McKean Evans

Court of Appeals Reiterates Insurer’s Obligation to Protect Policyholder From Lawsuit

When a driver crashes into another vehicle and is sued for damages, the driver’s insurer typically has an obligation to defend the lawsuit and act in good faith to protect its insured’s interests. When the insurer fails to do so, the driver likely has legal recourse under Washington law.

Washington’s Court of Appeals recently reiterated this principle in Singh v. Zurich American Insurance Company. In Singh, the Court of Appeals ruled Singh’s insurer, Zurich American, was liable for failing to settle and defend claims against Singh in good faith.

On July 20, 2011, one of Singh’s employees, driving Singh’s semitruck, allegedly caused a 16-vehicle crash by failing to slow down for congested traffic. Persons injured in the crash, and the families of those killed in the crash, sued Sing for damages. Because of the dramatic injuries and deaths allegedly caused by Sing’s employee, the plaintiffs quickly advised Singh that they saw their damages recoverable from Singh as exceeding the limits of Sing’s insurance policy. In other words, Singh knew that, if he lost the court case, he would have to pay significantly more money than his Zurich American insurance policy would cover.

Singh’s insurance policy with Zurich American obligated Zurich American to defend Singh in the lawsuit. Zurich hired a lawyer to defend Singh. Zurich’s lawyer recognized it was in Singh’s best interests to pay the entire insurance policy limit to settle the large monetary demands of the persons injured and killed in the crash. But the attorney also recognized that disbursing the entire policy limit to the first plaintiffs to sue Singh would leave Singh without insurance coverage should later claimants seek damages from Singh.

Accordingly, Zurich’s lawyer proposed to reserve some of Singh’s policy limits to protect Singh from future claims arising from the crash. However, Zurich ignored its lawyer’s advice and ordered the lawyer to settle the existing claims with the full policy limits. Zurich’s lawyer did so.

Later, another person sued Sing claiming injuries in the crash. Zurich refused to defend the lawsuit because Singh’s policy limits were exhausted from the prior settlement. Singh paid for his own counsel and ultimately paid $250,000.00 to settle the new claims.

Singh then filed suit against Zurich alleging Zurich acted in bad faith and violated Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”). The jury found in Singh’s favor, agreeing Zurich breached Singh’s insurance policy and acted in bad faith.

The Court of Appeals upheld the jury’s verdict. The court observed the insurer’s duty to defend the insured “is one of the main benefits of the insurance contract.” Thus, the court determined Zurich could not permissibly exhaust the policy limits then use its exhaustion of the policy limits as an excuse to continue defending Singh. Doing so put Zurich’s interests over Singh’s in violation of the insurance policy and Washington law. Notably, Zurich ignored its own lawyer’s suggestion it keep some policy limits in reserve to protect Singh from future claims.

Think Twice About Your Health Plan’s “Wellness” Review

It’s currently trendy for health plans to try to get their insureds to undergo a “wellness” screening in which the insurer collects personal health and lifestyle data from the insured. These are often pitched as a benefit to the insured with the health plan saying, basically, “let us give you this great free screening!” Sometimes the insurer even offers gift cards or other goodies to insureds who participate.

But as is typical for anything the company is incentivizing insureds to do, “wellness” screenings are often in the insurer’s interest – not the individual’s.

Health insurers have begun routinely collecting insured’s personal health and lifestyle data to justify premium increases based on the minutia of an individual’s daily life. Just like tech companies can use the minutia of your personal data for marketing purposes, health insurers can use insured’s lifestyle and biometric data to raise premiums.

A recent NPR report details how “the health insurance industry has joined forces with data brokers to vacuum up personal details.” Besides mundane details like race or education, insurers also reportedly track what TV you watch, your social media habits, and your online shopping, among other things. One company boasts it collected health data on 150 million Americans going back to 1993. Another filed a patent application to gather health-related information from social media.

Insurers use this data to price health care plans. For instance, insurers reportedly consider women purchasing plus-size clothing to be at risk of depression; minority insureds to be more likely to live in dangerous neighborhoods; and recently-married insureds to be more likely to need childbirth care.

Insurers’ use of this data raises broader questions about the use of the data we readily share in the digital age, but it also emphasizes that the health insurer’s “wellness” exam might not be the altruistic offer it’s pitched as.

Medical Proof Required to Deny ERISA Claims Based on Intoxication Exclusion Says Fifth Circuit

Many ERISA plans and insurance policies contain provisions excluding coverage for losses caused by the insured’s intoxication. In cases where the plan or insurer asserts such an exclusion, the question becomes what evidence must the insurer put forward in order to prove the insured was intoxicated and the exclusion applies?

The U.S. Court of Appeals for the Fifth Circuit recently answered that question in White v. Life Insurance Company of North America. Life Insurance Company of North America (“LINA”) issued an ERISA-governed life insurance policy insuring Mr. White with Mrs. White as the beneficiary. Mr. White was killed in a horrible car crash in which his vehicle crossed the center line and struck an oncoming 18-wheeler head-on.

LINA denied coverage asserting the policy’s intoxication exclusion precluded coverage because Mr. White was drunk at the time of the crash. Weather and road conditions were clear at the time of the crash, Mr. White’s vehicle appeared to function properly, and paramedics reported smelling alcohol on Mr. White’s breath. Hospital staff took blood and urine samples from Mr. White that tested negative for alcohol but contained undefined amounts of amphetamines, cocaine, opiates, benzodiazepine, and cannabinoids. The tests were preliminary and only indicated the presence, not the amount, of controlled substances.

The Court agreed with Mrs. White. The LINA life insurance policies excluded coverage for death “caused” by Mr. White’s intoxication. The policy (borrowing from Arkansas law) defined intoxication to mean “influenced or affected by the ingestion of alcohol [or] a controlled substance…to such a degree that the driver’s reactions, motor skills, and judgment are substantially altered and the driver, therefore, constitutes a clear and substantial danger or physical injury to himself or herself or another person.”

The Court found LINA’s evidence failed to meet the policy definition of intoxication. LINA relied on the opinion of a toxicologist who opined it was impossible to estimate the level of Mr. White’s impairment at the time of the crash based on the preliminary test results. The toxicologist opined only that “in the absence of any other cause of the collision, the drugs in [Mr. White’s] system could explain his level of impairment that resulted in his crash.”

Accordingly, the Court entered judgment in favor of Mrs. White. The White case is an important reminder that ERISA plans and insurers cannot deny claims by asserting exclusions that lack tangible factual support.

Health Insurer Fined For Violating Independent Review Rules

Washington’s insurance commissioner recently announced a $100,000 fine in response to a consumer complaint that Kaiser Foundation Health Plan, an HMO, ignored consumers’ rights in the health claims appeal process. The commissioner found that Kaiser failed to follow several rules related to appeals of health insurance claims to an Independent Review Organization (“IRO”).

At issue are rules contained in Washington’s statutes and administrative codes protecting insurance policyholders. Among other things, Washington law required Kaiser to provide the IRO with any records, documents, or information relevant to the claim within three business days; ensure that expedited reviews are adjudicated within 72 hours of the policyholder’s request; and provide the policyholder the IRO’s name and contact information within one business day.

In Kaiser’s case, the insureds had the right to provide evidence supporting the insured’s claims to the IRO within five days. However, Kaiser failed to notify most consumers they had the right to do this. The commissioner also found Kaiser dragged its feet in the IRO process. Kaiser was found to have failed to timely send claims files to the IRO; failed to process expedited claims on time; and failed to timely give consumers the IRO’s name and contact information.

The commissioner found these violations occurred during the period from January 2016 through March 2017.

Kaiser signed a Consent Order regarding the above violations, pursuant to which Kaiser acknowledged its duty to comply with the law and consented to imposition of the fine.

The Fine Print Matters In Insurance Coverage Disputes

Many insurance disputes revolve around the fine print of the policy. Unfortunately, the policy’s specific language may define important terms differently from what the insured understood or was led to believe. This was the case in the Seventh Circuit Court of Appeals’ recent decision in Fiorentini v. Paul Revere Life Insurance Company.

In Fiorentini, the plaintiff became disabled during aggressive cancer treatment. The insurer affirmed coverage and paid disability benefits while the plaintiff remained unable to work. But a dispute arose after the plaintiff went back to work. The insurer argued the plaintiff was no longer disabled since he had returned to work, but the plaintiff argued he remained disabled because, despite being back at work, he still could not perform all of his job duties. Specifically, the plaintiff argued that while he could perform most job duties, aftereffects of his cancer treatment left him unable to meet face-to-face with potential clients.

The plaintiff relied on the policy’s definition of “total disability” which provided the plaintiff was disabled if he was “unable to perform the important duties” of his job. The plaintiff argued that meeting in person with potential client was an important duty. Hence, the plaintiff claimed that being unable to meet in person with potential clients rendered him disabled even admitting he could do all the other functions of his job.

The court read the policy differently. The court interpreted the definition of disability to cover only the “inability” to do important job duties, not merely a “diminished” ability to perform. The court concluded that even assuming the plaintiff’s ability to meet face-to-face with potential clients was diminished by the aftereffects of his cancer treatment, the client was not totally unable to perform his job duties. Since the court decided that meeting in person with new clients was not essential to the plaintiff’s job, being unable to meet with new clients only diminished the plaintiff’s ability to perform his duties – it did not render the plaintiff unable to perform his duties.

In short, the court parsed the policy fine print in a way that undercut the insured’s expectations about what would be covered. The Fiorentini decision illustrates the importance that policyholders carefully scrutinize policy language to learn their rights.