Regardless of whether the insured is represented by counsel, an insurer has a duty to provide notice of a contractual statute of limitations period.  The Insurance Corporation of New York discovered this holding the hard way when the California Court of Appeal published Superior Dispatch, Inc. v. Insurance Corp. of New York, 181 Cal. App. 4th 175 (2010), modified on Denial of Rehearing, __ Cal. App. 4th __, 2010 WL 601459 (February 22, 2010).

Superior Dispatch (“Superior”) was a trucking company who obtained a Cargo Coverage insurance policy from the Insurance Corporation of New York (“Inscorp”).  The policy issued to Superior contained a contractual statute of limitations period stating, “No suit or action or proceeding for the recovery of any claim under this policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim.”

In July of 2003, Superior was hired to transport a dump truck on the back of a flat rack trailer.  En route to its destination, the cab of the dump truck struck an overpass and was severally damaged.  On July 17, 2003, Superior submitted a claim to Inscorp for the damaged dump truck.  Inscorp denied the claim in a letter dated November 5, 2003.  The denial letter did not notify Superior of the policy’s one-year contractual limitations period.  In January 2004, Superior retained legal counsel who challenged the denial in a several letters to Inscorp.  However, Inscorp affirmed the company’s decision to deny the claim arguing that there was no coverage under the policy.  Once again, Inscorp’s letter did not notify Superior of the one-year contractual limitations period.  When counsel for Superior finally filed a complaint on May 20, 2005, Inscorp filed a motion for summary judgment arguing that the contractual limitations period barred the complaint.  The trial court agreed and entered a judgment in favor of Inscorp. Read the rest of this entry »

In an article appearing in the February 10, 2010 editions of the Los Angeles and San Francisco Daily Journals, I discuss the impact of the Ninth Circuit’s Montour v. Hartford Life & Accident, 588 F.3d 623 (9th Cir. 2009). Here it is:

The Employee Retirement Income Security Act of 1974 (ERISA) is certainly one of the most significant pieces of federal legislation ever enacted by Congress as it impacts the employee benefit plans and retirement funds of millions of Americans.  Recently, the 9th U.S. Circuit Court of Appeals issued one of its most significant ERISA decisions in Montour v. Hartford Life & Accident, 588 F.3d 623 (9th Cir. 2009).

Under ERISA, when a plan participant challenges the administrator’s decision to terminate or deny benefits, that decision is evaluated under either an abuse of discretion or de novo standard of review.  ERISA litigation lawyers know well that when they are involved in litigating ERISA cases, the applicable standard of review can be outcome determinative.  That is why Montour should be at the top of every ERISA lawyer’s reading list. 

In Montour, the 9th Circuit clarified the application of the abuse of discretion standard of review when an insurer has a structural conflict of interest.  A structural conflict of interest arises when the entity making the decision whether or not to approve benefits is also the same entity that is ultimately responsible for paying those benefits.  In the realm of an insured employee benefit plan, this is a common occurrence as insurers typically act as claims administrators and the funding source of ERISA benefits.  Because vast numbers of ERISA plans include a provision granting the plan or claims administrator discretionary authority to interpret the plan’s terms and to decide the payment of benefits under the plan, determining when and under what circumstances a conflict of interest will be so significant as to affect the outcome of the case is of course critically important.  

Prior to Montour, but after the 9th Circuit’s en banc decision in Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir. 2006), under an abuse of discretion standard of review, a district court would generally uphold the administrator’s decision provided it was grounded on any reasonable basis and made in good faith, weighing any conflict of interest of the administrator as factor in determining whether abuse of discretion existed.  See Sznewajs v. U.S. Bancorp Amended & Restated Supplemental Benefits Plan, 572 F.3d 727, 734-735 (9th Cir.2009). 

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A unanimous United Supreme Court ruled today that a corporation’s principal place of business is where the company’s executives work and direct the company’s business activities, not where the company’s products are sold.  This is yet another reversal of an important Ninth Circuit Court of Appeals ruling.

In a victory for business entities, the ruling will make it harder to sue out-of-state corporations in state courts, which are considered friendlier to class-action lawsuits than are federal courts.

The circuit courts have been divided into a deep four-way split regarding the tests to be applied in locating a corporation’s principal (most important, consequential or influential) place of business for purposes of diversity jurisdiction in federal court. These tests ranged from the Seventh Circuit’s “nerve center test,” which focused on locating the corporation’s “brain,” and ignores all other business operations as irrelevant, to the Ninth Circuit’s “place of operations test,” which focused on the locations of the corporation’s business operations, while generally ignoring its nerve center.  Unlike either of these tests, the Third Circuit’s “center of corporate activities test” focused on finding the center of day-to-day corporate-wide activity and management, with the locations of other business activities being relevant, but less important, factors. Finally, the Fifth, Sixth, Eighth, Tenth and Eleventh Circuits’ “totality of the circumstances test” hinged on no particular facet of corporate activities, but rather on the company as a whole, including its character, business purpose, nerve center, management center and locations of operations.  The Court today adopted the “nerve center” test. 

In Hertz v. Friend, __ U.S. __ (2010), plaintiffs brought a class action suit against Hertz in a California state court seeking unpaid overtime and vacation wages. Hertz moved to remove the case to a California federal district court based on diversity jurisdiction. The plaintiffs argued that there was no diversity jurisdiction as Hertz’s principal place of business was California and not Florida. The federal district court agreed and remanded the case to the state court.  On appeal, the Ninth Circuit affirmed the federal district court. It held that the district court correctly applied the “place of operations test” to determine Hertz’s principal place of business. Therefore, there was no diversity jurisdiction and the district court had no authority over the case.

The Supreme Court overturned that decision, sending the case back to federal court:

“We conclude that the phrase ‘principal place of business’ refers to the place where the corporation’s high level officers direct, control and coordinate the corporation’s activities,” Justice Stephen Breyer wrote. “Lower federal courts have often metaphorically called that place the corporation’s ‘nerve center.’ We believe that the ‘nerve center’ will typically be found at a corporation’s headquarters.”

Given an important recent pro-plaintiff ruling on class certification in a California UCL case and some recent unfavorable rulings in the California courts, the federal courts may not be so bad for class action plaintiffs after all.

Just when you thought the bad news for Anthem Blue Cross (“Anthem”) could not get any worse, it does.  According to an article by Duke Helfand appearing in today’s Los Angeles Times, California Insurance Commissioner Steve Poizner reported that Anthem, California’s largest for-profit health insurer, violated California law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers.

Anthem could face fines of up to $7 million stemming from the alleged violations from 2006 to 2009. Poizner said that Anthem repeatedly failed to respond to state regulators in a “reasonable time” as they investigated complaints over the last year.

“We believe there is evidence to suggest there are serious issues with how Anthem Blue Cross pays claims,” Poizner said at a Sacramento news conference. “Most disturbing to us is that they don’t even respond” to the Department of Insurance “in a timely way.”

Anthem’s parent company, WellPoint Inc., said that it had not seen the enforcement action but would cooperate fully with Poizner to resolve the matter “in the best interests” of its policyholders.

“We take the issues raised by Commissioner Poizner very seriously,” Anthem said in a statement. “As the largest insurer in California, our responsibility is to pay the many millions of claims on behalf of our members each year fairly, fully and promptly.

As reported in this blog, WellPoint and Anthem have faced intense criticism from consumers, regulators, members of Congress and the Obama administration over rate hike proposals of as much as 39% for customers with individual policies in California. Lawmakers in Sacramento and Washington are holding hearings this week on the increases, which have been postponed until May 1 amid the outcry.

The rate hikes would affect many of the 800,000 individual policyholders in California.

According to Poizner, nearly 40% of the violations in the Anthem case, 277, stem from allegations that the company failed to pay patient claims within 30 days as required by state law, officials said.

Poizner’s office filed the enforcement action against Anthem on Monday with the Office of Administrative Hearings. An administrative law judge will hear the matter. Each violation carries a maximum penalty of $10,000.

Late last year the Fourth Appellate District of the California Court of Appeal issued its decision in Zhang v. Superior Court, 178 Cal. App. 4th 1081 (2009).  In that case, the court identified the issue presented “as whether fraudulent conduct by an insurer, which is connected with conduct that would violate Insurance Code § 790.03 et seq., sometimes referred to as the ‘Unfair Insurance Practices Act’—can also give rise to a private civil cause of action under the Unfair Competition Law (UCL), Business and Professions Code § 17200 et seq.”  The court held that it did.  This case will thus address whether insurance companies enjoy any special exemption from UCL liability.  The statement of issues on review reads:

(1) Can an insured bring a cause of action against its insurer under the unfair competition law (Bus. & Prof. Code, § 17200) based on allegations that the insurer misrepresents and falsely advertises that it will promptly and properly pay covered claims when it has no intention of doing so? (2) Does Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 bar such an action?

This was a departure from Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061 (2004), which was previously interpreted to bar UCL “unlawful” prong claims against insurers based on conduct prohibited by § 790.03.  The court held that “if a plaintiff relies on conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited, Moradi-Shalal requires that a civil action under the UCL be considered barred.”  The court explained that that where, however, a plaintiff alleges unlawful, misleading and untrue conduct that is expressly within the parameters of the UCL, the suit may proceed on that claim.

On February 10, 2010, the California Supreme Court granted the Petition for Review of this case.  It is therefore no longer citable. 

On the same day the California Supreme Court denied a Petition for Review and Depublication in Cohen v. DIRECTV, Inc. (October 28, 2009).  Cohen v. DIRECTV, Inc., 178 Cal. App. 4th 966 (2009).

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In a press release from the California Department of Insurance (“CDI”) issued last week, Commissioner Steve Poizner issued the following statement regarding Anthem Blue Shield’s recently announced substantial rate increases:

I’m alarmed by the Anthem Blue Cross health insurance rate hikes, especially in a time when the recession has forced so many people into the individual health insurance market,” said Commissioner Poizner. “State law requires that insurers spend at least 70 cents of every dollar of premium on medical care. I have instructed my department to hire an outside actuary to examine their rates line by line to ensure they are complying with this state law. If we find that their rates are excessive, I will use the full power of my office to bring these rates down.

Commissioner Poizner also reminded Californians who have to purchase individual health insurance that there are dozens of insurance companies to choose from.

“Just like auto and homeowners insurance, consumers can choose from nearly 70 different companies who offer health insurance in the individual health insurance market,” Commissioner Poizner said. “As a consumer you need to shop around.  A different provider may prove to be a better value for a particular individual or family’s needs, and all of them are looking for new customers.  I encourage consumers who are not happy with their rates, co-pays, benefits or service to look at other options.”

It is noteworthy that the CDI launched last year the first ever PPO report card that gives consumers even more information about the quality of service each of the major health insurance company offers.  Anthem Blue Cross has the lowest rating of any of the reviewed health insurers.  The PPO report card can be found at http://interactive.web.insurance.ca.gov/ppo/front.

In a press release from the California Department of Insurance (“CDI”) issued last week, Commissioner Steve Poizner announced that the CDI has recovered $112.1 million for consumers through consumer complaint investigations and market conduct examinations of insurance companies.  Here is what it said:

The $112 million is believed to be the most money recovered in California Department of Insurance (CDI) history. In comparison, the Department recovered $62 million in 2008, $63 million in 2007, $78 million in 2006 and $53 million in 2005.

“Our goal at the Department of Insurance is to be the best consumer protection agency in the nation,” Commissioner Poizner said. “I’m proud to announce that our hard work has led to us recovering more than $100 million for consumers – the most ever under any insurance commissioner. Through our consumer complaint services and our market conduct exams, we will continue to be responsive to the needs of consumers and proactive in looking for any and all activities that hurt policyholders.”

The CDI’s Consumer Services and Market Conduct Branch has two divisions – one focused on helping consumers directly and the other focused on examinations of insurance company’s actions through an examination/audit process. The consumer services division operates the Consumer Communications Bureau, which handles the (800) 927-HELP consumer hotline; the Claims Services and Rating and Underwriting Services bureaus, which investigates and resolves complaints filed with the Department by consumers and others. The consumer hotline annually receives approximately 250,000 calls.

The Consumer Services Division recovered $89.1 million in 2009. Approximately 20 percent of that came from closing cases started in 2007 and 2008 after the devastating wildfires. Due to the complexity of the issues that must be investigated, it may take a year or more to resolve complaints resulting from wildfire disasters.

The Market Conduct Division consists of the Field Claims Bureau and a Field Rating and Underwriting Bureau. These bureaus are tasked with performing examinations of insurance company claims, underwriting, rating and marketing practices to ensure they are complying with the law and regulations.

Through the diligence of the Market Conduct Division, $23 million was recovered and 208 exams were adopted by Commissioner Poizner.

You can access the CDI’s Communications Office Web page by clicking here.

Life settlements, also known in the industry as  “stranger-originated life insurance” (“STOLI”) transactions have existed for several years but most states have not regulated them, at least until recently.  The life insurance industry has for years attempted to eliminate such transactions as they typically are not in the insurer’s best financial interest.  However, in recent years the industry has increased their support for efforts to differentiate between legitimate life settlements and STOLI.  Both sides agree to the following general definition: A life settlement is the legitimate liquidation of a life insurance policy by an owner who has outlived the insurable interest upon which the policy was originally purchased. On the other hand, a STOLI transaction is initiated by a third party who offers monetary inducements to entice someone to purchase a life insurance policy with no legitimate insurable interest. The intended recipient of the policy’s value is the third party actually paying the premiums.

Legislative activity in the various states has substantially increased over the years as states have passed laws designed to stop, or at least regulate, STOLI transactions.  This occurred recently in California.  In October 2009, the California legislature enacted, and the governor signed, Senate Bill 1543 that regulates life settlement and STOLI transactions. The new law is known as the Life Settlements Act (“Act”) and it becomes effective on July 1, 2010. It is noteworthy that this bill provides that, with certain exceptions, it does not apply to any life settlement contract entered into on or before July 1, 2010. This bill would provide that it would apply to any transaction involving any life insurance policy in effect, or entered into, on or after the operative date of the bill. Read the rest of this entry »

When a liability insurer wishes to avoid all coverage obligations with respect to a claim against its insured, it will sometimes file a declaratory relief action requesting a ruling that it has no duty to defend or indemnify the insured.  If the insurer files for such declaratory relief while the underlying litigation is still pending, California insureds will frequently move to stay the coverage action, pursuant to Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 (1993).  The purpose of such a Montrose stay is to avoid the risk of prejudice to the insured in the underlying action, if it is simultaneously forced to litigate an insurance coverage dispute.

In these situations, the insured faces a dilemma: should it immediately move to stay the coverage litigation, or wait until it has filed an answer and cross-complaint? A recent California Court of Appeal decision, Great American Insurance Company v. Superior Court, 178 Cal. App. 4th 221 (2009), suggests that the better practice may be to answer and cross-complain before moving to stay.

Erica Villanueva of Farella Braun & Martel LLP wrote a good article on this topic which I commend for your reading.

There has been considerable attention given lately to health insurers’ attempts to rescind health insurance policies and the California Department of Insurance has recently issued regulations concerning rescission of the these policies.  The Second Appellate District has now added some heat to the controversy about these types of rescissions with its decision in Nieto v. Blue Shield of California Life & Health Insurance Company, __ Cal. App. 4^th ___ No. B214669 (January 19, 2010).

Blue Shield offers several health insurance plans to individuals.  As part of the determination whether to issue coverage, Blue Shield provides an application to an individual seeking coverage that requests detailed information of past and current health problems, treating physicians, prescribed medications and recommended treatment.  Using proprietary written guidelines, Blue Shield engages in the underwriting process by evaluated the responses provided by each applicant to determine eligibility for health insurance and, if so, at what premium rate.  Julie Nieto applied for one of these policies but failed to disclose information about her back and hip condition and treatment on a health insurance application she submitted to Blue Shield.  Blue Shield issued her a policy based upon her representations.

After issuing the policy, Blue Shield’s underwriting investigation unit opened a file on Nieto after it received a referral from the medical management department indicating that she had received a diagnosis of necrosis of the hip and was scheduled for hip replacement surgery.  As part of the investigation Blue Shield sought and obtained her medical and pharmacy records.  At that point, Blue Shield learned that immediately preceding her application appellant had received extensive treatment for back and hip pain and had been prescribed multiple medications.  Blue Shield proffered evidence that if it had been aware of the undisclosed information it either would have declined to issue the policy or, at a minimum, would not have issued the policy until receiving additional information from appellant.

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