Can They Do That? – Page 2 – Seattle Insurance and ERISA Blog

Do I Have To Cooperate With My Insurer After A Loss?

Imagine your house catches fire and you make a claim for coverage under your homeowner’s insurance policy. After a few weeks, the insurer denies the claim. They don’t dispute the fire happened. But they say they don’t have to cover the damage because you didn’t cooperate with their investigation. They claim you should have sent them information about the loss and allowed them access to the property.

Can they do that? The short answer is yes – after a loss, you have a duty to cooperate with the insurance company. But this duty has limits.

Insureds, like insurers, have a general duty of good faith and fair dealing under Washington law that requires the insured to work cooperatively with the insurer. This duty is made explicit in virtually every insurance policy through provisions specifying what actions the insured must take following a loss.

Typically, the duty to cooperate with the insurer after a loss requires:

Promptly notifying the insurer of the loss;
Taking steps to prevent ongoing damage (e.g., turning off the water to stop flooding from a burst pipe);
Documenting the loss (e.g., collecting photos or repair estimates);
Allowing the insurer access to the damaged property;
Providing the insurer information about the loss.

This general duty to cooperate is important. The insurer can deny claims if the insured fails to cooperate as required under the policy and Washington law. It’s therefore critical to cooperate with the insurer and to document that you’ve cooperated by, for instance, memorializing phone calls with the insurer and keeping copies of all the information you send them.

However, it’s also important to know your rights: the duty to cooperate has limits. The insurer can’t force you to do things that are unreasonable or onerous. The insurer still has the responsibility to fully and fairly investigate your claims at the insurer’s expense; they can’t make the insured do all the work. And, critically, even if you fail to cooperate, the failure must be so egregious that it prevents the insurer from adequately investigating the loss, or otherwise materially prejudices the insurer’s interests. In other words, the insurer can’t deny your claim for technical failures to cooperate.

In short, following a loss, it’s important to document your cooperation with the insurer’s investigation but also to be mindful of your rights.

Can The Insurance Company Cancel My Policy For Late Premiums?

It’s fairly easy to miss an insurance premium payment. You buy your policy online, set up monthly auto pay through your debit card, and forget about it. But then you have to replace your card, or get a new card number or bank, or the account is overdrawn, or something else happens. Or, maybe you’re paying manually each month and just plain get behind on your mail. You get a notice from the insurer that your policy’s been canceled for premium nonpayment. You call them and explain the problem and offer to pay, but they won’t let you do it.

Can they do that? Like most insurance questions, the answer is “it depends.”

The general rule is that insurers are free to cancel policy coverage without notice when the insured fails to timely pay premiums. Courts are traditionally unforgiving when policyholders miss premium payments. They emphasize that the basic insurance exchange is the insurer provides coverage in exchange for premium payments; since this is the heart of the bargain, insurers are within their rights to insist on timely premium payments and cancel coverage without notice if premiums aren’t paid on time.

There are exceptions to this rule, but they depend on the specific factual details and the language of the insurance policy:

Grace Periods: Sometimes the policy explicitly provides a grace period or lets the insured reinstate coverage after missing a payment. This is a common feature of life insurance policies in particular. Or, sometimes the policy doesn’t have a grace period but some applicable law requires the insurer to give you a grace period for missed premium payments. One prominent example is the federal Affordable Care Act (a/k/a “Obamacare”). The ACA provides for a grace period for certain covered health insurance plans, with the length of the grace period depending on whether the insured is receiving subsidies.
Insurer Misrepresentations. Courts may be receptive to insurer’s rights to collect premiums, but they don’t like it when insurers lie. Where the insurer misled the insured about whether premiums were outstanding, or lied about the availability of a grace period before coverage would be canceled, courts often allow the insured to reinstate coverage.
Insurer Errors. Even where the insurance company doesn’t lie, if the insurer’s own conduct prevents you from paying premiums on time then courts often bar the insurer from canceling coverage. For instance, sometimes insurers misapply or lose a payment, or don’t allow the insurer to make a payment because the company’s website or telephone is down.
Past Practices. Sometimes the insurer routinely accepts late payments, leading the insured to conclude that the premium deadline isn’t a big deal. In those cases, courts sometimes determine the insurer waived its right to cancel coverage for late payments.
Insurer Promises. In cases where the insurer’s agents promise the insured that they will “let it slide” and not cancel coverage for a missed premium payment, courts sometimes hold the insurer to its agent’s promise and deny the insured the right to cancel coverage.

It’s important to remember that, if the insurer cancels coverage improperly, the insured typically has recourse, including a claim for additional damages and attorneys’ fees, under Washington’s Insurance Fair Conduct Act and/or Consumer Protection Act.

Washington Court of Appeals Emphasizes Insurers May Not Categorically Ignore Their Insureds’ Treating Physicians When Deciding Whether Injuries Are Covered

Shannon Leahy found herself in a common situation when dealing with her auto insurer following a car crash. Her insurer agreed she was not at fault, but refused to pay her claim, arguing her medical treatment was unrelated to the crash. Ms. Leahy’s doctors agreed her treatment was related to the crash, but State Farm ignored Ms. Leahy’s doctors in favor of the opinions of State Farm’s “independent” medical expert who (unsurprisingly) opined Ms. Leahy’s treatment was unrelated. Can they do that?

In Ms. Leahy’s case, the answer was “no.” On May 21, 2018, the Washington Court of Appeals clarified that insurers may not ignore the opinions of their insureds’ physicians when making coverage determinations in Leahy v. State Farm Mutual Automobile Insurance Company, No. 76272-9-I.

Ms. Leahy was injured when her vehicle was struck from behind. The other driver was at fault, but had insufficient insurance to cover Ms. Leahy’s injuries. Accordingly, Ms. Leahy made a claim with her auto insurance carrier State Farm, with whom she had coverage for Personal Injury Protection (“PIP”) and Underinsured Motorist coverage (“UIM”).

Ms. Leahy was still receiving treatment from her injuries about two years after the crash. State Farm asked her to undergo a medical exam with a third party doctor chosen by State Farm to determine whether her ongoing treatment was medically necessary. State Farm’s third party doctor, Dr. Lecovin, determined Leahy’s treatments were excessive. Thereafter, State Farm determined it would no longer cover Ms. Leahy’s treatment under her PIP coverage.

State Farm also disputed whether Ms. Leahy’ UM policy covered her injuries. State Farm’s adjuster concluded Ms. Leahy’s injuries were not caused by the collision. Ms. Leahy claimed the crash aggravated her pre-existing medical condition and thus that the aggravated injury was covered.

The dispute went to trial, at which the jury found in favor of Leahy. State Farm paid the policy limits. Ms. Leahy asserted new claims for bad faith premised on State Farm’s handling of her claim. The trial court dismissed Ms. Leahy’s claims and she appealed.

On appeal, the Court of Appeals reinstated Ms. Leahy’s claims. The court determined State Farm arguably violated the law by failing to consider the opinions of Ms. Leahy’s treating physicians that her injuries were aggravated by the crash. Ms. Leahy’s physicians were both board-certified rheumatologists and University of Washington faculty. The court determined there was a reasonable dispute whether State Farm could simply ignore their opinions. At minimum, Ms. Leahy was entitled to have a jury decide whether State Farm’s conduct was reasonable.

The court also determined State Farm’s low offer compared to Ms. Leahy’s recovery at trial could potentially show State Farm acted in bad faith. The court emphasized the proper analysis was what State Farm knew at the time it made the offer, not after trial. Given the evidence showed a legitimate conflict between State Farm’s position that Ms. Leahy’s injuries were mostly unrelated to the crash and the opinions of Ms. Heahy’s treating physicians, the court determined Ms. Leahy was entitled to a trial on this issue.

In sum, the Leahy decision is an important win for Washington policyholders because it emphasizes insurers may not categorically ignore the opinions of the insured’s treating physicians in order to deny coverage.

Can The Company Deny Your ERISA Claim “Because We Said So?”

Who decides whether a person’s entitled to coverage under an ERISA plan? Given ERISA gives plan participants the right to take the company to court to dispute coverage denials, you might think the judge decides. But the answer’s not that simple. Often, the insurer itself can decide whether you’re covered under the terms of the plan, and the judge in a lawsuit is not always allowed to tell the company it was wrong.

Most ERISA benefit plans contain language in which the plan gives itself (or the administrator it hires) unlimited discretion to decide who’s entitled to benefits. These are called “discretionary clauses.” For example, employer-sponsored health coverage might only cover surgery or prescriptions that are “medically necessary” and give the plan itself the unlimited right to decide what is “medically necessary.” These provisions effectively allow your insurance plan to decide you aren’t entitled to coverage “because we said so,” even if a judge decides the weight of the evidence shows you’re entitled to coverage.

That’s because the U.S. Supreme Court decided, in the Firestone Tire & Rubber Co. v. Bruch case, that “discretionary clauses” mean the judge in an ERISA lawsuit must defer to the company’s decision – even if the judge decides the company was wrong – unless the decision was so badly made that it was “arbitrary and capricious.” For instance, if the company decides the surgery your doctor recommended isn’t “medically necessary,” even though six physicians say you need the surgery and only one says it’s unnecessary, the court can’t say the company got it wrong. Where there’s a discretionary clause, the court can only disagree with the company’s decision if the company’s decision was not just wrong but “arbitrary and capricious.”

Surprising nobody, after the Firestone decision, every ERISA plan promptly added discretionary clauses making it easier for the company to deny claims.

Fortunately for plan participants, voters in many states, including Washington State, responded by enacting legislation prohibiting discretionary clauses.

The upshot is plan participants in states like Washington where discretionary clauses are unlawful have a significantly better chance at obtaining coverage for surgery, prescriptions, disability benefits or other ERISA-governed benefits because the company can’t deny claims simply “because we said so.”

Court Rules School Buses are Not “Automobiles” Under State Farm Insurance Policy Fine Print

Whether a school bus is an automobile would seem to be a matter of common sense. Unfortunately for the policyholder in one recent lawsuit, it’s actually a matter of reading the fine print.

Washington’s Court of Appeals recently issued a ruling that significantly limits policyholders’ coverage under many automobile insurance policies. In Koren v. State Farm Fire and Casualty Company, Case No. 34723-1-III, the court interpreted State Farm’s insurance policy as excluding coverage for injuries Mrs. Koren’s son sustained in a school bus crash.

Mrs. Koren’s State Farm policy covered harm “caused by an automobile accident.” After Ms. Koren’s son was injured in a school bus crash, Mrs. Koren submitted a claim under her State Farm policy. State Farm denied coverage, claiming school buses are not “automobiles” under State Farm’s policy.

The Court of Appeals agreed with State Farm. State Farm had added to its policy a limited definition of “automobile,” which meant, under the policy, only automobiles “designed for carrying ten passengers or less.” Mrs. Koren relied on existing Washington Supreme Court precedent holding that the term “automobile accident” in an insurance policy may be broader than the definition of the individual term “automobile.” The court rejected this argument, noting that Washington’s insurance statutes had a similar definition of “automobile” to State Farm’s.

Most policyholders would likely be surprised to learn a school bus or Port Authority bus is not an “automobile” covered under their insurance policy. Perhaps recognizing this, the court noted Mrs. Koren’s “concerns must be raised with the legislature.” Unless and until the legislature acts or the Washington Supreme Court reverses this ruling, policyholders should carefully review the terms and fine print of their policies to make sure their coverage comports with their own understanding.