Each Wrongful Denial of Benefits is a Separate Breach of the Insurance Contract by Jeffrey D. Eberhard

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1 Case Study 1 Each Wrongful Denial of Benefits is a Separate Breach of the Insurance Contract by Jeffrey D. Eberhard Claims Pointer: Each time an insurer wrongfully rejects an insured s benefits, a separate breach of the insurance contract is committed for the purposes of determining when the statute of limitations on the breach begins to run. The purpose of a statute of limitations is to encourage potential plaintiffs to bring claims within a reasonable period of time so that the evidence is relatively fresh in the minds of those involved. It also discourages fraud and endless litigation. Once the statutory period has run, a plaintiff will almost certainly be barred from filing suit. For that reason, it is critical that all parties know when the statutory period begins to run or if there is more than one statutory period to be aware of. The case discussed below examines this issue in the context of a claim for alleged wrongful denial of benefits. In 1993, Tara Pritchard purchased a guaranteed renewable health insurance contract, meaning that so long as Ms. Pritchard continued to pay her monthly premiums, the policy could not be cancelled and the insurer could not unilaterally change any provisions of the policy. Two years later, Ms. Pritchard was diagnosed with a life-threatening medical condition that required she receive expensive growth hormone medication. The insurer agreed that the hormones were a major medical benefit and as such, the insurer would pay 80% of its cost. However, in 1999 the insurer allegedly breached the contract s terms by changing the hormone s classification from major medical benefit to prescription drug which only required a reimbursal rate of 50%. Ms. Pritchard accepted the lower reimbursal rate for several years. On December 18, 2006, Ms. Pritchard filed a breach of contract claim against her health insurer for its unilateral change of her insurance contract. The insurer moved for dismissal as the statute of limitations on contract claims is six years from the date of the breach and the alleged unilateral change of the policy occurred seven years prior to the complaint being filed. Ms. Pritchard s attorney argued that although the initial breach occurred beyond the statute of limitations, each time the insurer mailed Ms. Pritchard a monthly check at a 50% reimbursal rate it breached the contract. The trial court agreed and dismissed Ms. Pritchard s claim. She appealed that decision. The Oregon Court of Appeals agreed with the insurer that the ongoing accumulation of economic damages from a single breach does not revive a stale claim by extending the statute of limitations. However, the court further stated that when independent acts cause independent injuries, each act is separately actionable and each act has its own statute of limitations that begins to run from the date of that act. The court stated that each wrongful denial of an insured s rightful insurance benefits constitutes a separate breach of an insurance contract as each denial creates an injury to the insured completely separate from prior breach-induced injuries. Applying these principles, the court held that each time Ms. Pritchard s insurer reimbursed her for the costs of her hormone medication at 50% instead of 80% it breached the insurance contract. Therefore, each reimbursement that occurred after December 18, 2000 was not time-barred by the six-year statute of limitations on contract claims. Full case available at: A htm If you would like to be notified of these new cases, please send an to caseupdate@smithfreed.com. This article is intended to inform our clients and others about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.

2 PERSPECTIVES ON THE LAW Lachenmeier Enloe Rall & Heinson Attorneys at Law 2 this is what prompted me to decide to write about this issue. In a dog bite claim I recently settled in which my clients dog was accused of attacking a mail carrier the stereotypical dog bit scenario, it became clear that obtaining the dog s vet records is crucial in evaluating any dog bite claim. Don t Let a Claim Bite You Another Look at Dog Bite Cases by Lori DeDobbelaere It seems lately that there have been more dog bite claims. I think that it may have to do with the changes to ORS which took effect a little over a year ago on January 1, ORS now provides: (1) For the purpose of establishing a claim for economic damages, as defined in ORS , in an action arising from an injury caused by a dog: (a) The plaintiff need not prove that the owner of the dog could foresee that the dog would cause the injury; and (b) The owner of the dog may not assert as a defense that the owner could not foresee that the dog would cause the injury. (2) This section does not prevent the owner of a dog that caused an injury from asserting that the dog was provoked, or from asserting any other defense that may be available to the owner. (3) This section does not affect the requirements for an award of punitive damages provided in ORS (1). In other words, the owner of a dog is strictly liable for the economic damages incurred by someone bitten by the owner s dog. I think this makes dog bite claims much more appealing to pursue. However, foreseeability is still an issue when it comes to determining non-economic damages. And Before the mail carrier filed suit, the adjuster had interviewed the husband and wife who owned the dog (whom for purposes of this article we will call Fido ) as well as their son who was present when Fido bit the mail carrier. According to the owners, Fido may have barked too much but he was a gentle dog and they had no inkling that Fido might harm someone. Their son agreed with that assessment. The adjuster also interviewed neighbors who said they had never had any concerns about Fido s temperament. Therefore, it was concluded that no noneconomic damages were owing because there was no way that Mr. & Mrs. Owner could know that Fido might bite someone. Hence the lawsuit. I met with my clients, the owners, after being retained to handle the lawsuit. Mr. Owner maintained that he had no concerns about the dog. Mrs. Owner at first claimed that she had no reason to think Fido would bite someone. I then asked if Fido had seen a vet since they got him. Mrs. Owners said yes and then low and behold she had a vague memory of the vet saying something about being worried that Fido would bite someone some day. So I naturally asked Mrs. Owner to get me the vet records. When she finally got them to me, they were quite interesting to say the least. Here are some of the highlights: 1. a little dominant. 2. He does growl. 3. has muzzle at home muzzled to exam (growling) 4. Lunges at certain people. 5. Minimal dental exam due to aggression 6. Fear biter, but hasn t bitten anyone. The vet records would be admissible since there is no dog-vet privilege. These particular entries would be enough to allow a jury to find that Mr. & Mrs. Owner knew or should have known that Fido would bite someone. Before we conducted any further dis-

3 Perspectives (Continued from previous page) covery, we settled this case for a modest amount. Luckily for us, the mail carrier s attorney had never requested the vet records but we knew that the existence of the records would come out during depositions. Accordingly, I think it is vital in any dog bite case to make sure you obtain the records of any treating vets when you are determining liability and evaluating the value of the case. As the economy continues to struggle, I anticipate there will be more people who start to feel that they 3 can earn money through filing claims and/or lawsuits. With the way people feel about taking their dogs everywhere (I saw a small dog in a woman s purse at Fred Meyer the other day), and with the changes to ORS making the recovery of money for a dog bite easier, I think we will see an increase in dog bite claims over the coming months. Hopefully I am wrong, but unfortunately after being a civil defense attorney for almost 15 years, I have a feeling I am right. Please direct any questions in this area of law to the author, Lori DeDobbelaere, at , or by to lori@lerlaw.com. Medical Notes Life Expectancy by Scott J. Kush, MD, MPH [Abridged from the original article] Please contact HCM for a copy of the full text with references Other than the quality of life, it is difficult to imagine a factor as important to an individual as the number of years remaining to live. And while most will rightly understand that there is no way to pinpoint an individual s exact date and time of death, few are aware that there is a widely-used and wellaccepted scientific method to compute various summary measures of survival, such as the life expectancy. Medical researchers use their education, training, and expertise together with the world s medical literature and standard scientific methods to calculate life expectancy. I discuss these methods, and their application, in the present article. Survival time is the actual number of years a person will live. The life expectancy of an individual (or group of similar persons) of a given age and condition is the average number of remaining years of life. While a person s actual survival time cannot be predicted with any accuracy, their life expectancy, in most instances, can be calculated with considerable accuracy. A related question may arise: What is the point after which exactly half of a large group of persons like our individual are still alive? Or, put another way, what is the more likely than not survival time? The answer is the median survival time, the middle value of all survival times if they were ordered from smallest to largest, and this quantity derives from the same analyses that yield the life expectancy. Life expectancy most commonly comes from a life table. The table is a summary of the mortality experience of a population, and is a key tool of actuaries and others concerned with survival. It has been used for hundreds of years, dating from John Graunt s use to describe survival in Britain about the time of the Great Plague. (See the full text article for more details about the life table.) Factors known to affect survival include demographics, lifestyle, and medical conditions. Demographics are age, sex, family history, race, and education. Lifestyle factors are smoking, alcohol, obesity and amount of exercise. Some common medical conditions include heart disease, cancer, and diabetes. In each case, the type and severity of the condition can be important. Disabilities also affect survival, as is evidenced by an abundant literature on cerebral palsy, traumatic brain injury, and spinal cord injury. The above-noted risk factors (diseases, condi-

4 Medical Notes (Continued from previous page) tions, or lifestyles) affect mortality rates. The difference between the death rate in a study population (the group with the risk factor in question) and that in a suitable reference population (usually those without such risk) is the excess death rate (EDR). The ratio of the same two quantities is the relative risk (RR). To calculate life expectancy for an individual with a given set of risk factors, the baseline, or starting, mortality rates at all ages are adjusted, usually using EDRs or RRs, and a new life table is constructed. If EDRs for a given factor are known, they are added to the standard rates. If instead RRs are known, the standard rates are multiplied by these. For example, if a given condition confers an extra 1% risk of death per year (EDR) at ages 50+, then the mortality rates at ages 50 and up are to be increased by 1%. Doing so, and constructing a new life table, we find that the life expectancy at age 10 for a U.S. male decreases from 65.5 to On the other hand, if favorable lifestyle and other conditions apply, and a (favorable) factor of 0.8 (RR) applies for life, the life expectancy increases from 65.5 to In general, it would not be appropriate to use the general population (GP) life tables for someone with serious medical conditions or disabilities. Instead, a new life table must be constructed taking specifically into consideration their various lifestyles, conditions, and disabilities. For example, persons with ("mild") diabetes have a risk of death that is 50% higher than that of the general population. This fact is documented in over 100 independent, peer-reviewed, published studies in the medical literature. Quantitatively, it means that the baseline mortality rates should be increased using an (a) RR of 1.5, or (2) EDR of 0.5 times the baseline rate. One then constructs a life table with the new rates, and "reads off" the new life expectancy. At age 50, say, the life expectancy is now 24.6 years, rather 4 than 28.5 using the general population rates for a man, or 3.9 years lower. Similarly, for very healthy persons, the absence of risk factors must be taken into account. For most diseases and conditions, there is an abundant scientific literature to consult. Depending on their age and myriad other factors, a person s life expectancy can vary from less than a year to as many as 85+ additional years. Examples of life expectancies for various groups are shown on the next page. As can be seen, life expectancy can vary greatly, even for persons of the same age and sex. The science of life expectancy has found myriad applications over the years. The most common application is life insurance, wherein annual premium payments depend critically on the person s short- or long-term survival prospects. A related product, and one usually sold by a division of a life insurance company, is a life annuity (the sale of a lifetime stream of payments, like a pension, in exchange for a lump sum). Most recently, the opposite of this, a so-called reverse mortgage (wherein the owner is given a lump sum now, in exchange for agreeing to transfer the trust deed on a house upon death), has gained popularity. In a civil litigation setting, life expectancy can be a major factor in determining damages. It is a key input for economists, who compute the present value of future medical expenses. It is also frequently noted by lifecare planners, who estimate the yearly future expenses. Life expectancy is part of the pattern jury instructions for most jurisdictions in the United States. The jury (or the trier of fact ), is often advised to use the standard tables, and to adjust those to account for lifestyle and medical factors. As we have seen, this can be done using standard scientific methods and the medical literature.

5 6 Medical Notes (Continued from previous page) Life expectancies (additional years) for various groups Group Life Expectancy Male at birth 75 Female at birth year-old female year-old with paraplegia due to spinal cord injury 20 year-old in a persistent vegetative state 35 year-old male year-old male with minor traumatic brain injury 35 year-old male with severe traumatic brain injury 50 year-old male year-old male non-smoker year-old male heavy smoker year-old male with 2 vessel coronary artery disease and normal ejection fraction 65 year-old male on dialysis for life 3 70 year-old male year-old woman Person with untreatable metastatic cancer <1