Insurance Defense

Update on Recent Insurance Law Decisions

Over the past several months, there have been several decisions and developments which are potentially significant to the
practice of insurance law. These involve settlements, limitations and insurance coverage.

Always, each case involves different facts and law, and, accordingly, the following must be taken for general information purposes only, rather than for action upon any specific fact situation. Protection of Medicare Claims: As of July 1, 2009, there is now a requirement that insurors and self-insureds must report certain information pertaining to settlements and judgments involving Medicare recipients to the federal government. Thus, all parties, their insurers, and their lawyers must take steps to insure that the claims of the United States for the recovery of Medicare monies paid to plaintiffs are protected.

Such claims of the U.S. government constitute independent claims to recover Medicare money paid to plaintiffs because of accidents. Thus, the failure of a party, an insurer and/or the parties’ attorneys, and/or the Medicare recipients to make certain that such monies are reimbursed to the U.S. government may generate liability for a duplicate payment to the U.S. government, even though already paid to the plaintiff.

Medicaid recipients who may be involved are generally over 65 years old, although for certain illnesses, such as renal failure, Medicare claims for reimbursement may extend to people of all ages.

The Texas Tort Claims Act-“Special Defect”:

In Denton County, Texas v. Beynon, 08-0016 (Tex. 2009), the Supreme Court held that for purposes of liability suits against the state of Texas, a “special defect” under the Texas Tort Claims Act is limited to “excavations or obstructions” that exist “on” the roadway surface. Therefore, a horizontal floodgate arm barring access to a roadway, which was located approximately 3 feet above the surface of a two-lane rural highway, was not a “special defect” under the Texas Tort Claims Act, and the plaintiff was not entitled to sue the state of Texas for injuries received in a collision with the floodgate arm.

High-Speed Police Chase Automobile Accident-Coverage Under Policy of Fleeing Driver:

In Tanner v. Nationwide Mutual Fire Insurance Company, 07-0760 (Tex. 2009), plaintiffs sued a fleeing driver, who while being chased by police, collided with the vehicle occupied by plaintiffs. The fleeing driver’s insurer refused to pay damages, and the plaintiffs filed a declaratory-judgment action to recover a default judgment taken against the fleeing driver. Nationwide asserted that the acts of its fleeing insured were intentional, and that the plaintiffs’ claims for bodily injury were thus excluded from coverage under Nationwide’s policy. Our Supreme Court held that “intentionally” as used in the policy exclusion excludes coverage only for “the resulting damage or injury, [and not] the actions that led to it.” Thus, the court held that the exclusionary language voids coverage when the resulting injury was intentional, but not when merely the insured’s conduct was intentional. Accordingly,
Nationwide was held to have coverage for damages resulting from its insured’s intentional effort to avoid police in a high speed chase, because Nationwide’s insured did not intend to cause the plaintiffs’ injuries.

Limitations-No Tolling by Temporary Absence from State:

In Ashley v. Hawkins 07-0572 (Tex. 2009), the Texas Supreme Court held that when a potential defendant leaves Texas following a motor vehicle collision, but is otherwise amenable to out of state service of process, Texas’ two year statute of limitations applicable to personal injury claims is not tolled, and a plaintiff must obtain substituted service by publication or other means to prevent the expiration of the statute of limitations.

No Revivor of Claims Barred by Statute of Repose:

In Galbraith Engineering Consultants, Inc. v. Pochucha, 07-1051 (Tex. 2009), the Supreme Court dealt with the question of whether a claim, which was barred by statute of “repose,” can be revived after a defendant to a lawsuit designates another person or entity as a “responsible third party.”

For purposes of proportionate 33, TEX. CIV. PRAC. & REM. CODE, a defendant may designate a non-party as a “responsible third party.” When this occurs, the plaintiff has a 60-day window in which to bring suit directly against the designated responsible third party despite the fact that the applicable statute of limitations would otherwise bar a direct action against such designated party. However, the statute allowing designation of responsible third parties speaks only of revival of those claims which are “barred by limitations” and does not mention claims barred by statutes of repose. Since statutes of repose are passed by the Legislature to provide a definitive date beyond which an action cannot be filed, and thereby create a statutory right to be free from liability after a specified time, the Supreme Court held that the aforesaid provisions of our proportionate responsibility statute do not revive a plaintiff’s claims against a designated responsible third party when such claims are barred by a statute of repose.”

By H. Norman Kinzy

Commercial Litigation

Limiting the Scope of Qualified Written Requests Under RESPA

“Dear Servicer, Please provide all documents concerning the Loan, as required by RESPA. Sincerely, Borrower”

With the increase in residential mortgage defaults across the United States, mortgage servicers have also seen a rise in what is being termed a “qualified written request” (“QWR”) under the Real Estate Settlement Procedures Act (“RESPA”) from borrowers. Many of these alleged QWRs read like the title of this article, request voluminous documents, and cost servicers valuable time and resources to answer. When reviewing these purported QWRs, servicers should take a closer look to determine whether they actually qualify as such under RESPA.

Under 12 U.S.C. § 2605(e), a QWR means “a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that — (i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding the other information sought be the borrower.” Servicers must acknowledge receipt of the QWR within twenty business days of receipt by written response and take action on the inquiry, if necessary, within sixty business days of receipt of the QWR. Violating these provisions can result in liability for the borrower’s
actual damages and costs, including attorneys’ fees. 12 U.S.C. § 2605(f). An additional $1,000.00 can be awarded to the borrower if a pattern or practice of non-compliance with these requirements is found. Id.

Generally, it is relatively simple for servicers to investigate specific allegations of servicing errors and answer the same in an economic fashion and within the given time frames set by RESPA. However, some borrowers have latched onto the language “regarding other information sought by the borrower” at the end of Section 2605(e) and have used it to request extensive documents and other information concerning the loan that is not servicing-related. For example, borrowers will request entire loan origination files, the original Note or Security Instrument, information regarding attempted rescission of the loan, or other nonservicing issues. In effect, these borrowers are trying to conduct improper discovery without filing suit, stall default proceedings
on their loans, or submit the request for some other reason that is not supported by the intention of the statute.

Case law from numerous federal districts has shed light on the extent of what “other information sought by the borrower” can be sought through this Section. Specifically, courts have limited those requests for “other information” to information related to the servicing of the loan. Servicing is defined as “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts…, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.” 12 U.S.C. § 2605(i)(3). As such, servicers would only be required to respond to requests relating to payment issues, not origination, validity of loan, or other issues frequently alleged by borrowers. When reviewing these purported QWRs, servicers should look to what documents or other information that is actually being requested and compare it to the definition of  “servicing” as set forth in RESPA to see if it actually fits that description. Even if the request does not require an answer, it is the better practice to respond to the borrower, in writing, advising of such. Because this is a quickly expanding area of the law, servicers should consider consulting an attorney concerning any questions as to whether to answer the alleged QWR.

By J. Allen Smith and Jeremy J. Overbey

Business Counsel Services

Red-Flag Rules: Really? New Rules Being Applied to the Health Care Industry That Don’t Reference Health Care


Identity theft is a problem that seriously disrupts the lives of its victims. The unauthorized use of personal identifying information can result in drained accounts, unauthorized debt and damaged credit.

Identity theft is not only a problem that affects individuals, but also affects businesses. In the health care industry, identity theft may take the form of identity information being stolen from the business or medical identity theft. Medical identity theft occurs when the services are used by someone possessing stolen information. Medical identity theft can have a significant negative impact. First, it can result in false entries made to medical histories and the creation of fictitious records for the victim leading to improper medical treatment or denial or exhaustion of health insurance. Second, and most important to health care providers, it could result in liability to: (1) the federal government and health insurance companies, requiring the health care provider to pay reimbursement for services rendered to someone other than the insured; or (2) victims of identity theft who seek legal recourse against the health care provider.

Despite the abundance of regulation currently focused on the health care industry, the government elected to utilize regulations from the Federal Trade Commission (“FTC”) to combat the issues described above. As a reminder, the FTC’s general purpose is to be a consumer protection agency and not a health care agency. Nonetheless, the FTC has applied financial institution and creditor regulations to a physician’s practice using the Red Flag Rules (“Rules”) created as part of The Fair and Accurate Credit Transactions Act of 2003.

What are the Red-Flag Rules?

The Rules require each financial institution or creditor that offers or maintains one or more covered accounts to develop and implement a written identity theft prevention program. This program must be designed to detect, prevent, and mitigate identity theft. Essentially, the Government is asking businesses to police their clients.

How Do the Rules Apply to the Health Care Industry?

It is important to note that the applicability of the Rules does not depend on the industry or sector despite the use of such terms as “financial institutions” or “creditors.” The determination is made based on whether your activities fall within the relevant definitions. It is here that a health care provider may be subject to the Rules.

The first relevant definition to consider is whether you’re a “creditor.” A creditor is defined as any person who regularly extends, renews, or continues credit. This definition includes businesses that regularly defer payment for services or provide services and bill customers later. Examples of practices that would qualify as a creditor are (1) regularly billing patients after the completion of service, including the remainder of medical fees not reimbursed by insurance; (2) regularly allowing patients to set up payment plans after services have been rendered; and (3) assisting patients in getting credit from other sources. However, if you require full payment before or at the time of services or accept direct payment only from Medicaid, you are not a creditor. The acceptance of credit cards as a form of payments does not make you a creditor.

The second relevant definition to consider is whether you have “covered accounts.” Covered accounts can be: (1) accounts that creditors offer or maintain (primarily for personal, family or household purposes) that involve or are designed to permit multiple payments or transactions (i.e., patient billing accounts); and (2) any other account that a creditor offers or maintains for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the creditor from identity theft (i.e., patient records).

If you do not meet these definitions, then you can relax and worry only about the other countless state and federal regulations applicable to you. However, if you find that you meet both definitions, then you should begin the process to set up the written program.

How Do You Set Up a Prevention Program?

The Rules are broad in terms of defining the type of program that must be in place and allow for flexibility in the design of the program. A program must be appropriate to the size and complexity of your business and the nature and scope of its activities. The Rules provide guidelines to assist in the development and maintenance of a program that complies with the Rules. Although the guidelines must be considered, only those that are appropriate should be included.

Essentially, the program should include policies and procedures to: (1) identify relevant patterns, practices, and specific forms of activity that indicate the possible existence of identity theft (“Red Flags”); (2) detect Red Flags; (3) respond to Red Flags in order to prevent and mitigate identity theft; and (4) update the program periodically to reflect changes in risk from identity theft. Unfortunately, this broad language makes it difficult to predict what the program should contain without reviewing the activities of the business. Even then, it is likely that small tweaks will be necessary over time to address varying issues that arise. Every program is going to be different, and each will be tailored to address its unique business activities.

What Are the Consequence for Not Complying?

Entities that fail to comply with the Rules may be fined $2,500 per violation; however, the scope of “violation” is unclear and so it is uncertain how this fine will be applied. In addition, it is possible that entities will be required to comply with consent decrees or settlement agreements for future monitoring by, and reporting to, the FTC.

When do the Rules Become Effective?

The Rules have been in effect since January 1, 2008, and were to begin being enforced August 1, 2009. However, due to protests from several groups, including the American Medical Association, the enforcement date has been delayed until November 1, 2009. While the FTC maintains that the delay was not in response to these protests and has continually maintained the position that doctors are subject to the Rules, it will be an interesting three-month period to see if they change their position, or if the Rules are delayed again. But health care providers should proceed under the assumption that the Rules will be enforced against the health
care industry beginning November 1, 2009.


Despite the issues discussed above, health care providers should not begin panicking at the thought of scrambling to satisfy the Rules if the Rules are enforced as the FTC intends. Given the numerous state and federal law requirements already burdening health care providers, many providers are likely to have existing policies and procedures in place that essentially accomplish what the Rules require. Small adjustments and some written documentation are likely to be the only tasks health care providers are faced with. Health care providers should consult with legal counsel to monitor the discussion surrounding the Rules and review their policies and procedures to update them accordingly.

By Michael S. Byrd and Bradford E. Adatto