Category Archives: Insurance law

Regence fined $100K for denying coverage for removal of birth control

Today, Washington’s Insurance Commissioner, Mike Kreidler, announced a $100,000 fine levied against Regence for its failure to pay for procedures to remove IUDs. Regence paid for the insertion of the device, as long as it was prescribed by a doctor. However, the problem arose when women wanted the devices removed — in that case Regence refused to pay for the procedure unless it was “medically necessary.” So if a woman decided she was ready to have kids and wanted the device taken out, Regence refused to cover the procedure unless she could prove that procedure was medically necessary to her health. In other words, really easy to get the implantation of the device covered, really hard to get the removal of the device covered.

So women were forced to either pay for the procedure themselves out-of-pocket, or forgo having it removed if they couldn’t afford the procedure.

Kind of outrageous.

Regence ended up denying 984 claims to remove IUDs between 2002 and today. And it wasn’t until one woman called the Office of the Insurance Commissioner in April 2010, that the OIC began an investigation resulting in the fine. Regence has now reprocessed all the claims and paid them, totaling about $149,000. Regence also must pay 8% interest to all policyholders whose claims were denied.

The Insurance Commissioner’s Order details how Regence violated the law. WAC 284-43-822 regulates the unfair practices relating to health care.

Section (1) prohibits any health carrier from restricting, excluding, or reducing “coverage or benefits under any health plan on the basis of sex.”

Section (2)(a) requires all carriers who provide comprehensive prescription coverage to not “exclude prescription contraceptives or cover prescription contraceptives on a less favorable basis than other covered prescription drugs and prescription devices.”

And finally, Section (2)(b) prohibits carriers from placing limitations or restrictions on “prescription contraceptives that are not required or imposed on other covered prescription drugs and prescription devices.”

By making it much harder to get coverage for the removal of IUDs, Regence violated all three provisions, and they are paying the price. Kudos to Mike Kreidler and the rest of his team at OIC for sticking up for the rights of women in this state.

The sad part is that most women who had coverage denied didn’t do anything about it. Only 3 of 984 women even bothered to appeal the denial of coverage. And it wasn’t until April 2010 — 8 years after Regence began denying coverage — that one of the women called of the Insurance Commissioner’s Office to complain.

I think the lesson here is that just because your insurance company denies your claim doesn’t mean that the denial was right under the policy or under the law. So if you feel that coverage has been unfairly denied, stick up for your rights — appeal the denial and file a complaint with the Insurance Commissioner.

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Who pays the legal bills when a court finds an insurance company has no duty to defend?

When you purchase insurance, like homeowner’s insurance or auto insurance, one of the things you’re buying is access to a lawyer paid for by your insurance company to defend you if you ever screw up and hurt someone else. This benefit is frequently referred to as the insurance company’s “duty to defend.” Sometimes, however, insurance companies try to wriggle out of this duty by trying to find reasons why you are not covered for what happened.

When faced with a lawsuit against its policyholders, insurance companies have three options:

  1. Hire a lawyer and pay the lawyer to represent the policyholder until the claim is resolved;
  2. Refuse to provide a lawyer and tell the policyholder it has no duty to defend and won’t cover the loss; or
  3. In close calls where it isn’t clear there’s no coverage, provide a lawyer under what’s called a “reservation of rights,” which puts the policyholder on notice that the insurance company thinks there might not be coverage and why. The insurance company then starts a separate proceeding to ask the court for a ruling there is no duty to defend.

Obviously, the first option is best, and there’s no problem if the insurance company does this. The second option is a dangerous one for insurance companies because it carries heavy penalties — if the insurance company is wrong and a court finds it did have a duty to defend, the insurance company is on the hook for all the harm the denial of coverage caused, including attorney fees, business losses, emotional distress at having been abandoned by your insurance company, etc. These damages are often significant because of the ripple effect caused by being abandoned by your insurance company (paying for your own lawyer, which affects personal and business finances, which can lead to people losing homes or businesses, which can lead to psychological or physical health problems, which can lead to more money problems, etc.).

Because option two is such a bad option, Washington courts have encouraged insurance companies that have questions about coverage to use the third option. This gives the policyholder a lawyer in the underlying injury action, while at the same time providing the insurance company with a venue to argue why it shouldn’t have the duty to defend the policyholder and protection from a later bad faith suit arguing the insurance company mishandled the claim (though the policyholder has to hire a lawyer at his/her own expense to argue why the insurance company is obligated to provide coverage). If insurance companies provide a lawyer in the underlying lawsuit while a court is deciding whether there is coverage, then everyone’s interests are (in theory) protected.

But the question occasionally arises, who pays the policyholder’s lawyer up to the point when the court finds no duty to defend? Division I of the Washington Court of Appeals answered that question last week in National Surety v. Immunex. There, the court held that National Surety was still on the hook for the fees of the lawyers who represented its policyholder, Immunex Corporation, up to the point the court found there was no duty to defend. National Surety did not have to pay fees beyond that finding. The court reasoned that by providing a defense under a reservation of rights, National Surety incurred a very important benefit, namely, protection from a later lawsuit alleging it mishandled the claim. As such, paying for the lawyer for the policyholder was a proper price for this benefit. The court further noted that there was no provision in the insurance policy giving the insurance company the right to recoup those attorneys fees from the policyholder, and National Surety’s attempts to add a right to recoupment into the reservation of rights letter was improper.

While this case gives important protection to insureds, the implication is that insurance companies can write a right to recoup such defense costs into the policy. Such an addition would be problematic and harm the insured in a couple of ways. First, as discussed above, it ignores the benefit insurance companies incur when they defend under a reservation of rights and would in essence force the policyholders to pay for something that benefits the insurance company. Second, it would force policyholders to pay for legal fees incurred at the direction of the insurance company but were usually never ok’d by the insured. Most of these types of insurance policies give the right to control the defense of the lawsuit to the insurance companies, meaning the policyholder has no say in what happens and what the lawyers do. In other words, the insurance company tells the lawyer what to do up until the court says it has no duty to defend, and then the policyholder has to pay for everything the lawyers did, even if he/she disagrees with the tactics taken by the lawyers as directed by the insurance company.

Hopefully the courts will have a chance to rule on whether recoupment provisions in insurance policies are appropriate.

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