In PIP claims, insurance companies often attempt to compel the insured person to attend an “insurance medical examination” (IME). All too often we see PIP insurers set up an examination with a doctor who is predisposed to come to the aid of the company by concluding that the insured person does not need any more medical care. This has often been a catch-22. If the insured person attends the examination, the company’s selected doctor will conclude that no further benefits are necessary, and the PIP claim will be cut off. If the insured person does not attend the examination, the company will declare a forfeiture, and the PIP benefits will be cut off. It has become commonplace for insurance companies to use this “heads I win tails you lose” technique. But Oregon law affords the insured person a clear way out of this trap.
There is a clear distinction between exclusion of insurance coverage and forfeiture of insurance coverage. “Exclusion” relates to the scope of coverage, that is, what is not covered under the policy. “Forfeiture” is entirely different. Forfeiture is when coverage which is in the policy in the first place is later nullified by an act of the insured. Vision v. Fireman’s Fund Ins. Companies, 304 Or. 301, 307, 744 P.2d 998 (1987); Federated Services Insurance Company v. Granados, 133 Or App 5, 8, 889 P.2d 1312 (1995).
The insurance company has the burden of proof – a very high burden – in order to prevail on a defense of forfeiture. It must prove two vital facts: (1) that it was prejudiced by the insured’s non-compliance with terms of the policy; and (2) that it was unreasonable for the insured to not comply with the terms. Federated Services Insurance Company v. Granados, supra; Vision v. Fireman’s Fund Ins. Companies, supra; Lusch v. Aetna Cas. & Surety Co., 272 Or 593, 538 P2d 902 (1975).
In Federated Services v. Granados, Evadio Granados and his wife were injured in a auto collision. Mr. Granados settled his claim against the negligent driver and then made a claim against his insurance company, Federated, for underinsured motorist (UIM) benefits. Federated argued that Granados forfeited his UIM coverage because he did not get Federated’s consent before settling the liability claim. The Court of Appeals ruled in favor of Granados and held that he could pursue his UIM claim even though he had not complied with the policy requirement that he get Federated’s consent before settling his liability claim.
Federated Service v. Granados was premised on the Oregon Supreme Court decision in Lusch v. Aetna, supra, in which the plaintiff had an accident while driving a friend’s car. Although the insurance contract required the plaintiff to notify the insurer about the accident “as soon as practicable,” he waited about one month before giving that notice. Aetna denied coverage, and the plaintiff brought a declaratory action to enforce coverage. The Supreme Court said:
“[T]he first inquiry should be whether the notice of accident was received in time for the insurer to make a reasonable investigation and adequately protect its interest and that of the insured. Stated conversely, the first inquiry should be whether the insurer was prejudiced by the insured’s failure to give earlier notice of the accident.
“If notice from any source was sufficiently timely so that the insurer could adequately investigate and protect itself, thereby suffering no prejudice, the insurer is bound to fulfill its policy obligations. Whether the insured acted reasonably is immaterial.
“However, if the insurer could not adequately investigate or otherwise protect itself, thereby suffering prejudice, then the relevant inquiry is whether the insured acted reasonably in failing to give notice at an earlier time. If the insured did act reasonably, the insurer is obligated to perform.” 272 Or. at 599, 538 P.2d 902.
There are some well-qualified personal injury attorneys who advise their clients in all cases never to attend a PIP IME because it will clutter the record with a disingenuous medical report disputing the client’s claim. One thing is certain: a courtroom could be flooded with lawyers and past claimants who could testify to the lack of objectivity, even entering into the realm of dishonesty, in most IMEs.
So, the PIP insurer must prove that (1) it was prejudiced by not being able to rely on a medical provider whose sole purpose is to help the insurer deny the claim and (2) it was unreasonable for the insured to follow an attorney’s advice not to take that risk. This is a very tough challenge for the PIP insurer.