Insurance Applicant’s Right to Know Upheld

Court says insurer has disclosure duty to HIV-positive prospective clients

In a ruling contrary to every other published court opinion on the matter, a panel of the U.S. Court of Appeals for the Tenth Circuit, based in Denver, ruled by a 2-1 vote on February 9 that a life insurance company that learns that an applicant has tested HIV-positive has a duty to alert the applicant.

Reversing a summary judgment decision, the Tenth Circuit panel sent the case back to the federal district court in Wyoming to determine whether the insurance company satisfied its legal duty.

Gary and Renna Pehle, a married Wyoming couple, did not know that they were both HIV-positive when they submitted to blood testing while applying for life insurance from Farm Bureau Life Insurance Company. When the couple both tested positive, Farm Bureau sent them notice that their applications had been rejected due to their blood test, and offered to report the results to their doctor. The Pehles did not respond to this offer until after Renna Pehle developed symptoms years later.

After Mrs. Pehle became symptomatic and was diagnosed with full-blown AIDS, she and her husband inquired and learned that Farm Bureau had a two-year old record of their infection. They decided to sue, claiming that delay in learning they were HIV-positive resulted in lack of treatment that may have worsened their prognosis.

The defendants moved for summary judgment, granted by the federal trial judge, who decided that under the applicable Wyoming personal injury law, the insurance company had no duty to communicate the test results to the Pehles.

Two members of the court of appeals panel disagreed with the trial judge, finding that under Wyoming law the insurer had at least a limited duty to provide enough information to induce the applicants to inquire further. The court found that there was legitimate question as to whether Farm Bureau’s original notice satisfied that requirement and that the trial judge should have conducted evidence discovery and, if necessary, a trial.

Though the law does not typically impose an obligation on people to rescue others from harm, courts have been carving out exceptions for situations where people acquire information of a specific danger to a specific person. The court found the obligation existed in this case.

“Putting HIV-positive applicants on notice of their infection could be considered a normal part of testing for HIV,” wrote Judge Carlos F. Lucero, for the appeals court majority.

Farm Bureau relied on the traditional understanding that an insurance company gathering medical information to decide on insurability does not stand in a physician-patient relationship with an applicant, and thus generally has no duty to communicate any diagnosis to the applicant. But Lucero disagreed.

“By encouraging the Pehles to purchase life insurance through them, Farm Bureau purported to act with the Pehles’ best interests in mind,” he wrote. “In submitting to a procedure for extraction and consenting to an examination of their blood, the Pehles demonstrated that Farm Bureau had gained their confidence. We do not think that insurance companies must exist to treat or diagnose HIV in order for a duty to arise that necessitates that applicants be properly put on notice to inquire further.”

The letter Farm Bureau sent the Pehles informed them that they were turned down based on their blood tests, which could be sent to their doctor, but did not say anything about HIV, even though their application specifically authorized testing for HIV. The open question to be determined at trial is whether this letter was sufficient to meet the duty Judge Lucero had described.

Dissenting, Chief Judge Deanell Reece Tacha argued that the matter was an untested question of state law that the federal court should not decide without advice from the Wyoming courts. Tacha also noted that there were no other published precedents for the appeals court ruling, so that absent an advisory opinion from the Wyoming Supreme Court, ruling to impose a notification duty on the insurance company was inappropriate.