litigation

By: Stephen A. Jackson

Hennen v. Metro. Life Ins. Co., 17-3080, 2018 WL 4376994 (7th Cir. Sept. 14, 2018).

Hennen worked as a sales specialist for NCR when she sought treatment for a back injury.  She was covered under her employer’s long-term disability plan insured by MetLife.  When physical therapy and surgery failed to resolve her injury Hennen applied for LTD benefits under the plan. Acting as the administrator, MetLife agreed Hennen was disabled and paid benefits for two years.  However, the plan had a two-year limit for neuromusculoskeletal disorders subject to several exceptions, one applies to radiculopathy.  Hennen argued she was entitled to benefits beyond the 2-year limitation because she has radiculopathy.

Hennen had a history of back problems with a surgery in 2003 and 2008 including fusing three vertebrae in her lower back.  In February 2012 she suffered a new back injury and sought treatment with a specialist in physical medicine and rehabilitation.  She was diagnosed with disc herniation and was treated with physical therapy and pain management techniques.  Failing conservative treatment an orthopedic surgeon recommended surgery and operated on Hennen’s L3-L4 disc herniation in September 2012.  At follow up appointments Hennen was struggling to sit for any extended period of time and she complained of bilateral radiating pain down the buttocks, posterior thighs, and to the knee.  An MRI was ordered that showed no nerve compression.

With no surgical option Hennen sought treatment from Dr. Buvanendran, an anesthesiologist who provided pain management.  The physician treated Hennen’s leg weakness and pain with a series of epidural injection.  He then diagnosed Hennen with post-laminectomy pain syndrome and lumbar radiculopathy.  The injections failed and so the anesthesiologist implanted a spinal cord stimulator.  It provided relief for a few weeks, but symptoms returned including recurrent leg weakness and tripping.  After the device was dislodged in a fall, Hennen had multiple surgeries to fix ongoing issues with it.

With the two-year limit on the horizon MetLife contacted Hennen’s doctors for information. Dr. Buvanendran responded that Hennen was unable to work due to post-laminectomy pain syndrome and radiculopathy.

MetLife then advised Hennen that her condition fell within the neuromusculoskeletal limit and that additional documentation was needed to support a diagnosis of radiculopathy.  Hennen had another MRI.   On October 13, 2014, MetLife wrote Hennen that her benefits were scheduled to end on November 11, 2014, under the neuromusculoskeletal limitation.  Dr. Buvanendran then faxed the MRI to MetLife, which showed a new annular fissure but no herniation or stenosis. MetLife’s reviewing physician opined the MRI did not show compression that would support a diagnosis of lumbar radiculopathy.

Hennen appealed and through help of counsel challenged MetLife’s conclusion.  She also submitted an EMG by Dr. Kipta, a neurologist.  Dr. Kipta found nerve-related abnormalities on the EMG and concluded it confirmed radiculopathy in four nerve roots as did an examination that showed diminished nerve sensation.  Another board-certified neurologist Dr. Malik, who supervised Dr. Kipta, agreed with his findings.

Dr. Adewumni, MetLife’s medical director reviewed Hennen’s appeal and agreed with Dr. Kipta that the EMG supported radiculopathy.  Concluding that Hennen satisfied the radiculopathy exception MetLife consulted with Dr. McPhee to assess her condition and asked him two questions, whether the medical file supported functional limitations and if so, what those limitations were. Despite the limited scope of these questions Dr. McPhee opined the EMG was negative for active radiculopathy with no abnormal activity recorded.  He also criticized Hennen’s self-reported pain levels as implausible and he found her doctor’s notes on muscle weakness inconsistent.

MetLife utilized Dr. McPhee’s assessment to reject the medical director’s conclusion and to decide that Hennen did not meet the exception for radiculopathy.  Dr. Buvanendran responded that the EMG confirmed radiculopathy without any doubt and that Hennen suffers from radiculopathy.  In response, Dr. McPhee prepared an addendum and opined it would be helpful for Hennen to have additional electrodiagnostic testing.  MetLife did not order an IME or additional testing as Dr. McPhee had recommended nor did MetLife explain why additional testing was unnecessary. Instead, MetLife upheld its decision the next day.

Hennen sued MetLife in the Northern District of Illinois seeking plan benefits under ERISA. Upon cross-motions the court granted summary judgment for MetLife, reasoning Hennen failed to offer evidence of active radiculopathy.  The court also found MetLife’s reliance on Dr. McPhee’s opinion was reasonable.

Upon appeal to the Seventh Circuit the court agreed that Hennen had shown MetLife’s decision to terminate benefits was arbitrary and capricious.  MetLife acted arbitrarily when it credited Dr. McPhee’s opinion over the opinions of four other doctors, including Hennen’s treating physician, two neurologists with clinical training in electrodiagnostic training, and MetLife’s own medical director. The arbitrary character is demonstrated by MetLife’s choice not to follow Dr. McPhee’s recommendation to order an IME and additional testing.

To reach the conclusion that that Hennen lacked “objective evidence” of active radiculopathy MetLife relied on Dr. McPhee’s opinion based solely on a file review without examining Hennen. MetLife acted arbitrarily in rejecting the opinions of every physician who examined Hennen who concluded she had radiculopathy. Those doctors’ opinions ad substantial medical support and Dr. McPhee was the only doctor who believed that radiculopathy was absent. But MetLife never asked McPhee to diagnose Hennen or make a finding of radiculopathy.  McPhee was only asked to assess Hennen’s functional limitations once Dr. Adewumni concluded Hennen met the plan’s radiculopathy exception.

Another indication of arbitrary decision-making was MetLife’s failure to heed Dr. McPhee’s recommendation to seek further testing and an IME.  MetLife chose not to follow up on Dr. McPhee’s advice and instead treated his original opinion as definitive and immediately sent Hennen a letter affirming the denial of benefits.

As a fiduciary, MetLife owed Hennen a duty to execute faithfully the terms of the plan. Here, MetLife took an extra step for its own benefit when it referred Hennen’s file to Dr. McPhee, but when Dr. McPhee recommend that MetLife take an extra step for Hennen’s benefit – to confirm whether his lone opinion was accurate – MetLife declined to take that step.  That was arbitrary and capricious.

The fact that MetLife acted arbitrarily and capriciously does not mean that Hennen is automatically entitled to benefits.  The remedy is to remand to MetLife, so it can reassess Hennen’s claim consistent with the court’s opinion and to correct the defective procedures and provide Hennen with the procedures she sought in the first place.

Related Articles

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

By: Andrew B. Bryant

Two recent federal district court cases highlight the importance of properly pleading (or not pleading) assignment of rights in an out-of-network provider’s state law complaint for payer reimbursement.

In the Southern District of New York, plaintiff/provider filed suit in state court against Aetna, bringing various state law claims based upon the insurer’s alleged failure to pay usual and customary charges for two medically necessary surgeries performed by the out-of-network provider. Aetna removed the matter to federal district court, asserting federal question jurisdiction via the position that the provider’s claims were preempted by ERISA. While ERISA claims can only be brought by a plan participant or beneficiary, Aetna contended that because the provider received an assignment of rights from the patient in the case at hand, the provider had achieved standing under ERISA. The district court disagreed, noting while assignments can create standing under ERISA, Aetna’s own insurance policy with the patient barred assignment of the patient’s rights to a medical provider. Therefore, the patient’s assignment to the provider was ineffective, and the provider never gained standing under ERISA. Aetna offered to waive the anti-assignment provision to keep the case in federal court, but the district court dismissed this offer as an attempt to circumvent the court’s lake of subject matter jurisdiction. The district court remanded, sending the matter brought solely under state law back to state court. See, Goldberg v. Aetna, 2018 WL 1226052 (S.D.N.Y. 2018).

In an unpublished opinion from the District of New Jersey, an out-of-network provider brought a state cause of action against insurance administrator Amerihealth, alleging state law claims based upon the defendant’s alleged failure to pay usual and customary charges for pre-authorized medically necessary services to the patient. In this case, the provider had obtained an assignment of rights from the patient but did not assert this assignment in its state court complaint. Defendant payer removed the case to federal district court, arguing ERISA preemption based on assignment. The district court remanded to state court, finding that the claims were not preempted by ERISA. The district court noted that while an assignment may have been obtained, the provider did not to assert rights under the assignment. Without such an assertion, there was no basis for the third-party provider to claim standing under ERISA, and no basis for the payer to establish ERISA preempted the state law causes of action. See, East Coast Advanced Plastic Surgery v. Amerihealth, 2018 WL 1226104 (D.N.J. 2018).

Looking for Personalized Advice From an Insurance Lawyer?

Schedule a Free Consultation
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

David A. Bryant attorney with Bryant Legal Group PC interviewed by HaystackID‘s CISO, Lee Neubecker on Artificial Intelligence and the role computer bots play in rejecting insurance claims. Bryant discusses his past successful use of Neubecker’s Computer Forensics consulting services to achieve results for his clients.

Video available: https://youtu.be/Wj3UveYr0_M

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

The United States Court of Appeals for the Seventh Circuit issued a decision in Prather v. Sun Life and Health Insurance Company on December 13, 2016.

On July 16, 2013, Jeremy Prather had torn his left Achilles tendon playing basketball and after consulting with an orthopedic surgeon he scheduled surgery for July 22, 2013.  The day before surgery Prather called the surgeon’s office to complain of swelling in the lower part of his leg and he reported that an area of the calf was both sensitive and warm to the touch.  The surgeon told Prather to elevate the leg. Surgery the following day was uneventful and Prather returned to work on August 2. However, four days later he collapsed at work, went into cardiopulmonary arrest and died the same day as a result of a deep vein thrombosis in the injured leg that had broken loose and traveled to the lung causing pulmonary embolism, cardiac arrest and death.

The plaintiff’s decedent applied for accidental death benefits under an employer group policy issued by Sun Life and governed by ERISA.  Sun Life denied coverage relying upon policy language that limited coverage to “bodily injuries . . . that result directly from an accident and independently of all other causes.”  (Emphasis added.)  Sun Life said that Prather’s death had not been the exclusive result of an accident and that it had also been the result of complications from surgical treatment.  A physician’s assistant (PA) employed by Sun Life reviewed the claim and opined that deep vein thrombosis and pulmonary embolism are risks of surgery and that even with conservative treatment, such as immobilization of the affected limb, the insured had an enhanced risk of a blood clot.  This was Sun Life’s only medical evidence.  Sun Life denied the claim on the basis that Prather’s death was a result not just of the accident but also of independent events, namely the surgery and maybe also or instead the immobilization of his leg before surgery.

Writing for the Court Judge Posner noted that Sun Life’s interpretation that that death “independently of all other causes” requires the beneficiary to disprove any possible alternative cause of death.  Posner says that can’t be right because it would give the insurer carte blanche to reject coverage in a case in which an accident is a conceded cause of death merely because there some speculative possibility that something else may also have played a role.  That would make many accident insurance contracts illusory because often there is an interval between the accident and a resulting injury and a possibility that something in that interval caused or aggravated the insured’s injury.  Here, since the accident alone may well have caused the blood clot that killed Prather, the insurance company had to present some evidence that the surgery had been a cause of Prather’s death, and it presented none. Posner rejected the opinion of the physician’s assistant since all it proved was that the surgery might have been a cause of Prather’s death.

A forensic pathologist who conducted a post-mortem examination did not attribute death to the surgery and the relevant medical literature indicates that there is a significant incidence of deep vein thrombosis (the final trigger of the pulmonary embolism) following the rupture of an Achilles tendon even if the tendon is not operated on.

Deep venous [vein] thrombosis (DVT) is a significant source of morbidity and mortality and is associated with many orthopedic procedures. Previous studies have reported highly variable DVT rates in patients with Achilles tendon rupture undergoing operative and nonoperative treatment. We performed a retrospective chart review for all patients who underwent Achilles tendon repair at our institution from January 2006 to February 2012. Patient data were collected from the electronic medical record system. A total of 115 patients were eligible for the present study. Of these patients, 27 (23.47%) with a surgically treated Achilles tendon rupture developed a symptomatic DVT either while waiting for, or after, surgical intervention, with approximately one third of these diagnosed before surgical intervention. … We have shown a high incidence of DVT after Achilles tendon rupture. We recommend a high level of suspicion for the signs and symptoms of DVT during the follow-up period.

Makhdom AM (Asim M.) et al., “Incidence of Symptomatic Deep Venous Thrombosis After Achilles Tendon Rupture,” 52 Journal of Foot & Ankle Surgery 584 (2013) (emphases added).

The Court also rejected Sun Life’s contention that the insurance contract gave it “discretion to decide what evidence was sufficient to demonstrate a disability” since that too would amount to the insurer having carte blanche to decide whether or not to honor its contract.  Posner was also not persuaded by Sun Life’s argument that “the evidence in this matter makes clear that Mr. Prather’s surgical treatment contributed to his death[,] . . . indeed, caused the forming of a blood clot in Prather’s deep veins.”  The evidence did not make that clear, all it shows is that death followed both the surgery and the accident that preceded surgery.  The medical literature describes that an accident alone can create a fatal blood clot and so far as it appears, could have done so in this case.  The day before surgery Prather reported symptoms to his surgeon that suggests that deep vein thrombosis might have formed by then.  Since Sun Life failed to make any plausible showing that the surgery, rather than the accident that necessitated the surgery, caused his death, judgement in favor of the defendant was reversed.

Sun Life’s application of the exception (“and independently of all other causes”) and the lower court’s adoption of it, raises the question:  how does an insured demonstrate to the insurer that bodily injuries resulting directly from an accident and are also independent of all other causes?  This requires the beneficiary to disprove any possible alternative cause of injury or death, an unrealistically or even impossibly high burden.  Otherwise it gives the insurer carte blanche to reject coverage in which an accident is a cause of death merely because there is some speculative possibility that something else may have played a role.  Posner rejected Sun Life’s interpretation primarily because Sun Life had no other evidence to offer except the physician’s assistant opinion that surgery or leg elevation may have been the cause of deep vein thrombosis.

A review of the lower court’s opinion reveals that it found that Sun Life had a reasonable basis to deny benefits because Prather’s death did not result directly from an accident and could be attributed, at least in part, to complications from surgery.  The lower court further acknowledged the PA’s finding that such complications contributed to Prather’s death. It is noteworthy that the lower court mentioned the post-mortem report in the fact summary but did not comment further on the forensic pathologist’s opinion that death was not attributed to the surgery. The opinion of the physician’s assistant, and not the forensic pathologist, was enough for the lower court to side with Sun Life.  Surely the Prathers deserved more.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

District court upholds insurer’s denial of LTD benefits agreeing with the insurer’s file reviewer that there are no objective findings from a psychiatric standpoint that indicates the Claimant is mentally, cognitively and/or behaviorally impaired.

In Gailey v Life Insurance Company of North America, 2016 WL 6082112 ( M.D. Penn. October 17, 2016), the Claimant was a 48 year old office manager for many years with a history of anxiety and depression.  On July 15, 2013 she reported having an emotional breakdown at work and left the office crying, shaking, and suffering a panic attack.  She was unable to return to work so Gailey’s regular therapist admitted her to an outpatient treatment program at Philhaven from August 6 through October 10, 2013.  Philhaven’s website describes that the Day Hospital/Intensive Outpatient Program provides persons the opportunity to participate daily in a structured and comprehensive program combining individual, group and activity therapies. Services are typically provided six hours each day, Monday through Friday.

Gailey did not return to work after her treatment at Philhaven and the treating therapist opined on October 18, 2013, that Gailey could not multitask, has a poor response to stress, and cannot work at present.

She sought ERISA-governed disability benefits, which had a 24 month limitation for mental/nervous disability, relying on a diagnosis from her therapist. Life Insurance Company of North America (LINA) granted disability benefits while Gailey attended in-patient therapy.  However, on November 21, 2013, a representative of LINA told Gailey that her benefit claim was being denied.  Gailey responded that she was going to kill herself using her husband’s gun.  The next day Gailey was admitted to Philhaven for inpatient treatment with diagnoses of major depressive disorder and generalized anxiety disorder.  Philhaven’s website notes that adults “needing these services have significant difficulty functioning in their homes, employment or communities. They may also be at high risk for harming themselves and/or others. They may be unable to attend to normal routines or expectations due to depression, anxiety or other mental health problems.”

On November 26, 2013, she was released from Philhaven.  The discharge summary noted appropriate affect and denied suicidal ideations.  Gailey received an official written denial letter of her claim on November 25, 2013.

During Gailey’s administrative appeal, LINA had her claim reviewed by Genex Services, LLC.  Genex hired Fred Moss, a board-certified psychiatrist to review Gailey’s medical records.  On December 28, 2014, Moss concluded Gailey had “no objective findings” that she was mentally, cognitively, and/or behaviorally impaired as of November 26, 2013.  Moss noted she did have “subjective complaints” supporting the diagnosis of Major Depressive Disorder. Mental examination findings indicated, however, Gailey was psychiatrically stable with no impairments. Thus, Moss assigned no work activity restrictions medically required due to a psychiatric condition.

Of note, the Social Security Administration awarded disability benefits to Gailey but LINA affirmed the claim denial on January 9, 2015, citing that it had more recent information to consider that warranted a different outcome.  While the information it considered was not specified in the court’s opinion, LINA cited there had been no increase in the level of care, no changes in mental status, and no additional treatment modalities to indicate Gailey was impaired after November 26, 2013.  While LINA acknowledged that Gailey attended regular weekly appointments with her therapist for “emotional regulation,” LINA deferred to the opinions of the psychiatrists that treated Gailey in Philhaven and Moss’s peer review.

Gailey filed suit and on October 17, 2016, resolving the parties’ cross motions for summary judgment, LINA’s denial of benefits was upheld by the court.  Applying a deferential standard of review the court rationalized that LINA “cited to a multitude of evidence that it considered in finding that Gailey was not ‘disabled’ under the Plan…”  This included the board-certified psychiatrist report confirming there was no objective evidence of impairment from the diagnosable mental condition, the rise of stability upon her discharge from inpatient treatment at Philhaven, an office note from the therapist indicating she was continuing to improve, another office note from the therapist noting Gailey’s communications skills were improving, and Moss’s peer review conclusion that Gailey was not disabled.

This decision is troubling for many reasons.  First, the court deferred to LINA’s position that the unidentified board-certified psychiatrist, presumably the physician at Philhaven, reported to the rise of Gailey’s psychological stability upon her discharge.  However, a rise in stability is to be expected as Philhaven aptly describes that the “focus of [inpatient] treatment is to address the crisis or behaviors which led up to the hospitalization. Attention is given to diagnosis, assessment and the selection of treatment interventions that will help to stabilize the person’s behavior or condition quickly.” Yet there is no indication that her depression and anxiety were no longer present upon discharge nor did LINA cited to any objective signs the court found present.

Further, the court never cited either the objective or subjective signs of depression and anxiety exhibited by Gailey.  Instead, the court relied on LINA’s rationale that there had been on increase in the level of Gailey’s care, no changes in mental status, and no additional treatment modalities to indicate she was impaired. LINA never describes what increase in care or additional treatment modalities it expected from Gailey yet LINA views these as necessary to demonstrate mental impairment. It is doubtful the plan requires Gailey to do so, and most mental health practitioners would find continued weekly therapy as sufficient indicia to conclude she suffers from ongoing depression and anxiety.

Lastly, while both LINA and the court seem to rely heavily upon the Gailey’s rise in stability as an indication she is not disabled, this overlooks the significance of her participation in nearly two months of daily outpatient care at Philhaven prior to receiving inpatient care after becoming suicidal.  The longitudinal picture of Gailey, who suffered from depression and anxiety for many years, is one far more complicated than simply a rise in stability after hospitalization. Both the daily outpatient care at Philhaven and inpatient course of treatment were increases of additional care and new modalities of treatment entirely overlooked by LINA as supportive of disability due to mental instability.  Of note, the Social Security Administration would credit both the inpatient and outpatient treatment as periods of decompensation sufficient to count towards evaluation of the criteria of the medical listing of mental impairments.  While LINA’s plan does not require it to reach the same conclusion, the total disregard for these periods of intensive treatment is suspect in it’s determination that Gailey is not disabled.

In summary, in the middle district of Pennsylvania both claimants and practitioners are on notice that establishing disability due to mental impairments requires thorough documentation evidencing objective indications of reduced mental functioning.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

The United States Court of Appeals for the Seventh Circuit issued a decision in Sun Life Assurance Co. of Canada v. U.S. Bank National Association on October 12, 2016 affirming the district court’s judgment.  The Court’s decision begins, “A common law principle that so far as we know is in force in every state of the United States forbids a person to own an insurance policy that insures someone else’s life unless the policy owner has an insurable interest in that life. Ohio National Life Assurance Corp. v. Davis, 803 F.3d 904, 907–08 (7th Cir. 2015).  So you are allowed to own an insurance policy on your spouse’s life because the death of the spouse is likely to impose costs on you, but you cannot own an insurance policy on the life of a stranger who you happen to know is in poor health and likely to die soon; for cashing in such an insurance policy would give you a pure windfall.”

Despite this general rule, the district court did not err in granting plaintiff’s (purchaser of life insurance policy) motion for summary judgment in an action seeking declaration that plaintiff was entitled to proceeds of the life insurance policy, even though plaintiff, which had purchased policy as part of investment vehicle, did not have insurable interest in insured who had died seven years after policy had been issued.  Under Wisconsin law (Wis. Stat. § 631.07(4)), no policy is invalid merely because the policyholder had no insurable interest in insured, and defendant-insurance company could pay proceeds to someone other than policy owner, who had equitable claim to said proceeds.  However, plaintiff was entitled to the proceeds since no one who was equitably entitled to the proceeds claimed entitlement to said proceeds.  The Court rejected defendant’s argument that its refusal to pay death benefits was authorized by Article IV, section 24, of the Wisconsin Constitution that voided all gambling contracts.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

The Seventh Circuit Court of Appeals affirmed in part and reversed in part the district court’s decision regarding insurer’s duty to defend.

Cincinnati Insurance Company brought action seeking declaration that its policy did not apply to the underlying claims against insured, arising out of automobile accident which resulted in death of insured’s wife. The United States District Court for the Central District of Illinois, Richard Mills, J., 2015 WL 4978711, granted in part and denied in part Cincinnati’s motion for summary judgment and granted in part and denied in part insured’s motion for summary judgment. Cincinnati appealed.

In August 2010, Sam Chee was driving with his wife Toni Chee when their car slammed into a tree. Toni was seriously injured, taken to a hospital where she died within a week. Her estate filed two lawsuits: one against Sam accusing him of negligent driving, and the other against the hospital and the attending physicians claiming medical malpractice.

The defendants in the medical malpractice suit filed a third-party action against Sam seeking contribution from him should they be held liable to Toni’s estate. State Farm Mutual Automobile Insurance Co. is defending Sam’s interests as the defendant in the negligence and contribution lawsuits. The policy promised indemnity coverage of $250,000 per person (and $500,000 total) for auto accidents.

The Chees also have an excess insurance policy with a limit of $5 million issued by Cincinnati, which denied Sam’s request for defense and indemnity. Cincinnati filed suit under diversity jurisdiction seeking a declaratory judgment that its policy did not apply.  Cincinnati, on appeal, argued that the policy contained a clause requiring timely notice for claims to be covered and that Cincinnati be notified as soon as practicable of an occurrence which may result in a claim or suit.

The auto accident occurred in August 2010, but Sam did not notify Cincinnati until 26 months later, although Toni’s estate alerted Cincinnati 16 months after the accident that it intended on filing a claim. The Court stated that 16 months is not remotely “as soon as practicable” after Toni’s death. However, the notification requirement is found in a sub-paragraph in a longer provision that specifies the consequences of noncompliance with a list of duties. In that paragraph, the policy provided that Cincinnati had no duty to provide coverage if the insured’s failure to comply with the listed duties is prejudicial.  Cincinnati asserts that the delay could have been prejudicial but failed to identify any concrete prejudice.  Thus, the Court reasoned that the delay did not affect Cincinnati’s duties.

Cincinnati’s second argument asserts that it issued an excess policy and that State Farm is still defending Sam.  Thus, Cincinnati maintains that it is entitled sit on the sidelines until State Farm writes a check.  The Court found this was not remotely what the policy says.  The policy requires the Chees to maintain other coverage or choose self-insurance for the initial layer, of at least $250,000 per person and $500,000 per occurrence, which they did.  Thus Cincinnati is not liable for the first $250,000 per person (or $500,000 in aggregate) of loss. But the policy does not excuse Cincinnati from supplying a defense or from paying any liability exceeding that amount.  To the contrary, the defense clause of Cincinnati’s policy provides:

We will have the right and duty to defend the insured against any suit seeking damages because of bodily injury, personal injury or property damage to which this insurance applies. We will have no duty to defend the insured against any suit seeking damages for bodily injury, personal injury or property damage to which this insurance does not apply. We may, at our discretion, investigate any occurrence and settle any claim or suit that may result when:

a. The applicable limit of the underlying insurance and any other insurance have been exhausted by payment of claims; or

b. Damages are sought for bodily injury, property damage or personal injury to which no underlying insurance or other insurance applies.

The Court determined this language clearly says that if the policy applies to the claim, Cincinnati must defend. Then, once the applicable limit of underlying insurance has been paid out Cincinnati obtains the right to settle the claim or suit. However, neither the duty to defend nor the duty to indemnify depends on payment of the applicable limit, for good reason. If another insurer’s payment “were essential to Cincinnati’s duties, then the bankruptcy—or just the unreasonable conduct—of the primary insurer would leave the insured bereft of coverage.”

Cincinnati next argued that the policy contained an exclusion that the insurance did not apply to any bodily injury or personal injury to any insureds and the Chees were the insureds.  The exclusion reflects a widely held belief that intra-family suits are designed to extract money from third parties – that, but for insurance, there would be no litigation at all.  However, the exclusion has an exception required by 215 ILCS 5/143.01(a) that is triggered when a third-party acquires a right of contribution against the insured or any relative.  Because the hospital and some physicians were seeking contribution against Sam, this exception overrode the exclusion.

Finally, the duty of indemnity, if any, depends on circumstances in the underlying litigation.  Therefore, it is inappropriate to try to resolve a coverage matter in an anticipatory action seeking a declaratory judgment.  Trying to pin down what duties of indemnity Cincinnati might owe in the other suit under various possible outcomes would be premature.

The judgment of the district court is affirmed to the extent that it requires Cincinnati to defend Sam’s interests in the suit between Toni’s estate and the medical defendants, otherwise the judgment is reversed.

Cincinnati Insurance Co. v. Estate of Toni Chee, et al., No. 15-3243, U.S. 7th Cir. Court of Appeals (June 13, 2016).

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.

litigation

Jennifer Danish is scheduled to speak on two panels during American Conference Institute’s 17th National Advanced Forum on Litigating Disability Insurance Claims on January 22-23, 2015 in Philadelphia, PA at The Union League of Philadelphia.  The two panel topics are: “Tips, Strategies and Best Practices for Successful Early Mediation of a Disability Claim” and “Developments in Social Security Awards, Offsets, Overpayments and Liens in Disability Claims”.

ACI proudly presents nationally known speakers including federal judges, in-house attorneys, plaintiff and defense counsel at this annual conference.  A complete agenda and registration information is available online.  Early registration rates are available through Friday, November 14, 2014.

Contact Bryant Legal Group

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

Request Your Free Consultation

Get the answers and insight you deserve. Our experienced disability insurance lawyers can evaluate your claim and help you understand all your legal options.

This field is for validation purposes and should be left unchanged.