Learned Hand, the renowned American jurist and judicial philosopher, once said: “Words are chameleons, which reflect the color of their environment.” Nowhere is this truth more apparent than when an insurance plan or policy contains a “discretionary language provision” which gives the insurer nearly absolute power to, among other things, interpret the terms of its own policies or determine an insured’s eligibility for benefits. The presence of these types of provisions in insurance plans/policies not only benefit insurance companies when determining whether to approve or deny benefits as part of its own internal claims process, but also in the event an insured challenges a denial of benefits in court.

There are two judicial standards of review which can be applied to ERISA cases: “de novo” review and “abuse of discretion” review. When a court reviews an ERISA claim “de novo” (from Latin, meaning “from the new”), it is not required to accord any weight to the insurer’s decision or rationale for the denial in the first instance; the court is free to review the administrative record and determine if the claim should have been approved or denied. However, in instances where the plan or policy at issue contains discretionary language provisions, the “abuse of discretion” standard applies. This standard requires the court to accord deference to the insurer’s determination, and the court will only overturn a denial where the insurer “render[s a] decision[ ] without any explanation,[ ] construe[s] provisions of the plan in a way that conflicts with the plain language of the plan, or rel[ies] on clearly erroneous findings of fact.” Day v. AT&T Disability Income Plan, 698 F.3d 1091, 1096 (9th Cir. 2012).

However, recognizing the inherent conflicts of interest that inevitably arise from discretionary language provisions, courts have tempered the deference accorded to insurers under the “abuse of discretion” standard by applying a “level of skepticism” analysis to the insurer’s decision. For example, if the court’s review of the administrative record makes it clear that the insured’s denial was based upon a complete and thorough review of the insured’s medical records, and interprets and applies the provisions of the plan/policy in a reasonable manner, then significant deference is afforded to the insurer’s decision. If, on the other hand, the court finds that the denial resulted from an inconsistent interpretation or application of plan/policy provisions, or from an incomplete or inadequate investigation and review of the claim, then the level of deference will be low.

The United States District Court in Hawaii recently addressed a clear example of the latter situation in a decision from Masuda-Cleveland v. Life Insurance Company of North America, 2020 WL 7048257 (D. Hi. Nov. 30, 2020). In Masuda, Plaintiff’s husband was a participant in his employer’s Group Accident Plan (“the Plan”) who passed away following a single car collision. An autopsy was performed in which it was concluded that the cause of death was “blunt force trauma to the face and neck” and that the manner of death was accidental. The autopsy report also speculated that it was possible that an acute medical event, such as a heart attack or seizure, caused the Plaintiff’s husband to lose consciousness and crash.

According to the terms of the Plan policy:

We agree to pay benefits for loss from bodily injuries:

1. a) caused by an accident which happens while an insured is covered by this policy; and
2. b) which, directly and from no other causes, result in a covered loss.

We will not pay benefits if the loss was caused by:

1. a) sickness, disease, or bodily infirmity; or
2. b) any of the Exclusions listed in the policy.

Defendant denied Plaintiff’s claim for benefits, taking the position that the “[husband’s] death was not caused by an accident as mandated by the policy, but rather, a medical event which caused a motor vehicle crash.” Plaintiff then appealed the denial, but the denial was upheld on the basis “that there is no coverage for [husband’s] death because an illness, disease or bodily infirmity directly caused the fatal accidental injury.” In other words, although the husband’s cause of death was “blunt force trauma” from the accident, the accident itself was caused by his medical condition (a heart attack or seizure), thereby eliminating coverage.

Plaintiff administratively appealed the denial once more. The denial was upheld yet again, but this time, the rationale was that Plaintiff’s husband “suffered a heart attack which caused both the crash and Masuda’s death, and that the cause of death was not … blunt force trauma to the face and neck.” In other words, this time the basis for the denial was that Plaintiff’s husband had died from a heart attack and thus not from an accident at all, once again eliminating coverage.

After the second denial, Plaintiff filed a complaint under ERISA. The insurer subsequently filed a Motion for Summary Judgment, which was granted by the trial court under the “abuse of discretion” standard. Plaintiff appealed the ruling to the Ninth Circuit Court of Appeals, which reversed, finding that the trial court should have applied a higher level of skepticism (i.e., given less deference) to the insurer’s determination. The case was then remanded back to the trial court to determine, essentially, whether the insurer’s decision could survive the heightened scrutiny. It could not.

Applying a higher level of skepticism, the trial court found that the insurer: 1) failed to construe the provisions of the plan in accordance with their plain language; and 2) relied on clearly erroneous findings of fact.

Specifically, the trial court found that “Defendant’s changing explanation for denial created a moving target for Plaintiff during the appeals process ….” The court went on to note:

Viewed with the appropriately elevated level of skepticism, Defendant’s inconsistent use of “accident,” in the first instance to attribute Masuda’s death to fatal injuries received in an accident, and in the second instance, to deny the existence of an accident and assert a new cause of death suggests that in at least one of those instances, Defendant did not construe the terms “accident” and “cause” in accordance with the plain language of the policy.

The court then went on to examine the insurer’s factual findings. In reviewing the administrative record and additional rebuttal evidence presented by the Plaintiff, the court noted that it was the opinion of four out of five doctors in the case (including the insurer’s own in-house medical director), that the cause of the husband’s death was the blunt force trauma from the accident. The court therefore found untenable the insurer’s position that Plaintiff’s husband’s death was the result of a heart attack rather than injuries sustained in the accident:

Viewed skeptically, Defendant’s factual finding that Masuda’s death was caused by a heart attack and not the injuries to his face and body was clearly erroneous because the Court is left with the firm and definite conviction that Defendant made a mistake in reaching that decision.

The court explained that in McClure v. Life Ins. Co. of N. Am., 84 F.3d 1129 (9th Cir. 1996), determined that where the applicable plan language is less than obvious (“inconspicuous”), the “policy holder reasonably would expect coverage if the accident were the predominant or proximate cause of the disability.” Id. at 1135–36. If, however, the applicable language is conspicuous, recovery could be barred if a preexisting condition substantially contributed to the loss, “even though the claimed injury was the predominant or proximate cause of the disability.” Id. at 1136.  (Emphasis added).

The court then cited to Dowdy v. Metro. Life Ins. Co., 890 F.3d 802, 808 (9th Cir. 2018). Under Dowdy, where the applicable language is conspicuous, “[i]n order to be considered a substantial contributing factor for the purpose of a provision restricting coverage to ‘direct and sole causes’ of injury, a pre-existing condition must be more than merely a contributing factor,” (See id. at 809), it must have substantially contributed to the death. The court determined that the medical record did not support LINA’s conclusion that a medical event substantially contributed to Masuda’s death; at most, it was a contributing factor.

Ultimately, having determined that the insurer’s denial could not withstand the appropriate level of skepticism, the trial court did not even bother to remand the case back to the insurer. Instead, in a complete reversal of its prior ruling, entered judgment in favor of the Plaintiff and directed the insurer to pay Plaintiff’s claim.

Conclusion

The Masuda case illustrates the importance of having a skilled ERISA attorney on your case. While many, if not most, attorneys are generally familiar with the concept of “abuse of discretion,” these types of cases demand an attorney who understands the nuances of this standard of review as it applies specifically to ERISA matters, and who can marshal the legal and factual arguments necessary to invoke a court’s heightened level of skepticism.

The experienced attorneys at McKennon Law Group have a long and successful track record of representing ERISA claimants in all aspects of the claim process, from appealing the initial denial of benefits and, if necessary, through each stage of litigation. If you’ve been denied benefits under an employee benefit plan, contact our office today for a free initial consultation.