Category: Insurance

Can The Insurance Company Cancel My Policy For Late Premiums?

It’s fairly easy to miss an insurance premium payment.  You buy your policy online, set up monthly auto pay through your debit card, and forget about it.  But then you have to replace your card, or get a new card number or bank, or the account is overdrawn, or something else happens.  Or, maybe you’re paying manually each month and just plain get behind on your mail.  You get a notice from the insurer that your policy’s been canceled for premium nonpayment.  You call them and explain the problem and offer to pay, but they won’t let you do it.

Can they do that?  Like most insurance questions, the answer is “it depends.”

The general rule is that insurers are free to cancel policy coverage without notice when the insured fails to timely pay premiums.  Courts are traditionally unforgiving when policyholders miss premium payments.  They emphasize that the basic insurance exchange is the insurer provides coverage in exchange for premium payments; since this is the heart of the bargain, insurers are within their rights to insist on timely premium payments and cancel coverage without notice if premiums aren’t paid on time.

There are exceptions to this rule, but they depend on the specific factual details and the language of the insurance policy:

  • Grace Periods: Sometimes the policy explicitly provides a grace period or lets the insured reinstate coverage after missing a payment.  This is a common feature of life insurance policies in particular.    Or, sometimes the policy doesn’t have a grace period but some applicable law requires the insurer to give you a grace period for missed premium payments.  One prominent example is the federal Affordable Care Act (a/k/a “Obamacare”).  The ACA provides for a grace period for certain covered health insurance plans, with the length of the grace period depending on whether the insured is receiving subsidies.
  • Insurer Misrepresentations.  Courts may be receptive to insurer’s rights to collect premiums, but they don’t like it when insurers lie.  Where the insurer misled the insured about whether premiums were outstanding, or lied about the availability of a grace period before coverage would be canceled, courts often allow the insured to reinstate coverage.
  • Insurer Errors.  Even where the insurance company doesn’t lie, if the insurer’s own conduct prevents you from paying premiums on time then courts often bar the insurer from canceling coverage.  For instance, sometimes insurers misapply or lose a payment, or don’t allow the insurer to make a payment because the company’s website or telephone is down.
  • Past Practices. Sometimes the insurer routinely accepts late payments, leading the insured to conclude that the premium deadline isn’t a big deal.  In those cases, courts sometimes determine the insurer waived its right to cancel coverage for late payments.
  • Insurer Promises.  In cases where the insurer’s agents promise the insured that they will “let it slide” and not cancel coverage for a missed premium payment, courts sometimes hold the insurer to its agent’s promise and deny the insured the right to cancel coverage.

It’s important to remember that, if the insurer cancels coverage improperly, the insured typically has recourse, including a claim for additional damages and attorneys’ fees, under Washington’s Insurance Fair Conduct Act and/or Consumer Protection Act.

Lawsuit Documents Allegations of Discriminatory Claims Handling By Insurer Who Kept A So-Called “Jewish Lawyer List”

Anyone who’s suspected their insurance company gave their claim closer scrutiny because of their race will likely find the allegations in this lawsuit alarming.  In short, the insurance company was sued alleging it discriminated against insureds represented by attorneys identified on the insurance company’s secret “Jewish Lawyer List.”  The insurer settled that lawsuit, but then turned around and sued the plaintiffs and their lawyers for defamation.  The ensuing litigation provides a fascinating glimpse into some appalling racist insurance practices.

The case goes all the way back to 1987.  Four drivers were involved in a car crash and sustained damages their insurer refused to cover, claiming the drivers’ claims were fraudulent.  The drivers hired attorney Erwin Sobel to sue the insurer to obtain coverage.

In the course of litigating, attorney Sobel discovered documents suggesting his clients’ claims had been flagged as fraudulent because Sobel was Jewish.  Sobel uncovered a 1983 insurer memo containing a list of about 160 Los Angeles lawyers, including Sobel – the majority of whom were Jewish.  Insureds with lawyers on the so-called “Jewish Lawyer List” had their claims automatically sent to the insurer’s special fraud unit with instructions not to pay any claims.  The memo directed the insurer’s agents to destroy the memo after forwarding all the lawyers’ clients to the fraud unit, and to keep the entire system secret from the insureds and their lawyers.

The insurer denied the allegations, but ultimately paid Sobel, his co-counsel and their clients $30 million to settle their allegations of discriminatory claims handling.  Among other things, Sobol presented testimony from an economist showing the list contained wildly disproportionately Jewish attorneys.

The case is an unfortunate reminder that insurance practices aren’t immune from racism and discrimination.

What Are The Rules For Short Term Health Coverage?

Many people buy short term medical coverage to fill in gaps in long term coverage.  For instance, if you start a new job, you’ll often lose coverage from your former employer’s medical plan prior to becoming eligible for coverage under your new employer’s medical plan.  This gap can often last several months.  To maintain coverage for medical expenses, people often purchase short term medical coverage for just a few weeks or months.  Short term coverage isn’t designed to be your primary insurance but just to cover the gap while you transition between health insurance policies.

Short term medical coverage isn’t subject to all the same rules as typical medical coverage.  In particular, short term coverage is not required to meet the Affordable Care Act’s minimum standards for health insurance.  Moreover, the federal agencies responsible for overseeing short term medical plans, including the Department of Labor, Department of Health and Human Services, and IRS, frequently tweak the rules by issuing updated regulations, most recently on August 3, 2018.

So what are the current rules for short term medical insurance?  Here are some of the highlights:

  1. The ACA Individual Mandate:  Under the current rule as of August 3, 2018, short term medical coverage isn’t considered “Minimum Essential Coverage” under the Affordable Care Act.  Ordinarily, that would mean a person covered only by short term medical insurance isn’t complying with the Affordable Care Act’s individual mandate, and could be subject to tax penalties.  However, Congress’ tax overall bill passed in late 2017 effectively eliminates the Affordable Care Act’s individual mandate.  That means as of today, individuals covered solely under short term medical coverage won’t have to worry about paying the Affordable Care Act individual mandate penalty.
  2. No Minimum Standards: Since short term medical insurance isn’t subject to the Affordable Care Act’s minimum standards, short term medical insurance can do things like exclude pre-existing conditions, refuse to cover essential health services like emergency care, and impose annual caps on coverage.
  3. Duration of Coverage: Short term medical coverage with the same carrier may last no longer than 36 consecutive months.  This also applies if a shorter-duration policy is renewed with the same carrier.  This rule likely doesn’t preclude coverage under a short term medical policy for longer than 36 months so long as the coverage is under multiple carriers.
  4.  State Regulations Apply: Regardless of regulations under federal law, many states still regulate short-term medical coverage.  Washington State’s insurance commissioner recently proposed new rules that, among other things, limit short term medical coverage plans’ duration to three months and establish certain minimum standards for coverage.

The rules for short term medical coverage are very much influx due to changes by federal regulators, Congress and states.  It’s important to carefully review your policy and any applicable rules to determine your rights under short term medical coverage.

Title Insurance Covers Tribal Fishing Rights Claims Against Landowner Says Court of Appeals

Title insurance is a critical part of most real estate deals.  In Washington and throughout the U.S., a piece of real estate has likely changed hands numerous times, including typical purchase money mortgage sales, foreclosures, bequests via a will or trust, or otherwise.  As a result, prudent people about to buy land or a home buy title insurance, which protects the buyer from losing money if it subsequently turns out that there is a problem in the chain of prior transactions of the property.  For example, a person might buy a new home and subsequently learn that, due to a defective transfer decades prior, the seller didn’t fully own the property and thus the new buyer’s ownership interest is in jeopardy.  The new buyer might find themselves defending a lawsuit (a/k/a a “quite title” action) or otherwise taking a monetary loss on the property due to the defective title.  In that case, the buyer would tender the claim to their title insurer who would defend the lawsuit or reimburse the buyer.

As a result, most prudent home-buyers and other parties to real estate transactions routinely buy title insurance.  Unfortunately, the title insurer often resists paying claims when problems with title arise.  This is particularly true where the claims against the title are more esoteric, such as tribal fishing treaty rights.

In Robbins v. Mason County Title Insurance Co., Case No. 50376-0-II, Washington’s Court of Appeals ruled in favor of buyers, the Robbinses, in their dispute with Mason County Title Insurance Company (“Mason Title”).  In 1978, the Robbinses purchased land including tidelands formerly owned by the state of Washington (the “Property”), intending to use the tidelands for commercial shellfish harvesting.  Being prudent land buyers, the Robbinses also purchased title insurance from Mason Title (the “Policy”).  The Policy required Mason Title to insure the Robbinses against any loss resulting from defects in the Property’s title.  Specifically, the policy stated:

[Mason Title] shall have the right to, and will, at its own expense, defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed or is claimed to have existed prior to the date hereof and is not set forth or excepted herein.

Unfortunately for the Robbinses, their newly-purchased tidelands had a defect in title.  The Sqaxin Island Tribe (“Tribe”) had a claim to the Property’s shellfish rights by virtue of the 1854 Treaty of Medicine Creek (“Treaty”).  Upon learning of the Robbinses’ shellfish-harvesting aspirations, the Tribe sent the Robbinses a letter asserting its rights under the Treaty and demanding 50 percent of the harvestable shellfish from the Property.

The Robbinses tendered the Tribe’s claim to Mason Title and asked Mason Title to defend them as required by the Policy.  Mason Title refused, claiming there was no coverage under the Policy for the Tribe’s claim.  The Robbinses sued Mason Title for coverage under the Policy as well as for insurance bad faith.

The Court of Appeals ruled for the Robbinses.  The court determined the Tribe’s claim constituted a “demand” “founded on a claim of encumbrance arising before the date of inception of the policy” which the Policy required Mason Title to defend the Robbinses against.  Thus, the Robbinses had coverage under the plain language of the Policy.

Mason Title argued the Robbinses’ claim was excluded under the Policy’s exclusion for “public or private easements not disclosed by the public records.”  The court disagreed, finding the Tribe’s rights under the Treaty were not “easements.”  An easement is “a right to enter and use property for some specified purpose.”  The Tribe’s shellfish harvesting rights were not a right granted to the Tribe to enter the Property but rather existing rights the Tribe had always possessed and which the Treaty simply reserved for the Tribe.

Besides ruling the Policy covered the Tribe’s claim against the Robbinses, the court also ruled Mason Title acted in bad faith in unreasonably refusing to defend the Robbinses.  The court found Mason Title’s interpretation of the policy was, at best, an arguable reading of an ambiguous provision of the Policy.  As such, Mason Title was required to, at least, defend the Robbinses from the Tribe’s claim while reserving its right to dispute coverage.

The Robbins case emphasizes property buyers should carefully review their title insurance policies to confirm they are covered in the event title is defective, and should insist the title insurer follow the policy and provide coverage in the event of a loss.

The Brave New World of Cybercrime Insurance Coverage Disputes

Computer crime and data breaches have become a reality for most businesses.  Words like spearphshing or ransomware that were obscure five years ago are now in the headlines on a regular basis.  The FBI calculated over $1.4 billion in reported losses from hacking and similar computer crime in 2017.  A data breach can cause serious monetary consequences for businesses, besides the goodwill hit of having to notify customers and colleagues of the intrusion.

Accordingly, business have tried to mitigate the risks of a data breach or hack through insurance coverage.  Since cybercrime coverage is in its infancy, it’s unsurprising disputes have arisen between businesses and insurers regarding the extent of coverage under these policies.

Emerging caselaw shows that cybercrime coverage is not immune from the traditional conflict between the insured’s interest in being made whole after a loss and the insurer’s interest in paying as little as possible on claims.  A good example is the recent decision by the U.S. Court of Appeals for the Sixth Circuit in American Tooling Center, Inc. v. Travelers Casualty and Surety Company of America.  American Tooling Center (“ATC”), lost over $800,000.00 in a phishing scam.  Hackers first infiltrated ATC’s email servers and obtained the names of ATC’s contacts with ATC’s Chinese subcontractor.  After ATC wired certain payments to its subcontractor, the hackers posed as the subcontractor’s agents and claimed to have never received the payments.  ATC canceled its initial wire transfer and re-sent the funds to the hackers.  ATC realized what had happened when the genuine subcontractor called to demand payment.

ATC tendered the claim to its insurance carrier, Travelers, under ATC’s coverage for “computer crime.”  ATC’s policy provided Travelers “will pay the Insured for the Insured’s direct loss of, or direct loss from damage to, Money, Securities and Other Property directly caused by Computer Fraud.”  ATC requested Travelers cover the over $800,000.00 it lost in the phishing scheme.

Travelers refused to pay.  Relying on the words “direct loss,” Travelers claimed ATC hadn’t actually lost the over $800,000.00 it wired to the hackers.  Instead, Travelers argued ATC only had a “direct loss” in the amounts it had to pay to its subcontractor over and above those amounts it paid to the hackers.  Since the subcontractor (presumably sympathetic to ATC) had settled for a reduced payment, Travelers claimed it need only pay ATC the amount its subcontractor agreed to accept.

The court had little trouble rejecting Travelers’ argument, stating:

A simplified analogy demonstrates the weakness of Travelers’ logic. Imagine Alex owes Blair five dollars. Alex reaches into her purse and pulls out a five-dollar bill. As she is about to hand Blair the money, Casey runs by and snatches the bill from Alex’s fingers. Travelers’ theory would have us say that Casey caused no direct loss to Alex because Alex owed that money to Blair and was preparing to hand him the five-dollar bill. This interpretation defies common sense.

Separately, Travelers also argued the phishing attack was not covered under ATC’s computer fraud coverage.  Travelers claimed coverage only existed where the perpetrator actually caused the transfer, not where the hackers deceived employees into transferring money unwittingly.  The court observed that if Travelers wanted to restrict coverage thusly, it could easily have made that explicit in the policy – indeed, the court pointed out many policies do restrict coverage in this way using language absent from Travelers’ policy.

The ATC decision underscores the emerging issues in cybercrime coverage disputes and the bases insurers will use to deny coverage for phishing, hacking and other computer crime causing losses to businesses.