Montana has imposed an onerous duty on insurers to advance pay certain expenses when liability is “reasonably clear.” These advance payments, known as Ridley payments, add a layer of difficulty to claim handling by forcing claims professionals to undertake a quick determination of liability and causation. If liability and causation are “reasonably clear,” the insurer must advance payments for reasonably certain sums, such as medical expenses and lost wages. The insurer must forward these expenses up to policy limits and without the benefit of a release for the insured.
Failure to forward these amounts can subject the insurer to punitive damages, attorney’s fees and costs, and excess judgments. Twenty-six states have adopted substantially similar Unfair Claims Settlement Practices Acts; however, no other state has interpreted the statutory language to require such advance payments. With increasing region-based claims handling, claims professionals should be familiar with Montana’s anomalous interpretation of the Model Unfair Claims Settlement Practices Act.
Ridley and the UTPA
In Ridley v. Guaranty National Company, the Montana Supreme Court interpreted provisions of the Unfair Trade Practices Act (UTPA) as obligating insurers to forward medical expenses incurred by a third-party claimant when liability for the damages is reasonably clear. In Ridley, the plaintiff brought a declaratory judgment against the insurer, arguing the insurer was obligated to forward medical expenses before the stabilization of the plaintiff’s automobile accident-related injuries. The trial court agreed with the insurer, concluding that the UTPA did not require the insurer to advance medical expenses prior to a final settlement.
On appeal, the Montana Supreme Court disagreed with the trial court, citing the plural “settlements” in the UTPA language as well as the UTPA’s legislative history and general public policy. Two of the UTPA-prohibited insurer practices are:
(6) neglect to attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
(13) failure to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage
The Montana Supreme Court read this language to require an insurer to advance sums prior to a final settlement where “liability is reasonably clear.” This has required paying sums up to the policy limit without obtaining a release for the insured even if the insured’s assets are potentially exposed. However, if liability for the accident is clear, “an insurer may still dispute a medical expense if it is not reasonably clear that the expense is causally related to the accident in question.” The Court justified its conclusion in part based upon public policy, citing “medical expenses from even minor injuries can be devastating to a family of average income.” As with the rest of UTPA claims, a failure to promptly advance payments can lead to punitive damages levied against the insurer.
While many states have adopted versions of the National Association of Insurance Commissioners Model Unfair Claim Practices Act, only the Montana Supreme Court has endeavored to use the UPTA as a basis to create this unique duty to advance pay, overriding the insurer’s contractual duties to protect the insured’s interests by only paying under the liability coverage when a release can be obtained. Most states have required an insurer to place its insured’s interests equal to or above its own and to secure a release in favor of the insured in settling claims. Montana has taken an opposite position to this public policy with its bizarre and contrived application of Sections 6 and 13, reducing a benefit of the insurance policy protection to insureds.
Liability
Montana is a comparative negligence state, therefore, if a plaintiff is 51 percent negligent, they are barred from recovering damages. However, if it is “reasonably clear” the insured defendant is more negligent than the plaintiff, the duty to advance payments is triggered. In Peterson v. St. Paul Fire and Marine Ins. Co., the Montana Supreme Court formulated an objective test for determining whether liability was reasonably clear. Drawing from decisions in Massachusetts and West Virginia, the Court held “that liability is ‘reasonably clear’ when a reasonable person, with knowledge of the relevant facts and law, would conclude, for good reason, that the defendant is liable to the plaintiff.” If there is no room for reasonable debate regarding liability in the claims process, liability is “reasonably clear” and payments must be advanced, even if a jury may ultimately disagree on liability.
Causation
If an insurer can contest the causal connection between the claim and the medical expenses incurred, it may be relieved of its duty to advance expenses. The insurer must be prepared to submit an affidavit challenging either causation or the calculation of expenses if it chooses to challenge the causal relationship. When contesting a medical claim’s causal connection, it is paramount that a doctor testify to a conflicting causal relationship rather than an indeterminate one.
Scope of Advance Pay
Subsequent to Ridley, the Montana Supreme Court has repeatedly expanded the scope of advance payments. First, the Court expanded the amount an insurer must forward to a claimant without being able to demand a release. Second, the Court expanded the type of payments that must be forwarded to a claimant, extending past medical expenses. The Court has left the scope somewhat open and has shown a willingness to expand the types of damages that are subject to advanced pay.
Originally, the Court in Ridley limited the damages subject to advance payment to medical expenses. The Court expanded the scope of advance payments to include lost wages in DuBray v. Farmers Ins. Exch. The plaintiff in DuBray also sought advance payment for lost wages, pain and discomfort, mental distress, inconvenience and punitive damages. The Court agreed with the Plaintiff and explicitly included lost wages in the insurers advance payment duty; however, the Court refused to expand advance pay to general or punitive damages.
While medical expenses and “reasonably certain” lost wages are now expressly subject to advance pay, the Court has not resolved the outer limits on advance pay. In Hop v. Safeco Ins. Co. of Illinois, the Court cited the policy rational underlying Ridley in denying the advance pay — “[Residual Diminished Value] . . . is not an indisputable out-of-pocket item of damages; the failure to pay it promptly will neither destroy a person’s credit nor impose financial stress.” The Court also noted “such claims are wholly subjective in nature and not plainly ascertainable in amount.” Therefore, the Court has limited claims to objective and certain expenses that would normally subject a family to financial stress such as medical expenses and lost wages.
The amount subject to advance pay without a release has shifted and expanded through a series of cases. In Watters v. Guaranty National Ins. Co. the Montana Supreme Court construed advanced pay in terms of the Montana Motor Vehicle Safety-Responsibility Act, ascribing mandatory minimum auto liability coverage. The Court noted the difficult position it would be putting insurers in by settling for the mandatory minimum coverage without obtaining a release from the claimant for the insured. Nonetheless, the Court held that it is an unfair trade practice “for an insurer to condition the payment of the owed mandatory minimum policy limits on the third party’s agreement to provide a full and final release of all liability in favor of an insured.” Three years later, the Montana Supreme Court again expanded the limits of what amount must be advanced without a release, concluding that the entire policy limit is subject to advance payments in Shilhanek v. D-2 Trucking.
The Court’s rulings in Watters and Shilhanek have obfuscated the insurer’s contractual duty to its insured. The decisions subverted the insurer’s duty to secure a release on behalf of the insured to the duty of the insurer to advance pay when liability is reasonably clear. This causes the insurer’s duty to defend to extend beyond the obligations articulated in the policy. Where the policy limits have been exhausted on special medical damages but the case against the insured remains viable, the insurer’s duty to defend the insured also remains, contrary to the specific terms of the policy. The realignment and inversion of these duties causes the policies terms to be unilaterally and unpredictably altered, conflicting with the laws of most states.
The durability of the duty to defend is an unaddressed, open question under current case law in Montana. Advance pay of policy limits is not the terminus of the claims process since the insurer cannot demand a release for the insured; thus the insurer is left in the precarious position of paying out its policy limits and continuing to defend the insured and the insured’s personal assets.
Placing potential limits on advance pay, Montana district courts have held that an insurer can consider other sources of medical payments and lost wages, offsetting advance payments. The courts determined this situation was different from that contemplated by Ridley, where a family succumbs to financial stress due to medical expenses. While the Montana Supreme Court has not weighed in on the issue, district courts have consistently allowed offsets for advance pay, eliminating the risk of duplicate advance payments to claimants.
Dangers and Pitfalls
As the majority of jurisdictions in the country share the same statutory language of the Montana UTPA interpreted in Ridley, it creates the possibility that other states could adopt the Ridley Advance pay rule. The prospect of the expansion of the advance pay rule in and of itself in Montana, and the risk the rule could be adopted elsewhere, should alert managers and their retained counsel to the dangers of citing Montana case law.
Aside from the risk of the spread of the Montana Supreme Court’s expanding scope of advance payments, there are dangers with claims management regarding Ridley and its progeny. If a third-party claimant succeeds in a declaratory judgment action seeking advance pay, the insurer may be liable for the claimant’s attorney’s fees incurred in bringing the action. Further, under the UTPA, a failure to advance pay may lead to the recovery of punitive damages. Finally, an insurer’s failure to settle within policy limits can open the insurer up to liability for judgments in excess of policy limits.
When claims managers are undertaking an advance pay analysis, it is essential that they utilize their standard tools in determining liability; however, the contesting of causation of physical injuries may require expert medical opinions in addition to routine investigatory practices. It is essential that analysis and decisions are documented contemporaneously, demonstrating the reasonable clarity, or lack thereof, of the damages or liability at the time of the advance pay decision.
When attempting to challenge medical causation, further precautions must be taken including the retrieval of complete medical records. Medical records predating the accident are essential if the injury is possibly pre-existing. However, a claims agent’s review of the medical record is insufficient as plaintiffs’ attorneys may file a declaratory judgment action accompanied by a doctor’s affidavit attesting to the injury’s causal-connection. Therefore, while IMEs and records reviews may be helpful in effectively challenging causation, in order for the challenge to be upheld, a qualified doctor must be prepared to offer an admissible, conflicting affidavit rebutting causation if called upon. If the case value exceeds the advance pay request, there is great risk of excess exposure in challenging medical causation.
Ridley has cast Montana outside the mainstream in demanding advanced pay when liability is reasonably clear, and the growing regionalized nature of claims handling has put insurers at risk of walking into potential minefields. Ridley puts the onus on claims professionals to conduct prompt, objective, and verifiable liability and damages analysis or face stiff consequences. Insurers must know what they are able to determine in house, what requires expert medical advice, what requires the advice of outside counsel and what obligations persist beyond the advanced payment of policy limits.
An insurer’s best practices should include real-time documentation of the investigation and facts supporting their advance pay analysis and decision making, as it relates to the requirements of reasonably clear liability and causation. Claims handlers managing claims in the western United States must be on mindful of Montana’s unique, rules relating to the insurer’s duties regarding claims settlement.