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By Steven Edmondson

It is my opinion the high deductible health insurance policies are illusory.  According a recent news article, average premiums for family coverage is $12,680 per year.  In the past attempts to slow the increasing cost  (i.e. increasing premiums paid for coverage, health care plans with high deductibles were developed.  In fact, the number of persons enrolled in these high deductible plans (plan with deductible of $1000 or more increased from 12% to 18%.  Despite this trend, premiums continued to rise and in many situations rose faster than wages.  Although this type of policy may make coverage more affordable, it discourages utilization.  This is a windfall for the insurer, the company continues to collect premiums without incurring liability for coverages.   Utilization is discouraged because an individual must pay a large sum for basic preventive health care services and minor medical issues.  In effect there is no coverage.  The only medical care covered is either a major medical expense from hospitalization or surgery.  When you consider that the majority of the “risk pool” is employed and presumably healthy, the selection seems to favor the insurer.  At a time when the economy is struggling and many are without the means to pay high deductibles this type of policy would seem to be counterproductive to promoting the health of the nation.  Please comment with your thoughts.

By Ian Wasser

 

Public Policy and the Means-End Test

In New York LIfe v. Dodge, the dissent argues that the regulation of insurance is an exercise of state police power.  In determining whether a state can regulate various aspects of a life insurance policy, a means-ends test is applied.  In this case, the subject matter is life insurance, which is regulated by contract.  The specific end or goal is for the state to protect the net value of insurance by regulating forfeiture provisions.  The means used by the state to accomplish this end are non-forfeiture laws, which serve to protect the value of life insurance policies.  In applying this test, the dissent concludes that a state can prevent foreign insurers from abusing the rights of their citizens.

The court in Griffin v. McCoach similarly agrees that a state has the police power to regulate life insurance contracts.  Specifically, the Griffin court held that there must be an insurable interest in all named beneficiaries to a life insurance policy.  In coming to this conclusion, the court suggests that public policy should dictate who can be a beneficiary to a life insurance policy.  Applying the means-ends test of the dissent in Dodge to the the case in Griffin yields a similar result.  The state interest is to prevent members of the public from having life insurance contracts placed upon their heads by strangers.  The means used by the state to accomplish this end are regulation of life insurance.

In reconciling the different holdings in Dodge and Griffin, it is important to consider the prevailing state interest.  In Griffin, the state interest was to prevent potential contracts for murder.  In Dodge, the state interest was to protect the value of life insurance policies against ill-advised contracts.  The Dodge court was also forced to balance the counter-interest in freedom of contract.  Clearly, the state interest in Griffin is far more compelling when compared to the state interest in Dodge.  Thus, Griffin stands in direct opposition to Dodge, simply by application of a means-end test for the regulation of certain aspects of life insurance by states.

By Rebecca Owens

Does anyone else think it’s sad, pitiful, embarrassing [insert any other synonym for pathetic] that it has taken what amounts to a $700 billion bribe for the Senate to pass a bill putting mental health coverage more in line with other types of health insurance?  I’ve heard the disparity between mental health and regular health coverage called discrimination; ludicrous is more apt.  From what I have read in various articles, the discrepancy is something to the effect of a 30% increase in co-pay with only 10% the limit of health insurance!

By Quianta Moore

The statistic that health insurance is the No. 2 cause of death is quite shocking. Even if those numbers are exaggerated, any deaths caused by the stress and agony of dealing with insurance companies seems to defeat the purpose of health insurance. The article focuses on high deductible HMO’s, which made me think of McCain’s health plan. We did not fully address in class the consequence of allowing people/employers to purchase health insurance across state lines. If certain states are more “favorable” to insurers by not requiring coverage for pre-existing conditions, then most healthy people will choose to purchase insurance in those states because the plan will be cheaper. That leaves all the high risk sick people in the states that require coverage for pre-existing conditions. McCain proposes these states have a “high risk coverage” for the sick, but because the so called “community rating” will be based on all sick people the premiums will either be much higher or the deductibles will be higher or both. If the article is true, do we care that people are dying as a result of these policies? Also, who will pay for those who cannot afford these new deductibles/premiums? It seems like the states who require coverage for pre-existing conditions will ultimately be burdened with this high risk pool and have no incentive to continue to have laws that require coverage for pre-existing conditions. I guess eventually the healthy people then would be evenly spread out once no state requires pre-existing conditions, but how long will that take? Overall, I think it would be okay for people to purchase plans in the individual market, but the adverse selection problem really bothers me. Does anyone else see a solution to this problem?

By Ian Wasser

Recently, I went to the doctor for my annual checkup.

It was time for me to update my immunization against tetanus and diptheria.  A standard immunization, and one that would seemingly be covered by health insurance.

I don’t have the student health insurance plan.  Instead, I am insured through my wife’s employer.  We have a good health plan–a nice, high deductible PPO plan that covers almost everything.  Not gold-plated like a Congressional plan, but certainly not the bare minimum of coverage.

Much to my surprise, I learned that routine immunizations for people over 18 are not covered.  The only exception is yearly influenza vaccination.  I checked my policy–sure enough, immunizations were listed as an exclusion.

The interesting part is that while immunizations are excluded, the administration of injectable medicines are covered.  The doctor’s office billed the immunization as two charges–one for the medicine and one for the administration of the drug.  Both charges were rejected by my insurance on the basis of being excluded.

My question is this:  I agree that the cost of immunization is not covered.  That is clear from the policy language.  The immunization was injected, however, and injections of medications are not excluded from the policy.  Is it worth a fight to get the insurance company to cover the cost of receiving the injection?

And, more importantly, shouldn’t all health plans include coverage for routine immunizations?  Why don’t states mandate such coverage?  After all, people only need these immunizations on an infrequent basis.  And failure to take the precaution of getting immunized creates a much greater risk for the insurance company–should I become infected with tetanus, the cost of treatment would certainly exceed the cost of immunization.

I came across this article about a month ago (sorry for the delay). http://news.cincinnati.com/apps/pbcs.dll/article?AID=/AB/20080908/ENT09/809080314/

To sum it up, MassMutual is giving away free life insurance to parents of dependent children who make between $10,000 and $40,000 a year. MassMutual will pay the premiums, and once the parent or guardian dies, MassMutual will put $50,000 into a trust for the dependent child to pay for college. This is a nationwide program. Here is where you can get more information about the program: http://www.massmutual.com/mmfg/pdf/lifebridge_eligibility.pdf

I looked at this searching for something dealing with insurable interest. I am not familiar with the insurance laws in Ohio (where I saw the news story), but we’ve studied that here in Texas, there needs to be an insurable interest in the life of the insured. Therefore, how would this work for a Texan? In the literature on MassMutual’s website, it says:

“We realize that all children – including yours – are the future of our country. And the more educated our future leaders are, the better prepared they will be to help meet the challenges of tomorrow.”

Is that enough of an insurable interest–that the parent, who cannot make more than $40,000 annually, will in the event of death not be able to pay for his or her child’s college tuition? In the end, who will challenge it–not the dependent or the insurance company who knowingly entered the contract? Any thoughts here or am I missing something?

By Laura Range

I stumbled across this article and thought I would share it with our class as I thought it was interesting in light of our ongoing discussions of health insurance.   To summarize, the Alabama State Employees’ Insurance Board has approved a new plan that will charge employees an extra $25 to cover health insurance premiums if the employee elects not to take advantage of free health screenings designed to detect health risks, such as obesity, high blood pressure, etc.  As we’ve discussed, there has been an increased push across the country to incorporate wellness plans and focus on preventative medicine, and I thought this was an interesting example of the idea in practice.  Here’s the link:

http://www.theroot.com/id/48533?GT1=38002

Laura

By Adrienne Kvello

 

Recently, a representative of Heath Ledger’s daughter sued ReliaStar Insurance Company for breach of good faith and fair dealing.  In addition, the claim alleges that Reliastar caused the plaintiff severe emotional distress.  (how a trust suffers emotional distress is beyond me)  The complaint can be found here: http://www.aolcdn.com/tmz_documents/0929_ledger_1_opt.pdf

 (hat tip to www.tmz.com for the documents). 

 

The Batman star applied for a $10 million life insurance policy with the company in June 2007 and named a trust for the benefit of his 3 year-old daughter as the primary beneficiary.  Six months later, in January 2008, Ledger was found dead in his apartment of an apparent overdose of prescription drugs.  The trustee claims the insurance company has acted in bad faith by failing to pay the claim in a timely manner, by investigating a death that was clearly accidental, and by engaging in “post-claim underwriting” by investigating Ledger’s health after a claim had been filed. 

 

Reliastar has answered, stating that it is entitled to investigate whether the death was a suicide and whether Ledger made material misrepresentations on the application—both of which could relieve it of liability on the policy.  It further claims that it has been impeded in its investigation because the beneficiary has not cooperated in answering questions about Ledger’s health history.  Its answer can be found here: http://www.aolcdn.com/tmz_documents/0929_ledger_2_opt.pdf.  Prior to the suit, Reliastar had not attempted to rescind the policy under California Insurance Code §§ 330-359.  It appears Reliastar has not cross-claimed for rescission yet, but is simply claiming it is still investigating the claim.  (Under California law, insurance companies are entitled to rescind policies based on material misrepresentations even after the death of the insured.  See O’Riordan v. Federal Kemper Life Assur., 114 P.3d 783 (Cal. 2005)). 

 

When the beneficiary is a three year old child, the insured was a beloved young actor, and the death has been ruled an accident, it is easy to jump to the conclusion that the insurance company is wrong for not paying the claim.  But is this right? 

 

Under California law, insurers have a duty of good faith and fair dealing in paying out insurance claims.  Part of this duty is codified in the prohibited acts section of the unfair competition and deceptive trade practices act.  Section 790.003 of the insurance code outlines prohibited acts, which include “[n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” and “[f]ailing to affirm or deny coverage of claims whithin a reasonable time after proof of loss requirements have been completed and submitted by the insured.”  

 

The question then becomes, is liability “reasonably clear,” and is seven months an unreasonable amount of time to withhold payment and not affirm or deny the claim?  In my opinion, the answer is “yes” on both accounts.


Post-claim Underwriting

 

Plaintiff cites Hailey v. California Physician’s Service, 69 Cal. Rptr.3d 789 (Cal. Ct. App. 2007) for the proposition that post-claim underwriting is barred by California law.  However, this case involves an interpretation of California Health & Safety Code § 1389.3, which prohibits post-claim medical underwriting for health insurance claims only.  Section 10384 of the insurance code prohibits post-claim underwriting for disability insurance, but no such statutory protection is provided for life insurance policies.  I’m not sure what the plaintiff’s attorney was thinking with this claim, but it’s a clear stinker unless the judge decides to invent statutory protection that doesn’t exist.  Insurance companies retain the right to investigate claims and even rescind policies after a claim has been made.  O’Riordan v. Federal Kemper Life Assur., 114 P.3d 783 (Cal. 2005)). 

 

Material Misrepresentations

 

Reliastar claims that Ledger made two material misrepresentations in his application.  First, it claims he lied about not taking prescription drugs, when he had a prescription for Ambien at the time of the application.  Second, it claims Ledger lied about not taking illegal drugs.  Ledger’s death was reportedly caused by prescription drugs, and it does not appear that Reliastar has any credible evidence that Ledger took illegal drugs.  Therefore, I think they lose on this claim.  Reliastar does, however, appear to have some evidence that Ledger had a prescription for Ambien at the time of the application.  Ledger also had traces of other prescription drugs in his system.  So it must be determined whether lying about the prescription would be a material misrepresentation.  Under California law, “materiality is determined soley by the probably and reasonable effect which truthful answers would have had upon the insurer.”  Thompson v. Occidental Life Ins. Co., 513 P.2d 353 (Cal. 1973).  “The test to determine materiality is a subjective one; the critical question is the effect truthful answers would have had on the particular insurer, not on some “average reasonable insurer.“”  West Coast Life Ins. Co. v. Ward, 133 Cal. App. 4th 181 (Cal. Ct. App. 2006)(internal quotations and citations omitted).  In my opinion, Reliastar would have issued the policy even if Ledger had revealed his prescription for Ambien.  Ambien is a commonly prescribed sleep aid and its use does not connote poor health on the part of one who takes it.  Even if Ledger had prescriptions for a few drugs at the time of the application it is unlikely the company would have denied the policy when the insured was clearly young and in good health.  While it is a close call with the subjective test, I think Reliastar is liable on the policy.     

 

Suicide

 

Because Ledger’s death was within two-years of the issuance of the policy, if Ledger committed suicide, Reliastar would only be liable for the premiums paid.  The New York medical examiner has ruled Ledger’s death an accident.  However, the life insurance company is not bound by this determination.  Under California law, however, Reliastar bears the burden of proving that Ledger had suicidal intent.  Searle v. Allstate Life Ins. Co., 696 P.2d 1308 (Cal. 1985).  In other words, the company has to prove that Ledger intended to commit suicide and appreciated the nature of his actions.  It appears that Reliastar has no evidence that Ledger had suicidal intent, and certainly not enough to meet its burden.  As a young successful actor with a great family and career, the evidence seems to point the other way.  In my opinion, Reliastar’s liability seems “reasonably clear” here.

 

Non-cooperation

 

Finally, Reliastar claims that it has not breached its duty of good faith in paying the claim because the plaintiff has not cooperated in its investigation.  Under California law, “there can be no “unreasonable delay” until the insurer receives adequate information to process the claim and reach an agreement . . .”  Globe Indemnity Co. v. Superior Court, 8 Cal.Rptr.2d 251 (Cal. Ct. app. 1992).  Based on the pleadings alone, it is difficult to determine how much information Reliastar has and how much the plaintiff has cooperated in the investigation.  However, based on the information widely available on Ledger’s life, Reliastar should have enough information to determine if liability is “reasonably clear.”  In my opinion, attempting to depose individuals and search through medical records which plaintiff does not have access to is a fishing expedition and Reliastar is simply hoping it can find something to support its position.  This would be a breach of good faith.    

 

Conclusion

 

In my opinion, liability on Ledger’s policy is reasonably clear and Reliastar should have paid the claim by now.  While seven months is not necessarily an unreasonable amount of time to investigate a claim, given the incredible amount of widely available information on Ledger, Reliastar should have made a determination on the claim by now and at least affirmed or denied coverage.  Failing to do so is a breach of good faith and fair dealing. 

 

Thoughts?

I like insurance law for a lot of reasons. It has profound economic, social and linguistic issues, as well as the starkest depictions of human and organizational greed. It also has THE BEST cases of any of the courses I teach. In part, I think this is because the difficult language of insurance policies becomes this bizarre filter on the social and political events of the day. I have a new entry on my list of favorite insurance cases: Beley v. Pennsylvania Mutual Life Ins. Co., 95 A.2d 202 (Penn. 1953). The case involved a $1,000 life insurance policy that, among other things, provided that “in the event that the Insured engages in military service in time of war, the liability of the Company shall be limited to the return of the premiums paid hereunder ….”  Six years after having procured this policyand having named his mother as beneficiary, the insured, Andrew Beley, died in active combat in Korea. So, the question as it ended up in the Pennsylvania Supreme Court was whether the Korean War was a war. A majority of the court ruled it was NOT. While this might be startling in and of itself given the million plus combatants who died in that multi-year not-war that has somehow been mislabeled in all the history books, what is equally stunning is the court’s rhetoric in disposing of the issue. 

How often does one see phrases this excoriating or this forceful in a judicial opinion? Here are three quotes from the dissent of Justice Chidsey.

“How is it humanly possible to say that the Korean War is not war?” 

“With due regard for my colleagues who differ with me, a holding that under the provisions of this policy the Korean War is not War — in the face of 128,000 American casualties — is so unrealistic and legalistic as to be utterly unjustifiable.” 

“Equally important, how is it possible to ignore or distort those clear, unambiguous words ‘accidental death’? It is instantaneously offensive to our knowledge, our experience and all our senses to say that this was an accidental death.” 

But Justice Chidsey’s deserving excoriation of the majority opinion was an exercise in rhetorical restraint compared to Justice Michael Angelo Musmanno‘s concurrence. There the former Admiral, presiding judge at some of the Nuremberg Trials and witness in Jerusalem against Nazi Adolf Eichmann launches into a multi-page paean to the United Nations intervention– nay, Holy Crusade —  in Korea against the evil Soviet Union as well as a presagement of the Domino Theory of foreign relations. While the relevance of his comments to poor Mrs. Beley’s insurance claim was hardly apparent, the passion with which they were uttered is unmistakeable and seldom matched in judicial opinions. Here are a few excerpts. And, trust me, for everyone listed here, there are two others almost as forceful.

“It [war] may have a locale not ordinarily associated with its gunpowder connotation, as, for instance, Milton speaks of ‘impious war in heaven,’ and in Psalms (lv. 21) we find: ‘The words of his mouth were smoother than butter but war was in his heart.'” (emphasis in original)

“For five thousand years of recorded history the earth has run red with the blood of war. The people of the various nations convulsed by these wars were powerless to resist the orders of kings, queens, kaisers, sultans, emperors, pashas and other absolutists who ordered them into battle in order to achieve land, loot, power or glory or even to satisfy sadistic whim or caprice entirely foreign to the welfare of those who did the fighting.” (note superb use of meter)

“Following the termination of each war the monarchs or chieftains returned to their respective thrones or tribal mansions, leaving the dead to bury their dead and the maimed and crippled to manage their misery as best as they could. No impartial attempt was ever made, by any responsible body, to determine who was right and who was wrong, because both sides in so catastrophic a voluntary enterprise could not have been in the right.” (cf. Jesus Christ, “Let the dead bury their dead.”, Luke 11:60). 

“Humanity had been crucified between the thieves of Arrogance and Greed, and yet there was no adjudication anywhere as to who was guilty for driving the nails.” (theological metaphors continue)

“From time to time mankind pleaded for a cessation of this licentious extermination. Societies of brothers were formed pledged against armed conflict, religious bodies held aloft the holy symbols of peace, but these societies and organizations were scattered and trampled under the galloping hooves of Conquest and Domination when tyrants drew the sword to carve for themselves greater territories and greater power.”

“In the later part of 1950 Andrew Beley sailed from the shores of American under that [the UN] banner. He wore a soldier’s uniform, he bore a soldier’s arms, he was skilled in the art and science or war but his mission was Peace. Never was a sword drawn, a canon fired or a bullet discharged in a worthier cause than that to which Andrew  Beley dedicated himself as he neared the bleak and gnarled land of Korea. And never did one offer a holier tribute to that cause than did Andrew Beley when on March 7, 1951, he gave his life for peace and the preservation of the liberties which every American understands in the word Peace.”

“Americans generally believed in 1945 that the blossomtime of Hope had arrived, and that the Four Horseman of the Apocalypse would never again gallop their martial steeds across the bleeding face of the earth.” (more theological metaphors)

The other remarkable aspect of the case is, in some sense, the skill of the justices in making their points. The opinions evidence a stunning amount of research on issues of history and international law. I doubt the Pennsylvania Supreme Court contained many of the materials cited in the case. Bill Gates, Tim Berners-Lee, and other progenitors of the electronic research revolution had yet even to be born. And, bizarre as at least certain aspects of the Musmanno concurrence may appear to modern eyes, it, and to only a somewhat lesser extent the other opinions are written with a meter and verve seldom seen outside the works of Benjamin Cardozo or, in his own way, Richard Posner. To have done this without the opportunity for continual revisions afforded by word processors induces the same sense of grotesque inferiority as a reading of Shakespeare, Austen or Nabokov.

So, why should we care about this 55 year old opinion? It exemplifies the phenomenon of insurance law turning into crucible for debate over the cares, neuroses, conceptions and misconceptions of public good that tend to prevail at any point in time. At that time, poor Andrew Beley was unlikely to have alternative ways of providing for his family’s support in the event of his premature death in combat. The SGLI program that since 1965 has incentivized the recruitment of soldiers, even children soldiers, by offering highly subsidized life insurance did not exist in the Korean conflict. Moreover, it is possible that the major reason for life insurer’s exclusion of military death — adverse selection — was not actually present in the case given the significant possibility that Beley had purchased the policy at the age of 21 or 22 when his future military service was not yet contemplated. Moreover, insureds who want to take advantage of private information about their life trajectories usually buy policies larger than $1,000, not a huge sum of money even in 1945. And here we had an insurer “chintzing” over a $1,000 to help a family when the country needed, it was perceived, to help servicemen in a life-or-death struggle against communist aggression in Korea. 

Perhaps from today’s perspective, we can view Beley with mixtures of awe, puzzlement or even smug amusement. The rhetoric does seem way, way over the top. And yet, may we not be writing, right now, opinions, that will be similarly regarded 55 years from now. One wonders, for example, what will be made by the law professors of 2063 when they study judicial opinions that take seriously the issue of whether something is a  “flood” when land areas ordinarily dry are submerged by storm surge. Or, perhaps, the readers of this blog can submit other candidates from today that our grandchildren will read with equivalent amazement.

Footnote. If anyone wants an example of an absurd argument made by an insurer in liigation, consider this one. The insurer argued that because Congress had never technically declared World War II over as of March, 1951, the battle against the Axis Powers was, within the meaning of the insurance contract, still going on at the time of Andrew Beley’s death and barred his claim. An interesting reconceptualization of history that did not impress even the dissent.

Some of the many readers of this blog may have noticed that we’ve been off the air for a bit. I’m afraid Ike took a significant toll on the attention of most Houstonians. So, at the risk of digressing a bit, here are some stray thought.

1. Houston exists. It is a major American city. I understand that Wall Street melted down while we were struggling, but still it did feel like a bit of a kick to be relegated to the back pages of the New York Times and other national media — CNN seemed to think the fate of an attractive victim of a possible serial rapist was particularly interesting a la Natalee Holloway, while others thought more intriguing Round 359 of Obama responds to Palin attack on Biden statement on media report of trooper investigation — while 2 million people were without power, food, water, gas and other things that separate us from the conditions in which many people in the world live daily. 

2. We need a better electrical utility infrastructure. The Houston Chronicle has an interesting story in which regulators and regulatees collaborate in an explanation of why so much of our power infra-structure remains vulnerable to hurricane. The argument appears to be that it is costly to reinforce power poles to the needed level and that some sort of cost-benefit analysis needs to be done. I’m all for cost-benefit analysis, but given the economic costs of shutting down this city for a week, not to mention the monetizable cost of misery and stress, there is no possible way that even gold-plated utility polls (although probably gold would not be the best material) would outweigh the costs of the status quo. I will cheerfully pay what it takes.

3. We are in for some major insurance battles in Texas. These will include (A) is surge an excluded flood for purposes of coastal property insurance policies? The early smart money will join the Texas Windstorm Insurance Association (TWIA) in saying it is excluded, see cases like this and this. If I’m correct, many surge victims will be relegated to their flood insurance policies, if they have one, and its $250,000 cap and other limitations. (B) TWIA liquidity issues. The Texas Windstorm Insurance Association is going to have some significant claims against them. To pay then, they are likely going to need to get their 63 reinsurers, many of whom have offices in Bermuda, promptly to write a 1.5 billion check. In my experience, reinsurers don’t write checks terribly swiftly and, given all the surge flood issues (see above), I’d be pleasantly surprised if they did so here. Right now, all that stands between TWIA policyholders and an insolvent insurer is the $370 million remnants of the TWIA catastrophe fund and a $430 million assessment that hopefully Texas insurers will actually pay swiftly notwithstanding the aforementioned Wall Street meltdown and the demands on cash flow imposed by non-TWIA policies. (C) Gory Business Interruption claims. These are policies that insure businesses not against physical loss but basically against loss of income occasioned by disaster. They are always difficult to adjust and given the special complexities here of interdependent power losses, government restrictions such as curfew, closures of areas, etc., are likely to provide fodder for insurance litigators for years to come.

4. Much more to say, but my day job beckons. Well, actually one more comment. While it is generally bad form to explain a joke, I have to remark that the opening sentence “Houston exists” is indeed a pun. It is a response to the appearance that we have been forgotten by major media outlets headquartered on the coasts. Do you think if New York got hit by a hurricane (not an impossibility) and all Manhattan lost power and Staten Island was uninhabitable media coverage would be subordinated the way it has been?  It is also an assertion that we are gradually clawing our way back.  We’re down, but not out. And let us hope that we really learn something from this experience. OK, now back to work for real.