Smith v. Cont'l Cas. Co., 20-3004

MAYBELLE Z. SMITH; MARY AGNES FLEMING, Plaintiffs, PAUL R. DASCHBACH, Trustee of the Estate of Mary Agnes Fleming; CHARLENE HELLYER, Executor of the Estate of Maybelle Z. Smith, Plaintiffs-Appellants, v. CONTINENTAL CASUALTY COMPANY dba CNA Insurance, Defendant-Appellee.

No. 20-3004

United States Court of Appeals, Sixth Circuit

October 4, 2021

NOT RECOMMENDED FOR PUBLICATION

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO

BEFORE: ROGERS, NALBANDIAN, and MURPHY, Circuit Judges.

OPINION

NALBANDIAN, CIRCUIT JUDGE.

Plaintiffs Maybelle Smith of Ohio and Mary Fleming of Florida bought long-term care insurance policies from Continental Casualty Company ("CCC"). Plaintiffs paid a yearly premium. In return, CCC committed to paying them a daily benefit if they ever moved into a long-term care facility. Besides the premiums, the plans also required insureds to spend three days in a hospital before they could qualify for coverage. After Plaintiffs bought their policies, Ohio and Florida outlawed the sale of new policies with mandatory hospitalization requirements like those in Plaintiffs' contracts. Smith and Fleming eventually checked into long- term care facilities, and CCC denied coverage because they hadn't completed the necessary hospital stays.

Plaintiffs objected, arguing that each annual premium they paid was consideration for a new year-long contract. And because their states had outlawed mandatory hospitalization provisions those requirements did not apply to the contracts they'd entered since the legislation became effective. CCC argues that the requirements have remained in force, because Plaintiffs' annual premiums extended their initial policies, which they signed when such provisions were legal.

This case turns on whether Plaintiffs' original insurance plans continued in force from their effective dates or whether Plaintiffs entered a new policy with CCC every year. The contract terms show that the insurance policies have continued in force since their inception. Thus, the policies never incorporated the states' intervening prohibitions on mandatory hospitalization provisions. We AFFIRM the judgments below in favor of CCC.

I. Background and Procedural History

The Plaintiffs. Maybelle Smith bought a long-term care insurance policy from CCC on or around February 25, 1988, her policy's effective date. She paid her annual premium every year. Once she could no longer live independently, she moved into Brookwood Retirement Community in Cincinnati, Ohio. After moving to Brookwood, Smith filed a claim for benefits. Although Brookwood was a qualified facility, CCC denied coverage because Smith had not met her policy's mandatory hospitalization requirement. She lived at Brookwood, until her death.

Like Smith, Mary Fleming bought a long-term care insurance policy from CCC on or around May 1, 1989, her policy's effective date. She paid her annual premium every year. Once she could no longer live independently, she moved into Stratford Court in Palm Harbor, Florida. After moving to Stratford Court, Fleming filed a claim for benefits. Although Stratford Court was a qualified facility, CCC denied coverage because Smith had not met her policy's mandatory hospitalization requirement. She lived at Stratford Court, until her death.

The Policies. Plaintiffs' policies are nearly identical. Neither policy includes an end date. Instead, they have effective dates and "annual" terms; the policyholder's payment of the annual premium kept the policy "in force for the policy term." The policies are "guaranteed renewable for life." And Plaintiffs had the exclusive option to "renew this policy for further periods."

The policies cap Plaintiffs' "lifetime maximum benefit[s]" at a set number of days. Smith's policy pays out benefits for 1, 500 days; Fleming's pays out for 2, 555 days. Policyholders can spend down the lifetime maximums over multiple admissions to long-term care facilities.

CCC could not change any of the policies' substantive terms. And it could only increase the premiums if it gave Plaintiffs advance notice and if it equally raised the premium on every similarly rated policy in the state. CCC could not end the policies unless the policyholder failed to pay her premium. Smith's policy included a rider making it explicit that only she could end her policy.

The coverage remained in force at each Plaintiff's option. Premiums were due at the start of each policy term. But CCC accepted late premiums for a thirty-one-day grace period. Coverage ended if the policyholder did not pay the premium within the grace period. This rule was subject to one exception: CCC waived premiums due while a policy holder was on-claim. A policyholder who missed a payment and lost coverage could apply for reinstatement.

The policies guarantee their conformity with applicable state law as of their effective dates: "If any provision of this policy is in conflict with the statutes of the state in which you reside on the policy effective date, the provision is automatically amended to meet the minimum requirements of the statute." ((R.12-1, Smith Policy, at PID#150; R.12-2, Fleming Policy, at PID#169).)

Assorted contract provisions limiting CCC's right to assert certain defenses use the effective date as a reference point. The policies cover undisclosed pre-existing conditions that eventually require long-term care unless the conditions require treatment during the policy's first six months. CCC cannot reduce or deny claims made within six months of the effective date for known conditions, unless the policy specifically excluded the condition from coverage. And once the policy has been in force for two years, CCC can no longer use a policyholder's innocent misrepresentations to deny a claim.

Intervening Ohio and Florida Legislation. Effective July 1, 1993, Ohio banned prior hospitalization requirements: "No long-term care policy shall . . . [c]ondition eligibility for any institutional benefits on a requirement of prior hospitalization." Ohio Rev. Code Ann. § 3923.44(E)(1)(a). This legislation applied only to "long-term care insurance policies . . . delivered or issued for delivery in this state on or after the effective date." Ohio Admin. Code § 3901-4-01(C). It also prevented long-term care insurers from "cancel[ing], nonrenew[ing], or otherwise terminat[ing]" a policy "on the grounds of the age or the deterioration of the mental or physical health of the insured individual." Ohio Rev. Code Ann. § 3923.44(B)(1).

Florida got to the same place Ohio did, but it took two statutes. In 1988, Florida banned long-term care insurance contracts that required a mandatory hospitalization stay of longer than three days. Long-Term Care Insurance Act, ch. 88-57, §§ 1, 1988 Fla. Laws 305, 310 (1988) (codified as amended at Fla. Stat. § 627.9407 (2020)). That first statute "appl[ied] to policies issued or renewed on or after" "October 1, 1988." Id. Less than a year later, the State clarified the retroactive effect of most of its new minimum requirements for long-term care insurance. It indicated that these requirements apply only to those policies "delivered or issued for delivery" after October 1, 1988. Act of June 28, 1989, ch. 89-239, § 1, 1989 Fla. Laws 1015, 1015 (codified as amended at Fla. Stat. § 627.9403 (2020)).

In 1992, Florida went further and altogether banned the issuance of new contracts with any mandatory hospitalization provisions. "A long-term care insurance policy may not be delivered or issued for delivery in this state if the policy . . . [c]onditions eligibility for any benefits on a prior hospitalization requirement." Fla. Stat. § 627.9407(5)(a). The same legislation also outlawed bundling provisions. These provisions denied home healthcare benefits to claimants who had not also bought therapeutic or nursing services. Fla. Stat. § 627.94071(2). All of these changes became effective on October 1, 1992, and the governing statute limited their application to policies "delivered or issued for delivery." Act of Mar. 24, 1992, ch. 92-33, § 146, 1992 Fla. Laws 383, 385 (codified as amended at Fla. Stat. § 627.9407 (2020)). This new legislation also forbade insurers from cancelling long-term care insurance policies "on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder." Fla. Stat. § 627.9407.

Smith's Riders and Premium Increases. In 1998 and 2004, CCC raised Smith's premiums. In full, the 1998 Rider reads:

It is hereby agreed that the renewal premium for policy No.:076255208 is $545.46. Nothing in this rider shall affect the mode of premium for this policy.

This rider takes effect for the policy to which it is attached on the first premium due date on or after February 25, 1999.

(R.12-1, Smith Policy, at PID#155.) The correspondence alerting Smith to her 2004 premium increase simply advised her that "the premium you currently pay annually will increase on the first premium due date on or after February 25, 2004. Your new annual premium will be $763.64 and will be reflected on your next premium due notice." (Id. at PID#156.)

Procedural History. After CCC denied coverage, Plaintiffs sued. Their complaint included multiple claims, including for breach of contract in both Ohio and Florida. The district court dismissed Smith's claims with prejudice and awarded summary judgment to CCC on Fleming's claim.^[1]

Plaintiffs appealed. Their opening brief only addresses their breach of contract claims, so we review only those arguments. See Hih v. Lynch, 812 F.3d 551, 556 (6th Cir. 2016) ("An appellant abandons issues not raised and argued in his initial brief on appeal.").

II. Standard of Review

We review the district court's dismissal of Smith's...