Insurer Keeps $8,066 of Dying Woman’s Money on Technicality : Finances: A waiver in her annuity, which she wants to cash in, calls for a surrender penalty if she does not spend 30 days in a hospital. But she has chosen to die at home.

Diane Hallis lies paralyzed in bed in her Venice home these days, told by her doctor that her cancer is incurable and that she has only months to live. Now, on top of everything, Hallis has a conflict with one of her insurance companies.

The nub of the dispute is that Hallis, 45, has chosen to die at home, where she is under 24-hour care, rather than in a hospital or nursing home. That decision has cost her $8,066--money that USG Life and Annuity will not repay from a $100,000 annuity that Hallis bought last year before learning she had cancer.

Now that she is dying, Hallis, an employee of General Telephone, wants to cash in the annuity and get her money back. But the firm, a subsidiary of Equitable Life Insurance of Iowa, is refusing to return the entire $100,000.

A waiver provision in her policy states that Hallis must pay a surrender penalty if she does not spend 30 consecutive days “confined” to a hospital or nursing home.

In recent weeks, she has spent 29 days in two hospitals--16 days at UCLA Medical Center, then, after a break of less than a week, 13 days at Century City Hospital.

The facts are not in dispute, Hallis and Bill Heng, USG vice president for administration in Des Moines, agreed in separate interviews.

Hallis’ doctor sent a letter to USG on Sept. 4 confirming that she has lung and stomach cancer that has spread to her abdominal wall and spine, causing paralysis. “She has a poor prognosis, with a life expectancy of approximately three to 12 months,” wrote the doctor, Ronald Sue.

Heng said USG is justified in assessing the surrender penalty. “The laws in most states, including California, say you must treat everyone the same, and even if a person is considered ‘in bed,’ that’s not considered ‘confinement’ in terms of this policy,” Heng said.

But Hallis said, “I think if you took everything according to the letter of the law, there’d be a whole lot of people suffering from an inhumane attitude.

“I’m dying, there’s no doubt,” Hallis said. “I think I should have my money--and that the basic intent of the waiver clause is that in such circumstances, you should have the money without a penalty. I can see why they have this rule, but even an airline will refund a non-refundable ticket if you have a doctor’s letter.”

Officers of the bank that sold Hallis the USG annuity, Century Federal Savings & Loan, said they agree with her and are seeking to intercede with the insurance company.

“So far, they’re not willing to bend,” said Kerwin Brown, who is in charge of annuity and other long-term investments for Century Federal. “It’s something I’m disgruntled about. . . . Technically, she doesn’t (qualify for the waiver) but I’m talking to them about making an exception.”

A spokesman for the American Council of Life Insurance, Henry Bersoux, said in an interview from Washington that “surrender penalties are very common” in the annuity business and are needed to safeguard the insurance companies.

“They are there to protect the insurer who is investing the annuity premium,” Bersoux said. “If the annuity is surrendered before maturity, the insurer is going to incur some penalty itself for their early cancellation. There are waivers . . . and the company in this case has chosen to adhere to those exact (waiver) terms.”

Heng of USG said, “We all have great sympathy with Miss Hallis.” But, he added, the company’s decision in the matter is final.

In fact, this week the company apparently grew weary of the issue--and of telephone calls it had been getting. It sent Hallis a check cashing out her policy, even though she said she had not finally requested that action.

The check was minus the $8,066.