McKennon Law Group, Author at McKennon Law Group

Under most long-term disability insurance plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a claimant must appeal the denial of any claim for benefits within 180 days of the denial letter. Unless the appeal is made within that strict 180-day period, the claimant may forfeit the right to any short-term disability benefits or long-term disability benefits available under the plan. At least, that was the law until a recent ruling by the United States Court of Appeals for the Ninth Circuit cracked open the window for a timely appeal.

In LeGras v. Aetna Life Insurance Company, __ F.3d __, 2015 WL 3406182, 2015 DJDAR 5798, (9th Cir. May 28, 2015), the Ninth Circuit ruled that when the 180-day deadline falls on a weekend or holiday, the claimant has until the next business day to appeal a denial decision.

After injuring himself while working for Federal Express Corporation, LeGras filed a claim for long-term disability insurance benefits under the employee welfare benefit plan administered by Aetna. After initially approving LeGras’ disability claim, on April 18, 2011, Aetna denied his claim for ongoing benefits, and informed him that he could “file a request to appeal this decision within 180 days of receipt of this notice.” That 180-day period ended on October 15, 2011, a Saturday. However, because LeGras mailed his appeal letter on the following Monday, Aetna denied the appeal as untimely.

LeGras sued Aetna for long-term disability benefits, but the district court judge granted Aetna’s motion for judgment on the pleadings, on the grounds that LeGras failed exhaust his administrative remedies because he mailed his appeal letter after the end of 180-day period. LeGras appealed the district court’s ruling.

In considering the appeal, the Ninth Circuit noted that:

LeGras faces the possibility of losing his long-term disability benefits because of a two-day difference in the computation of the time period to pursue an administrative appeal. Although the stricter time-computation method may be convenient for AETNA’s purposes, it would be contrary to the purposes of ERISA to adopt a method that is decidedly protective of plan administrators, not plan participants.

The Ninth Circuit noted that, in enacting ERISA, Congress empowered the courts to develop federal common law governing employee welfare benefits plans. The Court then noted that federal common law has developed to protect and further the interests of plan participants, such as LeGras.

Next, the Ninth Circuit explained that “[t]here is nothing novel about the principle” of extending a deadline to the next business day, when that deadline falls on a weekend or holiday. The Ninth Circuit also noted that not only have numerous courts, including the United States Supreme Court, enforced this concept, but this rule is codified in Rule 6 of the Federal Rule of Civil Procedure.

In light of this precedent, and to further the interests of claimants such as LeGras, the Ninth Circuit explained that:

Therefore, we hold that, where the deadline for an internal administrative appeal under an ERISA-governed insurance contract falls on a Saturday, Sunday, or legal holiday, the period continues to run until the next day that is not a Saturday, Sunday, or legal holiday.

With this ruling, ERISA claimants will no longer be denied the opportunity to appeal their claim for benefits when the deadline falls on a weekend or holiday, simply because they mailed their appeal on the next business day. This case highlights the importance of having competent and experienced ERISA counsel assisting claimants who are working on appeals. There are indeed many traps for the unwary.

We do not normally focus on dissents in our blogging but we made an exception here with a published Per Curiam opinion from the Ninth Circuit Court of Appeals, Guam Industrial Services, Inc. v. Zurich American Insurance Co., 2015 DJDAR 5948 (9th Cir. June 1, 2015). This insurance coverage case arose out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon on Guam. The issues pertain to whether either of two insurance policies covered costs of damage to the dock and the associated cleanup which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean. Guam Industrial Services, Inc. (“Guam Industrial”) owned the dry dock. At the time of the sinking, one of its insurance policies, an Ocean Marine Policy, covered liability for property damage caused by pollutants, issued by Zurich American Insurance Company (“Zurich”). After the dock sank, Guam Industrial filed a claim under each policy. Zurich denied the claim, and Guam Industrial brought suit. The district court granted summary judgment for the insurers, finding that the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were released. Guam Industrial appealed the decision and the Ninth Circuit affirmed.

The court found no ambiguity in the terms of the policy, and under the ordinary meaning of the relevant endorsement, Zurich would have to provide coverage of Guam Industrial’s damages if either oil or pollutants were discharged into the water. However, the court determined that although the barrels or containers were discharged, the oil was not. The parties agreed that the oil remained sealed inside its containers at all relevant times. Thus, the majority found that under the ordinary meaning of applicable endorsement, Zurich’s coverage was not triggered by a “discharge, dispersal, release, or escape” of oil. Furthermore, it ruled that sealed containers did not qualify as “pollutants” under the plain meaning of the Policy, which limited the term “pollutants’ to chemicals and other hazardous substances.

Judge Alex Kozinski dissented. His incendiary comments on Zurich’s actions are particularly notable:

If you slap a silk suit on a monkey, you still won’t want to take it to the prom. And if you pour crude oil into a barrel, you still won’t want it in your hot tub.

Zurich’s Ocean Marine Policy covers claims “arising out of the discharge, dispersal, release, or escape of . . . oil . . . or pollutants into . . . any watercourse or body of water.” Guam Industrial paid for this coverage and Zurich happily accepted the premiums. (Insurance companies seldom have trouble with this part of the bargain.) What risk was Zurich paid to assume? The risk that something nasty would get into the water and Guam Industrial would be under a legal obligation to clean it up. That’s just what happened here: Some very nasty stuff—barrels containing over 100,000 gallons of industrial oil—plunged into the harbor when the dry dock sank. To no one’s surprise, the Coast Guard immediately issued Guam Industrial a clean-up notice. This wasn’t an invitation to the prom; it was a clean-up-or-else-we’ll-do-it-ourselves-and-make-you-pay-through-the-nose notice . . . .

Like the majority, I start with the dictionary definitions of “discharge,” “dispersal,” “release” and “escape” to ascertain their ordinary meaning. A “discharge” is a “release from confinement, custody, or care.” Merriam-Webster’s Collegiate Dictionary 356 (11th ed. 2003). A “dispersal” is the act of “spread[ing] or distribut[ing] from a fixed or constant source.” Id. at 361. A “release” is the act of “set[ting] free from restraint [or] confinement,” id. at 1051, and an “escape” is “flight from confinement,” id. at 425. The majority concludes that “barrels or containers were discharged, dispersed, and released” from the dry dock. Op. at 11. It then follows that the contents of those barrels were likewise “discharged, dispersed, and released” from the dry dock.

Let’s say you place your cell phone in your backpack while hiking, and the backpack falls into a crevice and can’t be recovered. You’d certainly be right in claiming that you lost your cell phone, even though the phone is still inside your backpack. What matters is that the backpack and its contents are no longer in your control. If the phone was insured against loss, no insurance company (except maybe Zurich) would claim that the phone isn’t lost because it’s still inside your backpack.

* * *

No rational dry dock owner would buy a policy that covers government-ordered pollution clean-up if containment vessels filled with toxic waste break apart upon sinking but not if they remain intact. It’s absurd. Zurich’s denial of coverage is the type of slimy conduct that gives insurance companies a bad name. This opinion should serve as fair warning to those who would throw away good money doing business with Zurich.

Judge Kozinski will not be taking Zurich to the prom any time soon.

The Corporate LiveWire Global Awards 2014 Lawyer of the Year winner’s guide is available here.

McKennon Law Group PC is proud and honored to announce that Robert J. McKennon, founding shareholder of McKennon Law Group PC, has been named as Corporate LiveWire’s Global Awards 2015 Orange County, California Insurance & Risk Management Lawyer of the Year. The annual Global Awards Lawyer of the Year recognition honors the achievements of those individuals that have consistently shown best practice and demonstrated general excellence in every endeavor on a global and national level. Mr. McKennon specializes in all types of insurance litigation but especially focuses his efforts in long-term disability insurance, life insurance, long-term care insurance, health insurance and insurance bad faith litigation.

The Corporate LiveWire Global Awards 2014 Lawyer of the Year winner’s guide is available here.

On April 22, 2015, the United States Court of Appeals for the Ninth Circuit upheld a substantial award to a McKennon Law Group PC client for his past-due ERISA plan benefits. This award included all his unpaid benefits plus attorneys’ fees, costs and interest. In an unpublished decision, the Ninth Circuit ruled that the district court correctly found that Sun Life “abused its discretion” in denying the claim and acted with bias, as evidenced by its failure to correct an error caused when another patient’s record was mixed with the insured’s, its reliance on a purely paper review, its failure to reconcile its findings with those of the insured’s physicians and its own psychiatrist’s earlier contrary determination and its demand for objective evidence despite the psychiatric nature of the disability. Previously, District Court Judge Cormac J. Carney identified flaws in Sun Life’s review and commented that they “raise[] serious questions about the quality of the process Sun Life used in making its determination.” The district court ultimately ruled for the insured, and in April 2013, the Ninth Circuit Court of Appeals affirmed this Judgment. The McKennon Law Group expects to be awarded substantial attorneys’ fees and costs associated with the appeal

In actions brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), two roads diverge in federal court—and the court’s choice regarding the applicable standard of review can make all the difference in the scope of permissible evidence. If the court applies the abuse of discretion standard of review, the court more typically (but not always) only considers evidence received by the insurer in time for its decision and limits its review to the “administrative record” to determine whether the insurer’s denial was an abuse of discretion. Alternatively, the court may review a case “de novo,” and may consider documents not previously provided to the insurer to determine whether the insured is entitled to benefits.

Prior case law holds a district court must review a plan administrator’s decision de novo, “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Ninth Circuit Court of Appeals expanded upon this holding, by defining what constitutes the “benefit plan.” The Ninth Circuit clarified that where a Summary Plan Description (“SPD”) which was not defined as an official plan document unambiguously granted discretionary authority to a plan administrator to decide claims, but an insurance certificate, an official plan document, did not grant discretionary authority, the official plan document governed. Because the governing plan document, the insurance certificate, did not grant the insurer discretionary authority, the district court was required to review the case de novo. Prichard v. Metropolitan Life Ins. Co., 2015 U.S. App. LEXIS 6553 (9th Cir. Apr. 21, 2015). Prichard is significant as the de novo standard is arguably more favorable to insureds, because it not only provides a less deferential standard of review, but insureds may be able to conduct discovery and supplement the administrative record to offer evidence that administrators acted with bias or to bring in additional medical evidence to support a disability.

Prichard involved a fairly standard ERISA claim by Matthew Prichard, an insured, against Metropolitan Life Insurance Company (“MetLife”) for his long-term disability insurance benefits. Prichard’s policy contained a 24-month benefits period for mental limitations. Prichard filed for, and received, benefits for his psychiatric disability for a period just shy of 24 months. Subsequently, MetLife requested additional information demonstrating Prichard was disabled due to non-limited conditions, received his updated medical records and decided there was insufficient medical evidence to support his claim. Prichard appealed unsuccessfully, then brought suit for a continuation of his ERISA benefits under 29 U.S.C. section 1132(a)(1)(B).

The district court addressed whether the applicable standard of review was de novo or abuse of discretion. MetLife pointed to unambiguous language in its SPD granting the plan fiduciary “discretionary authority to interpret the terms of the Plan,” and argued for the abuse of discretion standard of review. Prichard argued the Supreme Court holding in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) stating the terms of plan summaries may not be enforced as the plan itself precluded MetLife from asserting that the SPD language was the Plan language. Prichard further argued that no other plan documents conferred discretionary authority on MetLife, and therefore the district court should review the case de novo. The district court found the SPD was a governing plan document which unambiguously granted MetLife discretionary authority to determine claims and benefit eligibility. Applying an abuse of discretion standard of review, the district court held that MetLife did not abuse its discretion in denying Prichard disability benefits. Prichard timely appealed.

The Ninth Circuit Court of Appeals reversed, explaining that a district court must review a plan administrator’s denial of benefits de novo, unless the benefit plan gave the administrator discretionary duty to determine eligibility for benefits. The Court noted that Amara involved a dispute in which there was an SPD and a written plan instrument, and the plan administrator sought to enforce the SPD’s terms over those of the plan instrument. MetLife sought to enforce the SPD as the one and only formal plan document. It argued that previous federal court decisions have accepted the SPD as the formal plan document where the terms of the SPD did not add to, or contradict, the terms of existing Plan documents. In light of these decisions, the Court explained that the SPD terms do not govern if they conflict with governing plan documents, and similarly, the SPD cannot create terms beyond those in the governing plan documents. However, the Court rejected MetLife’s argument that the SPD and the plan “are one and the same.” The Court determined that the SPD clearly stated the only plan documents are 1) a Group Policy (including the certificate), 2) IBM’s application and 3) any amendments or endorsements to the Group Policy. The Court noted that while the insurance certificate was plainly listed as a plan document, “[c]onspicuously absent from this exclusive list was the SPD.” Further, MetLife carried the burden of providing other official plan documents, such as a document containing the discretionary language, but failed to do so. As such, the SPD was the only plan document provided to the Court, and it did not grant discretionary authority to MetLife. The court also noted that “the SPD itself declares ‘official plan documents. . . remain the final authority’ and ‘shall govern’” if the SPD terms conflict with official plan documents. Finally, the Court of Appeal stated:

Because the official insurance certificate contains no discretion-granting terms, we will not, consistent with Amara, hold that the SPD’s grant of discretion constitutes an additional term of the Plan.

Accordingly, the Court held the district court erred in reviewing MetLife’s denial under the abuse of discretion standard of review, and remanded for a de novo review.

While Prichard turned on a technical distinction—what constitutes an official plan document, it affirms the idea that an insurer does not have discretionary authority absent clear language in official plan documents. Therefore, unless an insurer establishes it has discretionary authority under such documents, a court must apply a de novo standard of review. This de novo standard can be outcome determinative.

For ERISA Disability Insurance Appeals, A Claimant Who is a Day Late May Not Be a Dollar Short

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