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 

 

 

Does the Supreme Court Even Understand the Healthcare Reform Law?

Does the Supreme Court even understand the healthcare reform law? Has the nine-member Court and the lawyers that argued before it failed to grasp a basic point about the law's mandate for individuals to obtain health insurance?  Ricardo Alonso-Zaldivar in an article, Individuals Can Comply With Obama Insurance by Buying Skimpy Insurance; Did Justices Understand?, in the Minneapolis Star-Tribune offers this observation:

A possible misunderstanding about President Barack Obama's health care overhaul could cloud Supreme Court deliberations on its fate, leaving the impression that the law's insurance requirement is more onerous than it actually is.

During the recent oral arguments some of the justices and the lawyers appearing before them seemed to be under the impression that the law does not allow most consumers to buy low-cost, stripped-down insurance to satisfy its controversial coverage requirement.

In fact, the law provides for a cheaper "bronze" plan that is broadly similar to today's so-called catastrophic coverage policies for individuals, several insurance experts said.

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

Daughter Covered by Mother's Underinsured Motorist (UIM) Coverage

When is an automobile an automobile? Turning on that question was whether a daughter was covered by the underinsured motorist (UIM) coverage in her mother's car insurance policy decided by the Kentucky Court of Appeals in Auto-Owners Insurance Company v. Goode, 2008-CA-000350 (February 13, 2009.

Crystal Goode was injured in a one-car motor vehicle accident and later made a claim for underinsured motorist (UIM) benefits under a policy held by her mother. The policy extended UIM coverage to "a relative who does not own an automobile." At the time of the accident, Crystal owned a 1994 Ford Escort at the time of the accident. However, the car had been damaged and unavailable for use for quite some time with no prospect of running again anytime soon. Under Kentucky law "a car that has been retired from service for an indefinite time into the future should not be considered to be a 'passenger automobile' within the meaning of [an] insurance policy." Therefore, the court ruled that Crystal did not own an "automobile" within the meaning of her mother's insurance policy and was entitled to receive the UIM benefits under that policy. 

Robert L. Abell
www.RobertAbellLaw.com

Court Rejects Claim for Underinsured Motorist (UIM) Benefits

Underinsured motorist (UIM) coverage applies where the liability insurance of the person responsible for the car wreck is insufficient to fairly compensate the insured for the injuries and losses sustained. Since as more fully explained in the Kentucky Consumer Guide to Buying Car Insurance, it is prudent to buy as much UIM coverage as you can afford, many individuals and families do so. Depending on the number of vehicles and how the premiums for UIM coverage are calculated and paid, UIM coverage units may be stacked, which means added on top of one another to increase coverage. The circumstances in which UIM coverage can be stacked and, sadly, in which it cannot were addressed by the United States Court of Appeals for the Sixth Circuit in Pennington v. State Farm, No 07-6187 (January 21, 2009), where the court rejected a claim that UIM benefits should be stacked following the death of teenager killed by a drunk driver.

Stacey Pennington, a 17 year old, was killed when a drunk driver ran a red light and crashed into her car. The drunk driver's insurer, Progressive, paid the full amount of his liability coverage, $50,000, for Stacey's wrongful death. Stacey's estate then claimed that her insurer, State Farm, owed multiple units of UIM coverage.

The Pennington family had four drivers and five vehicles, all insured by State Farm. In addition to the vehicles' insurance, the Penningtons bought UIM coverage with limits of $100,000per person/300,000 per accident (100/300 UIM coverage). The UIM coverage was on only one vehicle but covered all drivers at all times, since UIM coverage was personal to each driver and not tied to a particular vehicle. Stacey's estate claimed that it was entitled to three units of UIM coverage, or $300,000.

The court rejected the claim, ruling that the process by which the UIM premium was calculated was determinative. The Penningtons paid $90.72 for their UIM coverage. This premium was not simply a multiplier of coverage (e.g., multiplying the base premium rate by the number of drivers); rather, it was determined based on a rating factor of 2.7, an actuarial calculation of the added risk associated with adding additional drivers to a single UIM policy. The premium of $90.72 was reached by multiplying the one-driver rate of $33.60 by 2.7 (the risk multiplier that State Farm had determined was appropriate for households with three or more drivers).  This calculation barred the claim the court ruled: "The Penningtons therefore got what they paid for: namely, one unit of UIM coverage for four drivers."

Robert L. Abell
www.RobertAbellLaw.com

Parents' Underinsured Motor Vehicle Coverage Applies to Vehicle Owned by Child

    Underinsured motor vehicle insurance (UIM) coverage that parents purchased applied to the passenger (one of their children) who was tragically killed in a truck owned by another of their children the Kentucky Supreme Court ruled in Williams v. State Farm (No. 2006-SC-000856 decided June 19, 2008).  The key issue, as the Court saw it, was whether the truck was "furnished" to the driver, one of their children who lived with them.  Since it was undisputed that the child owned the truck, the Court concluded that the truck was not "furnished" to him within the meaning of the policy.  Therefore, the Court ruled that the parents' UIM coverage applied. 

Robert L. Abell
www.RobertAbellLaw.com

Windfall Profits for Kentucky Medical Malpractice Insurance Companies

    That Kentucky's four largest medical malpractice insurers are reaping windfall profits at the expense of Kentucky's doctors, hospitals and patients was shown by a recent examination of the profitability, performance and financial condition of these companies for the time period 2002 - 2006.  The examination, which was conducted by Jay Angoff, the former Insurance Commissioner for the State of Missouri, analyzed the loss ratios, claims payments, reserves, surplus and dividend payments made during this period by Medical Protective Company (MedPro), State Volunteer Mutual Insurance Company (SVMIC), ProNational Corporation (ProNational), and American Physician's Assurance Corporation (APAC).  The report was based on the annual statements these companies have filed with the Kentucky Department of Insurance and the National Association of Insurance Commissioners.

    The study revealed the following notable conclusions: (1) SVMIC, ProNational and MedPro each had an incurred loss ration of less than 62%.  An incurred loss ratio of 62 means that for each dollar an insurer brings in in premiums, it projects that it will ultimately pay out 62 cents in claims, thus leaving 38 cents of the premium dollar, as well as all investment income, available for expenses and profit.  (2) MedPro, SVMIC, and ProNational each had a paid loss ratio of less than 31%.  An insurer's paid loss ration measures and insures actual claims payments and is an indicator, not of an insurer's profitability, but rather its cash flow.  Most notably, it was found that ProNational took in $71.4 million in premiums during the study period but paid out only $2.5 million in claims.  (3)  All four of the companies have paid out substantially less in claims than they initially estimated: ProNational's estimates were overstated 12.6%, MedPro's 14.4%, SVMIC's 23.0%, and APAC's 33.5%.  (4)  Because of their cash flow each of the companies were sitting on mountains of cash far exceeding the minimum surplus that the National Association of Insurance Commissioners require them to hold: ProNational's surplus was 385%, APAC's 509%, SVMIC's 618%, and MedPro's 897%.  None of the companies had issued any dividends to the policy holders. 

    The Kentucky Insurance Commissioner is without authority to order refunds be paid to doctors who have paid excessive rates.  Instead of pursuing this reasonable objective, the thrust of the Kentucky General Assembly these past few sessions has been to pursue legislation that would limit the amount that an insurance company would have to pay on the most egregious and harmful cases of medical malpractice.

Robert L. Abell
www.RobertAbellLaw.com