the car accident.

Both the Fourth and Sixth Circuits emphasized that courts should strictly adhere to the plain language of insurance contracts. Similarly, the Tenth Circuit, in Pirkheim v. First Unum Life Ins., 229 F.3d 1008 (10th Cir. 2000), held that the insurer did not err when it denied accidental death benefits because the insured's death did not occur independent of all other causes. Under the literal or plain meaning test, courts should avoid redrafting an insurance contract but should interpret the terms of a contract in their literal or plain meaning.

Black's Law Dictionary defines “plain meaning” as the interpretation reached “by giving the words their ordinary sense” without looking at external factors.

Plain Meaning or Substantial Factor – Which Is It?

Congress passed ERISA with two primary policy goals: (1) to protect the interests of employees and their beneficiaries and (2) to promote uniformity in the distribution of benefits. 29 U.S.C. 1001 (b).

Insurers typically draft their exclusionary clauses broadly and expansively, and stringent interpretation of the plain or literal meaning of insurance contracts can severely limit coverage for claimants with pre-existing conditions, including hypertension, diabetes, or countless other life-long conditions.

An insurer can deny a legitimate claim because of a pre-existing condition that only marginallycontributes to the loss. See: Peter J. Wiedenbeck, Untrustworthy: EIRSA's Eroded Fiduciary Law, 59 Wm. & Mary L. Rev. 1007, 1071 (2018) (explaining that a breach of loyalty occurs when a plan administrator decides without regard to whether the result is fair to the beneficiaries); see also 29 U.S.C. 101 (b) (emphasizing that ERISA aims to safeguard the distribution of benefits to plan participants and their designated beneficiaries).

In contrast, the substantial factors test provides more protection for the interests of all beneficiaries – not just those in perfect health. Adkins, 917 F.2d at 996.

The plain meaning test not only fails to protect the interests of plan holders, but it also fails to promote uniformity and predictability in the distribution of insurance benefits. See: Peter A. Myers, Discretionary Language, Conflicts of Interest, and Standard of Review for ERISA Disability Plans, 28 Seattle U. L. Rev. 925, 940-41 (2005) (discussing the role of the abuse of discretion standard in allowing insurance companies to put their beneficiaries).

If a plan administrator is in a favorable circuit and the participant has a medical condition that is tangentially relevant to the accident, the insurance company has an increased interest in denying those types of claims. As a result, it may be difficult for policyholders and their beneficiaries to predict whether their pre-existing condition will preclude coverage.

The doctrine of reasonable expectations holds that the insured's objectively reasonable expectations of coverage should guide contract interpretation. David J. Seno, The Doctrine of Reasonable Expectations in Insurance Law: What to Expect in Wisconsin, 85 Marq. L. Rev. 859, 859 (2002). Under the doctrine of reasonable expectations, courts may reverse a denial of coverage even when a literal interpretation of the language of the policy appears to preclude it – regardless of whether the policy language is ambiguous or not. The reasonable expectations doctrine's underlying principles are to avoid unfair results and promote the purposes of insurance, namely, to protect the insured against loss.

Pre-existing conditions that are only remote causes of the loss in question should not obstruct recovery. The substantial factor test conforms with the doctrine of reasonable expectations because it allows recovery unless the pre-existing condition substantially causes or contributes to the accident.

In the Ninth Circuit, if the language of an exclusionary clause is ambiguous, then the court will take into consideration the expectations of the policyholder. Saltarelli v. Bob Baker Grp. Med. Trust, 35 F.3d 382, 387 (9th Cir. 1994). If the policy language is clear, the court proceeds with a substantial factor analysis. Earle v. Unum Life Ins. Co. of America, No. 20-55868 (9th Cir. Oct. 19, 2021). The substantial factors test requires courts to inquire about the degree to which the pre-existing condition caused the injury or loss. It has to be “substantial.”  See: Coleman v. Metro. Life Ins. Co., 282 F. Supp. 3d 295, 311-12 (E.D.N.C. 2017) (holding that there was nothing in the record to support the finding that the policyholder's cancer substantially led to his death and that at most his cancer resulted in a predisposition to overall frailty that led to his death).


In Arruda, the First Circuit's application of the “plain meaning” test in its interpretation of the pre-existing condition exclusion clause arguably stands in opposition to ERISA's two primary policy goals of protecting the interests of employees and their beneficiaries and promoting uniformity in the distribution of benefits. 29 U.S.C. 1001 (b), as well as the doctrine of reasonable expectations. 

In contrast, the Fourth, Ninth, and Eleventh Circuits' application of the substantial factor test, which results in a narrower interpretation of the pre-existing condition exclusion language, is arguably more consistent with protecting the interests of employees and their beneficiaries.

It appears that the choice of Circuits and whether the court interprets an exclusionary clause broadly (“literal or plain” meaning) or narrowly ( “substantial” cause or contribution) may determine whether benefits are awarded under an ERISA-governed plan or not.

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