Potovsky v. Lincoln Benefit Life

Background

Ira and Patricia Potovsky purchased a comprehensive long-term-care insurance policy from Lincoln Benefit Life in 2002 and renewed it annually. The policy provided home-care benefits if several conditions were met, including that the insured was chronically ill, received home care under a prescribed plan, submitted the plan for review, satisfied the policy’s elimination period, and had not exceeded the policy’s maximum payable amount.

The Potovskys alleged that Lincoln received notice of Patricia Potovsky’s need for home health care in or around September 2022. Ira cared for Patricia, who allegedly had physical and mental deficits, including dementia, and their children and grandchildren also helped. Lincoln denied the claim on April 5, 2023, stating that the medical records supported cognitive impairment but not severe cognitive impairment requiring substantial supervision. Lincoln denied the appeal on April 28, 2023, stating that the records and cognitive testing showed mild cognitive impairment rather than severe cognitive impairment requiring substantial supervision.

The Potovskys asserted claims for breach of contract, breach of the implied duty of good faith and fair dealing, and financial elder abuse. Lincoln moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not adequately state a claim for relief.

Breach of Contract

The court held that the contract claim was inadequately pleaded in two respects. First, the Potovskys did not plausibly allege their performance under the policy, or an excuse for nonperformance. Alleging that Patricia was chronically ill was not enough because the policy required additional conditions, including receiving home care under a plan of care and satisfying the elimination period. The complaint stated that Ira was Patricia’s primary caregiver and that family members provided some care, while the policy appeared to exclude services provided by an insured’s immediate family from payable care. The complaint also did not allege that the Potovskys were excused from performance.

Second, the complaint did not clearly allege damages. It referred to incidental damages and out-of-pocket expenses but did not identify expenses the Potovskys actually incurred because of Lincoln’s alleged breach. The court noted that the policy stated that care services were payable at actual expenses incurred, up to $120 per day. The court treated the question whether Lincoln waived other grounds for denial as fact-based and not suitable for resolution at this stage. It also noted that the Potovskys mentioned an anticipatory-breach theory in their opposition, but had not pleaded that theory in the amended complaint.

The court dismissed the breach-of-contract claim with leave to amend.

Good Faith and Fair Dealing

The court explained that an insurance bad-faith claim requires a plausible allegation that benefits due under the policy were improperly withheld and that the withholding was unreasonable or lacked proper cause. The Potovskys had not adequately alleged that they were entitled to benefits under the policy.

They also did not plausibly allege that Lincoln’s denial or delay was unreasonable. The allegations and attached documents showed that Lincoln requested and reviewed additional information, issued a denial after receiving the claim, and reviewed additional information during the appeal. The court said the Potovskys disagreed with Lincoln’s assessment of the severity of Patricia’s dementia but had not adequately alleged why Lincoln’s decision was unreasonable. The remaining allegations about Lincoln’s explanations, application of policy provisions, and alleged effort to maximize profits were conclusory.

The court dismissed the good-faith-and-fair-dealing claim with leave to amend.

Financial Elder Abuse

Under California law, financial elder abuse can involve taking or retaining an elder’s property for a wrongful use or with intent to defraud. The court explained that an insurance claimant must allege more than an incorrect denial of policy benefits. The Potovskys had not adequately alleged that Lincoln acted unreasonably, in bad faith, or in some other way that would support the elder-abuse claim.

The court dismissed the financial elder-abuse claim with leave to amend.

Disposition

The court granted Lincoln’s motion to dismiss with leave to amend. All three claims were dismissed with leave to amend, and any amended complaint was due within 20 days of the order’s issuance. The court did not decide whether the Potovskys could pursue punitive damages or whether the policy’s Legal Action Provision barred the lawsuit.