ERISA, Bad Faith in Health Insurance, and More
Insurance Law Update
In Black & Decker Disability Plan v. Nord, 2003 WL 21210418 (2003), the United States Supreme Court issued an important decision favorable to insurers who insure disability plans under the Employee Retirement Income Security Act (“ERISA”). The “treating physician rule” arose in cases litigated under the Social Security Act, and requires that administrative law judges who determine a claimant’s entitlement to disability benefits give greater weight to the opinions of treating physicians than to the views of reviewing physicians and others. Some Circuits, including the Eighth and Ninth Circuits, have adopted the treating physician rule to determinations under ERISA disability plans, and have held that ERISA claims administrators must follow the rule when making benefit determinations, and, as a result, may only reject the opinions of a claimant’s treating physicians based on substantial other evidence.
In Nord, the claimant applied for long term disability benefits under an ERISA plan, supported by the opinions of treating physicians who stated that the claimant suffered from a disc disease and pain that rendered him unable to work. The Black & Decker Plan referred the claimant to a neurologist for an independent examination. The neurologist concluded that, with appropriate pain medication, the claimant could work and was therefore not disabled. The Plan denied the claim, the claimant filed suit, and the Ninth Circuit found that the claimant was entitled to summary judgment on the ground that the Plan had not provided adequate justification for rejecting the opinions of the claimant’s treating physicians under the rule. The Supreme Court held that the treating physician rule does not apply in the ERISA context. ERISA does not require claims administrators to accord special deference to the opinions of treating physicians, since the rule is not found in the text of ERISA, is not required by Department of Labor regulations, and is at odds with the great leeway granted to employers under ERISA to design plans for their employees.
BREACH OF CONTRACT/BAD FAITH IN HEALTH INSURANCE
In Kavruck v. Blue Cross of California, 108 Cal.App.4th 773, 134 Cal.Rptr.2d 152 (2003), a class made up of subscribers of Blue Cross whose individual health insurance policies were amended so that their premiums were no longer based on their initial enrollment age, but rather on their attained age at the time of the renewal, was certified as to a breach of contract cause of action. The California Court of Appeal found that a health care service plan is not necessarily equivalent to an insurance policy for all purposes, but for the purposes of contract interpretation the distinctions are immaterial.
The court concluded that it could be a breach of contract to take those insureds who had signed up for an “enrollment age” premium determination and convert them to an “attained age” premium determination.
In Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 2003 WL 1904383 (N.J.A.D. 2003), the New Jersey Appellate Division affirmed partial summary judgment in favor of one insurer against the policyholder in a dispute over insurance coverage under CGL policies for lead paint liability claims. The policyholder had sought a declaration that it could choose the policy under which it would be covered for the lead paint claims made against it. Alternatively, the policyholder sought a ruling that deductibles in multiple, consecutively triggered policies must be allocated on the same basis as insurance coverage exhausting the deductible and the coverage on a single policy before moving to the next policy. Affirming the trial court’s decision, the Appellate Division held that the policyholder had to satisfy each deductible in each triggered policy without proration. The case is now on appeal to the Supreme Court of New Jersey. See, 176 N.J. 70, 819 A.2d 1185.
In Fama v. Yi, 359 N.J.Super. 353, 820 A.2d 65 (2003), the New Jersey Appellate Division held that, where a jury concluded that plaintiff’s injuries were not proximately caused by the auto accident, and he then sought personal injury protection benefits against his insurer, nothing precludes the application of collateral estoppel against the plaintiff, because there was no new evidence presented and he was an actual party in interest in the personal injury action and actively pursued his claim.
TEMPORARY SUBSTITUTE AUTO
In Progressive County Mutual Ins. Co. v. Sink, 2002 WL 32094516 (Tex. 2003), the Texas Supreme Court evaluated coverage for a “temporary substitute” vehicle under a Texas personal auto policy. The issue in this case was whether such a policy provides liability coverage when the insured, whose own vehicle is disabled, drives an automobile owned by a non-family member without permission and without the reasonable belief that he has permission, and is involved in an accident with a third party. The Supreme Court reversed the Court of Appeals and held that the policy provides no coverage under these circumstances.
The decision of the Supreme Court revolved around the exclusion in the policy for use of a vehicle without a “reasonable belief that the person is entitled to do so,” which exclusion contained an exception for the insured or a family member of the insured while using “your covered auto.” The policy defines “your covered auto” in pertinent part as “any auto or trailer you do not own while used as a temporary substitute vehicle for any other vehicle described in this definition . . .which is out of normal use because of its: breakdown. . . .” Finding the language at issue to be unambiguous, and since the term “temporary substitute vehicle” is no longer a defined term under the policy, the court applied the ordinary and everyday meaning of the term and found that it did not include using a vehicle without at least a reasonable belief of entitlement to its use. Otherwise, the Supreme Court concluded, the policy would provide coverage for the use of a stolen auto in cases where the thief’s car is out of service.
DUTIES OF WORKERS’ COMPENSATION INSURERS WITH RETROSPECTIVE PREMIUM DETERMINATIONS
Wayne Duddlesten, Inc. v. Highland Ins. Co., 2003 WL 1848637 (Tex. App.—Houston [1st Dist.] 2003) involves a lawsuit brought by an employer against its workers’ compensation carrier for, among other contentions, negligent settlement and payment of claims. The payment of claims was an issue as the policies contained retrospective premium payment plans, which adjusted the standard annual premium based on the amounts that the insurer had to pay on claims. The employer argued that, because the insurer would be reimbursed pursuant to the retrospective premium payment plan, it had less of an incentive to dispute invalid claims and, in fact, was negligent in settling several of the claims asserted against the employer. In response, the Texas appellate court stated that it was unaware of any authority from the Texas Supreme Court that expressly permits a policyholder to sue insurers, outside of Stowers, for the negligent settlement of claims. The court further noted that there was no allegation in the case that the insurer was negligent in failing to settle within policy limits but, instead, the employer’s claim was that the insurer was negligent in simply going forward with the settlement of certain claims. The court concluded that it was unwilling to expand the scope of an insurer’s duties in this area beyond Stowers, absent express language from the Texas Supreme Court.
In Dominion Ins. Co., Ltd. v. State of New York, 2003 WL 21027210 (N.Y.A.D. 3d Dept. 2003), the New York Appellate Division upheld the trial court’s application of the long standing anti-subrogation rule to deny an insurer’s claim of subrogation against a co-defendant that was one of its own insureds for a claim arising from the very risk for which it provided coverage.
The New York Appellate Division has ruled that an insurer is not required to provide liability coverage for a deliberate collision caused in furtherance of an insurance fraud scheme. State Farm Mutual Auto. Ins. Co. v. Laguerre, 2003 WL 21061327 (N.Y.A.D. 2d 2003).
In Fennell v. New York Central Mut. Fire Ins. Co., 2003 WL 21061455 (N.Y.A.D. 2d 2003), the New York Appellate Division upheld the trial court’s finding that, even though the tortfeasor retained his parent’s address on his driver’s license and voter registration card, continued to receive mail at his parents’ address and listed his parents’ address on the police report following the unfortunate golf ball incident wherein the tortfeasor hit a ball which struck the victim in the eye causing its permanent loss, those circumstances were not enough to establish residency at the parents’ home. Instead, the tortfeasor’s residency was found to be at his girlfriend’s residence. Therefore, the victim could not recover for the injuries under the parents’ liability insurance.
In S.C. Farm Bureau Mut. Ins. Co. v. S.E.C.U.R.E. Underwriters, 353 S.C. 239, 578 S.E.2d 8 (2003), the South Carolina Court of Appeals considered a situation in which a dog, a personal pet, was brought to a business premises owned by the insured and, while there, injured a minor child. The homeowner’s policy of the dog owner excluded coverage for injuries arising out of business pursuits and injury or damage arising out of a premises other than the insured premises. "Arising out of" was narrowly construed to mean "caused by" the premises. The homeowner’s policy did not exclude coverage for the dog bite because the injury was not “caused” by a condition on the premises, rather it was caused by the tortious conduct of the owner who “harbored” the animal.