Zella Milburn bought a long-term care insurance policy (from Life Investors Insurance Company of America) in 1993, at age 83. Six years later, she moved into The Village on Lee, a “Retirement Center” in Lawton, Oklahoma. In 2002, she was briefly hospitalized and returned to The Village, but she required additional assistance with her activities of daily living. She paid The Village for those supplemental services, and filed a claim with the insurance company.

Life Investors declined to pay on the policy, pointing out that its coverage was limited to nursing home stays. The policy itself defined a “nursing home” as a “facility … which is licensed by the appropriate licensing agency to engage primarily in providing nursing care and related services to inpatients….” Since The Village was not licensed as a nursing home by the State of Oklahoma, insisted the insurance company, they were under no obligation to pay for any part of Ms. Milburn’s care.

Ms. Milburn filed a federal lawsuit claiming that Life Investors was not acting in good faith. The trial judge noted that Ms. Milburn was actually receiving nursing care at The Village, and that it held a license as an assisted living facility. That license permitted The Village to offer nursing care and related services, ruled the judge, and Ms. Milburn was awarded damages of $36,500.

The Tenth Circuit Court of Appeals reversed the judgment. It pointed out that Oklahoma does not actually license any category of facilities called “nursing homes,” but that it does license “nursing facilities.” The definition in Oklahoma law, coupled with the state’s prohibition against anyone operating a nursing facility without proper licensing, made it clear to the appellate judges that The Village did not qualify as a “nursing home.” An assisted living facility might provide “intermittent or unscheduled nursing care,” but may not be primarily engaged in providing nursing services to its residents. Ms. Milburn’s judgment was set aside. Milburn v. Life Investors Insurance Co. of America, January 9, 2008.

Ms. Milburn’s story makes clear that it is important to look at existing long-term care insurance policies. Many fifteen-year-old policies, like Ms. Milburn’s, may contain limitations on coverage location that are uncommon in more modern policies. Sadly, the focus (in those early policies) on nursing home placement increases the likelihood that patients may have to move into nursing facilities for financial reasons.

One irony is that Ms. Milburn’s problems stemmed from her prudence. She purchased long-term care insurance earlier than most, and her policy was less flexible than those bought by her procrastinating peers.

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