insurance claim denial – Seattle Insurance and ERISA Blog

Can the Insurance Company Retroactively Deny Your Claim On A New Basis After You File A Lawsuit?

Let’s say you make an insurance claim, and the insurance company denies the claim for reason A. You think they’re wrong, so you take them to court and argue reason A is invalid and the company should have paid your claim. In response, the insurance company admits reason A didn’t apply but now argues your claim should have been denied for reason B. Can they do that?

Like most insurance law questions, the answer is “it depends.”

An insurer can waive or give up a basis for denying a claim if it does so knowingly and voluntarily. For instance, if the adjuster tells the policyholder “I know the policy says you have to give us all the repair estimates by Tuesday, but don’t worry about it,” the insurer probably can’t deny your claim if you give them the estimates after Tuesday.

On the other hand, if the insurer doesn’t know about a basis for denying your claim despite a diligent investigation, the insurer probably hasn’t waived its right to assert that basis as a reason for denying your claim. For instance, if a boat insurance policy provides the boat will stay within Puget Sound and the insurer only learns the boat was damaged in the open ocean after the fact, despite diligently investigating, the insurer may not have waived its right to deny the claim because the boat left Puget Sound.

Similarly, the insurer’s failure to deny coverage on a specific basis may bar the insurer from asserting that basis retroactively if the insured relies on the insurer’s failure to deny the claim on that basis. In the boat insurance example above, if the insurer knew that the boat was being sailed outside Puget Sound in violation of the insurance policy, but continued to accept the insured’s premiums anyway, the insurer may not be able to deny coverage later if the boat is damaged. Or, if the insurer denies coverage for an erroneous reason, and the insured pays an insurance expert to investigate the claim and fight the insurance company in court, the insurer may not be able to switch its reason for denying coverage and assert a new reason for denying coverage in court.

Similarly, for insurance polices issued through an employer that are subject to ERISA, courts will often find that the insurer or plan administrator must list all its reasons for denying a claim up front. This is because federal regulations require full and fair review of ERISA claims, and specifically require the claim denial notice provide a detailed explanation of the reasons the claim was denied. If the insurer or administrator hides a reason for denying benefits, they often lose the right to rely on that reason in a lawsuit.

How Long Do I Have To Dispute An Insurance Claim Denial?

If your insurer denies your claim or takes some action with which you disagree, how long do you have to dispute the insurer’s decision? For example, if your health insurer refuses to authorize surgery, or refuses to cover prescription drugs; your homeowner’s insurer refuses to pay the full bill for repairing your home after a fire; or your car insurer refuses to pay for damage you sustained in a crash?

Most people are probably generally aware their legal claims may be subject to specific deadlines. But confirming the specific deadline applicable to a particular insurance dispute, and the action needed to comply with the deadline, can be tricky.

The first and most important question is whether the insurance is employer-sponsored. If so, it is likely subject to a federal law called the Employee Retirement Income Security Act (“ERISA”). ERISA imposes important deadlines insureds must meet in order to preserve their right to dispute the insurer’s adverse decisions regarding payment or benefits. First, insureds have a limited period of time after receiving the insurer’s notice of an adverse benefit determination (e.g., the insurer’s letter refusing to cover treatment) in which to appeal the insurer’s decision internally. This period is often relatively short (e.g., 60, 90 or 180 days) and the specific period depends on the terms of the employee benefit plan. Second, if the insurer refuses to reconsider its denial after the internal appeal, insureds have a similarly short deadline in which to file a lawsuit disputing the insurer’s decision. Again, this deadline is often short and depends on the specific language of the employee benefit plan.

The rules differ for non-employer insurance. Insurance that is not procured through an employer is not subject to ERISA. There is no internal appeal process. Instead, insureds typically have a specific period of time from learning of a dispute (e.g., the insurer’s failure to pay benefits) in which to file a lawsuit against the insurer. The specific period of time depends on the specific claims the insured can assert, which depends on the details of the insurer’s conduct. For example, insureds typically have four years in which to sue an insurer for violations of Washington’s Consumer Protection Act. Other legal claims typically have different deadlines in which to file suit.

This is complicated by the fact most insurance policies contain a provision requiring the insured to bring suit within a shorter time, regardless of the particular claim asserted. This policy-specific limitations period is often quite short (e.g., six months) so it is critical for insureds to carefully review their policy contracts. Often, these policy-specific deadlines can be circumvented – they may apply only if the insurer can prove their investigation of the claim was harmed by the delay, and, even if so, they may not bar all claims the insured has against the insurer.

The upshot is virtually all insurance-related legal disputes are subject to deadlines by which insureds must assert specific claims or risk losing their legal rights. The specifics depend on the details. Often, even if a deadline has passed, insureds may still have legal recourse. Thus, it is critical for insureds to be mindful of any applicable deadlines regarding insurance claims and disputes, and seek advice from an attorney to confirm any applicable deadlines.

Insurance Regulators Investigating Aetna for Training Employees to Deny Coverage Without Reviewing Patient’s Medical Records

Aetna, the country’s third largest health insurer, is under investigation by state insurance regulators following Aetna’s admission that it routinely denies medical treatment coverage without reviewing the insured’s medical records. Aetna’s admission surfaced in a lawsuit by a California man who claimed Aetna improperly denied coverage for his medical treatment. The insured has a rare autoimmune disorder requiring monthly dosages of an expensive medication.

Aetna’s physician admitted in the course of the lawsuit that he routinely denied coverage for insured’s treatment without reviewing the insured’s medical records. Aetna’s training, the physician testified, permitted him to simply follow the recommendations of Aetna’s nurses.

Since the physician claimed to have followed Aetna’s normal procedures, other Aetna insureds may similarly have had coverage for necessary treatment erroneously denied by reviewing physicians who failed to examine their medical records.

Insurance coverage for chronic conditions has become a hot-button issue. In recent years, patients with rare chronic diseases have faced increasing challenges getting insurers to cover treatment. Insureds’ difficulty covering treatment for chronic diseases is often complicated by pharmaceutical companies’ increasingly common practice of raising prices on chronic disease medications by several hundred percent in a single increase.

Washington insureds who suspect their health coverage was improperly denied have ample legal recourse. If the insurance plan is through an employer, the federal Employee Retirement Income Security Act (“ERISA”) gives the patient the right to appeal a coverage denial, to sue in federal court if the appeal is wrongfully denied, and to obtain coverage and attorneys’ fees. For non-employer insurance, Washington’s Insurance Fair Conduct Act and Consumer Protection Act give insureds the right to bring a lawsuit to obtain coverage as well as exemplary damages and attorneys’ fees.

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.

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.

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.

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.