McKennon Law Group, Author at McKennon Law Group

When terms contained within an insurance policy fail to make provisions clear, plain, and conspicuous, insureds are often left to wonder what their rights under an insurance policy are and whether they are complying with the terms of their policy. The Ninth Circuit Court of Appeals has long recognized that in cases governed by ERISA, “ambiguities in insurance contracts must be construed against the insurer.” McClure v. Life Ins. Co. of North America, 84 F.3d 1129, 1134 (9th Cir. 1996). Despite this long-standing and binding rule, long-term disability insurance policies issued by disability insurance companies continue to contain ambiguous provisions and insurers continue to use these ambiguities to their advantage and deny valid claims for disability benefits.

Recently, the Northern District of California refused to accept a disability insurer’s argument that the insured’s disability claim was barred by a limitation contained in the long-term disability insurance policy, stating that legal action must be brought within three years from the time proof of claim is filed. Nancy Hart v. Unum Life Ins. Co. of America, No. 15-cv-5392-THE, 2017 WL 565026 (N.D. CA. Feb. 13, 2017). The long-term disability policy at issue in Hart contained a provision stating that a legal action can be brought “up to three years from the time proof of claim is required.” Unum sent Ms. Hart a letter terminating her claim for long-term disability benefits, indicating that she had 45 days to provide proof of continuing disability and 180 days to appeal the denial decision. Unum argued that the three year contractual limitation in Ms. Hart’s policy was triggered when the 45-day deadline to provide “proof of continuing disability” expired, as the term is interchangeable for the term “proof of claim.” Under this argument, Ms. Hart’s lawsuit against Unum would have been barred by the limitation within the Policy. Ms. Hart argued that the policy limitation was not triggered until the 180 day deadline to appeal the denial of her claim expired, and therefore her complaint was timely.

The District Court determined that the long-term disability plan failed to clearly demonstrate that there was no distinction between the terms “proof of claim” and “proof of continuing disability.” The Court noted that even though both terms were found within the same section of the Policy, Unum failed to make it “clear, plain, and conspicuous” that in applying the contractual limitation there is no distinction between the two terms. Because of this, the Court found that the termination letter did not trigger the three-year contractual limitation to file a lawsuit by asking Ms. Hart to provide proof of continuing disability within 45 days.

The Court went on to determine that even if “proof of claim” and “proof of continuing disability” were interchangeable, Ms. Hart is not barred from filing her lawsuit because the letter’s inclusion of two different deadlines, the 45-day deadline to provide proof of continuing disability and the 180-day deadline to appeal the letter’s decision, created an ambiguity that must be interpreted in favor of the insured. The Court observed that the Ninth Circuit has held that an insurer must utilize language from its own policy to inform an insured when the contractual time limitation for legal proceedings would begin to run, and ambiguities would be construed against the insurer. The Court concluded that the insurer “should not be allowed to take advantage of the very ambiguities that it could have prevented with greater diligence,” and the Court denied Unum’s motion for summary judgment determining that Ms. Hart’s lawsuit was filed timely because it was filed within 3 years from the 180 day deadline to appeal Unum’s denial decision.

When a claim for disability benefits is denied, insureds can often feel overwhelmed by the confusing provisions contained in their policies and they can also feel obligated to accept the denial justifications provided by their insurers. However, it is important to understand that insurers will often interpret policy provisions in their favor in order to justify a denial of a claim, even if the provision is unclear or could be subject to multiple interpretations. The Hart decision illustrates why it is important to have experienced disability, health and life insurance attorneys like the attorneys at McKennon Law Group, PC on your side when your claim for insurance benefits has been denied. If your claim for insurance benefits has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

The McKennon Law Group PC periodically publishes articles on its Insurance Litigation and Disability Insurance News blogs that deal with frequently asked questions in insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or go to our website at mslawllp.com and complete our free consultation form today.

Do you have an employer-sponsored group long-term disability insurance policy, a group life insurance policy or a group medical insurance policy? What do you do when your employer-sponsored group plan is terminated and you have the option to continue or convert the policy? Should you choose to continue or convert your life, health or disability insurance plan, what law governs any claims you make under the new policy? As we have discussed in previous articles on this blog in depth, the Employment Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including long term disability insurance, life insurance, health insurance and retirement plans. ERISA was enacted to protect employees from abuse of those employer-sponsored benefits plans and requires that the plan and claim administrators, usually the employer and the insurance company, adhere to strict fiduciary standards when resolving disputes that fall under ERISA. However, not all insurance policies fall under ERISA, even if the policy was originally part of an employer-sponsored plan.

In this article, we address the first step in assessing an insurance claim that may or may not be governed by ERISA, with a focus on whether ERISA applies to your continued or converted long term disability insurance, life insurance or health insurance policy. In general, for ERISA to apply, the employer-sponsored plan must meet certain requirements and must not be established or maintained by a church or government entity. However, sometimes ERISA may apply to a policy that is no longer sponsored by your employer, which may depend on whether the policy is considered a “continued” or a “converted” policy. This article discusses this nuance in depth, first outlining the difference between a “continued” and a “converted” insurance policy and then discussing when ERISA may apply to each.

What is a “Continued” Insurance Policy and When does ERISA Apply?

A “continued” insurance policy arises where the terms and conditions of the group policy allow the employee an option to continue the policy, exactly as it is, for a certain period of time regardless of separation from the employer that originally provided the plan. Because a continued policy remains the same as the original employer-sponsored policy, ERISA typically continues to govern those claims. For example, in Alexander v. Provident Life & Acc. Ins. Co., 663 F.Supp.2d 627 (E.D. Tenn. 2009), the plaintiff’s employer sponsored a disability insurance policy. Plaintiff’s employment terminated, but the policy had a provision that allowed for continued coverage within a certain period of time, regardless of employment. Specifically, the provision stated that it was “non-cancellable and guaranteed continuable at guaranteed premiums to [the policyholder’s] 65^th birthday, or five years, whichever is later.” Under the terms of this policy, the plaintiff was free to continue the policy at the guaranteed premiums, regardless of whether he was still employed by the employer that brokered the original deal to get that policy. In this case, the plaintiff elected to continue coverage under the same policy number and under express language that the policy “continued.” In this case, the court found that ERISA still governed this policy because the same considerations existed under ERISA and there was no change in the terms or conditions of the policy, as it just “continued” from the original employer-sponsored plan.

What is a “Converted” Policy and When does ERISA Apply?

In contrast, a “converted” policy is one where the right to convert from a group policy to an individual policy typically arises after the group policy has terminated and the group policy provides for a right of conversion. When a plan is considered “converted” the ERISA analysis becomes more difficult than a continued policy. Under a converted policy, if the issue is whether the policyholder has a right to convert the policy and that right is governed by an ERISA plan, then the courts will typically find that ERISA governs that dispute. However, if the policyholder has already exercised his or her individual right to convert the policy, and maintains an otherwise individual plan based on the provision arising in an ERISA policy, the determination becomes more complicated.

In some circuits, because the converted policy arose out of an ERISA governed policy, it is considered indelibly tied to the ERISA governed policy. As such, in those circuits, a policy that arises from a conversion provision in an originally ERISA governed plan will continue to be governed by ERISA. However, in other circuits the term “conversion” is taken in a more literal sense. In those circuits, when a policy converts from a group to an individual policy it is considered entirely converted for the purposes of ERISA. What this means is that once a policy becomes an individual policy no longer governed under the terms of the group-sponsored plan, the plan is no longer governed by the terms of ERISA because it is no longer established or maintained by your employer.

For example, in Arancio v. Prudential Ins. Co. of America, 247 F.Supp.2d 333 (S.D.N.Y. 2002), the Plaintiff Arancio had exercised his right to convert his group disability insurance policy into an individual disability insurance policy. Although the right to convert originated with his former employer, Riverbay, after conversion, Plaintiff Arancio held the policy the same as any other individual. The Policy named Prudential, and not the employer, as the administrator. Further, Riverbay no longer financed the policy and instead Arancio paid the premiums. The court also noted that, under the converted policy, all communication regarding the claim were directly between Plaintiff Arancio and Prudential, without involving Arancio’s former employer. In effect, Plaintiff Arancio converted his formerly group plan into an individual policy directly with Prudential and the court found that, as such, his disability insurance policy had the requisite independent relationship to remove it from ERISA.

Determining whether a converted policy is governed by ERISA can be a complex undertaking and the above are just a few considerations to keep in mind when a continued or converted policy may or may not still be subject to ERISA.

Having an experienced disability, health and life insurance attorney matters to the success of your insurance matter, particularly when complicated issues like the above apply to your claim. If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. This is the fourth in a series of articles on How Insurance Companies Deny Claims. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949) 387-9595 for a free consultation or visit our website at www.mckennonlawgroup.com and complete a free consultation form.

Like the U.S. Department of Labor statistics referenced in our earlier articles in this series about the alarming number of denied long-term disability and health insurance claims, there is also empirical evidence that life insurers often do not treat their insureds fairly. Recently, 60 Minutes profiled a national investigation headed by numerous state Insurance Commissioners confirming that life insurers had inconsistently used the Social Security Administration’s Death Master File database to identify deceased annuity holders to stop making annuity payments (to their financial benefit). But they failed to use the database to identify deceased policyholders to pay life insurance benefits (again to their financial benefit). This reportedly deprived life insurance beneficiaries of over $5 billion in benefits nationwide. We blogged about this topic in prior articles. (See https://mslawllp.com/national-investigation-uncovers-systemic-practice-among-life-insurers-depriving-beneficiaries-of-5-billion/). Some life insurers are still refusing to cooperate and use the database to pay life insurance benefits they owe. The lesson is you should not trust your life insurer to grant your claim just because you believe they will do the right thing.

Life Claim Denials

How do insurers deny valid life insurance claims, whether they are governed by federal law, the Employee Retirement Income Security Act (“ERISA”), or California/state insurance bad faith laws? One common way is “rescinding” the policy after learning the policyholder has died and the beneficiary makes a claim. That is, the insurer invalidates or voids the policy – as if it never existed – based upon what is commonly called a “two-year contestability investigation” into the insured’s pre-insurance medical history and insurance application. If the policy is legitimately rescinded, the insurer does not have to pay the death benefit but just return the policy’s premiums.

While that seems unfair to a grieving family who has dutifully paid premiums precisely for such a time as this, there is support for this tactic under most life insurance policies. Fortunately, though, only under very narrow circumstances. Almost every life insurance policy has a two-year incontestability clause. If the policyholder dies within two years of purchasing the policy, the insurer can rescind it if the insured made a material misrepresentation about his health or his activities on his life insurance application. After two years, in most policies, the insurer cannot contest or rescind the policy based on misstatements made in the application, even fraudulent ones. What is a “material” misrepresentation? That means the insurer, had it known the true facts that were omitted from the application, would have been influenced in its decision whether to accept the risk and issue the policy.

We have found that life insurers liberally interpret what is “material” to deny legitimate claims. They will rescind the policy after a claim is made if their contestability investigation shows the insured left out any information about his health or incorrectly answered even an innocuous application question, irrespective of whether having the correct information would have changed the insurer’s mind to not issue the policy. The law does not permit an insurer to do that. If the insurer would have issued the same policy at the same price even if had it known the true facts about the insured’s health condition, the information is not likely considered “material” and the insurer is not allowed to rescind. The Ninth Circuit, agreeing with the California Supreme Court, has stated:

Finally, as the misrepresentation must be a material one, [a]n incorrect answer on an insurance application does not give rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to the insurer.

Freeman v. Allstate Life Ins. Co., 253 F.3d 533, 536 (9th Cir. 2001) (citing Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 915 (1973)).

Illustrative of this devious practice, one of our clients, a minor child, had his recently deceased father’s life insurance policy rescinded after he submitted a claim because the insurer’s contestability investigation revealed his father did not disclose on his application he had mild kidney disease. The insurer refused to pay the policy’s life insurance benefit and voided the policy despite that the premiums had always been paid. When our firm became involved, we argued that such a condition is not typically considered material to life insurers and we demanded to see the insurer’s underwriting guidelines to prove that they considered the condition to be material. We argued the father’s condition was immaterial, that the insurer would have issued him the same policy had he disclosed his mild kidney disease because it was standard to do so under its underwriting guidelines. The insurer immediately paid the claim, thwarted in its dishonest efforts to refuse payment to a needy and now fatherless child so it could deepen its already deep pockets.

There are many other inappropriate tricks life insurers use to deny valid claims, including:

Enforcement of conditions never previously enforced: Accepting an insured’s premiums without requiring him to submit evidence of good health or alerting him it is needed for the policy to issue, only to enforce the policy’s good health provisions years later to argue the policy was never legally issued (after the insured’s death and a claim is made).
Billing miscues/errors: Where a life insurer has issued multiple policies to the same insured, we have seen insurers manipulate the accounting of premium payments to their advantage to credit all or most of the payments to one of the policies and claim the other policy lapsed for non-payment when it had been paid in-full.
Inappropriate policy lapses: A life insurer sends a bill for the policy premium that the insured is too sick to notice and pay, refuses to send a grace period/lapse notice to the insured and then, after the premium is not paid, improperly lapses the life insurance policy just before the insured dies.

Life insurers often try to cancel or lapse policies for non-payment of premiums without following California’s notice requirements, particularly if they suspect a claim is on the horizon. But a life insurance policy cannot be lapsed without adequate notice to the insured which gives him or her a grace period to pay overdue premiums. In California, a statute enacted in 2013 (California Insurance Code section 10113.71) requires individual and group life insurers to (1) include a 60-day grace period from the premium’s due date, (2) mail written notice of pending lapse and termination for non-payment of premiums at least 30 days before the effective date of termination, and (3) mail the notice by first class United States mail within 30 days after a premium is due and unpaid. The notice is also ineffective if the insurer fails to (1) mail such notice to the named policy owner, (2) mail such notice to a designee named pursuant to Section 10113.71 for an individual life insurance policy, and (3) mail such notice to a known assignee or other person having an interest in the individual life insurance policy. In short, a life insurer must send written notice of potential lapse to the right people, in the proper manner, and allow for the right time periods, or the policy is not lapsed.

These technical requirements have likely frustrated life insurers that underwrite policies in states other than California that have less stringent cancellation requirements. Their claims examiners may not be well versed in this relatively new California law or, worse yet, they may ignore the laws they do not like because their insureds are not educated in them. They may improperly deny a claim based on a purported policy lapse that did not lapse because the insurer never followed California’s special statutory notice requirements.

Our Take

These are just some of the ways life insurers find ways to deny legitimate claims. If you have a denied life insurance claim, you need an experienced ERISA life or bad faith attorney such as the lawyers at Mckennon Law Group PC. As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). You cannot count on your insurer to act in good faith or do the right thing. The Department of Labor statistics and other empirical data show that often they will not pay a claim unless credibly threatened by an insured with a highly effective and experienced lawyer. Let us try to get your insurer to listen.

The California Insurance and Life, Health, Disability Blog at mslawllp.com/news-blog.

The McKennon Law Group PC publishes articles on its California Insurance Litigation and Disability News Blogs that cover important issues concerning insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of insurance law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at www.mckennonlawgroup.com and complete a free consultation form.

Beneficiary designations in life insurance plans determine who receives plan benefits following the death of a plan participant. As a plan participant under any such life insurance or under a retirement/pension plan, it is important to understand exactly where the money will go when you pass away. If the retirement or life insurance plan is employer-sponsored, it is likely governed by the Employment Retirement Income Security Act (“ERISA”). Under ERISA governed life insurance and retirement/pension plans, there are some specific things to keep in mind when considering beneficiary designations. This blog article briefly discusses some unexpected situations where beneficiary designations may turn out differently than intended, usually when life-changing circumstances are unaccounted for in the beneficiary designation. Next, we briefly cover some basic best practices in ERISA-specific cases, given the additional requirements on form and timing of beneficiary designations under ERISA.

Life-Changing Circumstances and Unintended Beneficiaries

Unintended beneficiary disputes commonly arise when a life event occurs that is otherwise unaccounted for by the life insurance or retirement plan. This “unintended beneficiary” problem appears in a variety of ways, but is easiest to understand through examples, as provided below.

Divorce

One such instance is when a plan participant designates his or her spouse as the beneficiary, but fails to change that beneficiary designation to reflect a divorce. If the plan participant fails to change the beneficiary designation before death, the ex-spouse may receive the plan benefits as designated even if there is a divorce agreement to the contrary. One can imagine how contentious and complex such disputes may become, particularly when they involve current spouses, ex-spouses, children, parents, full-siblings, half-siblings, stepchildren, etc. If the case is governed by ERISA, the plan document controls and regardless of any private divorce agreement to the contrary, the benefits will go to the designated beneficiary.

Murder?

While this sounds extreme, many states have “slayer statutes” specifically designed to prevent a beneficiary from receiving the benefits of a plan where he or she is guilty of murdering the participant. While this seems like an obvious protection, to the extent that the plan is governed by the federal ERISA statute, it is unclear whether state slayer statutes persist or are otherwise preempted by ERISA. This becomes a particularly thorny issue given the conflicting interests at play. While each state’s slayer statute varies, these variances interfere with the uniformity required in ERISA benefits administration for multi-state employers.

Simultaneous Death

In the instance of a simultaneous death, the problem becomes which estate receives the benefit if both the plan participant and the beneficiary die at the same time. In this example, let’s say a husband and wife are killed simultaneously in a car crash. If the wife is the plan participant for a life insurance plan and she designates her husband as the beneficiary, determining who receives the benefits becomes more difficult. Like with the slayer statutes above, this also depends on state survivorship laws and may trigger additional preemption questions under ERISA.

Best Practices for Participants and Beneficiaries

In some cases, ERISA-specific requirements for beneficiary designations may lead to issues where the plan participant clearly did not intend for some person to receive the benefits under the policy, but they do anyway. Given the benefits at stake, and the large potential for complication, it is key for plan participants to adhere to keep some very basic best practices.

1. Ensure that you are aware of the status of your beneficiary designation

Many plan participants make beneficiary designations when they become plan participants. If any changes or updates do need to occur, they may be so far from the initial designation that the plan participant could have completely forgotten about the life insurance policy and beneficiary designation. However, it is important to be educated and ensure that you have a complete, valid beneficiary designation on file for your life insurance or retirement plan under ERISA. Generally, the beneficiary designation should be with either the plan sponsor or the insurer, so you can ask them for a copy.

2. Ensure that your beneficiary designation is up to date

Knowing the status of your beneficiary designation is important, as is knowing that it is up to date. As made clear in the discussion above, failing to change the beneficiary design

ation following life-changing events like marriage, divorce, or death, may result in an unintended beneficiary receiving benefits that you would rather go to someone else. When the plan document governs, as it does in ERISA cases, keeping the beneficiary designation up to date is vitally important.

3. Make sure you have followed the procedures spelled out in your policy or plan to designate the beneficiary you want to receive your life insurance benefits

In 2009, the Supreme Court directly addressed how ERISA plan administrators determine beneficiaries after someone’s death. In Kennedy v. Plan Adm. For Dupont Sav. And Invest. Plan, 555 U.S. 285 (2009), the deceased failed to change the beneficiary designation forms after the divorce. Although the ex-spouse signed a waiver of rights to the pension during their divorce, the deceased’s estate felt it should pass to the estate whereas the ex-spouse still felt entitled to the interest as the designated beneficiary. The Supreme Court held that the plan administrator should not be required to assess complex, competing claims and should only have to look at the properly designated beneficiary under the Plan.

Having an experienced disability, health and life insurance attorney matters. If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

Determining what law governs your health, life, or disability insurance claim is the first step in the process of defending a wrongfully denied claim. Generally speaking, if you have a denied life, disability or health insurance claim, especially if you live in California, you are better off if the Employment Retirement Income Security Act of 1974, otherwise known as “ERISA,” does not apply. That is because California and other states have laws governing these types of claims that are very favorable to insurance claimants that allow them to sue an insurer for breach of contract, insurance bad faith and punitive damages. These claims are not available in ERISA. Emotional distress damages and other damages caused by insurance company’s bad faith may be recoverable in a state law governed claim but are not recoverable in ERISA cases. How do you determine whether ERISA applies to your claim? As discussed in earlier blogs, ERISA does not apply to specific types of employer benefits plans such as “church plans” or “government plans.” In this blog, we delve into detail as to why and when ERISA’s excludes such government plans, including some variations on that exclusion based on how the plan was funded.

Why does ERISA exclude government plans?

To determine why Congress excluded government plans from ERISA, we first need to explore the history of ERISA. When Congress crafted ERISA, it sought to reduce abuses in the system for private employee pensions. At first, Congress imagined an ERISA that included government plans. However, Congress ultimately decided that regulation of such government plans was better left in the hands of state and local governments. For example, in Gualandi v. Adams, 385 F.3d 236 (2d Cir. 2004), Ms. Gualandi taught at a New York public school and the “Plan” at issue was a fund for the benefit of public school teachers like Ms. Gualandi. In determining whether ERISA or state law governed the Plan, the Court explored the reasons why Congress chose to differentiate between private and government plans. As the Gualandi Court noted, Congress reasoned that state and local governments should be allowed to make their own determination as to the best way to protect the rights of state and local employees.

When does ERISA exclude government plans?

As noted above, Title I of ERISA specifically removes from its coverage any employee benefit plan that qualifies as a government plan. 29 U.S.C. § 1003(b). Under ERISA, a government plan means any plan established or maintained by the federal government, a state government or political subdivision, or by any agency or instrumentality of any of the foregoing. 29 U.S.C. § 1002(32). This brings us to the next question: is the plan “established or maintained” by a government entity? Over time, the courts have broadly construed the “established or maintained” provision of ERISA. To be established, the plan does not need to be created by a specific law or local ordinance. The courts have defined established to include plans created pursuant to a collective bargaining agreement between a government unit and a union. See Feinstein v. Lewis, 477 F. Supp 1256 (D.C.N.Y. 1979). However, the question becomes more complicated when addressing how the plan is funded.

How is the plan funded?

Exclusive government funding is enough to constitute a plan established by the government for the purposes of ERISA. To return to the earlier example used in the Gualandi, the Plan in that case was funded by a school district’s contributions pursuant to a collective bargaining agreement and related settlement. In Gualandi, the Court found that the plan was a government plan excluded from ERISA. However, the answer to whether the plan is funded by the government is less clear when the plan is funded by payroll deductions (money from each employee’s individual paycheck). For example, in Graham v. Hartford Life & Acc. Ins. Co., 589 F.3d 1345 (10th Cir. 2009), the Tenth Circuit held that a plan funded by payroll deductions did not amount to a government plan exempt from ERISA. However, in Montoya v. ING Life Ins. and Annuity Co., 653 F.Supp.2d 344 (S.D.N.Y. 2009), the court found a plan is funded by a government entity even if it is the result of payroll deductions. Further, the question becomes even more complicated when the funding is mixed private and public funding or when a government agency or instrumentality joins with a public entity to form a public-private partnership.

Determining whether a matter is governed by ERISA can be a complex undertaking and the above are just a few considerations to keep in mind when a plan may be established or maintained by the government and therefore not subject to ERISA.

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. This is the third in a series of articles on How Insurance Companies Deny Claims. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

The U.S. Department of Labor estimates that about one claim in seven made under the employer health plans that it oversees is initially denied – about 200 million claims per year. In our article entitled “The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought,” we referenced a recent column in the Los Angeles Times that lends support for the proposition that health insurers frequently deny legitimate claims as a business practice to maximize profits (as do disability insurers and life insurers). The LA Times column stated this about denied health insurance claims:

Insurance companies are playing the odds . . . They’re counting on people not having the stamina to challenge every denied claim, even when there’s a valid medical reason for a drug or treatment being covered.

(See January 17, 2017 article “How to fight back when an insurer denies your healthcare claim”). The LA Times column cites a study by the Government Accountability Office which “found that of the relatively small percentage of denied claims that are challenged, about half ended up being reversed.” That means health insurers routinely make the wrong decision and hope that their insureds do not pursue these claim denials. Indeed, former Kansas Insurance Commissioner Sandy Praeger says, “We think some companies are probably denying claims, counting on the hassle factor, [so] that people will just go ahead and pay out of their own pockets.” The LA Times agrees:

“Insurers make money when you pay in through premiums and copays, and they lose money when they pay out,” said Chuck Idelson, a spokesman for the California Nurses Assn., which supports a Medicare-for-all insurance system. “So they do everything possible to deny claims.”

* * * *

Try not to lose your cool. The system is designed to wear you down and to weed out the weak from the strong. An insurer has nothing to lose and everything to gain from putting barriers in your path.

Something to keep in mind: Insurers are so unhappy about paying claims that the percentage of premiums received they have to pay back to policyholders is known as the “medical loss ratio.” Seriously. To them, covering your healthcare is considered a financial loss.

Health Insurance Claim Denials

How do insurers deny valid health insurance claims, whether they are governed by federal law, the Employee Retirement Income Security Act (“ERISA”), or state insurance bad faith laws? One way they do it is by rigidly denying broad categories or types of claims without taking the time to evaluate whether the specific claim is covered under their plan or policy. For example, an insurer may automatically deny any claim for laser hair removal as cosmetic and medically unnecessary. But what if the plan participant suffers from a severe case of recurrent folliculitis, an extremely painful condition where one’s hair follicles become infected and inflamed and develop into benign cysts? The medically accepted treatment for extreme cases is laser hair removal. When the participant submits a claim for that treatment, the insurer may “rubber-stamp” the claim denied, wrongly assuming to its advantage the treatment is purely cosmetic. In short, the insurer “buries its head in the sand” and avoids learning the facts hoping the claim will be dropped. Without a skilled attorney representing the patient, health insurers are incentivized to deny claims even when they clearly fall within the policy’s coverage. Faced with a denial, many patients will accept the insurer’s decision and pay the bills themselves, increasing their profits.

There are many other tricks that health insurers use to deny valid claims. For example, they often claim a medical procedure is experimental, even when doctors disagree. Or, they deny on a technicality simply because your doctor put in the wrong diagnostic or procedure code. Insurers use auditing software often dubbed “denial engines” because their intent is to lower the amount of money paid to physicians and hospitals. These auditing programs work by finding technical errors in billing codes that all doctors, hospitals and clinics, among others, submit for payment.

Additionally, health insurers bank on the fact that health insurance contracts are incredibly complex. They know that patients usually will not take the time to understand them (or cannot even if they read them), leaving them at a distinct disadvantage when appealing a claim denial. In the words of one commentator, insurance contracts “may as well be written in hieroglyphics. They are nearly impossible to decipher, [with] one incomprehensible clause after another.” In trying to make sense of insurance contracts in a South Carolina case, the State Supreme Court concluded, “insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.” S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 489 S.E.2d 200, 206 (S.C. 1997).

In addition, many large health insurers have been accused of illegally canceling, retroactively, policies of people whose conditions are expensive to treat, leaving them to pay for crippling medical bills while they face fatal health conditions such as cancer. In one such case, Los Angeles City attorneys sued Anthem Blue Cross to try to stop the company from this practice. The City’s attorneys claimed that “[t]he company has engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most.” Anthem Blue Cross eventually settled for $10 million while maintaining its innocence.

In a somewhat similar situation, our client had a health insurance policy covering her dying child. The medical expenses were so great that the insurer decided to start denying all claims, asserting it could rescind the policy because our client allegedly committed criminal fraud but refused to state how she committed fraud. There was no fraud – it was completely made up as an excuse to deny the rest of her claims.

Here are some of the other common reasons that health insurers deny claims:

Procedure is not medically necessary
Not covered by the policy
Untimely claim
Procedure is experimental
Lack of prior authorization or referral
Inaccurate physician coding
Incomplete or inaccurate insurance information

Our Take

These are just some of the ways health insurers find ways to deny legitimate claims. If you have a health insurance claim that was improperly denied, you need an experienced ERISA health or bad faith attorney, such as the lawyers at McKennon Law Group PC, on your side. As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). You cannot count on your insurer acting in good faith or doing the right thing. The Department of Labor statistics and other empirical data show that often they will not pay a claim unless credibly threatened by an insured with a highly effective and experienced lawyer. Let us try to get your insurer to listen. We have successfully done it for decades.