Take care in submitting health insurance applications

In Medical Mutual of Ohio v. k. Amelia Enterprises (6th Circuit 12/2/08), the 6th Circuit dismissed a claim brought by Medical Mutual against an employee, his employer, and the employer’s CFO after the insurance company discovered that the employee had failed to disclose his son’s pre-existing condition on his insurance application. The Court dismissed the claims because Medical Mutual had not timely filed them within the statute of limitations.

Even though Medical Mutual’s late filing of the claims let the employer and its CFO off the hook, an important lesson can still be learned from the genesis of this case. Like all group insurance applications, Medical Mutual required k. Amelia employees to complete Medical History Questionnaires as a condition of coverage by the group health insurance plan. k. Amelia’s CFO signed the Group Application, which included the Medical History Questionnaires. Medical Mutual terminated the employee’s coverage and sued for prior paid benefits after it discovered that the employee had not disclosed his son’s pre-existing hemophilia.

The employer should not be liable unless it knew or should have known that an employee had submitted false information. The question for k. Amelia is whether it knew of the son’s hemophilia when it submitted the questionnaire. If it had such knowledge, for example, through the processing of a prior health insurance application or through an employee’s use of FMLA leave for the excluded condition, then it could be on the hook for the misrepresentation. An employer should not be required, though, to independently verify each and every employee’s insurance applications for veracity and completeness. An employer should be entitled to rely on its employees’ honesty, unless it knows or has reason to know that false or misleading information has been submitted.

The lesson for employers is not to blindly submit an insurance application without first reviewing the information provided by employees. If an employee submits information that an employer knows or should know is false, the employer has a duty not to submit the application without correcting or removing the information. A little due diligence on the front end could save a company years of litigation on the back end.