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.