An insurance policy can be either claims-made or occurrence.[1] An occurrence policy protects the policyholder from any incident that occurs during the policy period, regardless of when she files the claim for medical services received. On the other hand, a claims-made policy only covers the insured for medical services provided during the policy period and requires that claims be filed while the policy was effective.
In this module, we will discuss legal issues surrounding notice of claim provisions in health insurance policies which dictate how and when a policyholder can file a claim. Additionally, we’ll discuss denial of health insurance claims and what a policyholder can do in response to a denial.
Health Insurance Claims
A claim is a request for payment that a policyholder submits to her health insurer after she receives medical services.[2] The health insurance claim form includes information such as the policyholder’s insurance policy number, the identity of the person who received medical services (which may be the insured or a dependent on the policy), where the services may be covered by more than one company or policy (“dual coverage”) and what medical services were received.[3]
Notice of Claim Provision
Substantially every health insurance policy includes a notice of claim, or “awareness provision.” The provision requires the policyholder to promptly notify the insurer after receiving medical services.[4]
The notice of claim provision serves two important purposes. First, notice gives the insurer the opportunity to investigate the claim in a timely manner. Should a legal dispute arise, preserving evidence regarding medical services is crucial, as a delay may lead to the loss of important evidence to substantiate the claim. Second, notice gives the insurer an opportunity to estimate the cost of liabilities, determine whether the medical services are covered and estimate the amount of money it needs to reserve for future claims.[5]
Timeliness of Notice
The most common legal issue that arises with notice of a claim involves timeliness. The policy typically specifies the number of days a policyholder has after receiving medical services to give notice of the claim and the language in the policy will generally control should a dispute arise. If the policy doesn’t specify the number of days to give notice, state law may provide guidance.[6] For example, Michigan law construes policy language requiring the insured to give notice “immediately” or “as soon as practicable” as requiring notice “within a reasonable time.”[7]
State laws also sometimes establish penalties for late notification. In Florida, for example, a policyholder who fails to give prompt notice of claim in violation of an insurance policy provision can be denied recovery. In Texas, a policyholder’s failure to comply with the notice requirement constitutes a breach of the contract and can lead to loss of coverage.
Courts consider several factors to determine whether the policyholder provided notice in a reasonable time. These factors include:
(1) the language of the policy’s notice provision;
(2) the policyholder’s sophistication in commerce and insurance matters;
(3) the policyholder’s awareness of an event that may trigger insurance coverage;
(4) the policyholder’s diligence in ascertaining whether policy coverage is available; and
(5) whether the health insurance company was prejudiced by the late notice.[8]
In Schoffman by Schoffman v. Blue Cross & Blue Shield, the issue of timely notice was in dispute. The appellant sought coverage from his health insurance provider, Blue Cross and Blue Shield of Minnesota, for medical claims resulting from injuries his child sustained in a school bus accident. Before he filed for coverage, the policyholder filed and settled a lawsuit against the bus company.
When he filed claims for medical treatment, Blue Cross denied them stating that his notification wasn’t timely. He sued, but the lower court sided with Blue Cross, and the appellate court affirmed.[9] In its decision that notification wasn’t timely, the appellate court relied on several of the factors we’ve introduced. First, the language of the health insurance policy stated that a policyholder had to notify Blue Cross of claims within 15 months of the receipt of the medical services. The policyholder took longer than 15 months. Second, Blue Cross was prejudiced by this failure of notice. Had the policyholder filed notice in a timely manner, Blue Cross could have arranged for medical care at a provider discount rate. Additionally, had Blue Cross been aware that the policyholder had filed and settled a lawsuit, Blue Cross could have protected its subrogation right to recover a portion of claims paid. By being unaware of the lawsuit, Blue Cross lost the ability to protect itself.
Sufficiency of Notice
A notice of claim that a policyholder provides to her insurer must be sufficient so that her insurer can adequately investigate her claim. The terms of the notice provision in the insurance policy agreement must be strictly followed. There are three elements, which an insurer will include in the notice provision, that illustrate whether the notice is sufficient:
Let’s examine the first element: the notice’s form. Depending on what the health insurance policy specifically provides, the notice of claim may be provided to the health insurer orally or in writing. Next, the notice of claim must correctly identify the person on the policyholder’s plan who received medical services, whether it’s the policyholder herself or any of her dependents. Finally, the notice of claim must be sent to the proper party, either the health insurance company itself or another designated representative such as an insurance agent.
This final element has been the subject of litigation. In one case, a federal appeals court held that providing notice to an insurance agent was insufficient when the policy required that written notice be given to a specific insurance company designee and the policy holder gave the notice to the insurance agent who had brokered the sale of the policy. The court held that a policy which required notice to “us,” as defined by the policy, made it clear that notice to the insurance agent (who was merely an intermediary between the insurance company and the insured) wouldn’t suffice. Moreover, there was no evidence that the insurer gave the agent apparent authority to accept notice of claims.[10] As such, notice to the agent was insufficient.
Health insurance companies provide the public with easily accessible examples of health insurance policy agreements. Cigna Health and Life Insurance Company’s, for example, specifically sets out that notice must be “written”, must be sent to Cigna itself at its Individual Services location in Tampa, Florida, and must “include the name of the Insured, and claimant if other than the Insured, and the Policy identification number.”[11]
If the policy doesn’t spell out the form of notice, no particular form of proof of loss is required other than that it must be adequate to enable the insurer to consider its rights and liabilities.[12]
Excuses for Untimely or Insufficient Notice
Should a policyholder fail to provide notice by the date the insurance policy mandates or in a reasonable time, he can still avoid denial of coverage by presenting a legitimate excuse for untimely notice. The excuse must “render it impossible for the condition to be complied with.”[13] Generally, a careless mistake or inattention to deadlines is not considered ignorance that will excuse a holder from filing a timely notice. Giving notice to the wrong insurer is an example of a careless mistake, and thus an insufficient excuse.[14]
Some of the most common excuses for untimely notice of a claim include:
- insanity;
- sickness;
- incapacity;
- mistake; and
- ignorance.[15]
To better understand how a policyholder can present an excuse for untimely notice, let’s look at a case where a policyholder claimed “incapacity” for her untimely notice of claim. Incapacity is broadly defined. A policyholder who doesn’t comprehend the requirements of his health insurance policy or suffers from mental derangement may be considered incapable of providing notice.
In Clarke v. Unum Life Insurance Co. of America, the policyholder was diagnosed with bipolar affective disorder, which limited her ability to work and manage her affairs. Soon after diagnosis, she was hospitalized. She filed a claim under the disability insurance policy purchased from the insurer by her employer. The insurer rejected the policy’s claim as untimely and she countered that her mental illness prevented her from filing the claim in a timely manner.
Here, the court sided with the insured and held that her untimely notice was excused. The evidence that was presented demonstrated that the policyholder couldn’t accurately assess the nature and degree of her condition. Her doctors testified that she wasn’t “competent to recognize that she had been disabled, that she had disability insurance, and that she simply needed to complete a form to receive the benefits…” Furthermore, she was unable to exercise appropriate judgment during this period, even to the point of failing to find other people who could assist her in managing her affairs. All of this demonstrated that her incapacity made it impossible for her to have complied with the insurance policy’s notice provision.[16]
Limits on Notice Rules
Even when a policy specifies that a policyholder must provide timely notice of a claim, many states require an insurer to prove that it was prejudiced by the insured’s delay to justify denial of coverage. This is called the notice-prejudice rule.[17]
The Colorado Supreme Court explained that the purpose of a timely notice requirement is to allow an insurer to adequately investigate and defend a claim. If the insurer cannot establish that late notice defeated that purpose, and therefore prejudiced the insurer, the insurer should not be permitted to deny coverage based solely on late notice.[18]
Fraud
A health insurance policy will typically have a fraud provision. To show policyholder fraud, the insurer must prove that the policyholder knowingly made false representations with intent to deceive or defraud the insurer. Moreover, the misrepresentation must be “material,” which means that it must be important to the claim. Still, judges may infer intent to defraud from the circumstances when intentional false statements are made on a claim.[19] Should a judge or jury find that a policyholder committed fraud, the insurer may be allowed to void the policy and seek reimbursement from healthcare providers for claims paid through fraud.[20]
Waiver and Estoppel
Waiver is the voluntary relinquishment or abandonment, either express or implied, of a legal right or advantage. A health insurance provider may waive a notice provision if it seeks and obtains knowledge of all the facts regarding a claim through its own inquiries or investigations. Although the policy holder may have failed to provide notice, the insurance company’s obtaining the information through other sources accomplished the same objectives.
Related to the concept of waiver is estoppel. Estoppel prevents one from asserting a claim or right that contradicts what has been legally established.[21] So, if an insurer acts on information or an assumption, it cannot later void the policy based on the policy holder not having provided that very information.
Together, waiver and estoppel prevent a health insurer from denying a claim and avoiding coverage when it had full knowledge of the facts surrounding the claim or injury.
Denial of a Claim
The Department of Labor estimates that about one claim in seven made under the employer health plans that it oversees is initially denied, amounting to nearly 200 million claim denials annually.[22] In 2011, the Government Accountability Office found that, of the denied claims that were challenged, about half the denials were reversed.
A health insurer can deny a claim for a variety of reasons. These include:
- the procedures aren’t covered by the health insurance policy;
- the procedure is considered experimental, cosmetic, investigational, or not medically necessary;
- the policyholder used an out-of-network provider;
- untimeliness of the claim;
- insufficient information or detail in the claim.
When a health insurer denies a claim, its written denial must set forth the basis for the denial, reference the specific plan provision upon which the decision was based and give a description of any additional material or information needed to further pursue the claim. Furthermore, the notice of the denial must be written “in a manner calculated to be understood by the claimant” and must inform the policyholder of the steps required to submit the claim for review.[23]
If a health insurer refuses to pay a claim, the policyholder has the right to appeal the decision using either one of two methods.[24] The first option is an internal appeal, in which the policyholder asks his insurance company for a full and fair review of its decision. During the internal appeal, the claim will be reviewed and analyzed by insurance company employees who weren’t involved in the original decision to deny a claim. During the internal appeal, the policyholder has an opportunity to see and respond to any evidence the reviewers are considering in deciding whether to overturn a denial.[25] The health insurance company must complete the internal appeal within 60 days if the appeal is for a service a policyholder has already received.[26]
The second option, depending on the insurance policy and the state where the policyholder lives, is that he may have his appeal reviewed by a state’s Department of Health or the United States Department of Health and Human Services.[27] This is known as an external review. During the external review, the insurance company no longer gets the final say over whether to pay a claim. Denials that will go to external review are those that involve a determination that a treatment is experimental or investigational or where the insurer finds that the policyholder provided false or incomplete information when he applied for coverage.[28]
A policyholder must complete and exhaust his health insurance plan’s claim processes before filing an action in court to challenge the denial of a claim for benefits.[29] After all internal claims and appeals processes have been exhausted and his claim is still denied, a policyholder may file a lawsuit under Section 502 of the Employee Retirement Income Security Act (“ERISA”) to challenge a denial of benefits.[30] ERISA governs almost all health benefits plans offered through private employers, but it does not apply to health insurance plans run by a church or religious organization or health insurance plans run by the federal or a state government.[31]
Under Section 502 ERISA, a policyholder and her beneficiaries can bring a case “to recover benefits due to [them] under the terms of [their] plan[s], to enforce [their] rights under the terms of the plans or to clarify [their] rights to future benefits under the terms of the plans.”[32]
[1] Jeffrey P. Griffin, “The Inapplicability of the Notice-Prejudice Rule to Pure Claims-Made Insurance Policies”, 42 Conn. L. Rev. 235, 238 (2009).
[2] “Claim,” HealthCare.gov, https://www.healthcare.gov/glossary/claim/ (last visited Sept. 7, 2018).
[3] Mila Araujo, “How to File a Health Insurance Claim Form,” The Balance, (Mar. 19, 2018) https://www.thebalance.com/if-you-have-to-file-a-health-insurance-claim-form-2645672.
[4] “Notice of Claim Provision,” IRMI, https://www.irmi.com/term/insurance-definitions/notice-of-claim-provision (last visited Sept. 7, 2018).
[5] 44 Am. Jur. 2d Insurance § 1309.
[6] 13 Couch on Ins. § 190:31 (2014).
[7] Triple Inv. Grp., LLC v. Hartford Steam Boiler Inspection & Ins. Co., 71 F. Supp. 3d 733, 739 (E.D. Mich. 2014).
[8] Farmers Auto. Ins. Ass’n v. Burton, 967 N.E.2d 329, 334 (Ill. Ct. App. 2012).
[9] Schoffman by Schoffman v. Blue Cross & Blue Shield, 557 N.W.2d 625, 626-28 (Minn. App. 1997).
[10] Raby v. Am. Int’l Specialty Lines Ins. Co., 268 F. App’x 566 at *1 (9th Cir. 2008).
[11] “Cigna Health and Life Insurance Company (‘Cigna’) Cigna California Platinum,” Cigna, https://www.cigna.com/assets/docs/individual-and-families/2016/medical/ca/ca-cigna-california-platinum-milc0701.pdf(last visited Sept. 7, 2018).
[12] 44 Am. Jur. 2d Insurance § 1350.
[13] Wolverine Ins. Co. v. Sorrough, 177 S.E.2d 819, 822 (Ga. App. 1970).
[14] 44 Am. Jur. 2d Insurance § 1334.
[15] 44 Am. Jur. 2d Insurance §§ 1333-1335.
[16] Clarke v. Unum Life Insurance Co. of America, 14 F.Supp.2d 1351, 1352-56 (Ga. Dist. Ct. 1998).
[17] Dang v. UNUM Life Ins. Co. of Am., 175 F.3d 1186, 1188-89 (10th Cir. 1999).
[18] Craft v. Philadelphia Indem. Ins. Co., 343 P.3d 951, 952 (Colo. 2015).
[19] 44 Am. Jur. 2d Insurance § 1369.
[20] Magie v. Preferred Mut. Ins. Co., 91 A.D.3d 1232, 1233 (3d Dep’t 2012).
[21] Black’s Law Dictionary (10th ed. 2014).
[22] “How Insurers Deny Legitimate Health Insurance Claims,” McKennion Law Group, (Feb. 21, 2017), https://www.mslawllp.com/how-insurers-deny-legitimate-health-insurance-claims/.
[23] Katherine Vukadin, “Hope or Hype?: Why the Affordable Care Act’sNew External Review Rules for Denied ERISA Healthcare Claims Need More Reform”, 60 Buffalo L. Rev. 1201, 1208-09 (2012).
[24] “How to Appeal an Insurance Company Decision,” Healthcare.gov, https://www.healthcare.gov/appeal-insurance-company-decision/appeals/ (last visited Sept. 7, 2018).
[25] “Internal Claims and Appeals and the External Review Process Overview,” Center for Medicare & Medicaid Services, (April 2018), https://marketplace.cms.gov/technical-assistance-resources/internal-claims-and-appeals.pdf.
[26] “Appealing a Health Plan Decision, Internal Appeals,” HealthCare.gov,https://www.healthcare.gov/appeal-insurance-company-decision/internal-appeals/ (last visited Sept. 7, 2018).
[27] “8 Steps to Take if Your Claim is Denied,” Pacient,https://pacient.care/decks/health-insurance/money-saving-tips/8-steps-take-if-your-claim-denied (last visited Sept. 7, 2018).
[28] “Appealing a Health Plan Decision, External Review,” HealthCare.gov, https://www.healthcare.gov/appeal-insurance-company-decision/external-review/ (last visited Sept. 7, 2018).
[29] “Filing a Claim for Your Health or Disability Benefits,” Employee Benefits Security Administration, U.S. Dep’t. of Labor, https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/filing-a-claim-for-your-health-or-disability-benefits.pdf (last visited Sept. 7, 2018).
[30] Stacey Worthy, Daniel McClughen, &Shruti Kulkarni, “Now or Never: The Urgent Need for Action Against Unfair Coverage Denials for Quality Health Care,” 48 Loy. U. Chi. L.J. 1041, 1090 (2017).
[31] Roy Harmon, “An Assessment of New Appeals and External Review Processes – ERISA ClaimantsGet ‘Some Kind Of A Hearing,’” 56 S.D. L. REV. 408, 411 (2011).
[32] 29 U.S.C, § 1132.