Opinion ID: 728766
Heading Depth: 2
Heading Rank: 2

Heading: The Application of the Safe Harbor Provision to Insurance

Text: 42 Defendants next argue that the so-called safe-harbor provision of Title IV of the Disabilities Act was designed to protect the insurance industry from being substantively regulated by the other provisions of the Act. Section 12201(c) of the Disabilities Act, captioned Insurance, states that, [s]ubchapters I through III of this chapter and title IV of this Act shall not be construed to prohibit or restrict (1) an insurer ... or entity that administers benefit plans ... from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law.... The section also explains, however, that the above paragraph shall not be used as a subterfuge to evade the purposes of subchapter I and III of this chapter. Under Defendants' reasoning, even if Title III could reasonably be construed to regulate the contents of insurance products, the safe-harbor provision excludes insurance products from any effect the Act might otherwise have. As long as their policies are consistent with state law, they assert, the Disabilities Act is totally inapplicable. 43 Unlike the language of Title III, which is quite clear, the meaning of the safe harbor provision is not self-evident. In fact, the statute appears to be purposefully vague in order to satisfy contending interest groups. Unable to decide on exactly what it intended to legislate, Congress inserted language which looks in two directions. One provision attempts to appease the insurance industry; the other provisions attempt to help the large group of disabled people. In doing so, Congress has again left this Court in a position to give meaning to conflicting statutory language designed as a political compromise. 44 We find that, in this instance, the statute is totally ambiguous on its face. The Supreme Court has long held that, in such an instance, we may turn to the legislative history of the provision for guidance. Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547-48, 79 L.Ed.2d 891 (1984). Here, both the House and Senate reports make it clear that the safe harbor provision does not serve to insulate the insurance industry completely from the Disabilities Act in its provision of insurance coverage. One House Report explains that: 45 Under the [Disabilities Act], a person with a disability cannot be denied insurance or be subject to different terms or conditions of insurance based on disability alone, if the disability does not impose increased risks. 46 .... 47 Moreover, while a plan which limits certain kinds of coverage based on classification of risk would be allowed under this section [codified at 42 U.S.C. § 12201(c) ], the plan may not refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of a physical or mental impairment, except where the refusal, limitation, or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience. 48 For example, a blind person may not be denied coverage based on blindness independent of actuarial risk classification. 49 H.R.REP. NO. 485, 101st Cong., 2nd Sess., pt. II, at 136-37 (1990), reprinted in 1990 U.S.C.C.A.N. 267, 303, 419-20. The explanation continues: 50 In sum, section 501(c) [the safe-harbor provision] is intended to afford to insurers and employers the same opportunities they would enjoy in the absence of the legislation to design and administer insurance products and benefit plans in a manner that is consistent with basic principles of insurance risk classification. This legislation assures that decisions concerning the insurance of persons with disabilities which are not based on bona fide risk classification be made in conformity with non-discrimination requirements. Without such clarification, this legislation could arguably find violative of its provisions any action taken by an insurer or employer which treats disabled persons differently under an insurance or benefit plan because they represent an increased hazard of death or illness. 51 The provisions recognize that benefit plans (whether insured or not) need to be able to continue business practices in the way they underwrite, classify, and administer risks, so long as they carry out those functions in accordance with accepted principles of insurance risk classification. 52 Id. at 137-38, reprinted in 1990 U.S.C.C.A.N. at 420-21. Another House report states: 53 [Section 12201] specifies that titles I, II, and III shall not be construed to restrict various insurance practices on the part of insurance companies and employers, as long as such practices are not used to evade the purposes of this Act. 54 .... 55 Specifically, [Section 12201(c)(1) ] makes it clear that insurers may continue to sell to and underwrite individuals applying for life, health, or other insurance on an individually underwritten basis, or to service such products, so long as the standards used are based on sound actuarial data and not on speculation. 56 .... 57 In sum, [the Disabilities Act] requires that underwriting and classification of risks be based on sound actuarial principles or be related to actual or reasonably anticipated experience. 58 H.R.REP. NO. 485, 101st Cong., 2nd Sess, pt. III, at 70 (1990), reprinted in 1990 U.S.C.C.A.N. 445, 493. The Senate report contains an explanation nearly identical to those quoted above. See S.REP. NO. 116, 101st Cong., 1st Sess. 84-86 (1989). In addition, the Senate Report states: 59 The Committee does not intend that any provisions of this legislation should affect the way the insurance industry does business in accordance with the State laws and regulations under which it is regulated. Virtually all States prohibit unfair discrimination among persons of the same class and equal expectation of life. The [Disabilities Act] adopts this prohibition of discrimination. Under the [Disabilities Act], a person with a disability cannot be denied insurance or be subject to different terms or conditions of insurance based on disability alone, if the disability does not pose increased risks. 60 Id. at 84. Thus, when the extensive and explicit legislative history is taken into account, it becomes reasonably clear that insurance practices are protected by the safe-harbor provision, but only to the extent that they are consistent with sound actuarial principles, actual reasonably anticipated experience, and bona fide risk classification. 61 Defendants also assert that an insurance plan cannot violate the Disabilities Act unless it qualifies as a subterfuge under § 12201(c). They argue that the subterfuge provision applies only to attempts to avoid the Disabilities Act by means of a scheme, plan, stratagem or artifice of evasion, citing to the recent case of Modderno v. King, 82 F.3d 1059 (D.C.Cir.1996). In Modderno, a Rehabilitation Act case, the D.C. Circuit concluded that a coverage limitation placing a $75,000 maximum lifetime limit on mental health benefits fell within the safe-harbor provision of the Disabilities Act, which has been incorporated by statute into the Rehabilitation Act. The Modderno court reasoned that such a coverage limitation would only violate the Rehabilitation Act if it ran afoul of the subterfuge provision of § 12201(c). The Modderno court noted that the Supreme Court held in two different cases that subterfuge language contained in the Age Discrimination in Employment Act (ADEA) could not apply to plans adopted before the enactment of the ADEA. Public Employees Retirement Sys. v. Betts, 492 U.S. 158, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989); United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977). In those cases, the Supreme Court reasoned that the common meaning of the word subterfuge includes scheme, plan, stratagem or artifice of evasion, and that it would be impossible to spell out an intent to evade a statute that had not yet been passed. Betts, 492 U.S. at 168, 109 S.Ct. at 2861-62. Thus, the Modderno court concluded, coverage limitations enacted before the passage of the Disabilities Act do not fall into the subterfuge exception to the Disabilities Act's safe harbor provision. Modderno, 82 F.3d at 1065. 62 Defendants' reliance on Modderno is misplaced. Although the Modderno court acknowledged that Congress amended the ADEA to include the plan upheld in McMann and then removed the subterfuge language in response to Betts, the court concluded that Congress was on full alert as to what the Court understood the word [subterfuge] to mean and decided to include the term in the Disabilities Act anyway. The Modderno court ignored explicit language in the legislative history that was clearly meant to resolve this longstanding conflict. Both the Senate and House Reports indicate that the safe-harbor section may not be used as subterfuge to evade the purposes of the Act regardless of the date an insurance plan or employer benefit plan was adopted. H.R.REP. NO. 485(III), supra, at 71, reprinted in 1990 U.S.C.C.A.N. 494; S.REP. NO. 116, supra, at 85. Thus, the subterfuge language would apply to the coverage limitation imposed on the Plaintiff in this case if it qualifies as an attempt evade the purposes of the Act, regardless of when it was first instituted. And even if a practice did not qualify as evasive under the subterfuge provision, it might still be violative of the Act if it was based on speculation, and not on sound actuarial principles, actual or reasonably anticipated experience, or bona fide risk classification. 63 Defendants' reliance on the First Circuit's remark in Carparts that there is some indication in the legislative history that the [insurance] industry received this exemption not because its policies would otherwise be substantively regulated under Title III, but because 'there is some uncertainty over the possible interpretations of the language contained in Titles I, II, and III as it applies to insurance ....'  is not persuasive. Carparts, 37 F.3d at 20 (quoting S.REP. NO. 116, 101st Cong., 1st Sess. 84 (1989)). The fact that Congress acknowledged in its own report the obvious ambiguity in the Disabilities Act's statutory language only provides support for our resort to legislative history for clarification. That legislative history weighs in favor of our decision to remand this case for further findings. 64 Furthermore, as noted above, we are bound to interpret remedial statutes broadly. Gomez v. Toledo, 446 U.S. 635, 639, 100 S.Ct. 1920, 1923, 64 L.Ed.2d 572 (1980). The Disabilities Act was intended to place the disabled on an equal footing with others. Congress was seeking to bring the disabled into the mainstream of American life. To construe the safe harbor provision with the breadth suggested by the Defendants would leave the disabled open to arbitrary discrimination in an area which is vital to that participation. Medical care in the event of illness is a serious concern to every member of society, disabled or non-disabled. It seems unlikely that Congress would leave the insurance industry virtually untouched by a statute that is designed to address the major areas of discrimination faced day-to-day by people with disabilities. 42 U.S.C. § 12101(b)(4) (Purpose). There could hardly be a good or service more central to the day-to-day life of a seriously disabled person than insurance--for it is often insurance coverage that will determine a disabled person's ability to prevent the disability from limiting his or her participation in society. 65 In addition, although agency interpretations of statutes are not generally binding on this Court, the Supreme Court has said in the past that where Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute ... the question for the court is whether the agency's answer is based on a permissible construction of the statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). In this instance, the agencies responsible for implementing the Disabilities Act have all found that the contents of insurance products, as a general matter, are covered by the Act. The agencies use the same terminology as the legislative history when describing the types of coverage distinctions which are and are not permissible under the Act. For example, the Department of Justice Technical Assistance Manual states: 66 Insurance. Insurance offices are places of public accommodation and, as such, may not discriminate on the basis of disability in the sale of insurance contracts or in the terms or conditions of the insurance contracts they offer. Because of the nature of the insurance business, however, consideration of disability in the sale of insurance contracts does not always constitute discrimination. An insurer or other public accommodation may underwrite, classify or administer risks that are based on or not inconsistent with State law, provided such practices are not used to evade the purposes of the [Disabilities Act]. 67 Thus, a public accommodation may offer a plan that limits certain kinds of coverage based on classification of risk, but may not refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of a physical of mental impairment, except where the refusal, limitation, or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience. 68 Dep't of Justice, Americans with Disabilities Act Technical Assistance Manual, § III-3.11000. 69 As the District Court noted in Hartford, the mere fact that an insurer decides to deny insurance coverage because of plaintiff's disability does not necessarily preclude a claim under the Disabilities Act. It is possible that the decision to deny plaintiff coverage was not based on considerations of underwriting or classifying risks, in which case plaintiff might be entitled to recover under the Disabilities Act. 1995 WL 573430 at  3. Thus, on remand, the Plaintiff will have to show that the distinction between mental and physical disabilities in long-term disability coverage is not justified by sound actuarial principles or actual or reasonably anticipated experience or bona fide risk classification. 70 Defendants argue that their distinction between mental and physical disability is justified. They point to the legislative history of Title I, which states: 71 [E]mployers may not deny health insurance coverage completely to an individual based on the person's diagnosis or disability. For example, while it is permissible for an employer to offer insurance policies that limit coverage for certain procedures or treatments, e.g., only a specified amount per year for mental health coverage, a person who has a mental health condition may not be denied coverage for other conditions such as for a broken leg or for heart surgery because of the existence of the mental health condition. 72 S.REP. NO. 116, supra at 29. Defendants also cite the EEOC's own regulations, which state that, Typically, a lower level of benefits is provided for the treatment of mental/nervous conditions than is provided for the treatment of physical conditions.... Such broad distinctions ... are not distinctions based on disability. EEAC Brief at 18 (citing EEOC Compliance Manual). Plaintiff responds that long-term disability, unlike health insurance, is a wage replacement benefit, not medical coverage. Thus, the Plaintiff concludes, the differentiation between mental and physical ailments may be justified in the health insurance context, but there is no similar basis for the distinction in the long-term disability realm because of the nature of the coverage. Alternatively, Defendants argue, the Disabilities Act does not protect against differentiation between different groups of disabled persons, only against discrimination against the disabled versus the non-disabled. Schering points out that Title III is not intended to govern any terms or conditions of employment by providers of public accommodations or potential places of employment; employment practices are governed by title I of this legislation. S.REP. NO. 116, supra, at 58. Thus, based on our affirmance of Plaintiff's Title I claim, it is not clear whether Schering remains a proper defendant to the remaining claim in this suit. These issues are now ripe for litigation in the court below. 73 We note, however, that it is not the role of the courts to write insurance policies. Title IV clearly places a significant amount of discretion in the hands of insurance companies to write policies that are consistent with state law. Just as the Supreme Court held that the administrator of an ERISA plan who has been given discretion to interpret the plan may do so in any way that is rational in light of the plan's provisions, Congress clearly intended similar deference to the insurance industry in this area. Thus, as noted above, insurance practices, including the insurance industry's justification for its distinction between mental and physical disabilities, are therefore protected to the extent they are in accord with sound actuarial principles, reasonably anticipated experience and bona fide risk classification. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956-57, 103 L.Ed.2d 80 (1989). 74 The District Court's dismissal of Plaintiff's Title III Disabilities Act claim is REVERSED, and the case is REMANDED for further proceedings consistent with this opinion.