      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN


                                      NO. 03-05-00178-CV



                                  Ann J. Schneider, Appellant

                                                 v.

                   Employees Retirement System of Texas, et. al., Appellee


     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT
           NO. GN002530, HONORABLE PAUL DAVIS, JUDGE PRESIDING



                            MEMORANDUM OPINION


               Ann J. Schneider appeals the district-court judgment affirming an order issued by the

Board of Trustees of the Employees Retirement System of Texas (“the Board”) that denied her

insurance claim for long-term disability benefits because (1) she filed her claim late and (2) her

alleged disability arose from a preexisting condition excluded by the insurance policy. On appeal,

Schneider contends that the district court erred in affirming the Board’s order. Because we find

substantial evidence to support the order, we affirm the district court’s judgment.


                                        BACKGROUND

               The record shows that Schneider worked as a sign-language interpreter at Houston

Community College (HCC) from 1985 to 1993, working part-time from 1985 to 1992 and full-time

from 1992 to 1993. In August 1991, she began to experience pain in her wrists. A month later, she

went to Dr. Mark Franklin seeking evaluation and treatment. She continued seeing Dr. Franklin on
a regular basis until March 1992, when he referred her to Dr. David Hildreth. Dr. Hildreth examined

Schneider and ordered diagnostic tests for her hands and wrists. He then diagnosed her condition

as carpal tunnel syndrome and tenosynovitis of the right hand and wrist. In May 1992, Schneider

applied for workers’ compensation based on her wrist injury. Later that month, Dr. Hildreth

operated on Schneider’s right wrist. After the operation, Schneider continued to see Dr. Hildreth

regularly for treatment both before and after she stopped working in February 1993.

               In August 1992, Schneider became a full-time employee and applied for the Uniform

Group Insurance Program (“the Program”),1 which provides health and disability insurance benefits

to state and higher-education employees. Group Life and Health Insurance Company (“Group Life”)

administered the Program on behalf of the Employees Retirement System of Texas (ERS).2

Schneider applied for the Program’s health and disability insurance in October 1992, and the

insurance became effective on November 1, 1992. In February 1993, Schneider stopped working

at HCC as a result of the pain in her wrists, and she officially resigned two months later.

               In February 1995, Schneider filed a claim for long-term disability benefits with Group

Life. Group Life denied the claim on the ground that it was not filed within the twelve-month time

frame required by the insurance policy. Group Life relied on the following policy provision in

denying the claim:



       1
       The Program is now called the “Texas Employees Group Benefits Program.” See Tex. Ins.
Code Ann. § 1551 (West 2007).
       2
          Although Group Life and Health Insurance Company was the name of the insurer at the
time Schneider’s claim arose, the company is now known as Fort Dearborn Life Insurance Company.
See Nobles v. Employees Ret. Sys. of Tex., 53 S.W.3d 483, 485 n.1 (Tex. App.—Austin 2001,
no pet.).

                                                 2
               Proof of Loss: Written proof of loss must be furnished to the Insurer
               at its Home Office in Richardson, Texas, within the 12 months after
               the commencement of the period for which the Insurer is liable . . .
               Failure to furnish such proof within the time required shall not
               invalidate or reduce any claim if it was not reasonably possible to
               furnish such proof within such time, provided such proof is furnished
               as soon as reasonably possible and in no event, except in the absence
               of legal capacity of the Employee, later than one year from the time
               proof is otherwise required.


Schneider requested that ERS review the denial of her claim. After a review, ERS determined that

Group Life was correct in denying the claim, stating that Schneider was not entitled to benefits

because her claim arose from an excluded preexisting condition. Schneider’s policy excluded

coverage for preexisting conditions in the following provision:


               Benefits shall not be payable for [a]ny Total Disability of an
               Employee whose coverage is first effective on or after the Policy
               Date, which commences during the first six months that the
               Employee’s insurance is in force, if the Total Disability is caused or
               contributed to by, or is a consequence of, an Injury or Sickness for
               which the Employee received medical treatment, or services, or took
               prescribed drugs or medicines during the three-month period
               immediately prior to the effective date of such insurance.


Schneider sought review by the Board, which referred the case to an administrative law judge (ALJ)

for an evidentiary hearing. The ALJ issued findings of fact, conclusions of law, and a proposal for

decision recommending that the claim be denied both because it was filed late and because it arose

from an excluded preexisting condition. The Board adopted the ALJ’s findings and conclusions in

a final order denying Schneider’s claim. Schneider’s motion for rehearing was overruled by

operation of law.



                                                 3
                Schneider sought judicial review of the Board’s final order in Travis County district

court, and the district court affirmed the order. This appeal followed.


                                          DISCUSSION

Burden of Proof

                In a preliminary issue, Schneider contends that the ALJ improperly placed the burden

of proof on Schneider to negate the two affirmative defenses—untimely filed claim and excluded

preexisting condition—raised by ERS. Generally, an insured bears the initial burden of showing that

there is coverage under an insurance policy, and the insurer bears the burden of proving the

applicability of an exclusion that permits it to deny coverage. See Act of May 27, 1991, 72nd Leg.,

R.S., ch. 242, § 11.03(a), 1991 Tex. Gen. Laws 939, 1046 (former Tex. Ins. Code Ann. art. 21.58,

which stated that insurer had burden of proof as to affirmative defenses), repealed by Act of

May 20, 2003, 78th Leg., R.S., ch. 1274, § 26(a)(1), 2003 Tex. Gen. Laws 3611, 4138;3 Venture

Encoding Serv., Inc. v. Atlantic Mut. Ins. Co., 107 S.W.3d 729, 733 (Tex. App.—Fort Worth 2003,

pet. denied); Nobles v. Employees Ret. Sys. of Tex., 53 S.W.3d 483, 489 (Tex. App.—Austin 2001,

no pet.). Once the insurer proves the applicability of an exclusion, the burden then shifts back to the

insured to demonstrate that she has coverage under an exception to the exclusion. Venture Encoding,

107 S.W.3d at 733; see also Nobles, 53 S.W.3d at 489 (insured has burden to prove direct case,

including proof of coverage and entitlement to policy proceeds). Here, we find no evidence to

support Schneider’s assertion that she was required to negate ERS’s affirmative defenses. The ALJ

said nothing in his proposal for decision about a burden to negate ERS’s affirmative defenses, but


       3
           We apply former article 21.58 because it was in force at the time of Schneider’s hearing.

                                                  4
rather stated that Schneider failed to prove that she was still entitled to coverage despite the

applicability of the affirmative defenses. Specifically, after determining that the evidence established

that Schneider filed her claim late, the ALJ stated that in order for the late filing to be excused,

“Schneider was required to prove that ‘it was not reasonably possible’ to furnish the proof of loss

within the required time.” Regarding the preexisting-condition exclusion, the ALJ stated that

“Schneider’s claim should be denied because the evidence established that her claim arose from an

excluded preexisting condition, and Schneider failed to prove that any exception or waiver of the

exclusion applied.” Thus, the ALJ’s proposal for decision makes it clear that the ALJ properly

placed the burden on ERS to prove the untimeliness of Schneider’s application and the applicability

of the preexisting-condition exclusion, and that once ERS did so, the ALJ properly shifted the burden

to Schneider to prove that her late filing was excused and that she was entitled to coverage under the

exception to or waiver of the exclusion. Because the ALJ imposed the proper burden of proof on

both ERS and Schneider, we overrule this issue.4 See Venture Encoding, 107 S.W.3d at 733; Nobles,

53 S.W.3d at 489.




        4
         Also in support of her argument, Schneider refers to a letter she received from ERS
informing her that she would have the burden of proof at the hearing. We do not find anything
improper about such a statement because the statement is consistent with the principle that an
insured bears the burden of proving her entitlement to coverage under her insurance policy. See
Venture Encoding Serv., Inc. v. Atlantic Mut. Ins. Co., 107 S.W.3d 729, 733 (Tex. App.—Fort Worth
2003, pet. denied); Nobles, 53 S.W.3d at 489.


                                                   5
Preexisting-Condition Exclusion5

       A. Standard of Review

               Judicial review of an administrative order following a contested-case proceeding is

governed by the substantial-evidence rule. See Tex. Gov’t Code Ann. §§ 815.511(f), 2001.174

(West 2007). “Broadly speaking, the substantial evidence rule is a court review device to keep the

courts out of the business of administering regulatory statutes enacted by the Legislature; but it

remains the business of the courts to see that justice is administered to competing parties by

governmental agencies.” Lewis v. Metropolitan Sav. & Loan Ass’n, 550 S.W.2d 11, 13 (Tex. 1977).

In conducting a substantial-evidence review, we determine whether the evidence as a whole is such

that reasonable minds could have reached the same conclusion as the agency in the disputed action.

Coalition for Long Point Pres. v. Texas Comm’n on Envtl. Quality, 106 S.W.3d 363, 366

(Tex. App.—Austin 2003, pet. denied). We may not substitute our judgment for that of the agency

and may consider only the record on which the agency based its decision. Id. The issue for the

reviewing court is not whether the agency reached the correct conclusion, but whether there is some

reasonable basis in the record for the agency’s action. Id. at 367. The findings, inferences,

conclusions, and decisions of an administrative agency are presumed to be supported by substantial

evidence, and the burden to prove otherwise is on the contestant. Id.


       5
          In addition to her argument regarding the preexisting-condition exclusion, Schneider also
contends that: (1) ERS was required to show prejudice as a result of Schneider’s untimely filed
claim, and (2) ERS impermissibly broadened the issues of her appeal in violation of her due-process
rights. Because our determination regarding the preexisting-condition exclusion in Schneider’s
insurance policy is dispositive of this appeal, we do not reach her remaining issues. See Tex. R.
App. P. 47.1 (requiring opinions to be as brief as practicable in addressing issues necessary to final
disposition of appeal).

                                                  6
               Taking these principles into consideration, we address the following in turn: (1) the

preexisting-condition exclusion, (2) the exception to the exclusion, and (3) the waiver of the

exclusion.

       B. Exclusion

               The preexisting-condition exclusion provides:


               Benefits shall not be payable for [a]ny Total Disability of an
               Employee whose coverage is first effective on or after the Policy
               Date, which commences during the first six months that the
               Employee’s insurance is in force, if the Total Disability is caused or
               contributed to by, or is a consequence of, an Injury or Sickness for
               which the Employee received medical treatment, or services, or took
               prescribed drugs or medicines during the three-month period
               immediately prior to the effective date of such insurance.


Schneider’s coverage began on November 1, 1992. Her alleged total disability occurred in

February 1993. The record shows that Dr. Hildreth had previously operated on Schneider’s right

wrist in May 1992 after diagnosing her condition as carpal tunnel syndrome and tenosynovitis of the

right hand and wrist. After the operation, Schneider continued to see Dr. Hildreth regularly for

treatment, including in August 1992, when his medical records indicate that she still had “some achy

pain” in her hands, that she was “very, very concerned about restarting work,” and that he was

prescribing her a medication called Feldene. Dr. Hildreth’s records also show that Schneider filled

her Feldene prescription at a Walgreens pharmacy on October 28, 1992. Thus, Schneider received

medical services and took a prescribed medication for her condition during the three-month period

immediately preceding the effective date of her coverage, bringing her within the preexisting-

condition exclusion.


                                                 7
       C. Exception

               Schneider concedes that the exclusion applies to her case, but she contends that she

falls within the exception to the exclusion. The exception states:


               [The preexisting-condition] exclusion shall not be applicable:
               1. After the Employee has been Actively at Work for six consecutive
               months; or
               2. After the Employee’s insurance has been continuously in force for
               12 months.


Schneider argues that the exception provision requires only that she prove that she was actively at

work for six consecutive months at any time before she became disabled.               Based on her

interpretation, she asserts that her case falls within the exception because she was employed at HCC

from 1985 to 1993 and was actively at work on a part-time basis for at least six consecutive months

of that time. On the other hand, the Board determined that the exception provision requires that

Schneider prove that she was actively at work for six consecutive months after her disability

coverage began. Consequently, the Board concluded that Schneider was not entitled to the

exception because she stopped working in February 1993, less than six months after the effective

date of her coverage.

               In considering this issue, we note that the executive director of ERS has “exclusive

authority to determine all questions relating to enrollment in or payment of a claim arising from

group coverages or benefits provided under [the Texas Employees Group Benefits Act].” See

Tex. Ins. Code Ann. § 1551.352 (West 2007). Thus, in adjudicating a contested case, the Board has

the power to determine as a matter of law the meaning of its chosen words. Board of Trs. of



                                                 8
Employees Ret. Sys. of Tex. v. Benge, 942 S.W.2d 742, 744 (Tex. App.—Austin 1997, writ denied).

As in the case of an agency’s interpretation of its own regulations or a statute entrusted to the

agency’s administration, the Board’s interpretation of a policy exclusion is entitled to judicial respect

regarding any uncertainty. Id. The Board’s ruling is presumptively valid and will be upheld as long

as the interpretation is a reasonable one. Id.

                We conclude that the Board reasonably interpreted the provision to require

six consecutive months of active work after the effective date of coverage. Under Schneider’s

interpretation, an employee would be entitled to disability benefits on the very first day her disability

coverage became effective as long as she had previously been actively at work for six consecutive

months. This would be true even if the employee had recently been treated for a condition that she

knew would soon result in her disability. Thus, the employee could apply for disability coverage

with full knowledge that she would immediately begin reaping the benefits of the policy. The Board

could have reasonably rejected such a construction of the exception provision, concluding that

requiring employees to work for six months after the effective date of coverage would minimize the

risk of the scenario described above, whereas merely requiring employees to work for six months

at any point before they became disabled would not. Accordingly, we hold that the Board’s

interpretation of the exception provision, requiring an employee to be actively at work for

six consecutive months after coverage begins, is both reasonable and supported by

substantial evidence.6


        6
          We note that an employee benefits booklet further supports the Board’s interpretation of
the provision. The booklet states:


                                                   9
               Turning to the facts of the case, the record shows that Schneider could not prove her

entitlement to the exception because she stopped working in February 1993, less than six

months after her coverage began. Thus, we conclude that there is substantial evidence to support

the Board’s determination that Schneider’s case did not fall within the exception to the preexisting-

condition exclusion.7


       D. Waiver

               Schneider also contends that she is entitled to a waiver of the preexisting-condition

exclusion. The following policy provision explains the waiver:




               Benefits are not payable if, during the first six months your insurance
               is initially in effect, you become disabled by an Injury or Sickness for
               which you received some form of medical treatment (including the
               taking of prescribed medication) during the three-month period
               immediately before your disability insurance began. This does not
               apply if, while covered for disability insurance, you have been
               Actively at Work six consecutive months, or after your disability
               insurance has been in force continuously for 12 months.

       (Emphasis added.)

       7
            In another argument, Schneider cites Glover v. National Insurance Underwriters,
545 S.W.2d 755, 761 (Tex. 1977), for the proposition that courts should strictly construe ambiguous
policy language against the insurer and contends that the exception provision is ambiguous and
should be strictly construed against ERS. Although the rule stated in Glover applies in cases
involving private insurers, we apply a different standard in cases involving a state agency. As we
have previously stated, the Board has the power to determine as a matter of law the meaning of its
chosen words, and the Board’s interpretation of policy language is entitled to judicial respect
regarding any uncertainty. See Tex. Ins. Code Ann. § 1551.352 (West 2007); Board of Trs. of
Employees Ret. Sys. of Tex. v. Benge, 942 S.W.2d 742, 744 (Tex. App.—Austin 1997, writ denied).
Because the Board’s ruling is presumptively valid, we need only determine that the Board’s
interpretation is a reasonable one in order to uphold the ruling. See Benge, 942 S.W.2d at 744.


                                                 10
               [The preexisting-condition] exclusion shall be waived for the initial
               coverage of any Employee of an institution of higher education who
               was . . . Actively at Work for six consecutive months immediately
               prior to September 1, 1992, unless the Employee was covered under
               such insurance for less than 12 continuous months or who was not
               Actively at Work for six consecutive months immediately prior to
               September 1, 1992, in which event this exclusion shall apply for the
               remainder of the 6-month or 12-month period.


The Board determined that the waiver did not apply to Schneider’s case because Schneider offered

no evidence of the amount of time she was “actively at work.” Schneider’s insurance policy defines

“actively at work” as:


               the active expenditure of time and energy in the service of the
               Employer . . . An Employee will be considered to be on Active Duty
               on each day of a regular paid vacation or regular paid sick leave, or
               on a regular nonworking day, provide [sic] he was on [sic] Actively
               at Work on the last preceding working day.


Schneider argues that her testimony that she worked continuously from 1985 to 1993 establishes that

she was actively at work for six consecutive months before September 1, 1992. In support of her

position, Schneider refers to a letter from ERS’s assistant general counsel to the ALJ stating that

Schneider was entitled to the waiver based on her years of employment. Although Schneider

attached the letter to a post-submission communication sent to this court, we have not located the

letter in the record, and Schneider does not provide a citation to the record. Thus, we need not

consider the letter. See Tex. R. App. P. 38.1(h) (requiring appropriate citation to record). However,

even if we considered the letter, it would not affect our decision. First, such an opinion is not

binding on our Court. Second, although both the letter and Schneider’s testimony establish that



                                                 11
Schneider was employed by HCC for six months immediately prior to September 1, 1992, we agree

with the Board that Schneider offered no evidence establishing that she was “actively at work”

within the meaning of her policy during that time.

               In fact, much of the evidence in the record suggests the opposite. Medical records

indicate that Schneider had surgery on her right wrist on May 15, 1992. Although she testified that

she could still work with no restrictions after the surgery, she did not provide evidence showing

when she returned to work. A doctor’s note written on August 12, 1992, indicates that she still had

not returned to work by then. The note states that Schneider “still ha[d] some achy pain in her

hands,” and that although her hands were better, she was “very, very concerned about restarting

work.” Another doctor’s note from November 2, 1992, states that Schneider said she was

interpreting only “one or two hours a week.” Schneider did not offer evidence showing whether she

took paid vacation time or sick leave in the months after the surgery. In her brief, Schneider argues

that she did not work during the summer months of 1992 because HCC did not call her to work, and

thus the days were “regular non-working days.” However, we have not located any evidence of this

in the record, and Schneider does not cite to the record in support of her position. She also does not

cite to any authority that would support her contention. Thus, we do not consider this argument. See

Tex. R. App. P. 38.1(h).

               Considering the evidence showing that Schneider was not “actively at work” during

the six months immediately prior to September 1, 1992, and the lack of evidence to the contrary, we

conclude that substantial evidence supports the Board’s determination that Schneider was not

entitled to a waiver of the preexisting-condition exclusion.8

       8
         In another issue, Schneider contends that the ALJ erred in not liberally construing the
provisions of her insurance policy so as to carry out the remedial purposes of the Texas Insurance

                                                 12
                                          CONCLUSION

               Because the ALJ imposed the proper burden of proof on both parties at the hearing,

and because Schneider failed to prove the applicability of the exception to or waiver of the

preexisting-condition exclusion, we affirm the district court’s judgment.




                                               ___________________________________________

                                               David Puryear, Justice

Before Justices B.A. Smith, Puryear and Waldrop;
  Justice B.A. Smith Not Participating

Affirmed

Filed: April 3, 2009




Code. Although she cites to Vail v. Texas Farm Bureau Mutual Insurance Company, 754 S.W.2d
129, 132 (Tex. 1988) for the general rule that the insurance code should be liberally construed, she
does not cite to any authority for the proposition that the provisions of an insurance policy should
also be so construed. When the Texas Supreme Court applies a liberal construction with regard to
a statute, it does so to the provisions of the statute itself. See In re Poly-America, L.P., 262 S.W.3d
337, 350 (Tex. 2008) (applying liberal construction to Workers’ Compensation Act);
Kennedy v. Sale, 689 S.W.2d 890, 892 (Tex. 1985) (applying liberal construction to Deceptive Trade
Practices Act). Accordingly, we overrule this issue.


                                                  13
