Insurer Can’t Use Medical Review to Deny No Fault Benefits.

The Court of Appeals recently decided Houchens vs. GEICO, a case that questioned whether a reparations obligor in Kentucky is entitled to utilize “paper reviews,” which are not tendered to nor reviewed by a court, as the sole basis for terminating or denying an insured’s no-fault benefits (BRB’s).

Houchens contended that the only “medical review expressly sanctioned by Kentucky’s MVRA is contained in KRS 304.39-270 and requires court oversight.  GEICO, on the other hand, argues that the statutory language is purely permissive in nature, and that it has the discretion whether to utilize the statutory procedure or to seek its own paper review of an insured’s medical records.”

After discussing the policy behind the MVRA as it pertains to BRB’s, the Court cited the IME statute.  It noted; KRS 304.39-270(1), the statutory provision at issue herein, states as follows:

If the mental or physical condition is material to a claim for past or future basic added reparations benefits, the reparation obligor may petition the circuit court for an
order directing the person to submit to a mental or physical examination by a physician. Upon notice to the person to be examined and all persons having an interest, the court may make the order for good cause shown. The order shall specify the time place, manner, conditions, scope of the examinations, and the physician by whom it is to be made.

In discussing this part of the statute, the Court noted that, “The trial court below agreed with GEICO that the phrase “may petition the court” means that a reparations obligor may, but is not required, to seek a court order for an independent medical exam (“IME”) prior to terminating or denying benefits. We disagree and conclude that such interpretation violates both the intent and spirit of Kentucky’s MVRA.”

After discussing the lack of established case law in Kentucky on this particular issue, the Court looked at those cases where an IME was actually sought from the court and the courts were required to determine whether the good cause requirement was met.  In doing so, it specifically identified, White v. Allstate Ins. Co., a case relied upon by the trial court in reaching its determination.

The Court held;

We are of the opinion that the trial court misconstrued the White decision as
supporting GEICO’s position. We discern a distinct difference between the use of a medical records review by a reparations obligor for the purpose of establishing good cause for a court-ordered IME and the use of a medical records review by that obligor for the purpose of unilaterally denying or terminating an insured’s benefits. Clearly, as is evidenced by the case law discussed herein, our legislature enacted KRS 304.29-270(1) as a safeguard against the misuse of IME’s. Not only must the obligor demonstrate good cause for the IME, but the court is then required to set the time, place, manner, conditions, scope of the examination, and the physician by whom it is to be made. It is beyond reason that the legislature would require court oversight of an IME of an insured yet would condone that insured’s benefits being terminated or denied solely based upon a unilateral paper review of his or her medical records. We must agree with Appellants that the position asserted by GEICO would essentially make it the judge, jury and executioner. We are of the opinion that such violates the intent and purpose of Kentucky’s MVRA.

The Court concluded; “We are of the opinion that KRS 304.39-270(1) means exactly what it says – a reparations obligor who questions the veracity of an insured’s medical bills may
petition the court for an IME. The obligor also has the prior option of requesting that the insured voluntarily undergo an IME, which the insured may or may not agree to. However, if the obligor chooses to do neither, it must pay the claim, as medical bills are statutorily presumed to be reasonable and the burden is on the obligor to prove otherwise.”  The Court reversed and remanded the case back to the trial court.

It is highly doubtful that the legislature included such a comprehensive statute regarding the use of IME’s to determine the continued payment of BRB’s only to allow an insurer the unilateral ability to deny payments based on a paper medical records review.  The use of the word “may” doesn’t mean the insurer “may” use the IME statute if it wants but doesn’t have to in order to deny benefits.  It means that if the insurer wishes to challenge the insured’s medical payments as unrelated or unnecessary it “may” seek an IME from the Court to do so.  It doesn’t have to seek such an examination; however, if it doesn’t then it can’t deny the benefits as unrelated or unnecessary.

Most often the insurer will only seek to deny benefits after some time has passed and the insured has continued to incur medical expenses.  Often, by the time benefits are denied after a paper review, the insured is left with a substantial unpaid balance.  This allows the insurer to thwart the statutes purpose of prompt payment for claims made by the insured.  Furthermore, the real issue is not so much legitimate concerns regarding the type of injuries and treatment, but merely a concern over the cost of medical treatment to date.  Included in this evaluation is usually a determination whether the insurer will recover from the at fault party.  If it is unlikely to recover because it’s insured is at fault, the more often the insurer will use these reviews to deny payments.  At least that has been my experience.

Also, a concern noted by the court was the use of a third party medical company to conduct the reviews.  In this case, the court noted that of the 200 medical reviews by this company, 0 were found to require further treatment.  I recognize the company as being involved in at least three such cases I currently have with another insurer.  Word apparently spread to other insurers that if you want to deny benefits, this company is a good bet.

The fact remains that petitions for IME are expensive and time consuming and the ability to show good cause is a much higher burden than the mere suspicion needed to conduct a paper review.  Furthermore, the use of paper reviews allows an insurer to select the company of its choosing to perform the review and is more likely to use companies that issue favorable reports, as was seen here.

The insurer may seek an IME from the court with good cause shown.  However, it doesn’t have to seek any examination at all.  It can request its insured submit to an IME, but the insured does not have to comply.  If it does neither, it must continue to pay benefits because they are presumed reasonable.  That being said, nothing prohibits the insurer from seeking a paper review to establish the good cause requirement for an IME.

UPDATE:

The Kentucky Supreme Court has accepted discretionary review of this decision.  We will keep you updated on any opinion.  However, this typically means that the Court takes an issue with the conclusion reached by the Appellate Court in overturning the trial court.