Insurance – Page 14 – Seattle Insurance and ERISA Blog

The Moral High Ground Is Crucial In Insurance Disputes, Confirms Ninth Circuit

In any lawsuit, but particularly an insurance dispute, it’s important to have the “moral high ground.” In an insurance case, this means cooperating with the insurer and responding to the insurer’s reasonable requests for information. Even where the insured is in the right, insurers often seize on the insured’s failure to provide information about their claim or otherwise cooperate in the insurer’s investigation to justify denying coverage or payments. Even where the insurer is acting unreasonably, failing to cooperate with the insurer gives the insurer a pretext to justify its conduct.

This was emphasized in the Ninth Circuit Court of Appeals’ recent decision in Birdgham-Morrison v. National General Assurance Company. Ms. Birdgham-Morrison sued her insurer National General for failing to pay the full amount needed to cover her injuries sustained in a car crash under her Underinsured Motorist (“UIM”) coverage.

Ms. Birdgham-Morrison’s problem was the insurer was able to leverage her failure to provide the insurer more information about her injuries to justify refusing to pay the full amount of her claim. The court noted the insured’s lawyer sent letters to National General demanding it pay the claim, but did not include specific information about her injuries. Similarly, the court noted the plaintiff never responded to the insurer’s requests for additional information about her injuries.

Accordingly, the court ruled that National General did not violate Washington’s Insurance Fair Conduct Act in denying the full amount of Ms. Birdgham-Morrison’s claim.

This case illustrates the unfortunate reality that insureds must be able to show they went above and beyond in assisting the insurer with investigating their claim if they want to get the full policy coverage they paid for.

Unfair Health Insurance Billing Practices Highlighted in NPR Report

An NPR report from earlier this spring highlights many of the disputes individuals often have with their health insurance. The article highlights one person’s experience getting a $70,000 bill for a single surgery despite the hospital being “in network” with his insurer. Both Medicare and medical billing nonprofits estimate the cost of the procedure at less than half that. Among other things, the patient was charged $26,068 for a device for which the manufacturer charges $1,500. Besides the “sticker shock,” the bill also contained charges for physical therapy sessions that never took place and drugs the patient never received.

The insurer reviewed the charges and payments twice — both times standing by its decision to pay the bills. The insurer claimed payment was appropriate based on the details of the insurance plan. The hospital declined to substantiate the charges and simply noted that they “are consistent with the hospital’s pricing methodology.”

The article points out that some insurers have an incentive to inflate the amounts the agree to pay “in network” doctors and hospitals. The Affordable Care Act mandates insurers allocate 80% of their premiums to medical care. Unscrupulous insurers can dodge this rule and inflate their profits by agreeing to high network rates with hospitals.

Or, in other instances, insurers may agree with hospitals to pay higher fees on some procedures in exchange for favorable deals on other charges. This can be problematic for insureds, who lack access to these negotiated rates prior to agreeing to undergo treatment.

In the case highlighted in the NPR article, the insured was actually a health care consultant. He used his detailed knowledge of the system to fight the bill, eventually going to court and negotiating a partially reduced payment.

These cases often come down to the specific language of the health insurance plan and the plan’s contract with the hospital. Unfortunately, individual insureds typically lack the expertise, resources and time to fight these battles.

Health Plans Can’t Discriminate Against Mental Health Treatment Says Ninth Circuit

Among the challenges of a mental health condition is the difficulty persuading health insurers to cover treatment. Mental health conditions can be difficult to objectively diagnose and can require lengthy and expensive treatment often with little prospect of a conventional “cure.” Hence, health plans have a powerful incentive to minimize coverage for mental health conditions to reduce costs.

In response, the federal government, as well as Washington and many other states, have enacted mental health parity laws. In general, these laws prohibit health insurers and health plans from discriminating against mental health conditions by mandating mental health conditions be covered to the same degree as physical ailments.

On June 6, 2018, the Ninth Circuit Court of Appeals confirmed the federal Mental Health Parity Act prohibits health plans from discriminating against mental health conditions for the purposes of health insurance coverage. In Danny P. v. Catholic Health Initiatives, the court determined the health plan violated the law by denying the plaintiff’s claim for the cost of an inpatient stay at a residential mental health treatment facility.

In ruling for the plaintiffs, the court determined the Mental Health Parity Act required the health plan’s coverage of inpatient mental health treatment facilities be no more restrictive than coverage for stays at skilled nursing facilities. Since the Act prohibited imposing more restrictive coverage requirements on mental health treatment than on treatment for physical conditions, the Act precluded the health plan from deciding to cover room and board at skilled nursing facilities for medical patients while refusing to provide the same coverage for mental health inpatient care.

The Danny P. decision is an important win for patients seeking mental health treatment and vindicates Congress’ intent in passing the Mental Health Parity Act that mental health patients be free from discrimination by their health plans.

State Laws Automatically Revoking Spousal Life Insurance Benefits Upon Divorce Upheld By U.S. Supreme Court

An important dispute when a person dies is often who gets the life insurance policy death benefit. The life insurance policy may have been purchased decades ago and name the insured’s former spouse, from whom the insured was divorced long ago. The insured’s children or other alternate beneficiaries often argue the insured really intended the death benefit go to them, not to the spouse they divorced decades before their death.

To avoid this uncertainty, Washington State, like many states, has a law providing that life insurance beneficiary designations to spouses are automatically void upon divorce. Thus, if a married person buys a life insurance policy providing the insurer pays her husband upon her death, and subsequently divorces her husband, the husband is automatically removed as the beneficiary upon the divorce. This avoids a potential probate court fight when the insured dies.

On June 11, 2018, the U.S. Supreme Court decided Sveen v. Melin, upholding a similar law in Minnesota. The Supreme Court confirmed states like Washington may provide that life insurance beneficiary designations to spouses automatically terminate upon divorce.

In Sveen, Mark Sveen was married to Kaye Melin in 1997. Sveen purchased a life insurance policy naming Melin as the primary beneficiary and his two children from a prior marriage as contingent beneficiaries. Sveen and Melin divorced in 2007, but their divorce failed to address the life insurance policy. Sven never amended the policy’s beneficiary designation. After Sveen died, his children and Melin made competing claims for the life insurance policy death benefit.

Under Minnesota law, the divorce automatically revoked Sveen’s designation of Melin as his primary beneficiary, resulting in Sveen’s children receiving the life insurance policy death benefit. Melin argued the law violated the U.S. Constitution’s “contracts clause” because the law was enacted after the policy was purchased.

The court upheld the law. Reviewing the long history of state laws presuming “that the average Joe does not want his ex inheriting what he leaves behind,” the court observed these laws have utility in simplifying probate litigation by giving certainty about decades-old life insurance policy benefits. The court noted Minnesota’s law allowed Sveen to re-designate Melin as his beneficiary after the divorce if he desired, so it imposed only a minimal burden on existing contracts.

The court’s decision to uphold Minnesota’s law provides additional certainty to Washington insureds and their heirs and beneficiaries regarding the treatment of life insurance death benefit proceeds.

Washington Supreme Court Strikes Down “Maximum Medical Improvement” Limits in Auto Policy Coverage

On June 7, 2018, the Washington Supreme Court, in Durant v. State Farm, ruled insurers may not limit payments to policyholders under auto insurance Personal Injury Protection (“PIP”) to only treatment needed for the insured to reach “maximum medical improvement” (“MMI”).

PIP coverage is required to be offered in Washington auto insurance policies. In exchange for additional premiums, PIP coverage requires the insurer to pay for the insured’s medical expenses related to physical injuries covered under the policy. In the Durant case, State Farm’s PIP coverage contained an additional sentence: “Medical services must also be essential in achieving maximum medical improvement for the injury you sustained in the accident.”

After State Farm refused to pay medical bills State Farm claimed were not essential to MMI, Durant hired a lawyer and filed a lawsuit challenging State Farm’s limitation on PIP coverage payments for only medical bills essential to achieving MMI. Durant claimed the MMI limitation violated Washington’s insurance regulation governing PIP coverage, WAC 284-30-395(1), which limits the reasons insurers may use to deny PIP coverage.

The Supreme Court agreed with Durant. The court applied the plain language of WAC 285-30-395(1), which provides three bases on which an insurer may deny PIP claims:

“the medical and hospital services:

(a) Are not reasonable;

(b) Are not necessary;

(d) Are not incurred within three years of the automobile accident.

These are the only grounds for denial, limitation or termination of medical and hospital services permitted…”

The court determined the final sentence was conclusive: insurers may deny PIP coverage only for the four reasons identified in the regulation. Since “essential to maximum medical improvement” is not identified in the regulation, it is an invalid basis on which to deny PIP coverage.

State Farm argued the MMI limitation was part of the permissible limitation to medical services that are “reasonable” or “necessary.” But the court noted State Farm’s policy limited PIP coverage to medical bills that were “reasonable,” “necessary,” and essential to MMI. Thus, the court concluded the MMI limitation improperly exceeded the scope of the “reasonable and necessary” requirement. The court also noted Washington’s Insurance Commissioner previously warned insurers adding criteria to PIP benefit payments violates WAC 285-30-395(1).

The court confirmed WAC 285-30-395(1) and related statues “reflect Washington’s strong public policy in favor of the full compensation of medical benefits for victims of road accidents.” State Farm’s limitation unlawfully “denies Durant his PIP medical benefits necessary to return him to his pre-injury state.”

The Durant ruling clarifies an important aspect of Washington insurance law and confirms insureds’ right to coverage for medical treatment for injuries sustained in auto collisions.