Blog - Page 35 of 112 - McKennon Law Group

Life insurance policies allow those with dependents, such as children and spouses, to provide some financial stability to the people who depend on them if they die unexpectedly or at least offset the costs of a funeral and end-of-life medical care. Many married couples invest in life insurance policies for both spouses, and it is also common for parents to purchase policies that will protect their children.

Unfortunately, at the moment when someone needs that coverage the most, the company involved could try to avoid their obligations. If the policyholder paid their premium and maintain coverage, their dependents have every reasonable right to expect a timely payout on the policy when they die.

However, insurance companies can take steps to avoid paying out on legitimate claims. This kind of behavior, known as bad faith insurance denials, can leave customers vulnerable despite the best intentions of their loved ones. Thankfully, the beneficiaries of a life insurance policy with a claim denied in bad faith can likely take legal action against the company.

Determine the grounds for the attempted denial

The first and most important step toward pushing back against a bad faith insurance denial involves obtaining a statement from the insurance company, preferably in writing, explaining why they will not fulfill their obligations.

They might claim that the investigation into the cause of death is still underway, or they might point to some clause that they claim the policyholder or the beneficiaries violated. Once you know the reason for the denial, you can begin to gather evidence to support your claim.

Insurance providers have an obligation to the people who pay for their policies

Insurance companies make the most money from people who carry coverage that they never need. These often for-profit businesses will take a financial loss when they approve a substantial claim. Clearly, the business makes more money when it denies more claims.

However, to prevent companies from rejecting valid claims, there are many laws and rules in place protecting those who carry various forms of insurance. A company may take steps to mitigate its liability by limiting coverage in certain situations, but they may not deny valid claims in bad faith or make their contracts so complex that most legitimate claims would wind up denied.

If you can show either that the alleged reason for the denial is inaccurate or that the terms of the policy would effectively preclude most people from bringing a claim, you may have a good case for a bad faith action against the insurance company. You could seek the full benefit, as well as damages in certain cases.

It’s important to remember that the insurance company has to answer to state and federal regulators, as well as to people who carry their coverage. Taking action after an unfair denial of a life insurance claim can protect your family during a vulnerable time and other people who have similar coverage.

ERISA requires that an administrator provide a claimant with a “full and fair” review if a denial decision is made. It has long been held that an administrator must provide a claimant with copies of internal medical reports it generated and relied upon when making its decision to deny a claim, but when do these internal medical reports need to be disclosed? This question was addressed in the recent decision, Wagenstein v. Cigna Life Insurance Co., 2020 WL 68394 (9th Cir. Jan. 7, 2020) (“Wagenstein”). The Ninth Circuit held in Wagenstein that when an administrator “has engaged in a procedural irregularity, it must provide the claimant a fair opportunity to submit additional evidence.”

Lea Wagenstein (“Ms. Wagenstein”) filed a lawsuit against Cigna Life Insurance Company (“Cigna”) after Cigna terminated her long-term disability benefits under an ERISA governed insurance policy. The district upheld the termination of benefits.

The Ninth Circuit reversed the district court. The court explained that in response to Ms. Wagenstein’s initial appeal, Cigna provided her with an examining physician’s report that stated she could sit for up to 2.5 hours per workday and perform two sedentary occupations with that limitation. As the Ninth Circuit has created a bright-line rule that an employee who cannot sit for more than four hours in an eight-hour day workday cannot perform sedentary work that requires sitting most of the time, this initial report confirmed Ms. Wagenstein could not perform her sedentary job. See Armani v. Nw. Mut. Life Ins. Co., 840 F.3d 1159, 1163 (9th Cir. 2016). However, in Cigna’s formal denial letter of Ms. Wagenstein’s second, and final, appeal, Cigna for the first time cited a physician’s report that Ms. Wagenstein could sit for up to eight hours per workday and perform two sedentary jobs. Cigna had hidden this report from Ms. Wagenstein until Cigna’s final denial of her appeal of the termination of her benefits. The Court held that by withholding this second report, Cigna deprived Ms. Wagenstein of a fair opportunity to provide a response from her treating physicians, who agreed that Ms. Wagenstein was disabled. By failing to provide Ms. Wagenstein with the second doctor’s report and a fair opportunity to comment on it, Cigna violated ERISA’s rules requiring a full and fair review of her disability claim.

The Court ruled that the district court erred by declining to consider letters from Ms. Wagenstein’s treating physicians rebutting the second physician’s conclusions and vacated and remanded for consideration of the employee’s supplemental evidence. We often see long-term disability claims denied without a full and fair review provided. If you believe your long-term disability claim was denied without a full and fair review, please contact us.

In December 2014, a Northern California woman filed a lawsuit against disability insurer Unum Life Insurance Company alleging that the company wrongfully denied her claim for long-term disability (LTD) benefits under the long-term disability insurance plan issued to her employer and governed by ERISA (Employee Retirement Income Security Act). An LTD plan is intended to provide financial benefits to workers when they are unable to perform their job duties because of a disability – even if the injury or illness is unrelated to their employment.

The plaintiff, alleged that Lyme disease rendered her unable to work, and that she was therefore entitled to LTD benefits. Her claim was filed pursuant to a group disability insurance policy sold to her former employer by Unum. The LTD Policy provided LTD benefits to full-time workers. She filed a claim with Unum in April 2012, and her claim was initially approved, with Unum concluding that her disability began September 2011.

However, in December 2013, Unum is alleged to have notified the insured that she no longer met the definition of disability, and had the ability to return to work for her former employer. The insured appealed that decision and provided additional medical documentation of her Lyme disease to Unum supporting her disability claim.

The lawsuit alleges that, despite this additional documentation, she was again denied any further benefits under the Unum LTD policy – without an adequate explanation from the company. The insured also claimed that Unum violated ERISA by failing to provide a reasonable and prompt explanation for why her claim for LTD benefits was denied.

Are such actions common among insurers? Yes. Unfortunately many Americans regularly and faithfully have money deducted from their paychecks in order to cover premiums for their disability insurance benefits under LTD plans. However, when it comes time to collect those benefits due to a disability or illness, many insured find themselves in the midst of a battle that threatens their ability to pay their mortgage, car loans or other bills.

Various companies have been known to use certain tactics to avoid paying disability benefits. Among them: Changing the terms of policies after a claim is filed; failing to adequately investigate a claim; using biased physicians; refusing to examine an insured, instead relying on “paper reviews” by a so-called “independent” consultant; misreading or ignoring important medical documents and records; and, simply refusing to acknowledge that a disability exists.

In these circumstances, however unfortunate, it is critically important to have an attorney on your side to represent your interests vigorously and fairly – one who has previously represented insurance companies and now wants to fight for you. Contact us to request a free consultation today.

Life insurance lapse generally refers to coverage ending for insufficient or nonpayment of policy premiums. If premiums are not paid during the grace period to sustain the policy, then the life insurance ends. The lapse of a life insurance policy at the wrong time could have disastrous consequences for persons or families because policyholders could easily lose their life insurance if a single premium is accidentally missed, even if they have been paying premiums on time for years. On January 1, 2013, California added new sections 10113.71 and 10113.72 to the Insurance Code, as a way of providing consumer safeguards against life insurance policy lapse.

California Insurance Code Sections 10113.71 and 10113.72 primarily do three things: (1) mandate that life insurance policies issued or delivered in California have a 60-day grace period; (2) set forth notice of pending lapse and termination requirements; and (3) require insurers to provide notice to applicants and annual notice to policyholders of their right to designate someone other than themselves to receive lapse notices. The latter requirement, which applies only to individual life insurance policies, was an important addition to the California Insurance Code because it allows policyholders to designate persons who can receive lapse notices so that if the policyholder is too sick to read a premium notice and/or pay a premium, he may still be protected. While both statutes went into effect on January 1, 2013, a question remained as to whether these safeguards would apply to life insurance policies issued or delivered prior to January 1, 2013. As discussed below, the answer to this question is “no.”

In a recent decision, McHugh v. Protective Life Insurance, 40 Cal.App.5th 1166 (2019) (“McHugh”), the California Court of Appeals ruled that Insurance Code Sections 10113.71 and 10113.72 only apply to policies issued or delivered after January 1, 2013. William Patrick McHugh (“Insured”) purchased a life insurance policy (“Policy”) from Protective Life Insurance Company (“Protective Life”) on January 9, 2005, that provided for a 31-day grace period. The insured failed to make his 2013 premium payment; therefore, on February 9, 2013, the Policy lapsed per its express terms. Protective Life never received an additional premium payment or reinstatement application from the insured. The insured died in August 2013. Plaintiffs, the policy beneficiaries, sued Protective Life for breach of contract and insurance bad faith, alleging that Protective Life did not provide the insured with a 60-day grace period per code section 10113.71 and therefore, the lapse notices and subsequent termination of the policy were void. The court found that the 2013 statutes did not apply retroactively to the Policy, stating:

Sections 10113.71, subdivision (a)(1) and 10113.72, subdivision (a)(1), refer to term life insurance policies “issued or delivered,” a term that in California case law imports prospective application: “the terms ‘issued’ and ‘delivered’ must refer to the original issuance and delivery of the policy; they are fixed as to time and do not stretch into infinity.” (Ball v. California State Auto Assn. Inter-Ins. Bureau (1962) 201 Cal.App.2d 85, 87.) Therefore, as this policy was issued and delivered to McHugh in 2005, it could not incorporate the statutory amendments that became effective in 2013. Id.

Since the Policy was issued in 2005, Protective Life was not obligated to comply with California Insurance Code Sections 10113.71 and 10113.72. Thus, the express terms in the Policy dictated the duration of the grace period and any terms as to notice to the insured regarding the termination of the Policy. The court also rejected the contention that the statutes applied if the Policy was renewed after January 1, 2013.

This is an unfortunate ruling that does not protect insureds who have paid premiums for years and who may become too sick to pay a premium, thus allowing a policy lapse at the time the insured needs the life insurance the most. Policyholders need to be aware of the date their life insurance policy was first issued and/or delivered. If the policy was issued or delivered prior to January 1, 2013, a policyholder needs to carefully read the express terms of the policy to make sure they understand how their policies can lapse and they should take steps to protect themselves. When it comes to life insurance policies, a lack of knowledge can lead to big problems.

If you have questions about the lapse of a life insurance policy, McKennon Law Group PC has significant experience with most issues involving life insurance and we may be able to assist you. Please contact us for a free consultation.

Under insurance policies governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), when an insurer denies a person’s claim for life insurance benefits, short-term-disability benefits or long-term-disability benefits, the beneficiary must request that the insurance company review the denial or termination if they intend to sue the insurer to obtain their benefits. Courts refer to this review as an “administrative appeal” and the obligation to pursue that appeal as the duty to exhaust administrative remedies. Courts have universally concluded that they “have the authority to enforce the exhaustion requirement in suits under ERISA, and that as a matter of sound policy they should usually do so.” Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980). The administrative appeals process is very important. Not only must a beneficiary pursue their administrative remedies in order to obtain the right to sue in court, but a beneficiary’s actions during the administrative appeals process can have serious ramifications for any resulting litigation.

When a beneficiary appeals an insurer’s initial decision, the documents submitted to the insurer become the “administrative record.” If an insured fails to submit a piece of evidence to the insurer, a Court may refuse to consider the evidence in any subsequent litigation. During litigation, a court usually only examines the administrative record. See, e.g., Blaj v. Unum Life Ins. Co. of Am., 2014 WL 2735182, at *2 (N.D. Cal. June 16, 2014) (citing Opeta v. Northwest Airlines Pension Plan, 484 F.3d 1211, 1217 (9th Cir. 2007), and stating that “a district court should determine whether the plaintiff is entitled to benefits based on the evidence in the administrative record, and evidence outside the administrative record may only be considered in ‘certain limited circumstances’”). Given the importance of building a strong administrative record, beneficiaries potentially imperil their claim by performing their own appeal. However, assuming an insured sends the insurer all relevant records, then a skilled attorney will likely possess most of the tools required to build their argument and win a case in court.

Given that a court rarely examines evidence outside the administrative record, a second question naturally arises: Can a beneficiary present arguments to a judge that they did not raise when pursuing their administrative appeal? The idea that a beneficiary cannot present an argument for the first-time during litigation is referred to as “issue exhaustion.” Thankfully, courts nearly universally reject insurance companies’ attempts to invoke this doctrine.

In Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d 620, 630 (9th Cir. 2008), the Ninth Circuit rejected an insurer’s attempt to dismiss a claim because of an alleged failure to satisfy this doctrine. The Ninth Circuit explained that the Supreme Court has instructed lower courts that “issue exhaustion is typically a creature of statute or agency regulation.” Id. The Ninth Circuit subsequently reasoned that because, “No ERISA statute precludes courts from hearing objections not previously raised to the Plan, nor does any ERISA statute or regulation require claimants to identify all issues they wish to have considered on appeal,” ERISA does not require issue exhaustion. Id.

In Wolf v. National Shopmen Pension Fund, 728 F.2d 182, 186 (3d Cir. 1984), the Third Circuit reached the same conclusion. ERISA does not compel courts to enforce the doctrine of issue exhaustion. The Third Circuit explained that it had found no caselaw supporting the doctrine:

Section 502(a) of ERISA does not require either issue or theory exhaustion; it requires only claim exhaustion. 29 U.S.C. § 1132(a). The Pension Fund cites no case, nor are we aware of any case which holds that a district court cannot decide a claim relying on a theory different from that presented to the Trustees of a Pension Fund. All of the cases with which we are familiar concern themselves only with whether the internal union remedies have been exhausted before finding federal jurisdiction appropriate.

Id. (emphasis in original).

These rulings declining to impose an issue exhaustion requirement protect ERISA plan participants and their beneficiaries. McKennon Law Group PC receives many calls from people who conducted their own appeals after an insured denied their benefits. If, in fact, issue exhaustion applied, then we likely could not help these people. A lay person does not know what the law requires of an insurer or what to argue on appeal. Many appeal letters drafted by attorneys, such as those at this firm, contain pages of legal argument and citations to cases supporting the claim. If issue exhaustion applied, a beneficiary would be required to seek legal counsel during the appeals process. One honest misstep would result in the claim being unsalvageable.

Of note, the Ninth Circuit did state that an insurer could, in theory, include an issue exhaustion requirement in a policy. See Vaught, 546 F.3d at 629-33. An insurance policy is just a specialized form of contract. The plain language of the contract dictates the relationship between the parties. However, the Ninth Circuit concluded that language stating that a beneficiary must “clearly explain . . . the reason why you think the Claims Administrator should reconsider your claim” lacked sufficient specificity so as to impose a contractual issue exhaustion requirement. Id. at 629, 632. The Vaught court’s opinion also implies that any such contractual requirement would need to be very explicit. See id.

That courts do protect ERISA plan participants and their beneficiaries in this instance does not mean that it is wise to handle appeals on their own. There are many pitfalls and landmines to avoid and hiring experienced ERISA appeals attorneys like McKennon Law Group PC may make the difference between getting your long-term disability claim paid or not.

In the November 19, 2019 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a previous 2009 Daily Journal investigation that revealed insurers’ regular practice of improperly denying claims. Since 2009, recent regulations promulgated by the Department of Labor and recent court opinions have helped even the playing field for claimants. A full and fair review of a claim for benefits is required by statute and regulation, and helps prevent insurers from illicit claim denials as detailed in the Daily Journal investigation. However, it remains to be seen whether these recent regulations and court decisions will ultimately have the effect of evening the power imbalance insurers wield against vulnerable disability claimants.

Leveling the Field Between Insurers and Disability Claimants

Every year, millions of Americans seek and obtain individual or group disability insurance, hoping to buy a safety net in case of an unexpected disability.

By Robert McKennon

Every year, millions of Americans seek and obtain individual or group disability insurance, hoping to buy a safety net in case of an unexpected disability. If they become sick or are injured and can no longer work, these disability policies promise to pay disability benefits to cover part of their salaries they may lose when they become disabled. Unfortunately, disability insurers often do not honor their promises. In a two-part series in 2009, the Daily Journal reviewed 576 lawsuits filed in federal court in California against seven of the largest disability insurers in the country. (“Ill Workers Denied Benefits Face Fight Alone,” Oct. 20, 2009, and “Doctors Paid To Aid In Disability Denials,” Oct. 21, 2009.) This investigation found that “insurance companies regularly deny, or terminate, benefits to people …. The companies hire contract doctors who routinely reject the opinion of treating physicians without ever having seen the patients.” The Daily Journal also found that some insurers provide incentives to their employees to deny and terminate disability insurance claims, tying performance evaluations to meeting money-saving goals.

When group disability insurance policies/plans are involved, they are governed by the federal Employee Retirement Income and Security Act of 1974. Under ERISA, a policyholder’s recourse against an insurer is constrained to filing a lawsuit in federal court, in which his or her damages are limited. Unlike state laws such as California’s that allows a policyholder to sue for contract and tort damages, including punitive damages, ERISA limits recovery to plan benefits, interest on the delay in paying these benefits, and attorney fees. And, even attorney fees can be avoided. This can be done if the insurer initially denies the disability claim, waits to see if the policyholder files a mandatory administrative appeal, and if he does, the insurer can pay the claim and avoid any liability for attorney fees. Under ERISA, a policyholder cannot recover attorney fees for work done in the administrative appeals process. If the policyholder does not appeal the wrongful denial, the insurer profits. This results in a system that often does not penalize insurers that deny much needed benefits of disabled workers. Despite the internal conflict of interest insurers have, where they tie denial of disability claims with profitability, insurers often escape any negative ramifications of their illicit claim denials.

Insurers even go so far as to reward employees who deny claims. The Daily Journal’s investigation found that one employee of The Hartford Financial Services Group’s claims department received high praise for work that saved over $4 million. This same employee was chastised for continuing the claim of a 35-year-old worker, rather than speculating the worker could have worked a sedentary desk job. Sun Life Financial sent a memorandum telling claims handlers to “kick it up a notch” because the insurer was behind on its goal to “achieve the planned terminations/denials of 271 by the end of the month.” The Daily Journal found this memo offered a $250 gift certificate lottery to meet the insurer’s bottom line financial results. In nearly half the cases reviewed by the Daily Journal that reached court, judges found that the insurance companies had no appropriate basis to deny benefits.

To assist in the wrongful denial of these claims, insurers often rely upon doctors they hire frequently to write reports on claims they do not want to pay. Insurers will send files to so-called “independent” medical reviewers. The doctors conduct “paper reviews” and render conclusory opinions without seeing or even talking the claimant or her doctors. The reviewers may receive hundreds of assignments per year in repeat business from these insurers and may be their only source of income. Shockingly, these reviewing physicians do not have to be part of an independent panel overseen by regulators. The firms that coordinate these reviews collect millions of dollars a year, sometimes from a single insurer, and aggressively market their services to insurers. The Daily Journal found that these firms coach their doctors to never use the word “disabled” in reports and to use strict medical definitions they provide to determine a person’s ability of work. In many instances, these reviewers are not provided all of the claimant’s medical records and are not even qualified to render opinions for the specialty needed.

The Daily Journal even found one doctor who specialized in reviewing disability cases, Suresh Mahawar, M.D., who “nearly never” disagreed with the insurer. In the 202 cases he was assigned to review for The Hartford Financial Services Group between 2005 and 2007, court records show he only found nine people who were so sick or injured they could not return to work. Dr. Mahawar opined that anybody can work a desk job regardless of reported pain and physical limitations. Another disability case reviewer, Amy Hopkins, M.D., was paid $493,832 for file reviews for just one firm from 2001 to 2004. In 2004, a federal judge in Pennsylvania described her work as a “pick and choose approach” that ignored evidence and “completely mischaracterized” a treating physician’s notes in order to deny a claim.

Regulatory oversight to protect policyholders is weak. While insurers are required to notify policyholders that the California Department of Insurance is available to assist them with claims they feel have been wrongfully denied or rejected, in practice, the department is ineffectual in successfully resolving these complaints. Typically, complaints are ignored or, if the department takes any action, they conduct a routine inquiry with the insurer and, once the insurer responds, they do not pursue the matter, requesting that the policyholder hire an attorney who specializes in insurance denials to pursue the disability insurance benefits. The Daily Journal observed that, “No regulatory agency has taken responsibility for these cases.” “The result is a rare and gaping absence of regulation in a private insurance market that insures nearly a third of the nation’s workforce,” the Daily Journal wrote.

However, recent regulations promulgated by the Department of Labor and recent court opinions may help mend this troubled history. Federal courts have pushed back on insurers who wrongfully deny claims, and have found that a full and fair review of a claim for benefits is required by statute and regulation. The 9th U.S. Circuit Court of Appeals in Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 669 (9th Cir. 2011), found that Life Insurance Company of North America unreasonably denied the plaintiff’s claim for disability benefits. The 9th Circuit determined that the insurer failed to properly conduct a full and fair review of the claim for benefits, “violated its procedural obligations and violated its substantive obligation by abusing its discretion and judging the disability claim arbitrarily and capriciously.” As explained by the Salomaa court, in order to “conform to the claim procedure required by statute and regulation,” Cigna was required to “explain, upon denial, any additional ‘information needed’” to support a claim for benefits. The Salomaa court concluded the insurer did not meet the requirement of meaningful dialogue under this standard. Id. at 680.

Insurers are required to give claimants a full and fair review by explaining specifically what additional information is needed to qualify for disability benefits. As such, insurers are prevented from playing “hide the ball” with claimants by failing to advise them of documents or information needed to obtain approval of a claim, and by failing to send forms to claimants or their doctors that would have elicited the information needed. Boyd v. Aetna Life Ins. Co., 438 F.Supp.2d 1134, 1153–54 (C.D. Cal. 2006); see also Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 870 (9th Cir. 2008); 29 CFR Section 2560.503–1(g).

Furthermore, a full and fair review takes on new significance under two new ERISA regulations, 29 C.F.R. Section 2560.503-1(h)(4)(i) and (ii). They require that if there is “any new or additional evidence considered” or if there is a “new or additional rationale” upon which the insurer intends to rely to deny the claim, the insurer must point out and provide this evidence or rationale to claimants, and they must have an opportunity to respond to the “new or additional evidence considered” or “new or additional rationale” before there is an adverse determination (i.e., a denial).

If, after reviewing the available evidence, an insurer still maintains that a claimant has not presented sufficient medical support for a claim, the insurer must provide a specific list of any tests and/or examination results that must be given and allow claimants an opportunity to meet that request. It is no longer sufficient for insurers to place the burden on claimants to guess which medical records will be found necessary, when they need to be submitted, and why they are necessary. This is particularly the case given the Department of Labor’s recent regulations codified at 29 C.F.R. Section 2560.503-1. The regulations clearly aim to minimize conflicts of interest and provide claimants with additional information, which the Department of Labor indicated was “necessary to ensure that disability claimants receive a full and fair review of their claims, as required by ERISA section 503.” It remains to be seen whether these recent regulations and court decisions will have the effect of evening the power imbalance insurers wield against vulnerable disability claimants.

Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith, ERISA and unfair business practices litigation. He can be reached at (949) 387-9595 or rm@mckennonlawgroup.com. His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.