McKean Evans

Court of Appeals Confirms Insured Can Reform Policy Language to Provide The Coverage The Insured Purchased

The Washington Court of Appeals recently answered an important question for policyholders: what if your agent sells you coverage but the insurance policy fine print fails to reflect the coverage you thought you purchased?

On November 4, 2019, the Washington Court of Appeals decided Digitalalchemy, LLC v. John Hancock Insurance Company (USA). The court held Digitalalchemy could sue John Hancock for denying coverage under a life insurance policy because, even though the policy language supported John Hancock’s denial, Digitalalchemy had purchased broader coverage than the policy reflected.

Digitalalchemy bought John Hancock’s life insurance policy to cover its key executives. When buying the policy, John Hancock’s agent agreed to backdate the insurance coverage’s start date. That means the policy would effectively begin providing coverage before the date Digitalalchemy purchased the policy. However, due to a mistake, the policy language failed to reflect the backdated start date.

One of the covered executives died by suicide, and Digitalalchemy made a claim under the policy. John Hancock denied coverage under the policy’s suicide exclusion. The policy excluded coverage if the insured died by suicide within two days of the “issue date.” Because the parties agreed to backdate the policy start date, the insured died after the two-year exclusion period, and John Hancock should have paid the claim. But because the policy failed to reflect the backdating, John Hancock denied coverage under the suicide exclusion.

The court agreed with John Hancock that the policy language did not backdate the start date. However, the court also found that Digitalalchemy sufficiently alleged the parties had agreed to backdate the policy and that the failure to reflect the backdating in the policy was a mistake. Accordingly, the court agreed Ditigalalchemy could argue the policy should be reformed to reflect the backdated start date because that was what both parties had intended.

That ruling is important because it is another recent case confirming insureds can still obtain recourse if they purchase coverage but the insurer writes a policy failing to accurately reflect the purchased coverage.

WA Supreme Court Confirms Insurers Must Follow Their Agents’ Promises

Let’s say you go to an insurance agent to buy an insurance policy. You tell the agent you want coverage for something specific, for example, fire damage to your boat. The agent sells you a policy the agent tells you covers fire damage to your boat. The agent gives you some documents summarizing the policy that say fire damage to your boat is covered. Then your boat catches fire and you make a claim, but the insurer denies coverage. The insurer says the policy fine print excludes fire damage, even though the agent said it was covered.

Can they do that?

The answer is no, according to the Washington Supreme Court. On October 10, 2019, the Washington Supreme Court decided T-Mobile v. Selective Insurance Company. The decision confirms insurance companies may be bound by statements their agents make when selling insurance policies.

In this case, T-Mobile hired a contractor to build a cell phone tower. T-Mobile required the contractor to obtain insurance coverage protecting T-Mobile. The contractor’s insurance policy only covered a small T-Mobile subsidiary, not T-Mobile itself. But the insurance company’s agent issued a series of insurance certificates stating that T-Mobile itself was covered in addition to the subsidiary.

T-Mobile was sued over the cell tower construction project and made a claim under the policy. The insurer denied coverage on the basis the policy did not name T-Mobile as an insured.

In the resulting lawsuit, the insurance company argued T-Mobile should not have relied on the insurance agent’s representations that T-Mobile was covered. The insurer said T-Mobile should have read the policy and seen that T-Mobile was not covered.

The Washington Supreme Court disagreed. The Court determined T-Mobile was justified in believing that the insurance company’s agent was authorized to speak on behalf of the insurer. The court found the agent’s specific statements that T-Mobile was covered overcame boilerplate disclaimers the insurer had made.

The court also emphasized the importance of holding insurers to their agents’ promises. Without that rule, the court noted, insurers would have no incentive to make sure their agents’ statements to people buying insurance were true. The court observed that allowing insurance companies to ignore their agents’ statements was important because “Otherwise, an insurance company’s representations would be meaningless and it could mislead without consequence.”

This ruling is important. Many folks buy insurance after discussing with their agent, reading brochures, or browsing the internet. They rarely read the policy fine print. Even T-Mobile, a huge corporation presumably represented by a team of insurance lawyers, relied on the insurance agent’s representations without noticing the policy fine print. If insurance companies could let their agents sell policies promising coverage that didn’t exist, consumers would pay for coverage they never received and would have little recourse.

Policyholders Can Sue for Health Insurer’s Refusal to Cover Proton Beam Therapy Cancer Treatment Says Washington Supreme Court

On October 3, 2019, the Washington Supreme Court decided S trauss v. Premera Blue Cross, holding the Strausses could sue Premera Blue Cross for denying coverage for Proton Beam Therapy to treat prostate cancer.

Mr. Strauss had a Premera health insurance policy. The policy promised Premera would pay for “medically necessary” treatment. Mr. Strauss was diagnosed with prostate cancer and his doctor recommended Proton Beam Therapy treatment. Mr. Strauss’ doctor believed Proton Beam Therapy had fewer side effects than traditional radiation therapy because it exposes less of the body to radiation.

Premara refused coverage, claiming Proton Beam Therapy was not “medically necessary.” Premara said there was no proof Proton Beam Therapy had fewer adverse side effects than traditional radiation therapy. The Strausses filed a lawsuit.

Because there were no clinical studies on point, the Strausses supported their case with testimony from two radiation oncologists that Proton Beam Therapy would lead to fewer side effects because it exposed less of the body to radiation. Premera argued the Strausses could never prove Proton Beam Therapy was medically necessary without clinical studies. The trial court agreed with Premera and dismissed the lawsuit.

The Washington Supreme Court reversed, holding the Strausses’ case could move forward. The Supreme Court emphasized the absence of clinical evidence did not bar the Strausses’ claim. The Supreme Court found the Strausses’ expert doctors were qualified and that the trial court was wrong to reject the doctors’ opinions purely because no clinical studies existed. Importantly, the Supreme Court also rejected certain prior cases Premera relied on, holding those cases were wrongly decided.

The Strauss case is an important victory for policyholders and patients. Health insurance disputes can be very difficult, particularly because health insurance policyholders often have fewer consumer protections and are at greater risk of abuse by their insurers. Health insurers often use the words “medically necessary” as magic words that mean you have no right to the healthcare your doctor prescribed. This is especially true with novel treatments for complex diseases like cancer. This ruling will hopefully empower more people to pursue the treatment they need without worrying about insurance coverage.

Washing State’s “homegrown” health insurers credited with keeping rate increases low

Preliminary reports suggest Washington State’s Affordable Care Act (a/k/a Obamacare) plans will see minimal rate increases in 2020. Washington State exchange plans are projected to see a 1% average rate increase, lower than almost half of other states in the U.S.

Washington’s Insurance Commissioner reportedly credited Washington-based health plans with the low increases. Washington-based insurers are tied to the local community. These insurers rely on keeping local business in order to thrive. Local plans also tend to have better relationships with doctors and hospitals. Large, national carriers, on the other hand, can lose Washington customers to cheaper plans.

This is good news for the approximately 250,000 Washington residents who buy insurance through Washington’s ACA/Obamacare exchange.

Can your disability insurer offset your benefits because you are receiving other income?

Let’s say you become ill and can’t work anymore. Fortunately, you have disability insurance coverage through your employer. You apply and get awarded benefits. The policy says your benefits are two thirds of your salary. But the insurance company is paying you less. They say that they can subtract from your benefits any money you are collecting from Social Security Disability.

Can they do that? Like many insurance questions, it depends on the insurance policy fine print.

Most disability insurance policies provide an offset for so-called “other income” or “deducible income” you receive because of your disability. For instance, if your monthly disability insurance benefit would normally be $1,000, and you have $300 in deductible income, the disability insurance benefit is reduced to $700. What counts as deductible income that counts against your benefits depends on the wording of the insurance policy.

Deductible income often includes:

Social security disability payments;
Workers’ compensation payments;
Payments from other insurance policies; or
Payments from the person who inflicted the injuries that made you disabled (if a third party is responsible for your disability).

Moreover, disability insurance policies often require you to apply for potential sources of deductible income. For instance, your disability policy may require you to apply for Social Security Disability benefits.

The key is that the insurance company can’t deduct income that isn’t specifically listed in the policy. If you are receiving benefits under a disability insurance policy and the insurer tries to reduce your benefit because you are receiving other disability income, consult a lawyer to review the policy and make sure you know your rights.