Court Ruling Emphasizes Tie Goes to the Policyholder When Interpreting Insurance Policies

Washington insurance law includes a principle that if an insurance policy is ambiguous, i.e., if it can reasonably be read in multiple ways, the court will adopt the reading that is most favorable to the policyholder.  This rule exists because insurance companies are sophisticated enough to draft their insurance policies the way they want, and have enough leverage over the consumer to offer their policies on a take it or leave it basis.  You typically can’t haggle with your insurance company over the fine print of the exclusions in your insurance policy.  Since the company can write the policy and has all the leverage compared to the policyholder, if the policy isn’t written clearly the court will read it to mean whatever a reasonable person buying insurance would expect as a matter of common sense.

The recent case Cheban v. State Farm found in favor of the policyholder by employing this rule.  Cheban made a claim under his auto insurance policy for damage to his car from an accident.  State Farm acknowledged there was coverage under Cheban’s auto policy’s Underinsured Motorist (UIM) coverage  But State Farm disputed whether the policy covered Cheban’s loss of use of his vehicle for the 47 days the car was being repaird in addition to the repair bills.

The insurance policy provided State Farm would pay “compensatory damages for property damage.”  State Farm argued this language limited State Farm’s obligation to only physical property damage, not loss of use.  Chaban argued the words “compensatory damages” expanded coverage beyond “property damage” to all resulting losses, including loss of use of the car while it was repaired.

The Washington Court of Appeals determined both State Farm’s and Cheban’s interpretations were reasonable.  Because the language was ambiguous, the court interpreted the policy consistent with Cheban’s expectations as the policyholder.  That meant Cheban was entitled to coverage for the loss of use while the car was repaired as well as the repair bill.

The Cheban v. State Farm decision is an important remind that ambiguous insurance policies will be construed in the policyholder’s favor.

Lawsuit Documents Allegations of Discriminatory Claims Handling By Insurer Who Kept A So-Called “Jewish Lawyer List”

Anyone who’s suspected their insurance company gave their claim closer scrutiny because of their race will likely find the allegations in this lawsuit alarming.  In short, the insurance company was sued alleging it discriminated against insureds represented by attorneys identified on the insurance company’s secret “Jewish Lawyer List.”  The insurer settled that lawsuit, but then turned around and sued the plaintiffs and their lawyers for defamation.  The ensuing litigation provides a fascinating glimpse into some appalling racist insurance practices.

The case goes all the way back to 1987.  Four drivers were involved in a car crash and sustained damages their insurer refused to cover, claiming the drivers’ claims were fraudulent.  The drivers hired attorney Erwin Sobel to sue the insurer to obtain coverage.

In the course of litigating, attorney Sobel discovered documents suggesting his clients’ claims had been flagged as fraudulent because Sobel was Jewish.  Sobel uncovered a 1983 insurer memo containing a list of about 160 Los Angeles lawyers, including Sobel – the majority of whom were Jewish.  Insureds with lawyers on the so-called “Jewish Lawyer List” had their claims automatically sent to the insurer’s special fraud unit with instructions not to pay any claims.  The memo directed the insurer’s agents to destroy the memo after forwarding all the lawyers’ clients to the fraud unit, and to keep the entire system secret from the insureds and their lawyers.

The insurer denied the allegations, but ultimately paid Sobel, his co-counsel and their clients $30 million to settle their allegations of discriminatory claims handling.  Among other things, Sobol presented testimony from an economist showing the list contained wildly disproportionately Jewish attorneys.

The case is an unfortunate reminder that insurance practices aren’t immune from racism and discrimination.

Court of Appeals Reiterates Insurer’s Obligation to Protect Policyholder From Lawsuit

When a driver crashes into another vehicle and is sued for damages, the driver’s insurer typically has an obligation to  defend the lawsuit and act in good faith to protect its insured’s interests.  When the insurer fails to do so, the driver likely has legal recourse under Washington law.

Washington’s Court of Appeals recently reiterated this principle in Singh v. Zurich American Insurance Company.  In Singh, the Court of Appeals ruled Singh’s insurer, Zurich American, was liable for failing to settle and defend claims against Singh in good faith.

On July 20, 2011, one of Singh’s employees, driving Singh’s semitruck, allegedly caused a 16-vehicle crash by failing to slow down for congested traffic.  Persons injured in the crash, and the families of those killed in the crash, sued Sing for damages.  Because of the dramatic injuries and deaths allegedly caused by Sing’s employee, the plaintiffs quickly advised Singh that they saw their damages recoverable from Singh as exceeding the limits of Sing’s insurance policy.  In other words, Singh knew that, if he lost the court case, he would have to pay significantly more money than his Zurich American insurance policy would cover.

Singh’s insurance policy with Zurich American obligated Zurich American to defend Singh in the lawsuit.  Zurich hired a lawyer to defend Singh.  Zurich’s lawyer recognized it was in Singh’s best interests to pay the entire insurance policy limit to settle the large monetary demands of the persons injured and killed in the crash.  But the attorney also recognized that disbursing the entire policy limit to the first plaintiffs to sue Singh would leave Singh without insurance coverage should later claimants seek damages from Singh.

Accordingly, Zurich’s lawyer proposed to reserve some of Singh’s policy limits to protect Singh from future claims arising from the crash.  However, Zurich ignored its lawyer’s advice and ordered the lawyer to settle the existing claims with the full policy limits.  Zurich’s lawyer did so.

Later, another person sued Sing claiming injuries in the crash.  Zurich refused to defend the lawsuit because Singh’s policy limits were exhausted from the prior settlement. Singh paid for his own counsel and ultimately paid $250,000.00 to settle the new claims.

Singh then filed suit against Zurich alleging Zurich acted in bad faith and violated Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”).  The jury found in Singh’s favor, agreeing Zurich breached Singh’s insurance policy and acted in bad faith.

The Court of Appeals upheld the jury’s verdict.  The court observed the insurer’s duty to defend the insured “is one of the main benefits of the insurance contract.”  Thus, the court determined Zurich could not permissibly exhaust the policy limits then use its exhaustion of the policy limits as an excuse to continue defending Singh.  Doing so put Zurich’s interests over Singh’s in violation of the insurance policy and Washington law.  Notably, Zurich ignored its own lawyer’s suggestion it keep some policy limits in reserve to protect Singh from future claims.

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.

Boardwalk trail near Lake Ozette.

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.

How Will Insurance Cover Self-Driving Cars?

Self-driving vehicles are already on roads in several cities and are predicted to become normal in the next few decades.  How will your insurance cover you if you’re the operator of a self-driving car? If someone else’s self-driving car injures you or damages your property, will the owner have coverage for your loss?

The Badlands, South Dakota.

First, it may be a moot point because self-driving cars could reduce accidents to the point where the cost of insurance coverage becomes nominal or coverage becomes totally unnecessary.  Preventable human error – texting, adjusting the radio, hasty lane changes, etc. – is estimated to cause 94% of all motor vehicle collisions.  One industry forecast projected widespread adoption of autonomous vehicles would reduce premiums by 80% and lead to a $25 billion loss for insurers by 2035 as reduced accidents reduce the need for coverage.

On the other hand, while autonomous cars may reduce the need for liability and collision insurance, they may require new forms of insurance such as cyber security coverage.  Even existing conventional cars can be hacked, and self-driving cars are likely to grow more and more vulnerable to electronic intrusion.  Imagine if your car were susceptible to the same malware, ransomware or other abuse as your computer or phone.  It may ultimately be necessary to procure cyber security coverage for your autonomous vehicle.

One possible answer is manufacturers may simply assume all liability associated with their autonomous vehicles.  Google, Volvo, and Mercedes-Benz already assume liability any time one of their vehicle’s self-driving system is at fault for a collision.   Tesla has its own insurance program for owners of Tesla self-driving vehicles.

Another suggestion is future drivers may not need insurance because they may not own their cars.  Self-driving vehicles may lead to widespread reliance on car sharing services.  Unlike Lyft or Uber which rely on human operators, self-driving ride-share vehicles could operate around the clock at a much lower cost, making it practical for urban drivers to rely entirely on ride-sharing for daily transportation.  Future autonomous vehicle ride-sharing fleets would likely self-insure, as Google’s subsidiary Waymo intends to do when it launches its self-driving ride-share service in the coming months.

Whatever the result, self-driving cars will ultimately present some form of risk, and manufactures, drivers, municipalities and insurers will have to decide how to allocate that risk among themselves.