Court Confirms Health Insurers Can’t Sell Discriminatory Insurance Policies

The Ninth Circuit Court of Appeals (the federal appeals court with jurisdiction over Washington and other west coast states) is having a busy summer for insurance cases. On the heels of recent decisions regarding attorneys’ fees in ERISA-governed insurance disputes and insurers’ duty to reasonably investigate insurance claims comes the July 14, 2020 ruling in Schmitt v. Kaiser Foundation Health Plan of Washingtonholding health insurers cannot design health plans that have a discriminatory impact under the Affordable Care Act (a/k/a “Obamacare”).

For decades before the ACA, it was legal for health insurers to design health plan benefits however they chose, even if those plan designs had a discriminatory impact. As long as the insurer provided the same benefits to everyone, the insurer could decide what benefits to offer and what not to offer. Insureds could not sue their insurer for designing a health plan that had a discriminatory effect.

The Schmitt ruling confirms that the ACA changed that. Part of the ACA’s purpose is to expand so-called “minimum essential coverage” under health insurance policies. There are certain minimum benefits that must be included in most health plans. This includes, for instance, emergency services, maternity care, mental health treatment, and rehabilitative treatment.

Additionally, the ACA specifically provides that insurers cannot design health plans in a discriminatory manner. It states that an insurer may not “design benefits in ways that discriminate against individuals because of their…disability.”

The Schmitt ruling emphasizes that the ACA is different from prior federal laws that had been interpreted not to prohibit discriminatory plan design. Prior to the ACA, no federal law guaranteed any person adequate health care. The ACA, on the other hand, explicitly guarantees the right to minimum health insurance benefits and prohibits designing health plans that deprive people of those minimum benefits on a discriminatory basis.

The court noted the ACA does not require insurers cover all treatment no matter how costly or ineffective. But the court emphasized insurers cannot design health coverage that has a discriminatory impact.

The Schmitt ruling is an important victory for advocates of fair insurance coverage.

Ninth Circuit Ruling Emphasizes the Importance of Acting Reasonably in Insurance Disputes

A recent ruling from the Ninth Circuit Court of Appeals is a good reminder that, as we’ve observed before, the “moral high ground” is crucial in insurance bad faith disputes.

The Ninth Circuit (the federal appeals court with jurisdiction over Washington and other west coast states) recently upheld the dismissal of insurance bad faith claims in Pureco v. Allstate, Case No. 19-55061. The ruling is unpublished and applied California law, so it is not precedent in Washington State. But it’s still helpful in seeing how courts treat insurance issues.

The upshot of the dispute was Pureco’s allegation Allstate failed to make a reasonable settlement offer in response to the settlement demand Pureco’s lawyer sent Allstate’s adjuster. Pureco was injured in a car crash with David Carillo. Carillo was covered under an Allstate car insurance policy. Pureco’s lawyer sent Allstate information showing the extent of Pureco’s injuries and demanded Allstate pay to settle the claim before Pureco sued Carillo.

When Allstate refused to pay by the deadline provided by Pureco’s lawyer, Pureco sued Carrillo and was awarded $5 million. Pureco and Carillo reached an agreement to settle the case in exchange for Carillo assigning his rights under the Allstate insurance policy to Pureco. Pureco then sued Allstate asserting Carrillo’s rights under the insurance policy, claiming Allstate’s failure to pay the demand before Pureco sued Carrillo was bad faith.

But, like most insurance disputes, the devil is in the details. Allstate had actually responded to Pureco’s lawyer and offered to pay Carrillo’s policy limit just one day after the deadline. The reason for Allstate’s delay was that Pureco’s lawyer waited to send Allstate all the information about Pureco’s injuries until the Friday afternoon where the deadline expired on Monday. Allstate’s adjuster had been on vacation that Friday. He responded and offered to pay the policy limits the following Tuesday.

The Ninth Circuit concluded Allstate had no liability. The court determined that Allstate may have made a mistake by failing to pay the policy limits sooner, but it did not act “in a deliberate manner that would support a finding of bad faith.” The court emphasized that the information Pureco’s attorney initially provided to Allstate did not put Allstate on notice that Pureco’s injuries were significant enough to risk an excess verdict against Carrillo, and Allstate paid the claim just a few days after receiving the additional information.

Although the court never comes right out and says it, the crux of the case seems to have been the court’s perception that Pureco’s attorney was not being forthright. Implicit in the court’s ruling is the fairly unremarkable conclusion that sending somebody information on Friday and expecting a decision the next Monday is fairly unreasonable, especially when you know they’re out of the office.

The upshot is that policyholders in disputes with their insurers rarely help their case by making unreasonable demands. Policyholders have broad legal protections under Washington law. Acting unreasonably often gives the insurer an out where the policyholder otherwise would have a strong case.

 

COVID-19 Insurance Updates

Here are some updates in the fast-evolving COVID-19 insurance world:

  • Washington State’s insurance commissioner extended the deadline for insurers to file certain kinds of lawsuits over property insurance coverage. Most homeowners’ insurance policies require any lawsuit against the insurer be filed within a certain length of time from the loss (often one year). Missing the deadline can deprive the policyholder of their right to sue the insurer for any misconduct. The insurance commissioner’s order requires insurers to extend this deadline for certain claims where the policyholder is in the process of completing repairs. Since the residential construction industry has been shut down due to emergency “stay at home” orders, many folks have been unable to complete repairs on time. Extending this deadline will help these policyholders protect their rights.
  • Washington’s insurance commissioner also warns against Medicare coronavirus scams. Scammers are targeting Medicare enrollees with bogus vaccines for the virus.
  • Many states, mostly in the northeast for now, are considering legislation requiring insurers to provide coverage for businesses losing money because they cannot operate during the pandemic. For example, Pennsylvania’s proposed legislation requires commercial insurers providing so-called “business interruption coverage” to cover COVID-19 related losses. Many insurance policies are believed to exclude such losses unless such legislation becomes effective.

Stay healthy!

Replacement Cost Coverage Under Homeowners Insurance Can Be Broader Than You Might Think

Most homeowners insurance provides what’s known as “replacement cost” coverage. Replacement cost coverage varies from policy to policy, but generally provides that the insurance company will pay to repair or replace damaged portions of the home with materials of the same or similar quality that existed before the loss. This coverage basically provides the insurer will pay to repair your home after a loss, so it’s an important component of a homeowners insurance policy.

It’s critical to keep in mind that insurance policies can use many different definitions of replacement cost coverage. The only way to know what a particular insurance policy covers is to have a qualified attorney review the entire policy and all the facts related to the loss. With that in mind, a replacement cost provision typically looks something like this:

The insurance company will pay the cost to repair or replace the damaged part of property insured with material of like construction for similar use on the same premises.

In most insurance policies, this language comes with exclusions, limitations, loss settlement provisions, and other policy language that can change how the replacement coverage applies. It’s critical to have a lawyer review the entire policy to determine how replacement cost coverage works in a particular situation.

Replacement cost coverage can involve several important issues that sometimes cause disputes between the policyholder and the insurer. The first is that the policyholder generally gets to choose the contractor who performs the repairs or replacement. In general, whatever a qualified contractor charges is the cost to repair or replace the damaged property and, therefore, what the insurer should pay under the policy. Unless the insurer hires the contractor and pays for the repairs directly, the insurer should, absent special circumstances, pay the policyholder whatever the contractor charges to repair or replace the damaged property.

Second, replacement cost typically means the cost to replace the materials that were there. If high quality materials were damaged, the insurer should pay for high quality replacements. If damaged materials cannot be repaired to the same condition they were in before the loss, the materials need to be replaced with new materials. Again, this depends on the insurance policy fine print– the devil is in the details.

Third, replacement cost generally includes all the costs to repair or replace the damaged property. These costs often go beyond the mere costs of the new building materials. For instance, replacing a leaky pipe might require removing sections of the drywall and other fixtures to get access to the pipe. In that scenario, the costs to tear out the drywall and fixtures, and to restore them to their pre-loss condition, would exceed the mere cost of the replacement pipe.

Fourth, most policies would require the policyholder to commit to actually performing the repairs or replacement before paying replacement cost benefits. If the policyholder doesn’t plan to actually perform the repair or replacement, many policies would pay only the “actual cash value” of the damaged property. Actual cash value is typically the dollar value the property had immediately before the loss. Replacement cost value is often much higher than actual cash value.

It is important to be mindful that, as with any insurance law question, replacement cost coverage and other benefits vary from case to case. Tiny nuances in the insurance policy fine print of the facts of the specific loss can make a huge difference. In some cases, removing a single word could alter the policyholder’s rights. The only way to know what a particular insurance policy covers, and what benefits the policy holder is entitled to, is to consult a qualified attorney.

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.