McKennon Law Group, Author at McKennon Law Group

In California, if an insurance company is not handling your claim in good faith, what are your rights? What steps can you take? Can or should you sue the insurance company? The first step you should take is scheduling a consultation with a California bad faith insurance attorney.

We all pay a substantial amount for insurance. If you are injured by a negligent driver, or if a loved one dies accidentally, you probably expect your insurance company to approve your personal injury or accidental death claim quickly, and most insurance companies will.

The policy you hold is a promise from your insurance provider to be there with coverage when coverage is needed. When you pay for a policy, the company is legally obligated to provide coverage. It is also obligated to negotiate with you and resolve in good faith any claim you make.

Don’t allow your insurance company to take advantage of you or to operate in bad faith when it handles your claim. By law, an insurance company cannot avoid its obligation to make a payout on your claim or to offer a sound and legitimate reason for denying the claim.

How Is Bad Faith Defined?

If your insurance company does not take its legal obligation to you seriously, you could have sufficient grounds for a lawsuit alleging insurance bad faith. A simple denial of your claim is not enough. A bad faith lawsuit must be based on an insurance company’s specific acts or failures.

In California, if an insurance provider does not meet its responsibility to you, discuss your case promptly with a California bad faith insurance lawyer. Below are listed some – but not all – of the reasons why an insurance company may be targeted with a lawsuit that claims bad faith:

failure to investigate or negotiate your claim in good faith
failure to share with you important information
failure to provide an explanation for a claim’s denial
failure to pay off a claim without even investigating it
failure to offer a reasonable settlement in a case where the liability is obvious
failure to act on a claim within a reasonable time-frame
offering a settlement amount that’s far less than the value of your claim

Bad faith insurance practices include prolonging a claim investigation needlessly, coercing or intimidating you into taking an insufficient payout amount, or rejecting your claim for a fabricated or disingenuous reason.

Will a Letter to the Insurance Company Help?

A straightforward disagreement over your claim’s value doesn’t mean that you are dealing with bad faith, but if you’re offered an unreasonably low settlement amount with no explanation, or if you’ve been deceived by the company, you’re probably a victim of bad faith insurance practices.

Sending the insurance company a letter – or asking your attorney to send a letter – might be enough to generate some action from the company. When an insurance company knows that you have taken the matter to an attorney, the company is more likely to begin treating you right.

The potential for legal action may compel an insurance company to make a settlement offer that’s reasonable, because if you prevail in court with a bad faith claim, the company may have to pay your attorney’s fees and additional damages over and above the original claim amount.

How Can You Help Your Bad Faith Case?

If your case goes to court, you and your insurance attorney will have to offer specific instances of an insurance company’s bad faith. You can help your case by making copies of the pertinent insurance documents and copies of any letters or emails to or from the insurance company.

Also, be sure to maintain a record of any conversations with the company. Take notes that include the time, date, and the name and job title of the individual who spoke with you.

If your case goes to court, you and your insurance attorney will have to prove that by denying your claim, the insurance company was not merely making an honest mistake but was negligent or was intentionally acting in bad faith.

How Will Your Attorney Prove Your Bad Faith Claim?

A California bad faith insurance attorney may ask your insurance company for the documents and records related to your claim and for other documents detailing the company’s procedures and policies.

The insurance adjuster or another representative of the company may be subpoenaed for a deposition or to testify in a court hearing. In certain cases, an insurance claims attorney may ask an insurance expert to make a statement or testify about insurance industry practices.

If the company did not comply with its own practices, procedures, and guidelines, and if your insurance claims lawyer can prove it, your bad faith insurance lawsuit will probably prevail.

When Should You Speak to an Insurance Claims Attorney?

If you’re not sure, how can you find out if you are dealing with bad faith insurance practices? You should send a complaint to the California Department of Insurance, which can impose both administrative penalties and in some cases bring criminal charges against insurance companies.

But you must consult a California bad faith insurance lawyer to know if you have sufficient grounds for a bad faith lawsuit and to know if the denial of your claim can be overturned. Schedule a consultation as soon as you suspect that you are dealing with insurance bad faith.

As mentioned above, in the State of California, a plaintiff who succeeds with a bad faith lawsuit may recover attorney fees in addition to a judgment that orders the insurance company to pay the original claim. Your first consultation with an attorney is free and entails no obligation.

Don’t Be a Victim Twice

If you’ve made a claim against an insurance policy, you may be at a difficult point in your life. You may have lost a loved one accidentally, or you may have sustained a severe personal injury. You should not have to be victimized a second time by an insurance company’s bad faith.

As a policyholder, you have the right to be dealt with in good faith by your insurance company. Most California insurance companies will do that, but if you aren’t being dealt with in good faith, speak about your legal rights and options with an insurance attorney as soon as possible.

Insurance companies will go to great lengths to avoid paying claims. One way in which they do that is by trying to shoehorn the facts of the claim into a particular policy exclusion. One of their favorite exclusions is the pre-existing condition exclusion. A good example of this is found in Gustafson-Feis v. Reliance Standard Life Insurance Company, 535 F.Supp.3d 1076 (W.D. Wash. 2021). In Gustafson-Feis, the plan participant/insured, Lisa Gustafson-Feis, suffered a labral tear in her hip area during a work trip to China. She applied for long-term disability (“LTD”) benefits through her company-sponsored ERISA plan, which was insured by Reliance Standard. Reliance Standard denied her claim contending that coverage was precluded by the policy’s pre-existing condition exclusion that is typical in LTD policies. It contended that Gustafson-Feis’s injuries were caused by a pre-existing condition because the insured, although otherwise fully recovered from a prior vehicle-accident injury to her spine and pelvic region that occurred approximately two years before, was still taking pain medication for that injury. The court determined that Reliance Standard failed to demonstrate that the plan participant’s labral tear and ensuing disabling pain represented continued progression of her prior serious hip injury (instead of a new injury) and thus fell within scope of the ERISA long-term disability plan’s pre-existing condition exclusion

Reliance Standard’s paper-reviewing consulting physician Carol Hulett, M.D. opined that Gustafson-Feis’s current hip injury was most likely the result of a gradual progression of the symptoms from her prior injury instead of being a new injury. The paper reviewer’s opinion failed to address how the prior condition caused the new injury, and it ignored the evidence that the new injury was likely caused by a congenital condition, not by the previous injury.

Gustafson-Feis filed suit to receive the benefits that Reliance Standard improperly denied under the ERISA LTD policy. Under Ninth Circuit law, courts apply federal common law to decide ERISA coverage disputes. Under federal common law, in order to bar the insured’s claim, Reliance Standard had the burden to show that the pre-existing condition exclusion applied. It had the burden to show that the new disability was “substantially caused or contributed to by the preexisting condition.” (Emphasis added.) Gustafson-Feis, 535 F.Supp.3d at 1085, citing Haddad v. SMG Long Term Disability Plan, 752 F.App’x 493, 494 (9th Cir. 2019). Because the exclusionary provision at issue was “narrow” – applying only if the disability results from, or is caused or contributed to by, a pre-existing condition – Reliance Standard needed to show that the pre-existing condition itself substantially caused or contributed to the disability. The court also noted that, under controlling Ninth Circuit law, the determination that a cause is “substantial” requires “some evidence of a significant magnitude of causation.” (Emphasis added.) Gustafson-Feis, at 1085, quoting Dowdy v. Metropolitan Life Ins. Co., 890 F.3d 802, 809 (9th Cir. 2018).

The court granted the insured’s motion for summary judgment and ordered Reliance Standard to pay LTD benefits. It found that Reliance Standard had not met its burden of proof. It explained that Reliance Standard’s mere contention that the new injury was “directly related” to the prior injury was insufficient to prove causation and that Reliance Standard’s paper reviewers did not identify, even generally, any degree of causation between the two injuries, much less the “significant magnitude of causation” required under applicable Ninth Circuit precedent. The court summarized its holding:

Dr. Hulett’s statement that Gustafson-Feis’s records are “most consistent with a gradual progression of symptoms” does not account for Gustafson-Feis’s trajectory—continued improvement and recovery through her return to work without restrictions in December of 2017, followed by severe impairment following the labral tear on her trip to China in May 2018. Specifically, Dr. Hulett does not explain how a labral tear would result from a gradual progression of the prior fractures or pain, does not assert that Gustafson-Feis would have been disabled by the lingering effects of her 2016 injuries had she not suffered the labral tear, and does not identify a degree of causation between the 2016 injuries and the 2018 labral tear. See id. at 809–10 (while wound healing was complicated by diabetes, the record did not show, “even generally,” how much of a role that complicating factor played in the plaintiff’s failure to recover).

. . .

Reliance has failed to engage with, let alone carry, its burden to establish that the [2016] accident was a substantial cause of Gustafson-Feis’s 2018 disability. There is certainly conflicting medical evidence in the record, and there is evidence from which a factfinder could find some degree of causation between the 2016 injuries and the 2018 disability. However, Reliance has the burden to prove substantial causation, and it has not made a sufficient showing to survive summary judgment.

Gustafson-Feis, at 1086.

It is important for individuals confronted by improper denials of disability coverage to seek counsel to review and assess the facts and policy terms and, if appropriate, sue to receive the benefits to which they are entitled. This is especially true with respect to insurer denials based on a policy’s pre-existing condition exclusion.

Signing up for employer benefit plans can be confusing and can lead to disputes where the parties are not careful. ERISA fiduciaries such as employers who sponsor benefit plans and insurers who fund them have duties to plan members to communicate fully and accurately regarding the scope of plan benefits, and they can be liable for damages caused by misrepresentations of them. Just such a case can be found with Delker v. MasterCard International, Inc., ___ F.4th ___, 2022 WL 38468 (8th Cir. 2022). There, the Eighth Circuit Court of Appeals addressed a not unusual situation – one in which a plan member reasonably believes that he or she is entitled to policy benefits based on the paperwork filled out in connection with the selection of benefits and based on the representations made by the employer and/or the insurer who is paying policy benefits. In Delker, the plan member’s beneficiary claimed that a miscommunication regarding the level of selected benefits caused the plan member to decline further available life insurance coverage. The plan member’s detrimental reliance on the employer’s (MasterCard’s) misrepresentations regarding the level of insurance benefits resulted in damages based on the amount of coverage that the plan member reasonably expected to receive, and MasterCard misled the plan participant by failing to procure the insurance coverage that its own insurance enrollment forms reasonably indicated would be provided.

The Delker court found that Edward Delker properly alleged in his complaint that MasterCard, as a plan fiduciary, violated its fiduciary duty by miscommunicating the scope of life insurance that was provided by the plan. Mr. Delker’s late wife had completed documents that appeared to show that she had elected to receive life insurance coverage in an amount that was three times her annual salary, and MasterCard had also informed her that she was entitled to a credit for that level of coverage and that she could receive it without making any additional payment.

However, MasterCard only obtained life insurance coverage for Ms. Delker for the amount of her annual salary. MasterCard claimed that Ms. Delker had not successfully elected to obtain coverage for the additional $288,000 in coverage, despite the fact that the enrollment form appeared to elect this coverage.

Because MasterCard was a functional fiduciary of the ERISA plan, it had a duty to communicate fully and completely with plan members like Ms. Delker regarding benefits. The Delker court found that the enrollment form supported the election of life insurance coverage for three times her annual salary. Accordingly, Mr. Delker was entitled to seek damages that resulted from MasterCard’s failure to enroll Ms. Delker in the requested coverage. Mr. Delker properly alleged that MasterCard breached its fiduciary duty by miscommunicating the fact that Ms. Delker had elected coverage for three times her annual salary. As a result, MasterCard could be found liable for the full amount of coverage because (1) Ms. Delker could reasonably believe she was covered for life insurance benefits of three times her annual earnings, (2) she did not seek to procure additional insurance and (3) the expectation damages, if proven on remand, would approximate the amount of the misrepresentation – two times her annual salary.

The Delker court described the nature and extent of ERISA’s fiduciary duties as follows:

“ERISA imposes upon fiduciaries twin duties of loyalty and prudence. …” Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009). The duty of loyalty requires that fiduciaries act in the sole interest of benefit plan participants and beneficiaries; the duty of prudence mandates “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).

The court then cited its ruling in Howe v. Varity Corp., 36 F.3d 746, 754 (8th Cir. 1994), aff’d, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), noting that the duties of loyalty and prudence extend beyond prohibiting affirmative misrepresentations and require the fiduciary to advise or inform plan members of circumstances that threaten their interests:

Making materially misleading statements constitutes a violation of a fiduciary’s duties of loyalty and prudence. See Howe v. Varity Corp., 36 F.3d 746, 754 (8th Cir. 1994), aff’d, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). At times, this “duty goes beyond merely refraining from making affirmative misrepresentations” to include a duty to advise and inform about circumstances that threaten the interests of one to whom a fiduciary duty is owed. Id. In this context, a statement is materially misleading if substantially likely to mislead a reasonable employee making decisions about employer benefits and entitlements. Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d 639, 644 (8th Cir. 2007).

It is important to note “that the duty of loyalty requires an ERISA fiduciary to communicate any material facts which could adversely affect a plan member’s interests.” Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997). This includes “answering questions about a plan, noting changes in the plan, [and] disseminating information directly to plan participants concerning their rights within the plan.” Anderson v. Resol. Tr. Corp., 66 F.3d 956, 960 (8th Cir. 1995) (alteration in original) (quoting Pickering v. USX Corp., 809 F. Supp. 1501, 1567–68 (D. Utah 1992)). These are all “classic fiduciary activities” implicating the duties of loyalty and prudence. Id. (quoting Pickering, 809 F. Supp. at 1568). In addition to demonstrating that pertinent statements were materially misleading, a plaintiff must further establish that he reasonably relied to his detriment on such statements in order to succeed on an ERISA misrepresentation claim. Brant v. Principal Life & Disability Ins. Co., 50 F. App’x 330, 332 (8th Cir. 2002) (unpublished per curiam).

The court determined that MasterCard was acting in a fiduciary capacity because it was communicating with plan members regarding benefits. MasterCard could have breached its fiduciary duty to the Delkers by miscommunicating the amount of coverage that was provided under the plan. ERISA claims regarding the miscommunication of information about benefits can arise from either affirmative representations or from the failure to communicate material facts that could adversely affect a plan member’s interests. And disseminating information to plan participants is a classic fiduciary function.

The lesson for plan fiduciaries is that they must ensure that they accurately communicate with plan members regarding plan benefits because they can be held liable for damages caused by misrepresentations of those benefits. In this case, MasterCard’s insurance enrollment forms caused the plan member to believe that she had elected life insurance coverage in an amount that was three times her annual salary, and as a result, she declined the opportunity to purchase additional life insurance coverage under the plan or through an outside broker.

McKennon Law Group specializes in representing ERISA plan members in claims against ERISA fiduciaries involving the misrepresentation of plan benefits. If you believe that your insurer or employee benefit plan has miscommunicated information about your coverage and that this has caused you to suffer damages, please contact us at (949) 387-9595 for a free consultation.

Claims made for short term disability and for long term disability benefits are frequently denied by ERISA plan benefits administrators. Congress enacted ERISA to provide a level of minimum standards for most voluntarily established retirement, disability and health plans in private industry to provide protection for individuals in these plans. To help achieve that goal, ERISA provides claimants with rights and protections, including the right to timely appeal an adverse benefits decision, such as an improper denial of benefits, and it imposes procedural requirements on ERISA plan administrators to ensure that claimants are given the opportunity to obtain the benefits that were promised and for which they had paid.

If your disability insurance coverage is not subject to ERISA, perhaps because you work for an employer in the public sector or you purchased individual disability coverage on your own and not through your employer, the basic steps to prepare your appeal are similar. The insurance company has a duty to communicate with you in good faith and provide you with all relevant information regarding its denial of the claim, and it can be sued for “bad faith” if it fails to comply with its obligations.

You want to know what you can do to assure that your claim is administered fairly and, hopefully, approved. There are a few key things that disability claimants must do to give themselves the greatest chance of success in getting their claims approved after an initial denial, but the most important thing, short of hiring experienced ERISA disability attorneys and aggressive disability insurance bad faith attorneys, is to make sure that you provide the plan administrator with as much evidence as you can of your disability so that this information will be included in your administrative record. This is especially critical in ERISA cases because the determinations in them often rest solely on the contents of the plan administrator’s administrative record when your case is litigated in federal court.

Below is a list of things that should generally be done by a disability claimant who has been wrongfully denied ERISA disability benefits:

Request a copy of the administrative record
Obtain a copy of the governing ERISA plan documents, if applicable, and the disability insurance policy
Carefully review the denial letter
Outline the bases for the improper denial of benefits
Martial evidence that supports your claim, making sure to address ALL of the stated bases for the denial

Send a letter to the plan administrator and insurer requesting a complete copy of the administrative record and the claim file

ERISA claimants who are denied benefits are entitled to receive a copy of the administrative record, and the plan administrator is generally required to provide it to them within 30 days of receipt. If the plan administrator fails to respond within that timeframe, it has violated the ERISA regulations and may be subject to statutory penalties.

In cases that are not subject to ERISA, disability insurers will sometimes provide you with a copy of your claim file. However, most insurers will not provide you with a copy of the claims file because they are not required to do so under the law. If your insurer refuses to produce the claims file to you for your appeal, you will have to do your best to challenge the appeal without the claim file. It is especially important to hire competent ERISA disability attorneys when you want to prosecute an appeal under these circumstances.

Review the claims file and administrative record carefully, focusing on the reasons the plan administrator used to deny your claim and take appropriate action

A plan administrator is required to state all of the reasons it denied your claim. The denial letter and the administrative record will serve as a roadmap for the evidence you need to successfully appeal your claim.

For example, if the denial letter indicates that the plan administrator was unable to obtain medical records that are important to your disability claim, you will need to follow up and make sure that those records are included with your appeal. Often the denial letter will state that the plan administrator’s medical consultants had attempted to contact your treating physicians, without success. In that case, following up with a statement from your treating physician may serve to underscore your eligibility for benefits and discredit the broad and self-serving statements by these paid medical reviewers in the administrative record and in the denial letter. Insurers normally use medical consultants, often referred to as “paper reviewers,” to review your medical records and render an opinion as to your medical conditions and your restrictions and limitations. These paper reviewers are typically “hired guns” who know what their hiring insurers want to hear. You should focus your attack on their medical review, attempting to undermine their opinions as best as you can.

Prepare your own summary of your actual job duties

The denial letter is required by law to indicate why the disability plan administrator believes you are not entitled to benefits. Sometimes incorrect denials are made because the plan administrator is not considering an accurate description of the requirements of your particular job. If so, it is necessary to correct that misunderstanding. You may also be able to provide additional support for your description of your own occupation from your employer or co-workers. If necessary, you could ask them to explain why your particular disability prevents you from doing your job and to confirm that your description of the job requirements is more detailed and accurate than the information the plan administrator relied upon to deny your claim.

Write a detailed description of, and get your doctors to certify, how your disabling condition or conditions interfere with your everyday life and prevent you from performing your own occupation or any occupation

Insurance companies are required to review and evaluate personal statements from disabled individuals and others who have perceived the impact of the disabling condition. It is important for you to write a detailed statement that helps fill in the blanks in the medical records. Medical records of your treating providers will usually not contain the level of detail that you can provide to support your claim, in part, because your treating providers are focusing on the treatment, and not on the disability. Letters from your treating providers can be very powerful evidence of your disability if you are able to get them to draft them to address the mistaken conclusions of the medical professionals who were hired by the insurance company to review your medical records. Your employer, friends, and coworkers may also be able to provide letters that provide the insurance company with facts to support your claim.

Draft a detailed letter that addresses the reasons the insurance company denied your disability claim and include all of the additional medical records and supporting statements you have obtained with it

It is important to present your disability claim thoroughly and accurately and to focus on the stated reasons for the denial. Additional medical records and certifications from your doctors or other treating professionals should be attached as exhibits to your letter. It is also extremely important that you submit your appeal letter before the deadline. The denial letter should contain this information. It is also very important to request an extension of time to submit your appeal letter if you need one.

In summary, there is a lot of work involved in preparing an appeal letter that maximizes your chances of winning the appeal. This article has only provided a rough outline of the things that can or should be done in many cases to prepare a winning appeal. Obviously, every disability claim is different, and the appeal letters will differ based on the specific reasons for the denial and the evidence. Because of the complexity of the task, many disability claimants choose to hire an experienced ERISA or bad faith insurance disability attorney to help them navigate the appeal process and to prepare their appeal letters. McKennon Law Group PC’s practice focuses on disability insurance claims and has substantial experience dealing with disability claims against most, if not all, major disability insurers. If you have any questions regarding your recently denied insurance claim, you can contact us to arrange for a free consultation.

Accidental Death & Dismemberment (“AD&D”) Insurance Update: Northern District of California Construes the Terms of ERISA-governed AD&D Policy Against the Insurer, Finds that “Near Fatal” Levels of Methamphetamine Did Not Trigger Policy’s Drug Exclusion

On November 15, 2021, Judge Phyllis Hamilton, in Santos v. Minnesota Life Ins. Co., 2021 WL 5302950 (N.D. Cal. Nov. 15, 2021), ruled in favor of an administrator of the estate of a 55 year-old engineer and Apple employee who died alone in his apartment after falling backwards and hitting his head. The death certificate listed the immediate cause of death as “blunt force head trauma with subdural hematoma.” The death certificate indicated that the death was “drug related,” but it also indicated that the manner of death was accidental.

The decedent was insured through an ERISA plan sponsored by his employer, Apple. Under the plan he had $311,000 in life insurance coverage and $311,000 in AD&D coverage. The insurance company paid the life benefit, but it denied coverage under the AD&D policy based on the policy’s “drug exclusion” that provided that the death benefit is not payable where the insured’s death results from or is caused directly or indirectly by: “being under the influence of any prescription drug, narcotic, or hallucinogen, unless such prescription drug, narcotic, or hallucinogen was prescribed by a physician and taken in accordance with the prescribed dosage.” The insurance company also tried to avoid liability under the AD&D policy based on its contention that the incident was not an “accident” due to the significant levels of methamphetamines found in the decedent’s system.

The policy beneficiary filed suit under ERISA based on the insurer’s improper denial of AD&D coverage. The court found that the death was accidental under federal common law and that the policy’s “drug exclusion” did not apply. The beneficiary was entitled to recover the wrongfully denied $311,000 accidental death benefit, and she was entitled to file a motion to recover her attorneys’ fees and costs.

There are three important things to take away from what was a relatively easy decision by the former U.S. Chief District Judge of the Northern District of California who took senior status last February. First, ERISA cases are governed by federal common law, and under federal common law, the term “accident” is interpreted based on the reasonable expectations of the insured. The court explained federal common law assessment of “accident,” using the test mandated by the Ninth Circuit in Padfield v. AIG Life Insurance Company, 290 F.3d 1121, 1126 (9th Cir. 2002):

A death or injury may be “deemed ‘accidental’ under a group accidental insurance policy established under ERISA if the death [or injury] was unexpected or unintentional.” 10 Couch on Insurance § 139:16 (3d ed. 1995 & 2000 Supp.). In determining whether death, or the injury that caused death, was unexpected or unintentional, courts have undertaken an overlapping subjective and objective inquiry. The court first asks whether the insured subjectively lacked an expectation of death or injury. See Wickman v. Northwestern Nat’l Ins. Co., 908 F.2d 1077, 1088 (1st Cir. 1990) (“Requiring an analysis from the perspective of the reasonable person in the shoes of the insured fulfills the axiom that accident should be judged from the perspective of the insured.”). If so, the court asks whether the suppositions that underlay the insured’s expectation were reasonable, from the perspective of the insured, allowing the insured a great deal of latitude and taking into account the insured’s personal characteristics and experiences. See id. If the subjective expectation of the insured cannot be ascertained, the court asks whether a reasonable person, with background and characteristics similar to the insured, would have viewed the resulting injury or death as substantially certain to result from the insured’s conduct.

Applying this analysis, the court found that the decedent’s death was unexpected because a reasonable person in his position would not have viewed the resulting injury and death as substantially certain to result from his conduct. Therefore, the death was accidental under controlling Ninth Circuit precedent, Padfield.

Second, the terms in insurance policies are interpreted based on their usual and ordinary meanings, and ambiguities are interpreted in favor of the insured. Here, the court found that crystal meth was not a “prescription drug” nor a “narcotic” nor a “hallucinogen” based on the ordinary meaning of the terms and with reference to the Merriam-Webster dictionary. Accordingly, it found that the policy’s drug exclusion did not apply. Minnesota Life lost this case because the terms in the drug exclusion in its policy, although broad, did not include more specific wording, such as “controlled substances.” Decisions in cases like this will necessarily depend on the interpretation of the language in the policy at issue.

Third, ERISA claims that are subject to California law will most likely be reviewed de novo by the district court. The court will not give any deference to the insurer’s denial of the claim. This is important to understand because there a number of cases relating to the key issue of whether the death was “accidental” that are distinguishable because they were decided under the deferential “abuse of discretion” standard. It is important to not give up on your claim before consulting a qualified and experienced California life insurance attorney/ AD&D insurance attorney.

McKennon Law Group PC specializes in handling accidental death insurance claims that have been improperly denied by insurance companies based on their misinterpretation of their own policies and on their failure to adequately investigate claims. Under both ERISA and California law, claimants may be able to recover their attorneys’ fees incurred in challenging improper denials of benefits. If you have been denied coverage under a life insurance or AD&D policy, please contact us at (949) 387-9595 to obtain a free consultation.

In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment & disability claim, from navigating a claim to handling a claim denial, through the subsequent appeal and litigation. In Part Sixteen of this series, we discuss ERISA’s preemption of state insurance law. Because ERISA is federal law, it can preempt state law. However, ERISA does not preempt all aspects of state insurance law, and someone involved with a disputed ERISA claim must be aware of which areas of law apply in which context.

Section 514(a) of ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). Because of the breadth of this language, the Supreme Court has attempted to create practical limits on the breadth of ERISA’s preemption by holding that a law “relates to” an employee benefit plan “if it has a connection with or reference to such a plan.” NY State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995) (internal quotation marks omitted). This has resulted in a two-prong test to determine whether a law is preempted. “To determine whether a law has a forbidden ‘reference to’ ERISA plans, we ask whether (1) the law ‘acts immediately and exclusively upon ERISA plans,’ or (2) ‘the existence of ERISA plans is essential to the law’s operation.’” Golden Gate Rest. Ass’n v. City & Cnty. of San Francisco, 546 F.3d 639, 657 (9th Cir. 2008).

To better understand this test, it helps to look at examples of the interaction between State law and ERISA. One example of potential preemption involves disputes when the designated beneficiary under a life insurance policy is someone other than the decedent’s spouse. One example of such a dispute is Orr v. Prudential Insurance Co. of America, 2012 WL 2122157 (D. Idaho June 12, 2012). The court in that matter concluded that the benefits from a life insurance policy acquired through an ERISA plan must be paid to the beneficiary listed in the plan records, irrespective of a state’s community property laws. Relying on the United States Supreme Court’s decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Orr court held: “In accordance with Egelhoff, the Court finds that ERISA preempts Idaho community property laws when such laws require an ERISA plan administrator to pay ERISA life insurance proceeds to someone other than the designated beneficiary.” Orr, 2012 WL 2122157 at *2. The Orr court concluded that application of Idaho’s community property laws in that context would violate the rule that an ERISA plan must be administered pursuant to the plan documents. The Ninth Circuit Court of Appeal has reached a similar conclusion. See Metropolitan Life Ins. Co. v. Buechler, 19 F.App’x 678, 679-80 (9th Cir. 2001); Carmona v. Carmona, 603 F.3d 1041, 1062 (9th Cir. 2010). State community property laws cannot compel a plan to give a life insurance benefit to anyone other than the designated beneficiary under the plan. ERISA preempts the laws of the states in that context.

Another example of potential preemption is the standard of review. The standard of review is often controlled by a clause in an insurance contract and establishes the burden of proof that a claimant must meet in order to convince the court to grant them the benefits that an insurer/plan previously denied them. A court can examine the denial of benefits under the de novo standard of review (i.e., reach its own conclusion without deference to the insurer’s position) or review the claim for an abuse of discretion, which is a much stricter standard of review that favors claim denials. Many states, such as California, have laws that prevent insurance companies from selling disability and medical insurance policies containing abuse of discretion clauses. However, does this state law apply to disability and medical insurance provided through employer benefit plans? The Ninth Circuit has ruled that it does. See Orzechowsky v. The Boeing Company Non-Union Long-Term Disability Plan, Plan Number 625, an ERISA Plan, 856 F.3d 686 (9th Cir. 2017). In Orzechowsky, the Ninth Circuit addressed California’s law that eliminates abuse of discretion clauses from medical and disability insurance contracts. The Ninth Circuit explained that ERISA “has a saving clause that saves from preemption ‘any law of any State which regulates insurance, banking, or securities.’” Id. at 692. The Ninth Circuit concluded that the California law regulated “entities engaged in insurance,” but the law also addressed the scope of permissible insurance contracts in the state, as opposed to relationships between ERISA plans and their participants. See id. at 692-95. Consequently, the Ninth Circuit held that medical and disability insurance contracts provided via ERISA plans in the State of California are governed by the de novo standard of review.

ERISA preempts a wide variety of state laws. Whereas most substantive claims will be preempted, some aspects of state law are still relevant for an ERISA claim. Ultimately, the interchange between state and federal law is very complicated and this blog only provided a very basic overview of this topic. The complicated nature of these claims is why working with attorneys who are experts in these matters is critical when attempting to resolve an ERISA dispute. Please contact an experienced California ERISA attorney, such as the attorneys at the McKennon Law Group PC, if you require assistance with your ERISA claim denial, appeal or litigation.