Monday, July 21, 2003

Accepting an Invitiation

The SW Virginia Law Blog on the 20th noted two articles in the Virginian-Pilot (here and here) that reported that "[i]nsurance companies licensed to do business in Virginia can only underwrite group policies to cover family members defined as spouses or dependent children," thus excluding gay or lesbian partners and children of such a partner that the non-biological partner nevertheless considers as his or her progeny.

SW Virginia Law Blog then suggests that the problem was not one of state law, but rather of federal law, more particularly federal tax law, and it put out a request to other blogs that focus on business and tax issues, including yours truly, to offer their view of the locus of the issue. Well, here goes.

There is obviously a federal tax slant to this issue. As the SWVa Law Blog correctly noted, medical insurance benefits paid by an employer that provides insurance to a non-family member of the employee (meaning non-married "significant others" and children of such individuals) is taxable to the employee, unless the significant other or his/her child is (are) dependents of the employee. However, the authority cited by SWVa Law Blog, CCA 200117038 makes it clear that a plan may provide benefits to such individuals, even though the benefits are taxable.

I am not admitted to practice in Virginia, but I suspect that the concept that is at the core of the problem the news articles focus on is that of "an insurable interest." This is a well-known concept in insurance law. In essence, one can only be the owner of a policy of insurance that insures against some hazard occuring to some other individual if the owner has an "insurable interest" in the person insured. Thus, I cannot obtain a policy of insurance on the authors of the SWVa Law Blog because, even though I like reading their publication, I do not have an insurable interest in their lives. Going one step further, insurance companies have been found to be liable for damages for the tort of "insuring" when they enter into contracts of insurance with an individual with no insurable interest in the named insured party. (The damages are usually derived from the premature death of the named insured due to the active intervention of the policy owner. In simple English, someone buys a life insurance policy on someone else's life and then knocks them off to obtain the proceeds. I am willing to bet, however, that for every lawsuit for the tort of insuring, there have been fifty murder mysteries based on the practice.)

The question originally posed by the SWVa Law Blog was whether this was an instance of state law creating a due process or equal protection issue. To the extent that my hypothesis as to the derivation of the rule discussed in the newspaper articles is correct, I believe that the application of the state law does create a Constitutional issue. There would seem to be no question but that an individual has a strong interest in seeing to it that the medical needs of the others in his/her household are met. A state law that attempt to stretch the concept of "insurable interest" to bar the issuance of such coverage is nothing more than an attempt to limit the free association of individuals based upon their marital status or sexual orientation by making it difficult or more expensive for them to obtain medical insurance for everyone in their household.

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