Insurance Law Hawaii

Insurers "No Pay" Attitude

Stripping the job of an insurance company to its basic components reveals a gritty truth: insurance companies make money by collecting more than they pay out.  A successful operation depends on exercising good judgment on what risks to insure (or charging high enough premiums).  Unfortunately, an insurer can also vigorously oppose attempts to obtain coverage -- a "no pay" attitude.  This is a bad business practice -- particularly in states, such as Hawaii, that acknowledge the tort of bad faith -- and disregards the fact that insurance coverage was intended to be a reliable mechanism to transfer of risk.

One example of a "no pay" attitude can be depicted in Hunt Constr. Group, Inc. v. Allianz Global Risks U.S. Ins. Co., 503 F.3d 632 (7th Cir. 2007).  Written by the astute Judge Posner, the facts of the case were as follows:

"Hunt had contracted with Northwest Airlines to build a major terminal facility at the Detroit airport. Heavy rains interfered with the project, causing millions of dollars of loss, including liquidated damages that Hunt had to pay Northwest for delay in the completion of the project caused by the rains. Hunt claimed that this expense was insured under the 'builders risk' policy that Allianz had issued to it, but Allianz persuaded the district court that though called "builders risk" (no apostrophe, though the term could use one), the policy is actually a "fire insurance policy" under Michigan law, which provides that a suit under such a policy "must be commenced within 1 year after the loss or within the time period specified in the policy, whichever is longer." Mich. Comp. Laws Ann. � 500.2833(1)(q). The policy itself specified no time period within which the insured had to sue."

Dryly, Judge Posner observed:

"To call the builders risk policy a fire insurance policy, and subject it to the 19 separate requirements that the statute imposes on 'each fire insurance policy issued or delivered in this state,' id., when the damage for which the insured seeks indemnification was not caused by fire, strains the ordinary meaning of the term 'fire insurance policy.' But the language of insurance contracts is not standard English, so we must press on."

The Seventh Circuit reversed the District Court.  Notable is not that an insurance company would take such a tenuous argument, but that it actually was accepted by the district court.

California Court Finds Binding Arbitration Provision in Insurer's Enrollment Application Unenforceable

     Unlike California, Hawai`i law does not statutorily impose strict disclosure requirements when an insurance enrollment application mandates that disputes be resolved solely by arbitration.  California courts, on the other hand, narrowly construe an insurer's attempt to limit disputes to arbitration, as evidenced by the recent decision in Rodriguez v. Blue Cross of California, B 194066 (Cal. Ct. App. April 23, 2008), found here.PDF

     Under California law, if binding arbitration is required to settle disputes and a right to a jury trial is eliminated, the health care service plan must, in clear and understandable language, make a detailed disclosure.  In Rodriquez, the insured completed Blue Cross' application, which stated in part, "Blue Cross requires binding arbitration to settle all disputes against Blue Cross, including claims of medical malpractice. . . . It is understood that any dispute as to medical malpractice . . . will be determined by submission to arbitration . . . ."  When he was hospitalized and submitted his claim, Blue Cross rescinded the coverage because the insured had omitted material facts from the application. 

     The insured sued and Blue Cross petitioned to compel arbitration.  The trial court denied the petition, finding the arbitration provision as written was limited to issues of medical malpractice. 

      On appeal, the Court noted several prior California appellate court decisions in which the disclosure regarding mandatory arbitration of disputes had been deficient.   Although Blue Cross' disclosure generally met the requirements of the statute, the disclosure only addressed disputes regarding medical malpractice.  While Blue Cross argued the language, "Blue Cross requires binding arbitration to settle all disputes against Blue Cross, including claims of medical malpractice" was sufficiently broad, the majority of the disclosure was expressly limited to disputes involving medical malpractice. The discrepancy between the first sentence, which was expansive, and the remainder of the disclosure, which was limited to medical malpractice, created confusion.  Therefore, the arbitration provision failed to comply with the statute and was unenforceable.

     The Guide to Benefits utilized by Hawaii Medical Service Association ("HMSA"), a licensee of the Blue Cross and Blue Shield Association, provides for an internal review and, if coverage is denied, then allows an insured to choose between arbitration and litigation.

Consider Flood Insurance as Another Hurricane Season Approaches

      In a prior post, we noted that much of Honolulu has yet to be mapped by the Federal Emergency Management Agency for flood insurance purposes.  This leaves neighborhoods unrated for flood insurance, resulting in high premiums even for areas not prone to floods. 

     An informative story appearing over the weekend in the Naples News (Florida), found here.PDF, describes the process by which two counties in Southwest Florida have recently received updated flood maps.  The story explains that based on an area's rating, policy holders can receive a savings on their insurance deductibles.  More accurate maps could also reflect additional flooding areas, however, meaning higher insurance rates for some and mandatory policies for others.