insurance bad faith – Seattle Insurance and ERISA Blog

Health Insurer Ordered to Pay $25.5 Million For Wrongful Cancer Treatment Denial

In a timely followup to last week’s discussion of how to fight health insurance denials, this week an Oklahoma jury ordered health insurer Aetna to pay $25.5 million for denying coverage for insured’s Orrana Cunningham’s cancer treatment bills. Aetna had denied coverage for Orrana’s treatment in 2014 on the basis it was “experimental;” after being denied coverage for this treatment, Orranna passed away the next year.

The case illustrates one of the classic issues in a health insurance or disability insurance coverage dispute. In typical cases, the insured’s family doctor or specialist prescribes treatment or time off work after examining the insured, diagnosing an illness or injury, and identifying appropriate treatment. The insurer typically denies coverage based on the opinions of a physician on the insurer’s payroll; these “file review” physicians usually don’t practice medicine in the conventional sense, but work for the insurer reviewing medical records of insureds to advise the company whether to cover the treatment or disability.

As you could imagine, the doctor on the company’s payroll has a powerful incentive to tell the insurer what it wants to hear, which is typically that there is no coverage and the insurer need not pay for costly treatment. Moreover, the insurer’s physician has no history of treating the patient, virtually never examines the patient, and limits their analysis to a cursory review of the patient’s medical records. In many cases, the physician is so overworked they give little or no attention to the patient’s medical history or treatment needs before denying coverage.

That’s what happened to Orrana Cunningham. In the course of the lawsuit, it came out that Aetna’s doctor reviewing Orrana’s medical records was pressured to review more than 80 patients’ cases a day. The plaintiffs also told the jury Aetna’s file reviewers were unqualified, and were compensated based on Aetna’s profit – not based on getting claims right.

The plaintiffs’ attorney reported a juror approached him after the trial and emphasized the jury “wanted to send a message to Aetna” to fix a broken health insurance system.

Title Insurance Covers Tribal Fishing Rights Claims Against Landowner Says Court of Appeals

Title insurance is a critical part of most real estate deals. In Washington and throughout the U.S., a piece of real estate has likely changed hands numerous times, including typical purchase money mortgage sales, foreclosures, bequests via a will or trust, or otherwise. As a result, prudent people about to buy land or a home buy title insurance, which protects the buyer from losing money if it subsequently turns out that there is a problem in the chain of prior transactions of the property. For example, a person might buy a new home and subsequently learn that, due to a defective transfer decades prior, the seller didn’t fully own the property and thus the new buyer’s ownership interest is in jeopardy. The new buyer might find themselves defending a lawsuit (a/k/a a “quite title” action) or otherwise taking a monetary loss on the property due to the defective title. In that case, the buyer would tender the claim to their title insurer who would defend the lawsuit or reimburse the buyer.

As a result, most prudent home-buyers and other parties to real estate transactions routinely buy title insurance. Unfortunately, the title insurer often resists paying claims when problems with title arise. This is particularly true where the claims against the title are more esoteric, such as tribal fishing treaty rights.

In Robbins v. Mason County Title Insurance Co., Case No. 50376-0-II, Washington’s Court of Appeals ruled in favor of buyers, the Robbinses, in their dispute with Mason County Title Insurance Company (“Mason Title”). In 1978, the Robbinses purchased land including tidelands formerly owned by the state of Washington (the “Property”), intending to use the tidelands for commercial shellfish harvesting. Being prudent land buyers, the Robbinses also purchased title insurance from Mason Title (the “Policy”). The Policy required Mason Title to insure the Robbinses against any loss resulting from defects in the Property’s title. Specifically, the policy stated:

[Mason Title] shall have the right to, and will, at its own expense, defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed or is claimed to have existed prior to the date hereof and is not set forth or excepted herein.

Unfortunately for the Robbinses, their newly-purchased tidelands had a defect in title. The Sqaxin Island Tribe (“Tribe”) had a claim to the Property’s shellfish rights by virtue of the 1854 Treaty of Medicine Creek (“Treaty”). Upon learning of the Robbinses’ shellfish-harvesting aspirations, the Tribe sent the Robbinses a letter asserting its rights under the Treaty and demanding 50 percent of the harvestable shellfish from the Property.

The Robbinses tendered the Tribe’s claim to Mason Title and asked Mason Title to defend them as required by the Policy. Mason Title refused, claiming there was no coverage under the Policy for the Tribe’s claim. The Robbinses sued Mason Title for coverage under the Policy as well as for insurance bad faith.

The Court of Appeals ruled for the Robbinses. The court determined the Tribe’s claim constituted a “demand” “founded on a claim of encumbrance arising before the date of inception of the policy” which the Policy required Mason Title to defend the Robbinses against. Thus, the Robbinses had coverage under the plain language of the Policy.

Mason Title argued the Robbinses’ claim was excluded under the Policy’s exclusion for “public or private easements not disclosed by the public records.” The court disagreed, finding the Tribe’s rights under the Treaty were not “easements.” An easement is “a right to enter and use property for some specified purpose.” The Tribe’s shellfish harvesting rights were not a right granted to the Tribe to enter the Property but rather existing rights the Tribe had always possessed and which the Treaty simply reserved for the Tribe.

Besides ruling the Policy covered the Tribe’s claim against the Robbinses, the court also ruled Mason Title acted in bad faith in unreasonably refusing to defend the Robbinses. The court found Mason Title’s interpretation of the policy was, at best, an arguable reading of an ambiguous provision of the Policy. As such, Mason Title was required to, at least, defend the Robbinses from the Tribe’s claim while reserving its right to dispute coverage.

The Robbins case emphasizes property buyers should carefully review their title insurance policies to confirm they are covered in the event title is defective, and should insist the title insurer follow the policy and provide coverage in the event of a loss.

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.

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.

Washington Federal Court Rejects Insurer Efforts to Escape Lawsuit by Paying Benefits Retroactively

One important right policyholders have is to be fully compensated or “made whole” when the insurer improperly denies coverage or payment of benefits. Some insurers argue, incorrectly, that they can avoid making the policyholder whole by paying the disputed policy benefit after the policyholder files a lawsuit. That’s incorrect because by the time the policyholder files suit, they’ve typically lost significantly more than just the disputed policy benefit: they’ve hired lawyers or experts, paid for repairs or other bills out of pocket, or lost business income because they couldn’t afford to effect repairs without insurance coverage.

In its April 23, 2018 decision in Williams v. Foremost Insurance Co., 2:17-CV-1113-RSM, 2018 WL 1907523 (W.D. Wash. Apr. 23, 2018), the U.S. District Court for the Western District of Washington analyzed and rejected the argument that the insurer can escape a bad faith lawsuit by retroactively paying the benefits it denied in the first instance.

Williams brought a claim for vandalism damage under her insurance policy with Foremost. Foremost denied Williams’ claim for insurance benefits, arguing that the vandalism was caused by people who were Williams’ tenants at the time of the damage. Foremost ignored Williams’ argument the loss was covered because the vandals were former as opposed to current tenants.

Williams brought a lawsuit alleging claims for bad faith and violations of Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”); those claims entitled Williams to damages beyond the amount of the disputed insurance benefit, such as attorney’s fees, court costs and treble damages.

The court promptly ruled that coverage existed and ordered Foremost to pay the disputed benefits. Following that ruling, Foremost paid Williams $187,001.43 in benefits owed.

Foremost then asked the court to dismiss Williams’ claims for bad faith and for CPA and IFCA violations. Foremost claimed that, since it paid the policy benefits Williams claimed, Williams had no right to assert any additional claims. The Court rejected Foremost’s arguments.

First, and most importantly, the court rejected Foremost’s argument that Williams’ remaining claims were barred because Foremost ultimately paid the insurance benefits, and that Williams could not bring further claims without producing “her complete financial records.” The court determined “Foremost’s insurance payment to Ms. Williams is irrelevant to the issue of bad faith” and that “Washington State law does not appear to provide that retroactive payment for an insurance claim extinguishes all the alleged harm to a plaintiff[.]”

Next, the Court rejected Foremost’s argument that its claim denial was reasonable in light of the evidence Foremost had at the time. The Court noted that Foremost’s evidence showed only that the vandalism was caused by former – not current – tenants, and that Foremost had no evidence that the vandals were Williams’ tenants at the time the vandalism occurred. Moreover, Williams explicitly advised Foremost the vandals were not tenants at the time of the damage.

Finally, the Court also emphasized that an insurer’s bad faith denial of coverage injures the insured beyond merely the dollar amount of the policy benefit. In this case, Williams suffered additional damages because Foremost’s wrongful denial delayed her ability to repair the vandalism damage to her building; Williams also had to hire an expert, take construction loans, and perform some repairs herself.

The Williams decision emphasizes insurers cannot escape bad faith lawsuits merely by paying the disputed benefits after the fact.