Tag: McKean Evans

What Are The Rules For Short Term Health Coverage?

Many people buy short term medical coverage to fill in gaps in long term coverage.  For instance, if you start a new job, you’ll often lose coverage from your former employer’s medical plan prior to becoming eligible for coverage under your new employer’s medical plan.  This gap can often last several months.  To maintain coverage for medical expenses, people often purchase short term medical coverage for just a few weeks or months.  Short term coverage isn’t designed to be your primary insurance but just to cover the gap while you transition between health insurance policies.

Short term medical coverage isn’t subject to all the same rules as typical medical coverage.  In particular, short term coverage is not required to meet the Affordable Care Act’s minimum standards for health insurance.  Moreover, the federal agencies responsible for overseeing short term medical plans, including the Department of Labor, Department of Health and Human Services, and IRS, frequently tweak the rules by issuing updated regulations, most recently on August 3, 2018.

So what are the current rules for short term medical insurance?  Here are some of the highlights:

  1. The ACA Individual Mandate:  Under the current rule as of August 3, 2018, short term medical coverage isn’t considered “Minimum Essential Coverage” under the Affordable Care Act.  Ordinarily, that would mean a person covered only by short term medical insurance isn’t complying with the Affordable Care Act’s individual mandate, and could be subject to tax penalties.  However, Congress’ tax overall bill passed in late 2017 effectively eliminates the Affordable Care Act’s individual mandate.  That means as of today, individuals covered solely under short term medical coverage won’t have to worry about paying the Affordable Care Act individual mandate penalty.
  2. No Minimum Standards: Since short term medical insurance isn’t subject to the Affordable Care Act’s minimum standards, short term medical insurance can do things like exclude pre-existing conditions, refuse to cover essential health services like emergency care, and impose annual caps on coverage.
  3. Duration of Coverage: Short term medical coverage with the same carrier may last no longer than 36 consecutive months.  This also applies if a shorter-duration policy is renewed with the same carrier.  This rule likely doesn’t preclude coverage under a short term medical policy for longer than 36 months so long as the coverage is under multiple carriers.
  4.  State Regulations Apply: Regardless of regulations under federal law, many states still regulate short-term medical coverage.  Washington State’s insurance commissioner recently proposed new rules that, among other things, limit short term medical coverage plans’ duration to three months and establish certain minimum standards for coverage.

The rules for short term medical coverage are very much influx due to changes by federal regulators, Congress and states.  It’s important to carefully review your policy and any applicable rules to determine your rights under short term medical coverage.

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.

The Brave New World of Cybercrime Insurance Coverage Disputes

Computer crime and data breaches have become a reality for most businesses.  Words like spearphshing or ransomware that were obscure five years ago are now in the headlines on a regular basis.  The FBI calculated over $1.4 billion in reported losses from hacking and similar computer crime in 2017.  A data breach can cause serious monetary consequences for businesses, besides the goodwill hit of having to notify customers and colleagues of the intrusion.

Accordingly, business have tried to mitigate the risks of a data breach or hack through insurance coverage.  Since cybercrime coverage is in its infancy, it’s unsurprising disputes have arisen between businesses and insurers regarding the extent of coverage under these policies.

Emerging caselaw shows that cybercrime coverage is not immune from the traditional conflict between the insured’s interest in being made whole after a loss and the insurer’s interest in paying as little as possible on claims.  A good example is the recent decision by the U.S. Court of Appeals for the Sixth Circuit in American Tooling Center, Inc. v. Travelers Casualty and Surety Company of America.  American Tooling Center (“ATC”), lost over $800,000.00 in a phishing scam.  Hackers first infiltrated ATC’s email servers and obtained the names of ATC’s contacts with ATC’s Chinese subcontractor.  After ATC wired certain payments to its subcontractor, the hackers posed as the subcontractor’s agents and claimed to have never received the payments.  ATC canceled its initial wire transfer and re-sent the funds to the hackers.  ATC realized what had happened when the genuine subcontractor called to demand payment.

ATC tendered the claim to its insurance carrier, Travelers, under ATC’s coverage for “computer crime.”  ATC’s policy provided Travelers “will pay the Insured for the Insured’s direct loss of, or direct loss from damage to, Money, Securities and Other Property directly caused by Computer Fraud.”  ATC requested Travelers cover the over $800,000.00 it lost in the phishing scheme.

Travelers refused to pay.  Relying on the words “direct loss,” Travelers claimed ATC hadn’t actually lost the over $800,000.00 it wired to the hackers.  Instead, Travelers argued ATC only had a “direct loss” in the amounts it had to pay to its subcontractor over and above those amounts it paid to the hackers.  Since the subcontractor (presumably sympathetic to ATC) had settled for a reduced payment, Travelers claimed it need only pay ATC the amount its subcontractor agreed to accept.

The court had little trouble rejecting Travelers’ argument, stating:

A simplified analogy demonstrates the weakness of Travelers’ logic. Imagine Alex owes Blair five dollars. Alex reaches into her purse and pulls out a five-dollar bill. As she is about to hand Blair the money, Casey runs by and snatches the bill from Alex’s fingers. Travelers’ theory would have us say that Casey caused no direct loss to Alex because Alex owed that money to Blair and was preparing to hand him the five-dollar bill. This interpretation defies common sense.

Separately, Travelers also argued the phishing attack was not covered under ATC’s computer fraud coverage.  Travelers claimed coverage only existed where the perpetrator actually caused the transfer, not where the hackers deceived employees into transferring money unwittingly.  The court observed that if Travelers wanted to restrict coverage thusly, it could easily have made that explicit in the policy – indeed, the court pointed out many policies do restrict coverage in this way using language absent from Travelers’ policy.

The ATC decision underscores the emerging issues in cybercrime coverage disputes and the bases insurers will use to deny coverage for phishing, hacking and other computer crime causing losses to businesses.

Out of Network Billing for Emergency Room Visit: New Legislation Aims To Fix Loophole In Existing Law

In a medical emergency, patients are typically concerned with getting to the emergency room as fast as possible.  They often don’t stop to check whether the closest emergency room is at a hospital that is “in-network” with their health insurance plan; or, even if they do, the nearest in-network emergency room may be too far away.

Most health insurance plans exclude coverage for treatment with out-of-network hospitals, so this can cause insureds who seek treatment in an emergency without carefully checking whether their hospital is in-network with their insurer to pay astronomical out of pocket costs for treatment.

The federal Affordable Care Act (a/k/a “Obamacare”) imposed new rules on insurers that partially fix the problem of coverage for out-of-network emergency healthcare.  The ACA requires covering emergency care without limiting coverage on the basis care was rendered by an out-of-network provider.  The statute provides:

If a group health plan, or a health insurance issuer offering group or individual health insurance issuer [sic], provides or covers any benefits with respect to services in an emergency department of a hospital, the plan or issuer shall cover emergency services … in a manner so that, if such services are provided to a participant, beneficiary or enrollee … such services will be provided without imposing any requirement under the plan for prior authorization of services or any limitation on coverage where the provider of services does not have a contractual relationship with the plan for the providing of services that is more restrictive than the requirements or limitations that apply to emergency department services received from providers who do have such a contractual relationship with the plan….

42 U.S.C. § 300gg-19a(b)(1) (emphasis added).

Courts have summarized this rule as requiring insurers “to cover out-of-network emergency services in a way ‘that is [no] more restrictive than the requirements or limitations’ applicable to emergency department services received from in-network providers.”  Northside Hosp., Inc. v. Ambetter of Peach State, Inc., 2017 WL 8948348, at *1 (N.D. Ga. Dec. 1, 2017) (quoting 42 U.S.C. § 300gg-19a(b)(1)(ii)).

Washington State’s Patient Bill of Rights similarly precludes insurers from limiting coverage for emergency care on the basis the provider was out-of-network.  Washington law provides:

A health carrier shall cover emergency services necessary to screen and stabilize a covered person if a prudent layperson acting reasonably would have believed that an emergency medical condition existed…With respect to care obtained from a nonparticipating hospital emergency department, a health carrier shall cover emergency services necessary to screen and stabilize a covered person if a prudent layperson would have reasonably believed that use of a participating hospital emergency department would result in a delay that would worsen the emergency.

RCW 48.43.093 (emphasis added).

But there’s an important loophole in this rule.  Health insurers have to cover out-of-network emergency care under the rule, but the rule never states how much of the bill an insurer must pay.  This is a critical omission.  Most health plans limit the amount the insurer pays to special discount rates the insurer negotiated with its in-network providers.  But out-of-network providers haven’t agreed to accept this rate, which is often a tiny fraction of the out-of-network provider’s charge for an emergency room visit.

Thus, even where the insurer nominally covers emergency treatment at an out-of-network hospital, the insurer is only required to pay the amount it negotiated with its in-network providers.  Since the out-of-network emergency room hasn’t agreed to accept those rates, the insurer’s coverage will be inadequate – often by hundreds of thousands of dollars.  The patient then receives a bill for the difference despite having “coverage” for the emergency room visit.

This leads to the unfair situation where a person goes to an out-of-network emergency room and supposedly has coverage under the ACA and Washington Patient Bill of Rights, yet still winds up on the hook for medical bills that would have been paid had the provider been in-network.  As a practical matter, this renders the intent of the ACA and Washington Patient Bill of Rights – protecting insureds from crippling medical bills for visiting an out-of-network emergency room – completely ineffective.

Unfortunately, until a legislative solution emerges, insureds must still check the in-network status of their providers with agonizing precision – even in the event of a life-threatening medical emergency – despite the ACA and Washington Patient Bill of Rights.  Washington State’s legislature has proposed such a solution: HB 2114 – 2017-18 (“Protecting consumers from charges for out-of-network health services”).  That bill remains in legislative committee and faces harsh opposition from industry groups.

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.