July 18, 2019

Colorado Court of Appeals: Colorado Court Must Recognize and Give Effect to South Carolina Liquidation Order

The Colorado Court of Appeals issued its opinion in Garrou v. Shovelton on Thursday, January 24, 2019.

Interlocutory Appeal—Uniform Insurers Liquidation Act—Federal Liability Risk Retention Act—Enforcement of South Carolina Order.

The Garrous sued Shovelton, among others, for medical malpractice. Shovelton’s malpractice insurer is Oceanus, a South Carolina industrial insured captive corporation formed as a risk retention group. In 2017, a South Carolina court issued an order commencing liquidation proceedings against Oceanus that, among other things, imposed an injunction and an automatic stay of proceedings against the insurer, its assets, and its policyholders. Shovelton moved to stay the proceedings based on the South Carolina order. The district court denied the motion, and Shovelton moved for C.A.R. 4.2 certification of the court’s order denying the stay.

On appeal, Shovelton contended that the district court erroneously denied his motion for stay because Colorado and South Carolina are reciprocal states under the Uniform Insurers Liquidation Act (UILA), so Colorado must give full faith and credit to any injunction order in a liquidation proceeding. Because Colorado and South Carolina are reciprocal states under the UILA, Colorado must recognize South Carolina’s order. In addition, the Federal Liability Risk Retention Act of 1986 governs risk retention groups and requires Colorado to honor the South Carolina order. South Carolina has jurisdiction over Oceanus and its policyholders, including Shovelton. The district court erred in denying the motion for stay as to Shovelton.

The order was reversed and the case was remanded with directions to stay the proceedings as to Shovelton and to enter any further orders deemed necessary and appropriate as to the remaining parties.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Insurer’s Notice of Cancellation Must Be Accurate or It Is Ineffective

The Colorado Court of Appeals issued its opinion in Brown v. American Standard Ins. Co. of Wisconsin on Thursday, January 31, 2019.

Automobile Insurance Coverage Cancellation Requirements—Accuracy of Reason for Cancellation.

In March 2014, Brown purchased motorcycle insurance from American Standard Insurance Co. (American Standard). In August 2014 American Standard mailed Brown a notice that it was cancelling his policy for lack of a driver’s license. In September 2014, Brown was involved in a motorcycle accident. He made a claim against the American Standard uninsured/underinsured motorist coverage. American Standard denied coverage for the accident, and Brown sued. American Standard moved for summary judgment. Brown filed a response to the motion supported by an affidavit attesting that he had a valid Colorado driver’s license both at the time of cancellation and on the date of the accident. The trial court concluded there were no issues of material fact and granted the motion.

Brown appealed the summary judgment. Colorado law requires insurers to strictly comply with statutory and contractual requirements when canceling an automobile policy. A cancellation notice, other than one for nonpayment, must include either a reason for cancellation or a statement that a reason will be provided upon request. It is implicit in these requirements that the stated reason for cancellation be factually accurate. The court of appeals held, as a matter of first impression, that when an insurer provides a reason for cancellation the reason given must be accurate or the notice of cancellation is ineffective. Here, there is a disputed issue of material fact as to whether Brown had a valid driver’s license at the time of cancellation, and the trial court erred in treating the cancellation notice as dispositive on summary judgment.

American Standard contended that its policy cancellation was effective regardless of whether the cancellation reason was inaccurate because Brown didn’t contest the cancellation until well after the accident and not before filing suit. The fact that Brown did not challenge the cancellation before bringing suit on the policy did not constitute a waiver of his right to sue under the policy or a ratification of the allegedly improper cancellation.

The summary judgment was reversed and the case was remanded.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Insurer’s Conduct Must Be Evaluated Based Upon Evidence Before it When Coverage Decision Made

The Colorado Supreme Court issued its opinion in Schultz v. Geico Casualty Co. on Monday, November 5, 2018.

Insurance—Bad Faith—C.R.S. § 10-3-1115—Fair Debatability—C.R.C.P. 35—Independent Medical Exams.

In this original proceeding pursuant to C.A.R. 21, the supreme court reviewed the district court’s order requiring plaintiff to undergo an independent medical examination (IME), pursuant to C.R.C.P. 35, at defendant’s request. The court issued a rule to show cause.

In this case, plaintiff, who was insured by defendant, alleged that defendant insurance company breached its duty of good faith and fair dealing and violated its statutory obligation to evaluate and pay her insurance claim without unreasonable delay. Defendant denied liability, asserting that because the question of medical causation was “fairly debatable” at the time it made its coverage decision, it did not act unreasonably or in bad faith. To establish these defenses, defendant sought an IME of plaintiff, and over plaintiff’s objection, the district court granted that request.

The court concluded that defendant’s conduct must be evaluated based on the evidence before it when it made its coverage decision. Thus, defendant is not entitled to create new evidence to try to support its earlier coverage decision. The court further concluded that the district court abused its discretion when it ordered plaintiff to undergo an IME over three years after the original accident that precipitated this case and a year and a half after defendant had made the coverage decision at issue. The court therefore made the rule to show cause absolute.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Tort Cannot Be Transaction Giving Rise to Obligation to Pay Money, Therefore Not Debt Per Fair Debt Collection Practices Act

The Colorado Supreme Court issued its opinion in Ybarra v. Greenberg & Sada, P.C. on Monday, October 15, 2018.

Finance, Banking, and Credit—Insurance—Statutory Interpretation—Torts.

Ybarra petitioned for review of the court of appeals’ judgment affirming the dismissal of her Colorado Fair Debt Collection Practices Act action against Greenberg & Sada, P.C. The district court dismissed for failure to state a claim, finding that damages arising from a subrogated tort claim do not qualify as a debt within the contemplation of the Act. The court of appeals agreed, reasoning that the undefined term “transaction” in the Act’s definition of “debt,” required some kind of business dealing, as distinguished from the commission of a tort; and to the extent an insurance contract providing for the subrogation of the rights of an insured constitutes a transaction in and of itself, that transaction is not one obligating the debtor to pay money, as required by the Act.

The supreme court held that because a tort does not obligate the tortfeasor to pay damages, a tort cannot be a transaction giving rise to an obligation to pay money, and is therefore not a debt within contemplation of the Act; and because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, it also cannot constitute a transaction creating a debt within contemplation of the Act.

Accordingly, the court of appeals’ judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Participation in Contractual Appraisal Does Not Preclude Insured’s Suit for Breach of Contract and Statutory Bad Faith

The Colorado Court of Appeals issued its opinion in Andres Trucking Co. v. United Fire and Casualty Co. on Thursday, September 20, 2018.

InsuranceBreach of ContractStatutory Bad Faith DelayAppraisal.

Andres Trucking Co. (Andres) operated a dump truck that caught fire while it was insured by United Fire and Casualty Co. (United). The parties agreed that the truck was a total loss but disagreed about its value. Ultimately, Andres filed an amended complaint alleging breach of contract and bad faith denial and delay of an insurance claim under C.R.S. §§ 10-3-1115 and -1116 and challenging the enforceability of the contractual appraisal provision. The district court struck the amended complaint on the ground that the insurance policy required an appraisal. Following an appraisal, United paid Andres the truck’s appraised value and moved for entry of judgment under C.R.C.P. 12(b)(5), contending that as a matter of law the appraisal process had resolved Andres’s claims. While this motion was pending, Andres moved to amend its complaint. The district court again denied the motion, reasoning that the appraisal process concluded the issues before the court, and entered judgment for United.

On appeal, Andres argued that the district court erred in dismissing its complaint because the appraisal process did not resolve whether United had breached the insurance policy or unreasonably denied or delayed payment of benefits. The court concluded that the appraisal process did not determine United’s liability for breach of contract or statutory bad faith delay. The district court erred in determining that the appraisal precluded Andres from pursuing these claims.

Andres also raised various challenges to the appraisal process itself. The court rejected the arguments that (1) the appraisal provisions are unconstitutional; (2) United did not properly invoke the appraisal because it never demanded it; and (3) the appraisal process did not result in a binding loss valuation. The appraisal award is a binding determination of the value of the insured property, and thus Andres may not further litigate that issue. The district court did not err in enforcing the appraisal provision.

The court also determined that the district court did not err in awarding United attorney fees, but it denied United’s request for appellate attorney fees.

The order approving the appraisal value was affirmed but the judgment was reversed and the case was remanded for reinstatement of the complaint. The order awarding United costs as the prevailing party was vacated but the order awarding United attorney fees for its response to Andres’ motion for clerk’s entry of default was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Dead Man’s Statute Now Applies in “All Civil Actions”

The Colorado Supreme Court issued its opinion in Estate of Brookoff v. Clark on Monday, September 24, 2018.

Statutory Interpretation—Dead Man’s Statute.

In this case, the supreme court interpreted Colorado’s “Dead Man’s Statute” in light of recent amendments that removed language limiting the statute’s applicability to matters in which a decedent’s estate was a party. Discerning no ambiguity in the current version of the statute, the court held that these amendments expand the scope of the statute such that it is now applicable “in all civil actions.” The court also held that because the statute applies irrespective of the potential impact of a judgment on an estate, the existence of insurance coverage is not a factor militating for or against the applicability of the statute.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Plaintiff Not Entitled to Prejudgment Interest Where Claim Does Not Meet Statutory Factors

The Colorado Supreme Court issued its opinion in Munoz v. American Family Mutual Insurance Co. on Monday, September 10, 2018.

Prejudgment Interest—Statutory Interpretation.

In this case, the Colorado Supreme Court considered whether an insured is entitled to collect prejudgment interest when he settles an uninsured motorist claim with his insurer. The court held that, under the plain language of the prejudgment interest statute, C.R.S. § 13-21-101, an insured is entitled to prejudgment interest only after (1) an action is brought, (2) the plaintiff claims damages and interest in the complaint, (3) there is a finding of damages by a jury or court, and (4) judgment is entered. Because Munoz did not meet all of these conditions, the court concluded he is not entitled to prejudgment interest.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: UIM Policy Not Triggered if Insurer Agrees to Pay Entire Amount of Jury Award

The Colorado Court of Appeals issued its opinion in Bailey v. State Farm Automobile Insurance Co. on Thursday, September 6, 2018.

Underinsured Motorist Insurance Benefits—Coverage Limitations.

Plaintiff was in a car accident and sued the other driver for negligence and State Farm Mutual Automobile Insurance Co. for underinsured motorist (UIM) benefits. Plaintiff’s policy covered him up to $100,000 for damages caused by underinsured motorists. The other driver’s insurance company covered him for $100,000 in damages and also agreed to pay the full extent of a jury’s verdict. At trial, State Farm presented evidence that plaintiff had not cooperated with claims adjusters and had committed fraud, and therefore plaintiff voided the insurance contract and he was not entitled to UIM benefits.

The jury rejected State Farm’s affirmative defenses of fraud and failure to cooperate and awarded plaintiff $300,000 in damages. State Farm moved for entry of judgment based on a letter from the other driver’s insurance company that effectively provided unlimited liability insurance coverage for him. State Farm argued that because there was no difference between the coverage limit and the amount of damages, plaintiff was not entitled to UIM benefits. The other driver did not object. The trial court granted the motion and the other driver’s insurance company paid the entire judgment.

On appeal, plaintiff argued that it was error to grant State Farm’s motion for entry of judgment. Plaintiff contended that the trial court should not have considered the merits of State Farm’s motion because the motion raised an affirmative defense that State Farm waived by not presenting before trial. An affirmative defense must be in the nature of a confession and avoidance. Here, State Farm did not contend that it owed UIM benefits but could avoid its obligation to pay them for some other reason; rather, the motion asserted that it did not owe benefits at all. State Farm’s motion did not raise an affirmative defense. The motion was properly made and the trial court did not err by entertaining it.

Plaintiff also contended that under the plain language of C.R.S. § 10-4-609, State Farm is required to provide him with the full amount of UIM benefits. Plaintiff argued that even though he recovered the full amount of the jury’s verdict from the other driver’s insurer, he should still be allowed to recover an additional $100,000 in UIM benefits. UIM benefits are intended to cover the difference between the negligent driver’s liability limits and the damages. The plain language of the statute does not allow a plaintiff to recover UIM benefits in excess of the total amount of actual damages. Further, the statute does not prevent an insurer from effectively increasing a driver’s liability coverage by offering to pay any damages awarded at trial. Here, there is no difference between the amount of damages and the amount of coverage, so UIM benefits are not triggered.

The court of appeals also found no statutory support for plaintiff’s arguments that (1) the letter from the other driver’s insurance company does not meet the requirements of a complying policy, and so it is not legal liability coverage; and (2) the determination of whether a driver is underinsured is made at the time of the accident.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Medicare Benefits Fall Within Contract Exception to Collateral Source Rule

The Colorado Court of Appeals issued its opinion in Forfar v. Wal-Mart Stores, Inc. on Thursday, August 23, 2018.

Insurance—Collateral Source Rule—Medicare Benefits—Premises Liability.

Forfar, a Medicare beneficiary, slipped and fell at a Wal-Mart store. He filed a premises liability case. Before trial, Wal-Mart moved to exclude evidence of Forfar’s medical expenses owed under agreements he had with his medical providers. Forfar moved in limine to exclude evidence that he had received Medicare benefits. The trial court ruled that Wal-Mart could not present evidence to the jury as to the amount of the Medicare limits and that Forfar could not present evidence of private contracts between himself and any third-party medical providers. Forfar was allowed to present evidence of the reasonable value of medical services, for which he sought $72,636. After trial, Wal-Mart moved to reduce the damages under C.R.S. § 13-21-111.6, arguing that the economic damages awarded for medical expenses should be reduced to Medicare accepted rates. The trial court denied the motion, holding that Medicare benefits fall within the contract exception to the collateral source rule in C.R.S. § 13-21-111.6. The judgment entered on a jury verdict included $44,000 in economic damages for the reasonable value of medical services that Forfar had received.

On appeal, Wal-Mart contended that the trial court should have reduced the damages, arguing that the amounts paid by Medicare are dispositive of the necessary and reasonable value of medical services provided to Forfar. Pre-verdict, the collateral source rule, C.R.S. § 10-1-135(10)(a), bars evidence of collateral source benefits, and the correct measure of damages is the reasonable value of medical services. A benefit is not excluded from the definition of a collateral source simply because it comes from a government program. The trial court properly held Medicare benefits to be a collateral source inadmissible as evidence based on C.R.S. § 10-1-135(10)(a).

Wal-Mart also challenged the trial court’s holding that Medicare benefits fall within the contract exception to the collateral source rule. Post-verdict, the trial court is required to reduce a plaintiff’s verdict by the amount the plaintiff “has been or will be wholly or partially indemnified or compensated for his loss by any other person, corporation, insurance company or fund.” The exception to this prohibits trial courts from reducing a plaintiff’s verdict by the amount of indemnification or compensation that the plaintiff has received from “a benefit paid as a result of a contract entered into and paid for by or on behalf of the plaintiff.” Medicare benefits fall within the contract exception to the collateral source rule of C.R.S. § 13-21-111.6. The trial court properly applied the contract exception to Medicare benefits.

Wal-Mart further contended that the trial court violated the Supremacy Clause by failing to apply the Medicaid statutes and regulations over the collateral source rule, asserting that no person may be liable for payment of amounts billed in excess of Medicare approved charges. The Medicare statutes Wal-Mart relies on do not preempt Colorado law holding it liable for the reasonable value of Forfar’s medical services.

The court of appeals declined to award Forfar attorney fees because the issues presented by Wal-Mart were novel and supported by some out-of-state authority.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Excess Insurer Should Have Provided Coverage for Claims Against Insured’s Own Work Product

The Tenth Circuit Court of Appeals issued its opinion in Black & Veatch Corp. v. Aspen Insurance (UK) LTD; Lloyd’s Syndicate 2003 on February 13, 2018.

This case is an insurance coverage dispute between Black & Veatch Corporation (B&V) and Aspen Insurance (UK) Ltd. and Lloyd’s Syndicate 2003 (collectively, Aspen). The issue is whether Aspen must reimburse B&V for the costs B&V incurred due to damaged equipment that its subcontractor constructed at power plants in Ohio and Indiana. The district court held that Aspen need not pay B&V’s claim under its commercial general liability insurance policy because B&V’s expenses arose from property damages that were not covered “occurrences” under the Policy. Because the only damages involved were to B&V’s own work product arising from its subcontractor’s faulty workmanship, the court concluded that the Policy did not provide coverage and granted Aspen’s motion for partial summary judgment.

B&V appealed. Because the Tenth Circuit predicted that the New York Court of Appeals would decide that the damages here constitute an “occurrence” under the Policy, it vacated the district court’s summary judgment decision and remanded for further consideration in light of this opinion.

B&V is a global engineering, consulting, and construction company. A portion of its work involves engineering, procurement, and construction contracts (EPC contracts). In 2005, B&V entered into an EPC contracts with American Electric Power Service Corporation to engineer, procure, and construct several jet bubbling reactors (JBRs), which eliminate contaminates from the exhaust emitted by coal-fired power plants. For at least seven of these JBRs, B&V subcontracted the engineering and construction of the internal components to Midwest Towers, Inc. (MTI). Deficiencies in the components procured by MTI and constructed by MTI’s subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse. After work on three of the JBRs was completed, and while construction of four others was ongoing, AEP alerted B&V to the property damage arising from MTI’s negligent construction. AEP and B&V entered into settlement agreements resolving their disputes relating to the JBRs at issue here. Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

B&V had obtained several insurance policies to cover its work on these JBRs. Zurich American Insurance Company provided the primary layer of coverage for up to $4 million for damage to completed work. Under the CGL policy at issue here, Aspen provided the first layer of coverage for claims exceeding the Zurich policy’s limits. The policy limits coverage to up to $25 million per occurrence and $25 million aggregate. Following the basic insuring agreement, the Policy then scales back coverage through several exclusions, two of which are relevant here. The first, known as the “Your Work” exclusion, or “Exclusion F,” excludes coverage for property damage to B&V’s own completed work. The “Your Work” exclusion is subject to an exception that restores some coverage. The second exclusion, known as “Endorsement 4,” excludes coverage for property damage to the “particular part of real property” that B&V or its subcontractors were working on when the damage occurred. This exclusion pertains only to ongoing, rather than completed, work. In other words, the policy does not cover property damage to B&V’s own completed work unless the damage arises from faulty construction performed by a subcontractor. The court of appeals referred to this as the “subcontractor exception.”

B&V submitted claims to its liability insurers for a portion of the $225 million it cost to repair and replace the defective components. After B&V recovered $3.5 million from Zurich, its primary insurer, it sought excess recovery from Aspen. Aspen denied coverage. B&V sued Aspen in federal district court for breach of contract and declaratory judgment as to B&V’s rights under the policy. B&V sought coverage for approximately $72 million, a portion of the total loss. On cross-motions for partial summary judgment on the coverage issue, the court sided with Aspen, holding that damage arising from construction defects was not an “occurrence” under the policy unless the damage occurred to something other than B&V’s own work product.

The threshold question was whether the New York Court of Appeals would hold that the policy’s basic insuring agreement covered the property damage to the JBRs as an “occurrence.” The Tenth Circuit concluded that the damages constituted an “occurrence” under the policy because they were accidental and harmed a third party’s property.

The Tenth Circuit Court of Appeals began by addressing whether, under New York contract law, B&V sought payment from Aspen for a covered “occurrence” — the first step necessary for obtaining coverage under a CGL insurance policy. An occurrence triggers coverage. The damages at issue here satisfy the Policy’s accidental requirement.

The Policy covers costs arising from property damage. When AEP claimed damages against B&V, the separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V. The principle risk B&V faced as an EPC contractor, and thus a main reason for obtaining CGL insurance, was the potential for claims alleging damages made by the property owner, AEP. Thus, the property damage to the JBRs constituted an “occurrence” under the policy. Furthermore, concluding otherwise would violate the New York Court of Appeal’s rule against surplusage. In other words, Aspen’s interpretation of “occurrence” as excluding the damages at issue here would render several Policy provisions meaningless in violation of New York contract interpretation rules.

Under the Policy, the damages at issue here were caused by a coverage-triggering “occurrence.” First, the damages were accidental and resulted in harm to a third-party’s property, thus meeting the policy’s definition of an “occurrence.” Second, the district court’s interpretation would violate New York’s rule against surplusage by rendering the “subcontractor exception” meaningless. Third, the changes ISO has made to standard-form CGL policies demonstrate that the policies can cover the damages at issue here. Fourth, the overwhelming trend among state supreme courts has been to recognize such damages as “occurrences.” Fifth, New York intermediate appellate decisions are distinguishable, outdated, or otherwise inapplicable. For the foregoing reasons, the Tenth Circuit vacated the district court’s summary judgment decision and remanded for reconsideration in light of this opinion.

A Needed Response to 9News’ Misguided Story on Long-Term Care Insurance

Happy Summer everyone! This blog post features a rebuttal from the LTC Forum of Colorado, Inc., in response to a news story on 9News KUSA claiming that long-term care insurance is no longer a valid option for the middle class. The fact is that traditional LTC insurance is best-suited for the middle class!

The 9News story also ignores some of the newest solutions on the market, including life insurance that allows the death benefit to be used for care and hybrid life or annuity policies. Watch for more information on these solutions in my next blog or visit www.AaronEisenach.com for videos explaining these solutions. I can be reached at (303) 659-0755.

On June 12, 2018, 9News KUSA aired a story, “The Death of Long Term Care for the Middle Income Earners,” full of dangerous advice that may lead Coloradoans to costly conclusions based on myths and misunderstandings. The LTC Forum of Colorado, Inc., a non-profit advocacy group that supports and encourages long-term care planning in Colorado, is responding to claims in the story and wishes to set the record straight.

Claim:  Middle income earners (those who earn $87,500 per year) have been priced out of the long-term care market. Average premiums are $6,000 per year, which may be the low end.

Fact:  The annual premium for coverage from the best-selling company in the United States for a 60-year old single female is $3,273.17 per year.  A single male would pay $2,005.51 per year. Assumptions include a $5,000 monthly benefit, a 3-year benefit period, a $180,000 maximum benefit, a 90-day elimination period (similar to a deductible), preferred health rates, and a 3% compound annual inflation protection rider. Note that the inflation rider causes the monthly benefit and the $180,000 maximum benefit to grow each year by 3% of the previous years’ amount. The result is that by age 84, the monthly benefit will provide approximately $10,000 per month for care at home, in an assisted living facility or a nursing home, and the maximum benefit is worth approximately $360,000.

Claim: Premiums could go as high as $9,000 per year because insurance companies are telling current owners they could face a 50% hike at any point just because no one knows where healthcare is going.

Fact: Premiums cannot simply go up at any point. The Commissioner of the Colorado Division of Insurance has the responsibility of approving, denying, or modifying requested increases. Premiums cannot increase due to any one individual’s age, change in health, or due to use of the policy. Premiums can change if the insurance company makes the same change for all person of the same class.

True, long-term care insurance companies have increased premiums on policies sold in the past, mainly due to increasing longevity, low policy lapse rates, and historically low interest rates. To put this into perspective, let’s assume someone purchased a policy 15 years ago, in 2003, for $150 per month and that the premium has doubled to $300 per month. This is still affordable for folks making $87,500 per year. And this is a far cry from the claim that policies are increasing to $9,000 per year, which is equivalent to $750 per month.

In addition, companies offering LTC insurance policies today are including assumptions for low interest rates, very low policy lapse rates, and longevity. And because Colorado is one of more than 40 states that have adopted the National Association of Insurance Commissioners’ LTC Insurance Rate Stability Regulation, Coloradoans have much more regulatory protection from the type of rate increases we have seen in the past.

CLAIM: No one knows where healthcare is going.

FACT: Surely everyone believes that healthcare costs will continue to escalate. However, long-term care costs do not increase nearly at the same rate as health insurance and medical expenses. LTC costs are largely driven by personnel costs and the cost of building brick and mortar facilities. The good news is that more people will stay at home for extended care, often at lower cost than being in a facility, by taking advantage of a growing number of home care agencies and advancing technologies such as robots and sensors.

Claim: Benefits no longer cover all daily expenses.

Fact: People purchasing LTC insurance today can purchase policies with benefits up to $500 per day or $15,000 per month.  Because policies cost more today than in the past, it is now commonplace for consumers to design coverage to cover some, but not all, of the cost of care. For example, if an insured is receiving memory care in an assisted living facility at $7,000 per month, a policy with a $5,000 monthly benefit would cover more than 70% of the cost of care, leaving the policyowner $2,000 out-of-pocket, which is obviously better than $7,000 out-of-pocket. What’s more, a $5,000 monthly benefit would also cover more than five hours of home care every day for a month.

Claim: Many policyholders, because of financial decline or cognitive issues in their later years, let the policies lapse and then they lose everything – the future benefits they were paying for and then all the money they have put in over the years.

Fact: Regarding financial decline: First, only about 1% of LTC insurance policyholders let their policies lapse. This fact is one of the primary reasons premiums have increased.  Fortunately, if an insurance company files and receives approval from Colorado Division of Insurance for a premium increase, policyowners are able to trim benefits in order to lessen a rate increase or avoid the increase altogether. This opportunity is explained to the policyowner so that he or she can make an informed decision.

For nearly two decades now, policies include a built-in Contingent Nonforfeiture Benefit, which allows clients to drop coverage if rate increases exceed pre-prescribed amounts. If coverage is let go, premiums paid over time will be used to pay for future long-term care expenses. In other words, the policy is converted into a paid-up policy.

Regarding the claim that policyowners lapse their coverage due to cognitive issues, there are strong consumer protections against such a situation. The NAIC Long-Term Care Insurance Model Act requires the following:

[A] long-term care insurance policy or certificate shall include a provision that provides for reinstatement of coverage in the event of lapse if the insurer is provided proof that the policyholder or certificate holder was cognitively impaired or had a loss of functional capacity before the grace period contained in the policy expired. This option shall be available to the insured if requested within five (5) months after termination and shall allow for the collection of past due premiums, where appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria on cognitive impairment or the loss of functional capacity contained in the policy and certificate. 

Claim:  A short-term care policy should suffice because most need care in a facility less than seven to nine months.

Fact:  Claims data for 2014 from Genworth Financial, which has more LTC insurance policyholders than anyone in the industry, dispels the idea that policies covering up to nine months leaves a gaping hole in one’s plan for extended care. First, 50% of claims last more than one year, and of those lasting more than one year, the average length of claim lasts 3.9 years. Note also that 71% of claims started with home care; only 16% started in nursing homes. No doubt, long-term care insurance helps people stay at home where they want to be. Yes, the LTC Forum of Colorado, Inc., recommends short-term care insurance coverage to those not healthy enough to purchase LTC insurance or who cannot afford such a policy. But LTC insurance should be the choice for those who can qualify and afford $2,000 to $3,000 per year. In addition, only long-term care insurance can qualify policyowners for the Colorado Partnership Program which allows insureds to protect assets from Medicaid spend-down. For every dollar the Partnership policy pays for care, one dollar in assets is disregarded, allowing the middle class policyholder to leave assets to a spouse, partner, or children.

The story omits other attractive insurance-based planning solutions that are growing in popularity. For example, many life insurance companies now allow the death benefit provided by a life insurance policy to be used or “accelerated” for LTC services. Any remaining death benefit not used for care is paid to the beneficiaries. Premiums may be guaranteed, most offer cash surrender values if the insured cancels coverage, and some allow the monthly benefit received to be used for care from anyone such as family and friends.

Claim: The best solution is a reverse mortgage. No premiums, guaranteed income, and you don’t lose your home. If you are able to age in place at home, you have your house as your insurance policy and that’s the best route to go.

Fact: A home is not an insurance policy. While the LTC Forum endorses and recommends reverse mortgages, such a tool is not for everyone. First, the proceeds from a reverse mortgage may not provide enough income to cover the cost of extended care. Second, the common goal of keeping the house in the family may be compromised. Third, fees and other closing costs can be high.  Lastly, if the home is no longer the primary residence for 12 months, such as needing care in a nursing home or assisted living facility, the loan comes due. Even with these concerns, a very good idea would be to use some of the proceeds to purchase long-term care insurance.

The Forum applauds programs like “Perfect Homecoming” through Lutheran Medical Center and the Senior Resource Center. Certainly, these caring people and institutions play a significant role in discharge, care coordination, meals, and other services. However, the Forum is concerned that Colorado consumers might be led to believe that such programs negate the need for long-term care insurance, or even short-term care insurance. The story simply left out the fact that the patient returning home still needs to pay for home health care services, which is the role of insurance. And if the patient cannot transition back to home and needs care in a facility, the patient and the family will either be thankful for having quality long-term care insurance in place or will desperately wish they had the coverage!

Simply put, needing long-term care is the greatest uninsured risk left in life – more than 50% of people who reach 65 are expected to need care someday. Without any coverage, the caregiver, usually a spouse or child, will often go through severe emotional and physical consequences. For most, the retirement plan and other savings will be depleted to pay for care instead of providing lifestyle and keeping continuing commitments to loved ones. The members of the LTC Forum of Colorado strongly believe that some coverage is better than no coverage!

We would very much welcome the opportunity to visit with 9News about the issues above and additional insurance-based solutions.

Thank you,

The Members of the LTC Forum of Colorado, Inc.

Aaron R Eisenach, CLTC, President
Tammey Sullivan, CLTC, Vice President
Christine Crowley, CLTC, Treasurer
Janet Van Dorn, CLU, CLTC, Secretary
James Eby
Joyce Fowler, CLTC
Paul Hallmark, CLTC
Ralph Leisle, CLU, ChFC, CASL
Tom Rasmussen, CLTC
Don Rhoades
Ray Smith, CLU, CLTC, MBA

For contact information, please visit www.LTCForumColorado.org/members


Aaron R. Eisenach has specialized in long-term care planning and insurance-based solutions for 20 years. His passion for this topic stems from losing both his father and grandfather to Alzheimer’s Disease. As an insurance wholesaler, Mr. Eisenach represents ICB, Inc., the nation’s first general agency specializing in LTC insurance. As an educator, he provides workshops to consumers and teaches state-mandated continuing education courses to Colorado insurance agents selling LTC products. As a broker, Mr. Eisenach is the proprietor of AaronEisenach.com and partners with financial advisors and agents who trust him to work with their clients. He is the immediate past president of the Producers Advisory Council at the Colorado Division of Insurance, serves as president of the nonprofit LTC Forum of Colorado, Inc, and has appeared on 9News and KMGH Channel 7. He recently served as an expert witness in a court case and was a contributing author to the American College curriculum on long-term care insurance.

Colorado Court of Appeals: Settlement Including Reduction for MedPay Amounts Enforceable Post-Calderon

The Colorado Court of Appeals issued its opinion in Arline v. State Farm Mutual Insurance Co. on Thursday, May 31, 2018.

Uninsured/Underinsured Settlement and Release Agreement—C.R.C.P. 12(b)(1) Dismissal.

Arline submitted claims to American Family Mutual Insurance Company (American) under insurance policies that provided $5,000 in MedPay coverage and $50,000 in individual underinsured motorist (UIM) coverage. American paid $5,000 in MedPay benefits on Arline’s behalf and negotiated Arline’s damages under her UIM coverage to be $27,000, after subtracting the $5,000 in MedPay benefits already paid. In November 2015, Arline, represented by counsel, accepted the $27,000 payment and signed a release agreement (Agreement) releasing American under the UIM policy.

In November 2016, the Colorado Supreme Court held for the first time in Calderon v. American Family Mutual Insurance Co., 2016 CO 72, that C.R.S. § 10-4-609(1)(c) prohibits insurers from reducing the UIM benefits paid on a claim by the amount of MedPay benefits paid on that claim, which the court deemed a “setoff.” (Counsel in that case now represents Arline.)  Arline then sued American for breach of contract and seeking class certification, asserting that American had unlawfully reduced UIM payments using a MedPay setoff. American responded that the Agreement was a complete bar to the cause of action and moved to dismiss. The district court found the Agreement enforceable and granted American’s motion to dismiss for lack of standing.

On appeal, Arline argued that the district court erred in dismissing her complaint because American’s payment pursuant to the Agreement caused her to suffer an injury-in-fact to a legally protected interest. Though the supreme court held that C.R.S. § 10-4-609(1)(c) prohibits policy provisions allowing a setoff from other coverage, it did not hold that the statute extended to settlement agreements. An insured may agree to a settlement and release as long as the terms do not violate statutory prohibitions or public policy. If a release agreement is valid, dismissal of claims encompassed by the agreement is proper. Here, Arline entered into the Agreement voluntarily while represented by counsel who was fully informed that certiorari had been granted in Calderon. She negotiated her damages benefits and agreed that the UIM benefit amount paid compensated her sufficiently to warrant releasing American from any further claims. In addition, Colorado public policy favors the settlement of disputes when the settlement is fairly reached. Arline signed a valid release agreement that is not void as against public policy or prohibited by statute. The district court properly dismissed her claim.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.