McKean Evans

Washington Supreme Court Upholds Narrow Interpretation of Mental Health Parity Laws

We’ve previously blogged about the Mental Health Parity Act. This law forbids insurers from discriminating against mental health and substance addiction by covering treatment for those conditions less favorably than other medical treatment. A 2022 report noted insurers continue to violate this law.

A new Washington Supreme Court ruling restricts individuals’ ability to enforce this law. On December 21, 2023, the court ruled in P.E.L. v. Premera Blue Cross that the plaintiffs could not sue their health insurer for excluding certain mental health treatment.

In that case, two parents sued Premera Blue Cross for failing to cover their child’s mental health and substance abuse treatment. The child’s symptoms were so severe they required inpatient hospitalization. The child spent two months at a “wilderness therapy” program before transitioning to long-term treatment.

Premera denied coverage for the wilderness therapy program. The insurance policy generally covered “residential treatment” for mental health conditions. But it specifically excluded any kind of “wilderness” or similar therapy.

The parents alleged that exclusion violated the Mental Health Parity Act and its Washington State counterpart. The Washington Supreme Court disagreed.

The court acknowledged that mental health parity laws aim to fix a long history of discrimination against people diagnosed with mental health disorders which has manifested in the insurance industry. Insurance policies historically singled out these diagnoses for worse coverage. They charged higher premiums and provided lower benefits for them.

These laws began in 1996 with the federal Mental Health Parity Act and continued through Congress’ enactment of the Affordable Care Act in 2016, which included protections for mental health coverage. Washington State also enacted similar legislation in 2005.

The court found that the plaintiffs could not sue for violations of the federal laws. Congress decided not to include a private right of action with that legislation. So the plaintiffs could not pursue violations of those laws by alleging they became part of their insurance policy contracts.

The court also found the parents could not sue for violation of the Washington State version of these laws. Washington State’s mental health parity laws require insurance to cover mental health services equally. That means insurance must provide equal copays, out of pocket limits, deductibles, and similar provisions to mental health diagnoses as they do to other conditions.

In particular, the state law says that insurers cannot impose special exclusions for medically necessary mental health treatment. The parents argued Premera violated that rule when it refused to cover their child’s wilderness therapy without deciding it wasn’t medically necessary.

The problem for the parents is that the state parity law excludes “residential treatment” from these protections. Since “wilderness” therapy is a form of residential treatment, the parity law didn’t apply.

Washington Federal Court Helps Clarify Meaning of IFCA’s “Payment of Benefits” Provision

In 2007, Washington voters approved the Insurance Fair Conduct Act (“IFCA”). IFCA gives people recourse if their insurance company unreasonably refuses to pay their insurance claim. Recourse under IFCA includes important relief that consumers couldn’t previously get, including punitive damages up to three times the amount of their loss and attorneys’ fees. This was considered a big deal.

Insurers, naturally, have urged courts to read IFCA narrowly. Like any new statute, judges applying it in the first instance have to consider how the language approved by the voters applies to the facts of particular cases. So the first few batches of rulings on a new law like IFCA often have a big impact on how that law applies in the real world.

One way insurers have tried to limit IFCA’s reach is by arguing it doesn’t apply to a dispute about how much the insurance company pays on an insurance claim. The language approved by the voters states that IFCA applies to an insurance policyholder who is:

“unreasonably denied a claim for coverage or payment of benefits by an insurer[.]”

So if the company denies the claim and refuses to pay anything, IFCA obviously applies. What about where the insurer accepts the claim and then pays less than the value of the loss?

This happens frequently. For example, a homeowner has a house fire. They get a contractor’s bid to repair the home. It will cost $100,000. They make a claim to their homeowners’ insurance company. The insurance company tells them the loss is covered, but the company will only pay $50,000. Does IFCA apply?

“No”, according many insurers who have taken this issue to court. These companies’ creative lawyers have reasoned that paying less than the value of the claim isn’t the same as “denying a claim” or refusing “payment of benefits.” “After all,” the company says, “we didn’t deny coverage, and we did pay some benefits.”

A recent decision from the Washington federal court clarifies that this isn’t what the voters intended when they passed IFCA.

In the recent decision Kyu-Tae Jin v. GEICO Advantage Ins. Co., No. 2:22-cv-1714, (W.D. Wash. Nov. 2, 2023), a consumer sued their insurance company after the insurer failed to pay all of the Uninsured Motorist benefits they alleged were owed under their insurance policy.

The policyholder asked the insurer to pay the entire amount of his policy limits, which were $100,000. The insurance company offered to pay $2,000. The policyholder, as you might expect, sued for violation of IFCA, arguing the decision was unreasonable.

The insurance company asked the federal court to throw out the case before trial. The company’s argument boiled down to: “even if our decision wasn’t reasonable, we didn’t deny coverage, and we didn’t refuse to pay benefits–the policyholder just thinks we should have paid more.”

The federal court disagreed. It emphasized that paying any amount at all can’t immunize an insurer from an IFCA claim. The question for IFCA depends on whether the amount the company paid in benefits was “reasonable based on the information it had.”

So, the court reasoned, if the insurance company’s offer to pay $2,000 in response to a claim for $100,000 was unreasonable under the circumstances, the company would violate IFCA. Under the facts of the particular case, the court ruled a jury had to decide that question.

This interpretation would seem to make sense. It’s hard to imagine that the voters who approved IFCA in 2007 intended that an insurance company could get itself off the hook by paying $1 on a $1 million claim.

This decision helps provide some valuable clarity regarding IFCA’s scope.

Gun Rights Legal Defense Fund is “Insurance” Says Washington Court of Appeals

You might think the question “what is insurance” is an obvious one. Most Americans probably understand, basically, that insurance is the thing where you pay somebody today and, if something bad happens tomorrow, they pay you. Health, auto and life insurance are universal enough that most folks have an intuitive understanding of them. But whether something is insurance can be less straightforward out of those common contexts.

We’ve previously blogged about this question. That discussion came up in the context of “health sharing ministries,” where members of the same church agree to pool funds in case someone gets hurt or sick. The question is back in the legal news with the Washington Court of Appeals’ recent decision Armed Citizens’ Legal Defense Network v. Wash. State Ins. Commissioner.

The “Armed Citizens’ Legal Defense Network” is a good example of how an insurance relationship can exist in unexpected places. ACLDN is a group of gun owners who agree to support each other if one of them faces legal charges after using a firearm in self defense. Members pay into ACLDN’s legal defense fund. Following what is euphemistically dubbed “a self-defense incident,” the fund pays the attorneys’ fees and other costs a member incurs as a result of defending against legal proceedings. So, basically, you pay ACLDN now, and ALCDN pays you later if you need a legal defense.

Is this insurance? ACLDN doesn’t think so. And it’s up front with its members about that. Its advertising tells prospective members explicitly that benefits “are not insurance.” And it doesn’t promise any specific payments. Rather, it promises only to review the facts of your case, decide whether you were really defending yourself, and make the decision whether to provide financial support for your legal defense.

Washington’s Office Insurance Commissioner saw things differently. It issued a fine and a Cease and Desist order against ACLDN for, basically, selling insurance without a license. The case made its way to the Court of Appeals, which sided with the Insurance Commissioner.

The court rejected ACLDN’s argument that it wasn’t selling insurance because it had no contractual obligation to pay its members anything. According to ACLDN, it retains the right not to pay for a particular member’s legal defense. And, if it declines to do so, the member has no legal recourse.

But, the court pointed out, ACLDN’s right not to fund a legal defense is specifically defined. ACLDN can only refuse to defend a member if it determines the member’s use of force was not legally justified. That’s an objective test. So the court had little difficulty concluding ACLDN had an enforceable contract with its members to fund their legal defenses so long as their use of force was justified.

The court also rejected ACLDN’s argument that whether a member’s use of force was lawful isn’t objectively determinable. It pointed out that insurance companies decide whether an insured acted in legitimate self defense all the time. Liability insurance, for example, can provide a defense if you are accused of causing someone’s death–but it would exclude coverage where you used lethal force without justification.

From there, it’s easy to see how the court ruled ACLDN’s contracts promise insurance. ACLDN pays specific costs like bail or attorneys’ fees. It does so when a specific thing happens: a member uses lethal force in self defense. It’s the same procedure as your car insurance or health insurance: you pay up front and the company pays you if the bad thing happens in the future.

Firing Employee Who Made Expensive Health Plan Claims Violated ERISA, Says Federal Court

ERISA doesn’t just protect the right to receive your benefits under the company benefit plan. It also prohibits your employer from retaliating against you or interfering with your claims for those benefits.

A recent decision from the Third Circuit Court of Appeals (the federal appellate court that hears appeals from Pennsylvania and its neighboring states in the mid-Atlantic region) has an interesting illustration of ERISA’s protections from retaliation. Although the decision, Kairys v. Southern Pines Trucking, Inc., isn’t binding precedent on courts in Washington State, it’s still a useful application of ERISA’s protections against retaliation.

Shortly after Kairys was recruited as Southern Pines Trucking’s Vice President of Sales, he was diagnosed with degenerative arthritis. He required expensive treatment.

This treatment was covered by Southern Pines Trucking’s ERISA plan. The plan was self-funded, meaning that, instead of buying insurance to cover health claims, Southern Pines Trucking paid claims out of its own pocket. This is a not uncommon feature of ERISA-governed health plans. Among other things, self-funding can make it easier for the plan’s administrators to insulate their decisions about which claims to pay from judicial review.

Southern Pines Trucking wasn’t happy about paying for this. It terminated Kairys shortly after the bills came in. The company told Kariys his position was eliminated because there was no work for that role to perform. But it hired a part-time replacement to do the same work soon after terminating Kariys.

Kariys filed a lawsuit alleging, among other things, that the company violated ERISA by retaliating against him for using the company’s medical plan. The case went to trial. The jury found in favor of the company on several of Kariys’ claims.

But, because ERISA doesn’t allow for jury trials, the judge considered the evidence independently. The judge determined Kariys had proved the company fired him in retaliation for making medical benefit claims under the company health plan. It ordered the company to pay Kariys his lost wages and attorneys’ fees.

Southern Pines Trucking appealed that decision to the Third Circuit. First, the company argued that the jury’s finding against Kariys on his other claims should have required the judge to dismiss the ERISA claim. The Third Circuit disagreed. It decided the jury’s verdict, which was in the form of a “check the box” verdict slip, did not address the specific facts of Kariys’ ERISA claim.

The Third Circuit also found the evidence supported Kariys’ ERISA claim. Section 510 of ERISA makes it unlawful to fire workers for claiming benefits under an employee benefit plan. ERISA also prohibits terminating employees for the purpose of preventing them from claiming those benefits. In other words, ERISA prevents employers from either retaliating against employees for using their benefits in the past or from interfering with employees’ attempts to use those benefits in the future.

The appellate court had little difficulty determining the evidence supported a verdict against the company on those claims. It noted Kariys’ testimony that he was told to “lie low” because company leadership was angry at his expensive health plan claims. It rejected the company’s argument that it terminated Kariys for a lack of work, citing evidence that the company’s workload for that position varied on a monthly basis and that the company’s witness testimony about the supposed lack of work had never been disclosed before trial. And, it emphasized that Kariys had been a high performing employee who was paid a bonus a week before being fired, with no documentation explaining the decision to terminate him. Perhaps most importantly, the company leadership admitted under oath that they may have reviewed health claim invoices shortly before making the decision to fire Kariys.

This decision is an excellent illustration of the facts that are important to prove a claim for illegal retaliation under ERISA.

Climate Disasters Blamed for Increased Insurance Premiums and Claims Underpayments

Insurers are fleeing markets and raising rates to compensate for increased disaster losses. Farmers recently stopped insuring homes in Florida. This will result in cancelation of about 100,000 policies as those policies expire. Insurers are also withdrawing from California and Louisiana.

These states have a lot of differences, but they share one thing in common: increased natural disasters attributed to climate change. Warming oceans have been blamed for increasingly bad hurricane seasons in Florida and Louisiana. In 2022, 42 percent of Florida insurance claims were hurricane-related. In California, increasing wildfires are thought to relate to hotter, drier summers.

The carriers exiting these markets have been vague about their reasons, citing the need to protect trade secrets. But several reference these increasing disasters. State Farm pointed to “growing catastrophe exposure” as one reason for withdrawing from the California market. Farmers similarly identified “severe weather events” as a reason from stopping selling policies in California.

Even homeowners whose insurers remain in these markets feel the effects of increased disaster losses. Premiums in disaster-prone areas are increasing. For instance, homeowners living in hurricane-prone Florida pay an average of $6,000 annually for insurance compared to the national average of $1,700. Florida premiums have increased 100 percent over the past three years. And, when hurricane losses occur, consumers are increasingly complaining about underpaid claims that don’t fund repairs.

State insurance regulators are expressing concern about the effects on consumers from these companies withdrawing from their states. Some experts argue that a driving force behind these increases is the failure to regulate the reinsurance companies that provide insurers with extra coverage to pay for years with a high number of claims, like particularly bad hurricane or wildfire seasons. Unlike regular insurance companies, reinsurers are largely unregulated. They’ve raised rates sharply in recent years, and these costs get passed on to consumers. Part of the reason for this is the reinsurance market is global. So a bad hurricane season in Florida or monsoons in India both make insurance more costly for the rest of the planet.

Other experts blame the increase on consumers’ failure to come to terms with increased disaster risks. People keep building expensive houses on the Florida coast and in wildfire-prone areas of California even though they know there’s a large risk these properties get destroyed in disasters.

Because of this, some industry groups say the solution is to let insurers charge extra in disaster prone areas. The theory is that if it costs, say, ten times as much to insure a home on the Florida coast than inland, people will stop rebuilding in areas vulnerable to hurricanes. Other say this would perpetuate the problem by allowing wealthy homeowners to keep rebuilding while doing nothing to address the underlying problems.