The San Francisco Chronicle - Tuesday, June 20, 2000
Harriet Chiang, Chronicle Legal Affairs Writer

In a unanimous vote, the high court held that state law bars insurance companies from denying benefits to a policyholder who has been paying premiums for at least two years, even if he has a disease that was evident before the policy was issued.

In addition to those with AIDS, the decision is expected to protect benefits for people with multiple sclerosis, Parkinson's disease, cancer and a host of other long-term disabling conditions.

The decision "saves one of the few real protections that consumers have under health insurance," said Peter Groom, assistant chief counsel for the state Department of Insurance, which filed a brief in support of the policyholder. The justices ruled against Paul Revere Life Insurance Co., which argued that it did not have to pay benefits to Mark Galanty, now 52, because he had tested HIV positive almost two years before he received the disability insurance policy in March 1989.

Galanty, of Studio City, did not disclose the test results when he applied for the policy. He was diagnosed with AIDS in 1994.

The court based its decision on a standard clause in all disability policies. Insurance companies have two years to screen for pre-existing conditions and deny benefits. If the insurer has not uncovered an illness during that time, it cannot halt coverage.

The provision "bars Paul Revere from denying coverage for Galanty's disability, whether or not the causative disease first manifested itself before the policy's date of issue," wrote Justice Kathryn Mickle Werdegar in the court's opinion.

The court reversed a state appeals court decision that said the insurance company could exclude coverage for pre-existing conditions. Yesterday's ruling also overturns a separate state appeals court ruling against a woman with multiple sclerosis who was denied benefits by Mutual Life Insurance Co. of New York.

The issue has arisen in 17 states, including New Jersey, where the state Supreme Court ruled in favor of the insurance companies.

"It's a major victory for consumers in saying that insurance companies can't sell you a policy, collect your premiums and then years later look for an excuse to deny payments," said Jon Davidson, one of Galanty's lawyers.

"This is going to affect a lot of people beyond the HIV community," said Galanty, who worked as a court reporter before he became disabled from AIDS. After more than four years in litigation, he said he was thrilled by the decision.

The court said that since 1989, insurance companies have been allowed to test for HIV those applying for insurance policies. But the lawyer for Paul Revere noted that in this case, the insurer had no reason to suspect that Galanty had the virus.

Gail Cohen, the lawyer for both Paul Revere and Mutual Life, said that when Galanty applied for his policy, the company wasn't allowed to test applicants for the HIV virus. In any event, she said, "the insurance companies have to rely on the honesty of the applicant."

"This sends a message that you're much better off lying on an insurance application and concealing your condition," she said, "because if you lay low after two years you get off scot-free."

Ultimately, Cohen said, the court's ruling will mean increases in premium rates for everyone with disability insurance.

Galanty drew support from a number of AIDS and disability groups who argued that insurance companies were trying to circumvent a consumer protection law that has existed for almost 50 years.

Robert K. Scott, vice chair of the American Bar Association's disability committee, said it was an attempt by two companies to say that any prior manifestation of a disease -- even a series of headaches years before being diagnosed with brain cancer -- allowed them to deny benefits.

The Newport Beach lawyer said that companies can always refuse to underwrite someone after they conduct an investigation and they can do further medical checking for two more years after issuing the policy.

The decision, he said, "protects our consumers for events in their medical past that even a physician would not have known."

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