Empire State officials have sent out a circular letter that could require some sellers of group and blanket disability policies to review 2 years of disability claim denials.

In June, the New York Court of Appeals, the state’s highest appeals court, decided that state law permits insurers to use individual underwriting in evaluating group disability plan applicants, Charles Rapacciuolo, chief of the New York State Insurance Department health bureau, writes in New York Circular Letter Number 14 (2007).

The court also decided that the state’s 12-month limit on policy provisions that exclude coverage for pre-existing conditions acts as a waiting period rather than as a complete bar to claims.

While the court case was under way, the insured had argued that the provision created a waiting period.

The insurer involved argued the pre-existing condition exclusion permitted an insurer to permanently deny coverage for disabilities that appear during the first 12 months of coverage as a result of a pre-existing condition.

The appeals court agreed with New York state insurance regulators, and it “unanimously construed the statute to establish a waiting period, rather than a total bar, for coverage of disabilities due to a pre-existing condition that begins within 12 months of an insured’s effective date of coverage,” Rapacciuolo writes.

Disability insurers should review forms and update the forms when necessary to indicate that any pre-existing condition provision is a waiting period, and not a complete bar for coverage of those disabilities that arise within the first 12 months of coverage, Rapacciuolo writes.

Rapacciuolo says insurers also should review at least 2 years of claim denials that were based on pre-existing conditions and look to see whether the denials should now be reversed.

A copy of the circular letter, which gives more rules concerning the denial review process, is available