ON CRIME EXCLUSIONS:
The ERISA cases routinely uphold the application of a Plan exclusion for medical expenses incurred during the commission of a crime. Depending on the precise language of the exclusion, of course, the crime need not be a felony. Speeding, for example, counts. In Oomrigar v. Unum Life Ins. Co., a federal district court in Utah (2017), held that speeding/reckless driving fit within the Plan’s crime exclusion. https://docs.justia.com/cases/federal/district-courts/utah/utdce/2:2016cv00940/102103/38 The evidence showed that the claimant was travelling “twice as fast” as the other vehicles around him. The court upheld the denial of the claim by Unum.
A federal district court in Michigan upheld the application of a crime exclusion in 2014 in Sosinski v. Unum Life Ins. Co.15 F.Supp. 3d 723 (2014) based on intoxication by alcohol. Like the Nationwide policy involved here, there was a choice of law provision in the policy pointing to the state of issue. The Chapter v. Monfort of Colo., Inc., 20 F.3d 286 (7th Cir. 1994) https://openjurist.org/20/f3d/286/chapter-v-monfort-of-colorado-incorporated the federal Court of Appeals held that a crime exclusion barred a health claim where there was evidence of intoxication. The court offered one gem I will remember: “Even literalists abandon literalism when necessary to avoid absurdity.” 20 F.3d at 288. The Court held that the additional language in the choice of law provision, “and to the extent applicable[,] by [ERISA],” re-enforced the principle that ERISA governed in any event. Further, the Court held that state statutes and caselaw have no relevance to ERISA claims. 15 F. Supp. 3d at 731.
And there is no judicial requirement of charge or conviction.
Similar results occur in the state cases that have considered the issue in the stop loss or other context. Thus, in a very recent case from the Fourth Circuit federal Court of Appeals, Love v. Chartis Prop.Cas. Co., (unpublished) (2018) https://law.justia.com/cases/federal/appellate-courts/ca4/17-1467/17-1467-2018-05-15.html) the court found that a crime exclusion in a homeowner’s policy was not ambiguous and applied it to bar plaintiff’s claim. The claimant was involved in a “volatile romantic relationship with another student at the University of Virginia,” ultimately murdering her. The policy provided no coverage via Exclusion 17, titled “Intentional Acts, [which] “described the exclusion as being for “[p]ersonal injury . . . resulting from any criminal, willful, intentional or malicious act or omission.” The Court rejected the Louisiana rule, instead applying the majority rule, and held that the exclusion was clear and unambiguous, barring plaintiff’s claims.
In Allstate Ins. Co. v. Peasley, 131 Wn.2d 420, 932 P.2d 1244 (Wash. 1997) (available only on pay services), the Supreme Court of Washington enforced a crime exclusion in an assault situation, finding no ambiguity in a homeowner’s policy. The court relied on several cases:
“[O]ur reading of the phrase “criminal acts” is supported by nearly every jurisdiction in our country which has examined that phrase. See, e.g., Allstate Ins. Co. v. Brown, 16 F.3d 222 (7th Cir.1994) (Allstate’s criminal acts exclusion clause encompasses criminal recklessness); Allstate Ins. Co. v. Burrough, 914 F.Supp. 308, 312 (W.D.Ark.1996) (the clause “includes all criminal acts, no matter what the mental state required for their commission”); Hooper v. Allstate Ins. Co., 571 So.2d 1001, 1003 (Ala.1990); Allstate Ins. Co. v. Schmitt, 238 N.J.Super. 619, 570 A.2d 488, 492 (“words ‘criminal act’ are not modified by any descriptive culpability requirement”), cert. denied, 122 N.J. 395, 585 A.2d 394 (1990); Steinke v. Allstate Ins. Co., 86 Ohio App.3d 798, 621 N.E.2d 1275, 1279 (disorderly conduct, a crime with recklessness as an element, triggered the exclusionary clause), review denied, 67 Ohio St.3d 1423, 616 N.E.2d 506 (1993); Allstate Ins. Co. v. Sowers, 97 Or.App. 658, 776 P.2d 1322, 1323 (1989) (insured’s resisting arrest fit the criminal acts exclusion despite insured’s lack of intent to injure the officer). Contra, Young v. Brown, 658 So.2d 750, 753 (La.Ct.App.) (refusing to apply Allstate’s criminal acts exclusion to a crime of negligent injuring because losses “resulting from negligent, non-intentional conduct are precisely the losses a liability policy buyer expects to insure against”), cert. denied, 662 So.2d 1 (1995).”
Likewise, the Supreme Court of Colorado found that a felony criminal acts exclusion in a car rental policy applied where the claimant was intoxicated and killed a passenger in another vehicle, Bailey v. Lincoln Gen. Ins. Co., 255 P.2d 1039 (Colo. 2011) https://law.justia.com/cases/colorado/supreme-court/2011/09sc527.html. The Court footnoted the following:
“Of course, many jurisdictions…hold that public policy is not violated where insurers include in liability or excess-insurance policies criminal-acts or other similar exclusions directed towards intentional conduct. See, e.g., Philadelphia Indem. Ins. Co. v. Carco Rentals, Inc., 923 F.Supp. 1143, 1151–53 (W.D.Ark.1996) (applying Arkansas law); Hertz Corp. v. Pap, 923 F.Supp. 914, 921–24 (N.D.Tex.1995) (applying Texas law); Alfa Specialty Ins. Co. v. Jennings, 906 So.2d 195, 198–202 (Ala.Civ.App.2005); Collins v. Randall, 836 So.2d 352, 357–58 (La.Ct.App.2002); Speros v. Fricke, 98 P.3d 28, 37 (Utah 2004) (intentional-acts exclusions are unenforceable “up to the minimum liability limits prescribed by … statute”).”
There are many stop loss contracts out there that contain language that is unhelpful. Sometimes, language is included that contradicts other provisions in the policy. This is due to their heritage.
Some policies were born out of casualty insurance or some other non-stop loss source, and most everyone “borrows” from competitors’ policy language (you know who you are). So, the unhelpful language replicates across the industry like a malign virus. Fly spec your policy. Ask yourself why each provision is there. Ask whether it serves some salutary purpose, or whether it is merely superfluous and unnecessary, or worse, whether it conflicts with some other provision in the contract. A few hours spent on doing so might save you hefty dollars down the road. Or better yet, ask me to do it 😊.
ON INCORPORATING THE PLAN DOCUMENT:
Some do, some don’t. In my opinion, it doesn’t matter much. The concern about incorporation by the “Entire Contract” clause is that somehow the discretion granted the Plan fiduciaries will creep into the stop loss contract. This is understandable, but because the Plan terms are not expressly incorporated into the stop loss policy doesn’t mean they aren’t pointed to as the governing mechanism for interpreting the provisions of the Plan. A distinction without much difference.
Clauses that expressly reserve to the carrier the right to interpret the Plan document are a very good idea. Look for one.