Justices Rule for AIDS Patient in Insurer Dispute

An insurance company may not deny disability benefits to an AIDS patient just because the policyholder had tested HIV-positive before he bought the insurance, the California Supreme Court decided Monday.

Gay-rights lawyers hailed the ruling as a major victory, contending that AIDS patients frequently are denied disability benefits several years after becoming insured.

Under state law, disability policies include a two-year period during which an insurer can challenge a policyholder’s right to receive benefits. After that period ends, the court unanimously held, benefits cannot be denied simply because the insurer has discovered a preexisting condition.

The decision will affect other illnesses besides AIDS, lawyers in the case said. They noted that laboratory tests can now predict who is likely to develop breast and prostate cancers. The ruling also may help policyholders with disability claims for back injuries and mental illness.

“People who become disabled--regardless of the cause--need no longer worry that an insurance company will dig through their medical files in an attempt to find a previous lab result, genetic test or medical condition to use as an excuse for refusing payment,” said Jon W. Davidson, an attorney with the Lambda Legal Defense and Education Fund, which provides legal assistance to gays and lesbians.

Lawyers for the insurance companies did not respond to requests for comment.

The case involves Mark Galanty, 52, who bought a policy from Paul Revere Life Insurance Co. in fall 1988 and did not apply for benefits until five years later. Galanty had tested HIV-positive in June 1987.

The company initially paid his claims, but then revoked the coverage on the grounds that Galanty’s disability stemmed from a condition he had before buying the policy.

Justice Kathryn Mickle Werdegar, writing for the court, said policy language required by the state Insurance Code--in this case the two-year “incontestability clause”--takes precedence over other statements in the policy.

“In short,” Werdegar wrote, “the incontestability clause rules.”

Citing a previous court decision, Werdegar said that an incontestability clause “does not condone fraud but merely establishes a time limit within which it must be raised.”

Under the court’s ruling, an insurance company could still deny benefits if its insurance policy contained a specific exception for fraud. Galanty’s policy did not, nor do most disability policies sold at the time.

The decision, Galanty vs. Paul Revere Life Insurance Co., S073678, overturned two lower court rulings.

At the time of his HIV test, Galanty, who lives in Studio City, was told by a counselor that the test result could be erroneous, needed to be confirmed and did not necessarily mean that he was infected with HIV or would ever get AIDS, the court said. Galanty did not take another test at that time.

When he purchased disability insurance more than a year later, he answered “no” to a standard question on whether he had “ever been treated for or had any known indication of . . . disease or disorder of the heart or circulatory system, lungs, kidneys, bladder, genital or reproductive organs, brain or nervous system, skin, eyes, ears or speech.”

He also was asked whether in the past five years he had any medical advice or operation, physical exam, treatment, illness, abnormality or injury not listed in the policy. Galanty answered that he had seen a doctor for the flu.

Under state law, insurers cannot specifically ask if a person is HIV-positive, said Peter Groom, assistant chief counsel for the state Department of Insurance. Currently, the law allows insurers to require an HIV test. At the time Galanty bought his policy, they could not do so.

Before issuing the policy, the company requested and received Galanty’s medical records. The records contained the notations “viral syndrome” and “UCLA double blind study.”

The company did not ask Galanty to take any tests or to authorize UCLA to release its research records. Galanty has not disclosed anything about the ULCA study, and his lawyers contend that its confidentiality is protected by state law.

In 1994, more than five years after purchasing the insurance policy, Galanty presented the company with a claim for disability caused by AIDS and a related neurological condition. His doctor certified that Galanty, a court reporter, was no longer able to do that work.

After initially paying benefits, the insurance company launched an investigation and in mid-1995 stopped paying benefits.

The ruling “is an incredible victory for consumers because up until this point, insurance companies have been able to engage in unlimited discovery on the insured medical records since the time he or she fell out of the womb,” said Frank Darras, a Claremont lawyer who represents plaintiffs in disability insurance cases.

Insurance companies will no longer be able to simply refuse benefits on the grounds that the policyholder had a preexisting condition, he said. They must show that the policyholder committed fraud in filling out the application and can only do so if the policy contains a specific exception for fraud.

Darras said the ruling will particularly help policyholders seeking disability payments for mental illnesses and back problems because insurance companies frequently cite notations in medical records as evidence that the problems existed before the purchase of insurance.

Galanty said Monday that he was relieved by the court’s decision.

“I was trying to be responsible when I accepted a sales agent’s pitch about this policy,” he said, “and I was shocked when years later, my claims were rejected.”