CareFirst letter about coverage stirs confusion

It tried to say ills included if caused by terrorist acts

But wording set off flurry of calls

Insurance firm 'regrets' misunderstanding

October 26, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

Lois Borgenicht of Roland Park was "alarmed" by a letter she received this month from CareFirst BlueCross BlueShield, saying no benefits would be provided "for any illness suffered as a result of an act of war, declared or not declared."

"If Mr. bin Laden pays us a visit here in Baltimore," she wondered, "are they going to say, 'You're not covered'?"

Actually, the letter meant to say the opposite.

Maryland does not permit health insurers to exclude coverage for terrorist acts. Insurance regulators had spotted a terrorism exclusion, along with a war exclusion, in some CareFirst policies. CareFirst dropped the terrorism language, and sent subscribers a letter saying "item 5 of the exclusions section is hereby deleted."

The letter included the revised contract language - which retained the long-standing exclusion for war-related illness or injury - but didn't explicitly say that the terrorism restriction had been deleted. So, what the CareFirst subscribers saw was a contract clause spelling out an exclusion for acts of war.

CareFirst said it received about 500 calls in the first few days after sending out 150,000 letters. It issued a statement, saying the letter "has given some members the mistaken impression that there were new restrictions on their coverage," and adding that it "regrets any confusion" caused by its letter.

The Maryland Insurance Administration said it received about a dozen inquiries, and sent a letter explaining the deletion of the terrorism exclusion.

The confusion over CareFirst represents continuing ripples from Sept. 11, 2001.

The events generated more than $40 billion in claims, according to the Insurance Information Institute, a New York-based property insurance trade group. The claims reached across all major types of insurance: life, property and workers' compensation as well as health.

One of the first questions in the wake of the attacks was whether the exemptions for acts of war - standard in nearly all insurance policies, according to insurance institute - would apply.

War exclusions have existed since at least the 19th century, and "date back to marine insurance," said Tom Baker, director of the Insurance Law Center at the University of Connecticut. The early insurers thought that a carrier could pay for say, a ship sunk in a storm, but no insurer would have enough capital to pay up if a whole fleet was destroyed in battle.

However, legal research into precedent after the 2001 attacks - including a 1970s case involving a claim for an airliner that was hijacked and blown up - made it clear that the war exclusion was limited to "acts by sovereign states," according to John Morrison, state auditor of Montana. Morrison, whose duties include insurance regulation, chaired a National Association of Insurance Commissioners task force studying terrorism-related issues.

In insurance, "things are included if they are not excluded," said P.J. Crowley, vice president of Insurance Information Institute. "On Sept. 11, everybody had terrorism insurance because no one thought it was a significant risk," so few policies contained explicit exclusions.

When insurers paid the Sept. 11 claims, "one-sixth of all the insurance money on the planet disappeared," in the words of Morrison. Some carriers questioned whether they'd be able to insure against terrorism in the future.

The task force of insurance commissioners that Morrison chaired recommended that carriers not be permitted to exclude terrorism in life, health, auto or homeowner's policies, and that terrorism exclusions be limited in commercial property insurance. Nearly all states follow those recommendations, Morrison said. The commissioners also backed legislation - ultimately signed into law in November 2002 - which set up a federal "backstop" to bail out property insurers faced with large claims from a terrorist act. The federal law requires property insurers to cover terrorism damage, but allows them to charge extra for the coverage.

In the period of heightened attention to terrorism coverage, Maryland regulators noticed the terrorism exclusion in some of CareFirst's policies. Jeffery W. Valentine, CareFirst's director of corporate communications, said the terrorism exclusion had been in individual policies for "at least a decade" but not in group policies.

At the request of the Maryland Insurance Administration, CareFirst dropped the terrorism exclusion in March. With the state's approval, the insurer decided to wait to notify members until it determined if there were any other changes in insurance rules so it could save the cost of a special mailing. Another change, a state law adding licensed counselors to the health providers covered, took effect this month, so that's when CareFirst sent its mailing.

Alfred W. Redmer Jr., Maryland's insurance commissioner, said terrorism-coverage issues now seem settled in Maryland. "I don't know that anybody has mentioned terrorism to me since June," when he became commissioner, Redmer said.

For CareFirst to expand coverage, but mistakenly make members think it was constricting coverage, represented a lost public relations opportunity for the troubled insurer, said Steven B. Larsen, who was insurance commissioner until Redmer took office. "Now they're doing something people would think is a good idea," Larsen said, "and rather than take advantage of it, they screwed it up."

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