Washington state to bar insurer from writing new coverage

(Updated -- see note at bottom of this post.)

Washington State Insurance Commissioner Mike Kreidler has issued an order barring Ability Insurance Company, of Omaha, Neb., from writing new policies in Washington for the next six months.

The order, issued Wednesday, takes effect in 10 days.

The order stems from the company’s failure to honor long-term care coverage that lapsed after a senior citizen with dementia failed to make her payments. In such situations, state law allows a consumer to reinstate coverage within five months of the policy’s lapse.

“Situations like this are exactly why we have this law,” said Kreidler. “It protects people who, through no fault of their own, have lost the ability to keep up with their financial records.”

The suspension does not affect the company’s duties under current policies. The company can also continue to renew existing policies.

In this case, the company on March 20, 2009 sent the woman a notice of non-payment, warning that her policy would lapse unless paid within the next 35 days.

When her daughter called the company about a claim on Aug. 4, 2009 – well within the five-month period – the company failed to tell her that the policy had lapsed. The daughter didn’t learn of the lapsed policy until she checked her mother’s mail in September. This was still well within the five-month period.

Nonetheless, the company refused to reinstate the coverage. It contended that the five-month window started the day the premium was due, not at the end of the 35-day period mentioned in its March 20 letter.

Also Wednesday, Kreidler issued a cease-and-desist order telling the company to stop violating state law in such cases. He is also imposing a $10,000 fine on the company.

The company has the right to demand a hearing.

Update on May 4, 2011: Ability has requested a hearing, which automatically stays the suspension pending the outcome of the hearing.

Second update: On June 6, 2012, Kreidler's order was upheld, meaning that the company's authority to write new business was suspended for six months. The company was also fined $10,000.