McKennon Law Group, Author at McKennon Law Group

This article continues our series of articles answering basic questions about insurance law and the Employee Retirement Income Security Act of 1974 (commonly referred to as “ERISA”). This one addresses: In a lawsuit governed by ERISA, what actions taken by the claims administrator (usually an insurance company such as Blue Cross/Blue Shield or CIGNA) will reduce the level of discretion the court gives the insurance company’s decision when reviewing the decision for an abuse of discretion?

Under ERISA, the court does not necessarily review the claims decision by simply attempting to determine whether the insurance company made the “correct” decision. Instead, the court first looks to see whether the plan documents unambiguously confer discretion for determining eligibility on the claim administrator. If discretionary language is present, the abuse of discretion standard of review applies, and the court is required to give some level of deference to the claim administrator’s decision. However, even if such discretionary language is present, the discretion given the claim administrator’s decision is not absolute. Specifically, courts have ruled that the following acts will reduce the level of discretion give to the claims administrator’s decision:

Rendering a decision without explanation, construing a plan provision in a way that conflicts with the plain language of the plan or relying on clearly erroneous findings of fact.
“Hiding the ball” by failing to advise claimants of documents needed to obtain approval of claim and an explanation of why such material or information is necessary, and failing to submit forms to claimant or his doctors that would have elicited the information needed.
Overstatement of and excessive reliance upon claimant’s activities in the surveillance videos and conducting a paper review rather than an “in-person medical evaluation.”
Encouraging participant to file for Social Security Disability Insurance and, when benefits are awarded by Social Security Administration, failing to deal with and distinguish the contrary disability decision.
Failing to obtain a physician’s recommendation and relying on medical reports that are not credible.
“Tainting” medical file reviewer in the medical review process by giving the reviewer inaccurate negative information regarding the claimant.
Failing to consult with a health care professional who has appropriate training and experience in the applicable field of medicine.
Emphasizing a report that favored a denial of benefits while deemphasizing other reports suggesting a contrary conclusion, and failing to provide its independent experts with all of the relevant evidence.
Failing to provide all bases for its denial and suggesting alternate reasons for denial after the fact, thereby precluding the claimant from responding to that rationale for denial at the administrative level.
Adding new terms to the Plan, particularly when those terms are both imprecise and impose a higher evidentiary burden on a claimant, such as requiring that disability be proved by “compelling objective” evidence.

These are just a select few of the acts that courts have ruled require that the insurer’s decision not be afforded full discretion. Numerous other actions will also cause a court to review a claim decision with something less than full discretion. For additional information on this and other insurance matters you can visit the FAQ section of our website: www.mslawllp.com.

If you need to consult with an attorney about a possible ERISA or insurance bad faith matter, please contact our office.

McKennon Law Group PC is proud to announce that Robert J. McKennon has been named as a 2012 Southern California Super Lawyer as one of California’s top insurance attorneys. Less than 5% of attorneys nationwide are awarded this status.

The insurance industry is unique in California and in most states: unlike other industries, it is required to act in good faith (known as the covenant of good faith and fair dealing) with its insured customers. The California courts have long held that insurers have a special relationship, in the nature of a fiduciary relationship, that requires them to act with regards to their interests in a manner equal to the interests of their policyholders.

The Huffington Post, in a very interesting article entitled, “Insurance Claim Delays Deliver Massive Profits To Industry By Shorting Customers” reports that since the mid-1990s, “a new profit-hungry model, combined with weak regulation, has upended that ancient social contract” between insurers and claimants.

“Claims has been converted into a money-making process,” the article quotes Russ Roberts, a New Mexico-based management consultant and former business professor at Northwestern University who has studied the insurance industry’s evolution from a service business to what is described in the article as a profit-driven machine.

The change started, according to the article, when consulting giant McKinsey & Company sold Allstate and other leading insurance companies on a “new system to boost the bottom line.” The article states that rather than adjusting claims the traditional way, which gave claims managers wide latitude to serve customers, insurers embraced a computer-driven method that produced purposefully low offers to claimants.

The article explains that this strategy “put profits above all” and insurers like Allstate have certainly gained: Allstate made $4.6 billion in profits in 2007, double its earnings in the 1990s. The stunning increase, the article quotes Russ Roberts as stating, came through “driving down loss values to an average of 30 percent below the actual market cost” — that is, paying dramatically less on claims. Roberts told the Huffington Post that, by his estimate, the companies that take in 70 percent of total insurance profits in the United States “now abuse their obligations to their policyholders.”

According to NAIC data[https://eapps.naic.org/documents/cis_aggregate_complaints_by_reason_codes.pdf], claim delays have long been the most frequent cause of policyholder complaints. As of Nov. 28, 2011, the NAIC had received 11,053 delay-related complaints this year alone, comprising almost a quarter of the year’s total complaints. This data only reflects confirmed complaints — the ones that the state insurance commission has investigated — so the actual number of delayed claims is likely much higher.

This article is interesting reading for all consumers who buy insurance.

Saving for one’s own retirement is something everyone needs to consider. There are many financial vehicles that can be used when traveling along the road to retirement. One of these financial vehicles is an annuity. However, annuities are often not suitable for consumers, especially more elderly consumers, because of excessive “hidden” fees and large surrender charges that apply when annuities are surrendered/terminated before a certain time. This is due in part to large commissions paid to agents who sell them, who often act in their own best interest, rather than in the interest of consumers. John Waggoner of USA Today provides some sound advice in his recent article entitled “Annuities are a Retirement Option, But Be Wary of Fees:”

In an article posted on this blog in September entitled, “New California Law Requires That Insurers and Agents Verify that an Annuity is Suitable for the Consumer,” McKennon Law Group PC explained that California Governor Jerry Brown recently signed a new law that provided increased protection to seniors and other consumers who are interested in purchasing an annuity. AB 689, which was sponsored by the California Department of Insurance and authored by Assembly Budget Committee Chair Bob Blumenfield (D-San Fernando Valley), requires that insurers verify that an annuity purchase is suitable and appropriate for the consumer based on an evaluation of his or her age, income, financial objectives and ten other factors.

Knowing the fundamental basics about how an annuity works, the options available and the pitfalls is essential in understanding whether an annuity should be purchased.

Very recently, California Insurance Commissioner Dave Jones issued a bulletin advising consumers about the importance of understanding their options when considering disability income insurance. Here is what he had to say:

“In a down economy many people may not think their most valuable asset is their ability to work,” said Commissioner Jones. “But if illness or injury were to keep you from earning a living you would still need to pay your bills. Disability income insurance could be a viable option for people and their families, and that’s why consumers need to take the time and evaluate their options closely.”

According to the U.S. Census Bureau, one in four of today’s 20-year-olds will become disabled before reaching retirement age; however, only 32 percent of U.S. private industry workers have long-term disability income insurance as part of their benefits package.

An individual may obtain disability income insurance coverage in two ways – either through a group-sponsored setting or purchased as an individual. Group insurance is available through an employer or an association, and these policies may offer short-term and long-term coverage. Short-term disability income insurance typically replaces a portion of the policyholder’s salary up to a year following the disability, while long-term disability income insurance may begin six months after the disability and can last a few years or even until retirement.

Individual insurance is coverage that can be purchased from any insurance company that offers it. The terms of the policy, length and type of coverage are negotiated between the individual and the insurance company and are generally subject to underwriting requirements.

Comparing Disability Policies – When considering disability income insurance policy options there are definitions and benefits consumers should carefully compare.

Definition of disability – the definition varies from policy to policy. Some may pay benefits if you cannot perform the duties of your own occupation, while others may require that your disability keep you from performing tasks of any occupation you are reasonably expected to perform based on your age, education, training and experience.

Extent of disability – Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job.

Disabilities Covered – The list of covered injuries or illnesses considered disabilities under the policy will vary. Coverage for pre-existing conditions may be limited or excluded.

Residual benefits – This coverage fills in a gap in come if you are partially disabled, you return to work, and your income is reduced because you can’t perform all of the duties of your job.

Determining How Much Coverage You Need

Before purchasing disability income insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.

Becoming disabled can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount and type of coverage you could need.

The amount of benefits you receive is based on a percentage of your pre-disability earned income. The benefit amount received can be reduced by other sources of disability support such as Social Security disability payments, employer long-term disability insurance, among others.

If the long-term disability income insurance coverage your employer offers is not enough to cover your needs, there are options for purchasing additional coverage”.

As a corollary to this article, you may by wondering: what are the advantages of buying disability insurance? What should you be looking for in a disability policy? McKennon Law Group PC partner partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance in his article: Buying Disability Insurance: What You Should Be Looking For

If you have any questions about your disability coverage, your disability claim or ERISA disability claim, please contact us. Insurance consumers can learn more about insurance by visiting the California Department of insurance web site at www.insurance.ca.gov.

What Are the Advantages of Buying Disability Insurance? What Should You Be Looking for in a Disability Policy? McKennon Law Group PC partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance.

What are some advantages to private disability insurance?

Benefits you receive if you become disabled will be tax-free, as long as you paid the insurance premiums with after-tax money;
Own occupation policies ensure you for your inability to perform the substantial and material duties of your own occupation in the usual and customary manner and with reasonable continuity. This California law standard is very favorable for consumers when insurance companies determine when you are disabled;
The policy is not tied to your current occupation. This means you can move around to different occupations and still maintain your policy;
Once you obtain it, as long as you timely pay your premiums, most policies do not allow insurers to cancel disability policies, no matter your change in health;
If you buy disability insurance when you are earning a high income, most policies provide that the benefits at the time you apply for a disability policy are based on a percentage of your income and your benefits will be locked in even if your income substantially diminishes;
If you buy a policy with lifetime benefits and if you are permanently disabled, you now have a nice “annuitized” income for the remainder of your life;
Your greatest asset is your earning capacity and disability insurance insures that asset – it should be an important part of your financial planning.

What are some important things to look for when considering disability insurance?

Be sure the policy is “guaranteed renewable” and “non-cancellable.” This guarantees that policy premiums cannot be changed as long as you pay them and your policy must be renewed every year no matter your health condition;
Be sure the policy provides benefits to age 65 or lifetime;
Look for disability policies that have “accident” or “injury” definitions that pay benefits for your lifetime;
Although more expensive, always buy “own occupation” policies (with an occupational specialty rider if applicable);
“Residual benefits” are available as an optional rider. This benefit essentially allows you to collect partial disability benefits while you work if you can only work part-time or I can work full-time but can perform some, but not all, of your occupational duties. I recommend against buying this rider because it is expensive and, under California law, it is mostly likely not necessary. In addition, such a rider/provision can be interpreted to disallow total disability benefits when a residual rider is in place (insurers often make this argument);
If you can afford it, a cost-of-living rider will protect your future benefits from inflation;
Buy a policy with a right elimination period (time when you are disabled but you not entitled to receive benefits) – the longer this period, the less expensive your policy.

Once you become disabled, it is vitally important that you fully understand all provisions of your policy and that you obtain necessary counsel if your claim is denied. If you have any questions about your disability coverage, your individual disability claim or ERISA disability claim, please contact us.

In an ERISA Case, What Actions Will Reduce the Level of Discretion Afforded the Claims Administrator/Insurer?

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