In the aftermath of the United States Supreme Court holding in Metropolitan Life Ins. Co. v. Glenn, __ U.S. __, 128 S.Ct. 2343, 2348 (2008), the courts have struggled to apply this holding.  The Ninth Circuit did so in Montour v. Hartford Life & Accid. Ins. Co., 582 F.3d 933 (9th Cir. 2009).  In turn, the District Courts have applied Montour in several decisions.

One of the latest is the unpublished opinion in Sterio v. HM Life, 2010 U.S. App. LEXIS 4615 (E.D. Cal., Mar. 4, 2010) which represents the first case out of the Ninth Circuit Court of Appeals to substantively discuss the application of the conflict of interest analysis set forth in Montour.  This case provides valuable insight into how may courts will apply the factors set forth in Montour. 

In Sterio, the plaintiff Barabara Sterio, sought long term disability benefits under an ERISA benefits plan sponsored by her former employer, Diabetes Well.  Sterio suffered post-operative complications following total hip replacement surgery which she claims left her permanently disabled.  HD Life, the insurer and administrator of the ERISA plan , eventually concluded that the medical evidence did not support Sterio’s claim.  HD Life denied benefits and Sterio sued in federal court.  At issue on appeal was the proper standard of review and the weight to give the conflict of interest.

As with many insurance cases, the ultimate benefits decision was made by HD Life, who was also the insurer of the plan.  This situation creates a structural conflict of interest.  In Glenn, supra, the Court held that the presence of a conflict of interest does not change the standard of review, but instead becomes a factor in determining whether an administrator abused its discretion.  Here in Sterio, the court discussed five factors which it held, demonstrated that HD Life abused its discretion.  The first was HD Life’s failure to address what the court believed was reliable medical evidence.  This conflicted with HD Life’s claim that there was no objective medical evidence supporting her disability.  Second, HD Life failed to address or even acknowledge the Social Security Administration’s determination that Sterio was permanently disabled.  Although the SSA’s determination would not be binding on HD Life, their failure to even address the issue was suspect.  The third factor was the failure to conduct an in-person medical evaluation.  Independent medical exams are not required but in this case, HD Life engaged six different independent reviewing physicians, each of whom conducted only a paper review of the evidence.  The fourth factor addressed by the court is the failure of the administrator to communicate to the claimant the specific evidence necessary to establish the claim.  Here, HD Life discounted Sterio’s Functional Capacity Evaluation because there was no bone density study performed.  However, HD Life failed to communicate to Sterio that information which prevented her from taking steps to prove her claim by undergoing a bone density study.   The final factor discussed by the court was HD Life’s violation of ERISA procedures by “tacking on a new reason for denying benefits in its final decision, thereby precluding Sterio from responding to that rational for denial at the administrative level.”  (internal citations omitted).  This action, the court reasoned, was evidence of the conflict of interest and demonstrated that the decision may not have been entirely based on the medical evidence. 

Based on the abovementioned factors, the court held that HD Life abused its discretion when it denied Sterio’s LTD benefits.  For the purposes of future litigation, this case highlights the application of the conflict of interest analysis and is useful to both plaintiffs and defendants, by discussing in detail the Ninth Circuit’s desired application of Montour.

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com
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The United States Court of Appeals for the Ninth Circuit, in an unpublished decision, addressed the question of whether documents reviewed by an independent medical examiner, but not by the plan administrator, was sufficient to satisfy the Plan’s obligation to consider all relevant documents.  Sun Sun Lin v. Mellon Long Term Disability Plan, 2010 WL 1917305 (Decided May 13, 2010). 

In Sun Sun Lin, the Mellon Long Term Disability Plan was administered by a Corporate Benefits Committee (“CBC”).  The plaintiff, Sun Sun Lin (“Lin”), challenged the district court’s grant of summary judgment by arguing that CBC failed to give her a full and fair review of the denial of her claim for long term disability benefits.  In making this argument, she relied on a statement from the Plan’s attorney “that the CBC did not directly consider those documents in making its determination to deny [Lin's] claim,” but did “‘indirectly’ consider[ ] these documents to the extent they were reviewed and considered by” an independent medical examiner retained by the CBC in its review of Lin’s appeal.  The question before the court was whether the review by the independent examiner was sufficient.  Read the rest of this entry »

The debate over national health care reform has moved to the California Legislature, which will begin taking the initial steps to implement the complex series of health insurance overhauls prescribed by the federal government.

The Legislature seeks to enact reforms signed into law by President Obama this year. Among other things, certain Bills would prohibit health insurers from denying coverage because of preexisting conditions and create an exchange through which individuals could buy insurance.  In addition, they would require prior approval of health insurance rates and create a new independent review panel. Read the rest of this entry »

As predicted in my April blog post, the U.S. Supreme Court today handed ERISA plan participants a big victory when they decided the important ERISA disability case of Hardt v. Reliance Standard Life Insurance, __ U.S. __ (Decided May 24, 2010) holding that an ERISA plan participant may be able to collect attorneys’ fees from a plan or claim administrator without obtaining a judgment in the action. 

In that case, Bridget Hardt filed suit against the plan’s disability insurer, arguing that Reliance Standard Life Insurance Co. wrongly denied her claim for long-term disability benefits.  The district court found that Reliance’s original decision denying benefits disregarded pertinent medical evidence in violation of ERISA and found that the decision was otherwise unsupported by substantial evidence. Based on those findings, the district court remanded the matter to Reliance for reconsideration, ordering it to make a new benefits determination, after which it finally granted the benefits due. The district court then awarded Hardt $39,149 in attorney fees.

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The Tuesday May 4, 2010 edition of the Los Angeles Daily Journal featured my article, entitled “Deferential Standard of Review in ERISA case Clarified,” in the Perspective column. It explains the latest case from the United States Supreme Court, Conkright v. Frommert and discusses what it means and how it should be read in conjunction with other Supreme Court and Ninth Circuit cases.  The article is posted below with permission of Daily Journal Corp. (2010).

Insurance Commissioner Steve Poizner announced last week that his office will conduct an examination of Anthem Blue Cross’s claims-related data used by Anthem to justify its future rate filings. This comes after Anthem’s decision to withdraw its recent application to increase rates to thousands of insureds in California.  Here is the press release:

NEWS RELEASE

Insurance Commissioner Steve Poizner Announces Examination of Anthem’s Claims-Related Data

Full Independent Actuarial Review of Recently-Withdrawn Anthem Filing Also Released

Insurance Commissioner Steve Poizner announced that the California Department of Insurance (CDI) had begun an effort to assess the validity of the claims data used by Anthem Blue Cross to justify future rate filings.

“As Anthem readies its new rate filing, I have directed auditors at the Department of Insurance to determine whether the underlying information used by Anthem to prepare these documents is fair and accurate. This review will investigate whether there are problems with their claims payments systems and data controls,” said Commissioner Poizner. “I will not allow insurers to inflate their rates based on faulty systems or inaccurate data.”

The examination, started in early April, is scrutinizing Anthem’s accounting and claims systems in regards to the recording and documenting of premiums and claims data, and a review of the information systems and controls in place. The examination includes a review of the Company’s paid claims database, premium database and information systems processes and controls.

The data analyzed in the exam is ultimately the input that goes into the calculation of the company’s medical loss ratio.

Commissioner Poizner also released the full independent, outside actuarial analysis performed by Axene Health Partners, LLC. The 145 page report was conducted over a 10-week period and required 500 hours of work by four licensed actuaries. A summary of the review is below and the entire review is available at our Web site at http://www.insurance.ca.gov.

Based upon a thorough review of Anthem’s calculations, Axene found numerous errors in the methodology used by Anthem to project total lifetime loss ratios. Correcting these errors resulted in lower lifetime loss ratios than initially calculated by Anthem.

The errors identified included:

Error #1: Double counting of aging in the calculation of underlying medical trend for the projection of total lifetime loss ratio.

Error #2: Anthem overstated the initial medical trend used to project claims for September 2009 for known risk factors.

Both of these errors are errors of math and not differences in actuarial opinion.

For several years, health insurers have been strongly criticized for engaging in post claim underwriting and improper policy cancellations, known in the law as “rescissions.”  The Insurance Commissioner has even recently regulated the practice.

Now, after this significant criticism and facing tougher federal regulation, two of California’s largest health insurers say they will stop rescinding policies.  WellPoint Inc., the parent of Anthem Blue Cross of California, and Blue Shield of California, made the announcement yesterday.  WellPoint Chief Executive Angela Braly said in a statement that the company’s “goal is to make reform work for our members and for the country.”

Even before this announcement, several health insurers in California had stopped (or largely stopped) policy rescissions.  Under the new federal Healthcare Act, insurers will be limited in their ability to rescind health insurance policies.  In 2014, this legislation will require insurers to sell policies to consumers regardless of preexisting conditions.  This will effectively preclude the practice of rescissions.

The Los Angeles Times reports that last year, only four such cancellations were reported to the managed healthcare department, down from 1,552 in 2005.  Since 2004, at least 5,000 Californians had their insurance policies rescinded by the state’s five largest health insurers — Anthem Blue Cross, Blue Shield, Health Net, Kaiser and PacifiCare.  That includes about 3,500 policies regulated by the Department of Managed Health Care and another 1,600 policies regulated by the Department of Insurance.

This is a wise and very practical move by Wellpoint.  Let’s see if other insurers who have not stopped the practice follow suit.

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com
All rights reserved

The federal courts have for a long time struggled with how to apply the deferential standard of review to actions taken by ERISA plan administrators in light of the United States Supreme Court holding in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).  Firestone held that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion.  Courts have reached different results on an important issue: is a plan administrator that incorrectly interprets a plan document still entitled to an abuse of discretion standard of review when courts review the administrator’s actions?  The Supreme Court answered that question in the affirmative in Conkright v. Frommert, __ U.S. __ (April 21, 2010).  The Court telegraphed how it would rule when it framed the issue as: “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan.”

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The U.S. Supreme Court heard oral arguments yesterday in the important ERISA disability case of Hardt v. Reliance Standard Life Insurance (09-448).  In that case, Bridget Hardt filed suit, arguing that Reliance Standard Life Insurance Co. wrongly denied her claim for long-term disability benefits.  The district court found that Reliance’s original decision denying benefits disregarded pertinent medical evidence in violation of ERISA and found that the decision was otherwise unsupported by substantial evidence. Based on those findings, the district court remanded the matter to Reliance for reconsideration, ordering it to make a new benefits determination, after which it finally granted the benefits due. The district court then awarded Hardt $39,149 in attorney fees.

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What happens when an ERISA plan provides for a certain level of benefits and the required summary plan description (“SPD”) given to plan participants provides for greater benefits?  The District Court for the Central District of California answered that question recently with its holding in Skinner v. Northrop Grumman Retirement Plan B, 2010 U.S. Dist. LEXIS 6591 (C.D. Cal. Jan 26, 2010).  In that case, the court held that former employees who received an inaccurate SPD were not entitled to increased retirement benefits as a result of the error.  In so ruling, the court determined that plaintiffs failed to demonstrate “reasonable reliance” on the SPD, which plaintiffs contended did not provide them sufficient notice of the plan’s offset provision.  The district court applied the standard set by the Ninth Circuit in reversing a prior ruling granting a motion for summary judgment wherein the court, in an unpublished decision in Skinner v. Northrop Grumman Retirement Plan B, 334 Fed. Appx. 58, 2009 WL 1416725, *1 (9th Cir. May 21, 2009), concluded:

On remand, the district court should reconsider each of [Plaintiffs'] claims in light of our conclusion that (1) the 2003 SPD’s incorporation of the 1998 SPD by reference did not notify [Plaintiffs] that the annuity equivalent offset would apply to their transition benefits, and (2) in terms of [Plaintiffs']  expectations for Part B of the transition benefit, the 1998 SPD’s description of the offset’s limited applicability controls over the 2003 Restatement’s description of the offset as universally applicable. (emphasis original)

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