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If your claim for insurance benefits has been denied, you can trust in the attorneys at McKennon Law Group PC to fight to have your benefits reinstated. Our firm works on insureds’ behalf, exhausting every avenue to secure their benefits from life, general liability, long-term care and disability insurers like Reliance Standard. At McKennon Law Group PC, we understand insurers like Reliance Standard because we used to represent insurers like Reliance Standard. We specialize in collecting insurance benefits after insurers like Reliance Standard deny disability and life insurance claims, whether the claim is governed by ERISA or state insurance laws. At McKennon Law Group PC, our unique experience gives us the knowledge and ability to get your life and disability insurance claims paid.

Reliance Standard Life Insurance Company, commonly referred to as Reliance Standard, offers a wide variety of employee benefits coverage including disability income and group term life insurance coverage. Reliance Standard provides coverage in most states, including California, but does not offer insurance in New York, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. In New York, First Reliance Standard Life Insurance Company offers insurance products, not Reliance Standard.

Reliance Standard works with its sister companies, Matrix Absence Management, Inc., and Safety National Casualty Corporation to manage a full range of employee absence services. Matrix partners with employers to manage disability claims and related government disability programs such as workers’ compensation and family leave. Safety National offers claims management, evaluation and other similar services. Reliance Standard, as well as Matrix and Safety National, are all members of the Tokio Marine Group, which also boasts members in property and casualty insurance, including First Insurance Company of Hawaii and Philadelphia Insurance Companies, the latter also offering professional liability insurance.

We see Reliance Standard often when they deny our clients’ claims. They issue many group life and disability insurance policies governed by ERISA. We have a demonstrated successful track record against this insurer.

Reliance Standard May Deny a Life, Long-Term Care or Long-Term Disability Insurance Claim in a Variety of Ways

In a claims denial letter notifying you that your claim has been denied, Reliance Standard might rely on any of the reasons discussed below:

Reliance Standard might assert that the written proof you were required to provide does not actually provide the requisite support for your life, long-term care or long-term disability policy
Reliance Standard might claim that you provided insufficient medical support, even though you may have supplied all the requested medical authorizations
Reliance Standard asserts you provided poor documentation of proof of loss or they might assert that the proof you did provide was untimely
Reliance Standard might conduct a pre-existing condition investigation and then determine that the condition excludes you from coverage under the policy
Reliance Standard may attempt to rescind your policy because it claims that, when you applied for insurance, the answers you provided on the application contained materially false information
Reliance Standard might hire a third-party company to record and report surveillance on your daily activities and then use that evidence to determine that you are not disabled
Reliance Standard might improperly lapse your policy, alleging nonpayment premium
Reliance Standard may expansively interpret an exclusion to its own benefit

What Should Disability or Life Insurance Claimants Look for When Reliance Standard Denies a Claim for Life, Health, or Disability Insurance Benefits?

Did Reliance Standard conduct a detailed and thorough investigation into all the potential reasons for coverage?
Did Reliance Standard’s denial letter refer to the opinions of clinical consultants or peer review physicians who never examined you or contacted you or your doctors?
Did Reliance Standard properly pursue all the relevant medical information, and if it did, did it misinterpret those records or that medical evidence to deny your claim?
Did Reliance Standard have an expert review your claim, but the opinion appears biased? Did the expert fail to review all the relevant medical information?
Did the consulting doctor or claims examiner ignore relevant medical evidence or mischaracterize the content of a conversation with your primary treating doctor?
Were you willing to subject to an in-person medical examination, with a doctor of Reliance Standard’s choosing, but Reliance Standard never requested that you be examined?
Did Reliance Standard ignore your illness, injury or other symptoms because it asserted that objective medical evidence did not support your claim? Is subjective evidence the primary form of evidence with regard to your illness, such as mental disorders, autoimmune disorders, fibromyalgia and chronic fatigue syndrome?
Did Reliance Standard improperly assert that your illness or injury is a pre-existing condition, wrongly attempt to rescind the policy or simply deny the claim with the intent of wearing you down?
Did Reliance Standard improperly over-emphasize the significance of surveillance of you engaging in activities as support that you are not totally disabled? Did Reliance Standard do so without properly considering or characterizing the actual duties of your occupation?
Did Reliance Standard fail to reasonably engage or communicate with you regarding what you needed to submit in order to adequately support your claim?

If you have a wrongfully denied claim for disability, life, long-term care or other insurance involving Reliance Standard, contact McKennon Law Group PC and we will single-mindedly pursue your benefits

Choosing an attorney to handle your recently denied claim for disability, life or long-term care benefits is a critically important decision. Disability, life and other forms of insurance denials are devastating to you and your family and you need a skilled and talented advocate in your corner. If your claim for health, life, accidental death or dismemberment, short-term disability or long-term disability insurance has been wrongfully denied or suddenly terminated, fill out a free consultation form or call (949) 387-9595 to schedule a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and non-ERISA, bad faith insurance claims.

If an insurance company The Hartford suddenly terminated your benefits, you can trust in McKennon Law Group PC to fight to have your wrongful denial reversed and claim for benefits reinstated. Our firm pursues your right to receive benefits from life, general liability, long-term care and disability insurers like The Hartford. At our firm, we understand insurers like The Hartford better than just about anyone. McKennon Law Group PC’s attorneys, including its founder, Robert J. McKennon, represented similar insurance companies for over 24 years. At McKennon Law Group PC, we use our significant experience and focused attention to get your life and disability insurance claims paid.

The Hartford began in 1810 as a fire insurance company, protecting its customers by employing its own fire department. In 1835, a fire destroyed New York’s financial district and Eliphalet Terry, then president of The Hartford, called a meeting where several pledged their personal fortunes to help pay the claims. Today, The Hartford offers an array of insurance and investment products, including automobile insurance, homeowner’s insurance, business insurance, annuities and mutual funds. The Hartford also offers employee benefits, including group life and accident, with supplemental and voluntary programs; group disability, with options for both short-term and long-term disability; group retiree health plans integrated with Medicare and additional voluntary benefits programs. The Hartford also offers related services, including absence management, which coordinates with state and federal leaves for disability claims and estate guidance, beneficiary assistance and other programs.

In our practice we often represent clients against The Harford because they deny many claims, mostly group long-term disability and life and accident claims. We have a proven track record representing clients against The Harford.

How does The Hartford Deny Life, Long-Term Care and Disability Insurance Claims?

The Hartford denies claims based on many reasons including, but not limited to, the following:

The Hartford asserts the proof of claim you provided does not support the life, long-term care or disability claim
The Hartford suggests the claimant did not provide adequate medical support for your life, long-term care or disability claim
The Hartford asserts you provided inadequate documentation or proof of loss evidence or that you failed to provide such evidence in a timely manner
The Hartford asserts the condition which is the subject of your claim is a pre-existing condition
The Hartford asserts the insurance application contained materially false information, and thus the policy can be rescinded
The Hartford asserts surveillance of the claimant suggests that you are not totally disabled
The Hartford asserts your policy has lapsed due to nonpayment of premium
The Hartford broadly interprets an exclusion in the life, long-term care or disability policy to preclude coverage for the claim

What Should Disability or Life Insurance Claimants Look for When The Hartford Denies a Claim for Life, Health, or Disability Insurance Benefits?

Did The Hartford conduct a thorough and unbiased investigation into all potential bases for coverage?
Did The Hartford take the opinion of its own, unqualified persons/supposed experts over the medical evidence you provided in support of your claim?
If The Hartford did properly retrieve relevant medical records, did they improperly misread or misinterpret those records in support of your claim?
Did The Hartford’s denial rely on the opinion of a reviewer that appears to be biased? Did the reviewer ignore relevant medical evidence or mischaracterize the content of a conversation with your primary care doctor?
Did The Hartford deny your claim without requesting an in-person medical examination, even though you were willing to be examined?
Did The Hartford refuse to acknowledge illness, injury or other symptoms for which only subjective evidence exists, such as mental disorders, autoimmune disorders, fibromyalgia, and chronic fatigue syndrome? Did the denial state that you failed to provide “objective evidence” in support of the illness or injury preventing you from performing the duties of your occupation?
Did The Hartford improperly assert that your illness or injury is a pre-existing condition, wrongly attempt to rescind the policy or simply deny the claim with the intent of wearing you down so as to pay you a lower settlement?
Did The Hartford improperly over-rely on surveillance of you engaging in activities as support that you can perform the activities of daily living? Did The Hartford do so without properly considering or characterizing the actual duties of your occupation?
Did The Hartford improperly over-rely on social media evidence, from accounts such as Instagram, Facebook or other forms of social media to conclude you can work?
Did The Hartford improperly fail to engage in a “meaningful dialogue” with you so you knew what you needed to get your claim paid?
Did The Hartford wrongly fail to distinguish the findings by the Social Security Administration to deny your disability claim?

If you have a wrongfully denied claim for disability, life, long-term care or other insurance involving The Hartford, contact McKennon Law Group PC and pursue every avenue to your benefits

Choosing an attorney to represent you when you find yourself in the vulnerable position of having your disability, life or long-term care claim denied is key to the success of your insurance matter. You need a skilled, aggressive and experienced advocate in your corner. If your claim for health, life, accidental death and dismemberment, short-term disability or long-term disability insurance has been wrongfully denied or suddenly terminated, fill out a free consultation form or call (949) 387-9595 to schedule a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and non-ERISA, bad faith insurance claims.

At McKennon Law Group PC, we fight for your right to receive benefits from life, general liability, long-term care and disability insurers like The Standard. We understand insurers like The Standard because we know insurers like The Standard. McKennon Law Group PC’s attorneys, including its founder, Robert J. McKennon, represented insurance companies in the past. At our firm, we know how to get life and disability insurance claims paid.

The Standard began in 1906, when Leo Samuel founded the Oregon Life Insurance Company. At the time, many worked as loggers in the timber industry, which was a physically dangerous profession. In part because federal and state disability benefits did not yet exist, many in the timber industry relied on life insurance to protect from future injury. However, most of the insurers were located on the east coast, which drastically increased processing times. Mr. Samuel recognized the need for a life insurance company that would be better situated to serve the timber industry. So, he started the west coast company that would later become The Standard. Over the years, The Standard continued to grow and was one of the first companies to provide ‘waiver of premiums’ for permanently disabled employees. Today, The Standard has over forty offices across the country and over 2,700 employees. Although the name changed, The Standard remained in Oregon, with its current headquarters located in Portland.

At the McKennon Law Group, we frequently appeal and litigate long-term disability and other benefits claims denied by The Standard and have been very successful. We often represent clients against The Standard because they deny many claims, mostly group long-term disability and life and accident claims. We have a proven track record representing clients against The Standard.

How does The Standard Deny Life and Disability Insurance Claims?

The Standard denies claims based on many reasons including, but not limited to, the following:

The Standard asserts the medical evidence does not support the life or disability claim
The Standard asserts the claimant did not provide adequate medical support for the life or disability claim
The Standard asserts the claimant did not provide documentation or proof of loss evidence in a timely manner
The Standard asserts the medical condition which is the subject of the claim is a pre-existing condition
The Standard asserts the insurance application contained materially false information, and thus the policy can be rescinded
The Standard asserts surveillance of the claimant suggests that the claimant is not totally disabled
The Standard asserts the claimant’s policy has lapsed for failure to pay premiums
The Standard asserts an exclusion in the life or disability policy precludes coverage for the claim

What Should Disability or Life Insurance Claimants Look for When The Standard Denies a Claim?

The Standard improperly investigating the claim
The Standard improperly obtaining opinions from unqualified persons/supposed experts
The Standard improperly misreading or misinterpreting medical records
The Standard improperly hiring and using biased “independent” medical reviewers and examiners
The Standard improperly denying a claim without any medical examination
The Standard improperly refusing to acknowledge subjective disabling conditions such as mental disorders, autoimmune disorders, fibromyalgia, and chronic fatigue syndrome because there is no objective evidence of the condition
The Standard improperly asserting a pre-existing condition
The Standard improperly attempting to rescind the policy
The Standard improperly denying a claim with the intent to wear the claimant down to a lower settlement
The Standard improperly over-relying on surveillance evidence to conclude a claimant can work
The Standard improperly over-relying on social media evidence to conclude a claimant can work
The Standard improperly failing to have a meaningful dialogue with the claimant
The Standard improperly failing to distinguish findings by the Social Security Administration to deny a disability claim

If you feel you have a wrongfully denied claim for disability, life, long-term care or other insurance involving The Standard, the McKennon Law Group PC will doggedly pursue your benefits

Choosing an attorney to represent you when you find yourself in the vulnerable position of having your disability, life or long-term care denied is an important decision. You must have an aggressive and experienced disability, long-term care, health and life insurance attorney who will fight hard for you. If your claim for health, life, accidental death or dismemberment, short-term disability or long-term disability insurance has been wrongfully denied or suddenly terminated, fill out a free consultation form or call (949) 387-9595 to schedule a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and non-ERISA, bad faith insurance claims.

We all know the maxim that “bad facts make bad law.” Two years after J.R. Marketing, LLC prevailed in the Court of Appeal concerning its dispute with its commercial general liability insurer, Hartford, it ran out of luck before the California Supreme Court in its fight over important Cumis counsel issues. Hartford Cas. Ins. Co. v. J.R. Marketing, LLC, 190 Cal. Rptr. 3d 599, 2015 DJDAR 9111 (Cal. Aug. 10, 2015). This is a must read for every lawyer in California that acts as Cumis counsel.

The High Court held an insurance company can sue independent counsel (i.e., Cumis counsel) directly for reimbursement of unreasonable or unnecessary legal charges counsel billed it to defend its insured. This decision may dramatically change the entire Cumis counsel landscape. Previously, an insurer could only sue its insured for reimbursement of defense fees. The High Court’s decision, no doubt, will have a chilling effect on how Cumis lawyers represent their clients. They will fear subsequent fee litigation from the insurer. One has to wonder if “independent counsel” will truly be independent anymore. Quite possibly, this case will practically (though not legally) relegate Cumis counsel to a similar role as an insurance company’s panel counsel, who has to pander to the “hand that feeds them” even though, under the law, Cumis counsel has two clients, the insured and the insurer.

The facts of this case were unique because Cumis counsel racked-up a whopping $15 million in legal bills under a court order it drafted that allowed it to bill the insurer without any fear whether or not the bills would be immediately paid in full. Hartford had issued J.R. Marketing a commercial general liability policy that covered business-related defamation and disparagement. J.R. Marketing was sued in Marin County (and other liability actions) for interference with business relationships, defamation, unfair competition and other business-related torts. It tendered the defamation lawsuit to Hartford under the policy. Hartford denied any duty to defend or indemnify.

J.R. Marketing sued Hartford for breaching the insurance policy. Hartford, only after the coverage action was filed, agreed to defend under a reservation of rights but only prospectively. It refused to pay J.R. Marketing’s legal bills back to the date of tender, and it also refused to provide Cumis counsel in place of its own panel defense counsel. The trial court in the coverage action found Hartford breached it duty to defend by failing to provide and pay for Cumis counsel from the date of tender.

A few months later, because Hartford still had not paid Cumis counsel’s bills violating the trial court’s summary adjudication order, the trial court entered an enforcement order in the coverage action. The order, drafted by J.R. Marketing’s Cumis counsel, Squire Sanders, required Hartford to promptly pay all of Squire Sanders’s past defense invoices within 15 days and to pay “all future defense costs” in the defamation action “within 30 days of receipt.” The order stated Hartford breached its duty to defend by failing to honor it until ordered to do so by the court and by thereafter failing to pay counsel’s submitted bills in a timely fashion. The order further stated that Squire Sanders’s bills had to be reasonable and necessary and that, to “the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the” underlying defamation action. The trial court’s order did not specify from whom Hartford could seek reimbursement, i.e. from its insured, J.R. Marketing or from Squire Sanders.

After the defamation suit ended, Hartford filed a cross-complaint in the coverage action for “reimbursement pursuant to the enforcement order,” unjust enrichment and other claims. It directly sued Cumis counsel, Squire Sanders, as well as its insured J.R. Marketing. “The cross-complaint asserted that Hartford was entitled to recoup from the cross-defendants a significant portion of some $15 million in defense fees and expenses, including some $13.5 million Hartford paid to Squire Sanders pursuant to the enforcement order.”

Squire Sanders, representing itself and J.R. Marketing, demurred to Hartford’s cross-complaint. It argued, among other things, that an insurer has no direct claim against an insured’s independent counsel for reimbursement. The trial court agreed and “concluded that Hartford’s right to reimbursement, if any, was from its insureds, not directly from Cumis counsel.” The appellate court affirmed the decision. It rejected Hartford’s argument that an insurer has a right to recover directly from Cumis counsel unreasonable and excessive fees it pays counsel because counsel (and not just the insured) is unjustly enriched in that scenario.

The California Supreme Court reversed. The Court was very careful to narrowly frame the issue before it because it did not want its holding to apply to all Cumis counsel cases, just ones where the insurer had a reimbursement right rooted in a trial court order. It therefore stated the issue in great detail as:

From whom may a CGL insurer seek reimbursement when: (1) the insurer initially refused to defend its insured against a third-party lawsuit; (2) compelled by a court order, the insurer subsequently provided independent counsel under a reservation of rights . . . to defend its insured in the third party suit; (3) the court order required the insurer to pay all “reasonable and necessary defense costs,” but expressly preserved the insurer’s right to later challenge and recover payments for “unreasonable and unnecessary” charges by counsel; and (4) the insurer now alleges that independent counsel “padded” their bills by charging fees that were, in part, excessive, unreasonable, and unnecessary?

The Court emphasized again, “We granted Hartford’s petition for review, which raised a narrow question: May an insurer seek reimbursement directly from counsel when, in satisfaction of its duty to fund its insureds’ defense in a third party action against them, the insurer paid bills submitted by the insureds’ independent counsel for the fees and costs of mounting this defense, and has done so in compliance with a court order expressly preserving the insurer’s post-litigation right to recover ‘unreasonable and unnecessary’ amounts billed by counsel?” [Emphasis added].

To that very narrow issue the High Court responded:

We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel. If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s expense. [Emphasis added].

As alluded to earlier, bad facts make bad law. The Court could not ignore the fact that the law firm acting as independent counsel, Squire Sanders, had racked up $15 million in legal bills defending the insured! Moreover, the Squire firm had written its own meal-ticket. It drafted the proposed order adopted by the trial court finding the defendant insurance company owed a duty to defend its insured through independent counsel. But Squire Sanders did not stop there. It included language in the order requiring Hartford to pay all of its legal bills in the case within thirty days, no questions asked, and that Hartford could not challenge any of the bills until after the underlying liability action had ended. The Squire firm’s aggressive and expensive litigation tactics completely unchecked by anyone, and the fact that the firm had drafted the very order permitting that highly advantageous scenario to them, lead the High Court to decide it had to allow a direct reimbursement action by Hartford against Squire Sanders. It could not allow $15 million in legal bills to stand without affording Hartford an opportunity to contest their reasonableness.

Unfortunately, the extreme facts of J.R. Marketing may forever change the Cumis counsel landscape, and not in a good way. While the Supreme Court was careful to clarify its holding was limited to the unusual facts of the case before it, its opinion unrealistically downplays the chilling effect it will have on Cumis counsel’s ability to zealously represent their client’s interests independent from the influence of its insurer.

We emphasize that our conclusion hinges on the particular facts and procedural history of this litigation. . . . We . . . express no view as to what rights an insurer that breaches its defense obligations might have to seek reimbursement directly from Cumis counsel in situations other than the rather unusual one before us in this case.

While firms acting as independent counsel will try to zealously defend their clients and look out solely for their interests (as the law requires), the threat of fee litigation looming over their heads by insurance companies will shape Cumis counsel’s strategy. Cumis lawyers will consider whether the insurance company is likely to challenge their defense strategies as unnecessary in a subsequent reimbursement action for fear of having to re-pay large legal bills. They are likely to decide how to defend the case based not just on their client’s best interests but, on their own and the insurer’s too.

If insurance companies had a record of integrity and looking out for their insured’s interests (and the lawyers that defend them), the Court’s opinion might work. But they don’t. They have a well-earned reputation of unreasonably nitpicking lawyer’s bills, refusing to pay for necessary legal work, demanding to pay antiquated hourly rates rather than market rates, employing auditing firms paid on a commission by how much of a lawyer’s bills they cut, and by trying to impose unreasonable billing guidelines on law firms. Cumis firms therefore will make legal strategy decisions against that backdrop. They will decide strategy based not only on whether they think legal work is necessary to their client’s defense, but, the possibility that the insurer paying their bills will file an expensive reimbursement action against them that unreasonably challenges their fees.

In the proceedings below, the trial court and the appellate court held a breaching insurer has no right to seek reimbursement directly from Cumis counsel. The lower court’s opinion enhanced the ability of independent counsel retained by insureds to vigorously prosecute their clients’ cases without fear of a possible action for reimbursement by insurers. It sent a strong message: insurers who reserve their rights and refuse to fund the defense of Cumis counsel take a big chance that they will be stuck paying those fees without any real ability to challenge them.

The California Supreme Court obliterated that vitally important message and sent its own. Cumis lawyers better carefully scrutinize their bills and only perform legal work that is absolutely reasonable and necessary to defending their clients because, if they cross the line, they will end up with a huge legal bill of their own. This decision, no doubt, will have a chilling effect on how Cumis lawyers represent their clients.

This decision would appear to undermine the purpose of the Cumis doctrine codified in Civil Code section 2860: when the insurer has a conflict with its insured on how to defend the underlying liability case because the outcome of a reserved coverage issue can be controlled by how it is defended, the insurer must pay for an independent defense lawyer chosen by and with allegiance solely to its insured to defend the case. How can a lawyer be truly independent from the client’s insurer and solely dedicated to protecting the insured’s interests when the insurer has the power to question every defense decision the lawyer makes and recoup legal fees that were arguably not wisely spent? Even the most ethical, skilled lawyer will measure each strategy decision he makes not just by whether it will benefit his client’s defense but by whether an insurer may have room to argue against the strategy. What is the silver lining? Perhaps the courts will indeed limit this holding to its very unique facts and confine its application. We can only hope.

When litigating ERISA-governed short-term disability, long-term disability, life and medical insurance claims, a major consideration is which “standard of review” will apply to the Court’s review of the insurer’s decision – abuse of discretion or de novo. The de novo standard of review is more claimant friendly. When applying the abuse of discretion standard of review, the Court is required to give some deference to the insurer’s decision. Under the de novo standard of review, the Court does not give any deference to the insurer’s decision, but simply makes a determination as to whether available evidence establishes that the insured was disabled under the terms of the Plan.

The abuse of discretion standard of review, which is friendlier to insurers, only applies if the ERISA plan contains “discretionary language” generally stating that the insurer has total discretion to interpret the terms of the Plan and decide whether the claimant is entitled to policy benefits. However, in 2011, California enacted Insurance Code section 10110.6, which banned discretionary clauses in ERISA plans issued or renewed on or after January 1, 2012. Since that time, District Courts in California and the Ninth Circuit have repeatedly ruled that Insurance Code section 10110.6 was valid and enforceable, most recently in Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 856 F.3d 686 (9th Cir. 2017). See our article on this case here. Unfortunately, with this ruling, the Ninth Circuit opened the door for the abuse of discretion standard of review to apply in a limited number of cases where employers provide group disability insurance and life insurance coverage which they fund.

Williby v. Aetna Life Insurance Co., 2017 WL 3482390 (9th Cir. August 15, 2017) involved a claim for short-term disability benefits made under a self-funded group short-term disability insurance plan. “Self-funded” means that the employer (here, Boeing) did not purchase an insurance policy to cover its plan obligations, instead committing to pay any benefits “from its own coffers.”

After Williby’s STD claim was denied, she filed a lawsuit seeking past-due benefits. At trial, the District Court Judge ruled that Insurance Code section 10110.6 invalidated the discretionary language in the STD Plan, and applied the de novo standard of review when ruling that Williby was entitled to STD benefits.

Aetna, the company Boeing hired to administer the ERISA plan, appealed the District Court’s decision, arguing that ERISA preempted the application of Section 10110.6 to self-funded plans. In considering Aetna’s argument, the Ninth Circuit offered a brief discussion of three interrelated ERISA provisions governing the preemption of state law – the “preemption clause,” the “saving clause,” and the “deemer clause” – before indicating that the issue would turn on the “presence or absence of traditional insurance.”

Specifically, the Court noted that in FMC Corp. v. Holliday, 498 U.S. 52 (1990), the Supreme Court set forth a “simple, bright-line rule: ‘if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer’s insurance contracts; if the plan is uninsured, the State may not regulate it.’” Thus, because the Boeing Plan was self-funded and not insured, state insurance regulations operating on a self-funded plan – like Section 10110.6 – are preempted. The Court accordingly ruled that the District Court applied the incorrect standard of review, and remanded the case back to the District Court for further consideration.

While this ruling does give limited life to the abuse of discretion standard in some California-litigated ERISA cases, in reality, the McKennon Law Group does not believe this will significantly harm insureds’ ability to successfully recover ERISA benefits through litigation. First, only a small number of group insurance plans are self-funded, so the reach of this ruling will be small. More importantly, we believe that, in practice, there is not much difference between the two different standards of review. Not only does the abuse of discretion standard of review gives claimants the ability to obtain helpful information through discovery, but we believe that if judges are convinced that a claimant is really totally disabled, they will rule in favor of the claimant no matter the standard.

Every insurance contract is accompanied by an implied covenant of good faith and fair dealing, meaning that the insurer cannot “unfairly frustrate” or unreasonably “deprive” the insured of the benefits of the insurance contract. This implied covenant applies to all types of insurance policies, including disability insurance, life insurance, health/medical insurance, long-term care insurance, accidental death and dismemberment insurance, and homeowners insurance. If the insurer unreasonably or without proper cause refuses to pay a benefit due under in insurance policy, the insurer may have acted in “bad faith.” This may allow an insured to collect extra-contractual damages, such as emotional distress damages, attorney’s fees and punitive damages. Typically, bad faith allegations follow a decision by the insurance company to deny a valid claim for benefits.

However, a recent Central District of California decision confirmed that a bad faith claim can be asserted even in the absence of a claim denial, if the insured can assert that any benefit of the policy was withheld by the insurance company. A bad faith claim does not necessarily only follow the denial of a claim. An insurer’s decision to unreasonably withhold anything of value regarding the insurance policy can be an act of bad faith.

That case, EFG Bank AG, Cayman Branch v. Transamerica Life Insurance Co., 2017 WL 3017596, 2017 U.S. Dist. LEXIS 109780 (C.D. Cal., July 6, 2017), involved a dispute between Transamerica and the owners and beneficiaries of 68 universal life insurance policies. Under the policies, premiums were deposited into an account for each policy, and each month, Transamerica withdrew a monthly deduction from each account and deposited a separate amount of interest. The amount in each policy’s account is known as the “Accumulation Value.” The plaintiffs alleged that Transamerica breached those insurance contracts, and did so in bad faith, by wrongfully increasing the monthly deduction rates (“MDR”) on the policies, and in doing so reduced the Accumulation Value of the policies.

Transamerica filed a motion to dismiss, claiming that its actions in calculating the MDR were proper and consistent with the plain language of the policies. The Court denied the motions to dismiss, in full, and in the process, confirmed that insurers can be liable for bad faith, even in the absence of a claim denial decision.

First, the court denied Transamerica’s motion to dismiss the breach of contract claim, finding that the policies did not give Transamerica “unfettered discretion” to set the MDR lower than the guaranteed maximum rate included in the policies.

Turning to the bad faith claim, the Court first ruled that it was not duplicative of the breach of contract claim because the plaintiffs alleged that Transamerica “exercised its discretion [in setting the MDR] in a way that was intentionally designed to unfairly frustrate the agreed purposes of the Policies.”

Next, the Court analyzed Transamerica’s argument that plaintiffs could not maintain a bad faith claim because they did not allege that Transamerica “withheld a benefit,” an allegation necessary to maintain a bad faith claim. See, e.g., Benavides v. State Farm General Insurance Co., 136 Cal. App. 4th 1241, 1250 (2006) (“[T]he essence of the tort of the implied covenant … is focused on the prompt payment of benefits under the insurance policy, there is no cause of action … when no benefits are due.”). The Court rejected Transamerica’s argument, explaining that if Transamerica improperly increased the MDR, that reduced plaintiffs’ Accumulation Value in the policies and forced them to pay increased premiums, and that impermissibly increasing premiums could constitute a breach of the implied covenant of good faith and fair dealing. See, e.g., Notrica v. State Comp. Ins. Fund, 70 Cal. App. 4th 911 (1999).

Typically, bad faith insurance claims are asserted only after an insurance company wrongfully denies a benefits claim. This case further confirms that an insurance company can be liable for bad faith damages for actions other than denying a claim. Basically, if the insurance company withholds anything of value under an insurance policy from an insured or causes the insured to unnecessarily pay increased premiums, they are potentially liable for bad faith damages.

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