New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following opinion on April 30, 2002, representing the position of the New York State Insurance Department.

RE: Application of Pre-existing Condition Clauses in Group Disability Insurance Policies.

Question Presented:

May an insurer consider an applicant’s health-related history where the individual is applying for an increase in disability insurance coverage?

Conclusion:

Yes, an insurer may consider an applicant’s health-related history where the individual is applying for an increase in disability insurance coverage.

Facts:

An insured with bi-polar disorder applied for an increase in disability insurance coverage with his current insurance company. He has been insured with the same insurer since 1997. The insurance company refused to increase coverage due to the insured’s prior health history.

Analysis:

When an insured requests to increase his current coverage he is, in effect, applying for a new policy. The insurer may consider the applicant’s prior health history in determining whether to issue disability insurance coverage. N.Y. Ins. Law § 2606(d) (McKinney 2000) allows an insurer to establish selection criteria based on disability where the insurer can prove that its decision was based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience. In such cases, the insurer must notify the insured of the specific reason or reasons for its decision. Thus, an insurer may accept or deny disability insurance coverage based on these principles.

If the insurer decides to accept an applicant for coverage, the disability policy may contain an up to twelve-month pre-existing condition waiting period. See N.Y. Ins. Law § 3234(a)(2) (McKinney 2000).1 However, section 3234(a)(1) requires insurers to reduce this waiting period by the number of days that an individual had "creditable coverage", provided that the previous coverage was continuous to a date not more than sixty days prior to the effective date of the new coverage. The credit applies to the extent that the previous coverage was substantially similar to the new coverage.

In this case, the insurer may consider the applicant’s prior health-related history and his claims experience in determining whether to issue insurance coverage under a new policy. Although the applicant is seeking to increase his coverage, he is actually applying for a new policy and the insurer may refuse to issue coverage under the principles of N.Y. Ins. Law § 2606(d) (McKinney 2000).

If the insurer decides to issue a new policy, it may contain a pre-existing condition provision. Assuming that the applicant was previously covered under a substantially similar disability insurance policy since 1997, the up to twelve-month pre-existing condition waiting period would be reduced in its entirety. The approximately five-year period that the applicant was covered under the previous policy would reduce the up to twelve-month waiting period under the new policy. Consequently, all conditions deemed "pre-existing" upon issuance of the new policy would be covered from the effective date of coverage. This holds true, provided that the effective date of the new coverage was within sixty days of the previous coverage.

For further information, you may contact Attorney Pascale Joasil at the New York City office.


1The term "pre-existing condition" means the existence of symptoms which would ordinarily cause a prudent person to seek diagnosis, care or treatment within a two-year period preceding the effective date of coverage or a condition for which medical advice or treatment was recommended by a physician or received from a physician within a two-year period preceding the effective date of coverage. See N.Y. Comp. Codes R. & Regs. tit. 11, § 52.2(v) (2000) (Regulation 62).