The Employee Retirement Income Security Act (“ERISA”), a 1974 federal law, sets minimum standards for many employee benefit plans and serves to provide protection for individuals in these plans. Discovery in ERISA cases is often limited because the statute’s primary goal is to provide inexpensive and expeditious resolution to employee benefit claims. District courts are generally limited to the administrative record unless a so-called structural conflict of interest exists. Considering that insurers make benefit determinations on life, health and disability insurance claims and profit when an adverse decision is made, this scenario creates an inherent conflict of interest whenever an insurer administers a claim.
Courts find that a conflict of interest exists where the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.” Metro Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008). Where this conflict of interest exists, the plaintiff may be entitled to discovery outside of the administrative record to determine the “nature, extent, and effect” the conflict may have had on the decision-making process. Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 554 F.3d 1016, 1028 (9th Cir. 2008) quoting Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 970 (9th Cir. 2006).
In Black v. Hartford Life Insurance Co., 2018 WL 3872113 (D. Or. Aug. 14, 2018), the court considered the history of bias of Hartford Life Insurance Company (“Hartford”), a leading long-term and short-term disability insurance provider, in deciding whether to allow discovery of its history of biased claims administration. In its ruling, the court found Hartford had a history of biased claims administration based on its litigation history and allowed discovery into this area.
The plaintiff, David Black (“Black”), was employed by DMX Music as a customer service representative. He was diagnosed with Atypical Parkinson’s Disease and obtained Long Term Disability (“LTD”) benefits beginning in December 2005. Black’s LTD policy was insured by Hartford, which was responsible for determining the plaintiff’s eligibility for benefits and for paying benefit awards. He was granted an initial 24 months of LTD benefits based on his inability to perform the material duties of his “own occupation.” After the 24-month period ended, Black continued to receive benefits under the more stringent “any occupation” standard for approximately nine years. See id. at *1.
On November 20, 2015, Defendant Hartford’s Special Investigation Unit (“SIU”) investigated Black’s LTD claim based on online information that Black had started a business. Hartford hired a third-party vendor to conduct surveillance of Black, which showed him walking with a cane, using public transportation, going to the bank, getting his hair cut, shopping and carrying groceries. Hartford also discovered a YouTube video of Black playing in a band in May 2014. The SIU scheduled an interview with Black, which was conducted in March 2016 and hired a neurologist to examine him in June 2016. Based on the neurologist’s examination and review of Hartford’s surveillance footage, he concluded that Black did not have Atypical Parkinson’s disease. See id.
On August 31, 2016, Hartford wrote a letter to Black informing him his LTD benefits had been terminated. Black appealed, which was denied by Hartford. After Hartford’s denial of the plaintiff’s appeal, Black brought suit alleging that Hartford abused its discretion under ERISA when it decided to terminate his LTD benefits claim. Black then served discovery on Hartford and then filed a discovery motion to compel production, seeking three categories of documents: Hartford’s relationships with vendors HUB Enterprises (“HUB”), MES Solutions and/or MES Group (“MES”) and its neurologist, Dr. Robert Egan. Black asserted these areas of discovery would reveal a history of biased claims administration. See id. at *2.
The court noted that permitting “conflict” discovery is well within the discretion of the court and the Ninth Circuit has not endorsed imposing a threshold burden of production on the plaintiff before permitting discovery. See id., citing Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016, 1028 n. 15 (9th Cir. 2008). The court found that in other ERISA cases within the Ninth Circuit, Hartford has used HUB and MES several times to conduct biased investigations. See id.
For example, in Hertz v. Hartford Life & Accessories Insurance Co., 991 F.Supp.2d 1121, 1127 (D. Nev. 2014), Hartford hired HUB to conduct surveillance of the plaintiff in that case. There, the court recognized that Hartford knew its vendors had financial incentives to produce reports that would justify denying benefits. The district court in Hertz granted summary judgment in the plaintiff’s favor, concluding that Hartford’s conflict of interest improperly motivated its benefits decision. Id. at 1143. Similarly, in Caplan v. CAN Financial Corp., 544 F.Supp.2d 984, 991-93 (N.D. Cal. 2008), the Northern District of California considered Hartford’s reliance on a vendor it knew was incentivized to produce biased reports in order to maintain its financial relationship with Hartford. Likewise, a Central District of California court considered Hartford’s “well-established relationship” with MES, noting the increase over time in payments and LTD claim referrals from Hartford to MES. See Black, 2018 WL 3872113 at *2; Kurth v. Hartford Life & Acc. Ins. Co., 845 F.Supp.2d 1087, 1096 (C.D. Cal. 2012).
In the Black case, the court thus found that Hartford operated under a conflict of interest and had a history of biased claims administration. The court was ultimately persuaded by the fact that Hartford used the same vendors as were used in Hertz, Caplan and Kurth and exercised its discretion to allow Black to obtain the discover of Hartford’s financial relationship with its vendors. Black, 2018 WL 3872113 at *3.
The court then considered discovery regarding the performance and evaluation of six Hartford employees involved in terminating Black’s LTD benefits claim. The court noted that whether or not the performance of the employees involved was measured by reference to their ability to deny or terminate LTD claims directly related to whether Hartford’s conflict of interest biased its decision-making process. In Hertz, Hartford’s employees were “acutely aware” that Hartford evaluated them on that basis. Black, 2018 WL 3872113 at *3 citing Hertz, 991 F.Supp.2d at 1134. Evidence produced in that case showed the investigator responsible for terminating Hertz’s claim was evaluated based on her ability to close claims. Another district court found that Hartford’s performance reviews “may reveal a structural incentive for individual claims adjustors to deny disability claims.” Stout v. Hartford Life & Acc. Ins. Co., No. 11-6186 CW JSC, 2012 WL 4464605, at *2 (N.D. Cal. Sept. 25, 2012). The court found that Black’s requests were proportional with the needs of the case and that Black was entitled to discovery of performance evaluations and other incentive-related documents. The court reasoned that such documents have been used by other courts in similar cases as evidence of biased decision-making process. Black, 2018 WL 3872113 at *4.
When dealing with an insurer during an adverse claim decision, it may feel like the company does not have your best interests at heart. Because we litigate often against insurers who deny disability, life and health insurance claims, we know this to be true. While ERISA helps to set guidelines to protect beneficiaries, insurers like Hartford oftentimes overstep these bounds to benefit financially. The Black opinion helps to shed light on the ways insurers administer claims and allow financial bias to permeate their claims decisions. Insurers like Hartford hire biased vendors to render an adverse decision or incentivize employees of the insurers in an attempt to deny benefit claims. Discovery of this evidence may be helpful to determine whether the administrator abused its discretion when it made the benefits decision.