Tuesday, January 27, 2015

U.S. District Court holds Progressive automobile policy website violates 93A

Named plaintiffs in a putative class action suit purchased automobile insurance from Progressive Insurance Company.  Some purchased the policies by telephone and others through the Progressive website.  All were subsequently denied PIP benefits because their policies had an $8,000 PIP deductible.  They sued Progressive alleging that they purchased the policies with a deductible because of Progressive's unfair and deceptive acts and practices. 

From 2008 to 2010 Progressive's website gave Massachusetts customers the opportunity to answer a series of questions.  If they indicated that they or their household members did not have health insurance, it generated plans and quotes with no PIP deductible.  If they indicated that they and their household members all had health insurance, it generated plans and quotes that included an $8,000 PIP deductible.  The customers could then choose different options on the website and compare premiums.  The deductible changed the policy price by $3.00.  A customer who chose an $8,000 PIP deductible for himself or herself could purchase $8,000 PIP coverage for household members for no additional charge.

Progressive knew that PIP deductibles were not customary in Massachusetts.  Approximately 90 percent of Massachusetts insureds purchased PIP with no deductible whether or not they had health insurance.  In June, 2008 Progressive held a focus group that found that customers did not understand the PIP deductible. 

In 2009 Progressive began receiving formal complaints through the Massachusetts Department of Insurance from customers who had bought policies with a PIP deductible but thought they were buying policies that did not have a PIP deductible. 

In 2010, as a result of negotiations with the Department of Insurance, Progressive added a line to its website, "Your PIP coverage currently includes a deductible.  You may elect a deductible of up to $8,000 or no deductible."  It also changed the website so that the default position for customers with health insurance was a $250 PIP deductible instead of an $8,000 deductible. 

In Estrada v. Progressive Direct Ins. Co., __ F.Supp.3d __, 2014 WL 5323422 (D. Mass.), the United States District Court for the District of Massachusetts dismissed plaintiffs who had purchased Progressive policies by telephone, as allegations with respect to telephone sales practices were not included in the complaint. 

With respect to claims by plaintiffs who purchased Progressive policies online, the court first dismissed counts alleging only violation of Mass. Gen. Laws ch. 176D, as a private right of action for violation of that statute exists only through a 93A claim.  It also dismissed a count alleging violation of Mass. Gen. Laws ch. 175 §181, as that statute does not create a private cause of action for an insured under an automobile policy.

The court denied summary judgment to Progressive on the 93A count.  It held that the evidence taken as a whole was sufficient to establish that the website had the "capacity or tendency to deceive."  The fact that the plaintiffs testified that if they had been told that they could obtain PIP coverage for their household members with no increase in premiums they would have done so was sufficient to establish causation on the 93A claim. 

Progressive argued that the because after review the Department of Insurance and the Massachusetts Attorney General's office allowed the website to remain, its website was affirmatively permitted by the laws of the Commonwealth, creating an exemption from 93A liability.  The court disagreed, because there was no evidence that the DOI or AG's office explicitly approved the manner in which the website defaulted customers to an $8,000 PIP deductible for themselves and their household members.   

Tuesday, January 20, 2015

1st Circuit holds insurer did not discriminate by not basing sober house premiums on three-family house premiums

PSI operates two sober houses for individuals suffering from substance abuse.  Each house has three floors and capacity for 30 residents.  Prior to the buildings becoming sober houses they were three-family rental properties. 

PSI sought insurance from Nautilus Insurance. Nautilus based the premiums on the category of "Halfway Houses -- Other Than Not-For-Profit."  Just as with shelters, rooming houses, transitional housing for the formerly homeless, student housing, etc., premiums were calculated according to the number of beds at the property.

PSI  sued Nautilus, alleging that its calculation of premiums violated the Fair Housing Act.  It alleged that Nautilus should have provided PSI with insurance rates applicable to three-family houses.

The FHA makes it unlawful to discriminate in the sale or rental of a dwelling because of a handicap, including substance abuse. 

In PSI, LLC v. Nautilus Ins. Co., 2014 WL 740 (D.Mass. 2014), the court first held that PSI had standing to bring the FHA suit because it properly alleged it was harmed by Nautilus's allegedly discriminatory rates.

The court held that Nautilus was not liable for discrimination on the basis of disparate treatment of PSI.  Nautilus  had a nondiscriminatory reason for classifying the sober houses as halfway houses rather than three-family dwellings: they were not operating as three-family dwellings and therefore posed a different liability risk.  The sober houses would have more foot traffic and higher turnover of tenants.  The premium determination was not made because of disability of the residents but on the same formula that applied to other types of housing such as boarding houses and rooming houses.

The court held that Nautilus also could not be liable under a disparate impact theory.  PSI alleged that because premium calculations for three-family houses are not based on the number of occupants, Nautilus' occupancy-based premium calculation for sober houses was facially discriminatory and disadvantageous to the disabled.  The court held that there was no evidence that the challenged practice caused a discriminatory effect, and that Nautilus had provided a legitimate, nondiscriminatory reason for its rates. 

The court held that the request for lower premiums was not a reasonable accommodation and was  unnecessary to allow the residents to enjoy the housing in question where there was no evidence that cost-savings would be passed on to residents. 

Finally, the court held that PSI's allegation that Nautilus violated the Americans with Disabilities Act must fail for the same reasons as the FHA claims must fail. 

Sunday, December 21, 2014

Senate fails to renew TRIA

The United States Senate has failed to renew the Terrorism Risk Insurance Act (TRIA) before its expiration on December 31, 2014. 
I offered my suggestions for amendments to TRIA here

Here's a sampling of articles on the effect of the failure to renew TRIA: 

Monday, December 15, 2014

Payroll expenses are not part of gross revenue; why policies are impossible to understand

Gene Killian at New Jersey Insurance Coverage Litigation has blogged about a Massachusetts Appeals Court case, Verrill Farms LLC v. Family Farm Cas. Ins. Co., 86 Mass. App. Ct. 577 (2014).  The case addressed business interruption coverage and held that payroll expenses should be deducted from gross revenue in the calculation of profit or loss to determine loss of business income. 

Killian wonders why insurance policies are so badly written.  I disagree with both of his hypotheses: that the underwriters think the nature of the risks they seek to cover is complicated, or that they think that if they write the policies in an arcane and convoluted manner they'll have wiggle room when coverage disputes arise.

Policies are complicated because they are written reactively rather than proactively.  They react to court decisions that interpret them. 

Say there's an exclusion that provides, "This policy excludes damage to trees."  A court holds the exclusion does not apply to apples that have fallen from trees.  (For those of you who did not grow up near orchards, such apples are used for cider.) 

The next version of the exclusion will provide, "This policy excludes damage to trees and to the product of any tree that has not yet been harvested." A court  holds that that exclusion does not apply to damage to apples sitting in a wheelbarrow under a tree, because they have been harvested. 

The next version of the exclusion will provide, "This policy excludes damage to trees and to the product of any tree that has not yet been harvested, and to the product of any tree that has been harvested that remains on the insured property."  A court decision holds that "the product of any tree that has been harvested" applies only when the the tree itself has been harvested (such as for lumber) and not when its fruit has been harvested.

The next version of the exclusion will provide, "This policy excludes damage to trees and to any tree that has not been harvested and to any product that has not yet been harvested that grows on trees on the property and to any tree that has been harvested and remains on the property and to any product that grows on trees that has been harvested and remains on the property." 

By now no one can read through the exclusion without their eyes crossing, much less figure out what it purports to exclude.  Combine it with a few policy definitions and maybe an anti-concurrent causation clause, and . . . welcome to a modern insurance policy. 

Wednesday, December 3, 2014

Massachusetts Appeals Court continues trend of PIP decisions against insurers

On April 7, 2007 a passenger was injured in an automobile accident.  Pilgrim was the PIP carrier.  Bryan Hartunian provided orthopedic treatments to the insured.  Pilgrim paid some of the bills from the treatment but withheld payment of $990 on the ground that the charges exceeded an amount that was reasonable in comparison to other medical providers in the same geographic area.  However, it did not notify Hartunian  within ten days of its intention not to pay. 

After twelve months of demanding payment, Hartunian sued Pilgrim in the Massachusetts District Court.  In addition to the unpaid portion of his bill he sought damages under Mass. Gen. Laws ch. 93A.  Pilgrim then issued payment of $990 and filed a motion for summary judgment on all counts of the complaint.  The motion was denied with respect to the 93A count.  Pilgrim was found liable for breach of 93A after a bench and subsequently appealed.

In Hartunian v. Pilgrim Ins. Co.,  __ N.E.3d __, 2014 WL 6607866 (Mass. App. Ct.), Pilgrim argued that its refusal to make payment was not an unfair business practice because it disputed the obligation to pay in good faith.  The court held that that argument ignored the fact that an insurer must, by statute, make PIP payments within ten days or notify the submitting physician or claimant of its intention not to pay. 

Pilgrim also argued that it did not act in bad when  it had an independent medical exam conducted by a physical therapist (apparently a common thing now) rather than a practitioner licensed in the same medical specialty as Hartunian. While not dismissing out of hand the use in all circumstances of a physical therapist for an IME, the court held that whether such use is in good faith raises a factual issue. 

Similarly, the court held that review of the bills by a billing program is not automatically a bad faith act by an insurer but that "its use as a substitute for a practitioner's review of billing statements and underlying services provides an additional basis for an inference of Pilgrim's lack of good faith." 

Tuesday, November 4, 2014

Appeals Court sidesteps question of whether PIP carriers can have IME conducted by physical therapist

 Judith Ortiz was injured in an automobile accident. She sought PIP benefits from Commerce. 

Commerce sent Ortiz a notice indicating that she would have an independent medical examination conducted by a physician named Eugene Boeglin.  Ortiz attended the examination.  When Commerce sent her lawyer a copy of the IME report, she learned that Boeglin was not a medical doctor but a "doctor of physical therapy."  (Side note:  I have read hundreds of plaintiffs' physical therapy notes in my career.  Since the notes were all more or less the same I had come to assume that PT was bogus -- until I was referred to PT a few years ago for a pinched nerve.  Those people are miracle workers with knowledge that goes extremely deep.) 

Ortiz sued Mass Medical Services, apparently Boeglin's employer, for violation of the privacy statute, Mass. Gen. Laws ch. 214 s. 1B and of ch. 93A. 

In Ortiz v. Mass Medical Services, Inc., 86 Mass. App. Ct. 1116, 2014 WL 5326511 (unpublished), the Massachusetts Appeals Court affirmed dismissal of the privacy act claim for failure to comply with the statute of limitations. 

The court dismissed the 93A claim because the allegedly unfair and deceptive act -- the fact that Boeglin was a physical therapist, not a medical doctor -- caused no adverse consequences or loss. 

The court did not address whether Commerce itself was in violation of any statute or acting in bad faith by having the IME conducted by a physical therapist.