Abell's Kentucky Law Blog

How Long Is Too Long? Settling Injury Claims With Insurance Companies and the Kentucky Unfair Claims Settlement Practices Act

Is three years too long to settle in injury claim for policy limits of $50,000? The Sixth Circuit recently ruled in Phelps v. State Farm, No 10 – 6085 (May 25, 2012), that a three-year delay in settling an injury claim along with other factors raised a fact issue regarding whether State Farm had acted in bad faith and in violation of the Kentucky Unfair Claim Settlement Practices Act in settling the claim.

 The timeline in the case is as follows:

•  July 18, 2003 – claimant Cynthia Phelps is injured in an auto accident
• October 2003 – Phelps undergoes spinal surgery as a result of the injuries sustained in the auto accident
  
  
• October 2, 2003 – the claims file is reassigned by State Farm to a second adjuster; Phelps sends State Farm paid medical records authorization form and it begins collecting her medical records
  
  
•  February 11, 2004 - After months of minimal activity on the file, State Farm notes for the first time that Phelps had a prior back injury in 1999. State Farm decides to gather additional evidence regarding Phelps' 1999 back injury, although it says nothing to her about it
  
  
• April 2, 2004 – Phelps's lawyer, Thomas Carroll, sends State Farm a settlement package documenting her surgery as well as related medical and wage loss costs totaling $22,620.22. Phelps does not make a specific settlement demand, but says she wants to settle and requests information about State Farm's policy limits
  
  
• July 2004 – State Farm substitutes yet another adjuster to handle Phelps's claim
  
  
• September 14, 2004 – State Farm for the first time requests information from Phelps's lawyer about her 1999 back injury
  
  
• October 24, 2004, by the state State Farm and received the relevant medical records to Phelps's 1999 injury. Although State Farm would later claim that it was still missing some pertinent information, it, nonetheless, completed a claim evaluation, the low end being $24,620 and the high-end, $49,620
  
  
• October 28, 2004 – State Farm makes a settlement offer of $25,000, approximately $2300 more than Phelps is documented medical and wage losses as of April 2004
  
  
• March 29, 2005 – Phelps rejects State Farm's $25,000 offer and demands $150,000. State Farm still had not by this date disclose any information about its policy limits
  
  
• May 2005 – Phelps files suit
  
  
• October 25, 2005 – Phelps provides to State Farm would later claims to be new information regarding her medical records and wage loss
  
  
• November 3, 2005 – State Farm again changes the claims adjuster on Phelps's claim
  
  
• March 22, 2006 – Phelps' deposition is taken; "State Farm's attorney determined that Phelps was a credible witness and recommended that State Farm increase if settlement offer."
  
  
• April 11, 2006 – Phelps for the first time demands the policy limits of $50,000
  
  
• April 12, 2006 – State Farm counters with an offer of $40,000
  
  
• April 13, 2006 – State Farm finally offers the policy limits, $50,000, and Phelps settles her injury suit against the other driver.

 

Phelps' injury claim appears very routine.  The negligence of the other driver was not disputed by State Farm, so its liability for Phelps' injury was clear. She obviously suffered significant injuries as she documented over $22,000 of losses based just on medical bills and lost wages within nine months of the auto accident.  The significance that the Sixth Circuit attributed to this timeline will be examined in a further post.

 Robert L. Abell
www.RobertAbellLaw.com 

 

 

Rheumatoid Arthritis, Osteoarthritis and Fibromyalgia Support Disability Finding

Rheumatoid arthritis, osteoarthritis and fibromyalgia and the cumulative effects they inflict supported a finding of disability and entitlement to disability insurance benefits ruled the Fourth Circuit Court of Appeals recently in DuPerry v. Life Insurance Company of North America.

The court's decision comes nearly 4 1/2 years after the claim was submitted initially. The decision is a textbook illustration of a disability insurance companies efforts to "cherry pick" from the medical records and use those cherry-pick tidbits to try and justify denial of the claim.

The insured, Rebecca DuPerry, work as a payroll and benefits clerk for the Railroad Friction Products Corporation. Through her employment she had a long-term disability insurance policy both administered and underwritten by the Life Insurance Company of North America (LINA). On October 16, 2006, she filed a claim for disability insurance benefit, claiming that she was disabled because of her rheumatoid arthritis, osteoarthritis and fibromyalgia. She supported medical records as well as opinions and statements from her primary care physician in treating rheumatologist attesting to her limitations and to her occupational disability. Her claim was turned down. The insurance company claimed that it did not have enough diagnostic testing to show the severity of DuPerry's illness.

DuPerry appealed her claim's denial and submitted nearly 400 pages of documents in support of her claim. These included letters from both her treating rheumatologist and her primary care physician, a letter from her former supervisor describing her work ethic as "unsurpassed," a DVD filming her at home, supporting statements from several relatives, her prescription medication list and evidence showing her dependence on family for most common, every-day household chores and her need for assistance simply to walk or move around. Nevertheless, her claim was again denied.

DuPerry appealed again, this time submitting additional records from her primary care physician, her treating rheumatologist, another doctor and a second DVD documenting her condition. The insurance company referred her file for review to Dr. Marc Levesque of the Duke University Medical Center.  And again the claim was denied.

Having exhausted the claims appeal process, DuPerry filed suit.  The federal district court ruled that the disability insurance company had wrongly denied the claim. This time the insurance company appealed.

The Fourth Circuit viewed the insurance company's attempt to rely on isolated pieces of evidence as unreasonable:

   Initially, we note, as a global matter, that the pieces of evidence LINA identifies 10 to show, first, that DuPerry was able to perform, for relatively brief periods, certain task involved in sedentary work and, second, that certain individual diseases and physical problems that afflicted her were not sufficient, in isolation, to render her unable to do such work. However, to perform her job, DuPerry, obviously would be required to do much more than perform a small subset of her duties for a relatively short duration. Moreover, in so doing, she would have to overcome the combined effect of all of the problems caused by her diseases, not just a select few.

The court was also unsympathetic to Dr. Levesque's skepticism regarding the debilitating effects of DuPerry's pain, remarking that "DuPerry produce the only types of evidence a claimant in her situation could produce, her own description of the severity of her subjective symptoms, video showing how she moved in her condition, and her treating physician's opinions that the pain and fatigue rendered her unable to work." The court further noted that the policy contained no provision that precluded DuPerry from relying on her subjective complaints of pain as evidence supporting her disability claim.

The Fourth Circuit also approved the award of attorney's fees quoting approvingly from the District Court that LINA "patently abused the claim review procedure" by "overlooking substantial evidence from [DuPerry's] treating physicians that she was unable to work" and instead relied on "minor inconsistencies in and disingenuous interpretations of these physicians reports." Also, there was value in awarding attorneys fees as a deterrent effect to encourage plan administrators to inquire more meaningfully and fairly and disability claims that rely on subjective complaints of pain.

Robert L. Abell
www.RobertAbellLaw.com

Hartford's Conflict of Interest Causes Reversal Of Disability Benefits Termination

Most disability insurance companies have an inherent conflict of interest: they both administer the benefits plan through which the disability insurance policy is available to the employee and pay any benefits that they deem an employee eligible to receive. As such, they stand to gain from every denied claim. The importance of this conflict of interest is illustrated by the recent decision of the United States Court of Appeals for the Fifth Circuit in Schexnayder v. Hartford Life, No. 08-30538 (March 12, 2010)

The claimant-employee, Schexnayder, worked for over 20 years as a chemical operator therefore debilitating back problems made surgery necessary and the complications that followed left him disabled. Hartford, which was the benefit plan's administrator and insurer, paid him disability insurance benefits for 24 months, conceding that he was disabled from his "regular occupation."  During these 24 months, Schexnayder was found by the Social Security Administration to be totally disabled from any occupation and was awarded Social Security disability benefits. As a result, he had to repay Hartford some of the benefits that Hartford had paid to him. Nonetheless, Hartford ceased paying Schexnayder and asserted that its experts said he was not disabled from any occupation. He appealed unsuccessfully and then filed suit. Hartford never addressed the Social Security decision finding Schexnayder disabled from any occupation in its decisions terminating his benefits.

The court first noted, in accordance with the Supreme Court's decision in Met Life v. Glenn, 128 S.Ct. 2343 (2008), that Hartford's conflict of interest was but one factor taken into consideration on the issue of whether Hartford had abused its discretion in terminating Schexnayder's disability insurance benefits. Second, the court noted that Hartford's conflict of interest would be given more weight "because Hartford's decision here suggests procedural unreasonableness." The court then explained the import of the decision by the Social Security Administration finding Schexnayder totally disabled:

The SSA determined that Schexnayder is fully disabled and unable to perform any work, but Hartford did not address the SSA award in any of its denial letters. Because Hartford failed to acknowledge an agency determination that was in direct conflict with its own determination, it's decision was procedurally unreasonable. ... Having benefited financially from the governments determination that [Schexnayder] was totally disabled Hartford should at least acknowledged SSA award.

This procedural unreasonableness "justifies the court in giving more weight to [Hartford's] conflict"because it suggests financial bias may have affected Hartford's decision. We also consider the failure to address the SSA's decision in it own right. Although substantial evidence supported Hartford's decision, the method by which it made the decision was unreasonable, and the conflict, because it is more important under the circumstances, acts as a tiebreaker for us to conclude that Hartford abused its discretion.

Robert L. Abell
www.RobertAbellLaw.com

Insured Must Request Added Reparation Benefits (ARB) Coverage

Kentucky law requires an auto insurer to provide added reparation benefits (ARB) coverage.  This obligation, however, is triggered by the request of the insured by Kentucky Court of Appeals ruled recently in Cain v. American Commerce Insurance Company, No. 2008-CA-001500 (October 30, 2009).

Cain was injured in an auto accident due to the fault of another driver.  She was paid basic reparation (BRB also known as PIP) benefits of $10,000 plus added reparation benefits of $20,000 for each of her three insured vehicles for a total of $70,000.  Cain claimed that she was entitled to $40,000 in per insured vehicle.  She argued that KRS 304.39-140(1) entitled her to that level of coverage because it mandated that American Commerce "shall be ... required to provide" in ARB coverage per vehicle the lesser of $40,000 or $80,000, which represented the amount of liability coverage for Cain over the required minimum of $25,000.

The Court of Appeals rejected Cain's argument, ruling that American Commerce's obligation to provide Cain with $40,000 of ARB coverage per vehicle was triggered only "upon the request" of Cain.  Since Cain had not shown that she had requested $40,000 in ARB coverage, the Court ruled that she was not entitled to that level of ARB coverage.

Robert L. Abell
www.RobertAbellLaw.com

American Association for Justice Reports On Insurance Companies' "Tricks of the Trade"

The American Association for Justice (AAJ) has continued its examination of the insurance industry.  In July, AAJ released a report The Ten Worst Insurance Companies in America: How They Raise Premiums, Deny Claims, and Refuse Insurance to Those Who Need It Most.  Now, AAJ reports on the insurance industry's stonewalling, subterfuge and other unethical and bad faith practices: Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse. 

The favorite tricks include the following: denying claims, delaying until death, confusing consumers, discriminating by credit score, abandoning the sick and cancelling for a call.

Robert L. Abell
www.RobertAbellLaw.com

Delays Caused By Insurance Companies Harm Patients, Doctors Report

Doctors responding to a survey investigation conducted by the Toledo Blade reported that 14% of their patients had suffered "serious harm or injury" because of delays in care caused by their patients' insurance companies, see "Not What the Doctor Ordered: Delays, Denials Thwart Patients Hoping for Help."  920 doctors, including members of both the American and Ohio Medical Association, responded to the survey.  Nearly all -- 99% -- reported that insurance companies had interfered with their clinical decisions regarding treatment of their patients. 

There is often no real remedy or relief for a patient or a patient's family that is killed or seriously injured because their insurance company would not pay for the treatment and care their doctor directed.  That is because most people's medical insurance comes through their job and therefore is covered by a federal law known as ERISA (stands for Employee Retirement Income Security Act).  When an insurance company denies medical treatment in this type situation, the only remedy that the insured patient (or the insured patient's family) can recover is the cost of the treatment.  And that will occur only if the insurance company's decision is deemed "arbitrary and capricious."  If the patient dies as a result of the insurance company's arbitrary and capricious denial of the treatment, there are no damages recovered by the family, no lost income or anything but the cost of the denied treatment.  ERISA is protection for outrageous insurance company practices.

Robert L. Abell
www.RobertAbellLaw.com

State Farm To Pay $74 Million More To Settle Katrina Claims

State Farm Insurance Company has agreed to pay an additional $74 million to settle a lawsuit regarding its handling of Hurricane Katrina claims in Mississippi, Mississippi Attorney General Jim Hood announced Wednesday reports the Jackson Clarion-Ledger.  In addition, State Farm has agreed to notify some 150 claimants that their claims may be re-evaluated. 

Robert L. Abell
www.RobertAbellLaw.com

Disability Insurers Investigated by Senate

Disability insurers are being investigated by a Senate committee regarding their possible responsibility in causing a backlog of pending claims before the Social Security Administration, the New York Times reports ("Senate Asks 9 Insurers To Furnish Information").  Unum, Cigna, MetLife, Aetna, Hartford Life, Lincoln, Prudential, Standard and Reliance Standard have received letters for a Senate committee regarding their practices of compelling their insureds to apply for Social Security disability benefits. 

Most disability insurance policies allow the insurance company to reduce their payments to the claimant if they begin receiving Social Security disability benefits.  Therefore, many policies require the insured to apply for the Social Security benefits.  However, most disability insurance policies pay benefits for a period of 24 years if the claimant cannot perform their last job; this is often known as "own occupation" coverage.  Social Security disability eligibility requires the claimant be disabled from performing any job, not just their last job.  The backlog of pending Social Security claims has stretched to over a year, a delay that Senator Charles Grassley labeled "abominable."

Robert L. Abell
www.RobertAbellLaw.com

Worst Insurance Companies: The Top Ten

The worst insurance companies in the United States were identified by the American Association for Justice (AAJ) following a comprehensive review and analysis of thousands of court documents, SEC and FBI records, state insurance department investigations and complaints, new accounts from across the country, and the testimony and depositions of former insurance agents and adjusters.  The AAJ's report The Ten Worst Insurance Companies in America; How They Raise Premiums, Deny Claims, and Refuse Insurance to Those Who Need It Most found that one company stood out above all the others and thus became the titleholder of the worst insurance company in America: Allstate.  The rest of the top 10 were as follows: Unum, AIG, State Farm, Conseco, WellPoint, Farmers, UnitedHealth, Torchmark and Liberty Mutual. 

AAJ's report includes some eye-popping statistics regarding the enormous profits reaped by the insurance industry and the huge reductions in claims payments:

• over $1 trillion in premiums is collected annually by the U.S. insurance industry
• the some $3.8 trillion in assets held by the U.S. insurance agency exceed the GDPs of all countries but the United States and Japan
• the property/casualty insurance industry has averaged annual profits of $30 billion the last 10 years
• the life and health insurance agency has also averaged annual profits of $30 billion over the last decade
• Allstate reduced the percentage of its claims payments from 79% of premium income to 58% from 1996 to 2006
• Allstate dropped its payout percentage on auto claims from 63% to 47% of premium income in the same period

There is a lot of money in collecing premiums and not paying claims.

Robert L. Abell
www.RobertAbellLaw.com

Disability Insurers Causing Overload of Social Security

    A growing backlog of pending claims for disability benefits from Social Security indicates that the Social Security system is being swamped through the actions of insurance companies compelling their insureds to file benefit claims with Social Security.  Most disability insurance policies have a provision that requires the insured to apply for disability benefits from Social Security and then allows, if that claim is approved, the insurance company to reduce the payment it makes to the insured.  Oftentimes, disability insurers refer their insureds to a law firm or company to help them with their claim to Social Security. 

    Approximately 2.5 million people apply annually for disability benefits from Social Security.  A recent study found that 18 percent of these applicants acknowledged being unqualified, because the standard to receive Social Security disability benefits requires that a person be unable to work in any job because of a total and permanent disability.  Typically, disability insurance policies pay benefits when a person is disabled from performing their last job, not any job.  Some insurance companies have stopped paying benefits where there insured has refused to file a claim with Social Security.  An interesting study of this practice and a pending lawsuit was reported as the lead story in the New York Times on April 2, "Insurers Faulted As Overloading Social Security." 

Robert L. Abell
www.RobertAbellLaw.com