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An insurance policy is a contract between the insurance company and the insurance consumer. Personal Injury protection (PIP) insurance benefits are, by contract, payable to people who are injured in accidents involving cars. Insurance companies who fall short of their duties in PIP claims can be held accountable for the damage they cause. Thanks to the good work of Pendleton attorney Gene Hallman, the Oregon Court of Appeals made the point clear in Anderson v. Farmers Insurance Company of Oregon, 188 Or App 179, 71 P3d 144 (2003).

Frank Anderson had three automobile insurance policies with Farmers Insurance. The PIP portions of each policy provided for medical coverage of $25,000. A policy provision expressly prohibited stacking of PIP policies.

“If any applicable insurance other than this policy is issued to you or a family member by us or any other member company of the Farmers Insurance Group of Companies, the total amount payable among all such policies shall not exceed the limits provided by the single policy with the highest limits of liability.”

Farmers eventually acknowledged that it would be required to extend PIP benefits on each policy. The Court of Appeals explained that Oregon law requires all automobile insurance policies to extend PIP coverage. Hence, there is no room in the law for a policy to exclude PIP coverage. But Farmers asserted that only the first policy would have medical benefits of $25,000 and that the other two policies extended benefits of only the statutory minimum medical PIP benefits of $10,000. Here is the court’s recap of that issue:

“Because the policies are for equal amounts, the clause would have the effect of completely denying PIP coverage on the two excess policies, when Oregon law requires some coverage. ORS 742.520 and 742.524 require every auto insurance policy to provide $10,000 in PIP coverage for each insured for ‘all reasonable and necessary expenses of medical, hospital, dental, surgical, ambulance and prosthetic services incurred within one year after the date of the person’s injury.’ Thus, Farmers concedes that, despite the anti-stacking clause in its policies, it was required to provide the minimum statutory PIP coverage in each policy; it calculates the amount due plaintiff as $25,000 under the primary policy and $10,000 under each excess policy, for a total PIP benefit of $45,000.” 188 Or App at 181-182.

Farmers paid benefits for awhile, but then it was learned that Anderson required knee surgery. Anderson claimed the right to a total of $75,000 medical coverage under the three policies, and asked Farmers to preauthorize the surgery so that he would not be left with unpaid medical bills, but Farmers refused. Farmers had paid $32,000 up to that time and asserted that it was not accountable for more than $13,000 in additional medical expenses because of the purported $45,000 coverage limit. Because the surgery costs were over $33,000, and Anderson could not afford to pay the balance out of his own pocket, he could not afford to go through with the surgery. The one year period for PIP medical benefits lapsed, and Farmers argued that Anderson had no further rights under his three PIP policies.

Anderson filed suit against Farmers for economic and noneconomic damages. The trial court held that Farmers violated the PIP policy by repudiating Anderson’s right to recover medical benefits up to $75,000 ($25,000 per policy). The jury awarded Anderson $26,000 in economic and $200,000 in noneconomic damages.

The main focus of the opinion of the Court of Appeals was that PIP policies “stack.” Oregon law assesses priorities as to which policy pays first and which policies pay after the first policy is exhausted, but there is no provision in Oregon law for an insurance company to insulate itself from responsibility under a PIP policy. “No statute permits an insurer to limit its PIP liability to the upper limits on one policy.” 188 Or App at 185. The Court held that three $25,000 policies gave access to $75,000 in medical benefits.

The other important feature of Anderson is that insurance companies who violate their policies are liable for the damage caused by their denials. Prior to Anderson, insurance companies could intimidate PIP claimants into forgoing needed medical care until the coverage period expired, and then walk away from the claim with no accountability for the harm they cause. Now, however, insurers can be held accountable. It is purely a matter of breaching a contract. There is no need to show “bad faith” on the part of the insurance company. Farmers ended up having to pay Anderson $226,000 in damages as a result of Farmers’ attempt to reduce Anderson’s PIP coverage.

Insurance companies certainly may deny claims they doubt, but they do so at their peril.