Seattle Insurance and ERISA Blog

Court Emphasizes Importance of Making Insurance Claims Promptly in ERISA Disability Dispute

A recent decision from our neighbors in the Portland, Oregon federal courts emphasizes that insurance policyholders should always strive to submit claims as soon as possible – especially where the insurance policy is covered by ERISA.

Often, it’s not practical to submit insurance claims as soon as the loss occurs. When your house burns down, you’re critically injured, or have to stop working due to a disability, you’re often overwhelmed as it is without worrying about submitting insurance claims. For this reason, many legal rules apply that can entitle an insured to benefits under an insurance policy even if the insured delays in submitting their claim. These rules protect insureds from the otherwise-draconian result of losing insurance benefits they paid for due to a technicality.

However, the Oregon federal court’s recent decision in Gary v. Unum Life Insurance Company of America emphasizes that, sometimes, a delay in submitting insurance claims can completely eliminate the policyholder’s right to benefits, especially under ERISA.

Ms. Gary applied for Long-Term Disability benefits under an ERISA-governed disability insurance policy issued by Unum. Plaintiff, an attorney, had become disabled and been ordered by her doctor to stop practicing law as of December 1, 2013. But Ms. Gary waited until September 1, 2016 to make a claim for disability insurance benefits from Unum.

Unum ultimately determined Ms. Gary was disabled, but only from November 27, 2013 through April 6, 2015. Ms. Gary filed a lawsuit under ERISA, seeking disability benefits post-April 6, 2015. The dispute focused on Unum’s conclusion that Ms. Gary was essentially recovered from her disability following surgery in 2014.

The court upheld Unum’s denial of benefits after April 6, 2015. The court focused on the absence of medical information regarding Ms. Gary’s condition as of April 6, 2015. Critically, the court noted that it was impossible for a doctor to examine Ms. Gary in person and give an opinion about her medical condition that would be retroactive to April 6, 2015. The court emphasized:

because Plaintiff’s claim was not filed until September 1, 2016, there was no opportunity for an [examination] or other evaluation of [Ms. Gary] by [Unum] in the nearly three years from the date of alleged disability. And while the Supplemental Record submitted by [Ms. Gary] provided some new medical evidence, it did not clarify [Ms Gary]’s limitations in the months following her surgery and around April 6, 2015.

Of course, there’s no way to tell if the court would have reached a different result had Ms. Gary applied for benefits immediately after becoming disabled. But allowing a prompt medical evaluation following her surgery that could have armed her with additional medical information supporting her disability.

The Gary decision is an important reminder that it is always in the insured’s best interest to claim benefits promptly following a loss.

Insurer’s Misreading of Policy Terms Results In Win For Policyholder

A cardinal principle of insurance law is that the fine print in an insurance policy must be interpreted consistent with the reasonable expectations of an ordinary person purchasing insurance. The Washington Court of Appeals recently emphasized that rule in its April 8, 2019 decision in Feenix Parkside LLC v. Berkley Nort Pacific. In the Feenix the Court of Appeals threw out a trial court’s judgment in favor of the insurance company on a dispute over property insurance coverage, ruling in favor of the policyholder.

Feenix Parkside, LLC (“Feenix”) filed an insurance claim after the roof of its commercial building collapsed, seeking coverage under the policy’s provision covering “decay” of the roof. The insurance company, Berkley North Pacific (“Berkley”) denied coverage. The insurer’s engineer determined the roof collapsed because the bearing walls had inadequate strength and that higher than normal temperatures further weakened the structure. Based on that report, the insurer denied Feenix’s claim because it found the roof collapse was caused by “defective” construction and “excessive temperatures” rather than “decay.”

Feenix hired its own engineer to conduct an independent investigation of the cause of the roof collapse. Feenix’s engineer concluded the roof collapsed after water became trapped between roofing layers, causing hidden decay which resulted in the roof collapse. Fennix requested Berkley re-open the claim based on these new findings, but the insurer continued to deny coverage based on its own engineer’s report.

The trial court found in favor of the insurer, believing that the policy’s coverage for “decay” required some kind of organic rot, not merely degradation to an old building over time. But the Court of Appeals reversed in favor of Feenix. The Court of Appeals emphasized the general principle of insurance law that ambiguous terms in insurance policies are interpreted in favor of the policyholder. Feenix claimed the policies coverage for losses resulting from “decay” was ambiguous because the policy did not define “decay,” and asked the court to interpret “decay” as covering the roof collapse. Feenix relied on cases similarly holding the collapse of old buildings due to exposure to water and the elements constituted “decay” under insurance policies.

Emphasizing that insurance policy terms are construed to provide coverage that a reasonable person purchasing the policy would expect, the Court of Appeals agreed with Feenix. The court noted the insurance policy specifically excluded “rot” and “fungus”, suggesting that the coverage for “decay” was broader than organic rot and could cover gradual degradation of old buildings.

Does ERISA Apply to COBRA Coverage?

ERISA applies to most insurance obtained through an employer. “COBRA” coverage is insurance coverage you get after your employment ends. So it’s understandable if you assume that COBRA coverage isn’t ERISA-governed.

Surprisingly, many courts have held that ERISA governs COBRA coverage after all.

ERISA generally applies to any insurance procured by an employer for the purpose of providing insurance benefits for its employees. When an employee’s employment ends under the right circumstances, the employee is eligible to purchase COBRA coverage to replace the lost employer-sponsored coverage. Congress enacted COBRA (the “Consolidated Omnibus Budget Reconciliation Act”) in 1986 to make sure people changing jobs don’t have a gap in their insurance coverage. COBRA requires that certain employer-sponsored insurance benefits plan allow employees changing jobs to continue coverage under the right circumstances. COBRA coverage must generally be identical to the coverage the former employer provides. And if the employer modifies coverage, the modifications must generally apply to the former employee’s COBRA coverage.

Thus, even though COBRA coverage would appear to be distinct from the employer’s ERISA plan, a former employee with COBRA coverage is effectively continuing to participate in their former employer’s ERISA plan by paying the premiums themselves.

For that reason, courts typically treat COBRA coverage as ERISA-governed – a result that might be counterintuitive for many employees.

Know Your Rights – Long Term Care Insurance

Many people have long term care insurance, especially when they get older, because the cost of prolonged individual care due to an injury or illness can be significant. For that reason, Long Term Care insurance is often part of people’s estate plan.

Long Term Care insurance can be subject to problems because the premiums get paid for years and years before coverage is needed, and, once it is needed, the policyholder is potentially to infirm to proactively protect their rights and make sure the insurer follows the policy.

Fortunately, Washington State’s insurance regulations give policyholders specific rights under Long Term Care insurance.

Long Term Care insurance policies must clearly explain the eligibility criteria and triggers for benefits, and advise the policyholder what circumstances give rise to a claim for benefits under the policy. This includes specifying what medical findings a doctor must make to trigger coverage. Further, eligibility requirements cannot be overly restrictive and cannot require an insured be precluded from performing more than three “Activities of Daily Living” (e.g., bathing and dressing). Importantly, the Long Term Care policy must provide that the insured cannot perform an Activity of Daily living if the insured requires another person’s significant assistance.

Similarly, Long Term Care policies cannot limit benefits to unreasonable time periods or dollar amounts. And, if the Long Term Care insurance policy replaces prior coverage, the insurer cannot apply an exclusion for pre-existing conditions.

Washington State law also limits what insurers can exclude from Long Term Care policies. Long Term Care policies can only exclude coverage for things like acts of war, criminal acts, chemical dependency, etc.

Additionally, insurers cannot cancel Long Term Care policies unless they obtain for the policyholder equivalent coverage with another insurer.

Lastly, Long Term Care insurance must provide a grace period for the insured to make up missed premium payments. This right is particularly significant because the beneficiaries of Long Term Care insurance are often elderly and rely on their children or others to handle their financial affairs and pay premiums.