By Cyril Tuohy
The Minnesota Supreme Court has ruled that Northwestern Mutual acted improperly when it refused to pay the death benefit of a dead man the company claimed had withheld information about his health history when filling out his life insurance application.
In the case, Jacky L. Larson v. The Northwestern Mutual Life Insurance Co., the state's high court ruled that the rescission of an insurance policy “requires proof of the insured’s subjective intent to deceive.”
And since the court found “a genuine issue of material fact” regarding the intent of the insured, James Larson, when filling out policy documents, it reversed a lower court’s judgment in favor of Northwestern Mutual.
The insured man's wife, Jacky Larson, sued the life and retirement company when the company canceled her husband’s life insurance after he died from injuries related to a motorcycle accident in August 2008, according to court documents.
Northwestern rescinded the policy after it discovered that James Larson had not disclosed that he had undergone an angiogram after seeing a cardiologist in 2004 and 2005 for chest pains, despite a medical history questionnaire asking him if he had been tested for chest pain. The company refunded the premiums paid into the policy but not the death benefit.
Writing for the court, Associate Justice Wilhelmina M. Wright said that while some of the information Larson included on the life insurance application documents was false, there was “no direct evidence” that he filled out the documents with intent to deceive the insurer.
A reasonable fact-finder “could conclude that there was no intent to deceive because the insured disclosed his father’s death at age 50 from heart disease and the insured may not have deemed the cardiologist consultation to be relevant given the ‘nonspecific’ nature of the cardiologist’s findings,” Wright wrote.
Since Larson authorized the insurance company to review all of his medical records, including the cardiologist’s report, “the insured’s intent is a controverted fact,” and the insurance company had not met the burden of proof for fraudulent intent, the court found.
As a result the judgment granted by the lower court in favor of Northwestern Mutual was reversed and that part of the case involving cancellation of the life insurance contract was sent back to the lower court for trial.
Also in the case, the Minnesota Supreme Court upheld a lower court’s judgment in favor of a medical records contractor, CMInformation Specialists. The lower court had ruled that CMInformation's failure to release all the medical records authorized by an insured’s consent was “not actionable” under the Minnesota Health Records Act.
The question before the high court was whether CMInformation’s failure to release some of the medical records covered by James Larson’s consent form constituted an unauthorized release that did not comply with the limits set by the patient in the consent.
In short, “the only question before us is whether CMInformation is liable for failing to release the cardiologist’s letters and CAT scan angiogram report,” Wright wrote.
Under the “plain meaning“ of the state’s health records law, “liability arises only when a person or entity actually discloses a health record in violation of another provision of the Minnesota Health Records Act,” Wright ruled. “CMInformation cannot be liable here.”
Jacky Larson had alleged that CMInformation’s failure to release the cardiologist’s letter and CAT scan angiogram results from her husband’s chart was a violation of the Minnesota Health Records Act since her husband had signed a consent order giving the insurance carrier access to all of his medical records.
CMInformation argued that Minnesota law imposes liability only when the records released exceed the scope of the patient’s consent.
CMInformation never disclosed to Northwestern Mutual the entirety of Larson’s medical history on file at Fairview Ridges Clinic because the clinic’s medical records policy generally prohibited the release of non-Fairview records except in certain cases.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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