Insurance Bad Faith

If it doesn’t insure, why are they allowed to call it ‘insurance’? Where are those English-first types when we really need them?

By Margie Burns

Washington attorney Salvatore Zambri, president of the Trial Lawyers Association of Metropolitan Washington, D.C., has an anecdote that illustrates what an insurance company may do when it cannot say no, but is unwilling to say yes. Some years back, a mother was privately referred to Zambri when her insurance carrier refused to pay for a heart transplant upon which her teenaged son’s life depended. Zambri handled the matter pro bono (free of charge).

“It was private insurance, through the mom,” Zambri says. “The son was about to turn an age I believe the insurance company was waiting for him to attain,” 18, when his coverage would cease. “The company played nice, but no movement,” Zambri says. The case was medically simple: The only medical question was whether the customer’s son needed the heart transplant, and “every doctor, every consultation, all of them,” as well as the patient’s medical records, “said he had to have it.”

But instead of authorizing the transplant, the insurer “kept saying they needed more information, kept asking for further reports ... for absolutely no reason” except to run out the clock.

Zambri, an engaging conversationalist, says that usually prospective clients come to him after an injury. In this instance the mother had been referred to him, as a courtesy, while her son was still alive and the process was ongoing. “I took a look at the file and initially thought it doesn’t appear to me they’re denying anything.” Then he read the policy and became “concerned ... I became angry.” It contained “that provision [about age] that said the operation had to be performed by this date,” the son’s birthday.

Zambri sent a strong letter to the carrier, saying, “I could not see they were doing anything but stripping a human being of his life in order to save money.” Results were quick: The operation was authorized, and it prolonged the son’s life for years. Without the transplant, “he would have died imminently.”

There were no filings, no court action, no trial. Nor did the company propose alternative treatment such as drugs instead of surgery. “It was just delay, delay, delay-delay-delay-delay, and then they paid.” Heart transplants are very expensive, “and they saw that road of expenses, and they didn’t want to pay.”

One of the biggest gaps in our national health care system is that health insurance, even for people who have it, does not necessarily lead to health care. The carrier who delayed the heart transplant in this case violated the Model Unfair Claims Settlement Practices Act, compiled by the National Association of Insurance Commissioners (NAIC) and the basis for insurance regulation in every state. Companies are supposed to process claims promptly, and delaying an investigation or payment by requiring unnecessary or repetitive reports and forms is verboten. But in spite of state regulation, lawsuits including class actions, broad consumer protection based on the Uniform Commercial Code, and looming RICO prosecutions, “Things haven’t changed, since that case,” Zambri comments.

Confirming this observation, in fall 2007 the large insurance carrier Cigna of California denied a liver transplant to a teenaged girl, Nataline Sarkisyan, whose life depended on the operation. The Sarkisyan case, which made headlines across the nation and aroused public outrage, was in some ways a sad replay of the matter handled by Zambri. Again, there was little to no genuine medical dispute: Physicians at UCLA Medical Center urged the insurer to provide the liver transplant and confirmed its necessity, while the company continued to deny the claim, calling the surgery experimental. Under pressure, including a public demonstration at its Glendale office by nurses and patients, Cigna reversed its decision on Dec. 20, 2007, but 17-year-old Nataline died hours later. Her family, who traveled with presidential candidate John Edwards, is suing the insurer.

As discussed in The Progressive Populist earlier, bad-faith practices include denying claims without reasonable justification, requiring duplicative information, refusing to provide coverage, unjustified policy cancellations and retaliatory rate increases. Several bad-faith practices involve the claims department — misrepresentations about claims handling, failing to handle claims promptly, and systematically delaying settlement.

According to prominent California plaintiffs’ attorney Robert Scott, interviewed by phone, all the insurance majors — he mentions Blue Cross-Blue Shield, Aetna, UnitedHealthCare — are making huge profits, according to financial sources such as But even while raking in the big bucks, they are cheese-paring by denying claims. The strategy is the ‘Three D’s, in plaintiff attorney slang—Delay, Deny, Defend”—resist payouts, on the actuarial knowledge that some customers will give up and others will die. As Scott explains, “There’s been incredible merger and acquisition” as with the Blue Cross in California, now headquartered in Indianapolis. When a company loses its local culture to “some bean counter in Indianapolis” and has to report earnings to Wall Street quarterly, then it is forced keep pushing to up earnings every quarter or see its stock slip — “a system that fails through design,” though not intentional design, Scott says — “you can’t just sustain growth.”

Meanwhile, as the companies get bigger, their claims departments do not necessarily get upgraded. Instead, some companies off-shore claims processing to an island workforce. As Scott remarks offhandedly, “By the way, none of these people” in claims departments “are well trained, or well paid.”

Paradoxically, that means that ways to improve lie ready to hand. One broad consensus that emerges in interviews and communications with both defenders and critics of the insurance industry, on health and accident policies and also disability, long-term care, and medical benefits under automobile insurance, is that the problem of bad-faith disputes could be ameliorated in insurance companies by good administrative processes.

Yale Law professor John H. Langbein provides a measured approach. “Insurance companies are appropriately concerned about fraudulent claims” and misrepresentations by claimants and providers, Langbein explains, partly out of duty to their other policyholders. Fraud is harder in some fields of insurance, however, than in others: “The classic example is life insurance,” Langbein says. “It would be hard for me to falsify my death,” and to attempt to cash out prematurely — to “kill myself” — “is a tall price to pay. There’s not much danger of that.”

“What’s special about disability and health,” he continues, “is that some conditions are difficult to evidence,” so there are more areas for dispute. Complex medical conditions could be subject to good-faith disagreement — another prima facie argument for not having them processed by some of the lowest-ranking, least-paid and least-trained personnel in a huge company.

Clark C. Havighurst, professor of law at Duke, expresses some sympathy for insurers: “In health care I think most of them are pretty reputable.” Havighurst points out that some prescriptions should not be filled, and some purportedly ‘medically necessary’ procedures may not be so in actuality. Claims disputes often have two sides.

Havighurst does recommend that insurers and health plans “should be encouraged, or required, to have an established administrative process” -– and, he says, reputable companies do. In an established administrative process, they would — at a minimum — tell and explain why a claim is denied, notify the policyholder of the right to appeal, and implement an effective system for administering benefits fairly.

“I would think it can be done,” he says succinctly.

Summing up — better health care requires better claims practices in Big Insurance, approached through better monitoring of claims practices. Obvious skull-and-crossbones indications would include poor training for claims personnel, off-shoring personnel, intimidation or retaliation against employee organizing, and inadequate in-house appeals procedures. After all, “insurance” has to be ensured somehow.

Margie Burns writes from Washington, DC.

From The Progressive Populist, March 15, 2008

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