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 Confirms Attorneys’ Fee Awards to Successful ERISA Claimants Are Virtually Automatic

ERISA is a remedial law designed to make sure that employees receive the full benefits they earn under their employer’s benefit plans. Part of ERISA requires employee benefit plans that wrongfully withhold benefits and force employees to sue to recover those benefits to pay the employee’s attorney’s fees. Otherwise, the employee will not have received the full amount of benefits owed under the ERISA plan because they will have had to pay the enormous legal expenses involved in litigating an ERISA case. Without this guarantee, employees would often wind up with a legal bill that’s higher than the benefits they recovered.

The Ninth Circuit Court of Appeals recently re-affirmed that successful ERISA claimants should be awarded their attorneys’ fees virtually automatically in Herrman v. Lifemap Assurance Company, Case No. 19-35182 (June 25, 2020). Courts have recognized for many years that an employee who wins their ERISA case should recover attorneys’ fees absent “special circumstances” that would make a fee award “unjust.” In the Ninth Circuit, courts also look at several different sets of circumstances (called the “Hummell factors” after the name of the case where they originated) to decide whether to award attorneys’ fees to ERISA plaintiffs. The lower court in the Herrman case declined to award attorneys fees to the plaintiff even though she recovered benefits from her ERISA plan because the lower court believed the Hummell factors did not support awarding fees under the circumstances.

The Ninth Circuit reversed the lower court. The Ninth Circuit emphasized that:

“the presumption in favor of fees in such cases [i.e., where an ERISA plaintiff successfully recovers benefits] means that the district court need not discuss the Hummell factors before granting the motion [for attorneys’ fees].”

Thus, the court concluded that judges may not deny attorneys’ fees to successful ERISA plaintiffs–even if the Hummell factors suggest fees should not be awarded–without identifying “special circumstances” that would render a fee award unjust.

The Hermann decision is a helpful reminder that Congress’ guarantee in enacting ERISA that employees receive the full amount of their benefits requires that employees not have to pay thousands of dollars in legal fees to obtain those benefits.

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.

 

ERISA Claim Deadlines Extended Due to COVID-19

ERISA-governed insurance claims are subject to specific deadlines that claimants have to meet in order to protect their rights. Normally, the consequences of missing a deadline are draconian. For instance, appealing an ERISA claim denial even one day late can irrevocably waive the right to dispute the denial, no matter the reason for the delay.

The good news is that these deadlines have been relaxed in light of the COVID-19 pandemic. The Department of Labor, the federal agency responsible for overseeing ERISA-governed employee benefit plans, has issued an order extending certain ERISA claim deadlines due to the COVID-19 pandemic. This order comes pursuant to authority granted by Congress in the Coronavirus Aid, Relief, and Economic Security Act (a/k/a the “CARES” Act).

DOL is extending these deadlines so that plan participants, beneficiaries, and employers have additional time to make critical coverage and other benefit decisions during the pandemic. The upshot is:

  • Disability insurance claimants have additional time to submit claims and appeal denied claims. These deadlines do not run during the period from March 1, 2020, until 60 days after the federal government announces the end of the current COVID-19 national emergency. That means an appeal that would normally be due next week might not be due until 60 days after the federal government announces the end of the national pandemic emergency.
  • Group health plans have additional time to comply with COBRA continuation coverage deadlines. This is critical for employees recently laid off and looking for answers about continued health insurance coverage.
  • Group health plans also have extra time to determine benefit claims; and
  • ERISA plans have extra time to provide disclosures and notices required by ERISA, provided the plan acts in good faith and furnishes the disclosure or notice as soon as practicable under the circumstances, including through electronic means.

The Department of Labor has FAQs for ERISA claimants and participants regarding the deadline extensions.

These extensions will help employees and plan participants effectively safeguard their rights during the pandemic.

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!