McKennon Law Group, Author at McKennon Law Group

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance and ERISA areas of the law. This article in that series focuses on appealing a denial of your long term disability insurance claim for long term disability insurance benefits under ERISA.

The short answer is “Absolutely.”

If your claim for benefits under an ERISA plan is denied, you cannot immediately file a lawsuit to collect your benefits. Instead, you are required to file at least one appeal with the very same company that denied your claim in the first place. While the insurance company is perfectly happy to allow you to conduct the appeal without the help of an attorney, by doing so, you might be handicapping your chances of winning a lawsuit if/when the company denies your appeal.

When you appeal the denial of your claim for benefits, the insurance company NEVER TELLS YOU that you will not be allowed to use new evidence to support your claim in your lawsuit. In most cases, you will instead be limited to the documents in the insurance company’s file, called the Administrative Record. Thus, the worst thing you can do is simply tell the insurance company that you disagree with their decision and would like to appeal. But if you hire an attorney who has strong experience handling ERISA matters, including litigating them, that attorney can help ensure that your file contains all of the documents and information that you will need in your lawsuit and help to ensure that you timely file your appeal (if your appeal is not filed at all or if it is not timely, you may lose your right to sue for the benefits). An attorney can also help identify problems with the insurance company’s initial review, and make sure those problems are noted in the record for use in the litigation. In addition, when confronted with the arguments of experienced ERISA attorneys such as McKennon Law Group PC, the insurance company or plan administrator will often reverse itself and approve the claim for benefits.

Accordingly, when appealing a claim decision under a short-term disability insurance, long-term disability insurance, life insurance or annuity plans governed by ERISA, the best thing you can do to increase your chances on appeal is to hire an experienced ERISA attorney to help you through the process.

1. Make Sure You Have a Complete Copy of Your Plan/Policy – The first step when making a claim for long-term disability insurance benefits is to secure a copy of your policy. If your employer provided your insurance coverage, request a full and complete copy of your policy from Human Resources. Make sure you get a complete copy of the plan/policy, not just the Summary Plan Description. If you purchased your policy directly from the insurance company, or through an insurance agent/broker, you probably already have a copy of your policy with the application attached. If you cannot locate it, contact the agent/broker and/or the insurance company to request a copy of the policy.

2. Be Aware of all Deadlines – Many insurance policies contain deadlines requiring you to submit your claim within a certain period of time. It is important to be aware of these dates so you do not inadvertently waive your rights to benefits. In fact, you should try to make your claim as soon you realize that your disability prevents you from working to make sure that you do not accidentally miss a deadline.

3. Become Familiar with Your Policy’s Definitions/Provisions – Every disability insurance policy/plan is different. Be sure to read your policy/plan so that you are familiar with its terms. This will help you figure out what information you will need to provide to the insurer to support your claim for disability insurance benefits. The policy/plan will also include the definition of “Disability” or “Total Disability” that the insurance company will use to evaluate your claim. You will want to review policy/plan provisions so that you know some of the following:

What are your total policy/plan benefits and how are they calculated?
What is the elimination period?
What are limitations on policy/plan benefits?
Are there offsets to your policy/plan benefits and if so, what are they?
What are the exclusions to coverage?

4. Request and Complete All Claim Documents – After you identify to whom you must submit your claim, you need to request and complete all of the claim documents/forms. This typically includes forms to be completed by you, your employer, and your medical health professional(s). It is very important that you promptly complete all of the documents and make sure they are submitted to the insurer. If you fail to complete all the required documents, the insurance company will likely deny your claim citing “lack of information,” regardless of the strength of your disability claim.

5. Gather Your Medical Records and Make Sure Your Medical Health Professional(s) Support Your Disability – When you decide to make a claim for disability insurance benefits, the most important documents you will submit to the insurance company are your medical records and the opinions of your medical health professional(s). The insurer will evaluate your records to determine whether it believes you are capable of performing your job duties in spite of your medical condition, diagnosis and restrictions and limitations. It is therefore important not only to make sure that you send the insurance company all of your medical records that support your claim, but also that your medical health professional(s) agrees that your condition prevents you from returning to work. If your medical health professional(s) thinks you can work is some manner, then the insurance company is very likely to follow their opinion and deny your claim. Make sure your medical health professional(s) understand your material and substantial occupational duties so they can correctly evaluate whether you can work and for how long.

6. Make Sure You Provide a Clear Explanation as to How Your Disability Prevents You From Returning to Work – Your claim for long-term disability insurance benefits depends on your being able to demonstrate that your medical condition, and associated restrictions and limitations, prevent you from performing your job duties. It is therefore important that you are able to explain to the insurance company why you can no longer work. For example, if you suffer from migraine headaches, you should explain that the headaches make it difficult for you to concentrate. Or if you have a back condition that prevents you from sitting for an extended period of time or lifting things, you must make that clear to both your doctors and the insurance company. You must give the insurance company a reason to approve your claim for benefits, and simply saying “I cannot work,” is not enough. You must be able to specifically explain why you are unable work.

7. Determine Whether You Want to, or are Required to, File For Social Security Disability Benefits, State Disability Benefits and/or Workers’ Compensation Benefits – Some policies require that you apply for Social Security Disability benefits, State Disability benefits and/or Workers’ Compensation benefits, if applicable, because they can take offsets for such benefits. You can be penalized with a reduced benefit payment if you do not comply with these provisions, so make sure to apply for these benefits if required.

8. Determine if You Have Short-Term Disability Coverage – All disability insurance policies have an “Elimination Period,” which is the time period between an injury and the receipt of benefits. In other words, it is the length of time between the beginning of an injury or illness and receiving benefit payments from an insurer. It is sometimes referred to as a “waiting” or “qualifying” period. Elimination Periods can be as long as 180 days, but if you have short-term disability insurance you should be able to receive benefits during the Elimination Period.

9. Know What Law Applies to Your Disability Claim – Which law applies to your disability claim depends on how you obtained your policy. If your employer provided your insurance coverage, it is more likely than not that your claim will be governed by a Federal law called ERISA, which stands for the Employee Retirement Income Security Act of 1974. If you purchased your policy directly from the insurance company, your claim will likely be governed by State law. If your claim is denied, your damages and potential remedies will likely be larger under state law, because you can sue the insurance company for past due and future benefits, as well as for bad faith (also known as a breach of implied covenant of good faith and fair dealing). The remedies available under ERISA are limited to past due benefits, and possibly attorneys’ fees if you prevail in your lawsuit.

Additionally, if your claim is governed by ERISA, then the plan’s language and definitions will control. However, if your claim is not governed by ERISA, but is governed by California’s or some other state’s laws, you should know this. If state law governs, you may be able to disregard the definition of total disability in your policy and use the applicable state law definition. This is especially true in California where the law is very friendly to consumers. Very often, we see insurance companies incorrectly use the definition of total disability, which can be outcome determinative to your claim. If you are not sure if your claim is governed by ERISA or state law or if you are not sure what legal definition of total disability applies to your claim, you should contact an experienced attorney.

10. Be Careful What You Post on Social Media Sites – Insurance companies have begun to check their claimant’s social media posts to see if they are acting in a way that is inconsistent with their claimed restrictions and limitations. While everyone likes to put their best foot forward on social media, if your Facebook or Twitter posts (writings or photos) conflict with your claimed restrictions and limitations, the insurance company may use your own words or photos as a basis to deny your claim. If you feel you must regularly update your Facebook or Twitter accounts, set them to private, do not accept friend/follower requests from anyone you do not know and be very careful about what you post.

If you want to read an important case on Cumis counsel and the consequences to insurers who fail to fulfill their obligations relating thereto, we have one for you. J.R. Marketing LLC v. The Hartford Cas. Insurance Co., __ Cal.App.4th __ (May 17, 2013). This case has a lot to offer: Cumis counsel, attorneys’ fees, Buss allocations, duty to defend, and insurance bad faith issues. In this case, the California Court of Appeal for the First District handed down a very important decision that is highly beneficial to insureds and their independent counsel (i.e., Cumis counsel). Significantly, the court expanded upon the limitations on the ability of insurers to impose upon their insureds’ choice of defense counsel when they do not properly defend their insureds, most likely committing insurance bad faith. Specifically, the Court found that insurers who wrongfully refuse to defend their insureds are barred from maintaining suits against their insureds’ independent counsel for reimbursement of fees and costs charged by such counsel and are barred from relying on the protections afforded insurers under Civil Code section 2860.

J. R. Marketing involved an insurer who issued two commercial general liability policies to two insureds under which the insurer promised to defend and indemnify the named insured for certain business-related damages alleged against them. When several claims were brought against the insureds in California, also in non-California Courts, the insureds and several non-insureds, tendered the defense of the lawsuit to the insurer also requesting that it indemnify them under the two policies. The insurer initially denied its duty to defend under the policies, but after the insureds filed a lawsuit against their insurer, the insurer agreed to defend under a reservation of rights, but declined to pay for attorneys’ fees prior to its agreement to defend and refused to provide and pay for independent counsel pursuant to San Diego Fed. Credit Union v. Cumis Ins. Society Inc. 162 Cal.App.3d 358 (1984). However, the insurer then filed a cross-complaint seeking reimbursement of the fees and costs it had paid to Cumis counsel contending that they were unreasonable or unnecessary. The trial court later granted a motion for summary adjudication and ordered the insurer to pay all outstanding fee invoices sent by Cumis counsel within fifteen days. The insureds and non-insureds submitted bills for a whopping $15 million (you read that correctly!). The insurer paid them.

In reviewing the trial court’s order sustaining the insured’s demurrer to the insurer’s cross-complaint for reimbursement and other causes of action, the Court of Appeal focused on the issue of whether the insurer had a “quasi-contractual right rooted in common law to maintain a direct suit against” the insured’s Cumis counsel. First, the Court stated that although Civil Code section 2860 provides an insurer with certain protections, such as setting a limit of the rate of fees an insurer is obligated to pay to Cumis counsel, an insurer forfeits such protection when it fails to meet its duty to defend. As such, the Court held, because the insurer in J.R. Marketing failed to defend and accept tender of defense of the insureds, it forfeited “its right to rely on the statutory protection of section 2860 and to otherwise control the defense.”

Next, the Court addressed the key issue in this case; whether the insurer has also forfeited its right to seek reimbursement from the insured’s Cumis counsel by failing to meet its duty to defend. The Court of Appeals concluded that the insurer had. Initially, the Court acknowledged that under Buss v. Superior Court, 16 Cal.435 (1997), the insurer may well have a right to reimbursement for unreasonable or unnecessary fees. But, crucially, the Court found that the insurer cannot seek reimbursement from an insured’s Cumis counsel. The Court based its conclusion on an examination of the policies behind the enactment of Civil Code section 2860. The Court found that under California law, by refusing to defend, the insurer lost all right to control the defense, including the right to manage the financial decisions “such as the rate paid to independent counselor or the cost effectiveness of any defense tactic. Finally, because established California law deprived the insurer of the right to manage the defense, the Court explained that it:

[N]ow takes the law one slight step further by holding [the insurer] likewise barred from later maintaining a direct suit against independent counsel for reimbursement of fees and costs charged by such counsel for crafting and mounting the insureds’ defense where [the insurer] considers those fees unreasonable or unnecessary.

Although the Court clarified that the holding is limited to the facts of the case and that an insurer may still be able to claim that independent counsel engaged in fraudulent billing practices, the “slight step further” taken by the Court actually substantially limits the power wielded by insurers who breach their duty to defend insured. More importantly, the case enhances the ability of independent counsel retained by insureds to vigorously prosecute their clients’ cases without fear of a possible action for reimbursement by insurers. This case sends a strong message: insurers who reserve their rights and refuse to fund the defense of Cumis counsel take a big chance that they will be stuck paying those fees without any real ability to challenge them.

In a case of first impression, the California Court of Appeal for the Sixth District held that a plaintiff who sued a defendant and settled the case can later sue the defendant’s insurer directly for breach of contract and bad faith concerning a medical expense provision. This unprecedented decision potentially opens a new avenue for injured plaintiffs to pursue redress directly from insurers for injuries caused by their insureds.

Barnes v. Western Heritage Insurance Co., __ Cal.App.4th __, 2013 Cal. App. LEXIS 480 (June 18, 2013) involves a Plaintiff who was injured in 2001 when a table fell on his back during a recreational program co-sponsored by the Defendant. Plaintiff made a claim against the Defendant. But when Plaintiff subsequently requested payment from Defendant’s insurer, Western Heritage Insurance Company, more than one year after the accident for consultation with a medical specialist, the insurer denied the request under the insured’s Comprehensive General Liability Policy. The insurer asserted that to qualify for medical payment coverage under the applicable policy, Plaintiff had to report a claimed medical expense to the insurer within one year of the accident

Plaintiff settled a separate personal injury lawsuit against the Defendant regarding his medical expenses. However, the insurer was not a party to that lawsuit. Five years later, Plaintiff initiated an action against Defendant’s insurer for breach of contract and breach of the implied covenant of good faith and fair dealing based on the denial of his request for medical payment coverage.

The trial court granted summary judgment in favor of the insurer. Among other things, the trial court ruled Plaintiff’s lawsuit against the insurer was barred by collateral estoppel because he settled his claims in the underlying personal injury action, including any claim for medical expenses; allowing Plaintiff to recover under the medical payment provision of the policy would result in impermissible double recovery; the insurer was not equitably estopped to assert the policy’s one-year deadline as a defense because it had no duty to disclose the deadline to Plaintiff and Plaintiff did not rely to his detriment on any failure to disclose; and certain evidentiary objections asserted by the insurer have merit.

Plaintiff asserted on appeal that the trial court erred. He argued (1) collateral estoppel did not bar this action because the issues raised, litigated and necessarily determined in the personal injury action are different from those raised, litigated and to be determined in this action; (2) permitting him to recover under the medical payment provision would not result in double recovery because the insurer owed him a separate and direct duty under the medical payment provision; (3) the insurer was equitably estopped from asserting the one-year deadline in the policy because it did not inform him of the deadline; and (4) certain evidentiary objections asserted by the insurer should have been overruled.

The Court agreed with Plaintiff that the trial court erred in granting the insurer’s summary judgment. Specifically, the Court concluded: (1) collateral estoppel did not bar the present action because the issues asserted were not litigated or determined in the prior personal injury action; (2) a recovery would not amount to an impermissible double recovery because Plaintiff was now claiming that the insurer breached its direct duty to him under the medical payment provision of the insurance policy, a duty distinct from the obligation the insurer owed the insured Defendant under the liability provision of the policy; and (3) there was a triable issue of material fact regarding whether the insurer was equitably estopped to assert the policy’s one-year deadline as a defense. Accordingly, the Court of Appeal determined that the insurer’s summary judgment motion should not have been granted based on the record and reversed the trial court’s judgment.

The Court’s decision in Barnes is significant in that it found for the first time that an injured plaintiff may pursue a claim against a defendant’s insurer for bad faith and breach of contract under a medical payments provision after settling the underlying lawsuit against the insured. This plaintiffs’ friendly and novel decision expands the ability of injured plaintiffs to recover for harm caused by an insured defendant.

In an interesting opinion concerning a dispute over long-term disability (“LTD”) insurance benefits due under an ERISA plan, a District Court held that an ERISA administrator cannot rely on a contractual limitation period to defeat an insured’s claim where it failed to provide the insured with sufficient documentation and/or notice of the existence of the limitation period. The decision in Barnett v. California Edison Co. LTD Plan, U.S. Dist. LEXIS 71345 (E.D. Cal. May 20, 2013) emphasizes that administrators of ERISA-governed policies must first discharge their fiduciary duty to fully inform the insured of existing contractual limitation periods before attempting to enforce provisions to defeat a lawsuit initiated by a plan participant.

Barnett involves a Plaintiff who was an employee of Southern California Edison and a participant in Edison’s long-term disability insurance plan (“Plan”). Significantly, the Plan contained a contractual limitation period requiring that a plan participant institute legal action no later than 180 days after a final decision is rendered on his or her appeal. The Plaintiff applied for disability benefits under the Plan and was initially approved. However, Plaintiff’s LTD benefits were terminated following an independent medical examination after the examining physician opined that he was no longer disabled under the terms of the Plan. The Plaintiff appealed the decision twice, and but the administrator upheld the original denial decision both times.

The Plaintiff then filed a lawsuit against the Plan alleging three causes of action. However, the Plaintiff’s complaint was filed after the expiration of the 180-day contractual limitation period. The parties filed cross Motions for Summary Judgment. The Plaintiff sought a declaratory judgment barring the Plan from relying on the 180-day contractual limitations period. The Plan’s opposition and counter-motion argued that the Plaintiff was time barred by the contractual limitation.

The relevant portion of the policy provides:

If your appeal is denied, in whole or in part, you may bring a civil action in federal court. However, no action may be brought . . . until you have exhausted the claim and appeal procedures in this Handbook. Further, no legal action may be brought . . . more than 180 days after the final decision has been rendered . . . on the appeal of your claims for benefits under the terms of the respective plans.

The Court first focused on the issue of the Plan’s fiduciary duty toward the Plaintiff. The Court cited to 29 U.S.C. section 1004(a)(1) and found that the Plan had a fiduciary duty under ERISA to deal with plan participants “fairly and honestly.” The Court then addressed a specific request made by the Plaintiff to the Plan, following the denial of his appeal, for all documents relevant to his claim for benefits including “the plan, with all amendments and the Summary Plan Description and all amendments.”

In response to the Plaintiff’s demand, the Plan’s contract administrator, Jacobs, sent a letter to Plaintiff stating that “enclosed you will find copies of Your Benefits Handbook for the Plan, accompanying plan change notices, and the applicable LTD trust documents. There are no . . . separate documents in relation to the LTD Plan.” However, what Jacobs sent to the Plaintiff was only a thirteen-page excerpt from a much larger Plan document which did not contain the limitation period clause that was in the larger document. As such, not only did the Plan fail to provide Plaintiff with notice of the limitation period clause, but also misrepresented the terms of the Plan by stating that the excerpt constituted the entire Plan document.

The Plan raised two arguments in support of its contention that had not breached its fiduciary duty. First, it argued that the summary Jacobs provided referenced the larger Plan document and thus Plaintiff was on notice that there was a larger Plan document. The Court found this argument to be unpersuasive because, the reference to the larger document does not overcome Jacobs’ blatant misrepresentation that the summary was the complete Plan document. Second, the Plan argued that Plaintiff had access to the complete Plan because it was available online and that a summary of the Plan was distributed to all plan participants. The Court found these arguments to be equally unpersuasive because online access does not overcome Jacobs’ misrepresentation and the fact that a summary was distributed to all plan participants is irrelevant because the summary did not contain the limitation period clause.

Based on all of the above, the Court held that the Plan breached its fiduciary duty by providing the Plaintiff with a thirteen-page summary the Plan document while representing that it was the complete document. As a result, the Court enjoined the Plan from relying on the 180-day contractual limitations period.

The Court’s decision in Barnett is significant in that it increases the burden on insurers and other ERISA administrators to fully disclose and inform insureds of contractual limitation periods and other important provisions in ERISA-governed plans before relying on them to prevent insureds from pursuing and prevailing in legal actions. Moreover, the Court in Barnett emphasized that insurers cannot excuse misrepresentations made by its agents and employees with regard to the contents of a Plan document by asserting that the information is available to the insured elsewhere.

Following an investigation conducted by the California Department of Insurance via a market conduct examination, as well as insurance regulators from Connecticut, Maine, Massachusetts and Pennsylvania, CIGNA and these states’ insurance regulators, reached a settlement over its improper handling of claims for long-term disability (“LTD”) insurance. This resulted in a Regulatory Settlement Agreement (“Agreement”) between CIGNA and its affiliates and these insurance regulators. The companies involved in the evaluation and settlement include CIGNA Health and Life Insurance Company (formerly known as Alta Health and Life), and Connecticut General Life Insurance Company, Life Insurance Company of North America (collectively, “CIGNA Companies”). In the examinations of CIGNA Companies, insurance department officials found that the CIGNA Companies engaged in numerous claim-handling irregularities, including not giving due consideration to the medical findings of independent physicians, discounting information provided by Social Security Disability decisions and not giving appropriate consideration to Workers’ Compensation records.

In addition to paying $500,000 penalty to the California Department of Insurance and $150,000 to reimburse the department for the cost of ongoing monitoring, the CIGNA Companies are settling aside $77 million for projected payments to policyholders potentially nation-wide whose claims were not handled properly. This money is being set aside for claims improperly handled between January 1, 2008 and December 31, 2010.

In addition to paying the fine and re-evaluating previously denied LTD claims, under the Agreement the companies are required to:

Enhance claim procedures to improve the claims handling process to benefit current and future policyholders.
Establish a remediation program in which the companies’ enhanced claim procedures will be applied to certain previously denied or adversely terminated claims.
Participate in a 24-month monitoring program, including random sampling and ongoing consultation by the five states’ insurance departments.
Undergo a re-examination upon completion of the monitoring period.
Pay fines and administrative fees totaling $1,675,000 to the five lead state states.

The “enhanced claims procedures” that the CIGNA Companies must implement include:

Procedures regarding the weight to be given to awards of Social Security Disability Income benefits;
Enhanced procedures regarding the gathering of medical information and the documentation of conclusions;
Guidelines/or Use of External Medical Resources (i.e., following guidelines when utilizing Independent Medical Examinations or Functional Capacity Evaluations and providing claims personnel and outside professionals (such as consulting physicians) with all available medical, clinical and vocational evidence, including both objective and subjective evidence of impairment);
Ongoing objectives (such as the CIGNA Companies’ claim procedures shall include focus on policies and procedures relating to medical and related evidence, as specifically described in the Agreement and clear and express notice to claimants of the information to be provided by the claimants and the information to be collected by the CIGNA Companies);
Selection of Evaluation Personnel;
Professional Certification; and
Providing Medical, Clinical, and/or Vocational Evidence.

The insurance regulators have implemented procedures to ensure that the CIGNA Companies comply with the “enhanced claims procedures” as described above.

If you had a LTD insurance clam denied by the CIGNA Companies, you may be entitled to a portion of the $77 million. It is irrelevant whether you purchased your own individual policy with your own money or if the disability insurance was provided by your employer (and is thus governed by ERISA). If your claim for disability benefits was denied by CIGNA, you should speak with an attorney as soon as possible to ensure that your claim if properly handled and that CIGNA has followed the special procedures required under the CIGNA Settlement Agreement. The McKennon Law Group PC is currently handling several CIGNA claims on behalf of claimants whose rights were violated when CIGNA’s unfair claims practices, as identified above, resulted in a denial of their disability and life insurance claims. If you would like to discuss your claim with an attorney, please contact us for a free consultation.

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