Steve Armstrong Troy PeakeArmstrong & Peake, PLLC Armstrong & Peake, PLLC138 South 3rd Street 138 South 3rd StreetLouisville, KY 40202 Louisville, KY 40202ph. (502)-562-1978 ph. (502)-562-1978fax (502)-589-2825 fax (502)-589-2825sarmstrong@armstrongpeake.com tpeake@armstrongpeake.com  

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• Begins with KRS 304.12-230 effective 1984, revised 1994.• 15 practices that may amount to an unfair claims

settlement practice.• This is from the general insurance statute.• Penalties may include suspension or revocation

certificate of authority of licenses and/or fines up to $10,000.00 per violation of an insurer, or $1,000.00 per violation of an agent, $2,000.00 per violation of an adjuster.• Possible multiple violations.

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• KRS 342.267 incorporates by reference the above 15 potential violations in KRS 304.12-230.• Executive Director of the Office of Workers’ Claims

shall fine insurance company, self-insured group, or self-insured employer the sum of $1,000.00 to $5,000.00 for each violation.• If pattern of violations, Executive Director may

revoke the certificate of self-insurance or request the Executive Director of Insurance to revoke the certificate of authority of the insurance carrier or the self-insured group.

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• 1999 regulation• Says carrier's claims files can be examined by Executive Director or

Commissioner• Documentation requirements:

1. Detailed activities of each carrier and agent of the carrier2. Documentation detailing foundations for the decision of carrier

upon material matters of claim• Each document within a claim file must be noted as the date received,

date processed, or date mailed.• If carrier does maintain hard copy files, claims files shall be capable of

duplication to hard copy form.

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• Claim file must be maintained at least five years following the creation of the claim or the completion of the purpose for which it was created, whichever shall occur last.

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• Duty to investigate• “Upon notice of a work-related injury, a carrier shall

diligently investigate a claim for facts warranting the extension or denial of benefits.”• Notice statute – employer must give notice to you.• Insurers’ reporting requirement statute - KRS

342.038 (1) - insurer must report lost time claim (more than 1 day) “as soon as practicable”, but no more that 7 days to report to state through EDI.• 803 KAR 25:170 mandates EDI• Beware EDI issues to be sure you have proper code.

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1. After receipt of notice of work injury with lost time or medical treatment required, a carrier shall “as soon as practicable advise an injured employee of acceptance or denial of claim.”

2. Carrier shall provide the employee in writing the specific reasons for denial of the claim – writing requirement.

3. The carrier shall inform an employee of additional information needed for the claim to be accepted – Writing required or not? (yes)Telephone calls? E-mails?

4. The carrier shall inform employee of additional information needed for the claim to be accepted. Again, in writing? (yes) By phone? How do you best communicate with the employee? Can you show evidence of your communication? (By writing)

5. A carrier shall meet the time constraints for accepting and paying workers’ compensation claims established in KRS Chapter 342 and applicable administrative regulations. Time limits? (15 days to accept or deny)

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Section 7 of 803 KAR 25:096Section 7 of 803 KAR 25:096• Written denial for services prior to resolution of claim.• “Medical payment obligor shall notify the medical provider and

employee of its denial of a specific statement for services, or payment for future services from the same provider, in writing within thirty (30) days following receipt of a completed statement for services.”

• Copy of denial shall be mailed to employee, employer and medical service provider.

• Denial shall include statement of reasons for denial and brief synopsis of available utilization review or medical bill audit procedures with relevant telephone contact numbers.

• Denial shall be made for good faith or reason.

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• 90% of his investigations stem from lack of communication, or complaints that the adjuster is not communicating with the claimant’s attorney, the claimant, etc.

• It does not help when the adjuster ignores the inquiry from the Office of Workers’ Claims.

• Often, claimant’s attorney or claimant will write a letter, and then the adjuster will respond with a phone call. This does not “cover the tracks”.

• Suggested that ideally, there would be a written response from the adjuster. Document trail.

• Complaints about not receiving faxes from the Plaintiff’s attorney when the adjuster “gave the fax number five minutes earlier.” Describes these as a constant source of complaints.

• Cautions about volume of cases and volume of calls to return. Get help if you need it.

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• Office of Workers’ Claims has taken position based on Garrett Mining #2 v. Rondall Miller – medical fee disputes• Post award claim – 30 day rule to reopen claim and

file medical fee dispute in issue of reasonableness and necessity.

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Show Cause Order andShow Cause Order andShow Cause HearingShow Cause Hearing

• If you cannot resolve it, you may have to attend in person.

• Possible phone conference or in-person conference before hearing.

• Your chance to explain.• During investigation by ombudsman or investigating

attorney and before hearing order, you may get the opportunity to file a written response to allegations.

• Obtain counsel.

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• Majority of show cause hearings and fines are post-settlement.• Often over medical bills and payment.• Often don’t know the requirement to either pay the

bill or move to reopen to dispute within 30 days.• Often the claimant or the claimant’s attorney is

being ignored, or the doctor is being ignored.

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• Advises not to ignore requests for medical payment or preauthorization.

• Advises not to ignore the Office of Workers’ Claims investigators if they call.

• Advises not to ignore a show cause order from the Office of Workers’ Claims.

• Executive Director assessed one $25,000.00 fine for five violations. $5,000.00 per violation. The insurance carrier no showed the show cause hearing, did not answer the allegations. Sad case with a serious injury and no response to requests for medical payments.

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• She advises that more than half of the complaints are dismissed after a brief investigation.

• Insurer must provide information upon request.• They know that some complaints are frivolous, but by law

they must investigate.• Says they are like the prosecutor’s office in that they must

do their own independent investigation. Cannot rely upon the Plaintiff’s attorney.

• They will not allow an investigation to be used as leverage. There is no deal that if the insurer does x, y and z that the Plaintiff’s attorney will withdraw the claim.

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• She says that she sees months go by with no responsive communication from the claims adjuster to the claimant or the claimant's attorney in some cases.• During vacation, have someone cover your files, or

have a supervisor cover them.• You or someone else in company must be accessible.

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1. A carrier shall attempt in good faith to promptly pay a claim in which liability is clear;

2. A carrier shall not misrepresent pertinent facts or law with regard to a claim;

3. A carrier shall not compel an employee to institute formal proceedings to the Office of Workers’ Claims to recover benefits where liability is clear.

4. A carrier shall not offer a settlement which is substantially less than the reasonable value of a claim.

– High AMA rating? Pre-existing active condition?5. A carrier shall not threaten to file or invoke a policy of filing appeals for

the purpose of compelling a settlement for less than a workers’ compensation award or benefit review determination; and

6. A carrier shall not require an employee to obtain information which is accessible to the carrier.

– Medical records? Form 106. Co-worker statements.

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• Notice of policy provisions and information – posters.• A carrier shall provide adequate notice with

regard to policy provisions and information with regard to coverage and benefits.• Failure of a carrier to provide the notice required

by KRS 342.610(6) in the form prescribed by 803 KAR 25:200 shall constitute an unfair claims settlement practice.

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• Acknowledgment of communications

1.Upon receipt of inquiry from the Office of Workers’ Claims, each carrier shall furnish the Office of Workers’ Claims a full response within 15 days. Can you obtain an extension? (I have before)

2.Upon receipt of a communication from an injured employee which reasonably suggests a response is expected, a carrier shall make a prompt and appropriate reply to the employee – what is prompt?

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Case LawCase Law• Garrett Mining #2 v. Rondall Miller, Workers’ Compensation Board,

Claim No. 97-78726.• John Mann of OWC says that they take the position that Garrett Mining

#2 is authoritative.• The ALJ found AIG, employer’s insurer, failed to comply with post-

award obligation to challenge medical expenses by reopening. Misperception on part of AIG as to obligation post-award.

• Employer has burden of proof on reopening post-award/settlement.• 30 day rule – file motion to reopen or pay.• Here no bills actually received. Does not matter – 30 day rule still

applies from date of request for pre-certification.• ALJ assessed sanctions of attorney fees per KRS 342.310.

Unreasonable defense.

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• Craig v. Hitachi Automotive Products USA, Inc., unreported, 2000-CA-000139-WC, Kentucky Court of Appeals.

• Timeline:◦ Claimant injured back April 2003. Back surgery September 2003. Received TTD

from then through January 2004, at which TTD suspended.◦ After TTD suspended, employee discussed PPD with Liberty adjuster. Had 13%

rating. Liberty adjuster contacted employee and interviewed him. He said he had two prior back injuries, and in one, he actually had prior surgery in October 2002.

◦ Liberty adjuster said that she believed some of the disability should be pre-existing, active because of prior injuries and surgery.

◦ Conversation ended. Court of Appeals said that the adjuster violated Unfair Claims Settlement Practices by not informing Craig that she needed additional information, nor did she provide him with written notice for reasons denying claim.

◦ Additional information needed – claimant needed to be informed.◦ Written denial – not present.

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• Liberty adjuster wrote to employee’s surgeon in May 2005 requesting opinion on pre-existing, active impairment. Surgeon did not respond.

• Nothing then happened until February 2006. Employee called Liberty adjuster who advised him that the statute of limitations had expired.

• This is a fairly normal course of events.• The ALJ actually dismissed this claim based on the statute

of limitations defense – affirmative defense. • The Board upheld the dismissal.• Court of Appeals reversed and remanded. Why?

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• Court of Appeals said that adjuster violated regulatory duties:1. To inform employee that additional information was needed to

process his claim;2. To affirm or deny his claim as soon as reasonably practicable; and3. To provide written reasons for denial.

• Arguably, also failed to investigate claim diligently when failed to follow-up on unanswered May 2005 letter to surgeon.

• Result – Liberty was estopped from invoking the statute of limitations.

• Claim allowed to proceed despite two year statute of limitations expiration.

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• Court of Appeals - insurer intentionally left negotiations unresolved for 8 months without informing employee that his claim would not be processed or accepted until information received from surgeon.

• And without informing employee that claim had been denied and giving reasons for denial.

• No fines issued here, and this was not an investigation by the Executive Director and general counsel’s office.

• Equitable remedy for the employee to go around statute of limitations.

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Case Law• Thrasher v. Pepsi Cola, 2006-CA-001846-WC, unreported, Kentucky Court of

Appeals• Pepsi and claimant settled this claim in October 2002. • In 2004, claimant had prescriptions that were sent to utilization review, but before

final UR decision was issued, carrier sent a letter to treating physician saying that they would no longer allow claimant unlimited medical visits and that they would only pay 2 visits a year.

• Pepsi waited until 5 months later to move to reopen.• ALJ found that Pepsi waited too long, but that there were no past unpaid medical

expenses based on the evidence.• Claimant appealed, and the Workers’ Compensation Board sua sponte referred the

case to the Executive Director for unfair claims practices investigation.• Pepsi argued the Workers’ Compensation Board did not have the power to make

the referral, but the Court of Appeals disagreed.• Even if ALJ does not make the referral for unfair claims settlement practices, the

Board can make the referral under this decision.

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Other Remedies KRS 342.040 – 18% interest rate for income

benefits if delayed, denial or termination of income benefits was “without reasonable foundation.”

KRS 342.310(1) permits costs and attorney fees to be brought against a party who has “brought, prosecuted, or defended a claim without reasonable ground.”

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1. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.

2. Failing to acknowledge an act reasonably and promptly upon communications.

3. Failing to adopt and implement reasonable standards for prompt investigation.

4. Refusing to pay claims without conducting a reasonable investigation based upon all available information.

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5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed.

6. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.

7. Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds.

8. Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.

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9. Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge of consent of the insured.

10. Making claims payments to insureds or beneficiaries not accompanied by statements setting forth the coverage under which the payments are being made.

11. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.

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12. Delaying the investigation or payment of claims by requiring insured, claimant or physician to submit a preliminary claim report and then requiring subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.

13. Failing to promptly settle claims where liability has become reasonably clear under one portion of the insurance policy in order to influence settlements under other portions of the insurance policy coverage.

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14. Failing to promptly provide reasonable explanation of the basis in the insurance policy or in relation to the facts or applicable law for denial of the claim or for the offer of a compromised settlement.

15. Failing to comply with decision of an independent review entity to provide coverage for a covered person as a result of an external review in accordance with KRS 304.17a-621, 304.17a-623 and 304.17a-625.

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