UP continues to support and educate property owners near Tucson Arizona who lost their homes in a wildfire in the summer of 2003. The wildfire, known as the "Aspen" firestorm, destroyed a mountain community consumed more than 350 rural homes and vast amounts of land. Shortly after the fire UP organized a public forum in coordination with the local Mt. Lemmon Homeowners Association and has been providing ongoing insurance claim help to individuals and community leaders. The forum led to the creation of a new resource for consumers at UP's website titled: Road Map to Recovery.

Not long after the smoke cleared, property owners began reporting the insurance claim problems that typically arise after every disaster: inadequate coverage, lowball settlement offers; delays, pressure tactics and problems getting accurate repair estimates. Survivors followed UP's advice and began organizing and supporting each other. At our request, the Arizona Director of Insurance designated a liaison to aid survivors.

More than seventy of the 350 homeowners met with the Director in late September to demand help resolving the underinsurance crisis that is making it impossible for the community to rebuild and recover. Public Adjuster Peter Romero reported back to UP after the meeting that all attendees have already filed or will be filing and pursuing formal complaints with the Arizona Department of Insurance. UP is urging Director Urias to work to get insurers to commit to acrossthe- board retroactive dwelling limit increases for the many homeowners who are underinsured through no fault of their own.

UP staff member and Tucson resident Marika Roberson is part of the recovery effort, Executive Director Amy Bach, board member Bill Hedden and volunteer Robert Crown have all made trips to Tucson to present information at community meetings. Robert is an expert on property insurance claims and the business partner of UP Board member Bill Hedden in the Bay Area based public adjusting firm of Consolidated Adjusting. At a meeting last spring, Crown emphasized how important it is for individuals to join with others who have policies with the same insurance company to evaluate how their own settlement is being handled.

Inadequate policy limits (“underinsurance”) is a very serious problem for nearly 90% of those who lost homes in the Aspen firestorm. Survivors are also reporting problems with carriers depreciating their claims excessively and arbitrarily. Pete Romero of Unity Adjustments has been living and working in the area since the firestorm and continues to brief UP on claim issues and recovery progress. Mt. Lemmon community members, Rose Mary Hinsch and Bill Piatkiewicz, are among those helping organize, educate and empower their fellow homeowners who are frustrated with delays and challenges from insurers.

UP will continue to be a resource for the Mt Lemmon community. Visit the Arizona "Roadmap to Recovery" section of our website at http://www.unitedpolicyholders.org/newsletters/aspen_firestorm.html

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DISABILITY INSURANCE UPDATE

There have been many important positive and negative legal developments affecting protections for disabled insureds in 2004.

POSITIVES FOR POLICYHOLDERS

On the positive side are three published decisions: (1) Hangarter v. Provident Life & Accident Ins. Co. 236 F. Supp.2d 1069, (9th Circuit, Issue: Definition of "total disability", bad faith standards) (2) Alan Gross, M.D., v. UnumProvident Life Ins. Co. 319 F. Supp 2d 1129, (USDC Central Dist., CA. Issue: "total disability" definition, residual clauses) (3) McLeod v. Hartford Life and Accident Ins. Co. 2004 U.S.App. LEXIS 12253 (3rd Circuit, Issue: Pre-Existing Condition coverage exclusion)

Many view Hangarter v. Provident as the most important published decision in California disability bad faith insurance law (non-ERISA) since 1984. (Moore v. Amer. United Life Ins. Co. 150 Cal.App.3d 610. Disabled claimants all over the country are struggling to get their benefits paid over the objections of disability insurers who say the claimants don't meet their invented definition of "total disability." Policyholder advocates have consistently argued that long-established California law, not insurance companies, defines that key phrase in disability policies and determines when benefits are owed.

This argument was upheld "hands down" by the 9th Circuit in Hangarter when it confirmed Judge Larson’s ruling that the definition of "total disability" applicable to policies sold in the state of California is still the one set forth in Erreca v. Western States Life Ins. Co. in 1942, 19 Cal.2d 388: "Total Disability" means according to the law in California that a person is eligible for benefits if she (or he) is unable to perform the substantial and material duties of her (or his) occupation in the usual and customary way with reasonable continuity. At least as to claims subject to California law, regardless of what definition an insurer has created in its policy - the Erreca definition governs.

Another key positive aspect of the Hangarter decision impacts the admissibility of expert testimony under the landmark Supreme Court decision known as "Daubert." Insurance company lawyers use the Daubert case to try and exclude trial evidence from witnesses who criticize their claim handling. The court in Hangarter allowed that type of evidence by two witnesses who were formerly employed by the insurance industry even though they did not personally work on the policyholder's claim.

Another win for policyholders in California was the published ruling in Alan Gross v. UnumProvident Life Insurance Company. This decision contains a great discussion of the purpose of disability insurance benefits. It also discounts the significance of the 1998 holding in Dym v. Provident Life & Accid. Ins. Co., 19 F.Supp.2d 1147, (discussed in the December, 2003 issue of What's UP http://www.unitedpolicyholders.org/newsletters/winter03.html)

Both Hangarter and Gross defeat insurers' argument that Dym allowed them to use the fact that an insured had paid an extra premium for residual benefits to apply a more stringent definition of "total disability" to be eligible for benefits.

Landmark Pennsylvania ruling in Saldi v. Paul Revere
UnumProvident makes it difficult for disabled insureds and their attorneys to get information. In objecting to discovery requests in litigation, UnumProvident's attorneys make arguments - like "The word "bleeding" is vague and ambiguous."

Pennsylvania attorney Alan Casper wouldn't accept the carrier's arguments, waited two years for a ruling, then won a very important discovery victory in Saldi v. Paul Revere Life Ins. Co., et al. U.S.D.C. Eastern Dist. Penn. No. 99-6563, August 2004. The Saldi decision will make it much harder for insurer defendants in disability cases to hide behind trumped-up discovery objections.

Leading State Regulator Bans Sale of Disability Policies
That Give Unfair Discretion to Insurers

On February 27, 2004 CA Ins. Commissioner John Garamendi issued a Notice to Withdraw Approval of 8 disability income insurance policies because they contained "discretionary clauses." These clauses purport to confer on the insurer "discretionary authority to determine eligibility for benefits and to interpret the terms and provisions of the policy."

Four insurers filed Petitions to try and convince the Commissioner to annul or amend his notice. The Department, the insurers and 10 interested parties have submitted briefs explaining their arguments. A hearing officer must now decide whether the insurers will be permitted discovery and whether the insurers will be permitted to introduce additional evidence such as expert testimony. If testimony is permitted, there will likely be a hearing and final briefing and the hearing officer will offer a proposed decision to the Commissioner shortly thereafter. The Commissioner may then adopt the proposed decision as his own, require additional evidence or issue his own decision. If the Commissioner confirms his decision to withdraw approval of the policies, the insurers are likely to sue him, as they have sued him to block implementation of the regulations he issued to prevent arbitrary practices in the underwriting and sale of homeowners insurance policies. (See related article in Amicus Update section re: American Insurance Ass'n et al. v. Garamendi) Meanwhile, the Department will be looking closely at other policies that contain these discretionary clauses.

Policyholder advocates unite to defeat insurerbacked
CA. legislation to alter law defining "total disability"

Last spring the CA Dept. of Ins. convened a meeting with its own staff attorneys, disability insurance carrier reps and policyholder advocates, including UP Executive Director Amy Bach and Board member Alice Wolfson, and Brad Wenger, lobbyist for the major disability carriers via the trade association, ACLI. The purpose of the meeting was to seek consensus on the legal definition in California of the phrase "total disability" in the insurance context. It was a productive meeting and all in attendance agreed to consider each other's opinions and reconvene shortly.

Yet a mere two weeks later Wenger side-stepped the process entirely and apparently convinced Assembly Ins. Committee Chair Juan Vargas, (D - L.A.) to introduce a bill to make the industry's preferred definition the law.

A coalition including UP Executive Director Amy Bach, policyholder counsel Doug DeVries and the amazing Consumer Attorneys of CA. team were able to defeat the ACLI backed bill. The definition of total disability in California remains clearly the one set forth in the Erreca, Moore, and now Hangarter decisions. (See discussion above re: Positives for Policyholders)

NEGATIVE FOR POLICYHOLDERS

Disability insurance for the vast majority of Americans is an employer-provided benefit. According to the recent U.S. Supreme Court ruling in Aetna Health, Inc. v. Juan Davila et al, that means the resolution of all disputes related to the majority of disability policies will continue to be subject to anti-consumer ERISA rules. Policyholder advocates have been working for many years to remedy this problem by pointing out repeatedly that the intent of ERISA was to regulate employee benefits, not insurance company claim practices. Ins. Co. claim practices are and should be the province of state regulations and laws. Read the amicus brief UP submitted to the USSC, authored by San Francisco attorney Arnie Levinson, on our website.

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SUCCESSFULLY MEDIATING DISABILITY CLAIMS

Disability bad faith claim disputes all involve detailed factual issues and multifaceted legal and medical issues. Mediation can be a faster and less expensive way to resolve them than full discovery, trial and appeal proceedings. Mediations often work but often fail. In an article written for our readers, mediator and former policyholder attorney Robert Kaplan offers his perspective and experience on how to successfully mediate these challenging claims. Click one of the following links to read the article online.

Disability Claim Tips
Successfully Mediating Disability Claims (download pdf 67K)

If you would like us to mail you a printed copy of the article, pease leave a message at (510) 763-9740 with your name and address.

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MORE UNUM/PAUL REVERE INFO AVAILABLE

A central part of our mission is to educate and empower insurance consumers with current information. Informed policyholders have the best chance of getting the full insurance protection they paid for. Consistent with that mission, UP runs an Info Sharing Project through which policyholders and their advocates can access documents that offer practical help in resolving claim disputes and avoiding reinventing the wheel in litigation.

Policyholders and their attorneys can purchase materials through our Info Sharing Project that relate to disability insurance claims and carriers in the UnumProvident corporate family. These materials were donated to us by leading policyholder attorneys who worked many hundreds of hours to prevail against well-funded corporate defense counsel. The Project is providing both a public service and important financial support for our work.

Greenberg v. Paul Revere now available on disk

Witness testimony and trial materials from Greenberg v. Paul Revere are available on CD-Rom. To place an order or get more detailed information about these documents, contact ISP Coordinator Machelle Jaarsma at mpjaarsma@aol.com.

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"To Claim or Not To Claim…That is the question"
(Smart insurance decision making in the era of "Use it and Lose it")

The following are the views of Independent Insurance Agent David Shaffer, Owner, David Shaffer Mortgage & Insurance Services, Walnut Creek, CA. Mr. Shaffer was part of the working group that led to the establishment of United Policyholders in 1991:

UP: What rule of thumb can you offer for deciding when and when not to file a claim under a homeowner's policy?

Shaffer: In an ideal world, my advice would be that every time an insured event under your home insurance policy occurs, you should be able to simply turn it in. Unfortunately, over the years I have heard an earful from my clients who have faced having their home insurance coverage canceled due to claim activity.

For many years I have talked with insurance company underwriters and I have been told that their studies show that the typical homeowner has one claim every ten years. The underwriters tell me they like best those policyholders who meet this criteria and from my experience, I would say this is true. What is also true, and this is the part consumers don't appreciate, is that underwriters frown upon those policyholders who make more than one claim every ten years.

The fundamental problem here is the consumer expectation that each year he or she pays for the insurance, covered claims should simply be paid. This expectation clashes with the underwriters' position that they prefer to keep insuring those who make the fewest claims.

Here is how I believe consumers should decide when or when not to file a claim.

First, consumers must immediately wake up to the fact that for now, and until legislation or voluntary action changes things, we should simply "not claim the small stuff".

Second, take the biggest deductible amount you can afford. I represent companies that offer home insurance deductibles from $500 to $25,000. I have been recommending to my clients that small stuff is at least $5,000 or below and they should therefore consider this as the minimum deductible to carry. On a high-end policy, this typically saves $1,500 a year compared to a $500 deductible.

For many, these huge savings are not possible. I know of several large insurers who only offer up to a $1,000 deductible option. Everyone should call their agent and find out what is the maximum deductible they can get. Check with an independent agent if your current carrier can't offer you the deductible you desire. My message is that consumers need to proactively prevent small losses from happening since they are going to cover them if they do occur, pocket the savings over all of the years they will own a home, and truly view one's home insurance policy as a consumer product to cover major losses.

Can you tell your customers how their premiums will be impacted if they file a claim?

Basically one of two things will happen. First, your home insurance premiums may more than double after filing claims. From research I've learned that it appears the Department of Insurance has approved rate filings that will allow an insurance company to surcharge your home insurance for filing claims. In some ways this is a good thing. It allows an insurance company to keep renewing your policy instead of getting dropped and ending up with an inferior product at a higher cost for a few years.

The other way your premiums will be impacted if you get canceled for filing claims is that you will need to find someone willing to offer you insurance with your particular claims history. When this happens you can expect to pay a lot more in premiums and other fees, be insured by a carrier in the Surplus Lines Market, and have an insurance product that protects your home but may not be fully adequate to pay all your costs of rebuilding following a catastrophic loss.

Here's a scenario: My babysitter lets the bath overflow and the water damages our bathroom floor and dining room ceiling below. A contractor estimates the damage at $5,000. My deductible is $1,000. I filed a storm damage claim a little less than three years ago for a hole in my roof made by a tree branch and a theft claim last year for $6,000. Should I file a claim for the floor and ceiling or pay for the repairs myself?

Based upon my advice above, that consumers should "not claim" the small stuff the answer is do not make this claim. More than likely this third claim will either result in a huge rate increase for several years that will be higher than the $4,000 net received or the policy will be canceled upon the next renewal date and will be followed by higher premiums in the Surplus Lines Market for inferior coverage. This consumer also needs to shop for a company that offers deductibles above $1,000 if their current carrier does not.

Are companies using CLUE (Comprehensive Loss Underwriting Exchange) auto applications/ renewals as well as homeowners?

Yes. Insurance companies want to know as much as possible about you in order to determine the likelihood you will file a claim. CLUE is basically a huge database of every claim ever filed by you and everyone else and is one of many tools used by insurance companies to evaluate your insurability.

Is the increased use of CLUE by insurers causing problems for your customers?

Not unless they told me no claims could be recalled and the CLUE report revealed otherwise. Most admitted insurers would not accept you as a new applicant if you have been non-renewed due to claim activity. However, an insurance marketplace does exist, the Surplus Lines Market, which will provide insurance to many consumers who have been canceled due to claim activity.

When a company gets a clean CLUE report back on a new applicant it can actually help getting coverage placed with a great company at great rates.

Do the claims of a previous owner of a home count against you even if they weren't water related?

They can count against you if they have not been remedied. It may be an indication your home is likely to have more than one claim every ten years. It would also be prudent to find out why this house is having these problems before you buy it.

Do you think insurers are deliberately creating a climate where people are afraid to use their product?

This climate was created a long time ago and continues to this very day. I have never understood why insurance companies have created this "climate." I am glad it has the attention of our current insurance commissioner and I hope our legislature. Consumers need to get really organized around these issues. They also need to change their fundamental expectations about how their home insurance policy is to be used.

I think there are real simple solutions. First, companies should simply come out and explain what actions will be taken against you for filing claims against a policy at the time you are thinking about buying a policy from that company and upon each renewal. Maybe those that claim more than once every ten years should be paying a lot more than the rest of us who rarely make claims. Second, I am sure insurance companies can find a way to offer more alternatives for "higher risk" policyholders and make money at it. Finally, I think the policies are too broad given the current climate. If we can't turn in claims for the small stuff for fear of being canceled or getting huge rate increases, why not take out all the coverage built in for the small stuff such as $1,000 for coins, $2,500 for jewelry, $500 for Food Spoilage, etc? With this coverage eliminated, the premiums should be lower. In addition, the policy should have a minimum deductible of $10,000. This "catastrophic" policy should in theory, end up costing a fraction of what many of us now pay. If home insurance policies should only be used for catastrophes, they need to be redesigned with this in mind and be priced accordingly.

Consumers are paying for insurance, why can't they use it without losing it?

You can use it only once about every ten years. In fact, I can't recall any insurance company I have worked with over the past twenty years that has canceled a home insurance policy for just one claim.

Unfortunately for years, there seems to have been an unwritten policy of canceling accounts with claim activity greater than one within a certain period of time. I wish the insurance companies would address this issue in a positive way without the need for any legislation in order to change this policy in a positive way for both carriers and consumers.

But haven't premiums increased correspondingly to the increased coverage?

Yes and no. Premiums for the top of the line policies have increased but they also offer great insurance coverage for homeowners. Too often the focus is on "home insurance premiums have gone up dramatically" and no attention is being given to what a consumer is getting for those premiums being paid. Even with higher rates and higher deductibles, it is money well spent for what is given in return if you have the right policy in place.

In contrast, there are a number of companies that have had dramatic rate increases in the last few years with reduction in policy benefits. These carriers have eliminated their guaranteed replacement policies, added other restrictive language to their policies and have raised their rates while reducing total benefits paid.

How do insurers set their customers' policy limits?

Insurers use a variety of tools to set the amount of insurance on the dwelling. For very large and expensive homes, these tools include actual appraisers who are sent to your home by the insurance company to determine its replacement value.

For homes valued at insurance purposes at $500,000 or below, typically agents are given software to use which is different for every insurance company selling home insurance. There is hardly any training on how to use the software properly but it must be used to calculate the maximum amount to insure the home. The agent asks the homeowner a series of questions, enters all the answers, and hits the calculate key. The software program ends up giving you a printout of how much the home should be insured for.

Once the value of the dwelling is determined, typically the rest of the coverage is based upon a percentage of the dwelling amount and is additional coverage. Companies use 10-20% for other structures, from 25% to 100% for personal property and up to 30% for additional living expenses. There are all kinds of variations and some policies can be fine tuned more than others.

Everyone I have ever sold home insurance to has always told me they wanted to be fully covered. I can't understand why the insurance industry hasn't figured out a way to solve the problem of underinsurance.

Most homeowners need to pull out their policies and carefully review their current dwelling and other coverage limits, understand how they were determined, and change them if they are not adequate.

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THE MEDIGAP MAZE

Many people experience bank breaking medical expenses and when we get older, the potential for big bills increases. Even with insurance, medical expenses can exhaust financial resources. If you or a family member or friend will soon be eligible for Medicare and you are considering buying or changing a private insurance plan that supplements Medicare, there are a number of things to keep in mind.

#1. The cheapest plan may not be the best deal. You need to test your health and financial needs against the options available to you. A majority of seniors and some people with disabilities have Medicare benefits. Medicare is a federally funded program for people 65 and over, people younger than 65 who are eligible because of a disability, or people who have permanent kidney failure known as end-stage renal disease or ESRD. The federal Medicare program under Part A covers hospitalization, skilled nursing home care, hospice services, home health care services and for medically necessary blood transfusions. Part B - covers basic doctor services, outpatient hospital care and laboratory costs. Both Part A and Part B have deductibles and other cost sharing requirements.

#2. Medicare only pays a certain portion of the cost for each covered service. Both part A and Part B have a deductible and both have co-insurance or co-payment requirements. You may opt to supplement your coverage by joining a Medicare Health Maintenance Organization (HMO), enrolling in a Medicare preferred provider organization (PPO), or buying Medicare Supplemental (Medigap) policies issued by private insurance companies. You can only purchase a Medigap policy if you have enrolled in both Part A and Part B. Some people have coverage through their previous employment and their retiree plan coordinates its benefits with your Medicare benefits.

With the exception of Massachusetts, Minnesota and Wisconsin, federal law requires all Medigap policies to conform to ten standard benefit packages labeled A to J (least benefits to the most comprehensive). Plan A has only the core benefits. Plans B through J include those same core benefits and each package adds a different combination of additional benefits. The ten standard plans will have the same benefits no matter which company writes the policy. Insurance companies may offer any or all of the ten plans. Prices vary considerably for the same lettered plan from different companies.

If you have an individual health insurance policy the law requires the company to continue your coverage for as long as you continue to pay the premiums on time. These policies are guaranteed renewable by federal law. However, there will be no reduction in the premium you pay when you also have Medicare, and the current premium you pay can increase over time as allowed by state law. If you have retiree coverage through yours or a spouse's former employment it will coordinate its benefits with your Medicare benefits.

#3. Timing is everything if you have a pre-existing medical condition. When you first sign up for Part B at any age, you have six months of "open enrollment" from the beginning of the month your Medicare Part B benefits begin to buy a Medigap policy. During this open enrollment period, you cannot be denied coverage because of a pre-existing medical condition. A pre-existing condition is anything for which you receive medical advice or treatment in the six months before the effective date of the policy. If you are 65 or older you can choose from all ten plans. If you are younger than 65 your choices will be limited to Plans A, B, C, F and one with prescription drug benefits if the company sells one of those plans. Companies can impose a waiting period of up to six months before benefits begin. However if you had medical coverage for at least six months prior to receiving Medicare, you will have no waiting period.

#4. Locale and doctor/facility loyalty can limit choice. If you are in a small community or if you are very connected to your current health provider, the HMO or PPO choice may not work for you. In general, managed care plans offer more services for less money but have restrictions on access to doctors and facilities.

#5. When comparing plans, look for the services covered and the amount of the benefit for each covered service. For example, the basic drug benefits in plans H and I pay 50% of the outpatient prescription drugs cost up to a maximum of $1,250 per year. In Plan J, the extended drug payment is a maximum of $3,000 per year. Every Medicare supplemental insurance company or agent is required to give you an outline of the company coverage at the time you are offered insurance. It includes a chart of all 10 plans and a chart of each plan offered by that company. The agent cannot collect more than one months premium when you apply for coverage. You also have the right to return a policy within 30 days for a complete refund if you change your mind or the policy doesn't meet your needs.

#6. Consider not only the initial monthly cost of the policy, but also how the premiums may increase over time. There are three methods for setting premium rates. Attained Age rating will automatically increase the premium as you age. At first, rates are usually lower but as you get older, can have sharp increases. Issue Age Pricing method is based upon your age when the policy is first issued. The premium may increase because of inflation, but not because you are in an older age bracket. Premiums are usually higher but are more reasonable in the older age brackets. Community-rate (No Age) policies charge everyone the same rate regardless of age.

#7. Comparison shop. There are many resources that offer assistance. The state funded Health Insurance Counseling and Advocacy Program (HICAP) provides free, objective counseling on ways to supplement your Medicare. Call 1-800-434-0222 for an appointment in your local community. You can also get information from California Health Advocates at http://www.calmedicare.org, from the Medicare program at http://medicare.org, and the California Department of Insurance at http://www.insurance.ca.gov.

The California Department of Insurance advises consumers not to be rushed into replacing an existing policy unless you can no longer afford it or the benefits no longer meet your needs. Get a second opinion before you buy or replace insurance. You can call the Department at 1-800-927-HELP to find out if a company or agent is licensed in California.

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WHAT IS UP?

United Policyholders is a non-profit tax-exempt organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP is a practical resource and a respected voice for insurance consumers throughout the United States. We provide claim assistance to disaster victims, monitor marketplace developments and publish materials on personal and business insurance topics. We file pro-policyholder briefs in precedent-setting insurance cases in every major state. We speak on behalf of insurance consumers in public policy forums.

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READER SURVEYS ARE KEY

We periodically survey our readers to determine their priorities in connection with our work and update our records. We thank all those who took the time to complete and return our last survey for giving us feedback and supporting us through donations.

We particularly appreciate contacts our readers have at organizations that might have an interest in insurance issues. We use this information to approach groups that may want to co-sign our amicus briefs and bolster our impact with courts.

Reader donations help us approach our goal of covering the costs of producing our newsletters. We have not yet met that goal so we truly appreciate your help.

Change of address information helps us avoid wasting postage and keep our costs down. Please notify us if you have moved by completing and returning the survey in the envelope provided, by sending an e-mail to info@unitedpolicyholders.org, or by leaving us a message at (510) 763-9740.

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