Can The Insurer Change Your Policy Without Notice?

A recent Washington Court of Appeals decision emphasizes that insurers can change policy terms upon renewal with only minimal notice to the insured, even if the notice consists only of a terse email with a hyperlink to “terms and conditions.”

The insurer’s renewal notice is a common pitfall for policyholders, who often set their policy premiums to pay automatically and set the policy to renew automatically. Having set the policy on “autopilot,” the policyholder receives the automatic renewal notice and thinks they do not need to closely read it, on the assumption that renewing the old policy means they are getting the same coverage. But insurers often add material changes to their policies in renewal notices, which policyholders may not realize until years later when a loss they thought was covered turns out to be excluded under the modified policy.

This was the issue in the Washington Court of Appeals’ recently-published decision in Jackson v. Esurance Insurance Company, Case No. 75506-4-L. The court’s decision parses coverage under Mr. Jackson’s Esurance auto insurance policy and the policy’s exclusion for racing. Whether a car was involved in racing at the time of an accident would seem straightforward, but that was not the case for Mr. Jackson, whose policy included an expanded racing exclusion Esurance added in the fine print of his renewal policy. This decision reminds policyholders to always check the fine print of the insurance policy renewal notice because it may not be consistent with their expectations.

In February 2006, Mr. Jackson purchased a personal auto insurance policy from Esurance. Esurance delivered the policy to Mr. Jackson electronically pursuant to Esurance’s business model as an internet-based insurance company. Mr. Jackson’s original policy excluded: “Loss to ‘your covered auto’ or any ‘non-owned auto’, located inside a facility designed for racing, for the purpose of: a. Competing in; or b. Practicing or preparing for any prearranged or organized racing or speed contest.” In January 2010, Mr. Jackson renewed his Esurance policy. The renewal policy contained a broader racing exclusion, also excluding: “Participating in any racing school, driving school, driver training, skills training, race driving experience, or race adventure program.”

In June 2014, Mr. Jackson attended an Audi driving-skills training program at the Pacific Raceways racecourse. Mr. Jackson wanted to make sure his insurance covered him for any damages that might occur during the event, so he checked the copy of his policy available on Esurance’s website. Esurance’s website only contained the original policy with the narrow racing exclusion that did not exclude “driving school” participation.

Mr. Jackson crashed his vehicle during the driving skills program. He made a claim with Esurance. Esurance denied his claim under the expanded racing exclusion’s exclusion for racing school participation, quoting the current policy language.

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Melting snow from higher up the mountain created this impromptu waterfall on Kachess Ridge, near Cle Elum.

Mr. Jackson sued Esurance under Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”), as well as bringing claims for breach of the policy contract and common law bad faith. He claimed that Esurance failed to properly notifyhim of the 2010 policy amendment expanding the racing exclusion, and that Esurance’s conduct was deceptive and unlawful in violation of the Consumer Protection Act. The trial court dismissed Mr. Jackson’s lawsuit. Mr. Jackson appealed to the Court of Appeals, who affirmed the dismissal.

First, the Court of Appeals held Esurance’s 2010 broadening of the racing exclusion was enforceable. The Court of Appeals agreed with Mr. Jackson that Washington law required Esurance to notify him before amending or modifying the policy. But the court noted Washington law does not require notice be given in a specific manner, and permitted Esurance to deliver notices of policy changes electronically. Mr. Jackson consented to receive policy notices electronically when purchasing his original policy from Esurance. Even though Esurance’s renewal consisted of a terse email with a hyperlink to renewal “terms and conditions” not contained in the email itself, the court ruled this was sufficient to give Mr. Jackson notice of the expanded racing exclusion.

Second, the Court of Appeals determined Esurance’s electronic notice of the expanded racing exclusion was not deceptive or unlawful under the Consumer Protection Act. Mr. Jackson argued his difficulty in locating the actual policy on Esurance’s website rendered Esurance’s notice procedures deceptive. The court rejected that argument because Esurance provided Mr. Jackson instructions to access his policy when he first purchased it in February 2006. The court attributed Mr. Jackson’s difficulty solely to his decision not to carefully read the renewal notices Esurance sent him.

Can the ERISA Plan Deny Coverage Because you Made a Technical Mistake When Enrolling?

So you sign up for insurance through your employer.  The HR people say “yup, you’re signed up all right!”  You pay premiums for a few years.  Then, you make a claim and the insurance company says you’re not covered – turns out, you filled out the paperwork wrong when you signed up for coverage.

Can they do that? According to at least one federal appeals court, the answer’s “no.”  In Salyers v. MetLife, Case No 15-56371 (September 20, 2017), the court found the employee was entitled to coverage despite failing to properly enroll.

Susan Salyers bought a $250,000 life insurance policy on her husband through an employer-sponsored plan.  Salyers paid premiums on the $250,000 coverage amount. After Salyers’ husband passed away, the insurer (MetLife) paid out only $30,000 and denied coverage for the full $250,000 Salyers had paid premiums for.

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Looking down on Gem Lake in the early morning.

It turned out that Salyers made a mistake when signing up for coverage.  Salyers forgot to submit a form regarding evidence of insurability with her coverage election.  The terms of the ERISA Plan explicitly required the evidence of insurability form for Salyers to purchase the full $250,000 in coverage.

But the court ruled that MetLife waived its right to deny coverage based on the evidence of insurability requirement.  Under the federal common law of agency, the knowledge and conduct of Salyers’ employer could be attributed to MetLife.  Salyers’ employer knew (or should have known) that Salyers’ coverage election required evidence of insurability; they knew Salyers signed up for $250,000 in coverage and they knew you could only get $250,000 in coverage with the right form.

Despite having not received evidence of insurability from Salyers, her employer deducted premiums from Salyers’ paycheck, in amounts corresponding to $250,000 in coverage, and sent Salyers a letter confirming $250,000 in coverage. These actions were so inconsistent with an intent to enforce the evidence of insurability requirement that they gave Salyers a reasonable relief that Metlife had relinquished its right to deny coverage under that requirement.

The Ninth Circuit remanded the case to the trial court with instructions to enter judgment in favor of Salyers for the amount of the $250,000 policy that remained unpaid.

The key to Salyers’ case was that Salyers, the employer and Metlife all acted as though Salyers really had signed up for the full $250,000.  Salyers paid premiums for the full amount, the employer treated her as purchasing coverage at the full amount, and the mistake Salyers made didn’t really hurt the employer or Metlife.

Appeals Court Ruling Clears the Way for Bad Faith Suits Against Individual Insurance Adjusters

The Washington Court of Appeals just decided an important issue in insurance disputes: confirming the policyholder can sue the individual insurance adjuster as well as the insurance company itself.  In Keodalah v. Allstate Insurance Company and Smith, No. 75731-8-I, the court ruled: “we hold that an individual insurance adjuster may be liable for bad faith and CPA violations.”  This significant ruling has several implications for future insurance bad faith litigation.

The underlying insurance claim arose when Mr. Keodalah was in a car wreck and made an uninsured motorist (“UIM”) claim with his insurer Allstate.  Allstate’s internal investigation and the police report uniformly established the motorcyclist was solely at fault for the collision.  Allstate’s adjuster, Ms. Smith, nevertheless insisted Keodalah was 70 percent at fault, made up facts about the collision she later admitted were false, and refused to pay the full claim.

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Lake Cushman viewed from Mt. Rose.

Keodalah sued Allstate as well as Smith individually, asserting claims for bad faith, violations of the Consumer Protection Act (“CPA”), and violations of the Insurance Fair Conduct Act (“IFCA”).  The trial court dismissed Keodalah’s claims against Smith without a trial, ruling that insureds can’t sue individual adjusters for insurance bad faith.

On appeal, the Court of Appeals decided the trial court was wrong and that policyholders like Keodalah can sue individual insurance adjusters as well as the insurance company.  The court relied on Washington insurance law which imposes a duty of good faith on “all persons” engaged in the business of insurance, including specifically “the insurer…and their representatives.” (emphasis added).  Because Ms. Smith, as an insurance adjuster, “was engaged in the business of insurance and was acting as an Allstate representative,” the appeals court had no difficulty concluding Smith owed Keodalah a duty of good faith and could be sued for breaching that duty.  The court also distinguished several other Washington and federal court decisions the adjuster relied on.

Keodalah has several potential implications for future insurance disputes.  Obviously, the adjuster’s personal exposure adds a significant dimension to the dispute.  And foreign insurers employing Washington adjusters could likely be sued in state court without removal to federal court (which is typically more favorable to the insurer), because federal courts typically only have diversity in insurance disputes where all the parties are citizens of different states.

What to Expect When You’re Expecting To Make An Insurance Claim – A Cheat Sheet

So you’ve had a loss – perhaps a tree fell on your house, your car was wrecked or you became injured or disabled – and it’s time to dust off that insurance policy to see if you’re covered. Maybe you already made a claim but your insurer denied it for reasons that don’t make sense – or, perhaps even more frustrating, the insurer refuses even tell you whether they’re going to pay your claim or not. Or maybe you’ve just recently purchased a policy and want to know your rights.

This cheat sheet is a list of some issues you may want to consider. It tells you (1) the basic information you need; (2) some of your basic rights under Washington law; and (3) some helpful tips and “best practices.”

This is only a summary – your rights and obligations depend on the specific circumstances. If you think you might have a claim or dispute involving insurance, it’s wise to consult a lawyer. Insurance is complex and it is easy to accidentally put yourself in a disadvantage or even lose your rights entirely.

Basic Information You Need

Do I Have The Policy Documents? The insurance policy is absolutely critical. It states your coverage, your rights, and the insurer’s rights. It likely includes provisions requiring you to take certain action – like notifying your insurer of a claim within a certain period of time – in order to preserve your rights.

Many people are surprised to learn that their declarations page, summary plan description, or brochure explaining their coverage isn’t the policy. An insurance policy virtually always consists of a collection of multiple separate documents. For instance, a life insurance policy might consist of an application, a policy contract, and several addenda, riders or attachments. There are often additional documents such as annual statements that are also critical to understanding your rights under the policy.

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The trail to Gem Lake, Snoqualmie Pass

Did I Get The Policy Through My Employer? Insurance policies you acquired through or in connection with your employer are different from regular policies. Employer-related policies are subject to a federal law called the Employee Retirement Income Security Act (ERISA for short). ERISA can apply even if the policy was issued by an insurance company that’s not your employer, and even if your employer doesn’t pay your premium. ERISA is very different from the law governing normal insurance policies; it’s complex and imposes special rules and deadlines. If you think your policy might be subject to ERISA, it’s important to pay extra close attention and consult a qualified attorney.

Do I Have All The Facts? If you have a claim or think you might want to make a claim, it’s crucial you know the facts. Make sure you obtain all the documents that are potentially relevant. If it’s a health or disability claim, have all the relevant medical records. If it’s a car crash, have the police report.

Know Your Rights

Here are some of the basic rights you have as a Washington policyholder:

You Have The Right To Be Treated Fairly. Washington law imposes a duty on insurers to act in “good faith.” Good faith generally means the insurer must treat you honestly, made decisions on your claim based on adequate information, and never put their interests over yours. (Remember that policyholders also have to act in good faith, so be sure you’re always honest when dealing with your insurer).

You Have The Right To Have The Insurer Follow The Policy. The policy is a contract between you and the insurer. The insurer has to follow it. The insurer can’t try to re-write the policy after you make a claim.

You Have The Right To Prompt Claim Responses. Washington law requires your insurer to respond to your claim within a specific time – often ten days – and acknowledge that they received your claim. Beyond the initial claim, insurers generally have to respond to your communications about the claim in a reasonable time. The insurer must also tell you whether or not they will pay the claim within a reasonable time after you provide the documentation they need to made a decision.

You Have The Right To A Full Investigation. Insurers have to decide whether to pay claims based on a reasonable investigation. That means your insurer has to make a reasonable effort to look for evidence that’s relevant to your claim. They can’t just consider the evidence that supports denying the claim.

Best Practices

Below are some helpful best practices to keep in mind when dealing with a possible insurance claim.

Keep A Paper Trail. Make sure you document everything that’s relevant to the policy or your claim. It’s especially critical to document all your communications with the insurer or with third parties (doctors, mechanics, potential witnesses, etc.). Communicate via email or hard copy mail when practical. If you have a phone call or in-person meeting with an adjuster, take notes, then send them an email summarizing your understanding of the discussion and inviting them to correct you if they think you got it wrong. If you lose money or have other harm because your insurer isn’t doing what they’re supposed to, document it. If it’s not on paper, it never happened.

Cooperate With Reasonable Requests. If your insurer makes a reasonable request for information or similar assistance with your claim, comply promptly. Remember you have a duty to act in good faith, and your policy may affirmatively require you to cooperate in making a claim. That doesn’t mean bending over backwards, but you should comply with reasonable requests. If you wind up in court, you want to be sure that it’s your insurer and not you who the judge sees as being unreasonable.

Be Proactive. Procrastination will never improve your position and it can make you lose your rights entirely if you miss a deadline. Promptly notify your insurer if you think you have a claim. Include as much information about the claim as possible. Follow up with the adjuster if they are slow in getting back to you. Reach out to third parties who might have relevant information. Generally, delay in processing your claim benefits your insurer – not you.

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Mount Rainier

Plain language: What’s this ERISA thing and why should I care?

Most non-lawyers go through their lives never having heard of ERISA until one day they get a letter from their insurer saying their treatment isn’t covered or their claim is being denied and that they have a certain number of days to exercise their rights under ERISA.  For most folks, insurance and an ERISA plan are indistinguishable – both of them are “the thing where you pay premiums” (or maybe your employer does), and then when “the bad stuff” happens (e.g., you get sick or disabled) they cover it.  In reality, ERISA employee benefit plans are significantly different from non-ERISA insurance and the difference can affect your rights in important ways, both good and bad.

The upshot is ERISA is a federal law that regulates most employer-provided benefit plans, like health insurance, disability coverage or life insurance.  If you get some sort of insurance coverage through your employer, odds are it’s subject to ERISA.

1. What’s ERISA? How do I know if it matters?
ERISA is short for the Employee Retirement Income Security Act. ERISA is a federal law passed in 1974 that establishes minimum standards for employee benefit plans. ERISA was the result of the pension reform movement that gained momentum after the infamous 1963 Studebaker corporation shut-down in which nearly ten thousand workers suddenly lost their pension benefits.ERISA

Congress enacted ERISA to protect employees participating in employer-provided benefit plans. ERISA requires benefit plans to disclose important information to participants, establishes minimum standards for benefit plans, and allows participants to file a lawsuit in federal court if their rights are violated.

There are some important exceptions, but generally ERISA applies to most employer-provided benefit plans. That means if you receive benefits such as health, disability or life insurance through your employer, ERISA likely applies. ERISA can apply even if your employer contracts with a separate insurance company or other entity to provide benefits, so even if your plan documents identify an insurer other than your employer, ERISA may still apply.

2. Why does ERISA matter?
ERISA’s important because it gives you significant rights in order to make sure that your benefit plan is treating you fairly.  Among other things, ERISA provides participants two important rights. First, ERISA plan participants have the right to receive information about the benefits plan. For instance, ERISA requires that the administrator of a benefits plan (often the employer’s HR department) provide employees with the documents describing the plan’s terms, such as a Summary Plan Description, insurance policies and similar documents, upon the participant’s written request. ERISA also requires plans to provide participants with information the plan relies on in deciding claims for benefits (e.g., deciding whether a health plan will pay for certain treatment).

Getting this info matters: if you dispute your ERISA plan’s adverse decision (e.g., their refusal to cover your treatment) and you want to challenge it, having the information the plan relied on is a big help.  For instance, a plan denying coverage for medical treatment because the plan’s doctor concludes the treatment is unnecessary would have to provide a copy of that doctor’s report.  That’s a big deal because it lets you make sure the plan’s evidence actually supports their decision (e.g., that the medical report really does say your treatment is unnecessary).  Taking this evidence to your own doctor or your lawyer is important in fighting the denial.

Second, ERISA gives plan participants the right to sue in federal court. Plan participants can bring a lawsuit to establish their right to benefits under an ERISA plan (e.g., to establish that their health plan covers certain treatment or that they are covered under a disability plan). Participants can also bring suit alleging that the people administering the plan breached their fiduciary duties or breached federal regulations requiring fair claims handling for ERISA plans.

Importantly, because Congress wanted to make sure ERISA plan participants could easily find lawyers to help them challenge the plan’s wrongful decisions, ERISA allows plan participants who are successful in an ERISA lawsuit to recover attorneys’ fees.  That’s really critical, because it helps level the playing field – the ERISA plan or insurance company can afford to (and usually does) hire lawyers at large, multinational corporate law firms who charge hefty fees.  Your typical employee can’t pay that kind of money. Without the ERISA attorney’s fee provision, individual employees would ordinarily never have access to the same legal representation as the ERISA plan.

3. What’s the catch?
Unfortunately, there’s a downside to ERISA for employees.  ERISA imposes important deadlines and other requirements with which participants must comply in order to protect their rights. One important rule is that participants must notify benefit plans of claims within certain deadlines, and must challenge to adverse benefit decisions (e.g., a benefit plan’s refusal to cover treatment or pay disability benefits) within certain deadlines. Failing to meet these deadlines can mean losing your right to challenge a plan’s incorrect decision to deny coverage. ERISA also requires participants who dispute a benefits plan’s decision to use the plan’s appeal process before filing suit in court. An important rule is that, generally, only information submitted as part of the appeal can be used as evidence in any later lawsuit.

Unsurprisingly, ERISA plans and insurance companies aren’t always up front with their participants about what the rules are. That means that participants who want to challenge their benefit plan’s decisions must be certain they follow the plan’s appeal procedures in order to protect their rights.  Failing to dot an “i” or cross a “t” can cause you to lose your right to dispute the plan’s decision.

4. Where Can I Learn More?
The most important place to look to answer questions about an ERISA plan is the Summary Plan Description and other plan documents. Pursuant to ERISA, 29 USC § 1024 and 1132, plan administrators must, upon written request, provide participants with the plan documents within 30 days of the request.

If you have questions about ERISA generally, a potential resource is the U.S. Department of Labor’s Employee Benefits Security Administration, which has authority over ERISA plans. EBSA has an ERISA Frequently Asked Questions page here.