Category: Insurance

Court Ruling Emphasizes Common Sense Reading of Insurance Policy in Win for Policyholder

The Washington Court of Appeals recently decided Poole v. State Farm Fire and Casualty Company, a case about fine print in a homeowner’s policy.  After the Pooles’ home burned down, State Farm denied coverage under a technical reading of the words “similar construction.”  Washington’s Court of Appeals disagreed with State Farm and emphasized the traditional principal that insurance policies are interpreted based on their ordinary and common meaning as a reasonable policyholder would understand them.

The Pooles had a State Farm homeowner’s policy covering their home.  Their home also contained a shop the Pooles used as a business.  The shop was in the same building as the home. After the structure containing the home and shop burned down, the Pooles made a claim under their State Farm policy.  State Farm agreed the policy covered the loss and agreed to pay to rebuild the structure.

The dispute arose when the Pooles decided to rebuild the shop as a separate building from the home, rather than rebuilding both in the same building as they had been originally.  State Farm refused to pay to rebuild the shop in a separate building, claiming the policy only provided coverage if the Pooles rebuilt the shop in the same building as the home.

State Farm relied on language limiting coverage to the Pooles’ “dwelling” and allowing reconstruction only for “similar construction.”  Since the shop was only covered as an attachment to the Pooles’ home, State Farm argued rebuilding the shop in a detached structure wasn’t “similar construction.”

The court disagreed, applying the ordinary and common meaning of the term “similar construction.”  The court noted that the limitation on coverage to the Pooles’ “dwelling” limited only coverage, and did not limit the Pooles’ reconstruction options.  Regarding whether the detached shop was “similar construction,” the court found reasonable the Pooles’ argument that the detached shop featured the same style, quality and building materials, and was used for the same purpose, as the original shop.  The court also noted State Farm’s representative admitted “reasonable people could disagree” about whether the policy covered reconstruction of the shop in a detached structure.

Because the Pooles’ interpretation was reasonable, the court applied the traditional insurance law principle that policy language capable of more than one meaning must be given the meaning that favors the insured.  Accordingly, the court found in favor of the Pooles.

The Poole case is an important reminder that technical terms in insurance policies matter, and that insureds are entitled to have ambiguous insurance policy language interpreted in favor of coverage.

Texas Judge Strikes Down Affordable Care Act

A federal judge in Texas has ruled the Affordable Care Act (a/k/a “Obamacare”) can no longer be enforced.  The judge determined the Act cannot function without its individual mandate requiring virtually all Americans to carry minimum health coverage.  Congress repealed the ACA’s individual mandate at the end of 2017.

If the ruling becomes the law of the land, it will have serious implications for health insurance coverage.  Among other things, the ruling eliminates the ACA’s minimum coverage requirements including guaranteed coverage for people with pre-existing health conditions, emergency medical treatment, maternity and newborn care, mental health and substance abuse treatment, prescription drugs and pediatric care.

The ruling has the potential to eliminate health coverage for about 17 million Americans  — including millions who gained coverage through the ACA’s expansion of Medicaid.   Policyholders with pre-existing conditions could see significant premium increases once the ACA’s prohibition against increased charges for pre-existing conditions become void.

For the time being, the ruling has little practical impact for insureds.  The federal Centers for Medicare and Medicaid Services emphasized “There will be no impact to enrollees’ current coverage or their coverage in a 2019 plan.”  For now, the biggest concern is that the ruling will confuse insureds into failing to purchase coverage during open enrollment,  which CMS states will proceed normally.

Do I Have To Cooperate With My Insurer After A Loss?

Imagine your house catches fire and you make a claim for coverage under your homeowner’s insurance policy.  After a few weeks, the insurer denies the claim.  They don’t dispute the fire happened.  But they say they don’t have to cover the damage because you didn’t cooperate with their investigation.  They claim you should have sent them information about the loss and allowed them access to the property.

Can they do that?  The short answer is yes – after a loss, you have a duty to cooperate with the insurance company.  But this duty has limits.

Insureds, like insurers, have a general duty of good faith and fair dealing under Washington law that requires the insured to work cooperatively with the insurer.  This duty is made explicit in virtually every insurance policy through provisions specifying what actions the insured must take following a loss.

Typically, the duty to cooperate with the insurer after a loss requires:

  • Promptly notifying the insurer of the loss;
  • Taking steps to prevent ongoing damage (e.g., turning off the water to stop flooding from a burst pipe);
  • Documenting the loss (e.g., collecting photos or repair estimates);
  • Allowing the insurer access to the damaged property;
  • Providing the insurer information about the loss.

This general duty to cooperate is important.  The insurer can deny claims if the insured fails to cooperate as required under the policy and Washington law.  It’s therefore critical to cooperate with the insurer and to document that you’ve cooperated by, for instance, memorializing phone calls with the insurer and keeping copies of all the information you send them.

However, it’s also important to know your rights: the duty to cooperate has limits.  The insurer can’t force you to do things that are unreasonable or onerous.  The insurer still has the responsibility to fully and fairly investigate your claims at the insurer’s expense; they can’t make the insured do all the work.  And, critically, even if you fail to cooperate, the failure must be so egregious that it prevents the insurer from adequately investigating the loss, or otherwise materially prejudices the insurer’s interests.  In other words, the insurer can’t deny your claim for technical failures to cooperate.

In short, following a loss, it’s important to document your cooperation with the insurer’s investigation but also to be mindful of your rights.

Know Your Rights Under Washington’s Patient Bill of Rights

Health insurance policyholders are guaranteed specific rights under Washington State’s Patient Bill of Rights.  The law’s purpose is to guarantee health insurance policyholders have access to quality health care.  If you find yourself in a dispute with your health insurance carrier, knowing these rights may help.

Policyholders Have The Right To Know About Their Coverage.  Health insurers must provide prospective policyholders specific information before the policyholder purchases coverage.  This include:

  • A list of doctors, hospitals and other providers who participate in the insurance plan.
  • An explanation of the policyholder’s premiums and charges;
  • How the policyholder can fight a wrongful claim denial, including through filing grievances;
  • Coverage information, including information about what prescription drugs are covered;
  • Explanations of any exclusions or limitations that apply to your coverage;
  • Information about the insurer’s efforts to protect policyholders’ confidential information;
  • Any applicable copayment, delectable, and/or coinsurance charges.

Policyholders Have The Right To Access Medical Treatment. Health insurers must allow policyholders to choose their own Primary Care Provider, although the insurer is permitted to require the policyholder to choose from a specific list.  The insurer must also allow policyholders to change providers if necessary.  Insurers must also  maintain adequate networks containing every category of licensed medical providers.  If needed to treat the policyholder’s condition, the insurer must provide referrals to specialists.  Finally, health coverage must include women’s health care.

Policyholders Have The Right To Challenge Claim Denials.  Health insurers must respond to complaints about wrongful coverage denials through a formal grievance process that is prompt, fair and impartial.

Insured California Wildfire Losses May Exceed $6 Billion

California’s increasingly-destructive wildfires are estimated to trigger billions of dollars in insurance claims.  As of November 2018, estimates show 15 wildfires in California destroying nearly 7,000 homes and business; 31 people have been killed and nearly 300,000 evacuated.  Beyond the loss of life and property damage implications for typical homeowner’s insurance coverage, the fires and attendant evacuations also potentially implicate business interruption or other commercial insurance provisions. Furthermore, the approximately 300,000 evacuated people will have significant additional living-expense claims under their homeowner’s coverage due to being forced to pay for temporary shelter and relocation costs.

Total losses are estimated at approximately $6.8 billion so far.   The price tag to rebuild will be particularly high because construction demand is already up from the 2017 wildfires and the strong housing market, leading to increased demand for construction labor and materials.  This high price tag translates to greater losses for homeowners and their insurance carriers.

California’s current wildfires are now the most destructive and deadliest on record.  From an insurance perspective, the destruction is particularly acute in high-property-value areas like Malibu.

The California wildfires serve as a reminder to policyholders to make sure they’re adequately covered for disaster losses, and to always act proactively to protect their rights after a loss.