Potovsky v. Lincoln Benefit Life

Background

Ira and Patricia Potovsky were named insureds under a long-term-care policy issued by Lincoln Benefit Life. The policy provided benefits for qualifying long-term-care services, including home health care, if the insured met specified conditions. Among other requirements, the policy required qualifying care, a plan of care, completion of an elimination period, and written proof of loss. The policy was a reimbursement policy.

Patricia was diagnosed with amnestic mild cognitive impairment and later with mild dementia. Her neurologist reported that she was independent in all activities of daily living. The Potovskys informed Lincoln that Patricia needed home health care and provided information about proposed caregivers. Ira did not hire or pay caregivers while waiting for Lincoln to decide whether Patricia qualified for benefits; he instead acted as her caregiver.

Lincoln denied the claim because the medical information did not show that Patricia had the severe cognitive impairment requiring substantial supervision under the policy. Lincoln also denied the Potovskys’ appeal. The Potovskys then filed a second amended complaint alleging breach of contract, anticipatory breach, breach of the implied duty of good faith and fair dealing, and financial elder abuse.

Legal standard

Lincoln moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not state a legally sufficient claim. The court accepted the complaint’s factual allegations as true and considered whether they plausibly supported relief. The court had previously dismissed an earlier complaint without prejudice and allowed the Potovskys to amend.

Breach of contract

The court held that the Potovskys did not plausibly allege the performance and damages required for a breach-of-contract claim. They did not incur expenses covered by the reimbursement policy, did not receive substantial supervision from an eligible caregiver, and did not submit a proof of loss for reimbursement. Care provided by Ira, an immediate family member, was not covered under the policy.

The court rejected the Potovskys’ arguments that Lincoln had prevented or excused their performance. Lincoln had not prevented them from obtaining medical information, securing covered services, or submitting a proof of loss. Their decision not to spend money on caregivers before learning whether Patricia qualified for benefits was not a circumstance that excused performance under the policy.

The court also rejected the argument that Lincoln waived its right to require incurred expenses by denying the claim based on Patricia’s medical eligibility. Lincoln’s denial letter reserved other rights and defenses, and the communications did not show an intentional relinquishment of the expense requirement or misconduct sufficient to establish waiver.

Separately, the court held that the Potovskys failed to plead damages. They sought benefits that would have been payable if Lincoln had approved their entitlement to incur and receive reimbursement for covered expenses, but they did not identify actual qualifying expenses. The breach-of-contract claim was dismissed without leave to amend.

Anticipatory breach

Under California law, anticipatory breach requires an express and unequivocal refusal to perform the contract. The court held that Lincoln’s denial of benefits based on its determination that Patricia did not meet the policy’s eligibility requirements was not a repudiation of the entire contract. Lincoln had not stated that it would never approve Patricia for benefits if she later met the policy’s requirements, and the policy remained ongoing. The anticipatory-breach claim was dismissed without leave to amend.

Good faith and fair dealing

The Potovskys alleged that Lincoln unreasonably withheld benefits, inadequately investigated the claim, mishandled medical information, delayed the claims process, and otherwise acted in bad faith. The court held that this claim failed because the Potovskys had not shown that benefits were owed under the policy. It also held that the allegations did not plausibly show that Lincoln acted unreasonably or without proper cause.

The court noted that Lincoln reviewed the available medical information, considered additional information submitted on appeal, and took approximately two months to evaluate the claim after receiving the information it needed. The good-faith claim was dismissed without leave to amend.

Financial elder abuse

The court held that the financial elder abuse claim failed because it depended on the Potovskys’ unsupported assertion that Lincoln improperly denied benefits. The complaint also did not plausibly allege that Lincoln acted in bad faith or unreasonably. The court stated that the financial elder abuse claim was dismissed with prejudice.

Disposition

The order granted Lincoln’s motion to dismiss without leave to amend. The conclusion states that the breach-of-contract, anticipatory-breach, good-faith-and-fair-dealing, and elder-abuse claims were all dismissed without leave to amend. This conflicts with the elder-abuse section’s separate statement that the elder-abuse claim was dismissed with prejudice.