Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

Toppins v. Minnesota Life

Mr. Toppins died in an airplane crash within 2 years of taking out a million dollar life insurance policy – i.e., within the 2 year contestable period.  Minnesota Life began a routine investigation because the death occurred within 2 years of the policy.  The investigation included a telephone interview with Mrs. Toppins, the beneficiary, and a request that she sign the investigator’s report and some medical information release forms.    Rather than sign the documents, counsel for Mrs. Toppins demanded immediate payment and disputed Minnesota Life’s right to conduct an investigation.  Suit was filed against Minnesota Life about 35 days after the claim was sent.  Five days later, Minnesota Life was told there were no changes to the report, and Minnesota decided to pay the claim without Mrs. Toppins signature on the report or authorization.  Minnesota Life contacted its reinsurer to confirm the decision, and sent off the check for the face amount of the policy plus interest.  The claim was paid 47 days after it was received.

Summary judgment was later granted to Minnesota Life on Mrs. Toppins claims of breach of contract and bad faith.  The Tenth Circuit affirmed.  

Ms. Toppins argued that Minnesota Life breached its duty of good faith and fair dealing as follows: (1) it delayed payment while waiting for the reinsurer’s confirmation of its decision to pay, (2) it delayed payment while it waited for Ms. Toppins to sign her statement and complete the medical records authorizations, (3) it engaged in a standard practice of conducting underwriting review after an insured’s death, and (4) it did not pay on the policy within 30 days of receipt of the claim.

As to the 4 days delay in payment caused by consulting with the reinsurer, the court said that it was reasonable for an insurer to consult with its reinsurer, and the 4 day delay was not unreasonable. The insurer was entitled to investigate the claim because the insured died within 2 years of the policy inception. As to Mrs. Toppins claim that Minnesota Life was in bad faith for conducting post claims underwriting, the court rejected the claim, saying that “The tort of bad faith breach of an insurance contract must be based upon an insurer’s wrongful denial of a claim; it cannot be based upon the conduct of the insurer in selling and issuing the policy.”  

Oklahoma law says that life insurance claims shall be paid within 30 days after proof of death, otherwise, interest must be added to the amount paid. The failure to pay within 30 days, coupled with the fact that Minnesota Life did not know of the statute was not bad faith.  The payment of the full amount of the life insurance policy, plus interest, 47 days after receipt of proof of death did not constitute bad faith.

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In Wilson v. State Farm Mutual Automobile Insurance Company, No. 3:10-CV-256-H, 2011 WL 2378190 [2011 U.S. Dist. LEXIS 63430] (W.D. Ky., June 15, 2011), the United States District Court for the Western District of Kentucky ruled that an insurance carrier did not act in "bad faith" by delaying payment of a settlement pending its determination of Medicare's reimbursable conditional payment amount.

In Wilson, the plaintiff filed an uninsured motorist claim which the insurer agreed to settle for the policy limits. However, the insurer delayed tendering payment until after it obtained Medicare's reimbursable conditional payment amount. The plaintiff sued the insurer claiming that the insurer's delay in paying the settlement violated Kentucky's bad faith law. For the reasons more fully discussed below, the court found that the insurer's actions did not constitute bad faith under Kentucky law.

Read about it here

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In Rasenack vs. AIG Life Insurance Company, the Tenth Circuit ruled that AIG’s delays in deciding Rasenack’s claim for benefits under an accidental death and dismemberment policy (ADD policy) were substantial enough to result in a de novo review of the claim by the trial court.  Generally, under ERISA, claims decisions by administrators such as AIG are reviewed by the courts under an arbitrary and capricious standard.  Under the arbitrary and capricious standard, so long as the decision is supported by evidence, it will be upheld, while under a de novo standard, no weight is given to the claims administrator’s decision.  Summary judgment for AIG was reversed, and the case was remanded.

Mr. Rasenack was severely injured as a pedestrian by a hit and run vehicle.  He was in a coma for three weeks and remained hospitalized for months.  He claimed he was entitled to paralysis benefits under the AIG policy because he lost the use of both legs and his left arm.  The plan says that claims will be determined in 90 days, or under special circumstances, within 180 days; AIG took 16 months to deny the claim.  Rasenack appealed.  Appeals were to be decided in 60 days.  Seven months later, with no decision by AIG on the appeal, Rasenack sued.  AIG then denied the appeal.

First the court held that the claims administrator’s decision was entitled to no deference where the decision was made by operation of law, rather than the use of discretion.  Then the court found that the policy was ambiguous.  The policy’s definition of hemiplegia as “complete and irreversible paralysis” is wholly dependent on the meaning of “paralysis,” which the policy does not define. AIG claimed that the definition of hemiplegia carries a plain meaning, i.e., that the entire arm and leg of one side of the body must be “completely paralyzed,” and that “anything less than ‘no movement at all’ would not be ‘complete’ paralysis.”  While complete absence of movement may be a reasonable interpretation of ‘paralysis’, it was not the only interpretation, as found in various medical texts.  And the summary plan description defined hemiplegia as the loss of “use of both upper and lower limb on same side of body.”  The language was strictly construed against AIG, the drafter of the policy.

The court then reviewed the record, finding that there was evidence which supported the claim.  This was important because AIG stated in its denial that there was no evidence to support the claim.  The failure of AIG to consider evidence in support of the claim made the decision fatally one sided: 

Comparing AIG’s explanations of its decision to deny the claim to the information contained in the administrative record, it appears that AIG cherry-picked the information helpful to its decision to deny Mr. Rasenack’s claim and disregarded the contrary opinions of the medical professionals who examined, treated, and interviewed Mr. Rasenack. 

Thus, the Tenth Circuit reversed and remanded the case back to the district court for a de novo review.  It declined to remand the case back to the plan administrator, finding that AIG’s delays made such an option inappropriate.

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