Monday, August 21, 2017

No. 230: Long-Term Care Insurance—Another Lawsuit Involving Claims Practices at Senior Health Insurance Company of Pennsylvania

In No. 229 (posted August 8, 2017), I reported on a 2013 long-term care (LTC) insurance claims practices lawsuit against Senior Health Insurance Company of Pennsylvania (SHIP). While working on that post, I learned of a 2011 claims practices lawsuit against SHIP. Here I report on the earlier case. (See Gottlieb v. Conseco, U.S. District Court, Central District of California, Case No. 2:11-cv-2203.)

U.S. District Court Judge George H. King handled the Gottlieb case. President Clinton nominated him in April 1995, and the Senate confirmed him in June 1995. He served as chief judge from September 2012 to June 2016, and retired in January 2017. U.S. Magistrate Judge Victor B. Kenton was also involved in the case.

In January 1988, Beatrice Orkin Gottlieb, a California resident aged 57 at the time, acquired LTC insurance coverage from AIG Life Insurance Company (AIG). The insurance was evidenced by a certificate issued by the AIG Long Term Care Trust. The master contract became effective in June 1987. In group insurance, a "master contract" covers the entire group, and a "certificate" is issued to each member of the group. The certificate in this case had an Extended Home Care Benefit Rider in which "home" was defined. Some definitions of "home" are mentioned later.

In December 1991 American Travellers Life Insurance Company (ATL) informed Gottlieb by letter that ATL had "reinsured and assumed" the coverage from AIG. ATL said that "you can be assured that the benefits of your policy will remain exactly the same." (The underlining was in the original.)

In December 1999 ATL informed Gottlieb by letter that the company's name had changed to Conseco Senior Health Insurance Company (CSHI) because Conseco, Inc. had acquired ATL. The letter said: "The name change will in no way affect the terms and conditions of your policy." In November 2008, when Conseco transferred CSHI to an oversight trust, SHIP became the company's name.

In April 2010 Gottlieb entered a skilled nursing facility. In July 2010 she moved to another skilled nursing facility. Her daughter, Debbie Ferman, filed a claim against SHIP, which denied the claim. The denial appeared to be based on an endorsement added to the policy changing the definition of "home." Gottlieb had never agreed to the endorsement and had never even received it.

The Lawsuit
In March 2011 Gottlieb filed a class action lawsuit against CSHI doing business as SHIP. Gottlieb filed a first amended complaint in May 2011, a second amended complaint in September 2011, and a third amended complaint in September 2012. The four complaints and the exhibits attached to them differ significantly.

The Settlement
In October 2012 the parties reached a settlement. In December 2012 Judge King issued an order preliminarily approving the settlement, conditionally certifying a class for the purposes of the proposed settlement, approving the class notice, and scheduling a final approval hearing. The class notice offers the entire settlement agreement (63 pages including exhibits) to class members interested in seeing it. Here is a paragraph of the class notice summarizing the case:
This lawsuit [name of case] is about whether the term "home" in certain insurance policies includes Assisted Living Facilities or Residential Care Facilities. Plaintiff has alleged that in certain instances, it does. Under the Proposed Settlement, SHIP agrees that if a Long Term Care Policy defines "home" as a "private home, a home for the aged, a residence home, or a similar residential institution, or your home" and does not specifically exclude benefits for Home Health Care provided in an Assisted Living Facility or Residential Care Facility for the Elderly, claims for benefits will not be denied on the basis that said facility is not an insured's "home."
The class notice also contains a paragraph summarizing the terms of the proposed settlement. Here is a portion of that paragraph:
Under the Proposed Settlement, SHIP agrees to consider an Assisted Living Facility as an insured's "home" under a Long Term Care Policy owned by a member of the Settlement Class. SHIP will notify all State Departments of Insurance or their regulatory equivalents, in writing, of the terms of the Settlement.... There are no provisions for money damages to be paid to Class Members. The Class Representative, or Mrs. Gottlieb, did, however, include individual claims for relief against SHIP for its alleged failure to pay certain benefits to her under her own Long Term Care Policy. Therefore, SHIP has agreed to pay her the full contract value of her policy in the amount of $182,500, along with an additional $5,000 for representing the Class, which required her to incur travel and other expenses related to maintaining the lawsuit.
In March 2013 Judge King issued a final order and judgment approving the settlement. In April 2013 Gottlieb filed a motion for attorneys' fees in the amount of $250,000. In July 2013 Magistrate Judge Kenton granted the motion. SHIP appealed Magistrate Judge Kenton's order to the U.S. Circuit Court of Appeals for the Ninth Circuit. In August 2015 the appellate court affirmed Magistrate Judge Kenton's order.

The remainder of the class notice paragraph describing the terms of the proposed settlement explains an "audit process" SHIP agreed to implement. SHIP was required to submit quarterly audit reports to attorneys for the class for two years following the settlement's effective date. The reports show nothing of significance. For example, here is one of the reports from a law firm representing SHIP:
This letter provides you with information from defendant SHIP under the terms of the March 12, 2013 Final Order and Judgment, and, in particular, information pertaining to Paragraph 4(c) and (d). This pertains to the quarter ending September 30, 2014. Through this office, SHIP advises that under the audit process described in the order there have been no claim denials for health care benefits wherein the stated reason for the denial included a determination that the insured resided in an ineligible setting. SHIP has further advised that it has audited at least 25% of review notes to ensure that the ALF Op Memo was applied in a manner consistent with the terms of the Settlement and Order. [Blogger's note: "ALF Op Memo" is a memorandum describing the standard operating procedure when a policy includes a provision relating to Assisted Living Facilities.]
General Observations
There were three insurance company name changes in the Gottlieb case. The first resulted from the transfer of coverage from AIG to ATL by way of so-called assumption reinsurance. Neither company gave Gottlieb an opportunity to consent to the transfer. Rather, ATL merely informed her of the transfer by letter. See No. 220 (posted June 1, 2017), which explains why the transfer of coverage without Gottlieb's consent arguably violated her constitutional rights. The subject is treated in detail in chapter 23 of my 2015 book entitled The Insurance Forum: A Memoir.

The second name change—ATL to CSHI—resulted from Conseco's acquisition of ATL. The third name change—CSHI to SHIP—resulted from Conseco's transfer of CSHI to an oversight trust. Policyholder consent is not required when an entire company is sold, or when a company merely changes its name. In other words, policyholder consent is required only when a block of policies is transferred from one company to another.

One of the exhibits attached to the third amended complaint is interesting. It is a transcript of a tape recording of part of a telephone conversation between Ferman (Gottlieb's daughter) and Robert Bryant, who represented a firm that was handling claims administration for SHIP. The transcript illustrates what a claimant is up against when he or she contacts the company about a claim denial. It also makes clear that Ferman was not easily brushed off.

Available Material
I am offering a 52-page complimentary PDF consisting of the text of Gottlieb's third amended complaint (17 pages), the appendix to the third amended complaint showing the transcript of the Ferman/Bryant telephone conversation (10 pages), Judge King's final order (8 pages), Magistrate Judge Kenton's order (13 pages), and the Ninth Circuit's affirmation of Magistrate Judge Kenton's order (4 pages). Email and ask for the August 2017 package about the Gottlieb v. Conseco case.