Murky contract language at the heart of auto insurance case

The Florida Supreme Court is diving deep into the fine print of auto insurance policies, trying to decide if a motorist who refuses to follow the insurer’s demands forfeits coverage. The case could clarify some important differences between Florida’s uninsured motorist statute and the rules for Personal Injury Protection (PIP) coverage. At issue is a 2006 automobile accident involving a State Farm policyholder and an under-insured motorist. A year after the accident, the policyholder contacted State Farm and claimed she developed a severe medical condition as a result of the crash. She demanded $3.5 million in damages, and $100,000 – the limit of her uninsured motorist coverage – to be paid in 30 days.

State Farm called her in for a medical examination, citing language in her policy. The woman failed to show up and submitted a list of demands, including a demand that she not have to undergo a medical exam. No way, said State Farm, and the woman sued. A trial court ruled in her favor and ordered the $100,000 policy limit payment be made. State Farm appealed.

Up the legal ladder we go to the appeals court, where the judges decided that the woman did breach the terms of her policy, even though she later agreed to a medical checkup, but since State Farm didn’t specify any penalties for not following their rules, the company could not void the policy. Furthermore, the court said, State Farm didn’t show any reason why refusing a medical exam would hamper the processing of her claim and lawsuit. Once again, State Farm appealed.

Florida law says auto insurance companies cannot impose conditions and restrictions that are not specifically permitted by state law. So one of the first questions from the Florida Supreme Court justices was, how can State Farm mandate a medical exam as part of uninsured motorist coverage if the law makes no mention of it? The insurance company’s lawyers say the exam request is within the “spirit” of the law and is necessary to properly evaluate the claim. The woman’s attorney acknowledges the need for the examination, but argued the policyholder should be able to negotiate the terms and conditions. When they announce their decision, whichever way the case goes, perhaps the court can order insurance companies to make that fine print font size just a little bit bigger, as a favor to everyone.

Source: Insurance Journal, “Florida court weighs when not meeting policy terms means coverage forfeiture,” Michael Adams, Nov. 1, 2012

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