INSURANCE COMPANIES: DELAY

Photo by Padams

Delay.  We are used to delays.  Delays are frustrating, they show up and impede our ability to get where we are going, or to do what we want to do.  However, delays are also, normally, unrelated to our specific, individual goals and plans.  They are normally a biproduct of some larger operation, take, for instance, a traffic light.  Traffic lights delay our travel, but municipalities do not operate traffic lights to cause us harm, when traffic lights operate properly they contribute to an organized and safe flow of traffic.  So, we tolerate the individual delays caused by traffic lights because we understand their function. Unlike this acceptable kind of delay, the delays caused by insurance companies are tactics, they are weapons designed to break your resolve, and to otherwise advance the insurance company's interests ahead of your own.

Insurance companies delay everything.  They delay responding to reports of claims, fairly analyzing claims, providing the basis for their decisions, and, if an insurance company becomes involved in a lawsuit, things get even worse.  Then, claimants encounter an entire new package of delays, nearly all of them having to do with discovery, and honest, fair settlement negotiations.  For this, and for many other reasons, Washington has attempted to level the playing field to give claimants a fair chance through what is called the Insurance Fair Conduct Act.  This law works in the favor of individuals, to give individuals protected rights against insurance companies.  Some of these rights of individuals relate to the goal of protecting individuals from unreasonable delays caused by insurance companies.  Here is an example of a specific protection for individuals, to help individuals in the face of insurance company delay:

"The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices of the insurer in the business of insurance, specifically applicable to the settlement of claims:

(16) Failing to adopt and implement reasonable standards for the processing and payment of claims after the obligation to pay has been established....[P]rocedures which are not designed to deliver a check or draft to the payee in payment of a settled claim within fifteen business days after receipt by the insurer or its attorney of properly executed releases or other settlement documents are not acceptable.  Where the insurer is obligated to furnish an appropriate release or settlement document to a claimant, it must do so within twenty working days after a settlement has been reached."

WAC 284-30-330(16).  What this means - in part - is that insurance companies enter a world of pain if they settle claims, and then withhold the settlement funds, or the settlement documents following a settlement.  Of course, just because a specific practice is prohibited, doesn't meant that an insurance company won't try to get away with doing it.  Delay in providing settlements funds, or settlement documents, is incredible frustrating.  For many clients, getting the settlement funds promptly is important, especially if the client is facing financial difficulties.  At the end of a case, clients often feel like they have been through a lot, and that they have jumped through hoop after hoop in order to met all of the obligations that are part of the claims process. For these clients, it is incredibly frustrating to call their personal injury lawyer, to ask about the settlement funds, and to find out that the insurance company is playing games with the funds.  The key is to anticipate the headaches caused by the delay of settlement funds and settlement documents before these delay tactics begin.  Many tools are available to attorneys to do this, including, to build requirements and sanctions into the initial settlement agreement at the time settlement is reached, to create the proper incentives for the insurance company to behave reasonably.
   

Justice Scalia: "Because we have an agreement which says that the insurance company gets all the money."  

(Read: "Where's the money, Lebowski?")  

Photo by jvl-/

On November 27, 2012, the United States Supreme Court heard the case of US Airways, Inc. v. McCutchen.  By "heard," I mean that the attorneys for the parties argued their positions to the Supreme Court.  This case is very important, and the Court's decision will have a great impact on personal injury cases involving health insurance plans.  Here's how.

First, what is subrogation?  If you don't know, don't feel alone, some of the Justices asked the attorneys arguing the case the same question. Subrogation is a general term for a right of reimbursement.  Subrogation is a doctrine that courts use to allocate responsibility for payment according to who should bear the cost.  In the insurance world, subrogation occurs when an insurance company makes a payment that someone else is obligated to pay, and then tries to recover its payments.  Separately, a right of reimbursement is a right to be reimbursed for payments made, from specific funds.  In personal injury cases, the fund is the settlement that the injured person recovered from the at-fault party.

Health insurance companies often insert language into the insurance plan with the intent of creating a right of reimbursement.  These insurance companies want to be reimbursed for the medical benefits that they pay from funds obtained from third parties (i.e. the at-fault driver's auto policy, or the injured person's auto policy).  This is particularly true of what are called ERISA plans. ERISA is a federal statute that governs certain employer maintained health plans.  ERISA is complicated and lengthy, and it is often the subject of Supreme Court review.  It was again in McCutchen.  The issue in McCutchen was whether a court has authority to deny an ERISA plan full reimbursement for benefits, even though the plan language provides for full reimbursement.  To put a fine point on the issue, the following is a simplified version of a factual scenario that could give rise to this issue: (1) X has health insurance through his employer's plan; (2) the plan is an ERISA plan; (3) Y drives negligently and injures X; (4) X's health insurance plan pays for some of his accident related medical treatment; (5) X obtains a settlement from Y; and (6) X's health insurance company demands its payments made, from X's settlement.

In reading this, you might be surprised to learn that such a thing is even possible.  That is, that your health insurance plan may go years collecting premiums, and then, in the event that it is obligated to pay for your medical care, recover its payments made from you.  After all, you hired a personal injury attorney, you took on the risk of obtaining a recovery from the negligent driver, you took on the cost of obtaining a recovery, and while your case was progressing, the plan sat back, collected more premiums, and took no action to make its recovery.  Then, at the end it demanded a recovery without having shared in the risk or cost that you took on in obtaining the recovery.  What's worse, the plan's recovery might deprive you of full compensation, depending on how your case turned out.  In McCutchen, it was particularly ugly as due to the limited insurance funds available, and after attorney fees, McCutchen recovered less in settlement than the demand from his health insurance policy for reimbursement.

Courts have found this result unfair, and in Washington, courts have tools to resolve the unfairness.  For example, courts in Washington rule that because the insurance company is obtaining the benefit of the injured person obtaining a recovery (i.e. reimbursement), the insurance company is required to share in the cost of obtaining the recovery, including in the injured person's attorney fees and costs.  Only fair, right?  Unfortunately, ERISA jumps in and preempts (displaces) state law, meaning that an ERISA plan can avoid state laws, like the Washington cost and fee sharing law.  If successful, the ERISA plan can then recover its payments made without sharing in the cost of recovering them.  So again, the question in McCutchen is whether the court has authority to refuse to order full reimbursement to the ERISA plan, and require the ERISA plan to share in the costs of recovery.

Why does this matter?  It all goes back to how many hands are going to reach into your settlement, and what are they allowed to take.  If the Supreme Court in McCutchen rules that courts have no authority to apply longstanding doctrines designed to produce fair results, then ERISA plans win, they obtain full dollar for dollar reimbursement, and they can deprive injured people of their settlements.  If McCutchen wins, then individuals win, they get to keep their settlements, and all the insurance companies get is the premiums that you pay every month...wait, what's wrong with that?

P.S.  The quote at the top is Justice Scalia's explanation for why the plan should get what it wants, i.e. full reimbursement.