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.
What Happens If Your Plan Description Doesn’t Match Your Policy’s Terms?
Many people aren’t used to reading insurance policies. With their legal clauses, insurer-defined terms, and dry content, understanding them can be a challenge for insureds. For these reasons, disability insurers provide plain English summaries of their disability policies, both for marketing purposes and as a guide to benefits. But what happens if you rely upon the plan description in filing a disability claim only to be told that the actual policy language precludes your claim? Your insurer wouldn’t be alone in exploiting a situation where your plan description doesn’t match your policy’s terms.
In the recent case of Weitzenkamp v. Unum Life Insurance Company, the Seventh Circuit Court of Appeals addressed such a discrepancy in a disability insurance policy and plan description. Susie Weitzenkamp was diagnosed with fibromyalgia, chronic pain, anxiety, and depression—all self-reported symptoms. Her summary plan description listed a twenty-four month restriction on disabilities due to mental illness and substance abuse. What the summary failed to mention, however, was that the policy also had a twenty-four month cap on benefits for disabilities primarily based on self-reported symptoms. Ms. Weitzenkamp suddenly found her benefits abruptly terminated.
On appeal, the Circuit Court noted that a summary plan description is intended to be a “capsule guide [to the plan] in simple language.” The relevant law required that the summary include “the plan’s requirements respecting eligibility for participation and benefits” and “circumstances which may result in disqualification, ineligibility, or denial or loss of benefits.” Because the summary failed to mention this important policy provision denying benefits for self-reported symptoms, it violated federal law. The court prohibited Unum from relying upon the policy provision in denying Ms. Weitzenkamp’s claim, reinstating her past benefits though still leaving her to prove her ongoing eligibility under the merits of the policy.
This case illustrates but a portion of the complexity in disability insurance cases. What can physicians do to protect themselves? It is important to thoroughly understand both your actual policy and the insurer’s marketing literature. Physicians should retain all insurer-provided materials from both before and after the purchase of their policy, and consult with an experienced disability insurance attorney should they need to file a claim.
