Farmers Insurance, The Law and Injured Patients as Units

By Adler Giersch PS

In a landmark trial court decision, Judge Prochnau found Farmers Insurance had violated its legal and contractual duty to its traumatically injured policy holders to promptly and fairly pay bills for medical care under the Personal Injury Protection (PIP) policy.

By way of background, all automobile policies of insurance are governed by a set of claims processing standards set out in Washington state statutory and regulatory law. The insurance companies are required to pay all medical treatment expenses that are reasonable, necessary and related to the automobile collision. Specifically as well, under WAC 284-30-330(4), they owe a duty to the injured person to do a reasonable investigation of all treatment submitted for payment BEFORE deciding to deny the claims. “Good Faith” requires the automobile insurer to give equal consideration to the insured’s interests when deciding whether or not to pay. They must have a reasonable basis in place for the denial.

During discovery leading up to the motion, the plaintiffs were able to obtain evidence of a systematic practice by Farmers Insurance of withholding, denying, or limiting claims prior to completing the claims investigation process. Farmers, which commonly referred to the injured persons as “Units” rather than people, would generate form letters to providers and “units” early in the claim without regard to the particular “units” case stating they were holding bills until after the insured had attended an Insurance Medical Examination by a doctor they selected and paid.

If the IME opinion was the typical negative opinion for the injured person, Farmers would refuse to pay any benefits from the date of the initial letter. If the insurance doctor said treatment was reasonable, necessary and related, belated payment would be made.

In practical effect, this served to preclude many insured’s from getting needed care, made providers more reluctant to treat PIP patients, and often discouraged individuals into early settlement of their claims. In finding this practiced violated Washington law, the court noted in it’s oral ruling in part that:

At the point the insured is requesting coverage and bills are being submitted, there is an implicit doctor statement that bills are RNR. Burden shifts to insurer to show that coverage is not RNR. Insurer must make reasonable investigation and not deny coverage on suspicion. …

What does it mean to deny, limit, terminate benefits? Use of all 3 words in the WAC 395 is an indication that insurance commissioner intended to capture all the artful practices that might be used. The insured is being denied speedy payment. It is of little use to the insured to find later that they will get coverage if they have been unable to use benefits in the meantime. …

Court finds Farmers owes insureds a per se duty to complete investigation before denying claims. Cannot pre-deny without first making reasonable investigation. It is clear that Farmers itself has determined the IME is necessary to deny the claim. If they do feel they have enough evidence, they have violated their duty to say why they are denying the claim.

The evidence in this case established with respect to this one carrier alone, harmful and wrongful practices that impacted payment decisions on 83% of claims. This decision is the first to deal with a business practice of this type in the PIP context by one of the big three automobile insurance carriers in the state and has wide ranging implications. It will be more difficult for carriers to avoid paying for treatment up to the time the insurance doctor’s report actually comes back.

When you or your patients have an issue with insurance companies denying payment for reasonable, necessary and related care, the experienced personal injury and insurance law lawyers of Adler Giersch are ready to assist. Adler Giersch ps with offices in Seattle, Everett, Bellevue and Kent serving the injured.