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.”
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.
Disasters have been in the news a lot in the last 12 months, between west coast wildfires, Texas floods and Florida hurricanes. Disasters raise a number of insurance issues for policyholders, especially when they’re busy digging out of the wreck already. Disasters also strain overworked insurance company personnel, who might make hasty guesses about your loss that wind up being inaccurate. Here are some steps you might consider taking if that happens (after making sure everyone is safe of course):
Promptly Notify Your Insurer – Your first step if you think you might have a claim is to tell your insurer. Delayed claim notice is a basis to deny an otherwise valid claim. It’s also wise to make sure the insurer has your updated contact information.
Read Your Policy – Your insurance policy is an important starting point. It spells out your rights and the company’s obligations. It contains important time limits and similar rules you need to follow in order to make a valid insurance claim. It also specifies your coverage in detail; don’t assume the overworked adjuster processing thousands of similar claims will identify all coverage that might benefit you. It may require you consult with the company before undertaking any repairs, or have similar rules you need to follow.
Protect Yourself From Further Loss – Protecting yourself and your property from further damage is common sense. It’s also explicitly required by many insurance policies. If you sustain further loss because you failed to take reasonable preventative measures, your insurer may have a valid basis to refuse to cover the additional loss you could have avoided. But keep in mind that your policy may provide that non-emergency repairs require you to consult with the company before undertaking the work.
Make a Paper Trail – Take notes when you speak to the adjuster or contractors, and save your receipts for all disaster-related expenses such as repairs or hotel bills. Make sure you get important statements from the insurer, like requests for information or coverage statements, in writing. Keep an inventory detailing the full scope of the loss.
Get Repair Quotes – Get an estimate from the contractor or another appropriate person of the cost to repair the damage. This will give you a reasonable basis to double-check your insurer’s estimate.
Be Present During the Inspection – Your adjuster will likely inspect your property to ascertain the scope of the damage. It’s often wise to attend the inspection in person. That way, you can point out the full extent of the damage and make sure the adjuster doesn’t miss anything.