Case Study: Berkshire Attempts to Use the “Dual Occupation Defense”
When a professional that owns her own business files a disability insurance claim, the insurer will often try to exploit the claimant’s ownership status to deny total disability benefits. The insurance company will argue that the professional has not one, but two occupations: 1) professional and 2) business owner. The disability insurer will argue that the claimant isn’t actually disabled because she can still perform administrative or managerial functions, even if she can’t do the duties of her actual profession. This is sometimes called the “dual occupation defense.”
For example, in Shapiro v. Berkshire Life Insurance Company, Berkshire attempted to use the dual occupation defense to deny total disability benefits to a dentist. The dentist, Paul Shapiro, had an own-occupation policy, with “total disability” defined as “the inability to perform the material and substantial duties of your occupation.”
Dr. Shapiro owned his own practices, but spent the overwhelming majority of his time and effort doing clinical work. He spent 90 percent of his time in chairside dentistry, working on patients, and just 10 percent of his time doing the administrative work that any practice owner needs to accomplish. In fact, in the year before he became disabled, Dr. Shapiro saw nine to eleven patients each day, and performed an average of 275 dental procedures per month, working 40 to 45 hours each week. He only spent one and a half to four hours each week attending to various administrative and managerial duties like personnel decisions, staff meetings, and computer troubleshooting.
After progressive osteoarthritis and spondylosis of the elbow, neck and other joints left Dr. Shapiro unable to perform chairside dentistry, he filed for total disability benefits with Berkshire. Rather than paying him total disability benefits, however, Berkshire determined that Dr. Shapiro was only entitled to partial disability benefits:
Berkshire’s coverage position was that Shapiro’s occupation immediately preceding the onset of his disability was as an administrator and manager of his various dental practices as well as a practitioner of chair dentistry; because the disability did not prevent Shapiro from doing his administrative or managerial work, Berkshire reasoned, Shapiro did not satisfy the policies’ definition of total disability: “the inability to perform the material and substantial duties of your occupation.”
Dr. Shapiro brought a suit against Berkshire in the United States District Court for the Southern District of New York for breach of contract, among other things. That court found in his favor on the breach of contract claim, but Berkshire appealed. The Second Circuit Court of Appeals agreed with the lower court and affirmed the decision in Dr. Shapiro’s favor. The Court of Appeals determined that Dr. Shapiro “spent the vast majority of his time performing chair dentistry,” and that his administrative work was merely incidental to his material and substantial duties as a full-time dentist.
Though Berkshire’s attempt at the dual occupation defense was unsuccessful in this case, the Court of Appeals indicated that there could be some situations in which it might work:
At some point, a medical entrepreneur’s administrative and managerial responsibilities may well become the material and substantial duties of the insured’s occupation.
The message for disability insurance policyholders that own a business is to be careful how much time you spend in administrative tasks, and how you explain your occupation to your insurer. Otherwise, you could be inadvertently setting your claim up for denial.
Berkshire Criticized by Maryland Insurance Commissioner for “Artful Neglect”
Disability insurers have a duty to fully investigate claims for benefits, as the insurance companies are well aware. Unfortunately, some claims departments may focus their efforts on looking like they are investigating and considering information rather than actually doing so.
Berkshire, a disability insurance company that sells own-occupation policies to dentists and doctors, has garnered criticism from at least one state’s insurance commissioner for this very practice.
In Berkshire Life Insurance Company v. Maryland Insurance Administration, 142 Md. App. 628, 791 A.2d 942 (App. 2002), Berkshire attempted to claim that its insured was only partially disabled, and therefore it was only obligated to pay a fraction of the total benefits that were payable under the policy. In finding that Berkshire’s conduct was “arbitrary and capricious” in violation of Maryland’s insurance statutes and ordering it to pay restitution to the policyholder, the Maryland Insurance Commissioner also found:
Overall, Berkshire’s actions here represent what may be termed as “artful neglect.” Berkshire gives the appearance of investigating a claim in order to render a good faith claims determination. As part of this appearance, Berkshire timely requests financial information from its insured and then timely requests more information from its insured. In direct contrast to this “appearance,” however, Berkshire does not analyze the information at all, much less use an analysis in a cogent and rational way to support a proper claims determination.
In a more recent Arizona case, Nunley v. Berkshire Life Insurance Company of America, 2009 WL 529901 (D. Ariz. 2009), Berkshire tried to have the United States District Court rule that it could not be subject to punitive damages in a case involving a disabled dentist’s total disability claim. The Court, however, denied Berkshire’s motion, finding that Berkshire might have to pay punitive damages because it did not investigate the dentist’s claim adequately or in a timely fashion.
This “artful neglect” is unlawful, and may subject a disability insurance carrier to bad faith liability. A disability insurance claimant who thinks her insurer is not adequately investigating the claim should contact an attorney to help protect her rights.
Nearly 1 in 5 Americans Have a Disability
Almost one in five people in the United States have a disability, according to the new U.S. Census Report Bureau that was just released today. The disability report was released to coincide with the 22nd Anniversary of the Americans with Disability Act, which is tomorrow. Here is some of the highlights from the disability report cited from the U.S. Census Bureau’s disability news release:
- 56.7 million people, 19 percent of the U.S. population, had a disability in 2010. And more than half of these disabilities were reported as severe.
- People in the oldest age group — 80 and older — were about eight times more likely to have a disability as those in the youngest group — younger than 15 (71 percent compared with 8 percent). The probability of having a severe disability is only one in 20 for those 15 to 24 while it is one in four for those 65 to 69
- About 8.1 million people had difficulty seeing, including 2.0 million who were blind or unable to see.
- About 7.6 million people experienced difficulty hearing, including 1.1 million whose difficulty was severe. About 5.6 million used a hearing aid.
- Roughly 30.6 million had difficulty walking or climbing stairs, or used a wheelchair, cane, crutches or walker.
- About 19.9 million people had difficulty lifting and grasping. This includes, for instance, trouble lifting an object like a bag of groceries, or grasping a glass or a pencil.
- Difficulty with at least one activity of daily living was cited by 9.4 million noninstitutionalized adults. These activities included getting around inside the home, bathing, dressing and eating. Of these people, 5 million needed the assistance of others to perform such an activity.
- About 15.5 million adults had difficulties with one or more instrumental activities of daily living. These activities included doing housework, using the phone and preparing meals. Of these, nearly 12 million required assistance.
- Approximately 2.4 million had Alzheimer’s disease, senility or dementia.
- Being frequently depressed or anxious such that it interfered with ordinary activities was reported by 7.0 million adults.
- Adults age 21 to 64 with disabilities had median monthly earnings of $1,961 compared with $2,724 for those with no disability.
- Overall, the uninsured rates for adults 15 to 64 were not statistically different by disability status: 21.0 percent for people with severe disabilities, 21.3 percent for those with nonsevere disabilities and 21.9 percent for those with no disability.
To read the disability news release, click here.
Applying California’s Total Disability Standard
Under California law, “the term ‘total disability’ does not signify an absolute state of helplessness but means such a disability as renders the insured unable to perform the substantial and material acts necessary to the prosecution of a business or occupation in the usual or customary way. Recovery is not precluded under a total disability provision because the insured is able to perform sporadic tasks, or give attention to simple or inconsequential details incident to the conduct of business.” Erreca v. Western States Life Ins. Co., 19 Cal.2d 388, 396 (1942). Thus, a disability claimant may be “totally disabled” in California despite being physically capable of performing some occupational duties. However, California courts are generally chary to find total disability if a disabled claimant continues working after filing for disability benefits, notwithstanding his physical limitations, and when the income generated from that work is substantially the same as it was before becoming disabled.
Hecht v. Paul Revere Life Ins. Co. offers a good illustration of this. In Hecht v. Paul Revere Life Ins. Co., an executive owner of a successful retail clothing business in Southern California filed for disability benefits with his disability insurance company, Paul Revere, after a car accident resulted in his suffering from neck pain and upper and lower back pain. Although the disability claimant was President and Owner, he involved himself with significant portions of laborious tasks such as lifting, loading and unloading merchandise and climbing ladders. After the accident, he could no longer perform the physical labor.
The disability claimant argued he was “totally disabled” under his disability insurance policy because he could no longer perform the physical labor aspect of his work in “the usual or customary way” as he did pre-disability. The California court agreed that he could no longer perform the physical labor; however, it concluded that such was not a “substantial and material” aspect necessary to the prosecution of his business. In reaching this conclusion, the California court found persuasive the fact that the disabled claimant continued to work every day, notwithstanding his physical limitations, and that the income generated from his contributions to the business was substantially the same as the income pre-disability. Applying Erreca’s “total disability” standard, the California court said:
He has proven by his own actions that he is able to perform “substantial and material acts necessary to the prosecution of a business,” that he is doing more than “sporadic tasks,” and that he is performing more than “simple or inconsequential details incident to the conduct of business.
Therefore, for the purposes of the disability insurance policy, he could not be considered “totally disabled.”
In California, what constitutes “substantial and material acts necessary to the prosecution of a business” is a fact-intensive inquiry. In this case, the facts favored the disability insurance company because the disabled business executive was still capable of performing some occupational duties post-injury, and his participation in these occupational duties generated significant income. When total disability cases involve disabled doctors and disabled dentists, however, they may not be so black-and-white (for an example, check out this blog post). In part, this is because the success of doctor and dental practices depends almost exclusively on a doctor’s or dentist’s ability to perform certain physical acts, such as drilling a hole in a patient’s tooth or performing surgery; this is quite different than the physical demands required of the disability claimant in the California case above. Additionally, injuries deemed less crippling in other fields could have a more substantial impact on medical and dental professionals whose highly specialized skills require greater precision to ensure patient safety.
Thus, even though the California standard for “total disability” is the same across the board, it applies differently to different professions. For this reason, when you file for disability benefits, you should seek a disability insurance attorney who has experience representing clients within your own occupation.
Disability Insurers Revamping Consumer Image
Many healthcare providers, some of whom also offer disability insurance such as Aetna and Cigna, have introduced elaborate marketing campaigns this past year in an effort to change their image, according to Tanzina Vega of the NY Times. These insurers want to be perceived as consumer-friendly healthcare companies, rather than merely insurance providers. The timing of the major shift in marketing makes sense as speculation increases over the pending U.S. Supreme Court decision on the Affordable Care Act. If the Supreme Court upholds the individual mandate, which would require millions of uninsured Americans to purchase insurance, then the market will expand considerably. Therefore, a favorable ruling would enable insurers like Aetna and Cigna to target the uninsured Americans directly, instead of marketing health care packages to employers.
But even if the individual mandate in the Affordable Care Act is struck down, Vega says that many insurers will likely continue their direct-consumer marketing campaigns. Why? Many healthcare providers believe their future economic success largely depends on their ability to market directly to the consumer. Therefore, they will continue designing, marketing and selling insurance packages tailored to individuals, the end consumer.
Although the NY Times article focuses primarily on marketing campaigns of healthcare providers, we may see a similar, albeit less dramatic shift in the way disability insurance companies market their products as well. Disability insurance companies are already focusing on the end consumer because, like healthcare providers, they believe that future economic success depends on their ability to reach people directly. Furthermore, it makes sense that disability insurers would implement similar marketing strategies as healthcare providers because often times the health insurance companies are also disability insurers, like Aetna and Cigna.
But actions often speak louder than words. Although disability insurers may try to alter their marketing strategies to reposition themselves as consumer-friendly companies, there likely will not be a corresponding shift in the way they treat disabled professionals when handling disability claims. Unfortunately, their own financial interests too often trump those of disabled persons.
Private Investigators “Pretexting” to Deny Disability Claims
Private investigators hired by disability insurance companies pretext to acquire your personal information from others. They do this by pretending to be someone else (often you), contacting people you know, and then probing them for your sensitive information. Pretexting is not only deceptive and unprincipled, but it may also be illegal. Private investigators engage in this conduct to produce evidence that will enable insurance companies to deny your disability insurance claim.
The Gramm-Leach-Bliley Act specifically addresses pretexting as it pertains to obtaining personal information from financial institutions. Many private investigators believe the scope of the Act is limited to pretexting with financial institutions only, therefore, they assume other pretexts—those not involving contacts with your financial institution—are legal. This is a misconception, however, according to Joel Winston, the Associate Director of the FTC, Division of Financial Practices. In an interview with PI Magazine, Winston clarifies the scope of the Act:
First, we should dispel the misimpression, if there is one, that the pretexting provisions of [the Gramm-Leach-Bliley Act] only apply if the pretexter is getting “financial information.” Actually, what the statute says is if you are getting any personal, non-public information from a financial institution or the consumer, that is covered by the statute.
(emphasis added). Winston also answers other questions about pretexting as they relate to private investigators. Although the Q-A session is mainly designed to illuminate private investigators of legal fences surrounding the practice of pretexting, it is also an excellent source of information for those who fear they might become victims of unlawful pretexts, or for people who want to learn more about the illegality of pretexting.
To view the article click here.
Report Says Insurance Software Unfair to Disabled Insureds
Many large insurance companies use claims software that enables them to “low-ball” consumers and manipulate claims payments, according to a new report from Consumer Federation of America. This software may also enable insurance companies to more easily deny disability insurance claims.
The report examines Colossus, injury evaluation software widely used in the insurance industry. According to the report, Computer Sciences Corporation (“CSC”) developed the software and originally marketed it to insurance companies as a cost-saving product. The marketing campaign changed quickly, though, as companies became concerned that the word “savings” would expose them to litigation—injured consumers could argue the so-called “savings” were actually a result of unjustifiably low claims offers. The “savings” concept was familiar to insurance companies, but according to the report, CSC never mentioned the “savings” word when it presented the software to the California Department of Insurance.
Even though CSC changed the marketing semantics, it did not modify Colossus in any important way. The report shows how insurance companies manipulate the software to achieve significant savings. These “savings” are actually the result of computer-generated “low-ball” claims offers and payments to consumers, according to the report.
To read Consumer Federation of America’s the full report click here.
Your Most Valuable Financial Asset
What is your most valuable financial asset? According to Chicago Tribune columnist, Gregory Karp, for most people “the answer isn’t in their golden eggs, but in the goose that laid them.” That is, their most valuable financial asset is not their car, house or retirement account, but their ability to make money.
When you suffer from long-term or short-term disability, you will likely be unable to continue working and, therefore, will lose your most valuable financial asset – your ability to earn money. For many Americans without disability insurance, this financial blow can be devastating.
For this reason, in his article entitled Disability Insurance Primer, Karp stresses the importance of long-term disability insurance and provides a basic overview of what disability insurance is, what it is not, and how to find an appropriate plan. The article is a good source for those seeking disability insurance or looking to change their current disability benefits plan.
Ed Comitz, disability insurance attorney in the greater Phoenix area, Tucson, and Flagstaff, also provides answers to frequently asked disability insurance questions. For example, in his blog post, Disability Insurance Policies: Which type do you own?, Mr. Comitz describes fundamental differences between individual, group and employer-sponsored disability insurance policies. In another post, How to Get a Copy of Your Disability Insurance Policy, Mr. Comitz explains the process of obtaining a copy of your policy from the insurance company. Finally, in How Specific is Your “Own Occupation”?, Mr. Comitz provides understanding about key terms within your policy and how insurers may try to classify these terms in a way to deny your disability insurance claim.
May 2012 is Disability Insurance Awareness Month
It is once again Disability Insurance Awareness Month, and while the insurance companies may like to celebrate by encouraging people to purchase disability insurance, we’d like to take this opportunity to repeat some information from one of our previous blog posts regarding what your disability insurer can and can’t legally do in Arizona if you file a claim.
What your disability insurance company can do
- Audit your billing records and tax returns
- Review your medical files
- Use a private investigator to conduct photographic and video surveillance
- Look at your public Facebook profile and photos
- Follow your tweets on Twitter
- Order an Independent Medical Exam
- Have their doctor opine about your disability
- Ask for a Functional Capacity Evaluation
- Contact your treating physician
- Schedule in-person interviews with you
- Interview your friends, family, co-workers and employees
- Demand precise quantifications of how you spent your time in every professional activity pre- and post-disability
- Pay your claim under a reservation of rights
What the disability insurance company cannot do
- Impose requirements on you that are not contained in your insurance policy
- Attempt to influence the opinions of independent medical examiners
- Misrepresent policy provisions
- Conduct abusive interviews
- Unfairly delay a decision on your claim
- Fail to conduct a timely, adequate investigation of your disability claim
- Destroy key documents
- Lie about actions taken on a claim
- Place their financial interests ahead of your contractual rights
- Force you to litigate by offering an unreasonably low lump-sum buyout
When it comes to claims investigation, disability insurance companies sometimes skirt the limits of what they can legally do. If you believe your insurance carrier might be acting in bad faith, contact an attorney to protect your disability benefits.
Unum’s CEO Gets a $750,000 Increase in Pay for an Annual Income of $12.2 million
While some disabled Unum insureds struggle to make ends meet while fighting unfair claim denials or termination of their benefits, the Times Free Press reports that Tom Watjen, the President and CEO of Unum, received a pay increase of $750,000.00 in 2011 — for a total annual income of $12.2 million — in reward for “delivering strong results in a difficult environment,” according to Unum’s compensation committee.
Watjen receives a base salary of $1.1 million, with the remaining $11.1 million tied to performance-related cash and stock incentives. In 2011, Unum had after-tax earnings of $887.6 million, an 11% return on equity, and $10.2 billion in revenue.
Even Unum CEO Admits Their Insurance Policy Language Is Confusing
As we have blogged many times, even seemingly straightforward terms like “total disability” or “appropriate medical treatment” in your disability insurance policy may have different meanings in the context of a disability insurance claim than they do in everyday English. In a video posted on YouTube, Jack McGarry, CEO, Unum UK, is surprisingly candid in addressing how their insurance policy language is confusing.
Insurance is so confusing, in large part because we’ve made it that way, the insurance companies. We use acronyms instead of words, we use lingo instead of language. We’ve made it easy for us to communicate with each other, but we’ve made it very, very difficult for consumers to understand what we’re saying, and we need to change that.
[Consumers] are confused by our products, they don’t understand the choices, they don’t understand the coverage, and one of the reasons they don’t understand it is because the language we use to describe it, they find it confusing, and a little scary, so we’re partnering with Plain English to help simplify the language we use to describe what we do so everybody can understand it.
While Unum is apparently taking steps to clarify the language in its policies in the United Kingdom, it is of little help to American insureds who purchased policies written in language that is, in the words of Unum’s UK CEO, ”very, very difficult for consumers to understand.” The help of an experienced disability insurance attorney to interpret the language of your policy can be critical in ensuring you receive the benefits to which you are entitled.
Will New Demands on Healthcare Professionals Lead to More Disabled Doctors?
A recent article by health insurance writer Allison Bell explains, from an insurance industry perspective, why the new administrative demands on health care professionals might lead to an increase in doctors facing disability:
[I]t seems reasonable to ask whether, for example, the new pressure to convert to electronic health records will lead to some physicians at small or understaffed practices to develop carpal tunnel syndrome and blurry vision from trying to enter, or at least, check, many of the records themselves. Will sleep deprivation related to an increase in workload cause or aggravate objective conditions, such as lack of exercise, obesity and high blood pressure, that will, in turn, lead to an increase in the number of doctors with disability insurance who suffer heart attacks. strokes and disabling car accidents?
Healthcare professionals: Do you think the push for electronic health records and the Patient Protection and Affordable Care Act will lead to an increase in disabled doctors?
Timing Is Everything: When to Discuss Your Potential Claim with a Physician
When it comes to disability insurance, your treating physician’s support can be critical to getting your legitimate disability claim approved. If your doctor can’t provide adequate documentation of your condition or is reluctant to get involved, there is a much higher chance that your claim will be denied. However, fully discussing your condition with a professional, compassionate treating physician will help ensure supportive medical records. When you are involved in a disability insurance claim, it is important to understand how to approach your treating doctor so that he or she can help you.
When to discuss your potential claim with a physician is an important timing issue. Instead of trying to enlist your doctor’s help at the very first visit, you should wait to talk to your treating physician until after he or she knows you and your condition well enough to opine accurately as to your ability to work. It is vital that you develop a relationship of trust and confidence with your doctor before inviting him or her to assist you in your claim. Physicians are often reluctant to support claims for disability insurance benefits if they question the motivations behind the claims. A physician who has treated, without success, the policyholder making a legitimate disability claim will be more willing to cooperate with the extensive process.
What is a Reservation of Rights?
When a disability insurance company is fighting a claim, it will often agree to pay benefits – but with a “reservation of rights.” What is a reservation of rights and how can it impact a legitimate disability claim?
When an insurer pays a disability claim under a reservation of rights, it is essentially providing a provisional payment. Though the insurance company may be sending you a check, it is not admitting that it actually has any liability under the policy. Instead, it is “reserving the right” to stop paying your disability claim if it can find evidence to deny it later. Once the company denies your disability claim, they can also demand you to repay them whatever proceeds they have distributed to you.
This practice is good for the insurance company, as it buys it extra time to investigate – and often later deny – a claim without putting it at risk of violating the laws against undue delay in payment. However, because the insurance company can still investigate the claim and then demand full repayment at any moment, the reservation of rights provides no peace of mind for the policyholder. Fortunately, a disability insurance attorney can protect you from this uncertainty by properly presenting your claim and thoroughly monitoring the insurance company’s actions to reach a beneficial result.
Disability Insurance Bad Faith: Different States – Part 7 (Washington)
A disability insurance company may be subject to a lawsuit for bad faith when it wrongly denies a claim. There are differences from state to state in what constitutes insurer bad faith. In previous posts in this series, we outlined the standards of Arizona, California, Colorado, Nevada, New Mexico, and Texas. In today’s post, we outline the bad faith law of Washington.
Insurance companies who use unfair claim settlement practices can be found to have committed bad faith under Washington’s tort law or under the Washington Consumer Protection Act. According to Washington law, an insurance company’s violation of the consumer protection statute constitutes an automatic unfair trade practice violation, and also a breach of the duty of good faith and fair dealing. If a policyholder brings a claim under the Consumer Protection Act, he or she will have to show economic (monetary) damages, but if he or she brings a tort bad faith claim, the injury need not be economic and can include emotional distress or other personal injuries.
The Statutes: R.C.W. 48.01.030 and Wash. Admin. Code § 284-30-330
The Rules: Washington regulations define the following as unfair or deceptive practices for settlement of insurance claims:
- Misrepresenting pertinent facts or policy provisions.
- Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
- Refusing to pay claims without conducting a reasonable investigation.
- Failing to affirm or deny coverage within a reasonable time after fully completed proof of loss documentation has been submitted.
- Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
- Compelling an individual disability claimant to initiate or submit to litigation, arbitration, or appraisal to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions or proceedings.
- Attempting to settle a claim for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
- Asserting to a disability insurance claimant that the company has a policy of appealing arbitration awards in favor of insureds for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
- Delaying the investigation or payment of claims by requiring a first party claimant or his or her physician to submit a preliminary claim report and then requiring subsequent submissions which contain substantially the same information.
- Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
- Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
- Failing to expeditiously honor drafts given in settlement of claims.
- Failing to adopt and implement reasonable standards for the processing and payment of claims after the obligation to pay has been established—normally within 15 business days after receipt by the insurer or its attorney of properly executed releases or other settlement documents.
- Negotiating or settling a claim directly with any claimant known to be represented by an attorney without the attorney’s knowledge and consent.
The Tort Law Standard: An insurance company’s actions can be considered bad faith if its breach of the insurance contract was unreasonable, frivolous, or unfounded.
Disability Insurance Bad Faith: Different States – Part 6 (Texas)
The latest installment in our series of blog posts outlines the insurer bad faith law of Texas. Previous posts covered similar laws in Arizona, California, Colorado, Nevada, and New Mexico.
The Texas statutes and bad faith tort law are closely related. An insurance company’s bad faith gives rise to a violation of the Deceptive Trade Practices-Consumer Protection Act and Texas Insurance Code. If an insurance company has not acted in bad faith, it cannot be liable under the statutes. Ultimately, a private individual whose disability insurance claim was unfairly denied can bring an action against the insurance company under either the statute or the state tort law.
The Statute: Tex. Ins. Code Sec. 541.060
The Rules: It is considered by law to be an unfair or deceptive act or practice for an insurance company to engage in the following unfair settlement practices:
- Misrepresenting a material fact or policy provision to the person making the claim.
- Failing to bring about a fair, prompt, equitable settlement when the disability insurer’s responsibility to pay has become reasonably clear.
- Failing to provide a claimant with a prompt and reasonable basis, grounded in the policy or the applicable law, or the denial of the claim or a settlement offer.
- Failing to affirm or deny coverage or submit a reservation of rights.
- Refusing a settlement offer on the basis that other coverage may be available, except as specifically provided in the claimant’s policy.
- Refusing to pay a disability insurance claim without conducting a reasonable investigation.
- Undertaking to enforce a full and final release of a claim from a policyholder when only a partial payment has been made, unless the payment is a compromise settlement of a doubtful or disputed claim.
The Standard: A disability insurance company is liable for bad faith if it knew or should have known that it was reasonably clear that the claim was covered. An insurance company cannot escape bad faith liability merely by failing to investigate a claim so that it can contend that its obligation to pay was never reasonably clear.
Disability Insurance Bad Faith: Different States – Part 5 (New Mexico)
Over the past several days, we have been outlining the different standards that apply from state to state in determining whether a disability insurance company has acted in bad faith in wrongly denying a claim. Previous posts have outlined the standards for Arizona, California, Colorado, and Nevada. Today we look at the bad faith law of New Mexico.
New Mexico created a statute governing insurance company practices, called the Trade Practices and Frauds Act, in order to promote ethical settlement practices within the insurance industry. Anyone who has suffered damages as a result of a violation of that statute by a disability insurance company can bring an action to recover his or her damages. A policyholder can also bring a suit based on the same wrongful conduct under New Mexico’s tort law.
The Statute: N.M. Stat. § 59A-16-20
The Rules: Any and all of the following practices by an insurance company are defined as unfair and deceptive practices and are prohibited:
- Falsely representing pertinent facts or policy provisions relating to coverages at issue to insured.
- Failing to acknowledge and act reasonably promptly upon communications with policyholders.
- Failing to have reasonable standards in place for prompt disability claim processing and investigation.
- Failing to affirm or deny coverage of claims of insureds within a reasonable time after proof of loss requirements under the policy have been completed and submitted.
- Not attempting in good faith to come to prompt, fair and equitable settlements of claims in which the disability insurance company’s liability has become reasonably clear.
- Compelling insureds to institute a lawsuit to recover amounts due under their policy by offering substantially lower amounts than those ultimately recovered when the insureds have made claims for amounts reasonably close to the amounts they ultimately recover at trial.
- Attempting to settle a disability claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed ads accompanying or made part of a disability insurance application.
- Trying to settle claims on the basis of an application that was altered without the policyholder’s knowledge or consent.
- Delaying the investigation or payment of claims by requiring unnecessary, duplicative information.
- Failing to promptly provide an insured a reasonable explanation of the basis the insurance company relied on to deny a disability claim.
In our next blog post about Insurance Bad Faith, we will outline the standards that apply in the State of Texas.
Disability Insurance Bad Faith: Different States – Part 4 (Nevada)
Having outlined the tort law and statutes covering an insurers wrongful claim denial in the states of Arizona, California, and Colorado, we now take a look at the bad faith law of Nevada.
In Nevada, a disability insurance policyholder can bring a lawsuit for bad faith under tort law, or may bring a claim based on the Unfair Claim Practices statute, which was enacted as part of a comprehensive plan to regulate insurance practice in Nevada.
A policyholder can only sue for bad faith under tort law if his or her claim has been denied, but can bring suit under the Unfair Claim Practices statute whether or not the disability insurance claim is denied.
The Statute: Nev. Rev. Stat. § 686A.310
The Rules: Engaging in any of the following activities is considered to be an unfair practice for disability insurers:
- Misrepresenting to insureds or claimants pertinent facts or insurance policy provisions relating to any coverage at issue.
- Failing to acknowledge and act reasonably promptly upon communications with respect to disability claims.
- Failing to adopt and implement reasonable standards for the prompt investigation and processing of disability insurance claims.
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the policyholder.
- Failing to effectuate prompt, fair and equitable settlements of claims in which liability of the insurer has become reasonably clear.
- Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
- Attempting to settle a disability claim for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
- Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured, or the representative, agent or broker of the insured.
- Failing, upon payment of a claim, to inform insureds of the coverage under which payment is made.
- Making known to claimants a practice of the insurance company of appealing from arbitration awards in favor of claimants for the purpose of compelling them to accept settlements or compromises less than the amount that was awarded in arbitration.
- Delaying the investigation or payment of claims by requiring a claimant or his or her doctor to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
- Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
- Failing to provide a prompt, reasonable explanation of the basis for the denial or settlement offer.
- Advising a claimant not seek a disability insurance attorney.
- Misleading an insured or claimant concerning any applicable statute of limitations.
The Tort Law Standard: An insurer fails to act in good faith and breaches the covenant of good faith and fair dealing when it refuses without proper cause to compensate an insured for a loss covered by the policy.
Disability Insurance Bad Faith: Different States – Part 3 (Colorado)
In this series of blog posts, we have been outlining the first-party insurance bad faith law of Arizona, California, and other states. Today’s post examines the bad faith law of Colorado.
Although the Colorado statute regarding unfair or deceptive acts or practices provides for state regulation of insurance companies and not for private lawsuits for damages, an insured can still bring a bad faith action against a disability insurer under Colorado tort law. Nevertheless, in determining whether an insurance company’s delay in paying benefits or its denial of disability benefits was reasonable, the court or jury can consider evidence that the insurer’s conduct violated the Unfair Claims Settlement Practices Act statute.
The Statute: Col. Rev. Stat. § 10-3-1104
The Rules: An insurance company must:
- Not misrepresent pertinent facts or policy provisions.
- Acknowledge or act reasonably promptly upon communications.
- Adopt and implement reasonable standards for the prompt investigation of claims.
- Conduct a reasonable investigation based upon all available information before refusing to pay a disability insurance claim.
- Affirm or deny coverage within a reasonable time.
- Attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.
- Not compel insureds to institute litigation to recover amounts due under their policies by offering substantially less than the amounts ultimately recovered in legal actions brought by the insureds.
- Not attempt to settle a claim for less than the amount that a reasonable person would have believed he or she was entitled to based upon the insurer’s advertising or policy application materials.
- Not delay investigation or payment by requiring submission of multiple forms containing substantially the same information.
- Promptly provide a reasonable explanation of the basis in the policy or law for a claim denial or compromise settlement offer.
The Tort Law Standard: Disability insurance companies can be liable for first party bad faith if they act unreasonably and with knowledge of or reckless disregard of their unreasonableness.
In our next post, we will review the insurance bad faith standards for the State of Nevada.
