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In 1996, Plaintiff Laura Kieffer developed carpal tunnel syndrome and severe cervical pain which forced her to stop working as a dental hygienist. Thereafter, Kieffer started receiving disability payments under an individual disability insurance policy she purchased from Paul Revere Life Insurance Company and its parent company the Unum Group Corporation. Even though she had been receiving disability payments for nearly ten years, Unum terminated her benefits in March of 2008. As a result, Laura sued in Los Angeles Superior Court alleging that Unum had unreasonably terminated her benefits. She sued for breach of contract, insurance bad faith and for punitive damages. This week, a jury awarded her $4.2 million in compensatory and punitive damages. Unum intends to appeal the verdict.
Despite more attention focused on the nation’s largest health insurance companies with their recent requests for large premium increases and with all of the talk about national healthcare reform, California’s largest health insurance companies continue to deny about 26 percent of all health insurance claims, according to a recently released study by the California Nurses Association(“CAN”)/National Nurses United (“NNU”).
Blue Shield, which has recently garnered attention for requesting premium rate increases of up to 59 percent for individuals in California, denied nearly two million claims last year, trailing only Anthem Blue Cross, which denied nearly six million claims. PacifiCare had the highest percentage of denials at a whopping 44 percent.
For the first three quarters of 2010, seven of California’s largest insurers rejected 13.1 million claims, 26 percent of all claims submitted, a number only slightly below the 26.8 percent rate for 2009. The data, new findings by the Institute of Health and Socio-Economic Policy, the CNA/NNU research arm, is based on data from the California Department of Managed Care.
Claims denial rates by leading California insurers, for the first three quarters of 2010, were:
PacifiCare – 43.9%
Cigna – 39.6%
Anthem Blue Cross – 27.3%
HealthNet – 24.1%
Blue Shield – 21.9%
Kaiser Permanente – 20.2%
Aetna – 5.9%
Since 2002, these seven companies, which account for more than three-fourths of all insurance enrollees in California, have rejected 67.5 million claims. Cigna, which denied 40 percent of claims, showed the biggest increase from 2009, increasing its rejection rate by 5.3 percent. Kaiser Permanente accounted for the biggest drop, a one year decline of 7.4 percent in denials. Blue Shield slightly increased its denial rate by .3 percent from 2009.
“These rejection rates demonstrate one reason medical bills are a prime source of personal bankruptcies as doctors and hospitals will push patients and their families to make up what the insurer denies,” said CNA/NNU Co-President DeAnn McEwen. The national reform law signed by President Obama last spring has, to date, had no impact on the high pace of insurance denials, she noted.
California’s new Insurance Commissioner, Dave Jones, identified his priorities at his inauguration on January 3. He plans to accomplish his objectives by making the California Department of Insurance “the strongest consumer protection agency in the nation”, and he plans to “set the standard for other consumer protection agencies.” His priorities are:
- Implementation of federal health care reform, and that includes continuing his fight for the authority to reject excessive health insurance premium increases;
- “[T]o level the playing field for consumers and business as they deal with insurance companies . . . to make sure that consumer complaints are being addressed and that insurance companies are not taking advantage of consumers;”
- Ensuring that California has a viable and competitive insurance market.
To implement his first priority, Jones has created a new senior leadership position titled “Deputy Commissioner for Health Care Policy and Reform.” He will also continue efforts to provide the “Insurance Commissioner and the Department of Managed Health Care the legal authority to reject excessive health insurance and managed care premiums,” and he will see to it that he has the “legal authority to enforce the new federal health care reform law.” Jones has already signed anemergency regulation giving him the authority to enforce in “California, the new federal 80% medical loss ratio for the individual health insurance market.” Existing California law requires insurers to spend at least 70% of premiums from the individual market on medical care. Jones’ proposal aligns California’s regulations with national Medical Loss Ratio rules established under the federal health reform law. The federal MLR regulations took effect on January 1, 2011.
To succeed in the protection of consumers, Jones has directed the Department of Insurance to file by January 30, 2011 “annuity suitability” regulations aimed to “protect consumers from being sold annuities that are not suitable for them.” Additionally Jones has directed the Department of Insurance to develop regulations to protect “life insurance beneficiaries from the abusive use of retained asset accounts.”
To ensure California has a functioning and competitive insurance market, Jones wants to see new products brought to consumers in California. “Consumers and businesses need choices, and keeping a viable, robust market, with competition, is important.”
Jones also feels that it is “essential that we root out fraud, which is a burden on the market, insurer and consumers alike – fraud by policy-holders, fraud by scam artists, fraud by vendors, and fraud by insurers and agents who promise one thing and deliver another – or don’t’ deliver at all.”
The next four years under Insurance Commissioner Jones promises to be one of the most consumer oriented terms ever in California. It will be interesting to see how the insurance industry responds to him and his proposals.
James Dobbas (Dobbas) owned a ranch and livestock in Sierra County. Fred Vitas (Vitas), his insurance agent, obtained a $1 million primary liability policy and a $3 million excess liability policy for his ranch operations with Cal Farm Insurance Company (Cal Farm). Dobbas also owned a railroad emergency response company. American Guarantee and Liability Insurance Company (American) insured Dobbas as a sole owner of the company under a $7 million excess liability insurance policy. Vitas allegedly cancelled the Cal Farm $3 million excess policy or failed to renew it.
A bull owned by Dobbas escaped from his ranch and caused a serious two-car collision. Two people died and four were seriously injured. They sued Dobbas. Dobbas sued Vitas for insurance agent malpractice. Cal Farm paid its $1 million primary limits toward a settlement with the victims, and Dobbas assigned the victims his rights against Vitas as part of the settlement. The victims obtained a $5 million dollar judgment against Dobbas. In a separate coverage action, a federal district court held that American’s excess policy also covered the risk. American then paid $2.8 of its excess policy limits to settle the victims’ claims, and took an assignment of their assigned rights against Vitas.
American moved to intervene in the agent malpractice action against Vitas on a theory of equitable subrogation. The trial court denied American’s motion to intervene on the grounds that American could never prove that the agent caused or was responsible for the loss—a necessary element of an equitable subrogation claim. The California Third Appellate District affirmed, and expanded the basis for denying American’s motion to intervene.
“An insurer bringing an action based upon a claim of equitable subrogation must establish the following elements: ‘(1) The insured has suffered a loss for which the party to be charged is liable, either because the latter is a wrongdoer whose act or omission caused the loss or because he is legally responsible to the insured for the loss caused by the wrongdoer; (2) the insurer, in whole or in part, has compensated the insured for the same loss for which the party to be charged is liable; (3) the insured has an existing, assignable cause of action against the party to be charged, which action the insured could have asserted for his own benefit had he not been compensated for his loss by the insurer; (4) the insurer has suffered damages caused by the act or omission upon which the liability of the party to be charged depends; (5) justice requires that the loss should be entirely shifted from the insurer to the party to be charged, whose equitable position is inferior to that of the insurer; and (6) the insurer’s damages are in a stated sum, usually the amount it has paid to its insured, assuming the payment was not voluntary and was reasonable.’” (quoting Patent Scaffolding Co. v. William Simpson Constr. Co., 256 Cal.App.2d 506, 509 (1967))
The appellate court took aim at the fifth element. It equated the insurance agent’s duty to obtain excess insurance covering the risk with American’s duty to indemnify against the risk. The appellate court pointed out that since both Vitas and American contracted to protect Dobbas from the same risk, neither could claim a superior equitable right against the other under California law.
“’In subrogation litigation in California, the doctrine of superior equities is critical in determining whether a right of subrogation exists.’ [citation]. The issue is addressed by the fifth element of equitable subrogation, i.e., whether justice requires that the loss be entirely shifted from the insurer to the third party. The equities do not permit recovery where the insurer and the third party promised the same thing, to provide insurance. [citation].”
The appellate court explained that American’s right of recovery, if any, against Vitas was more akin to the right of equitable contribution—not equitable subrogation:
“Because the obligation of both American Guarantee and Vitas was to provide insurance to Dobbas to indemnify the same loss, American Guarantee’s rights against Vitas parallels those of two equally situated insurers when one fails to pay a claim. The appropriate resolution of such facts is by application of the rules of equitable contribution. Equitable contribution apportions costs among insurers that share the same level of liability on the same risk. [citation]. It arises when one insurer has paid more than its share of the loss that several insurers are obligated to indemnify. [citation]. Equitable subrogation, on the other hand, allows an insurer that paid a loss to be placed in the insured’s position to recover from another insurer who was primarily responsible for the loss. [citation]. Under the rules of equitable contribution, an insurer can recover only when it has paid more than its fair share with regard to other insurers who are obligated to pay the same claim. If it has not paid more than its fair share, it cannot recover, even though the other insurer has paid nothing. [citation]. “
Applying the rules of equitable contribution, the appellate court concluded that American paid no more than it would have paid had the Cal Farm excess policy been in place. Accordingly, the appellate court sent American away empty handed.
It isn’t immediately intuitive that an insurance agent’s duty to obtain insurance against a risk is co-extensive with an insurer’s duty to indemnify against the risk. But for purposes of equitable subrogation under California law, it is. It will be interesting to see whether the appellate court’s expansive holding leads to unintended consequences in future cases.
The Thursday January 13, 2011 edition of the Los Angeles Daily Journal featured my article entitled “Fourth Amendment Protections Extend t
o Stored Email,” in the Government column. It discusses the recent the United State Sixth Circuit Court of Appeals& decision in the matter of United States v. Warshak, et al. The article is posted below with permission of Daily Journal Corp. (2011).
In 1987 Robert Fier started working for the Boyd Group (“Boyd”) as a casino slot repairman. After a promotion to management, Fier subsequently enrolled into Boyd’s two benefits programs: a Long Term Disability (“LTD”) Policy and an Accidental Death and Dismemberment Insurance (“AD&D”) Policy. Both policies are maintained pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.
In 1992, as a result of a shooting, Fier became permanently quadriplegic (i.e. the loss of both arms and legs). In 1993, Fier returned to work in a new job specifically tailored to his physical limitations where he earned the same salary as he had prior to the accident. In 1997, Fier’s salary was reduced by $20,000 when he was assigned to a new position at Boyd. In early 1997, Fier submitted a claim for benefits under the LTD policy, and received benefit payments from UNUM. Between 1997 and late 2004, UNUM paid Fier $152,069.02.
In late 2004, UNUM informed Fier that regarding his 1997 LTD claim, it should have ceased payments in 1998 because Fier left Boyd to take another job. At the new job, Fier was earning approximately the same salary he had earned before the accident. The rationale for UNUM’s decision was based upon the LTD policy which stated:
Disability benefits will cease on the earliest of:
The date the insured is no longer disabled;
The date the insured dies;
The end of the maximum benefit period;
The date the insured’s current earnings exceed 80% of his pre-disability earnings.
Fier filed suit against UNUM in the District Court of Nevada for both a declaratory judgment entitling him to continued payment of benefits, and for four years of benefits from 1993 until 1997. The Nevada district court found Fier was not eligible for benefits between 1993 and 1997 because he was working at his full salary and that he was not entitled to benefits after 1998 when he began his new job with a salary at the pre-disability level. The district court also held Fier was no longer covered under the LTD policy because he no longer was employed by Boyd. Lastly, the district court rejected Fier’s claim for benefits under the AD&D policy because his feet and hands had not been severed from his body.
On appeal with the United States Court of Appeals for the Ninth Circuit the lower court correctly determined Fier’s ineligibility for benefits from 1993 to 1997 and from 1998 forward under the LTD policy. The policy was not ambiguous as to when benefits would terminate. In addition, the Ninth Circuit court also held the district court correctly determined that Fier’s LTD benefits terminated in 1998 when Fier left his employment with the Boyd.
With respect to the AD&D policy, Fier appealed the district court’s determination that to be eligible for any AD&D benefits; he had to have suffered dismemberment by “severance.” The Ninth Circuit, not having had to construe this term before, relied upon Cunninghame v. Equitable Life Insurance Society of the Untied States, 652 F.2d 306 (2d Cir. 1981). In Cunninghame, the Second Circuit held the policy’s definition of ‘loss’ was not ambiguous, and interpreted the terms ‘dismemberment by severance’ by stating:
The word ‘dismemberment’ itself implies actual separation; the noun derives from the transitive verb ‘dismember’, defined as meaning ‘to cut or tear off into pieces; take apart roughly or divide (a whole) into sections or separate units’ or, obsoletely, to ‘lop’ or ‘sever’. “Dismemberment” as a noun, therefore, refers to “the act of dismembering or the state of being dismembered: division into separate parts or units.”
Therefore, the Ninth Circuit concluded that Fier was not owed any benefits under the AD&D policy because he “did not suffer the physical detachment of his limbs.”
The Court applied long-standing law in the Ninth Circuit that if there is no ambiguity to the interpretation of a policy provision, courts will not create one, and will “interpret terms in ERISA insurance policies in an ordinary and popular sense as would a [person] of average intelligence and experience.” Evans v. Safeco Life Ins. Co., 916 F.2d 1437 (9th Cir. 1990).
