... and Justice for All

Bad Faith Insurance Practices and Ambiguous Policy Terms

Ambiguous terms in an insurance policy, an insurance company’slong-standing practices interpreting the  term and its sneaky way of changing – without notice to its policyholders – all added up to support a bad faith insurance practices claim the Sixth Circuit held recently in Pedicini v. Life Insurance Company of Alabama, Nos 10-6270/6301 (June 21, 2012). This was the second time in a month that the court had reversed a summary judgment granted an insurance company on a bad faith insurance practices claim; the case last month was Phelps v. State Farm, No 10-6085 (May 25, 2012)  as discussed in an earlier post, What Is An Insurance Company Required To Do? Make a Good-Faith Attempt To Settle A Claim Promptly on Fair and Equitable Terms. 

 Italo Pedicini bought a supplemental cancer-insurance policy from the Life Insurance Company of Alabama (LICOA). A supplemental cancer insurance policy pays what are essentially income benefitsthe insured receives cash payments in an amount equal to charges for qualifying cancer treatments received. The insured may use the payments to cover the cost of treatment, offset it or for any other purpose.

Pedicini pay the premiums for many years, all the while seeing their amount escalate. To abate the continuing premium increases Pedicini negotiated a new policy, one that capped the amount of benefits payable annually. This new policy tied the benefits to "actual charges" for qualifying cancer treatments and defined "actual charges" as "actual charges made by person or entity furnishing the services treatment or material."

 However, unbeknownst to Pedicini and undisclosed to LICOA’s policyholders, it had changed some eight months earlier its benefit-payment practices. For the prior 20 years or so LICOA paid benefits tied to "actual charges" according to the amount billed by the medical providers regardless of the amount medical providers except as full payments. But around the time that Pedicini got his new policy LICOA change and its policy and began paying benefits equal to the amount accepted as full payment by medical providers, a change that often result in lower benefit payments because of discount rates required by Medicare and/or private health-insurance.

 Pedicini became a cancer patient and began receiving qualifying treatment. When he got his first benefit payment from LICOA, Pedicini realized that it was not paying him benefits equal to the amount billed by's medical provider but only an amount equal to the discount the provider had accepted in light of Pedicini’s Medicare status. Pedicini sued LICOA for breach of contract and for bad faith insurance practices. The district court ruled in Pedicini’s favor on the breach of contract claim but entered summary judgment in LICOA’s favor on the bed-faith claim.

 The Sixth Circuit ruled "that the term ‘actual damages’ is ambiguous." Rulings by other courts informed this decision as did LICOA’s own long-established practices:

 … the fact that LICOA paid benefits equal to the amount billed for approximately 20 years prior to February 2001 seriously undermines its position that the term “actual charges” unambiguously means the amount accepted as full payment. While perhaps LICOA is uncannily altruistic, it is more likely that the change in its benefit-payment practices reflects LICOA’s own struggles with the ambiguous terms of its policies. Because the term is ambiguous, it must be construed in favor of Pedicini as a matter of Kentucky law.

 The court also ruled that there was evidence LICOA had acted knowingly or in reckless disregard for the lack of any sound legal basis for its assertion that the term “actual charges” was not ambiguous. First, “LICOA did not alter its benefit-payment practices in an open and transparent manner." Policyholders receiving benefits at the time of the change learned of it only when they received a reduced benefit payment, while others like Pedicini did not learn of it until years later. The evidence that the change produced a $3.7 million positive change in LICOA’s profitability further supported a finding of bad faith.

Robert L. Abell
www.RobertAbellLaw.com 

 

 

What Is An Insurance Company Required to Do? Make A Good-Faith Attempt to Settle A Claim Promptly On Fair and Equitable Terms

The Kentucky Unfair Claims Settlement Practices Act is aimed at promoting at least a good faith attempt to settle a claim promptly on fair and equitable terms.  In the recent case, Phelps v. State Farm, No 10-6085 (May 25, 2012), the Sixth Circuit found real questions about whether State Farm had acted in good faith in taking nearly three years to settle Phelps' rather routine claim.  An earlier post, How Long Is Too Long? Settling Injury Claims With Insurance Companies and the Kentucky Unfair Claims Settlement Practices Act, set out the lengthy time line for settlement of this claim. 

After noting that the purpose of the Unfair Claims Settlement Practices Act was to promote at least good-faith attempts to settle claims promptly and on fair and equitable terms, the Sixth Circuit identified several other salient points:

• An insurance company should not force a claimant to go through needless adversarial hoops to achieve her rights under the policy
• An insurance company cannot lowball claims or delay claims hoping that the insured will settle for less
• State Farm failed to reasonably account for Phelps’s pain and suffering or future wage loss by omitting any consideration or allowance for these damages in its initial settlement offer
• A jury could find State Farm's delay of nearly 3 years to be unreasonable, since shorter periods of time constitute evidence of bad faith according to prior cases. See Med. Protective Co. v. Wiles, 2011 WL 2420011, at *9 (Ky. Ct. App. Oct. 21, 2011) (involving a delay of 27 months between the injury and the initial settlement offer); King v. Liberty Mut. Ins. Co., 54 F. App’x 833, 837-38 (6th Cir. 2003) (involving a delay of 18 months from the date of a follow-up inquiry about the settlement through the date that the company finally checked its purged files)
• State Farm offer no explanation for its failure to timely obtained Phelps’s 1999 injury records, other than the claims adjuster was replaced, a switch that is also unexplained
• State Farm offered no explanation for switching claims adjusters four times
• State Farm’s claims that it doubted the extent of Phelps’s injuries must be discounted since it failed to ask that she be medically examined

Robert L. Abell
www.RobertAbellLaw.com

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