Sometimes it just takes persistence.

“David W.” (Central Reserve Life Insurance Company)

This was a strange and convoluted case from the beginning. David W. was admitted to a residential treatment facility for cocaine, amphetamine and cannabis dependence. Upon admission, his health plan coverage was verified as providing payment at the rate of 50% of “Usual, Reasonable & Customary” (URC) charges, after a $500 deductible. Unlike my “normal” ERISA cases, this was not an ERISA plan. It was presumably governed by Colorado law.

Unbeknownst to David. his employment (and hence his coverage) was terminated two weeks before his admission. However, he didn’t learn of this termination until three weeks after he was admitted as an inpatient and while he was in treatment. He learned of the termination, when the insurance company advised the treatment facility.

David’s health plan provided a conversion option or continuation option so that he could continue his coverage, intact, after his termination. His employer obtained a conversion form from Central Reserve Life (CRL) and faxed it David. He sent in the form in to CRL immediately, along with the first months’ conversion premium.

Three weeks later, CRL faxed a memo to David stating that a different (Colorado) conversion form was required, as opposed to the Ohio form that was previously sent to him. His conversion premium was also returned to him, along with a letter dated November 3rd.

On November 6th, a CRL employee spoke with a representative of the treatment facility. She stated that she had just discovered that David’s employer had been terminated on August 31st. She explained that the conversion application had to be submitted w/n 31 days of the termination and thus it was too late to convert. However, she also said that CRL would waive 31 day rule in David’s case, as long as a correct (Colorado) form was submitted, along with a letter explaining why the 31 days were past.

What followed after that was like a comedy of errors. The new conversion form was prepared by David and an explanation letter was written and sent along with it. However, it was not clear if CRL ever received it, because there was confusion as to where it was supposed to be sent. The fax memo from CRL, as well as the form said that the items should be sent to CRL; however, the letter that accompanied the return of premium said that the form should be submitted through Cheese importers.

Ultimately, CRL denied the benefit claim on grounds of termination of coverage and CRL advised that it was too late for David to reinstate, convert or continue coverage. A CRL representative advised he could appeal the denial, but it wasn’t clear what there was to appeal, as all he was trying to do was continue his coverage.

When I took over the case, I found no record of the second premium check ever being sent back to CRL, but in my opinion, it didn’t matter, as the premium should have never have been returned by CRL in the first place. David did exactly what he was instructed to do when he submitted the original conversion application and premium. Presumably, the reason CRL didn’t receive the second check (if in fact it didn’t) was because of the conflicting instructions given by CRL as to how it was to be submitted and by whom. CRL knew that David was undergoing inpatient treatment at that time. It also knew that he was attempting to convert or continue his health coverage.

The case law governing this was clear. Conversion is a policy right. Any confusion arising from an attempt to convert is the fault of the insurer and the conversion is to remain in effect. Under the law, the employer is deemed an agent of the insurer in these instances. An employee is to be timely notified of his termination, so that he can exercise his conversion rights in a reasonable way. That was not done in this case. Because of the total confusion resulting from CRL’s actions that surrounded this claim, it was my assessment that if not cleared up it would give rise to an inference of bad faith.

My first action was to call CRL’s legal counsel. She suggested I send in an appeal letter to CRL, with a copy to her, stating the entire chronology. I did as she suggested, taking great pains to chronicle the confusion surrounding the matter that had been caused entirely by CRL and the employer.

A month later, I received a letter from a “Consumer Relations Specialist” at CRL, acknowledging my letter and stating, “We are in the process of reviewing our files and will be in touch with you shortly with our response to your inquiry.” Four days later I received a second letter from the same person, setting forth a very long and tortured analysis of the claim. Essentially, the letter posited a number of alternative theories, designed to exonerate CRL of any responsibility for the claim, each clearly conceived after the fact. The letter concluded “Today, our file is being referred to CRL’s legal staff for a review of the cases cited in your letter. Following their research and review of those cases, you will be notified of their findings.”

Because of the number of misstatements in the CRL letter, I sent a detailed response, which was followed by an exchange of several items of correspondence back and forth, prompting me at one point to write: “In my opinion, you have stepped way over the line in your over-zealous attempt to avoid payment of (David’s) claim. As a result, you may find that you have exposed CRL to liability far in excess of the amount of this claim. If I were in your position, I would be apologizing up and down to both (David). . . instead of trying to swindle (David) out of his benefits.”

But the excuses just kept coming, causing me to ultimately write the following: “I must say that I am beginning to detect a pattern. It seems that CRL repeatedly endeavors to establish a ‘fallback’ position, just in case one or more of its presently asserted theories does not fly.” “I don’t think I have ever seen an insurance company change positions as many times as CRL has with respect to this claim. From the very beginning, CRL has asserted various theories and ‘defenses’ in an effort to avoid paying this claim. Since retained in this matter . . . I have had to deal with issues ranging from the timeliness of submission of (David’s) conversion/continuation application; to alleged misrepresentations on his application. Now your letter raises issues relating to (David’s) residency. There seems to be no end to it. No sooner do I dispose of one issue than another pops up to take its place.”

Then, after months of wrangling, I received in the mail the final reversal by CRL. It was a letter from CRL’s Vice President, Consumer Relations Department, with a check enclosed in full payment of the claim.

Result: The case was resolved satisfactorily without litigation.

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