Tuesday, August 8, 2017

No. 229: Long-Term Care Insurance—Senior Health Insurance Company of Pennsylvania Shows How Not To Handle a Claim

In January 1996, Mary ("Molly") White, an Ohio resident aged 67 at the time, purchased a long-term care (LTC) insurance policy from American Travellers Life Insurance Company (ATL). The company later became Conseco Senior Health Insurance Company, and still later became Senior Health Insurance Company of Pennsylvania (SHIP).

In May 2013, Ruth White, who is Molly's daughter and holds power of attorney for her, filed a claim with SHIP for benefits under the policy. SHIP denied the claim. In August 2013, Ruth filed an appeal with SHIP, which denied the appeal. Since 2013, Molly's mental and physical conditions have deteriorated. Ruth filed additional claims, most recently in October 2016. SHIP denied the claims. In June 2017, Ruth filed a lawsuit against SHIP in state court in Ohio. In July 2017, SHIP removed the case to federal court.

U.S. District Judge John R. Adams is handling the case. President George W. Bush nominated him in January 2003, and the Senate confirmed him in February 2003. (See White v. SHIP, U.S. District Court, Northern District of Ohio, Case No. 5:17-cv-1531.)

The APC Rider
The ATL policy provides for benefits when the insured is in a "Long Term Care Facility" or "Assisted Living Facility." The policy also has a complimentary rider that provides benefits under an "Alternative Plan of Care" (APC) recommended by a physician.

The crux of the dispute is whether the APC rider provides benefits when Molly is at home rather than in one of the above facilities. ATL promoted the APC rider in marketing material. The company said such things as "Unlimited Coverage for Custodial, Intermediate and Skilled Care PLUS Alternate Care Benefits!" It also made it sound as though the APC rider provided a way to receive benefits at home without being admitted to one of the above facilities. The APC rider reads:
If you would otherwise qualify for benefits, we will consider paying for the cost of services you require under a written alternative plan of care. Such alternative care must be a medically acceptable alternative to Long Term Care or Home Health Care.
The alternative plan of care must be initiated by you. It must be developed and written by your physician and consistent with generally accepted medical practices. Those parts which are mutually agreeable to you, your physician and us will be adopted.
Alternative care may include but not be limited to: (1) special treatments; (2) different sites of care; or (3) modifications to your residence to accommodate your needs. Suggested services and benefit levels may be different from, or not otherwise covered by, the policy. If so, they will be paid at the levels specified in the alternative plan of care.
Agreement to participate in an alternative plan of care will not waive any of your rights or our rights under the Policy. However, the total of all benefits paid under this Rider will be an offset to those otherwise payable under the Policy to the extent that is agreed to by you and us in the written alternative plan of care. [Blogger's note: The final sentence above is in boldface type.]
Denial Letters
As mentioned earlier, SHIP denied the claims and appeals that Ruth submitted. For example, in a June 2013 letter to Molly's physician, a SHIP "care manager" said:
In order to evaluate Mary White's eligibility for benefits, we reviewed care plan assessment, care notes, and the results of a recent onsite nursing assessment, have spoken to Ruth White and have determined that Mary White needs assistance with bathing, dressing, toileting, transferring, mobility, and continence.
It is our understanding that Mary White does not desire to receive services in a nursing home setting and wishes to receive care at home. However, Mary White's policy covers Long Term Care Facility or Assisted Living Facility care, only.
In an August 2013 letter to Ruth, the same care manager said it differently. Here are the two key paragraphs:
You requested benefits under your Alternative Plan of Care rider. In order to determine your eligibility, both you and your physician submitted information on whether admission to a nursing home would otherwise be required for your condition, that your care needs can adequately be met at home and a plan of care describing the type of services sufficient to support your care needs at home. We will not pay benefits for any type of Alternative Care unless we are first reasonably satisfied that you would otherwise require nursing home confinement.
We have carefully reviewed the circumstances of your claim, as well as the information your physician submitted on your behalf. Your physician did not recommend nursing home confinement or indicate that you require a level of care that requires nursing home confinement. In addition, we have carefully considered the circumstances of your claim, including the type, level and frequency of care you have received, as well as the reasons you submitted for making this request. We have determined that we are unable to approve your request for coverage of care outside of an eligible Long Term Care Facility or Assisted Living Facility. This denial is based on the lack of proper medical documentation to support the request that covered benefits, under the policy, are not suitable for you.
The Lawsuit
On June 15, 2017, Ruth filed a breach of contract lawsuit against SHIP in the Summit County (Ohio) Court of Common Pleas (Case No. CV-2017-06-2489). On July 20, SHIP removed the case to federal court and filed its answer to the complaint. The next day, the case was assigned to Judge Adams, who immediately issued a case management conference scheduling order. Here are some but not all the elements of the order:
  • Judge Adams set the case management conference for July 31.
  • He ordered lead counsel and parties with full settlement authority to be present and have calendars available for scheduling.
  • He ordered any undue hardship motions or motions to continue to be filed by July 26.
  • He ordered, in the event of a motion for continuance, that counsel confer and agree on three alternative dates not later than August 7.
  • He ordered the plaintiff to make a settlement offer by July 27, and he ordered the defendant to respond with a settlement offer by July 28.
On July 26, the parties filed a joint report on their planning meeting. On July 27, Ruth filed initial disclosures, a demand for $87,000, plus estimates of $20,000 in attorney fees and $11,300 in costs. The next day, SHIP filed an offer of $17,500. On July 31, at the case management conference, the case was placed on the expedited track. On the same day, Ruth filed additional documents.

I asked the insurance department in Pennsylvania, SHIP's state of domicile, how many consumer complaints it received in recent years against the company. A spokesman said the department received 25 complaints in 2013, 20 in 2014, 19 in 2015, 26 in 2016, and 11 thus far in 2017.

According to SHIP's statutory statement for 2016, Pennsylvania is the fourth largest state by LTC premiums (after Texas, California, and Florida). By extrapolation from Pennsylvania's 26 complaints in 2016, I estimate there were 300 consumer complaints filed against SHIP in 2016 with all the state insurance departments combined. I think 300 is a large number for a company with capital and surplus of only $28 million at the end of 2016.

In SHIP's statutory financial statements, page 4, line 13 shows "Disability benefits and benefits under accident and health contracts." The figures (in millions) in SHIP's four most recent annual statements are $415 in 2013, $412 in 2014, $414 in 2015, and $309 in 2016. I think the 2016 figure is a sharp drop from the figures in the three prior years.

Long Term Care Group
Long Term Care Group (LTCG) is an LTC insurance administration company. I believe that LTCG administers claims against SHIP. All the SHIP letters I have seen in this case show SHIP at P.O. Box 64913, St. Paul, MN 55164. One of LTCG's locations is in Eden Prairie, a suburb of the Twin Cities. The SHIP/LTCG contract probably says SHIP bears sole responsibility for the claims practices described in this post.

My Inquiry to SHIP
In view of the SHIP data and the LTCG situation mentioned above, I decided to ask SHIP a few questions. I sent them to the New York firm that handles media relations for SHIP. I asked:
  1. Is Long Term Care Group handling claims for SHIP? If so, which office of LTCG? If not, who is handling claims for SHIP?
  2. Is SHIP in the process of denying all claims? Irrespective of your answer, please indicate the number of new claims approved and the number of new claims denied in 2013, 2014, 2015, 2016, and thus far in 2017.
  3. Is SHIP in the process of discontinuing as many previously approved claims as possible? Irrespective of your answer, please indicate the number of previously approved claims discontinued (other than by death of the insured) in 2013, 2014, 2015, 2016, and thus far in 2017.
An official of the media relations firm responded promptly. He said SHIP has no comment on the questions.

General Observations
I am writing about this case because I think SHIP's claim denial letters are outrageous. They are not only gibberish but also seem to conflict with the language of the APC rider. However, I decided not to go into further detail here. Instead, interested readers are invited to obtain the complimentary package I offer at the end of this post. The package contains the ATL policy, including the APC rider, and seven denial letters.

I think the case grabbed the attention of Judge Adams, because he has been moving it along with lightning speed. I hope that the parties settle the case quickly to avoid lengthy delays that would be caused by discovery efforts and a jury trial.

In addition to the White case, I am aware of only two other lawsuits ever filed against SHIP relating to claims practices. I wrote about one of those cases in the May 2012 and November 2013 issues of The Insurance Forum. (See Hall v. SHIP, Superior Court, State of California, County of San Bernardino, Case No. CIVRS 1200996.) I have not written about the other case, which initially was against a SHIP predecessor but eventually involved SHIP. (See Gottlieb v. Conseco Senior Health, U.S. District Court, Central District of California, Case No. 2:11-cv-2203.)

If there were about 300 consumer complaints filed nationally in 2016 against SHIP, it seems reasonable to ask why there have not been many lawsuits. I think the answer is that we are talking about caregivers who are busy tending to the needs of some of our most vulnerable citizens. After the caregiver loses the claim struggle with SHIP, after a state insurance department's consumer complaint division tells the caregiver the insurance department cannot act as the insured's attorney, and after a private attorney approached by the caregiver says a lawsuit against SHIP would be a long legal battle with a doubtful outcome, the caregiver simply gives up.

As I have reported, SHIP is an LTC insurance company in runoff (not selling new policies) and is in fragile financial condition. Indeed, SHIP would have been insolvent at the end of 2016 without a $50 million surplus note on which it has not paid any interest.

Yet the four officers whose names appear on the first page of SHIP's 2016 statutory financial statement appear to be getting by. According to data filed with the insurance department in Nebraska, Paul Lorentz received total compensation of $411,886 in 2016, Ginger Danough $396,423, Barry Staldine $325,403, and Kristine Rickard $239,154.

Available Material
I am offering a 53-page complimentary PDF consisting of the state court complaint (3 pages), SHIP's answer including exhibits (24 pages), seven denial letters (10 pages), the case management conference scheduling order without exhibits (5 pages), Ruth's demand for $87,000 (2 pages), Ruth's preliminary budget estimate (1 page), SHIP's offer of $17,500 (3 pages), and the two articles in The Insurance Forum about the Hall v. SHIP case (5 pages). Email jmbelth@gmail.com and ask for the August 2017 package about the White v. SHIP case.


Tuesday, August 1, 2017

No. 228: Stranger Originated Life Insurance—Sun Life of Canada Wins a Partial Court Victory

Sun Life Assurance Company of Canada recently won a partial victory in a lawsuit relating to stranger originated life insurance (STOLI). There have been many STOLI lawsuits, and I have written about a few of them. I am writing about this one because it illustrates vividly the fraudulent nature of STOLI transactions.

U.S. District Judge Pamela Lynn Reeves handled the case. President Obama nominated her in May 2013, and the Senate confirmed her in March 2014. (See Sun Life v. Conestoga, U.S. District Court, Eastern District of Tennessee, Case No. 3:14-cv-539.)

Developments in the Lawsuit
In November 2014 Sun Life filed a lawsuit against Conestoga Trust Services, LLC. The defendant was the sixth assignee of a $2 million life insurance policy Sun Life issued in April 2008 on the life of Erwin Collins. At the time, Collins was a 74-year-old resident of Knoxville, Tennessee. Conestoga acquired the policy in April 2013. Collins died in June 2014, more than four years beyond the expiration of the two-year contestability period. Sun Life sought a court declaration that the policy was void from inception as an illegal wagering contract. In December 2014 Conestoga answered the complaint.

In January 2015 Conestoga filed an amended answer and a counterclaim against Sun Life. In February 2015 Sun Life responded to the answer and counterclaim, and Conestoga filed a motion for judgment on the pleadings. In April 2015 Sun Life opposed the motion. In September 2015 Judge Reeves denied the motion as premature, saying the record was not sufficiently developed for her to determine whether the policy was void from inception as a STOLI scheme, or whether Conestoga was an "innocent bona fide assignee."

In March 2016 Conestoga filed a motion for summary judgment. In September 2016 Judge Reeves denied the motion as moot. In October 2016 Conestoga filed an amended motion for summary judgment, and Sun Life filed a motion for summary judgment.

In January 2017 the parties requested a delay in the proceedings. Judge Reeves postponed the trial, which had been scheduled for March 2017, until November 2017.

The Ruling
On July 12, 2017, Judge Reeves handed down a memorandum opinion and a judgment. Here is the third paragraph of the opinion:
For the reasons that follow, the court finds there was a pre-existing agreement for Erwin Collins to obtain the policy and transfer it to a stranger investor. Therefore, the policy constitutes a STOLI scheme, and under Tennessee law, it violates public policy and is void ab initio. As a result, Sun Life does not have to pay the death benefit to Conestoga. However, Sun Life must refund the premiums to Conestoga so that Sun Life does not obtain a windfall.
The Scheme
Eugene E. Houchins, III (Norcross, Georgia) was the key figure in the case. He was a life insurance broker and president of Bonded Life Company, which he used to procure life insurance policies. He invited Robert Coppock to earn fees by referring elderly persons to him for a program under which those persons would receive money through life insurance policies taken out on their lives. Houchins retained Coppock as a Bonded Life agent. Bonded Life paid Coppock a referral fee of 20 percent of the first-year premium on any completed transaction. Coppock referred Collins to Houchins.

Collins created "The Erwin A. Collins Irrevocable Life Insurance Trust." The trust applied for the policy, and was to be owner, beneficiary, and premium payer of the policy. Houchins worked with David Wolff of Iron Core Capital. Wolff worked with Life Asset, a firm in the secondary market for life insurance policies.

In September 2007 Houchins submitted an informal inquiry to Sun Life about whether Collins would qualify for a Sun Life policy. A week later, Sun Life made a tentative offer subject to a formal application and full underwriting. On November 5, 2007, Ann Collins, the wife of Erwin Collins, signed an application in Knoxville in her capacity as trustee of the Collins trust. A couple of months later, the application and supporting documents were submitted to Sun Life.

In late February 2008 Life Asset told Wolff it would not acquire a beneficial interest in a policy on Erwin Collins because Tennessee was a state where Life Asset would not conduct business. To solve the "Tennessee problem," Houchins had a different trust, with a Georgia address, reapply for a policy. The new application supposedly was signed in Georgia by the insured, by a Houchins friend as trustee, and by Houchins' father as broker/registered representative. Houchins removed references to Tennessee from the policy and trust documents, used a phony Georgia address as the insured's residence, and arranged to have signatures falsely notarized in Georgia. Houchins arranged financing for the initial premium payment, and Sun Life issued the policy.

The Houchins Deposition
On August 4, 2016, a Sun Life attorney deposed Houchins in Atlanta. The transcript shows it was a memorable five-hour deposition. After answering questions about his name and address, Houchins invoked his Fifth Amendment right against self-incrimination in response to virtually all other questions. His attorney, apparently to be on the safe side, instructed Houchins to take the Fifth despite the fact that the statute of limitations had run out on any conceivable crime for which Houchins might have been charged. The facts in the case were developed from documents in the record and the testimony of others. The Sun Life attorney used the deposition questions to enter many documents into the record. To provide readers with a glimpse of what happened at the deposition, I am offering an excerpt from the transcript.

The Houchins Declaration
In addition to the Sun Life lawsuit, there were other cases involving Houchins. They suggest that he was involved with companies other than Sun Life, such as Pacific Life Insurance Company and Phoenix Life Insurance Company, that there was a $2 million Pacific Life policy on Collins, and that Houchins was involved with several trusts other than the Collins trust. Pacific Life filed an interpleader lawsuit in California when it received claims for the death benefit on the Collins policy from not only the Collins trust but also from a firm that had loaned money to the trust to pay premiums on the policy. In the interpleader case, Houchins filed a declaration describing his involvement in the Pacific Life case. To provide readers with his description, I am offering the Houchins declaration.

General Observations
I first wrote in 1999 about what later came to be known as STOLI. I sometimes called it speculator initiated life insurance (spinlife). I have criticized lax underwriting of policies with large face amounts on the lives of elderly individuals. It is difficult to understand how the companies allowed such cases to be approved, considering all the shenanigans that STOLI promoters used.

It should be noted that many STOLI schemes originated during the STOLI heyday before life insurance companies became aware of the full extent of the fraudulent activity. Here are some of the STOLI tactics I wrote about over the years: lying to proposed insureds, telling proposed insureds to sign blank forms, lying to insurance companies about the income and wealth of proposed insureds, coaching proposed insureds about how to respond if companies or inspection firms asked questions, paying accountants and inspection firms to lie in their reports, forging documents, paying notaries to certify forged signatures, lying to banks and premium lenders, paying attorneys to prepare trust instruments and loan documents, destroying evidence, and finding life insurance companies that were willing to look the other way and allow the issuance of STOLI policies.

I think Judge Reeves got it right. Although the Collins policy was well beyond the two-year period of contestability, she declared the policy void from inception. Also, despite the fact that Sun Life had incurred costs, including expenses associated with issuance of the policy and expenses associated with the lawsuit, the judge required Sun Life to return the premiums Conestoga had paid so as to avoid a windfall for Sun Life. In my view, Sun Life had only itself to blame for the lax underwriting that allowed the policy to be issued.

Available Material
I am offering a 57-page complimentary PDF consisting of the Sun Life complaint (12 pages), an excerpt from the Houchins deposition in the Sun Life case (18 pages), the Houchins declaration in the Pacific Life interpleader case (9 pages), the memorandum opinion by Judge Reeves (17 pages), and the judgment (1 page). Email jmbelth@gmail.com and ask for the August 2017 package about the Sun Life/Conestoga case.