West Virginia Business Litigation : West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

My thanks to Mack Sperling, who writes the North Carolina Business Litigation Report, for letting me know about the Fourth Circuit’s unpublished decision last week in Cornett Management Co., LLC v. Firemen’s Fund Ins. Co., 2009 WL 1755912 (4th Cir. 2009). Here is the opinion, which addressed whether an insurance coverage exclusion applied to facts that are, to put it mildly, unique.

Cornett, which owns several restaurants, including the Hooters franchise in Charleston, West Virginia, faced claims from two female employees who alleged that in 2001, a store manager called them into his office and told them that a customer had reported a stolen change purse. He then told them that a police officer was on the phone and wanted to talk to them. The voice on the phone directed the women to strip in front of the manager to prove they didn’t have the purse, and told them that they risked arrest if they did not cooperate. So the women took off their clothes in front of the manager.

 Guess what? The call was a hoax. (As an aside, there was a rash of these calls a few years ago, one of which resulted in a multi-million dollar verdict.) But apparently this call was not the only incident against Cornett, as seven female employees, including the two here, alleged sexual harassment and filed suit, described by the court as the Reynolds complaint.

Cornett settled the Reynolds action, and Lexington Insurance Company paid its policy limits for Cornett’s defense and settlement costs. Cornett then made a claim under its commercial general liability policy with Firemen’s Fund.

Cornett’s suit against Firemen’s Fund was removed to the United States District Court for the Northern District of West Virginia, which granted Firemen’s motion for summary judgment on the grounds that the “employment-related practices exclusion [ERP]” in its policy provided no coverage for personal injury arising out of any “employment-related practices, policies, acts or omissions” and applied to the Reynolds action against Cornett.

On appeal, Cornett argued first that it had no practice or policy of strip-searching its employees, which rendered the exclusion inapplicable. In its per curiam opinion, the court dispensed with that argument quickly, and noted that the exclusion also applied to employment-related “acts or omissions,” which is what the Reynolds plaintiffs alleged.

Cornett’s second argument was that the provision was ambiguous and to be construed against Firemen’s Fund. This argument required the court “to determine what types of acts the policy meant to exclude from coverage when it listed ‘[c]oercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or other employment-related … acts.’”

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

I want to get to a few things that have accumulated on my desk over the past few days, so I’ll start with the ongoing legal problems of a Pittsburgh, Pennsylvania law firm that has represented thousands of plaintiffs in asbestos litigation in West Virginia, among other states.  

Peirce, Raimond & Coulter, P.C. is a defendant in a declaratory judgment complaint filed last September by Lumbermens Mutual Casualty Company, in United States District Court for the Western District of Pennsylvania.  Lumbermens Mutual Casualty Company v. Peirce, Raimond & Coulter, P.C., Civil Action No. 2:08–CV-1257 (W.D.Pa. 2008).

Here is the complaint, in which Lumbermens, as Peirce, Raimond & Coulter, P.C.’s errors and omissions carrier, asks for a declaratory judgment that it is not obligated to defend or indemnify the firm and its members in a lawsuit filed by CSX Transportation, Inc.  In that lawsuit, which is filed in United States District Court for the Northern District of West Virginia, CSX Transportation, Inc. alleges that the Peirce firm and its members were part of a scheme to prosecute fraudulent or unmeritorious asbestosis claims.  Here are some of allegations from the amended complaint:

 The defendants listed herein are well-organized and financed asbestos personal injury attorneys and medical experts who have orchestrated a scheme to inundate CSXT and other entities with thousands of asbestosis claims without regard to their merit.

Due to the sheer volume of claims filed as well as the number of claimants included in any one particular lawsuit CSXT and others were unable to adequately defend or even evaluate the merits of each claim on an individual basis.  Instead, in an effort to alleviate the stress placed on the judicial system by these mass filings, CSXT was forced to engage in a large scale mediation process with only limited information provided by the claimants’ own attorneys.

This case arises from the successful efforts of the defendants to deliberately fabricate and prosecute objectively unreasonable, false and fraudulent asbestosis claims against CSXT.  Specifically, the defendants orchestrated an asbestosis screening process deliberately intended to result in false positive diagnoses and then knowingly prosecuted claims against CSXT with no basis in fact.  As will be explained more fully below, this conduct violated the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and also supports claims for common law fraud and conspiracy.

 CSX Transportation v. Gilkison, Civil Action No. 5:05–CV-00202 (N.D.W.Va. 2005). 

CSXT’s lawsuit has received attention for naming Dr. Ray Harron as a defendant.  Dr. Harron, a retired radiologist from Bridgeport, West Virginia, is alleged to have provided false positive diagnoses of asbestosis in thousands of plaintiffs, which formed the basis for their lawsuits against CSXT. 

Dr. Harron has already been accused of falsifying x-ray diagnoses of silicosis, as described by this 2006 story by Mike Tolson in the Houston Chronicle and this 2006 story by Wade Goodwyn on NPR.org.  And although Goodwyn’s article provides a link, here is the 249–page opinion by United States District Judge Janis Graham Jack.

But back to CSXT’s lawsuit.  The defendants have made several motions to dismiss, which have been granted and denied.  But most recently, the court denied Dr. Harron’s motion to dismiss the remaining claim against him for common law civil conspiracy on the grounds that the court lacked subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) (the court previously granted his motion to dismiss a claim for civil RICO conspiracy).

in a nutshell, Dr. Harron alleged that the plaintiff had not satisfied the requirement of proving that the amount in controversy is at least $75,000, as required for federal diversity jurisdiction.  Judge Frederick P. Stamp, Jr. disagreed, and in his order found that CSXT’s legal expenses of nearly $68,000 (so far) in investigating and prosecuting its claims, coupled with the possibility of punitive damages, satisfied the amount in controversy requirement.  So it looks like Dr. Harron will remain a defendant for at least a while longer.

Finally, let me offer my belated congratulations to Marc E. Williams, one of CSXT’s lawyers and my law school classmate.  Marc, who practices at Huddleston Bolen LLP, is the 2008–2009 president of DRI, the membership organization for civil litigation defense lawyers. 

• Email This
• Print
• Comments
• Trackbacks

I’ve been writing quite a bit lately about cases dealing with ERISA, and the dissent filed by Justice Larry Starcher in Turner ex rel. Turner v. Turner, 2008 WL 5449773 (December 15, 2008), provides an opportunity to discuss a potentially significant issue.   

As you may recall, in Turner, which I wrote about last week, the Supreme Court of Appeals of West Virginia held that a subrogation action by an ERISA plan fiduciary or administrator has to be filed in federal court and cannot be adjudicated as part of an underlying personal injury action.

In his dissent, Justice Starcher, who left the Court on December 31, 2008 after he did not run for reelection, questioned whether the “made-whole” doctrine would preclude City Hospital from recovering for the medical expenses paid on behalf of its employee’s children.  Justice Starcher wrote that, “[i]n West Virginia, the ‘made whole doctrine’ stops an insurance company from gobbling up a plaintiff’s entire settlement under the rubric of ‘subrogation’ if the settlement is insufficient to fully compensate the plaintiff’s past and future losses.”

He then went on to write that, “[m]ost importantly, a per curiam opinion from the Fourth Circuit Court of Appeals indicates that West Virginia’s made whole doctrine is not preempted by ERISA.  See Martine v. Hertz Corp., 103 F.3d 118 (4th Cir. 1996)."

Unfortunately, the dissent in Turner does not expand on that issue. 

In  Martine, USB, the claims administrator for the West Virginia Public Employees Insurance Agency (PEIA), appealed the dismissal of its subrogation claim created by PEIA's payment of more than $124,000 in medical expenses incurred by Martine, who had been involved in an accident with another driver who had rented a car from Hertz. 

USB moved to intervene in the action, which the district court permitted.  Following a four-day trial, but before the jury announced its verdict, Martine moved to dismiss USB's complaint on the grounds that he would not be made whole because the tortfeasor had insufficient assets to satisfy a probable judgment. 

The jury's verdict of $650,000 included $36,800 for past medical expenses and $5,000 for future medical bills.  In granting Martine's motion, the district court relied on the Supreme Court of Appeals of West Virginia's decision in Kittle v. Icard, 405 S.E.2d 456 (W. Va. 1991) and concluded that because Martine would not be made whole by the amount he could collect, USB was not entitled to subrogation.  USB appealed.

The Fourth Circuit noted initially that the West Virginia Code gave PEIA a statutory right to subrogation, and that the Supreme Court of Appeals had held that subrogation clauses in insurance contracts are valid and enforceable.

USB argued that Kittle did not apply because its right to subrogation was contractual, while the insurer in Kittle had only a statutory right, and cited a case from the Tenth Circuit Court of Appeals that rejected the made-whole doctrine when an insurance contract unambiguously provided the insurer with subrogation rights if its insured obtained a settlement or verdict.

The Fourth Circuit disagreed because "Kittle defines subrogation in such a way as to require that equity be considered whenever an insurer invokes its right."   Here is the Court's explanation for why equitable principles did not entitle USB to subrogation at least in the amount awarded by the jury for medical expenses:

The district court determined that the West Virginia Supreme Court's pronouncements in Kittle and [State ex rel. Allstate Ins. Co. v.] Karl, supra, defined equity as per se denying insurers any recovery when insureds were not fully compensated by a settlement or judgment.  And, noting that Martine received less than one-sixth of the amount to which he was entitled and would be further undercompensated for his injuries if USB were entitled to subrogation the district court held that even aside from any per se rule, the equities favor Martine over USB.  We find no abuse of discretion or legal error in that conclusion.

This is an interesting issue.  Martine does not explicitly hold that ERISA does not preempt the made-whole doctrine in West Virginia.  But the opinion did address the presence of subrogation language in insurance policies, which would be akin to the subrogation language or anti-made-whole doctrine language present in a summary plan description, such as City Hospital's in Turner, and found that Kittle's definition of subrogation required equity to be considered.  

I would like to know if anyone has relied on Kittle or Martine successfully to defeat a health plan's subrogation claim.  The majority opinion in Turner does not cite either case -- but the opinion did not seem interested in expanding the Turners' options for challenging City Hospital's subrogation interest.  

• Email This
• Print
• Comments
• Trackbacks

Earlier this month, the Supreme Court of Appeals of West Virginia issued its opinion in Certain Underwriters at Lloyd’s, London, Subscribing To Policy No. B0711 v. PinnOak Resources, LLC, 2008 WL 4867663 (W. Va., November 6, 2008).  The Court described the facts of the dispute before it as “straightforward,” but its per curiam opinion is hardly a model of clarity.  I think the facts, at least as recited in the opinion, are confusing and not clearly explained.  So with that caveat, here is what was at issue.

Lloyd’s was one of several insurers that provided PinnOak Resources, LLC with a total of $75 million in property insurance coverage.  In 2003, PinnOak’s Pinnacle Mine experienced methane ignitions.  In 2004, PinnOak sued its insurers, including Lloyd’s, to recover for its property loss.  PinnOak alleged that Lloyd’s breached its insurance agreements and engaged in bad faith in handling PinnOak’s claim.

PinnOak settled with its insurers in 2004 and 2005, and finally settled with Lloyd’s in 2006, at which time PinnOak and Lloyd’s entered into a “global settlement agreement and release” and Lloyd’s paid its share of the $56 million settlement.

Here’s where it gets complicated.  While PinnOak and Lloyd’s were litigating, Lloyd’s agreed to further insure PinnOak.  The policy originally ran from June 30, 2004 to June 30, 2005 for an up-front premium of $5 million, but PinnOak’s cash flow prevented it from accepting those terms. 

The parties then agreed that the policy would run from June 30, 2004 until June 30, 2009 and would have an annual premium of $375,000, in addition to five annual payments of $1,250,000, which would be deferred until the parties resolved the August 2003 loss.  If the policy was not renewed, the entire amount would be due in full.  Lloyd’s claimed that PinnOak recommended this provision when it realized that it would not have positive cash flow until the 2003 loss claim settled.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

On Friday, when the Supreme Court decided to hear Hugh Caperton and Harman Mining's appeal from the reversal of their $50 million verdict against A. T. Massey Coal Co., Don Blankenship, Massey Energy's chairman, was embroiled in another lawsuit. 

The families of two coal miners killed in an accident in January 2006 sued their employer, Aracoma Coal Company, Inc., Massey Energy, A. T. Massey, and Blankenship individually.   The plaintiffs contend that Blankenship is at fault because he emphasized increased coal production over proper safety procedures, according to Ken Ward, Jr.'s article in Tuesday's Charleston Gazette.  Aracoma is a subsidiary of Elk Run Coal Company, Inc., which is a subsidiary of A. T. Massey Coal Company, Inc.

Blankenship was present at the trial on Friday, but his testimony was presented via videotape -- although his lawyers attempted to convince Logan County Circuit Court Judge Roger L. Perry to allow him to testify in person, which Judge Perry did not allow.  Blankenship's lawyers may present his testimony live during his case-in-chief.

According to Ward's article in yesterday's Saturday Gazette-Mail, Blankenship involved himself in seemingly small details of Massey's operations, such as whether to waive its usual policy and hire three workers who did not have high school diplomas.  What may be more helpful to the plaintiffs, though, is Blankenship's testimony that he receives faxed production reports from Massey mines every two hours and monitors profit and loss statements from each mine on a daily basis.

The wrongful-death case has created an insurance coverage dispute between Aracoma and its insurer, American International Specialty Lines Insurance Co.  In this complaint, Aracoma seeks a declaration that its policy with AISLIC covers the January 2006 fire in which the two miners died.  Aracoma Coal Company, Inc. v. American International Specialty Lines Insurance Co., Civil Action No. 08-C-322-O (Circuit Court of Logan County, West Virginia, October 29, 2008).

AISLIC's policy provides Massey with general liability coverage of $15 million per occurrence limit of liability with a $10 million per occurrence retention, and  employer's liability/stop gap coverage of $20 million per occurrence with a $5 million per occurrence retention.  Aracoma, as a Massey subsidiary, is an insured under the policy.

Aracoma claims that in the course of settlement negotiations, the plaintiffs offered to settle within the applicable limits of coverage under the West Virginia stop gap portion of the policy, which would result in a full and complete release of Aracoma, as well as the other defendants.  Aracoma agreed to pay the $5 million retention toward the claim.

But AISLIC refused to agree to such a settlement, and instead insisted that the other Massey defendants pay all or a portion of the $10 million retention applicable under the general liability portion of the policy before it would proceed on Aracoma's behalf.

Aracoma alleges that AISLIC's conduct has exposed it to a verdict in excess of its policy limits so that AISLIC can obtain a settlement more favorable to itself.  The complaint seeks a declaratory judgment that AISLIC cannot refuse to settle the claims against Aracoma by first requiring payment under the general liability portion of the policy, and alleges common law and statutory bad faith causes of action.

Ward wrote about the insurance dispute in Wednesday's Charleston Gazette.  But according to a story he wrote for Thursday's edition, Massey took issue with the the suggestion that Aracoma had agreed to settle with the plaintiffs for $20 million.  Massey's general counsel, Shane Harvey, would not reveal the amount the parties had agreed to, but put the settlement range at somewhere between $1 and $20 million.  Harvey  expressed concern that the article could "influence jurors and prevent fair trials."

There are a couple of things I don't understand about the lawsuit and Massey's reaction to Ward's article.  Aracoma is the party that made the allegations about AISLIC's actions, particularly that the plaintiffs had offered to settle within the limits of liability.  Ward's article doesn't state that the parties had agreed to settle for $20 million, simply that they had agreed to settle within the policy limits.

But if Massey is so worried about the article's possible effect on the jurors, then why did Aracoma file its declaratory judgment action in the same state court where the wrongful death cases were pending, a few days before those cases went to trial?  The wrongful death and insurance coverage cases would understandably attract media attention, and the surest way to avoid any such attention would be to have waited until the underlying trial was concluded. 

• Email This
• Print
• Comments
• Trackbacks

Here's an update on Samuel Juniper's lawsuit against his employer, M&G Polymers USA, LLC.  If you’ve forgotten, Juniper successfully sued M&G last year after Aetna, M&G’s health insurer, denied $40 in charges for three venipunctures, then provided Juniper with various and conflicting reasons for the denials.  I wrote about the lawsuit in this post.

On October 10, the Fourth Circuit Court of Appeals affirmed the Southern District of West Virginia’s ruling in Juniper's favor.  The Fourth Circuit adopted the district court's reasoning in an unpublished per curiam opinion.  Juniper v. M&G Polymers USA, LLC, 2008 WL 4538161 (4th Cir. 2008).  

District Judge Robert C. Chambers had accepted Magistrate Judge Maurice G. Taylor, Jr.'s recommended decision that Juniper's motion for summary judgment be granted and M&G's be denied.  The court found that the "decision [to deny the charges] was arbitrary, not supported by evidence, inconsistent with earlier interpretations of the plan and not reasonable."  Juniper v. M&G Polymers USA, LLC, 495 F.Supp.2d 590 (S. D. W. Va. 2007). 

The ContractsProf Blog posted about the decision, which it described as "David Defeats Goliath."   And the ABA Journal reported that Juniper intends to frame his $40 check when he receives it.

• Email This
• Print
• Comments
• Trackbacks

Not even the rich and famous (or their beneficiaries) are immune from the decisions of insurance companies.  John S. LaViolette, a Los Angeles attorney who was appointed by actor Heath Ledger as the custodian of a $10 million life insurance policy for the benefit of Ledger’s three-year-old daughter, Matilda, has sued ReliaStar Life Insurance Company on the grounds that the company is avoiding paying the policy proceeds by continuing to investigate whether Ledger’s death in January was suicide. 

Laviolette filed the complaint in California state court on July 23, 2008, and Reliastar removed it on August 21, 2008.  LaViolette v. ReliaStar Life Insurance Company, Civil Action No. 2:08-CV-05514 (C.D. Cal. 2008).   

As reported by James Barron in The New York Times, the New York City Office of the Chief Medical Examiner ruled in early February that Ledger’s death was accidental and resulted from the “abuse of prescription medications.”

LaViolette contends that by waiting until after Ledger’s death to request information about his medical history, ReliaStar has engaged in post-claim underwriting, which means that an insurance company denies benefits or rescinds a policy after discovering alleged misrepresentations or inaccuracies in an insured’s application that would have affected the insurer’s decision to issue the policy.  

In its answer, ReliaStar claims that two provisions entitle it to investigate the circumstances of Ledger’s death:

• the “incontestability” clause, which gives ReliaStar the right to contest the validity of the policy “based on material misrepresentations made in the initial application” for a period of two years from the date the policy was issued, which was June 2007; and
• the suicide provision, which requires ReliaStar only to refund the premiums paid if the insured commits suicide within two years from the date the policy was issued. 

The complaint seeks a declaratory judgment regarding ReliaStar’s alleged post-claims underwriting and alleges bad faith by ReliaStar in failing to pay the policy proceeds. 

TMZ.com reports that ReliaStar is focusing on Ledger's answers to questions about his use of prescription medications when he applied for the policy and his use of illegal drugs.

• Email This
• Print
• Comments
• Trackbacks (1)

My thanks to John Day at Day On Torts, whose post on Friday alerted me to the 50-state survey on the duty to defend prepared by Hinshaw & Culbertson LLP.  John’s post has a link to the survey, but I had some trouble downloading it, so here it is again.

And for convenient reference, here are the West Virginia cases cited in the survey:

West Virginia Fire & Cas. Co. v. Stanley, 602 S.E.2d 483 (W.Va. 2004);

Bruceton Bank v. U. S. Fidelity and Guar. Ins. Co., 486 S.E.2d 19 (W.Va. 1997);

Bowyer v. Hi-Lad, Inc., 609 S.E.2d 895 (W.Va. 2004); and

Marshall v. Fair, 416 S.E.2d 67 (W.Va. 1992).

 

• Email This
• Print
• Comments
• Trackbacks

    Charleston Area Medical Center’s Board of Trustees has voted to pay $11.5 million to Dr. R. E. Hamrick, Jr. by September 5, and bring an end to his lawsuit against the hospital arising from the revocation of his privileges in 2004 when he attempted to self-insure his medical professional liability coverage.   Here is Eric Eyre's article in yesterday's Charleston Gazette.

    Last month, the Circuit Court of Kanawha County reduced the jury’s verdict of $5 million in compensatory damages and $20 million in punitive damages to $2 million and $8 million, respectively.  The additional $1.5 million represents interest at 8.25% that has accrued since the verdict in February.  Here are my posts regarding the trial court’s rulings and the original verdict.

    CAMC will pay at least $2 million of the settlement from its cash reserves, but is responsible for payment of the entire amount by the agreed-to deadline.  Whether CAMC's insurance coverage pays any of the settlement is far from certain, considering the declaratory judgment actions filed by two of CAMC’s insurers, which claim that they have no obligation to indemnify CAMC for any payment made to Hamrick.  If the insurance companies prevail in those actions, CAMC will end up paying the entire amount.

• Email This
• Print
• Comments
• Trackbacks

    It turns out that Charleston Area Medical Center is facing two lawsuits over insurance coverage for Dr. R. E. Hamrick, Jr.’s $25 – now $10 – million verdict, not one, as I wrote yesterday. 

    In May, Employers Reinsurance Corporation now known as Westport Insurance Corporation filed a declaratory judgment action in federal court against CAMC and its captive insurer, Vandalia Insurance Company, to determine whether it owes any duty to CAMC.  Employers Reinsurance Corporation v. Charleston Area Medical Center, Inc., Civil Action No. 2:08-CV-0303. 

    ERC reinsures CAMC's $25 million policy with Vandalia, and its policy with Vandalia requires that it be given “prompt, written notice” of any loss, occurrence, claim, event, etc. that has a “reasonable possibility of resulting in a claim for indemnity hereunder.”

    ERC claims that CAMC did not notify it of Hamrick’s lawsuit until February 11, 2008, which was four days after the jury returned its verdict for $25 million.  ERC argues that it did not receive the notice required by its policy with Vandalia and that it is entitled to a declaratory judgment that it has no obligation to indemnify Vandalia for any payments made to CAMC nor any obligation to directly indemnify CAMC.

    Neither defendant has responded to the complaint yet.  Because this action was filed before Executive Risk Indemnity’s lawsuit and involves the same subject matter, the two suits are likely to be consolidated before United States District Court Judge Joseph R. Goodwin. 

• Email This
• Print
• Comments
• Trackbacks

    In February, a Kanawha County (Charleston), West Virginia jury awarded Dr. R. E. Hamrick, Jr. $25 million in compensatory and punitive damages when it determined that Charleston Area Medical Center improperly revoked his privileges and damaged his reputation due to his efforts in 2004 to self-insure his professional liability for $1 million.  Here is my post about the verdict.

    CAMC filed post-trial motions to reduce the verdict and for a new trial, which were argued in April.  Judge Jack Alsop, who is presiding over the case after the seven Kanawha County Circuit Court judges recused themselves, ruled on the motions last week, and offered mixed relief to CAMC.

    In its order granting CAMC’s motion for remitittur of damages, the court found that the compensatory damage award of $5 million “shocks the conscience” and was not supported by the evidence because Hamrick “has invariably admitted he has suffered no pecuniary harm or financial loss as a result of CAMC’s actions.  There was no evidence adduced at trial of any type of emotional distress or physical harm. Dr. Hamrick’s reputation as one of the area’s finest surgeons was minimally reduced, if in any way.”   

    CAMC had requested that the compensatory damages award of $5 million be remitted to $1 million.  The court found that Hamrick had asserted two causes of action, invasion of privacy and defamation, and was entitled to $1 million for each cause of action, and reduced the award to $2 million. 

    The court did not engage in as much analysis of the punitive damages verdict of $20 million, but did find that:

“CAMC’s misconduct [against Hamrick] was not an isolated event as to Dr. Hamrick, but was continual over a period of three to four years. There is limited evidence of any similar misconduct as to the treatment of other physicians with privileges at CAMC. Even with this, the degree of reprehensibility, it does not warrant an award of twenty million dollars in punitive damages.”

The court decided to maintain the same 4:1 ration of punitive damages to compensatory damages, and remitted the punitive damages award to $8 million, for a total award of $10 million.

    In considering CAMC’s motion for a new trial, the court rejected CAMC’s arguments that the jury had a “mistaken view of the case,” that the court improperly allowed Hamrick’s expert to testify, that the court misapplied the law of the case doctrine, that the court allowed testimony regarding alleged profanity about Hamrick, and otherwise denied CAMC the opportunity to present evidence, and denied its motion.  Here are the order denying the motion for a new trial, and the final order, from which either or both parties can appeal.

    CAMC is also fighting another lawsuit resulting from the verdict.  In June, Executive Risk Indemnity, Inc., which reinsures Vandalia Insurance Company, CAMC’s captive insurer, filed a declaratory judgment action in United States District Court for the Southern District of West Virginia, alleging that it has no duty to defend or indemnify CAMC as a result of the verdict.  Executive Risk Indemnity, Inc. v. Charleston Area Medical Center, Inc., Civil Action No. 2:08-CV-00810. 

    Executive filed suit against CAMC, Vandalia, and Employers Reinsurance Corporation, now known as Westport Reinsurance Corporation.  Its complaint also asserts that, if the court finds that coverage is available, Vandalia and Employers Reinsurance Corporation, it is entitled to equitable contribution for all or part of the verdict.  None of the defendants has responded to the complaint yet.

• Email This
• Print
• Comments
• Trackbacks

    An issue that always has to be addressed in ERISA disability claims is the standard of review to be applied to the plan administrator’s decision.  If the plan language does not confer discretion on the administrator, then the court reviews any decision under a de novo standard.  However, if the plan gives discretion, then the administrator’s decision is reviewed under an abuse of discretion standard.  

    But there can be another scenario, one that has confounded litigants, lawyers, and courts for years.  It is where the plan administrator, which makes the decision about a claimant’s entitlement to benefits, is also the plan insurer and therefore responsible for paying benefits.

    Courts have long recognized the conflict of interest that exists, even if they have not been sure how to deal with it.  That’s why the Supreme Court of the United States’ decision in Metropolitan Life Insurance Company v. Glenn, 2008 WL 2444796 (June 19, 2008),was so eagerly awaited.

    In Glenn, Metropolitan (“MetLife”) administered Sears, Roebuck & Company’s long-term disability plan and also paid the benefits.  Sears’ plan’s language conferred discretion on Metropolitan, which meant that its decision whether to award benefits would be reviewed under the abuse of discretion standard.

    Wanda Glenn applied for and received LTD benefits because she was able to show that she could not perform the material duties of her own job (the “own occ” standard).  After 24 months, however, the plan’s standard for proving disability changed, and required her to prove that not only could she not perform her own job, but that she could not perform the material duties of any gainful occupation for which she was reasonably qualified (the “any occ” standard).

    MetLife found that she did not satisfy this standard and denied her claim for benefits.  The District Court for the Southern District of Ohio affirmed the denial, and Glenn appealed to the United States Court of Appeals for the Sixth Circuit.

    In reversing the denial of Glenn’s benefits, the Sixth Circuit relied on a combination of factors, including MetLife’s conflict of interest (the others factors were specific to the treatment of Glenn’s claim).   MetLife appealed to the Supreme Court.

    In an opinion written by Justice Stephen Breyer for a majority of five justices, the Court affirmed the Sixth Circuit and identified two questions to be answered: the first, posed by MetLife, is “whether a plan administrator that both evaluates and pays claims operates under a conflict of interest in making discretionary benefit determinations.”  The second question, posed by the Solicitor General, is “’how’ any such conflict should ‘be taken into account on judicial review of a discretionary benefit determination.’”  

    Personally, I find the second question to be much more significant than the first.  Courts have noted for years the existence of a conflict of interest when the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.”  The real issue is how a court is supposed to deal with the conflict.

    The Court relied on principles of trust law in concluding that “for ERISA purposes a conflict exists,” and identified several reasons. 

The employer’s own conflict may extend to its selection of an insurance company to administer its plan (an employer may be more interested in a company that offers low rates instead of one that has accurate claim processing);

ERISA imposes higher-than-marketplace quality standards on insurers (ERISA requires a plan administrator to adhere to a special standard of care; and

A legal rule that treats insurance company administrators and employers alike in respect to the existence of a conflict can nonetheless take account of the circumstances to which MetLife points so far as it treats those, or similar, circumstances as diminishing the significance or severity of the conflict in individual cases

    Regarding the thornier problem of how to account for a conflict, the Court repeated its statement from Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that a conflict “should be weighed as a factor in determining whether there is an abuse of discretion.”

    The Court pointed out that the standard of review should not change, however, which “in practice could bring about near universal review by judges de novo-i.e., without deference-of the lion’s share of ERISA plan claims denials.”  Rather, the Court envisioned that a conflict of interest is a “factor” to be considered in addition to other considerations.  This was the approach taken by the Sixth Circuit; it considered the conflict, but may not have found it to be determinative of Glenn’s appeal in view of other factors.

    Interestingly, in his partial concurrence, Chief Justice John Roberts cautioned that the majority’s approach would bring about a change in the standard of review:  “The end result is to increase the level of scrutiny in every case in which there is a conflict-that is, in many if not most ERISA cases-thereby undermining the deference owed to plan administrators when the plan vests discretion in them.” 

    If you're interested in knowing more about MetLife v. Glenn (and who wouldn't be?), I recommend the knowledgeable and insightful comment and analysis of Roy Harmon at Health Plan Law, Brian King at ERISA Law Blog,  Steven Rosenberg at Boston ERISA & Insurance Litigation Blog, Paul Secunda at Workplace Prof Blog, Suzanne Wynn at Pension Protection Act Blog, and Mark DeBofsky at DDBlog.

• Email This
• Print
• Comments
• Trackbacks

    In January, I wrote about the so-called tripartite relationship among an insured, the insured’s lawyer retained and paid by the insurance company, and the insurance company, and an appeal before the Supreme Court of Appeals that illustrated some of the perils of the relationship.

    The Court  has issued its decision in Horkulic v. Galloway, 2008 WL 481000 (W.Va. 2008), which involved a dispute between the lawyer for William Galloway, the defendant in a legal malpractice case, and TIG Insurance Company, which insured Galloway and had retained his lawyer, William Wilmoth.  Galloway’s lawyer claimed that a settlement had been reached with plaintiff Jeffrey Horkulic, in which Galloway would confess judgment in the amount of $1,500,000, but that Horkulic would accept Galloway’s policy limits of $500,000 in satisfaction of his claim, would not pursue Galloway’s personal assets, and would not record the judgment. 

    TIG argued that the purported settlement would enable Horkulic to use Galloway’s confession of judgment in a separate bad faith action in order to establish the value of that claim, and appealed the Circuit Court of Hancock County’s order approving the settlement, including Galloway’s confession of judgment. 

    in a unanimous opinion by Justice Joseph Albright, the Court noted the difficulties presented by the parties' relationships:  

In the present case, TIG was not permitted to participate in the settlement enforcement hearing and thus cannot be deemed to have had a full and fair opportunity to litigate the issue.  More specifically, the order in question expressly declares that TIG will have the opportunity to challenge the $1.5 million confessed judgment by Mr. Galloway.  This case presents the classic tripartite configuration in which a party to a bifurcated bad faith action was not a party in the underlying action, despite the reality that such entity furnished counsel for the defendant in the underlying action.  The fact remains that Mr. Wilmoth, as counsel for Mr. Galloway hired through TIG, was not protecting the interests of the insurance company, TIG, while the settlement negotiation matters were being litigated in the lower court.  His duties as counsel ran solely to the interests of Mr. Galloway.

    The Court did not reverse the circuit court's order approving the settlement, but clarified TIG's right to challenge Galloway's confession of judgment:

Based upon the foregoing, we hold that a consent or confessed judgment against an insured party is not binding on that party's insurer in subsequent litigation against the insurer where the insurer was not a party to the proceeding in which the consent or confessed judgment was entered, unless the insurer expressly agreed to be bound by the judgment.  Therefore, an attack on the consent or confessed judgment in the subsequent litigation by an insurer who did not expressly agree to such judgment is a permissible direct, not collateral, attack on the consent or confessed judgment ...  The primary issue to be resolved in this appeal is the extent to which the specific August 25, 2006 order [approving the settlement] under inquiry may be utilized against TIG when the bifurcated bad faith claim is ultimately litigated.  Thus, subsequent to the filing of this opinion, the lower court will progress forward on the course it previously set, dissolving the stay and proceeding with discovery on the bad faith claim.

    In other words, because TIG did not agree to be bound by Galloway's confession of judgment, TIG is free to challenge it during the litigation of the bad faith case.  But because the  bad faith case has not been litigated yet,  the Court cannot predict what effect, if any, the confession of judgment will have.

    In addition to TIG's appeal of the order approving the settlement, it had also sought a writ of prohibition against the circuit court's award of attorney's fees to Horkulic's counsel for  having  to enforce the settlement.  The circuit court awarded fees of $500 per hour for 101.5 hours and $54.00 in expenses.  TIG's challenge was based on its lack of opportunity to participate before the circuit court and that the award was excessive.

    The Supreme Court granted the writ based on TIG's lack of participation: "Thus, under the facts of this case, we find that the lower court erred in granting attorney fees against TIG without allowing TIG to participate in the evidentiary hearing addressing the pertinent issues culpability [sic] for the extensive delays of this case.  It is appropriate to grant a writ of prohibition and to remand this matter for a full evidentiary hearing to determine the extent of TIG's culpability in delaying the settlement." 

    Although the Supreme Court did not explicitly address the amount of the award, under West Virginia case law, such as Aetna Cas.& Sur. Co. v. Pitrolo, 342 S.E.2d 156 (W.Va. 1986), part of the circuit court's inquiry will necessarily focus on the reasonableness of the fees.

    Justice Robin Davis concurred on behalf of herself and Chief Justice Elliott Maynard in order to point out that by granting TIG's petition for a writ of prohibition, "this Court has made no determination with respect to the reasonableness of those fees." 

• Email This
• Print
• Comments
• Trackbacks (1)

    A Kanawha County (Charleston), West Virginia jury has awarded $5 million in compensatory damages and $20 million in punitive damages to a surgeon who claimed that Charleston Area Medical Center damaged his reputation and improperly revoked his privileges over a dispute about his professional liability coverage.  CAMC has promised to appeal the verdict.  Here are Eric Eyre’s article about the verdict in yesterday’s Charleston Gazette and his article from last week when the trial began.

    The trouble started in 2004 when Dr. R. E. Hamrick, Jr. decided to self-insure his professional liability coverage by placing $1 million in a trust account.  CAMC challenged his right to do so, and revoked his privileges on September 10, 2004.  Hamrick appealed the revocation, and the Supreme Court of Appeals of West Virginia issued a preliminary injunction on September 16, 2004, ordering CAMC to reinstate his privileges, and subsequently entered a standing order that enabled him to continue to care for his patients.

    Hamrick filed suit against CAMC, alleging, inter alia, that it engaged in misconduct regarding his professional liability insurance and damaged his reputation by revoking his privileges.  In 2005, the circuit court ruled that CAMC failed to show that Hamrick’s self-insurance was actuarially unsound or violated the Medical Professional Liability Act, and granted summary judgment in his favor.  The Supreme Court voted 5-0 not to hear CAMC’s appeal.

    In 2006, CAMC changed its policy to allow physicians to insure themselves, and the West Virginia Legislature enacted § 55-7B-12 of the Medical Professional Liability Act, which authorizes a physician to self-insure by establishing an irrevocable trust of not less than $1 million.

    Assuming that the judgment order is entered without too much delay, CAMC's petition for appeal will be considered during the Supreme Court's Fall Term, which starts in September. 

• Email This
• Print
• Comments
• Trackbacks (1)

    Insurance coverage was at issue in recent decisions from two federal appeals courts, in which one court found that no coverage was available, while the other interpreted which of two companies’ policies was excess coverage.

    In Scottsdale Ins. Co. v. Flowers, 2008 WL 140968 (January 16, 2008), the Sixth Circuit Court of Appeals was asked to review a district court’s declaratory judgment that Flowers, a therapist employed by the Morton Center, was not covered by the Morton Center’s liability insurance policy with Scottsdale Insurance Company for tort damages resulting from his sexual relationship with Burke, who had been his patient. 

    The appeals court first engaged in a thorough analysis and determined that the district court properly exercised its jurisdiction under the Declaratory Judgments Act.  The court then turned to whether Flowers’ affair with Burke fell within the scope of his employment with the Morton Center, such that there would be coverage under Scottsdale’s policy.

    The court concluded that the meaning of the legal term of art, “scope of employment,” was not ambiguous under Scottsdale’s policy, and therefore the district court correctly found that the policy excluded coverage for Flowers’ activities that were not within the scope of his employment.  Having determined that Scottsdale’s insurance policy was not ambiguous, the court proceeded to address whether Flowers’ affair with Burke came within the scope of his employment as a therapist with the Morton Center.

    The court was guided by precedent that focuses on the employee’s motive in determining whether he or she acted within the scope of employment.  Consequently, the court found that Flowers’ motivation for the affair was his own sexual proclivities, and not the furtherance of the Morton Center’s business.  Burke claimed that Flowers acted negligently, and not intentionally, by having the affair with her, but the court observed that Flowers did not have the affair with her as part of her treatment, but for his own benefit.  Thus, as a matter of Kentucky law, there was no insurance coverage for damages resulting from Flowers’ affair with Burke.

    The remaining issue for the Sixth Circuit’s consideration was the propriety of an amended order entered by the district court on Burke’s motion.  In its original order, the district court ordered that “plaintiff, Scottsdale Insurance Company, has no duty to extend coverage to Norman Flowers for any of the torts alleged in [Burke’s civil action].” (Emphasis added.)  However, Burke moved the court to amend its order because the Morton Center was trying to use the original order to preclude litigation on the issue of its liability in Burke’s state court action. 

    The district court vacated its original order and entered an amended order that found that Scottsdale “has no duty to extend coverage to Norman Flowers for his sexual affair with Kathleen Burke.”  (Emphasis added.)  

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

    A post earlier this week in Stephen D. Rosenberg’s Boston ERISA & Insurance Litigation Blog ties in nicely with an appeal argued in front of the Supreme Court of Appeals of West Virginia on Tuesday, which was the first day of the Court’s Spring Term.  Here is the Court’s calendar for the entire term.

    The post was entitled “The Three Rules of the Tripartite Relationship,” which refers to the relationship established when an insurance company’s policyholder is sued, and the insurance company provides a defense as required by the policy.  Even though the policyholder’s lawyer is retained and paid by the insurance company, he or she represents the policyholder’s interests exclusively.  But the tripartite relationship has the potential to create conflicting loyalties on the part of the policyholder’s counsel, whose obligation to represent the policyholder may be at odds with the interests of the insurance company that has retained him or her. 

    Stephen linked to an article entitled "On the Horns of a Defense Counsel Dilemma," and also proposed three rules of thumb that should govern the tripartite relationship.  Roy Harmon, who writes Health Plan Law, also wrote about the arrangement yesterday with a post entitled "Appointed Defense Counsel: The Small Print Enlarged."

    The tripartite relationship was at issue before the Supreme Court of Appeals in Jeffrey A. Horkulic, et al. v. William O. Galloway, et al., No. 33352, which involved an underlying legal malpractice claim.  Defendant Galloway’s malpractice carrier, TIG Insurance Company (“TIG”), appointed counsel for him, and he also retained his own private counsel.  A dispute developed between Galloway’s appointed counsel and TIG as to whether a settlement with Horkulic had been reached.  Galloway’s appointed counsel said the parties had reached a settlement, while TIG’s claims adjuster said they had not.

    The sticking point between Galloway and TIG was a provision that Galloway would confess judgment in the amount of $1,500,000, but that the plaintiff would accept Galloway’s policy limits of $500,000 in satisfaction of his claim, would not pursue Galloway’s personal assets, and would not record the judgment.  TIG's objection was that the plaintiff, who had also filed a third-party bad faith claim against TIG, would be able to use the confession of judgment in the bad faith case in order to establish his damages.  The Circuit Court of Ohio County entered an order approving the settlement, including Galloway's confession of judgment, and TIG appealed.

    As you can see from the circuit court’s order, as well as the parties’ briefs (here are TIG's brief, the plaintiff’s brief, and TIG's reply brief), the plaintiff’s appointed counsel clearly was at odds with TIG, the entity who retained and paid him. This conflict is what can make the tripartite relationship so problematic. 

    At the oral argument, which I watched via the Court’s webcast, TIG argued that it would be unable to challenge the confession of judgment during the prosecution of the third-party bad faith case, for the purpose of determining the plaintiff’s damages.  The plaintiff’s counsel repeatedly assured the Court that TIG could object to the judgment, but as some members of the Court observed, until the bad faith case is underway and the confession of judgment becomes an issue, TIG’s concern may be premature.

    Finally, one other issue that was consolidated for hearing on Tuesday with the underlying appeal was State ex rel. TIG Insurance Company v. The Honorable Arthur M. Recht, et al., No. 33353, which was TIG’s petition for a writ of prohibition against the circuit court’s award of attorney’s fees to Horkulic’s lawyer.  The circuit court ordered TIG to pay attorney’s fees at the rate of $500 per hour for the work involved in enforcing the plaintiff’s settlement with TIG, which amounted to $50,750.  Here are TIG’s petition, Galloway's response, and the plaintiff’s response.  (Incidentally, Galloway's position was that the circuit court did not exceed its authority in awarding attorney's fees and that the amount of the award was not excessive.)  The Supreme Court was not alarmed about the amount of the hourly rate, so I don’t anticipate that the Court will disturb the award.

• Email This
• Print
• Comments
• Trackbacks (1)

    A California appeals court has ruled that health insurer Blue Shield of California improperly rescinded an insurance policy after its insured incurred more than $450,000 in medical expenses, then demanded that he repay more than $100,000.  Hailey v. California Physicians’ Service, 2007 WL 4472790 (December 24, 2007). 

    Blue Shield claimed that Steve Hailey made several misrepresentations in applying for insurance, but in a unanimous opinion, the Fourth Appellate District of the Court of Appeals disagreed.  The court found that Hailey’s wife, Cindy, who completed his application, did not entirely understand the application and therefore may have provided incorrect information.  Here is the court's ruling: 

We conclude [California Health and Safety Code] section 1389.3 precludes a health services plan from rescinding a contract for a material misrepresentation or omission unless the plan can demonstrate (1) the misrepresentation or omission was willful, or (2) it had made reasonable efforts to ensure the subscriber’s application was accurate and complete as part of the precontract underwriting process. Because both of these issues turn on disputed facts, the trial court’s summary judgment ruling cannot stand. We also conclude a triable issue of facts exists whether Blue Shield engaged in bad faith, and that the Haileys adequately alleged a cause of action for intentional infliction of emotional distress. We therefore reverse the judgment.

    The Wall Street Journal Law Blog wrote about the Hailey decision, and the San Francisco Chronicle had this story, which provided background about the Haileys' experience with Blue Shield.  Both articles also discuss actions taken by California regulators against insurance companies.  Last May, I wrote this post about Blue Cross of California’s decision to stop its practice of “use it and lose it,” which is another name for Blue Shield’s practice of “post-claim underwriting.”

• Email This
• Print
• Comments
• Trackbacks

    A story on the front-page of yesterday’s Wall Street Journal focuses attention on an important legal issue, but one that I suspect a lot of people may not appreciate: a health plan’s right of subrogation.  The article, entitled "Accident Victims Face Grab for Legal Winnings" discusses an employer health plan’s successful effort to obtain reimbursement for health care costs paid on behalf of an employee who was severely injured in a motor vehicle accident. 

    The employee, Deborah Shank, who was injured seven years ago, obtained a $700,000 settlement from the trucking company whose tractor trailer crashed into her car.  After attorney’s fees and expenses were deducted, she was left with $417,000, which was put in a special needs trust for her future care.  But her employer, Wal-Mart, Inc., pursued a lawsuit against her, seeking reimbursement for nearly $470,000 in medical expenses that its health plan had paid on her behalf. 

    A district court ruled in Wal-Mart’s favor, and that ruling was affirmed by the Eighth Circuit Court of Appeals in August.  Administrative Committee of Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Shank, 500 F.3d 834 (8th Cir. 2007).  Mrs. Shank’s motion for en banc reconsideration of the decision was rejected last week, which leaves an appeal to the Supreme Court of the United States as her last hope.

    Roy Harmon, in his Health Plan Law blog, described the article as “provocative,” and he’s right.  Having Wal-Mart as the employer in this situation invites more scrutiny of its actions than another employer might receive. But I have found that entities, like corporations, that receive more attention for their actions than others receive often deserve the extra attention, and this is one of those situations.

    Assuming that a health plan, like Wal-Mart’s, has language that entitles it to reimbursement of expenses paid on behalf of plan participants who receive compensation from an accident settlement or other third-party, the plan should be reimbursed.  But as Roy also pointed out, most plan administrators try to work out settlements of claims such as Mrs. Shank’s for a couple of reasons, including the legal expenses that the plan might incur in pursuing a recovery and a plan’s natural reluctance to sue its own employee to recover the costs.  Not surprisingly, neither of these factors was of concern to Wal-Mart.  In fact, Mrs. Shank’s lawyer said he approached Wal-Mart about settling its claim, “but was told the health plan wanted to proceed with the lawsuit.”

    There is one point mentioned in the article that I would like to have known more about.  The author, Vanessa Furhmans, writes that after Mrs. Shank’s lawyer informed Wal-Mart that the settlement funds had been placed in a special needs trust, Wal-Mart waited three years to sue Mrs. Shank for the money.  Why did Wal-Mart wait so long?  After three years, isn’t Mrs. Shank entitled to conclude that Wal-Mart isn’t going to pursue any right of subrogation against her?

    The Healthcare Neutral ADR Blog, written by Richard J. Webb, also has a post about the article, which highlights the need to “get all players at the table,” i.e., involve everyone who has or may have an interest in the settlement at a point when that involvement is meaningful.  If you represent plaintiffs or defendants in personal injury litigation, sooner or later, you will confront a situation like this.  The facts may not be outrageous as Mrs. Shank’s, but the scenario will be the same or very similar, and you need to be prepared.  Likewise, if you do work for health plans, you need to be prepared to deal with situations like this one.  Hopefully, an outcome like Deborah Shank’s will be the exception rather than the rule.   

• Email This
• Print
• Comments (1)
• Trackbacks (1)

    It didn’t take the Supreme Court of Appeals long to issue its ruling in Wetzel v. Employers Service Corporation of West Virginia, 2007 WL 3312679 (W.Va.), which was argued on October 10, and which I discussed on October 23.

    The issue was whether the claimant's widow could hold the workers' compensation claims administrator for her husband's employer liable for its conduct in allegedly causing or hastening his death from an occupational disease.  Mary Wetzel claimed that Employers Service Corporation of West Virginia (ESC), the claims administrator for Chemical Leaman Tank Lines, was not Chemical Leaman's agent and therefore not entitled to the statutory immunity from civil liability that traditionally applied to workers' compensation employers.  Alternatively, she argued that if ESC was Chemical Leaman's agent, then ESC was liable under an intentional tort theory.  She also argued that she could assert a claim for unfair trade practices against ESC because it was in the business of insurance in processing and paying workers' compensation claims for Chemical Leaman.

    The Supreme Court was not persuaded by any of the plaintiff's theories.  in a per curiam opinion, the Court found that, under its prior decision interpreting the meaning of "agent," ESC, in its capacity as workers' compensation claims administrator, was Chemical Leaman's agent for workers' compensation purposes. 

    The Court also rejected the plaintiff's theory that even if ESC was Chemical Leaman's agent, ESC could be liable for its intentional refusal to pay certain medical claims.  The plaintiff had not alleged a deliberate intention claim against ESC, as provided by West Virginia Code § 23-4-2(d)(2), which is traditionally the only method of defeating workers' compensation immunity, but had urged a new cause of action for ESC's intentional refusal "to honor and timely pay workers' compensation benefits."  The Court expressed concern that recognizing the plaintiff's cause of action would interfere with an employer's right to contest an employee's claim, which had also been the Court's concern in Persinger v. Peabody Coal Co., 474 S.E.2d 887 (W.Va. 1996). 

    Finally, the Court concluded that ESC was not in the business of insurance for purposes of the plaintiff's claim under the West Virginia Unfair Trade Practices Act.  The plaintiff had conceded that ESC was not an insurer, but claimed that it was engaged in the business of insurance, which brought it within the scope of the UTPA.   In so holding, the Court affirmed its ruling in Hawkins v. Ford Motor Co., 566 S.E.2d 624 (W.Va. 2002), which had established that self-insured employers that process their own liability claims are not liable for unfair trade practice claims.  (The Court also pointed out in a footnote that in amendments to the Workers' Compensation Act in 2005, the Legislature had eliminated claims such as Mrs. Wetzel's, which alleged violations of the UTPA by a private workers' compensation carrier or third-party administrator or by its employees or agents.)
   
    Justices Joseph Albright and Larry Starcher dissented, and would have reversed the circuit court's rulings regarding ESC's immunity and its liability under the UTPA.  Their opinions accused the majority of reading the pertinent statutes on both issues too broadly, with the result that ESC improperly received immunity from liability and Mrs. Wetzel was deprived of her day in court.

• Email This
• Print
• Comments
• Trackbacks

    An interesting appeal that presents an issue of first impression was argued before the Supreme Court of Appeals last week.  The case is Wetzel v. Employers Service Corporation of West Virginia, No 33337. Here are the appellant’s brief, the appellee’s brief, and the reply brief.

    The issue is whether a workers’ compensation claims administrator for a self-insured employer can be liable for unfair trade practices (or “bad faith”) for conduct that allegedly causes or hastens a claimant’s death.  Mary Wetzel, the executrix of her husband’s estate, claims that Employers Service Corporation (ESC), the claims administrator for Chemical Leaman Tank Lines, delayed or denied her husband’s physicians’ requests for medically necessary treatment, which resulted in his death at the age of 49 from the effects of occupational exposure to toluene diisocyanate.

    In response, ESC characterized its role as Chemical Leaman’s claims administrator as being the employer’s agent, and maintained that such status entitled it to immunity the same as if Chemical Leaman had been sued directly.  ESC also argued that under case law interpreting the West Virginia Unfair Trade Practices Act, an entity that does not have a contractual obligation to pay a claim, such as an insurance company, cannot be held liable for bad faith. 

    The Circuit Court of Marshall County, West Virginia granted ESC’s motion for summary judgment on the grounds that the statutory immunity afforded to Chemical Leaman, an employer covered by workers’ compensation, also extended to ESC, as its agent.  The court also ruled that ESC was not in the business of insurance and thus could not be liable under West Virginia’s Unfair Trade Practices Act.

    This case is unique because the claims administrator, not the employer, is the defendant.  The West Virginia cases cited by both parties have only addressed an employer’s conduct in determining whether a claimant may maintain a direct action against the employer. Persinger v. Peabody Coal Company, 474 S.E.2d 887 (W.Va. 1996).  Similarly, in Hawkins v. Ford Motor Co., 566 S.E.2d 624 (W.Va. 2002), which limited the applicability of the Unfair Trade Practices Act to entities which were in the business of insurance, there was no claims or third-party administrator present.

    From my reading of the parties’ briefs, if Mrs. Wetzel prevails on the issue that ESC is not entitled to immunity, her action can go forward even if the Supreme Court agrees with the Circuit Court that ESC is not in the business of insurance and therefore cannot be liable for any bad faith, as she also asserted claims for the intentional infliction of emotional distress and negligence, which would not be affected. 

• Email This
• Print
• Comments
• Trackbacks (1)

    CNN reported a story last week on automobile insurers' “take it or leave it” approach to minor car crashes.   According to CNN, even if an accident is not your fault, you can expect most of the major insurance companies to engage in what one law professor called “institutionalized bad faith.”  

    This topic is particularly relevant in West Virginia since, in 2005, the Legislature repealed what had been one of the strongest third-party bad faith laws in the United States, and left accident victims with no judicial remedy against insurers who engage in bad faith.  (There is an administrative remedy  available through the West Virginia Insurance Commissioner, which is so ineffective as to be non-existent.)  Here’s my post on Health Insurance Litigation, which describes the trade-off West Virginians received.

• Email This
• Print
• Comments
• Trackbacks

    A few days ago, I wrote about a recent United States District Court decision awarding benefits to the widow of a man who had accidentally overdosed on prescription medications.  I noted that based on ERISA pre-emption, almost all such cases have to be brought in federal court, where the claims and damages available to plaintiffs are very limited.

    Today, in the Boston ERISA Law Blog, Stephen Rosenberg pokes a little fun at The Wall Street Journal Law Blog’s fascination this week with the doctrine of pre-emption, and accurately describes ERISA pre-emption (which the WSJ Law Blog has omitted from its discussion) as “the most important and interesting application of preemption ….”

    Rosenberg also points out that efforts by states to require employers to provide health care coverage to their employees demonstrate that ERISA pre-emption “is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people ….”   He is referring to Maryland’s Fair Share Act, which was held by the Fourth Circuit Court of Appeals in Retail Industry Leaders' Association v. Fielder, 475 F.3d 180 (4th Cir. 2007),  to be pre-empted by ERISA, and to efforts by California to provide universal health coverage.  Rosenberg's post from August 27, entitled "California, Health Insurance and ERISA Preemption," includes a link to a paper on the topic by University of Maryland Professor Sharon Reece and a post by the Workplace Prof Blog.

    Rosenberg seems to doubt the success of such efforts (and he appears to be right, according to The Wall Street Journal article referenced above), but Brian King at the ERISA Law Blog has a contrary view, in this post from April 27. 

    My own view is that unless Congress amends ERISA’s pre-emption language (highly unlikely, at least in the short term) or the United States Supreme Court holds that ERISA’s scope of pre-emption is too broad (even more unlikely, given the enormous body of federal law, including, significantly, decisions from the Supreme Court, which has repeatedly endorsed that scope as demonstrating Congressional intent), legislation like California’s will be pre-empted. 

• Email This
• Print
• Comments
• Trackbacks

    Discovery regarding insurance reserves is a complicated issue.  A party in litigation against an insurance company in a bad faith or unfair trade practice case will often make a discovery request for the reserve set by the insurance company for the underlying claim on the theory that the reserve reflects the insurance company’s true valuation of the claim.  David Rossmiller at Insurance Coverage Law Blog has written about rulings made by federal courts in California (as described by J. Craig Williams at May It Please The Court) and Missouri in discovery disputes over reserve information.

    The issue has been addressed recently by the Supreme Court of Appeals of West Virginia in State ex rel. Erie Ins. Property & Cas. Co. v. Mazzone, 2007 WL 1661461 (W. Va. 2007), in which Erie Insurance Company sought a writ of prohibition to prevent enforcement of the circuit court’s order requiring disclosure of its insurance reserves to the plaintiff in a third-party bad faith case.

    Erie claimed that its reserve information constituted opinion work product, which, under West Virginia Rule of Civil Procedure 26(b)(3), may be disclosed “only upon a showing that the party seeking discovery has substantial need of the materials … and that the party is unable to without undue hardship to obtain the substantial equivalent of the materials by other means.”  Erie also contended that reserve information is generally treated as opinion work product. 

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

    A recent decision from federal court for the Southern District of West Virginia illustrates what happens when a health insurance company uses questionable judgment in trying to save a few (in this case, very few) dollars. 

    In Juniper v. M&G Polymers USA, LLC, 2007 WL 2028844 (S.D.W.Va. 2007), Judge Robert C. Chambers granted summary judgment for the plaintiff, Samuel Juniper, who was pro se for almost the entire case, and against the defendant, M&G Polymers USA, LLC, the plaintiff’s employer and plan administrator.  Brian King of the ERISA Law Blog wrote about the case a few days ago.

    Aetna, M&G's health plan insurer, denied $40 in charges for three venipunctures.  Juniper pursued the matter and was given various and apparently conflicting reasons for the denials by Aetna and by M&G.  He filed suit against M&G in Mason County (West Virginia) Magistrate Court (which has a $5,000 jurisdictional limit) in order to obtain payment for the charges.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

    I learned about an interesting case from Ohio that resolved earlier this month.  The State of Ohio imposes a 40% cap on annual health insurance rate increases for small employers, defined as employers with not less than two nor more than fifty employees.  Ohio R. C. § 3924.04.  The statute is intended, presumably, to provide some stability to employers' health care costs and to prevent large rate increases from jeopardizing their employees' coverage.

    The statute doesn't always work, however.  Earlier this year, United Healthcare raised the premiums for CBG Biotech, a manufacturer of industrial and laboratory solvent recyclers with 26 employees, by more than 100% on the grounds that a CBG employee had failed to disclose several of his wife's illnesses, such as gout, cirrhosis, and an ulcer.  The employee's wife became ill and was hospitalized and subsequently died, at which point UHC became aware of the omissions from her application.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

    I have written previously about litigation involving Blue Cross of California and its parent, Wellpoint Health Networks, Inc., for their practice known as "use it and lose it," where a policyholder's health insurance coverage is rescinded or cancelled once the policyholder has filed a claim. 

    Now the Los Angeles Times reports that Blue Cross has agreed to stop that practice, and will not cancel coverage unless it can prove deception (meaning an intent to defraud) by a policyholder in applying for insurance.   One paragraph in the Times' article summed it up:

    "The deal is expected to send shock waves through an industry that had stood together in defense of insurers' ability to retroactively rescind coverage for any application omission, even honest mistakes. Blue Cross is by far the largest insurer in California's individual market, and its corporate parent, Indianapolis-based WellPoint Inc., is the nation's largest provider of health benefits."

    There are three million Californians with individual health insurance, as opposed to coverage in group health plans, so the impact of Blue Cross' decision is potentially enormous.

• Email This
• Print
• Comments
• Trackbacks

    In an earlier post at www.health-insurance-litigation.com, I had written about a putative class action filed on behalf of all California hospitals against Blue Cross of California, Blue Cross Life & Health Insurance Company, and their parent company, WellPoint Health Networks Inc., alleging that they routinely violate California law by cancelling their policyholders’ medical insurance, which leaves the hospitals in the unenviable position of writing off the costs or attempting to recover them from their patients.

    There has been another development in the case, as described in the press release issued by the plaintiffs' law firm.  The California Hospital Association, on behalf of its 450 members, and the California Medical Association, on behalf of its 35,000 members, have joined the lawsuit as plaintiffs. 
Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

    In Shamblin v. Nationwide Mutual Insurance Company, 396 S.E.2d 766 (W.Va. 1990), the Supreme Court of Appeals created a "hybrid negligence-strict liability" standard of proof to be used in actions by insureds against their insurers for failure to settle third-party liability claims against them within the insureds' policy limits. 

    But in Strahin v. Sullivan, 2007 WL 559219 (W.Va.), the Court revisited Shamblin and concluded that an insured's personal assets must actually be at risk in order for an insured to recover  an excess verdict: "We now hold that in order for an insured or an assignee of an insured to recover the amount of a verdict in excess of the applicable insurance policy limits from an insurer pursuant to this Court's decision in Shamblin, the insured must be actually exposed to personal liability in excess of the policy limits at the time the excess verdict is rendered." Continue Reading...

• Email This
• Print
• Comments
• Trackbacks