Blog - Page 46 of 110 - McKennon Law Group

Challenging a wrongfully denied claim for life, health, long-term disability or accidental death and dismemberment benefits can be a very time-consuming endeavor for law firms handling these types of cases. The resources required to fight a sophisticated insurer can quickly become very expensive. Without the ability to collect attorney’s fees, many wrongfully denied insurance claims would go unchallenged, not for lack of merit, but due to a lack of economic viability. Fortunately, the Employee Retirement Income Security Act of 1974, or ERISA, allows for recovery of attorneys’ fees upon a showing of some degree of success on the merits. In other words, a meritorious lawsuit under ERISA will almost certainly result in making the culpable party (usually the insurer who denied the claim) foot the bill. Without this key incentive, insureds and their attorneys would be hard-pressed to pursue a wrongfully denied claim for benefits. Although not the subject of this article, attorney’s fees may also be obtained in non-ERISA state court insurance bad faith cases too.

In this article, we focus on the importance of ERISA’s fee-shifting provisions and some of the contours of that statutory remedy. First, we provide a brief background on attorneys’ fees in our legal system, largely governed by the “American Rule.” Next, we discuss ERISA’s fee-shifting provision as a statutory exception to that rule and as applied by the Ninth Circuit in Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974 (9th Cir. 2001).

The “American Rule”
In the U.S., our legal system largely allocates responsibility for attorneys’ fees in accordance with the American Rule. Unlike the English Rule, its American counterpart assigns each party responsibility for his or her own attorneys’ fees, unless a statute or contract provides otherwise. This responsibility applies even if the other party is at fault. The American Rule contrasts with the English Rule in that the latter awards attorneys’ fees to the winner as an element of damages, i.e., the loser pays. Many believe the English Rule is a fairer approach, although it may unfairly penalize parties for defending or pursuing an action where the legal outcome is uncertain.

ERISA’s Fee-Shifting Provision
ERISA provides a “fee-shifting,” statutory exception to the American Rule. See 29 U.S.C. § 1132(g)(1). More like the English Rule’s loser-pays regime, this provision grants the court discretion to award reasonable attorneys’ fees and costs in an ERISA action. ERISA’s generous fee-shifting provision does not even require that the party prevail to be entitled to attorneys’ fees. As the U.S. Supreme Court declared in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010), under ERISA, the court may award attorneys’ fees based solely on a showing of some degree of success on the merits.

When Does ERISA’s Fee-Shifting Provision Apply?
As discussed in various other blogs on the subject, employee benefits governed by ERISA typically require at least one mandatory internal appeal to the insurer (if the Policy has such a provision, which they typically do). Thus, if you have a long-term disability policy through your employer, and the governing policy or plan document requires appeal of any denial or termination of benefits, one would have to exhaust that internal appeal before he could file a lawsuit. Failure to do so may prevent the participant from filing a lawsuit in the future.

ERISA’s fee-shifting provision applies only to those fees incurred in preparation of litigation and not typically in the requisite administrative appeals process. However, there are exceptions to this rule. One case that discusses such an exception is Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974 (9th Cir. 2001), in which the Ninth Circuit Court of Appeals approved an award of attorneys’ fees for work that would otherwise be considered part of the administrative process. In Dishman, the court approved plaintiff’s attorneys’ fees because it found that there was nothing to pare off, as the insurer did not make an adequate administrative remedy available to plaintiff.

The plaintiff, Mr. Dishman, struggled with disabling migraines for many years before he could no longer work. Unum accepted Mr. Dishman’s claim; however, after a few years, Unum assigned Mr. Dishman’s claim to its Complex Claim Unit and hired several private investigators. Instead of conducting medical evaluations, Unum’s investigation focused on Mr. Dishman’s potential affiliation with a Colorado company. Based on this information, Unum called Mr. Dishman and cancelled his benefits, later retracting the cancellation, calling it a “suspension.”

The correspondence that followed appear as attempts to engage in the administrative appeals process under ERISA. Mr. Dishman’s attorney corresponded with Unum on his behalf, proposing that Mr. Dishman be examined by a neutral neurologist. Unum declined and requested further information related to Mr. Dishman’s potential employment in Colorado. Mr. Dishman attempted to comply with Unum’s requests for some time, but when Mr. Dishman’s attorney requested a copy of Unum’s claim procedure, his first request was ignored. As to his second request, Unum responded only that it “does not have a Claims Procedure with regard to the suspension or termination of benefits.”

Although this back-and-forth looks akin to an attempted administrative process, the court determined that Unum’s conduct communicated to Mr. Dishman that he had no administrative recourse. Accordingly, the Court upheld the District Court’s exception to the exhaustion requirement because Unum gave Mr. Dishman inadequate notice of the denial and available appeals procedure. Further, the court also largely agreed with the District Court’s award of all Mr. Dishman’s attorneys’ fees (absent interest thereon) because:

[T]here was nothing to pare off […] none of the claimed hours were expended in connection with the exhaustion of administrative procedures, inasmuch as Unum did not make any administrative remedy available to the plaintiff.

In sum, the courts have long-acknowledged the importance of this recovery provision in achieving the fundamental goals of ERISA. It provides a financial incentive for attorneys to represent plan participants, beneficiaries or fiduciaries with wrongfully denied claims for benefits. It also penalizes administrators for claims handling misconduct by forcing them to internalize those costs. Along with other statutory incentives, the threat of looming attorneys’ fees gives real teeth to ERISA’s procedural protections, increasing the cost of failure to comply with these ERISA protections. McKennon Law Group PC has recovered significant attorney’s fees in many of the bad faith and ERISA insurance matters it has handled for our clients. This has allowed our clients in those cases to keep all or most of their disability, life, accidental death and long-term care benefits.

McKennon Law Group PC is proud to announce that its founding shareholder Robert J. McKennon has been recognized as one of Southern California’s “Super Lawyers” and appears in the 2018 edition of Southern California Super Lawyers magazine published in January 2018. Mr. McKennon has received this prestigious designation every year since 2011. Mr. McKennon was voted by his peers for this award and he was recognized forheand his excellence in representing its life, health and disability policyholder clients.Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 14 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.

In addition, the American Society of Legal Advocates has recognized Mr. McKennon as one of the top 100 Insurance lawyers in the State of California for 2018.Mr. McKennon has received this designation every year since 2013. The American Society of Legal Advocates is an invitation-only, nationwide organization of top lawyers in practice today who combine excellent legal credentials with a proven commitment to community engagement and the highest professional standards.

After using a diabetes insulin pump for nine years, David Lazarus suddenly received a denial letter from his insurer, Blue Cross Blue Shield of Illinois. The denial letter notified Lazarus that his employer’s health plan would no longer cover the cost of his diabetes insulin pump. He was now responsible for the cost of the pump: $8,703. The reason cited for his insurer’s sudden change of heart? Lack of medical necessity. His medical insurance claim was denied.

An insurer may deny a medical insurance claim before or after the medical service sought to be covered, either through the denial of preauthorization requests or denial of claims for payment after the medical service is provided. Some insurers require preauthorization requests before treatment, which may result in insurance denials where the policyholder is deemed ineligible for the service or the insurer determines the treatment inappropriate. Claims, on the other hand, may be denied for a variety of reasons: billing issues, documentation issues, duplication issues and various other reasons related to eligibility. One of the most litigated areas of medical insurance coverage denials is the insurer’s denial because the treatment is deemed experimental or not medically necessary.

In a recent column published by the Los Angeles Times, Lazarus shared his personal struggle with an improperly denied health insurance claim as part of a larger discussion of the widespread problem: when a health insurer denies a valid, legitimate claim. To some, including the attorneys of the McKennon Law Group PC, this story may sound all too familiar. Sadly, the fact that health insurers deny valid claims for a variety of reasons, including lack of medical necessity, is not surprising. This problem can be alarming based upon its sheer scale, which as Lazarus noted, is a problem that “applies to millions of people.”

Chuck Idelson, a spokesman for the California Nurses Association, described this conduct as “immoral and unconscionable.” Lazarus likewise expressed his outrage:

[I]t’s unacceptable for patients to have to do battle with monolithic corporations that are seemingly determined not to use common sense (or simple decency) in deciding what treatments to cover.

However, the reality is that health insurers, as do long-term disability insurers, life insurers and accidental death and dismemberment insurers, employ a small army of ‘claims specialists’ to closely scrutinize each claim for potential reasons for denial. While insurers may view this claims handling process as the “rigorous process of evaluating the medical need for a prescribed drug or treatment,” many describe it differently. As Idelson said of the claims handling process:

Insurers employ warehouses full of claims adjusters who, as a primary function, scrutinize claims for pretexts to deny care, saying it is ‘experimental’ or ‘not medically necessary’ even where the medical treatment, prescription medication, diagnostic procedure or referral to a specialist is recommended by doctors.

The column also notes that a significant portion of these claims are denied for reasons unrelated to the claim’s validity. In other words, there was a mishap in processing, such as billing errors, duplicate claims for the same underlying service, or just missing information, as found in a 2011 study done by the Government Accountability Office (“GAO”).

In Private Health Insurance: Data on Application and Coverage Denials, the GAO reviewed nationwide data collected by the Department of Health and Human Services. It covered 459 insurers providing individual and group insurance in all fifty states, including the District of Columbia. Because the data only included application denials for a three-month period from January through March 2010, only one quarter, GAO also supplemented the nationwide data with available data from six states: California, Connecticut, Florida, Maryland, New York and Ohio.

The GAO noted that coverage denials often occur as the result of billing errors and eligibility issues, and less often for reasons about the appropriateness of a service. For six of the largest managed care organizations licensed in the State of California, each with enrollment in 2009 of over 400,000, the rate of claims denials came in at 24% for the year of 2009. But, the data varied widely depending on the managed care organization. Specifically, California’s reported denial rates covered a wide range of 6% to 40% across the six managed care organizations.

As Lazarus discusses in his column, getting health insurance coverage is only half the problem. The other half is the quality of coverage you have once you are lucky enough to get it. Fighting with your insurer over a legitimate claim for health, life, long-term disability, or other insurance benefits can be a daunting task and while Lazarus managed his claims handling problem (after numerous calls and emails), many insureds’ coverage disputes are not so easily resolved.

The Lawyers Worldwide Awards Magazine has announced McKennon Law Group PC as “Insurance Litigation Law Firm of the Year – California, USA” and “Insurance Litigation Law Firm of the Year –USA” for 2017.The Magazine recognizes each year a select number of leading professional firms, across the globe, for their individual areas of specialization, within their geographical location.McKennon Law Group PC was voted by its peers for this award and it was recognized foraexcellence in representing its life, health and disability policyholder clients against the biggest insurers in the world.

McKennon Law Group PC was also selected by Acquisition Finance Magazine for its ACQ5 award as “USA – Insurance Litigation Law Firm of the Year” for 2018.ACQ5-Acquisition Finance Magazine is a leading corporate magazine news site. It has been serving the finance sector since 2003, and provides a Global audience of over 159,000+ subscribers with the information behind the headlines.

Robert J. McKennon Recognized as 2018 “Super Lawyer – Insurance Coverage” and “Top 100 Insurance Lawyers in the State of California” for 2018

Long-term and Short-Term Disability insurance cases dominate ERISA benefits litigation. According to the U.S. Department of Labor (“DOL”), the administrative agency given the authority to regulate employee benefits under, and to enforce the statutory provisions of, the Employee Retirement Income Security Act of 1974 (“ERISA”), disability insurance benefits claims account for almost two thirds of all benefits-related ERISA lawsuits and, based on rough estimates, these disability benefits claims are often denied. We wrote articles about these Regulations, which you can read here. Importantly, the Regulations give teeth to existing protections, enhancing requirements for independent claims administration, information disclosure and consequences for administrators who fail to comply.

The good news is that they are now finalized and will go into effect on April 1, 2018 without further delay. They will apply to disability benefits claims filed after April 1, 2018. As previously advised, the DOL published “final” regulations on December 19, 2016 revising the existing claims and appeals procedures regulations under ERISA for employee benefit plans providing disability benefits (“Final Regulations”). According to the DOL, the intent of the Final Regulations is to strengthen the current procedures by adopting some of the additional procedural safeguards and protections for disability plan claims that are already in place for group health plan benefits pursuant to the Patient Protection and Affordable Care Act.

The DOL’s January 2018 news release confirms that the substantive provisions of the Final Regulations will be retained:

The Department received approximately 200 comment letters from the insurance industry, employer groups, consumer advocates, and lawyers representing disability benefit claimants, all of which are posted on the Department’s website. Only a few comments responded substantively to the Department’s request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers’ access to disability insurance protections. The information provided in the comments did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.” Accordingly, the substantive provisions of the Final Regulations will apply to disability benefits for claims filed “after April 1, 2018.

With these Regulations, the DOL has attempted to protect disability insurance claimants from wrongful denials of long-term and short-term disability claims by attempting to minimize conflicts of interest, promote an open and robust discussion of the claim and ensure that administrators strictly comply with procedural protections for disability insurance claimants.

The Final Rule Delaying the Applicability Date (published 11/29/17) can be found at: https://www.federalregister.gov/documents/2017/11/29/2017-25729/claims-procedure-for-plans-providing-disability-benefits-90-day-delay-of-applicability-date
The Final Rule for Claims Procedures for Plans Providing Disability Benefits (published 12/19/16) can be found at: https://www.federalregister.gov/documents/2016/12/19/2016-30070/claims-procedure-for-plans-providing-disability-benefits

Implied in every insurance contract is a promise of “good faith and fair dealing,” which means that the insurer must not take unreasonable steps to prevent an insured’s right to receive benefits under the policy. To comply with its promise to act in good faith, the insurer must adhere to certain duties, such as the duty to adequately investigate a claim made by an insured. An insurer acts in bad faith when it fails to meet those duties unreasonably and without proper cause. Determining whether there has been bad faith conduct is important, in part, because it directly affects the insured’s potential recovery. If the insurer is found to have acted in bad faith, the insured may have access to a substantial additional recovery, including attorneys’ fees, emotional distress, consequential and punitive damages. An insured’s ability to sue for insurance bad faith is his or her most potent and effective legal weapon to wield against rogue insurance companies. It is common knowledge that a policyholder can assert a bad faith claim against an insurer. But what about an insured’s ability to sue a Third Party Administrator (“TPA”)?

TPAs are not insurers, although they typically perform some of the insurer’s functions: billing, recordkeeping and processing of life insurance, disability insurance and medical insurance claims. Many insurers “outsource” such claims processing tasks to TPAs and grant TPAs broad discretion to interpret policy provisions, investigate claims and deny or approve claims as they see fit. But, although TPAs often spend the most “face-time” with individual policyholders, their primary relationship is with the insurance company and not the insured. Even though TPAs may commit bad faith by making unreasonable claims decisions, most traditional legal theories immunize TPAs from liability for claims handling misconduct. Rather, the insurer is typically liable for any bad faith conduct by the TPAs. Consequently, TPAs may lack incentives, financial or otherwise, to properly handle and process an insured’s life, health or disability insurance claim.

However, new legal theories adopted by McKennon Law Group PC appear to be shifting the course on TPA accountability. One theory our firm has successfully utilized in several recent cases is joint venture liability. Under joint venture liability theory, the policyholder alleges that, unlike agents or employees of the insurer, the TPA entered into the business of insurance as a joint venture with the insurer. As such, both the TPA and the insurer may be held legally accountable for their bad faith conduct. In this article, we discuss TPAs, joint venture liability theory and the Firm’s recent success in alleging the joint venture liability of a TPA.

Third Party Administrators
In the insurance industry, it is commonplace for a TPA to provide claims handling services for an insurer. Typically, the insurer funds the insurance policy and pays the benefits, whereas the TPA interprets the policy provisions, handles the claims, and ultimately decides whether a claim should be paid. Customarily, the insurer’s agents and employees are exempt from liability for breach of contract and bad faith. In other words, if the insurer’s long-term disability claims specialist improperly denies your claim, he would be immunized from a lawsuit because he is not a party to the contract for insurance and he acted as an agent of the insurer. This agent-principal theory also shields TPAs from liability for breach of contract and bad faith, despite the fact that TPAs are distinct, sophisticated entities often independently exercising broad discretionary authority in the administration of claims under the policy.

TPAs and Joint Venture Liability Theory
Despite the more traditional law that immunizes TPAs from bad faith liability, non-insurer defendants may be held liable under insurance contracts if they jointly ventured with the insurer. In this instance they are not considered agents or employees of the insurer, but instead a partner of sorts, known as a joint venturer, engaged in a particular business venture with an insurer. Where there is a joint venture, all are liable for agreements entered into by the joint venturers in furtherance of the joint venture. To establish a joint venture requires (1) an intent to become partners; (2) a community of interest in the undertaking; (3) an understanding to share profits and losses; and (4) authority and right to direct and control the conduct of all co-venturers with respect to the joint venture.

In Forest v. Equitable Life Assurance Society of U.S., No. C99-5173 SI, 2001 WL 1338809, at *5 (N.D. Cal. June 12, 2001), the court allowed plaintiff’s theory for TPA liability based on a joint venture theory. Plaintiff alleged that the companies, including two acting TPAs, Paul Revere and Provident Life, and one acting insurer, Equitable, were joint-venturers who were all subject to bad faith under California law. The “joint venture” encompassed a series of agreements between Equitable, Paul Revere and Provident Life, with the latter two offering claims management services similar to what many other TPAs also provide. The agreements supported inferences that Paul Revere, Provident and Equitable shared a community of interest in the business of claims administration and shared profits and losses through an incentive fee scheme. In response to a legal challenge to this joint venture liability, the court found that the TPA “Paul Revere exercised broad discretion and control while Equitable retained final authority in most matters.” The court also noted that the parties shared a variety of resources, including information, bank accounts, human resources and joint marketing development. Based on these agreements, the court found that “it cannot be said as a matter of law that Paul Revere, Provident Life and Equitable were not in a joint venture for the business of offering and providing disability insurance policies such as plaintiff’s policy.” Thus, the court upheld the bad faith claims against the TPAs, Paul Revere and Provident Life.

Sharkh v. Continentale Krankenversicherung A.G.
In a recent ruling in Sharkh v. Continentale Krankenversicherung A.G., No. SC127208 (L.A. Super. Ct. Jan. 17, 2018), the court found in favor of Plaintiffs, rejecting a legal challenge to Plaintiffs’ causes of action for breach of contract and bad faith as to Defendant and TPA Global Medical Management, Inc., (“GMMI”). In this lawsuit, Plaintiffs, represented by Robert McKennon and Scott Calvert of the McKennon Law Group PC, filed an amended complaint against Defendants Continentale Krankenversicherung A.G. (“Continentale”) and GMMI. The amended complaint alleged liability on multiple theories, including joint venture liability against GMMI based on the Defendants’ denial of numerous health insurance claims without good cause relative to two sick young children, one of whom who is gravely ill. On December 11, 2017, GMMI demurred to Plaintiffs’ amended complaint on the grounds that the breach of contract and bad faith causes of action alleged were improper. Specifically, GMMI asserted that it could not be subject to causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (bad faith) because it was not a party to the underlying insurance contract, acting only as a TPA.

On January 3, 2018, Plaintiffs, via counsel, responded, opposing GMMI’s demurrer. As the opposition explained, GMMI and Continentale co-ventured into the business of health insurance. Both parties shared a community interest in profits and losses, as well as the ability to independently exercise broad discretionary authority. The policy also reflected an intent to become partners, identifying GMMI as the claims administrator. Following briefing, the court issued an order in favor of Plaintiffs, finding that the amended complaint sufficiently alleged a theory of joint venture liability in the administration of the health insurance policy at issue by both the TPA, GMMI, and the insurer Continentale.

Ultimately, an insured’s ability to hold TPAs accountable is a good thing for insureds. Without some accountability, TPAs will exercise unbridled discretionary authority over the claims handling process without any liability whatsoever.

Fee-Shifting: When are Attorneys’ Fees Recoverable in ERISA Cases?

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