By Joe Forward, Legal Writer, State Bar of Wisconsin

Aug. 6, 2010 – Wisconsin’s maternity insurance coverage statute prohibits insurance policies that cover maternity expenses from excluding coverage for woman acting as surrogate mothers, the Wisconsin Supreme Court recently held.

In Mercycare Insurance Co. v. Wisconsin Commissioner of Insurance, 2010 WI 87, the supreme court majority – in an opinion written by Justice Ann Walsh Bradley – ruled that Wisconsin’s insurance commissioner was correct in deciding that Mercycare could not exclude maternity coverage based on surrogate status and other insurers cannot do so either.

The case arose after two women, both of whom agreed to be surrogate mothers while covered under Mercycare Insurance Company’s group disability insurance policy, received pregnancy-related healthcare services. Both incurred medical costs in the area of $17,000, which were paid by the third-party parents.

Mercycare denied coverage for the maternity services under the 2002 policies, claiming the insurance contracts did not cover services for surrogate mothers. The 2002 policies expressly stated that surrogate mother services are not covered. Upon complaint, the Office of the Commissioner of Insurance (OCI) reviewed the denial of coverage under the contracts.

Pending review, Mercycare in 2005 issued its newest policy insurance form to OCI for review and approval. The OCI is tasked with administering mandatory coverage statutes and ensuring that insurance policies comply with statutory regulations. The 2005 Mercycare policy submitted to OCI for review excluded maternity coverage for policy-holders acting as a surrogate mother.

The Wisconsin insurance commissioner disapproved Mercycare’s 2005 policy form, concluding that Wis. Stat. section 632.895(7) prohibits a group disability insurance policy that provides maternity coverage from excludingmaternity care based on surrogate status. The commissioner also approved coverage under the 2002 policies.

Section 632.895(7) states: “Every group disability insurance policy which provides maternity coverage shall provide maternity coverage for all persons covered under the policy. Coverage required under this subsection may not be subject to exclusions or limitations which are not applied to other maternity coverage under the policy.”

“The statute ensures that if the policy provides maternity coverage, all covered persons must be treated equally,” the commissioner wrote.

Upon review of the commissioner’s decision, the circuit court disagreed with the commissioner, concluding that section 632.895(7) permitted Mercycare to exclude surrogate mothers from maternity coverage since the exclusion applied uniformly to all surrogate mothers. The court also ordered the commissioner to approve the 2005 policy form.

Due weight deference

The supreme court determined that the commissioner’s decision must be accorded “due weight deference” – as opposed to no deference or great weight deference – because the agency has specialized experience with the issues, “but has not yet interpreted the specific statutory language at issue.”

Thus, the commissioner’s decision will be sustained, the court explained, “if it is not contrary to the clear meaning of the statute and no more reasonable interpretation exists.”

Interpretation of the statute

The court considered the question of whether a policy that includes maternity coverage but excludes maternity coverage to policy holders who are acting as surrogate mothers violates section 632.895(7).

Mercycare argued the statute unambiguously allows an insurance carrier to exclude specific subgroups of insureds. In other words, Mercycare asserted the statute allowed it to deny maternity coverage to surrogate mother policy holders even though their maternity expenses would be covered under “traditional” methods of pregnancy. The exclusion did not contravene the statute because it applies to all surrogate mothers, Mercycare argued.

The commissioner argued that specific services can be excluded from policies, but specific subgroups of insureds cannot. For example, an insurance policy can exclude maternity coverage altogether, but cannot exclude maternity coverage because a policy holder is a surrogate.

The supreme court concluded that the commissioner’s conclusion was not contrary to the clear meaning of the statute, and no more reasonable interpretation exists.

The problem with Mercycare’s interpretation, the court explained, is that it would “permit an insurer to discriminate against any number of subgroups … as long as the discrimination was ‘uniform.’ … We conclude that the statute permits an insurer to exclude or limit certain services and procedures, as long as the limitation applies to all policies.”

The court ruled that under 632.895(7), the commissioner appropriately denied Mercycare’s 2005 policy for excluding maternity coverage to surrogate mothers, and properly ruled that Mercycare must cover expenses for the surrogate mothers under the 2002 policy.

Concurrence

Three justices (Roggensack, J., Gableman, J., and Zeigler, J.) concurred in the decision, but concluded that no deference should have been given to the commissioner’s interpretation of section 632.895(7) and that statute permitted Mercycare to exclude coverage for “gestational carrier services,” a narrower term than “surrogate mother.”

The concurring opinion – written by Justice Patience D. Roggensack – noted that “maternity coverage” is not defined in the statute and questioned whether that term is meant to cover “contract expenses” of a woman who agreed to carry a child.

The medical expenses “were the contract expenses they incurred in fulfilling their agreements with third parties,” Roggensack wrote. Justice Roggensack noted that the third parties paid the medical bills, so any payment by Mercycare will not inure to the benefit of the insured.

Whether contract expenses should be covered under the statute is not clear from the statute, she explained. She wrote: “Although the pregnancy of a gestational carrier who carries a child under a contract with a third party could be mandated, there is no indication that the legislature did so in Wis. Stat. section 632.895(7).”

Attorneys

Matthew Duchemin and William Toman of Quarles & Brady LLP, Madison, represented Mercycare Insurance Co. Assistant Attorney General Bruce Olsen and Attorney General J.B. Van Hollen represented the Wisconsin Commissioner of Insurance.