A Letter from the Editors

Because each state’s laws related to insurance are unique and because federal courts’ application of ERISA to a set of facts can vary from circuit to circuit, there exist myriad nuances in the law as applied to life, health, disability and long-term care insurance. To address this somewhat amorphous area of the law, we are pleased to introduce our new blog—Underwritten— to provide commentary, updates and insight on the developments that could have an impact on insurers as they seek to serve their policyholders and to mitigate risk. Our goal is to make Underwritten a valuable resource for our clients, for insurers and for those who have an interest in the insurance industry.

Bradley’s Insurance team has extensive experience representing life, health, disability and long-term care insurers in actions across the country. Our team will analyze important cases, regulations and developments, will assess their importance, and will work to provide information relevant to you. You can expect to hear from us at least twice a month on topics such as:

  • Significant federal and state cases
  • ERISA updates
  • Regulatory actions of note
  • NAIC activity
  • Cybersecurity issues

You are invited to visit Underwritten to read about significant cases and other topics related to the insurance industry. To make sure you don’t miss updates, subscribe to receive our posts via email.

If you have any questions or suggestions for Underwritten, please contact us.


Gary L. Howard & Jamie L. Moore, Editors

Long-Term Care and Elder Abuse: Do They Intersect?In at least one state, California, the answer to the question of “Do issues related to long-term care and elder abuse intersect?” is yes. The California Welfare and Institutions Code defines “financial abuse” of an elder adult to include an “entity” depriving an elder adult “of any property, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.”

In Crawford v. Continental Casualty Co., the district court found that the plaintiff had stated a claim for financial elder abuse under California law and denied the insurer’s motion to dismiss.  The insured made a claim for benefits under a long-term care policy for benefits related to a hip injury. When the benefits were denied, the insured alleged that Continental Casualty denied his claim in bad faith and in breach of the policy. Continental moved to dismiss the insured’s claim for financial abuse of an elder, brought pursuant to Cal. Welfare & Inst. Code § 15610.30, stating that the statute “simply [did] not apply to standard breach of contract claims.”  In reaching its decision that the insured had stated a claim, the court found that the California Elder Abuse Act was broad enough in scope to encompass breach of contract and bad faith claims.  In reaching its decision, the court also noted that if the breach of contract was in bad faith, then the insured “could [also] show that [he] had an entitlement to policy benefits which Continental unlawfully withheld—or in the language of the statute, improperly ‘retained’” (noting that “the statute is not limited to just the wrongful ‘taking’ of property, but also includes the wrongful retention of such property”).

Not all California courts are in agreement with the Crawford court’s interpretation of California law on the issue, and the court itself recognized that not all courts analyzing the California statute agreed with this interpretation (citing cases going both ways). For example, the district court in O’Brien v. Continental Casualty Co., concluded that the insured plaintiff had not stated a claim for financial elder abuse under the California statute. The point though is that until this issue is settled by the California Supreme Court there is a risk that an insurer could be found to be in violation of California’s elder abuse statutes when there is a denial of long-term care benefits.

For long-term care insurers, there are certain factors that should be considered in the claims handling process:

  • What is the basis for the interpretation leading to the denial of benefits?
  • Has the interpretation changed over time and, if so, why?
  • Is the interpretation of the policy provision leading to the denial of benefits more favorable to the policyholder or to the company?
  • If there is something the policyholder could do to remedy the basis for the denial, such as changing facilities, and has that possible solution been brought to the policyholder’s attention? If not, then why not?

We will continue to update the blog as this area of the law continues to evolve.

Texas Supreme Court Issues Highly Anticipated Bad Faith OpinionOne year after its initial decision in a significant bad faith case, the Texas Supreme Court has issued its much-awaited opinion in USAA Tex. Lloyds Co. v. Menchaca. The case involved a homeowner whose post-Hurricane Ike property damage claim was denied by USAA Texas Lloyds Company (USAA). At trial, the jury found that USAA did not breach the policy, but that the company did violate the unfair settlement practices provisions of the Texas Insurance Code.

Given that “substantial confusion” existed in Texas courts regarding the relationship between contractual claims for breach of an insurance policy and statutory bad faith claims under the Texas Insurance Code, the Texas Supreme Court attempted to set clearer precedent in its original opinion in April 2017. However, the ruling was met with concern that it further muddied Texas insurance law and set negative precedent for insurers by reviving claims for treble damages under the Texas Insurance Code. In an unusual move, the Texas Supreme Court agreed to a rehearing.

In the newly released opinion, which replaces the 2017 ruling, the court reiterates the five “distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context” it previously identified last year. Importantly, the court further clarifies the critical point for insurers that generally an insured cannot recover damages under the Texas Insurance Code without establishing a breach of the policy, and that exceptions to the general rule are narrow.

The five rules developed by the Texas Supreme Court that should be applied by Texas courts to the interplay between contractual and Texas Insurance Code statutory claims are:

  1. The General Rule: An insured cannot recover policy benefits under a Texas Insurance Code violation if the insured does not have a right to those benefits under the policy. This rule derives from the fact that the Texas Insurance Code only allows an insured to recover actual damages “caused by” the insurer’s statutory violation.
  2. The Entitled-to-Benefits Rule: An insured who establishes a right to receive policy benefits can recover the benefits as “actual damages” under the Texas Insurance Code if the statutory violation causes the loss of benefits. The court refers to this rule as a “logical corollary to the general rule.”
  3. The Benefits-Lost Rule: An insured can recover benefits as actual damages under the Texas Insurance Code even if the insured has no right to those benefits under the policy if the insurer’s conduct caused the insured to lose that contractual right. This principal is recognized where an insurer misrepresented a policy’s coverage, waived its right to deny coverage or is estopped from doing so, or committed a violation that caused the insured to lose a contractual right to benefits that it otherwise would have had.
  4. The Independent-Injury Rule: This rule has two aspects:
    1. If an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for that injury even if the policy does not entitle the insured to receive benefits. However, when an insured seeks to recover damages that “are predicated on,” “flow from,” or “stem from” policy benefits, the general rule applies and precludes recovery unless the policy entitles the insured to those benefits; and
    2. An insurer’s statutory violation does not permit the insured to recover any damages beyond policy benefits unless the violation causes an injury that is independent from the loss of benefits.
  5. The No-Recovery Rule: An insured cannot recover any damages based on an insurer’s Texas Insurance Code violation unless the insured establishes a right to receive benefits under the policy or an injury independent of a right to benefits. This rule is considered “the natural corollary to the first four rules.”

The court also provided additional context and guidance for these rules. Ultimately, with respect to the claims at issue in this particular case, the court remanded the case to the trial court for a new trial consistent with its opinion.