Denial of Health Insurance Based on Missing Information

In the case of Sibley v. Blue Cross Blue Shield of Louisiana, 2014 WL 1100158 (La. App. 1 Cir. 3/20/2014), Blue Cross Blue Shield of Louisiana (“BCBS”) retroactively cancelled Ms. Laura Sibley’s health insurance policy after BCBS discovered information that demonstrated that Ms. Sibley’s pre-existing condition was not disclosed on her written application.  Feeling aggrieved because she disclosed her pre-existing condition to BCBS’s insurance agent, Mr. Ray Arthur, Ms. Sibley sued BCBS for breach of contract and later added a negligence claim against Mr. Arthur.

Insurance Agent Peremption

In response, Mr. Arthur successfully asserted Louisiana’s insurance agent peremption statute which precludes claims against an insurance agent if not filed within one year of discovery of the alleged negligent act or omission.   The peremption statute further precludes claims asserted more than three years after the alleged negligent act or omission regardless of when it was discovered.  See La. R.S. 9:5606.

Insurers Cannot Benefit from Insurance Agent Peremption Statute

With Mr. Arthur dismissed and BCBS unsuccessful in its third party demand against Mr. Arthur based on a technicality, BCBS also pursued dismissal based on the Louisiana’s insurance agent peremption statute.  The trial court granted BCBS’s motion finding Ms. Sibley’s claims against BCBS were also perempted.  However, the First Circuit reversed the trial court finding BCBS could not benefit from Louisiana’s insurance agent peremption statute under the circumstances.

As discussed above, Louisiana’s insurance agent peremption statute includes one and three year peremptive periods.  However, these peremptive periods only apply to suits “against any insurance agent, broker, solicitor, or other similar licensee under this state. . . .”  Obviously, BCBS, as an insurer, doesn’t meet the definition of an “insurance agent” under Louisiana’s Insurance Code.

Nevertheless, the First Circuit recognized that other rulings have applied Louisiana’s insurance agent peremption statute to insurers when the insurer’s potential liability is solely the result of its agent’s negligent conduct toward the insured.  If the harm to the insured is the result of the insurance agent’s conduct, the Court reasons that an insured should not be able to circumvent its untimely suit against the insurance agent by proceeding against the insurer alone.

However, the First Circuit distinguished the case at hand.  The Sibley Court found that the alleged negligent conduct of the insurance agent did not flow to the insured but to the insurer.  In such a situation, the First Circuit reasoned that the insurer should not benefit from peremptive periods of the insurance agent peremptive statute because it detrimentally relied on Mr. Arthur’s alleged misrepresentations.  The Sibley Court stated:

Louisiana Revised Statutes 9:5606 does not bar claims by an insured against an insurer where the wrongful act committed by the insurance agent was against the insurer and not the insured. Louisiana Revised Statutes 9:5606 may bar claims against an insurer where the wrongful act committed by an insurance agent was against the insured. . . . Since Mr. Arthur’s alleged wrongful act was to the detriment of the insurer and not the insured, we find that the peremptive periods of La. R.S. 9:5606 do not apply to BCBS.

Although the Sibley decision allows the insured, Ms. Sibley, to proceed against her insurer, BCBS, the Court did not address whether BCBS could maintain a third party demand directly against Mr. Arthur for his alleged negligent conduct.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.