Category: Fine Print

Ninth Circuit Ruling Elevates Hidden Fine Print to Reduce ERISA Plan Benefit

If you were to poll the public on why lawyers or the legal system get a bad rap, the experience of getting surprised by something sneaky the other party buried in the fine print might rank high on the list. That was the outcome in Haddad v. SMG Long Term Disability Plan, decided February 10, 2023. There, the Ninth Circuit ruled that an ERISA plan could reduce a former employee’s benefit payments based on inconspicuous language hidden in the benefit plan documents.

Mr. Haddad, like many folks, had long-term disability coverage through his employer’s benefit plan. He became disabled and the plan paid him the benefits.

But the plan reduced his benefits. The insurance company administering the plan decided Mr. Haddad’s settlement with a third party amounted to “lost wages.” The terms of the benefit plan allowed disability benefits to be reduced if the disabled employee had been compensated for lost wages.

Mr. Haddad sued. He argued that the “lost wages” reduction was hidden in the benefit plan documents’ fine print. He pointed to earlier Ninth Circuit rulings that any limitations should be conspicuous and that employees shouldn’t “have to hunt for exclusions or limitations in the policy.”

The Ninth Circuit said this rule didn’t apply to Mr. Haddad. It ruled that reductions in benefit payments on the basis of an “offset” were different from reduced payments due to an “exclusion” or “limitation.” The opinion does not elaborate on whether the average non-lawyer would find the distinction meaningful.

The ruling is “unpublished”, meaning it shouldn’t be relied on as binding precedent for lower courts.

Bicyclists Covered Under Insurance Policies That Cover “Pedestrians” Says Washington Supreme Court

Technical terms in the fine print of an insurance policy are often critical to understanding the insured’s rights. These terms often have definitions that differ from the normal dictionary definition. In one case, for instance, a court ruled that school busses are not automobiles under a particular insurance policy. The recent ruling in McLaughlin v. Travelers Commercial Insurance Company is such a case.

In McLaughlin, the Washington State Supreme Court ruled that a bicyclist was a “pedestrian” under McLaughlin’s insurance policy. McLaughlin was riding his bicycle in downtown Seattle when a motorist opened the door of a parked vehicle and hit McLaughlin. McLaughlin made a claim under his Travelers car insurance policy. The policy provided benefits if McLaughlin was struck by a vehicle “as a pedestrian.”

Travelers denied coverage. It argued that McLaughlin was not a “pedestrian” because he was riding his bike. The lower courts agreed with Travelers, relying on the dictionary definition of “pedestrian” as excluding bicyclists.

The Washington State Supreme Court held that McLaughlin had coverage. The court relied on an insurance statute in which the Washington legislature defined a “pedestrian” as any person “not occupying a motor vehicle…” Since McLaughlin was riding a bike and not a motor vehicle when he was injured, he was a “pedestrian”.

The court emphasized that the relevant statutes are read into insurance contracts automatically. Because the legislature has the power to regulate insurance, a valid statute becomes part of the insurance policy. The statutory definition of “pedestrian” therefore became a part of McLaughlin’s insurance policy just as if Travelers had copied the statute into the policy documents.

This conclusion was reinforced by traditional insurance law principles that insurance policy language should be read consistent with the expectations of the average insurance purchaser. The court had no trouble concluding that the average person buying this MedPay coverage would expect to be covered when injured by a car.

Another twist is that the Court applied Washington law even though McLaughlin bought the policy in California. Because he had moved to Washington, the Court determined that he was entitled to all the protections of Washington law. Washington courts have a long history of applying Washington law to any insurance policy protecting a Washington resident.

In sum, the McLaughlin case is a strong reminder that Washington State’s insurance laws and regulations will be enforced regardless of the insurance policy fine print.

Court Ruling Emphasizes Importance of Reading the Insurance Policy as a Whole

Insurance policies contain technical language that often varies from its everyday meaning. When a case depends on the meaning of the insurance policy fine print, how you interpret these technical terms can decide the outcome of a case.

One way to define insurance policy terms is to see how those terms are used elsewhere in the insurance policy. The Ninth Circuit Court of Appeals’ August 17, 2020 ruling in Engineered Structures, Inc. v. Travelers Property Casualty Company of America is a good illustration.

Engineered Structures, Inc. (ESI) was a construction firm that purchased a “builder’s risk policy” from Travelers insurance. The policy covered risks of damage when ESI was building a Fred Meyer gas station in Portland, Oregon.

ESI made a claim under the policy when an underground fuel storage tank ESI’s subcontractor was installing was improperly placed in the ground. The tank was loaded with inadequate ballast. After a rainstorm, the tank floated in the excavation hole, causing damages.

Travelers denied coverage under a policy exclusion for “faulty, inadequate or defective workmanship or construction”. ESI sued Travelers claiming the denial violated the policy and was made in bad faith. The issue depended on what the word “construction” in the exclusion meant. ESI said “construction” meant the finished product it was building, so the exclusion only applied for defects in the finished product.

Certain rules come into play when an insurance term of art is ambiguous, but the court determined those rules didn’t apply because it could understand the term “construction” by reading other language in the policy.  The court examined other language in the insurance policy that treated “construction” as referring to the process of building the gas station. The policy defined certain “construction activities” in terms of the actions taken in the course of constructing the gas station. The court interpreted the word “construction” in the exclusion as referring to the process of constructing the gas station, as opposed to the final product that was built.

This emphasizes the principle that insurance policy language must be read in the context of the entire insurance policy. Where the policy uses technical language in one place, it can often be understood only by reviewing similar language elsewhere in the policy. A few other references to a disputed term elsewhere in the policy can decide insurance coverage for a huge loss.

 

Lawsuit Over Neighbors’ Target Shooting Triggers Homeowners’ Insurance Coverage Says Court of Appeals

Most homeowner’s insurance policies include coverage protecting the policyholders from certain kinds of lawsuits. For example, many policies provide that, if the policyholder gets sued for “personal injury” claims, the insurance company will pay for lawyers to defend the policyholder in court. This liability coverage is an important part of most homeowners insurance policies. Determining whether the policy provides coverage for a particular lawsuit often turns on the specific definition of “personal injury” in the policy.

A recent Court of Appeals decision emphasizes the importance of the technical definitions of “personal injury” and other liability coverage terms of art under homeowners insurance policies.

Mr. and Mrs. Webb were sued by a neighbor who alleged that, while the Webbs were target shooting on their own property, they fired bullets that ricocheted on to the neighbors’ property. The neighbors asserted claims including trespass and assault.

The Webbs made a claim under the liability coverage contained in their USAA homeowners insurance policy, asking USAA to cover the defense of the neighbors’ lawsuit. The Webbs’ USAA insurance policy provided liability coverage for lawsuits against the Webbs for “bodily injury,” “property damage,” or “personal injury.” The policy excluded coverage for any suits against the Webbs arising from the Webbs’ alleged “intentional acts.”

USAA refused to defend the Webbs against the neighbors’ lawsuit. USAA claimed that “some of the allegations” in the neighbors’ lawsuit did not meet the definitions for “bodily injury,” “property damage,” or “personal injury.” USAA provided no further details. After the Webbs threatened legal action, USAA changed its denial. USAA continued to deny coverage but removed the “some of the allegations” language from the denial letter. The Webbs filed suit against USAA seeking coverage.

The trial court sided with USAA and dismissed the lawsuit. The court concluded all the claims against the Webbs arose from the Webbs “intentional acts” and were therefore excluded from coverage. The Webbs appealed.

The Court of Appeals agreed with the Webbs and reversed the trial court. The Court of Appeals concluded USAA’s insurance policy covered the Webbs by parsing the policy definitions of “personal injury” and “intentional acts.” Prior cases indicated the definition of “personal injury” included claims relating to trespassing on another’s property, which fit the allegations that the Webbs had fired bullets on to the neighbors’ property. The Court of Appeals also determined that because at least some of the neighbors’ allegations triggered coverage under the policy, USAA had to defend the lawsuit. In making that determination, the court relied on the general principle that ambiguous insurance policy language must be interpreted in favor of the insured.

Having determined the policy covered the lawsuit under the definition of “personal injury”, the Court of Appeals also concluded the policy’s exclusion for intentional acts did not apply. The court noted that the appropriate question was whether the Webbs were sued for conduct that the Webbs “expected or intended.” The neighbors’ lawsuit did not allege the Webbs intentionally fired on to the neighbors’ property. Rather, the neighbors alleged the Webbs fired at targets on the Webbs’ property but carelessly and recklessly allowed bullets to ricochet on to the neighbors’ property. Those allegations did not allege the Webbs intentionally trespassed on to the neighbors’ property. Just because the Webbs intended to fire guns did not mean the Webbs intended the bullets would ricochet on to the neighbors’ property.

This decision is an important reminder that the technical terms in insurance policies are critical to understanding the rights and obligations under the policy.  These terms can often have meanings defined in caselaw, as occurred in the Webb so an experienced attorney’s input is essential.

 

 

 

 

 

Ninth Circuit Reiterates Insurers Can’t Re-Write Policies to Justify Denying Coverage

As we’ve often observed, insurance policy fine print matters. Insurers can only deny claims if the policy language excludes the claim from coverage. A recent decision from our local federal appeals court confirms insurers cannot re-write the policy after the fact to support denying coverage.

On February 18, 2020, the Ninth Circuit Court of Appeals, the federal appeals court with jurisdiction over Washington State, decided National Union Fire Insurance Company of Pittsburgh, PA v. Zillow, Inc. The court ruled Zillow could proceed with a lawsuit alleging its insurer improperly denied coverage for a lawsuit against Zillow for copyright infringement. The decision is unpublished, so it can be cited for persuasive value but lower courts are not required to follow the ruling.

The insurance claim arose because Zillow was sued for copyright infringement by VHT, Inc. Zillow made a claim under its professional liability insurance policy issued by National Union Fire Insurance Company.

The insurance policy only covered claims that were first made against Zillow during a specific time period (the “policy period”). VHT sued Zillow during the policy period. But, before the policy period began, VHT had sent Zillow a letter threatening to sue Zillow for the same copyright infringement alleged in the lawsuit. Accordingly, National Union argued there was no coverage because the claims alleged in the VHT lawsuit had been raised before the policy period.

The trial court agreed with VHT and ruled Zillow had no coverage for the VHT suit under its insurance policy. But the Ninth Circuit reversed, ruling the insurer should not have been allowed to stretch the policy language to support denying coverage.

The court of appeals examined the insurance policy language closely. For purposes of deciding whether a claim occurred during the policy period, the policy defined a “claim” as either a lawsuit or a demand letter. Since the VHT lawsuit was obviously a lawsuit, the court had no trouble deciding that the lawsuit was a claim arising during the policy period.

The court did not buy the insurer’s argument that VHT’s demand letter and VHT’s lawsuit should be treated as a single claim. The court emphasized that National Union could have added language to this effect to the insurance policy, but chose not to:

“[U]nlike a number of other claims-first-made policies cited by both parties, the Policy does not contain a provision expressly providing for the integration of factually related Claims. Had National Union wanted factually similar Claims to be integrated under the Policy’s coverage provision, it could have easily drafted the Policy to include such a requirement.”

The Ninth Circuit also emphasized that insurance policies must be read as they are written, criticizing the trial court for reading the word “or” out of the definition of “claim”. The court emphasized that Washington State law requires ambiguous insurance policy language, i.e., language that could arguably be read in two different ways, be interpreted in favor of the insured. The court sent the case back down to the trial court to reconsider whether Zillow had insurance coverage under the correct reading of the policy.

The Zillow decision is an important reminder that insurance policy fine print matters. Insurers, after all, are the ones writing their insurance policies. The insurer has the opportunity to draft exclusions into the policy before they sell it. They can’t add new exclusions to the insurance policy after the fact. And, if the policy is so poorly written that it could be read multiple ways, the proverbial tie-breaker goes to the insured.