McKennon Law Group, Author at McKennon Law Group

At times, decisions that appear favorable to insurers can also have unexpectedly positive take-aways for policy holders. Gordon v. Deloitte & Touche, __ F.3d ___, 2014 U.S. App. LEXIS 6688 (9th Cir. April 11, 2014) is just such a case. Although, the Ninth Circuit in Gordon ruled in favor of the insurer in finding that the insured’s ERISA action was barred by the California four-year statute of limitations, the Court also reaffirmed and clarified the standards for evoking waiver and estoppel arguments to prevent insurance companies from raising a statute of limitations or contractual limitations defense.

The plaintiff in Gordon was an insured under a long-term disability plan (the “Plan”) governed by ERISA. The plan was insured and administered by MetLife. The insured sought disability benefits under the Plan due to depression. After initially paying benefits to the insured, MetLife terminated benefits. The insured subsequently filed two appeals. In 2004, MetLife denied the insured’s second appeal, but indicated in the denial letter that she had 180 days to appeal the decision. The insured did not file an appeal and took no action for more than four years. Then, in 2009, after receiving a request from the California Department of Insurance to reevaluate the claim, MetLife reopened her claim. However, MetLife upheld its original decision to terminate benefits. MetLife’s denial letter advised the insured that she had 180 days to appeal and, that if the appeal was denied, she would have the right to bring a civil action under ERISA section 502(a).

In January 2011, the insured filed a complaint in federal district court. The district court granted the Plan’s motion for summary judgment, finding that the insured’s action was barred by the applicable four-year statute of limitation and the Plan’s three-year contractual limitation. The insured appealed arguing that MetLife’s limitation defense does not bar her action because: (1) reopening the claim file reset the statute of limitation; (2) the insurer waived its limitation defense; and (3) the insurer was estopped from asserting a limitation defense. All three arguments were ultimately rejected by the Ninth Circuit who affirmed the district court’s decision. However, in reaching this decision, the Court provided valuable edification of the limits placed on the use of time bars as a defense to claim brought under ERISA. As an initial matter, given the nearly seven years that had passed between the filing of the complaint and when the 180 day period to file an appeal expired, the court found that the statute of limitations had clearly ran and did not consider whether the three-year contractual limitation period applied.

The Court then addressed the insured’s argument that reconsideration of her claim in 2009 revived the statute of limitations pursuant to California law regarding creation of a new cause of action resulting from acknowledgment of debt. However, the Court reiterated that federal law governs determination of the accrual of an ERISA action and the Court found that reopening the claim file by itself is not sufficient to revive the statute of limitations. Next, the Court considered the insured’s estoppel argument. Significantly, the Court definitively acknowledged that, as a general rule, an insurance carrier will be estopped from relying on a statute of limitations defense when its own prior representations or conduct have caused the plaintiff to run afoul of the statute and equity justifies holding the defendant responsible for the outcome. However, the Court found that in this particular case, the statute of limitations had already run when MetLife informed the insured in its 2009 denial letter that she could bring an ERISA action.

Finally, the Ninth Circuit addressed for the first time in this case, whether a waiver argument can be used by insureds to prevent insurers from raising a limitation defense in ERISA cases. Turning to California law for guidance, the Court concluded that, based on a review of California decisions, an insurance company cannot waive the statute of limitations after it has run. Nevertheless, adopting the position taken by the Seventh Circuit, the Court found that even if waiver or estoppel were available in this case, the insured would have to show either detrimental reliance or some misconduct by the insured. Here, the Court held the insured had simply not shown any detrimental reliance or unfair conduct by MetLife. However, it is important to note that the Court in Gordon did not address the United States Supreme Court’s recent decision in Heimeshoff. In that decision, which was discussed in our prior blog article, the Supreme Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel. Given, the Supreme Court’s clear position on this issue, the Ninth Circuit will likely be more inclined to allow waiver arguments to be used to prevent insurers from raising a limitation defense in the future.

The Gordon decision highlights many of the potential pitfalls for insureds in dealing with navigating often complex rules regarding statute of limitations and contractual limitations. More importantly, it reaffirmed that estoppel can still prevent insurers from raising a limitations defense. The decision leaves open whether waiver may be used as well to prevent insurance companies from using contractual limitation periods as a defense if the insured can show detrimental reliance or self-serving misconduct by the insurer. However, given the Supreme Court’s affirmation of the applicability of traditional equitable remedies in ERISA cases in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., 134 S. Ct. 604 (Dec. 16, 2013) courts in the Ninth Circuit will likely allow insureds to use waiver and estoppel to overcome statute of limitation defenses in certain limited situations. The Gordon decision should serve as a reminder to insureds to act immediately if their claims are denied and to contact an attorney to ensure that they do not forfeit their right to file a lawsuit. This is especially true in dealing with disability LTD insurance, health insurance and life insurance matters.

McKennon Law Group PC’s founding partner, Robert J. McKennon, published an article entitled “New liability for claims adjusters the right move” in the Los Angeles Daily Journal on April 21, 2014, a new case which exposes insurance adjustors to negligent misrepresentation and intentional infliction of emotional distress claims by policyholders.

McKennon Law Group PC’s founding partner, Robert J. McKennon, published an article entitled “Clear win for insureds, though scope uncertain” in the Los Angeles Daily Journal on August. 7, 2013, discussing the very important and highly anticipated California Supreme Court ruling in Zhang v. Superior Court of San Bernardino, 2013 DJDAR 10174 (August. 1, 2013). This decision allowed new theories of liability under California’s Unfair Competition Law against insurance companies who improperly deny insurance claims.

The April 21, 2014 edition of the Los Angeles Daily Journal featured Robert McKennon’s article entitled: “New Liability for claim adjusters the right move.” In it, Mr. McKennon discusses a new case which exposes insurance adjustors to negligent misrepresentation and intentional infliction of emotional distress claims by policyholders. The article is posted below with the permission of the Daily Journal.

New liability for claims adjusters the right move

After filing an insurance claim, it is not uncommon for an insured to receive unfair treatment from the claims adjuster assigned by the insurer. For example, a claims adjuster may misrepresent the value of a claim or misstate policy coverage. An insured can, of course, bring claims for breach of contract and insurance bad faith against the insurer for such improper actions; however, it is well-established that under California law, insureds cannot sue the claims adjuster for breach of contract or insurance bad faith. See Sanchez v. Lindsey Morden Claims Services Inc., 72 Cal. App. 4th 249 (1999).

But can an insured sue a claims adjuster for negligent misrepresentation or intentional infliction of emotional distress? The state Court of Appeals, in Bock v. Hansen, 2014 DJDAR 4280 (Apr. 2, 2014), held that they can. Bock is the first case to extend liability for certain claims handling actions to adjusters.

Michael and Lorie Bock purchased a homeowner’s policy from Travelers Property and Casualty Insurance Co., which covered physical loss to their home and the cost of debris removal. After a tree limb collapsed onto the Bocks’ home and caused substantial property damage, the Bocks reported the incident to Travelers, which assigned Hansen, a claims adjuster to handle the claim. The Bocks allege that the adjuster spent no more than 15 minutes at the scene, altered the scene to downplay the severity of the damage, and falsely informed the Bocks they were not covered for debris removal.

Subsequently, the Bocks discovered and reported additional damage to their chimney. Travelers sent Hansen again, despite the Bocks’ protests. Hansen again told the Bocks their policy did not cover “cleanup,” and the Bocks, relying on this representation, began cleaning the debris themselves. Later that day, Travelers sent Vertex Construction Services, a company without a valid contractor’s license, which assessed the damage and issued a false report understating the extent of the damage. Based on Vertex and the adjuster’s estimates, Travelers issued a check in an amount barely enough to cover the costs of tree removal, let alone to cover the damage caused, and denied coverage for the chimney damage. The Bocks submitted additional information, including a licensed contractor’s review and response to the Vertex report, for a reconsideration of their claim, but Travelers never responded.

Subsequently, the Bocks filed a complaint against Travelers, the adjuster and Vertex for, among other claims, breach of contract, bad faith, negligent misrepresentation and intentional infliction of emotional distress. The trial court sustained demurrers to these actions without leave to amend. The Bocks appealed.

The Court of Appeal reversed and upheld the negligent misrepresentation claim and granted the Bocks leave to amend their IIED claim. The court noted that insurers were in a “special relationship” with insureds, “akin to a fiduciary relationship,” and therefore owed insureds a duty to perform their responsibilities in good faith. Because Travelers was in a special relationship with the Bocks, Hansen, its employee, owed certain legal duties to the Bocks as well.

Courts focus on two circumstances in finding negligent representation liability: (1) where providing false information poses a risk of, and results in, physical harm to a person or property and (2) where the information is conveyed in a commercial setting for a business purpose. Here, the court found both circumstances applied — Mrs. Bock was physically harmed while cleaning up broken glass around the tree limb, and Hansen misrepresented Travelers’ scope of coverage for a business purpose.

The court also explained an agent or employee is always liable for his or her own torts, even when acting within the scope of his or her agency or employment: “Hansen also argues that he cannot be liable as an agent because he was acting in the course and scope of his employment. The complete answer is found in the terse statement of the rule in Witkin: ‘An agent or employee is always liable for his or her own torts, whether the principal is liable or not, and in spite of the fact that the agent acts in accordance with the principal’s directions. Similarly, an agent who commits an independent tort, such as fraud, remains liable despite the fact that the principal, by ratification, also becomes liable.’” (Emphasis added).

The court distinguished cases involving an insurance agent rather than a claims adjuster, and dismissed the argument that reliance on any misrepresentation was unjustified because the policy itself stated otherwise. Indeed, California courts do not allow a duty-to-read-the-insurance-policy defense when agents make representations to insureds about policy coverage. The court explained that insurance policies are complicated legal contracts and “[a]bsent some notice or warning, an insured should be able to rely on an agent’s representations of coverage without independently verifying the accuracy of those representations by examining the relevant policy provisions.”

Additionally, the court rejected the argument that the Bocks were on notice as to coverage since the Bocks began cleaning up prior to receiving an estimate based on Hansen’s misrepresentation, and sustained damages despite the minimal amount paid by Travelers.

Finally, the court ruled that insureds may assert IIED claims against claims adjusters, but found that the Bocks did not adequately plead the claim. The Bocks alleged that Hansen engaged in outrageous conduct by, among other things, ignoring evidence of coverage, altering the accident scene to deny coverage, creating a false report regarding damage to the Bocks’ property, and denying the claim for chimney repair when Hansen knew it was the Bocks’ primary source of heat. Ultimately, the court was not persuaded that these allegations constituted extreme and outrageous conduct as a matter of law. However, because the Bocks identified a litany of other allegations they could assert in an amended complaint that constituted outrageous conduct and caused them severe emotional distress, the court permitted the Bocks to amend their claim to support an IIED claim.

Bock is a well-reasoned, policyholder-friendly decision that expands liability to claims adjusters, such that adjusters may be liable for negligent misrepresentation and IIED. Based on the holding, there is no reason to believe that intentional misrepresentation claims cannot also be asserted in the proper circumstances. Claims adjusters are often the face of the insurer. They are expected to know the policy terms and coverages and to apply them in good faith to a given set of facts to determine coverage. When claims adjusters misrepresent policy terms or assert facts that they know, or should know, are false and when they know or believe that the insureds will rely on them to their detriment, it is not unreasonable to hold them accountable. It will be up to policyholders’ attorneys to determine if suing adjusters adds any value to their case. In most cases it will not, but it may in some situations, be just the right remedy and it may even mean the difference between litigating in state court vs. federal court as naming a local claims adjuster could act to defeat diversity jurisdiction in federal court.

We founded McKennon Law Group PC for one purpose: to provide our clients effective representation targeted to get the best results possible. With single-minded focus, we aim to achieve our client’s objectives in an aggressive, yet professional manner.

We have arbitrated, tried, appealed, and resolved hundreds of insurance disputes, including but not limited to the following: long-term disability insurance, property/casualty, commercial general liability insurance, lifeinsurance, health insurance, professional liability, officers and directors liability insurance, employment practices liability insurance, homeowners and business owners property and liability insurance. We have litigated disputes involving but not limited to: insurance and real estate agent/broker liability and other consumer and general business matters. We have recovered millions of dollars in both judgments and settlements for our clients.

When you need an attorney, choosing the right law firm is the most important decision you will make. We are counted among California’s leading long-termdisability insurance, life insurance,insurance coverage,ERISA, business, and consumer attorneys. Our attorneys are nationally recognized in long-termdisability insurance, life insuranceand health insurance and ERISA/Employee benefit insurancelitigation, and are frequent authors and speakers at national and local conferences on these topics.

Every year, thousands of people suffering from severe sickness or injuries have to file claims with their disability insurance company. Disability insurance policies are often complicated and difficult to interpret correctly, which can cause problems for those looking to follow the rules and regulations that are set on both the insured and the insurance company. Especially because disability insurance is intended as a form of income replacement, it is important to file these claims correctly to ensure you receive payment.

There are a few different kinds of disability insurance, each with it’s own set of difficult regulations. Long-term and short-term disability insurance policies are purchased either directly from an insurance company or through an employer, and includes disability insurance related to business overhead, credit cards, mortgages, and occupations. Insurance policies bought individually usually must adhere to state laws, while policies attained through an employer are regulated by ERISA.

However, occasionally even if a claim is filed correctly, an insurance company may deny a legitimate disability claim. Most often, these denials are unlawful and you can sue your insurance company for the benefits due to you. If you purchased your policy individually, you can potentially sue for damages caused by the company’s bad faith, includingemotional distress, attorneys’ fees, and interest on overdue benefits, as well as for the policy benefits originally owed. Similarly, if you received your policy through an employer, you can sue for attorneys’ fees, interest on unpaid benefits, and the owed policy benefits.

While taking action against an insurance company can seem overwhelming, doing so will insure that you and your family receive the necessary support. The attorneys at McKennon Law Group PC specialize in handling individual and ERISA disability insurance and bad faith insurance disputes, and we’ve successfully litigated hundreds of disability insurance cases over the past 28 years. Contact us today to learn how our Los Angeles and Orange County attorneys can help you with your disability insurance case.