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Posted by on Nov 23, 2017 in Civil, Insurance, Statutes of Limitations | 0 comments

Erie Ins. Exchange v. Bristol: SOL on UM claims begins to run at refusal to arbitrate

On July 22, 2005, Mr. Bristol was injured when he was struck in a hit and run accident within the scope of his employment in Upper Dublin Township (childhood home of Josh Singer, an Emmy-nominee and Oscar winner). Two years later, Bristol’s attorney put Erie on notice of the uninsured motorist (UM) claim, and Erie responded with a “reservation of rights” letter. Both parties agreed to several of the arbitrators and engaged in negotiation. Bristol had to put the matter on hold for a few years when he was incarcerated on unrelated matters. But negotiations stalled, and in May 2013, Erie filed a declaratory judgment action seeking a ruling that Bristol’s 4-year breach of contract statute of limitations (SOL) had run pursuant to 42 Pa.C.S. § 5525.

This is an issue of first impression for SCOPA, although the Superior Court has a long line of precedents on the matter.

Majority by Mundy: Clock starts ticking on breach

Justice Mundy, speaking for the 6-1 majority, rules that a UM claim’s SOL begins to run at the date of the insurer’s breach, which could be at the date of the denial of coverage to the insured, or the date of some other breach of a contractual obligation, such as the date that the insurer refused to arbitrate. This ruling is based on the principle that it is “the accrual of the right of action that starts a limitations period to run.” This accords with the majority of jurisdictions.

There are essentially three ways to determine when the SOL for a UM claim begins to run: at the denial of coverage, as argued by Bristol, at the time the injured party knows the tortfeasor was uninsured (or underinsured), which is what Erie urged, or in a more absolute sense, at the date of the accident. The Court denies Erie’s argument that insurance contracts are different from other contracts subject to the general four-year SOL, and finds that Bristol had no need to file in court to preserve his claim until his contractual rights were denied—in this case, when Erie refused to move forward with arbitration on the basis that the SOL had run.

The majority attempts to quell the concerns of the insurance industry that there will now be no clear cut-off for UM claims by suggesting that cases of extraordinary delay may be solved by “equitable principles.” Usually, claimants will gain nothing by delay, and if they do stall unreasonably, the courts can bar their claims on other grounds.

Dissent: I’m fine with the ruling, but this argument was forfeited below

Justice Wecht may be the only dissenter, but he writes with enough fury for the whole Court. A little background: back in May, after oral argument, the Court re-phrased the grant of allocator, with the practical effect of expanding the issue it had originally granted for briefing and argument. It did so over Wecht’s vehement dissent (the Chief Justice’s explanation is here). Justice Wecht argued the matter had been forfeited by Bristol at both the trial court and the Superior Court, where Bristol’s only arguments were that he notified Erie of his intent to pursue a UM claim within the applicable four year time period, and in the alternative, that the four-year SOL was tolled by the filing for arbitration. In other words, he never suggested that the time period had not even begun to run, which was his argument before the Supreme Court.

“I refuse to endorse Bristol’s choose-your-own-adventure litigation strategy,” Wecht explains, arguing it is time “either by rule or by decision—to commit to clear standards for determining whether a particular case warrants departure from our ordinary issue preservation doctrines. Absent such standards, the unpreserved issues that the Court regularly declines to consider will continue to be indistinguishable from those that we idiosyncratically agree to resolve. In my view, such arbitrary and selective enforcement of our Rules of Appellate Procedure is ill-advised.”

Conclusion: Perhaps there’s a corresponding duty of good faith on the part of the insured

The Court’s opinion appears to be correct on the substance, as even the vehement dissent points out. Your SOL begins to run on a breach of contract when the contract has been breached. But unlike most contractual situations, the insured has no real obligations to the insurer after the date of the accident. His obligations are done. He paid his premiums, and the contract was valid on that date.

So how can an insurance company know that the insured is abandoning his UM claim, or is simply sitting on it? Can the insurance company force his hand in any way? Perhaps there is a corresponding duty of good faith and fair dealing owed by the insured to his insurance company that forces him to communicate if asked what he intends to do. Realistically, this opinion leaves the ball in the insured’s court to wait to file or move forward on a claim until he’s ready.

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Posted by on Oct 6, 2017 in Civil, Insurance | 0 comments

Burke v. Independence Blue Cross: Legislature intended autism treatment to be offered in schools

The Autism Coverage Law requires insurance companies to provide coverage for autism treatment under certain group plans. One coverage specifically included in the statute is “applied behavioral analysis” (“ABA”). However, the statute allows companies to maintain “general exclusions or limitations of a health insurance policy.” ABA is defined as:

the design, implementation and evaluation of environmental modifications, using behavioral stimuli and consequences, to produce socially significant improvement in human behavior or to prevent loss of attained skill or function, including the use of direct observation, measurement and functional analysis of the relations between environment and behavior.

Independence Blue Cross denied ABA coverage at Anthony Burke’s school, arguing that the policy’s general “place-of-services” exclusion permitted them to decline delivery of otherwise-covered services at a location other than the doctor (in this case, the school). But of course, ABA coverage is most obviously needed in a school setting. What autistic child needs “environmental modifications” at the doctor?

Burke’s father argued that this exclusion operated to exclude ABA services at the main place where they are truly needed for Anthony in contravention of the General Assembly’s legislative intent in passing the Autism Coverage Law in the first place.

Majority by Saylor: Autism Coverage Law is materially ambiguous

Chief Justice Thomas Saylor, speaking for the 4-1 majority, holds that the Autism Coverage Law is “materially ambiguous in relevant aspects.” The holding is discussed more in a moment, but the ambiguity allows the Court to conclude the statute was incomprehensible without looking behind the statute to legislative intent. Simply put, “the Legislature did not intend to permit exclusions that would eviscerate aspects of the coverage for autism treatment services that the Assembly has provided are mandatory.” Thus, our Supreme Court held “that the Legislature intended to permit only general exclusions that would not substantially undermine the mandatory coverage requirement.”

In other words, in passing a general rule that insurance providers must provide autism treatment, and by explicitly including ABA treatment in the statute, the legislature did not envision allowing insurers to escape this mandate by simply providing a general exclusion that ABA couldn’t be provided at the place it was primarily needed. “[W]e simply do not believe that the Legislature intended to permit insurers to exclude coverage in the sensory-laden educational environment where children spend large portions of their days, or to require families to litigate the issue of medical necessity discretely in individual cases to secure such location-specific coverage for the treatment.”

With this holding in mind, we return to the ambiguity justifying the Court’s foray into legislative intent: the Court held that the statute’s “catchall” provision was oddly worded, and appeared to be internally inconsistent. (“Coverage under this section shall be subject to copayment, deductible and coinsurance provisions and any other general exclusions or limitations of a health insurance policy or government program to the same extent as other medical services covered by the policy or program are subject to these provisions.”) The “any other exclusions” language appeared to the majority to be a reference to an entirely different style of exclusions than the foregoing language (the legal doctrine for this argument is ejusdem generis), and the statute’s apparent confusion led the Court to conclude it was irreconcilable without looking behind the statute to legislative intent. Thus, Anthony Burke’s ABA treatment must be covered by Independence Blue Cross at his school.

Dissent by Mundy: What ambiguity?

I rearrange the majority’s analysis above to end on the point which Justice Mundy dissents on. The statute, though perhaps oddly worded, appears to be fairly unambiguous. The legislature certainly could have “indicated that coverage for in-school services was mandatory, but it did not do so,” as the majority admits. Justice Mundy believes the statute is devoid of any confusion. The statute “plainly permits a health insurance provider to apply a general exclusion of its health insurance policy to limit the coverage mandated by” the Autism Coverage Law. Therefore, because “the words of a statute are clear and unambiguous, there is no need to look beyond the plain meaning of the statute ‘under the pretext of pursuing its spirit.’” (quoting 1 Pa.C.S. § 1921(c)).

Conclusion

This case really appears to be a situation where the majority reached behind the statute without any real ambiguity. I read the section on ejusdem generis several times, and I just can’t follow why the majority felt the statute was unclear. The phrase in question may have been strange, but it doesn’t appear to be ambiguous. Furthermore, while going behind the statute is discouraged absent the existence of an ambiguity, the Court still could have ruled that the statute was frustrated by the exclusion without finding an ambiguity.

Justice Mundy calls the Court on its analysis—and the majority admits some reticence in its ruling in its final footnote (admitting “reluctance to accord too much weight to the statute’s  allusions to [] coordination” with schools’ individual education plan supervisors over ABA treatment on the basis that the legislature could have made it clearer that such coverage is required to be offered in schools).

This case should probably prompt legislative action either way. Was this the legislature’s intent? The statute can be clarified if the legislature doesn’t agree with the ruling, and ultimately, that would be a good use of the Assembly’s time.

One final note on the vote count: Justices Todd and Wecht did not cast votes, and Justice Wecht did not participate in consideration of the case.

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Posted by on Sep 29, 2017 in Civil, Insurance | 0 comments

Rancosky v. Washington Nat’l Ins. Co: Terletsky standard prevails for bad faith claims

The Pennsylvania Supreme Court adopted the Superior Court’s Terletsky v. Prudential Property & Cas. Ins. Co. standard for determining bad faith, ruling that no evidence of ill-will is required, nor is there a heightened leval of malice necessary for a finding of punitive damages under the 42 Pa.C.S. § 8371.

LeAnn Rancosky purchased a cancer treatment insurance policy from Washington National Insurance Company (which presumably has no connection to the baseball team that shares its name). A provision of the policy provided that, if she ever became disabled due to cancer, she could cease paying premiums on the policy and still collect the benefits of the policy, provided she submitted several documents. She did become so disabled, and submitted the documents, and stopped paying premiums (as permitted by the policy). Unbeknownst to Rancosky, her doctor made an error on a form, erroneously setting her disabled date to several months after she was disabled and ceased paying premiums.

Months went by, and Washington National failed to respond to multiple inquiries on her claim status. Rancosky gave Washington National multiple opportunities to speak with her doctor, employer and any other third party necessary to confirm her status. Finally, Washington National simply denied her ongoing treatment on the basis that she had ceased paying premiums, despite the policy language allowing her to take this course of action. Rancosky filed a “bad faith” claim under § 8371, which reads as follows:

Actions on insurance policies

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

Id. A major dispute in this case is a major point of contention in most bad faith claims: must a plaintiff prove the insurance company had a motive of self-interest or ill-will to prevail in her claim, or is a showing of disregard of a duty under the contract sufficient?

 Majority by Baer: Terletsky Standard Prevails

The majority, speaking by Justice Max Baer, finds that the plain language of the statute had precious little to say about the standard of ill-will required. Relying on a past SCOPA case that ruled that the bad faith statute was a “delayed legislative response to this Court’s 1981 decision in D’Ambrosio v. Pennsylvania Nat’l Mut. Cas. Ins. Co., 494 Pa. 501 (1981),” the Court reiterated that the best way to divine legislative intent in regards to the bad faith statute was to look at the Supreme Court case that declined to recognize bad faith under Pennsylvania law.

The majority opinion is written as a comprehensive examination of bad faith law, taking lengthy detours through the first opinions to recognize bad faith as a right of action in tort under California law, and the subsequent refinements of the standards of proof in a Wisconsin case. Ultimately, however, Justice Baer points back to SCOPA’s own caselaw, examining the denial of a common law right of action in D’Ambrosio, and the calls in that case for the legislature to consider passing a right of action where SCOPA felt it unwise to act.

Ultimately, the statute passed, and was interpreted by the Superior Court as early as 1992 to include a two part test. In order to recover in a bad faith action, the plaintiff must present clear and convincing evidence 1) that the insurer did not have a reasonable basis for denying benefits under the policy, and 2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Thus, the proof of an insurance company’s motive of self-interest or ill-will, which the Defendant in this case demanded, is not a prerequisite to prevailing in a bad faith claim under § 8371, but may be relevant to satisfying the second prong. Furthermore, the Court ruled, evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient to prove this second prong.

Secondly, the Court turned to the question of punitive damages, which usually require a heightened level of proof of recklessness under Pennsylvania law. Recognizing that the statute placed the three remedies on par with one another, the Court ruled that the General Assembly intended punitive damages to be equally available as a remedy. Indeed, though the majority does not mention it, even the positioning of punitive damages between the other two remedies demonstrates that the legislature did not view it as an extraordinary remedy.

Concurrence by Wecht: Evidence of Ill-will is rare

Justice Kevin Wecht concurs in the result, but notes that the inability to find evidence of ill-will will be common. “[S]uch strains of overt malfeasance often will be lacking and, in any event, will seldom be susceptible to establishment by competent proof of record.”

Concurrence by CJ Saylor: But direct evidence is always rare

Chief Justice Thomas Saylor writes the second concurrence, which is unusual in itself as the concurrences are normally placed in order of seniority. Presumably because the Chief Justice did not join the opinion in full, his thoughts come last. Noting his general approval of the holding, the Chief Justice adds two helpful insights. Observing that “inferences regarding intent are legitimately and regularly drawn from circumstantial evidence (including actions and inaction) in other contexts, including in the criminal law,” the Chief Justice would find that circumstantial evidence can be used, but that a finding of some sort of ill-will and recklessness should be required for a finding of bad faith. His second observation is that punitives generally require a proof of “malice,” and that federal constitutional jurisprudence under the due process clause is implicated where punitive damages come into play.

Conclusion: Bad Faith is a two-part test

The law doesn’t change in this area, but it is confirmed. For a quarter century, Pennsylvania has lived under a two-part analysis of bad faith, and that analysis remains. But the test is now confirmed by the Commonwealth’s highest court, and there will be no further concerns that the law could change tomorrow. If any fault is to be found in this opinion, it is the excessive reliance on other sources. Incorporating by reference an opinion from Wisconsin (but not all of it), and insistently attributing to the General Assembly the motive of responding to a Supreme Court case from ten years earlier without any supporting documentation, the Court takes a fairly straight-forward statutory analysis case and imbues it with a load of scholarly references that make this area of law a bit muddy. Regardless, the test for bad faith is now clear, and overall, this opinion is a welcome clarification.

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Posted by on Feb 23, 2017 in Civil, Insurance, MVFRL | 0 comments

Ford v. American States Ins. Co – UIM Waiver is Close Enough

Sometimes, a few words can be very expensive; sometimes, they don’t matter. 75 Pa.C.S.A. § 1731 of the Motor Vehicle Financial Responsibility Law (“MVFRL”) prescribes a form to be used verbatim by insurance companies when offering an insured the right to waive Underinsured Motorist coverage (“UIM coverage”) on their car insurance policy. For those unfamiliar, UIM coverage is what your insurance company pays out when your injuries exceed the policy limits of the responsible driver, and while insurance companies are required to offer UIM to their Pennsylvania customers, the insured may waive UIM protection in exchange for lower premiums. After explicitly mandating the wording of the form to be used, (“The named insured shall be informed that he may reject uninsured motorist coverage by signing the following written rejection form:”), the statute goes on to emphasize that any company that does not “specifically comply with this section” will have to pay the insured’s UIM claim up to the policy’s bodily injury limits, even though the insured paid the lower, non-UIM premium leading up to the accident.

So what really happens when an insurance company does not “specifically comply” with the form in the statute? Or perhaps the better way to frame the argument—and the framing the Court appears to have accepted—is what it means to “specifically comply” with a statute that provides explicit language for insurers to use. Is it the precise wording of the statute the legislature was requiring, or the underlying meaning of the words?

In the case at hand, Audrey Ford purchased insurance on her 2000 Chevrolet Cavalier and waived the UIM offering from American States Insurance Company. (Note that on this site, we strive not to judge anyone’s lifestyle choices, and so we’ll allow both Ms. Ford’s waiver of UIM and her choice of the Chevy Cavalier to pass without comment). She waived UIM and paid the resultant lower premiums until one fateful day in 2013, when her Chevy Cavalier was struck in Union Township (birthplace of Mr. Radio Baseball). Ms. Ford’s injuries exceeded the limits of the other party’s insurance (the Court helpfully identifies the other driver only as “Tortfeasor”), and she subsequently made a claim against her own insurance company for UIM.

American Insurance’s UIM waiver form contained two minor additions to the statutory language, underlined as follows:

By signing this waiver I am rejecting underinsured motorists coverage under this policy, for myself and all relatives residing in my household. Underinsured motorists coverage protects me and relatives living in my household for losses and damages suffered if injury is caused by the negligence of a driver who does not have enough insurance to pay for all losses and damages. I knowingly and voluntarily reject this coverage.

The Court, speaking by Justice Baer, preferred function over form, in this case. The majority’s reasoning relied on two points: first, it was “important” that Ms. Ford had paid lower premiums in exchange for the understanding that she was waiving UIM. Presumably, the Justices did not like the idea that someone could reap the benefit of a bargain for lower coverage, and then still cash in on the higher coverage she had declined. More centrally, however, while acknowledging a long line of cases requiring strict compliance with the statutory waiver form, the majority points out that the statute requires only “specific compliance” with the statute, not “verbatim reproduction” of the form within the statute. Calling any insurer’s decision to deviate, even slightly, from the form in the statute “ill-advised,” the majority goes on to hold that, “when a UIM rejection form differs from the statutory form in an inconsequential manner, the form will be construed to specifically comply with Section 1731 of the MVFRL.” Because the Insurance Company’s addition of a letter and a word injected no ambiguity into the meaning of the form, the General Assembly’s intention that an insured be put on notice of the rights she was waiving was still accomplished.

If you’re wondering how we’ll know when a UIM-waiver form’s deviation is “inconsequential” in the future, you’re not alone. Justice Donohue, joined by Justice Todd, offers a dissent rebuking the Majority’s approach as “contrary” to the statute, and to the General Assembly’s express intent, and predicting that insurance companies are now invited to “tinker, ad nauseam, with the statutorily required language.” The courts will be called on to “oversee case after case” regarding an infinite variety of ways to express the underlying ideas into the statute. Justice Dougherty concludes, “I am at a loss to understand why this Court would inject uncertainty into this abundantly clear expression of legislative direction.”

This case reflects another interesting deviation in that Justice Baer is normally the Court’s most textualist writer. His opinion attempts to reconcile that textualism with a fairly-clear statute, and the Justice seems comfortable with his view that the term “specifically comply” does not mean “strictly verbatim.” The big takeaway for insurance defense is to check your clients’ UIM waivers; there’s just no reason to risk tinkering with the statute’s language. But the takeaway for the plaintiff finding verbal discrepancies in the form is this: don’t get your hopes up.

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