McKennon Law Group, Author at McKennon Law Group

The “reasonable expectations of the insured” doctrine has been around for decades in California. The state Supreme Court started toying with rules that became its foundation after the turn of the century. See Pac. Heating & Ventilating Co. v. Williamsburgh City Fire Ins. Co., 158 Cal. 367, 370 (1910) (“any ambiguity … must be resolved in favor of the insured”).

In the early 1990s, the California Supreme Court first articulated the modern version of the rule in cases like AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990), and Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1265 (1992). Bank of the West explained that courts must interpret ambiguous policy provisions as the insurance company reasonably believed that the insured understood them when making the contract or, stated another way, in accord with “the objectively reasonable expectations of the insured” about what the policy covered.

Federal courts borrowed this insurance policy interpretation principle, highly favorable to policyholders, from state law, and also directly from federal common law. They have applied the doctrine in cases involving group insurance policies governed by ERISA, a federal law pertaining to employee benefits. Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 539-40 (9th Cir. 1990). That is very good news to claimants seeking benefits under their group disability, life or health insurance policies offered through their employers. Crafty ERISA lawyers are skilled at uncovering ambiguities in policy language that may help them win their claim.

The Ninth Circuit recently relied on this rule to award an ERISA policy claimant all of her disability benefits in Anderson v. Sun Life Assurance of Canada, et al., No. 13-17594 (9th Cir. Apr. 6, 2016) (unpublished). The appellate court reversed the district court’s finding that the claimant, registered nurse Diana Anderson, was not entitled to long-term disability insurance benefits. The Ninth Circuit quoted the rule that “ambiguous terms in an insurance policy governed by ERISA are interpreted in the insured’s favor.” It explained that because the policy was “fairly susceptible” to more than one interpretation, it was ambiguous and, therefore, the less restrictive interpretation favoring coverage must be adopted. It found that, although the insurer’s and district court’s interpretation of the “Partial Disability,” “Material and Substantial Duties” and “Own Occupation” definitions in the policy was a reasonable one, Ms. Anderson’s less restrictive interpretation was also reasonable and thus trumped.

Ms. Anderson became unable to perform her duties as a nurse in 2008, but she did not actually lose any income until 2009. The hospital that employed her allowed her to do other, easier jobs which she could perform at her full nurse’s salary, until 2009.

The insurer argued that the policy definitions required Ms. Anderson’s loss of income to occur simultaneously with the onset of her inability to perform the duties of her own occupation as a nurse in order to qualify for partial disability benefits. The Ninth Circuit disagreed. It found the policy definitions were ambiguous noting an “equally reasonable construction of the policy terms allows an employee to make a claim for long-term partial disability benefits even if the loss of income occurs after the onset of the inability to perform,” as in Ms. Anderson’s case. It held, “Because the Policy was ‘fairly susceptible’ of this interpretation, under which Anderson was eligible for benefits, the district court erred in adopting the more restrictive interpretation.” While the lower court awarded zero benefits, the Ninth Circuit identified an ambiguity in the policy which turned the entire case. It reversed and remanded with instructions to the district court to calculate and award Ms. Anderson all of her past and future disability benefits given that the ambiguous policy terms had to be interpreted in the insured’s favor.

If you are looking for more information on this policy interpretation doctrine, we discussed it in our September 22, 2015 article appearing in the Los Angeles Daily Journal entitled, “Examine the ‘reasonable expectations of the insured.” The article is re-published on our website at https://mslawllp.com/robert-mckennon-and-joe-mcmillen-publish-article-examine-the-reasonable-expectations-of-the-insured-2/.

The Anderson case illustrates why it is critical that an employee/insured plan participant who has a short-term disability claim or a long-term disability claim retain an experienced ERISA insurance coverage lawyer before battling his or her insurance company. While the insurer may quote seemingly insurmountable exclusionary language from its policy, federal courts may have interpreted the language differently in favor of policyholders or, as in the case of Anderson, held the policy provision is ambiguous and must be interpreted against the insurer and in favor of the insured.

If you are an employee covered under your employer’s group short-term disability, long-term disability, life insurance or health insurance policy and had your claim denied, do not give up. Insurance companies count on their policyholders doing just that, even for legitimate claims. You should immediately contact the McKennon Law Group PC, a law firm specializing in ERISA insurance and employee benefits litigation. Let us decide whether your claim was wrongfully denied and let us see if we can assist you.

An individual suffering from a disabling condition undoubtedly has many concerns. In addition to dealing with physical pain and emotional distress, there is always the thought of how to pay for medical bills and sustain a living if the disability prevents a person from continuing work in the occupation he or she had before the injury or sickness causing the disability occurred.

It can be stressful, time consuming and expensive to be awarded long-term benefits (“LTD”) under an employee benefit plan. However, a recent district court case, Carrier v. Aetna Life Insurance Company, 2015 WL 4511620, may help insureds in this regard by making it more difficult for insurance companies who have issued plans governed by ERISA to summarily deny an insured’s claim without proof of specific findings and detail as to how they reached their conclusion to deny benefits.

In this case, the plaintiff, Gloria Carrier, was employed by Bank of America as a Credit Administrator. Her job duties included, in part, clearly communicating risk analysis, identifying problems on credit-related issues, guidelines & policies, performing research on closed loans, and supervising between twenty and 100 people across multiple states.

After being diagnosed with uterine cancer, she had to have her uterus removed and subsequently underwent three cycles of chemotherapy. After her surgery and chemotherapy, her cognitive abilities were severely affected and, according to her treating physician, she suffered from severe depression and suicidal thoughts.

She initially received short-term disability (“STD”) benefits under her employee benefit plan with Aetna Life Insurance Company through Bank of America. After the expiration of her STD benefits, she applied for LTD benefits under the plan. To receive LTD benefits, she was required to demonstrate that she met the definition of “disability” under the policy:

To be eligible for LTD benefits, an employee must meet the definition of “disability” under the policy: From the date that you first became disabled and until monthly benefits are payable for 18 months you meet the test of disability on any day that:

You cannot perform the material duties of your own occupation solely because of an illness, injury or disabling pregnancy-related condition; and

Your earnings are 80% or less of your adjusted predisability earnings.

Although Carrier was initially awarded LTD benefits, Aetna decided to terminate them a few months later “based on its determination that she no longer met the definition of disability,” despite her treating physician’s opinion that she continued to suffer from major depression and cognitive disorder that prevented her from performing her normal job duties. Aetna’s decision was based on peer evaluations conducted by three Aetna retained doctors of the plaintiff’s treating physician’s records and office notes.

Carrier initially appealed the denial with Aetna, however, the termination of her LTD benefits was upheld by the plan administrator. Pursuant to her rights under the ERISA policy, Carrier filed a civil action in the district court of California. After conducting a de novo review of the case, the court determined that Carrier’s benefits were improperly terminated.

The primary factual issue was whether Carrier “satisfied her burden of establishing that she fit[] the definition of disability under the ‘own occupation’ standard” in the policy, which was defined as “the occupation that [the insured was] routinely performing when [the] period of disability beg[an].” Throughout the duration of her disability, Carrier continued to be treated by the same physician, who continued to communicate to Aetna that she was not fit to return to work because of her psychological and cognitive conditions.

In finding that plaintiff’s LTD benefits were wrongfully terminated and withheld, the court reasoned that the opinions of Aetna’s physicians were “presented in a conclusory fashion, making it unclear how they reached such starkly contrasting results from those of [plaintiff’s treating physician], despite reviewing the same materials.” The court found the opinions of plaintiff’s treating physician that she suffered from severe depression and cognitive disabilities that prevented her from performing her job under the “own occupation” definition of “disability” to be more compelling. Although it indicated that there was no legal deference to the treating physician’s opinion, the court’s ruling demonstrates that insurance companies who rely upon peer-to-peer evaluations in evaluating and potentially denying a LTD claim must ensure that a detailed analysis has been conducted, rather than a simple blanket conclusion made without meeting or treating the insured.

The court awarded Carrier LTD benefits for a portion of the period she was wrongfully denied benefits and remanded the action to the plan administrator to resolve a secondary issue regarding a change in the policy’s language from “own occupation” to “any occupation” that went into effect while the initial dispute was being litigated.

In 2003, the United States Supreme Court decision State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003) that generally limited punitive damages suffered by a plaintiff. Since then, California courts have stated generally that a 10-1 ratio of punitive damages to compensatory damages may be the legal limit based on the due-process clause, although some California courts have allowed a higher ratio. Given that limitation, plaintiff’s attorneys and defense counsel have waged many battles regarding what constitutes compensatory damages and can be counted when calculating the maximum amount of punitive damages that can be awarded. In Nickerson v. Stonebridge Life Insurance Company, 203 Cal. Rptr. 3d 23 (2016), the California Supreme Court awarded a victory for plaintiffs by ruling that Brandt fees (that is, attorneys’ fees incurred by the policyholder in establishing coverage under the policy when there is also bad faith) determined after a jury verdict by stipulation or by the court are considered compensatory damages for purposes of calculating the ratio of punitive damages to compensatory damages.

The amount of Brandt fees due to a plaintiff following a determination that an insurer acted in bad faith can be set by a jury. However, due to the confusing nature of presenting the issue of attorneys’ fees to a jury, especially given that the facts are completely unrelated to underlying dispute, many parties agree to have issue of Brandt fees decided by the Court, or by stipulation, following the jury’s verdict. Unfortunately for plaintiffs who were able to prove that the insurance company acted in bad faith, that led to a situation where Brandt fees were not being counted when determining the maximum amount of punitive damages a plaintiff could receive.

In Nickerson, after the jury’s verdict, the parties stipulated to the amount of Brandt fees, but the defendant appealed the large punitive damages award. The Court of Appeal, in reducing the punitive damages award, ruled that Brandt fees awarded after the jury verdict must be excluded from the calculation in determining whether, and to what extent, the jury‘s punitive damages award exceeds constitutional limits. The California Supreme Court ruled that the Court of Appeal erred in excluding Brandt fees from that analysis and that “Brandt fees may be included in the calculation of the ratio of punitive to compensatory damages, regardless of whether the fees are awarded by the trier of fact as part of its verdict or are determined by the trial court after the verdict has been rendered.”

Thus, while the punitive damages award initially awarded by the jury was reduced in accordance with State Farm, Nickerson is a victory for plaintiffs as it adds another measure of damages that can be used to support a larger punitive damages award.

McKennon Law Group specializes in litigating and resolving business disputes of all types, including but not limited to the following: unfair competition and unfair business practice claims which encompass fraud, misrepresentation, and unconscionable or oppressive acts by businesses against consumers. These acts are prohibited by law in many countries.

Companies cannot engage in unfair business practices. It is illegal to persuade people into any business obligation based on misleading information released on any publication: newspaper, online news sites, and the internet.

We represent and have represented clients involving business torts and contract disputes under the California Unfair Business Practices Act (Business and Professions Code sections 17200 and 17500). The McKennon Law Group handles cases that impact the ability of our business client’s to compete fairly, and the ability of our consumer client’s to make sound choices in the purchase of their products or services.

With over 25 years of experience in litigating and resolving business disputes, we are able to achieve maximum settlements and judgments at trial because of our aggressive advocacy and national reputation as a leading business litigation firm.

If you’ve been a victim of any of the disputes listed above, contact us today and learn how our Los Angeles and Orange County attorneys can help you with your case. We have the knowledge and experience required to successfully represent you.

When and under what circumstances an insurer paying long-term disability benefits may collect retroactive benefits paid to an ERISA plan participant under the Social Security Act has been the source of conflicting opinions over the years. The most recent pronouncement: a long-term disability plan administrators must “specifically identify a particular fund” from which it will be reimbursed in order to seek to recover of alleged overpayment of disability benefits. So held the Southern District of California in its recent plaintiff-friendly decision in Wong v. Aetna Life Insurance Company, 2014 U.S. Dist. LEXIS 135661 (S.D. Cal. 2014). Through its decision in Wong, the district court reaffirmed that simply because an ERISA governed long-term disability plan’s language provides for recovery of an award of back-dated SSDI benefits does not mean that an insurance company may seek reimbursement from an insured’s general assets. Instead, the onus is on the insurer to specifically identify specific funds, separate from a plan participant’s general assets, on which it may place an attachment.

In Wong, the plan a participant was initially granted benefits under her ERISA governed long-term disability plan. However, the plan administrator, Aetna, repeatedly denied and then reinstated her benefits. After the third denial, the plan participant filed an appeal with Aetna, which was subsequently denied. However, while she was still on claim, Aetna had advised her to apply for Social Security benefits, which was eventually approved and the Social Security Administration also agreed to back-date her award for over a year. However, very soon after being approved for the award, Aetna contacted the plan participant and asserted that it was entitled to reimbursement of the retroactive SSDI benefits she received.

Following Aetna’s demand for reimbursement, the plan participant filed an ERISA action seeking benefits owed to her. Aetna in turn filed a counterclaim seeking recovery for the retroactive social security benefits received by the plan participant. First, as to the plan participant’s claim, the court concluded that it was unreasonable and an abuse of discretion for Aetna to terminate the plan participant’s benefits. Second, and more significantly, the court held that Aetna may not retroactively attach the plan participant’s social security benefits because it failed to meet the necessary criteria for seeking overpayment. In reaching its holding, the court explained that there are “at least three criteria” that a plan administrator must satisfy in order to recover the overpayment:

First, there must be a promise by the beneficiary to reimburse the fiduciary for benefits paid under the plan in the event of a recovery from a third party. Second, the reimbursement agreement must specifically identify a particular fund, distinct from the beneficiary’s general assets, from which the fiduciary will be reimbursed. Third, the funds specifically identified by the fiduciary must be within the possession and control of the [beneficiary]. (internal quotations omitted).

Here, as in most plans, the first criteria is satisfied because, as the plan participant did not dispute that she contracted to reimburse overpayment of benefits to Aetna. However, the court held that Aetna did not satisfy second criteria. The court focused on the fact that the Social Security Act provides that “none of the moneys paid or payable or rights existing under this [Social Security] subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process.” As such, although Aetna attempted to do so, the court found that Aetna could not identify the SSDI benefits as themselves a particular fund because they had already been paid. Furthermore, Aetna did not dispute that the long-term disability benefits had already been spent by the plan participant. As such, the court held that Aetna is not permitted to attach the plan participant’s SSDI benefits because it could not identify a fund distinct from her general assets that permits such an attachment.

This decision demonstrates that simply because a plan participant contracted to reimburse an insurer for an overpayment does not mean that the plan has an unfettered ability to seek recovery of overpaid benefits. Indeed, especially in the case of retroactive social security benefits, the insurance company may well be unable to meet its burden of identifying particular fund from which it can properly be reimbursed. Plan participants and beneficiaries can take some solace from this decision.

The June 8, 2016 edition of the Los Angeles Daily Journal features an article written by Robert McKennon of the McKennon Law Group entitled: “9th Circuit OKs Multiple Claims for Relief under ERISA.” In the article, Mr. McKennon discusses an important decision from the U.S. Court of Appeals for the Ninth Circuit, Moyle v. Liberty Mut. Retirement Ben. Plan, 2016 DJDAR 4747 (9th Cir. May 20, 2016),in which the Ninth Circuit Court of Appeals allowed Insureds/plan participants to sue an insurer simultaneously for benefits due under an ERISA plan (such as a short-term or long-term disability insurance policy) and also for equitable relief, thus expanding the remedies available to them.

Ninth Circuit Affirms Rule that Ambiguous Policy Terms Must Be Construed Against Insurer in ERISA Disability Insurance Cases

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