May 7, 2001
Two Little Words Can Spell All The Difference
In LTC Contracts
By
Claude Thau
The distinction between
the words ‘and’ and ‘or’ seems obvious, but failure to recognize the
distinction properly could expose long-term care insurance policyholders
and the industry to costly and unnecessary litigation and dissatisfaction.
I find that people understand the issues more clearly when I use an example
from the Constitution of the United States and request the reader’s patience in
reading this.
The Constitution of the United States requires the President to:
1. Be a natural-born citizen of the U.S.
AND
2. Be at least 35 years old.
AND
3. Have lived at least 14 years as a resident in the U.S.
Now, for a simple quiz:
a) Is a 40-year-old who was born in Canada, but moved to the United States at
the age of 3, capable of being elected President of the U.S.?
b) Is a 30-year-old, natural-born citizen of the United States, who has lived
his/her entire life in the U.S., capable of being elected President of the
U.S.?
c) Is a 40-year-old, natural-born citizen of the United States, who has lived
only 12 years of his or her life in the U.S., capable of being elected
President of the U.S.?
Obviously, the answers are all "no." All of the above people are deficient
in meeting one of the requirements of the Constitution. The Constitution says
someone is capable of being President only if they meet all
three of the enumerated requirements. They are deficient if they
fail in any regard.
Would you feel comfortable if our Constitution required the President of the
United States to:
1. Be a natural-born citizen of the U.S.,
OR
2. Be at least 35 years old,
OR
3. Have lived at least 14 years as a resident in the U.S.?
Such wording would permit the election of a 4-year-old child!
This distinction between the words ‘and’ and ‘or’ in the context of the U.S.
Constitution is relevant to long-term care insurance because LTCI contracts
define Activities of Daily Living. That is, the contracts define requirements
that must be met for a person to be considered capable of performing ADLs; they
do not define ADL deficiency.
ADL deficiency is simply the inability to perform a defined ADL. Hence, 'and'
and 'or' are used in the same context in an LTC contract as they are used in
the Constitution to define qualifications to become President.
For example, consider the National Association of Insurance Commissioners Model
Regulation’s definition of Toileting: "'Toileting' means getting to and
from the toilet, getting on and off the toilet, and performing
associated personal hygiene." (Emphasis added.)
Contrast the NAIC wording with the statutory wording of one state:
"toileting, which shall mean getting to and from the toilet,
getting on or off the toilet, and performing associated personal
hygiene." Under this state’s statutory definition, would a person be
ADL-deficient if he could walk to and from the toilet, could lower himself to
the toilet and perform associated personal hygiene, but lacked the leg strength
to get off the toilet?
He would not be ADL-deficient if the sentence were interpreted according to
proper English grammar because he could get to and from the toilet, he
could perform personal hygiene and he could either get on the toilet or
get off the toilet. However, as long as the state permits alternative wording
that is more favorable to the consumer, a company could use the preferable NAIC
wording.
Moving from Toileting to Transferring, the NAIC defines
"Transferring" as follows: "'Transferring' means moving into or
out of a bed, chair or wheelchair."
How much better if your LTCI policy defines "Transferring" as:
"Your ability to change positions, including moving from bed to standing,
chair to standing, bed to chair and the reverse of these
activities."
With this definition, it is clear that someone must be able to perform all
such transfers to be ADL-capable. Someone who can move from a bed to a chair,
but not vice versa, is ADL-deficient. The NAIC definition, in contrast,
suggests that someone is capable of doing the ADL if they can do any one
of the transfers. That is, they are capable even if they can't do some
of the transfers. (Remember that the NAIC definitions are minimum standards.
Companies can use more generous definitions if they so choose.)
If the definition of the ADL is conjunctive (i.e., 'being able to do A and
B"), then an insured must be able to perform all enumerated functions to
be considered capable of performing that ADL. Hence, if they are unable to
perform any enumerated activity, they are ADL-deficient.
Conversely, consider a fictional ADL defined as "the ability to get to
work by car or by bus." Clearly, you would consider an employee to
be capable of getting to work if she or he could do so either by car or by
bus. In case of a bus strike, she or he should drive her or his car. The only
acceptable excuse for missing work would be the inability to get to work by car
and also being unable to get to work by bus.
Thus, if an ADL definition uses the disjunctive ‘or’ (i.e., being capable of
doing A or B), an insured is capable of performing that ADL if he or she
can do any of the enumerated functions. The person must be unable to
perform all enumerated functions to be considered ADL-deficient.
Readers may be tempted to dismiss this distinction between the words 'and' and
'or' as just semantics, but the distinction has been, and will continue to be,
significant in claims adjudication.
Companies have differed on how they interpret their contracts. Some companies have
interpreted contracts consistently with English grammar and other companies
have interpreted contracts inconsistently with English grammar. Regulators have
also differed in their interpretations of the same wording.
When policy benefits and public perception depend upon the interpretation of
policy language, the importance of implementing clear, grammatically-correct
terminology in policy forms, statutes and regulations becomes abundantly clear.
It can be very helpful to provide written examples of how ADL definitions will
be used in determining the ability or inability to perform ADLs. For example,
wording can be provided as follows:
"The following examples show how the definition of Activities of Daily
Living (ADLs) will be used in determining whether an insured is unable to
perform ADLs: (Please note that these examples do not amend any other policy
form requirements, such as the need for human assistance, any exclusions, and
any limitations.)
"When ‘or’ is used in the Policy Definition, as it is in the definition of
"Eating," an insured is considered capable of performing the
stipulated activity if he/she can perform any one of the activities
listed. Therefore, an insured who is able to perform one of the
(Eating) activities would not be considered deficient in the (Eating)
ADL, even if he/she could not perform other (Eating) activities. An insured who
is unable to perform all of the (Eating) activities listed could
be certified as unable to perform the (Eating) ADL.
"When ‘and’ is used in the Policy Definition, as it is in the definition
of "Transferring," an insured is able to perform the activity only
if he/she can do all of the activities listed. Therefore, an insured who
is unable to perform one of the (Transferring) activities listed
could be certified as unable to perform the (Transferring) ADL, even if
he/she could perform other (Transferring) activities."
It is critical that the long-term care insurance industry and its regulators
properly recognize the distinction between the words ‘and’ and ‘or’ in the
context of the definitions of ADLs. Incorrect and inconsistent interpretations
among companies and among regulators do significant disservice to consumers and
can clog courtrooms with litigation.
Claude Thau, president of Thau Inc., Mission, Kansas, does national
consulting on long-term care insurance. He can be reached at cthau@targetins.com.
Reproduced from National Underwriter Life &
Health/Financial Services Edition, May 7, 2001. Copyright © 2001 by The
National Underwriter Company in the serial publication. All rights
reserved.Copyright in this article as an independent work may be held by the
author.
Copyright © 2001 by The National Underwriter Company. All rights reserved.