... and Justice for All

BRB Coverage Comes Before Med Pay Coverage, Court of Appeals Rules

Does BRB coverage come before med pay coverage in an auto policy? The answer made a difference to whether the statute of limitations had lapsed on a tort claim in Cole v. Fagin, No 2012-CA-797 (April 19, 2013), where the Court of Appeals ruled that BRB coverage came first and reversed a summary judgment.

Susan Cole was wise and bought plenty of auto insurance; she had a policy with Grange Insurance that included $10,000 in basic reparations benefits (BRB) coverage, $5000 in Med Pay as well as underinsured and uninsured motorist coverages.  She was injured in an auto accident on July 1, 2009, and received treatment for injuries at a hospital.  Grange mailed her a BRB application the next day.  A week later, Grange's adjuster wrote Cole's lawyer and informed him that "payment for her medical expenses" would be under the Med Pay coverage "since there is a one year statute on that coverage."  Cole later mailed the adjuster her completed BRB application.  There was some further correspondence between Cole and Grange but, according to the Court of Appeals, "nothing else in the record ... indicates what coverage the parties was being utilized while Grange was paying Cole's medical expenses from August 6, 2009 to October 22, 2009, which totaled $3,976.57."  

Cole filed suit on October 13, 2011, against Fagin for negligence and against Grange for only partially paying her claim for Med Pay and BRB benefits under her policy.  Both Fagin and Grange moved to dismiss on statute of limitations grounds where the circuit court sustained.  

The Court of Appeals framed the issue as follows: "whether Cole received $3,976.57 from Grange for her medical expenses due to her Med Pay or BRB coverage." The Court of Appeals reversed the circuit court finding that BRB coverage applied before Med Pay coverage and explained as follows:

An auto accident tort claimant "has no tort claim whatsoever for any element of damages to the extent that those damages have been paid, or could have been paid, through BRBs under her existing coverage." ... Because the MVRA requires Cole's accrued medical expense reimbursements of $3,976.57 to be considered BRBs at the end of any tort litigation, (i.e., for the purpose of determining her damages), to avoid absurdity it follows that the MVRA likewise requires Cole's accrued medical expense reimbursements of $3,976.57 to be considered BRBs at the beginning of any tort litigation (i.e., for the purpose of the statute of limitations codified at KRS 304.23-230)."

Robert L. Abell
www.RobertAbellLaw.com  

Homeowners' Insurance Coverage: Can Coverage Be By Contract Implied In Fact?

Douglas Ramsey inherited his father's house when his father, Ralph Ramsey, passed away in August 2002. Ralph had kept up a homeowners insurance policy on this house with Allstate since 1993, and the premium payments were drawn from his back account.  After Ralph passed, Douglas kept paying the premiums only the payments were drawn from his account.  The house burned on June 26, 2008, and Allstate refused coverage, claiming that its policy on the home was still in Ralph's name (although it had been taking and keeping Douglas's money for going on 6 years). 

Douglas claimed that there existed a contract implied-in-fact between him and Allstate that provided coverage. A district court granted summary judgment to Allstate. But the Sixth Circuit reversed, ruling that there were factual issues regarding whether a contract implied-in-fact had been formed. First, the Court identified the two components for contract implied-in-fact analysis:

• the parties' meeting of the minds is shown by the surrounding circumstances, including the conduct and declarations of the parties, that make in inferable that the contract exists as a matter of tacit understanding
  
  
• a plaintiff must demonstrate that the circumstances surrounding the parties' transactions make it reasonably certain that an agreement was intended

The court noted that there was evidence that Allstate knew that Ralph had passed, because it had cancelled his auto insurance upon his death. Three things then made it possible to conclude that there was a contract implied-in-fact between Douglas and Allstate: (1) Allstate knew Ralph had died; (2) Allstate renewed the homeowners insurance policy each year; and, (3) Allstate took Douglas's money for payment of the premiums.

The case is Ramsey v. Allstate Insurance Company, No 11-4347 (February 8, 2013). Judge Boyce Martin wrote the court's opinion joined by Judges Gilbert Merritt and Damon J. Keith.

Robert L. Abell
www.RobertAbellLaw.com 

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 

 

 

Insurance Policy's Step-Down Provision Unenforceable Under Reasonable Expectation Doctrine, Kentucky Supreme Court Rules

The doctrine of reasonable expectations applicable to insurance policies recognizes that (a) the insured is entitled to all the coverage he may reasonably expect to be provided under the policy, and (b) only an unequivocally conspicuous, plain and clear manifestation of the insurance company's intent to excluded coverage will defeat that expectation.  The Kentucky Supreme Court recently applied the reasonable expectations doctrine and held that a permissive used step-down provision in an auto policy was unenforceable. The Court's unanimous opinion in Bidwell v. Shelter Mutual Insurance Company, No 2010-SC-560 (June 21 2012) was written by Justice Will T. Scott.

Danielle Bidwell was injured while riding in a car driven by Joshua Tarlton that was owned and insured by Frank and Missy Gaines. The Gaines' car was insured by Shelter Mutual Insurance Company; Tarlton had no auto insurance coverage.  Bidwell's injuries were severe and she made a claim for $250,000, which was the amount of coverage stated on the Declarations page of the vehicle's insurance policy.  Shelter said its liability was limited only to $25,000 due to a permissive step-down provision in the policy.  

The Kentucky Supreme Court applying the doctrine of reasonable expectations and applying its precedent in Simon v. Continental Ins. Co., 724 S.W.2d 210 (Ky. 1986) ruled that the permissive user step-down provision was unenforceable.  First, the Court noted that "the Declarations page is silent with respect to any limitation included later in the policy, even though the step-down provision radically limits the amount of coverage that is listed on that page," and the "Declarations page indicates, in unqualified terms, that the limit of Shelter's liability for bodily injury is $250,000 per person, and $500,000 per accident." Second, the step-down provision was mentioned in limited and confusing terms, referring to a "financial responsibility law applicable to the accident" rather than stating clearly the coverage limit.  Third, the policy did not include any clear references to where coverage limitations could be found, and Shelter informed the insured that they should check the Declarations page to make sure their coverages are correct.  

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 

 

 

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