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In a victory for insurance consumers and mental health advocates, a recent change to the California Insurance Code mandates that short-term disability insurance policies provide coverage for “severe mental illnesses” as that term is defined in the Insurance Code.

Passed in 2013, and signed in to law by Governor Jerry Brown on October 4, 2013, Assembly Bill No. 402 (“AB 402”) added Section 10144.55 to the Insurance Code, effective July 1, 2014. Section 10144.55 requires that every disability insurance policy with “a short-term limited duration of two years or less,” provide coverage for disabilities caused by severe mental illnesses. Section 10144.55(b) defines “severe mental illnesses” as schizophrenia, schizoaffective disorder, bipolar disorder (manic-depressive illness), major depressive disorders (including postpartum depression), panic disorder, obsessive-compulsive disorder (OCD), pervasive developmental disorder (autism), anorexia nervosa or bulimia nervosa.

AB 402 was introduced by California Assemblymember Tom Ammiano, and passed the California Assembly by a 57-12 vote. When the Bill was being considered by the California Senate Insurance Committee, Assemblymember Ammiano argued that:

[A]ccording to the 2010 United States census, approximately 1.2 million adults live with serious mental illness. Most of these adults continue to work right through their mental illness utilizing sick days on occasion when symptoms are severe. Occasionally, employees may need a longer period of time to adequately recover from a severe mental illness or transition onto a new medication. California State Disability Insurance can pay for a portion of an employee’s salary, but to keep the employee’s income whole, many rely on short term disability income insurance to make up the remaining lost wages and allow an injured person to continue paying mortgage, rent, tuition and car payments, as well as help cover expenses for food, child care and utilities. When these policies exclude coverage for mental illness or injury, these families are left with the decision of working against their doctor’s orders and placing employers and fellow employees at risk or facing often unmanageable financial burdens.

Following the passage of California’s Mental Health Parity Act (“Parity Act”), California already required that health insurance policies provide the same coverage for severe mental illnesses as other health issues. Now, with the passage of AB 402 and the addition of Section 10144.55 to the Insurance Code, California workers with short-term disability policies that are issued, amended or renewed on or after July 1, 2014 will have coverage if a “severe mental illness” temporarily prevents them from returning to work.

Filing a disability claim can be a complex and daunting progress, especially when the claimant suffers from a mental illness. Accordingly, it is absolutely crucial that claimants seek the advice of attorneys who have knowledge and experience in this highly specialized area of law. The attorneys at McKennon Law Group PC specialize in handling and litigating disability insurance claims, including short-term disability insurance claim and mental health claims.

If your disability policy was issued and paid for by your employer, it is likely governed by the Employee Retirement Income Security Act of 1974, commonly referred to as ERISA. ERISA is a complex statute that even scares off many experienced insurance attorneys. If your claim for disability benefits, made under an ERISA plan, is denied, you are not allowed to immediately file a lawsuit to collect your past due benefits. If you do, the court will dismiss your claim. Instead, you are required to appeal that claim decision to the very company that denied your claim in the first instance.

When appealing the denial of a short-term disability or long-term disability claim, many claimants make the mistake of handling the appeal without the assistance of an attorney. This can be a costly mistake, as the appeal is the most important part an ERISA claim because it likely represents a claimant’s final opportunity to present evidence to support his or her claim. Further, claimants who try to handle their own appeal often harm their claim.

One reason for this is that when you appeal the denial of your claim for benefits, the insurance company NEVER TELLS YOU that, if your case goes to trial, you will likely not be allowed to offer new medical records or other evidence to support your claim. Instead, you will be limited to the documents already in the insurance company’s file, called the Administrative Record. Thus, the worst thing you can do is simply tell the insurance company that you disagree with their decision and would like to appeal without offering any new evidence or arguments for disability. Such appeals are doomed to fail. You will need to offer new evidence and/or information, not only to support your appeal, but also to use later in court.

Also, you usually only have 180 days after the denial to appeal the claim. The sooner you contact an attorney to assist you, the sooner that attorney can obtain your file, see what is missing and work with you to ensure that the Administrative Record contains sufficient medical evidence to support your claim. An attorney can also ensure that you file your appeal in a timely manner. A failure to complete your appeal in time could mean that you waived your right to bring a lawsuit challenging the claim decision.

An experienced ERISA attorney can also help identify problems with the insurance company’s decision, and raise those issues with the insurance company. That way, at trial, the Court will see that the insurance company was made aware of its errors, but failed to correct them. In addition, when confronted with the arguments of experienced ERISA attorneys such as those from McKennon Law Group PC, the insurer or administrator will often reverse itself and approve the claim for benefits.

Accordingly, when appealing a claim decision under a short-term disability insurance policy, long-term disability insurance policy or life insurance policy or plan governed by ERISA, the best thing you can do to increase your chances on appeal is to immediately hire an experienced ERISA attorney to help you fight for your benefits.

A disturbing trend that has developed across the country in recent years is that, while the number of workers/employees suffering from long-term illnesses or injuries has increased, the number of employers who provide long-term disability insurance has dropped dramatically. As of May 2014, the total number of Social Security disability beneficiaries in the United States hit an all-time high of about 11 million beneficiaries. However, fewer employees are covered with long term disability coverage. The number of U.S. workers with long-term disability coverage decreased 6% from 2009-2013. Below are just a few of the worrying statistics. From 2009-2013 nationwide:

The number of employers offering long-term disability coverage decreased from 220,000 to 213,000;
The number of employees who have long-term disability coverage decreased from 34 million to 32.1 million (6% decline); but,
The number of employees in the U.S. workforce has increased by 6.6 million.

More and more employers are opting to drop their standard disability insurance plans for optional employee-paid plans. Additionally, more companies are implementing “defined benefit plans,” which allocate a certain amount of funds for each worker to use for all insurance coverage. This often has the effect of forcing workers to forgo some types of coverage, such as long-term disability insurance, because the funds provided are not sufficient to cover all types of insurance.

All of this leaves employees highly exposed to serious financial difficulties if they suffer a disability that renders them unable to work for six months or more. Indeed, studies have found that more than one in four 20-year-olds will become disabled at some point before they retire. As such, it is not only important for employees to obtain disability insurance, but also to ensure that any claims made for disability coverage under those policies are properly handled and paid by the insurer. If you suspect that your claim for disability coverage has been improperly denied, our attorneys can offer you a free and confidential consultation.

The information and statistics above come from Anderson, J. Craig. “Employers Dropping Long-Term Disability Insurance.” 17 July, 2014. Web. 5 Aug. 2014. The article can be found at http://www.pressherald.com/2014/07/17/employers-dropping-long-term-disability-coverage/

California law imposes an implied covenant of good faith and fair dealing in insurance contracts under which neither party may act so as to injure the rights of the other to receive benefits under the contract. Insurers whose actions harm the rights of their insureds to receive contracted-for insurance benefits breach this implied covenant of good faith and fair dealing, or act in “bad faith.” An insurer’s bad faith may occur at many stages of the claims process, even after the initial denial. Accordingly, insureds should protect their interests and be mindful of potential bad faith on the part of their insurers, from the claims determination process and in some cases, the insurer’s litigation tactics.

Bad Faith in Determining or Administering Insurance Claims

Most bad faith suits against insurers allege unlawful or improper behavior during the claims administration process. Indeed, insurers often engage in unreasonable behavior in order to deny claims and increase their bottom lines, which effectively places burdens on insureds to challenge these denials. Evidence of bad faith may arise from the affirmative actions of the insurer, such as misinterpreting claims information, conducting biased reviews, attempting to settle claims for unreasonably low amounts or setting unreasonable or impossible standards of evidence in order to avoid approving a claim. Conversely, an insurer’s bad faith may be reflected by its inactions, such as failure to communicate with insureds or failure to conduct reasonable investigations into the circumstances surrounding claims.

Bad Faith Following a Denial of an Insurance Claim

An insurer’s duty to act in good faith toward an insured continues even after it issues a denial. For example, an insurer must provide insureds with a clear and reasonable explanation for its denial decision. In general, this explanation should clarify why the claim was not payable, reference any applicable policy exclusions and in some cases provide guidance of what an insured needs to do to perfect the claim. Failure to do so may be evidence of bad faith.

Bad Faith in Coverage Litigation

The California Supreme Court has held an insurer’s duties of good faith and fair dealing do not end once litigation begins. In White v. Western Title Insurance Co., 40 Cal. 3d 870 (1985) (superseded by statute on other grounds), the Court allowed post-litigation actions, including the insurer’s unreasonable settlement efforts, as evidence to support a claim for bad faith. Although California courts have declined to broaden this holding, the decision still serves to curb abusive conduct by insurance companies. Subsequent cases have held an insurer may be acting in bad faith in failing to fully investigate a claim, even if litigation is pending, and if the insurer engages in unreasonable conduct in addition to litigation, such as by seeking declaratory relief against the insured, threatening baseless litigation and instigating criminal investigations. Although these situations occur less frequently, these examples show an insurer does not have a free pass to engage in bad faith after issuing a denial, or once litigation commences.

Insureds have a legal and contractual right to expect insurers administer claims in good faith and provide coverage when appropriate under the insurance contract. If insurers act unreasonably in order to issue denials, insureds should consult experienced insurance litigation attorneys in order to bring suit for policy benefits and other damages, including consequential damages, compensatory damages, punitive damages and attorneys’ fees and costs.

The Employee Retirement Income Security Act of 1974 (“ERISA”) seeks to protect participants in employer-sponsored plans, but lack of adequate communication and transparency is an often an unfortunate byproduct of the insurance industry. The California district court shed light on this issue in Echague v. Metro. Life Ins. Co., 2014 U.S. Dist. LEXIS 68642 (N.D. Cal. May 19, 2014) by holding an insurer breaches its fiduciary duty when providing insufficient responses and the insured may be entitled to equitable surcharge. Echague is highly beneficial to insureds and beneficiaries, as it warns plan fiduciaries (such as insurers and plan administrators/employers) to think twice before ignoring requests for information, giving incorrect information, or neglecting to provide updates regarding the policies they administer, as their inactions or providing of incorrect information about the plan may open them up to equitable remedies such as equitable surcharge which would allow plan participants to recover the full value of the plan benefits in dispute.

In Echague, Carol Echague (“Mrs. Echague”) opted for a basic life insurance policy and a supplemental life insurance policy worth a total of $440,000 through her employer, Pacific Coast Bankers’ Bank (“PCBB”). The policies were issued as part of a cafeteria-type plan by TriNet Group, Inc. (“TriNet”), the plan administrator and Metropolitan Life Insurance Company (“MetLife”), the claims administrator. In January 2011, Mrs. Echague was diagnosed with breast cancer and took medical leave. Mrs. Echague sent TriNet an inquiry stating she did not want her policies to lapse, inquired which policies she needed to pay on her own, and where to send the premium payments. TriNet resent two confusing form letters which did not address that the policies were in danger of lapsing. Following Carol Echague’s death, TriNet notified her husband (“Mr. Echague”), that it submitted a life insurance claim on his behalf to MetLife. This was the first time TriNet informed the Echagues that MetLife was the claims administrator. However, the life insurance policies lapsed due to nonpayment of premiums, and MetLife denied the claim. MetLife also denied Mr. Echague’s appeal, which argued neither he nor his wife ever received notice that the policies were at risk of terminating, or that PCBB ceased premium payments. Subsequently, Mr. Echague sued MetLife, TriNet and PCBB, for benefits under 29 USC section 1132(a)(1)(B) and equitable relief for breach of fiduciary duty under 29 USC section 1132(a)(3).

The court granted summary judgment for TriNet, PCBB and MetLife as to Mr. Echague’s first claim for reinstatement of the life insurance benefits under section 1132(a)(1)(B), holding the denial was proper. Here, MetLife did not act with a conflict of interest in denying Mr. Echague’s claim. The only information MetLife needed to issue a decision on the claim was whether premium payments were made to continue the policy, and proof of Mrs. Echague’s death. Here, MetLife already had this information and accordingly, did not need to conduct an investigation or state with specificity what additional information it needed. Finally, TriNet and PCBB were not proper defendants, as MetLife had sole authority to issue denials on the life insurance claims.

However, the court held Mr. Echague presented a different theory under section 1132(a)(3) for breach of fiduciary duty and thus the claim survived. The court explained Mr. Echague’s (a)(1)(B) claim was directed at MetLife for its failure to pay benefits, while his section 1132(a)(3) claim was primarily directed at TriNet for its failure to provide adequate notice and act in a fiduciary manner. TriNet cannot escape liability by claiming MetLife had discretion for claims determination, because TriNet retained responsibility for interpreting the Plan, applying the terms and administering the Plan. As such, TriNet had a duty to deal fairly and honestly with fiduciaries under ERISA by providing complete, thorough and accurate information. Prior to Ms. Echague’s death, the Echagues sent several inquiries to TriNet requesting information on her disability and supplemental policies. TriNet responded by sending form letters that did not provide information relating to Ms. Echague’s life insurance policies. The letters pointed her to an overarching cafeteria plan, a Summary Plan Description which did not provide answers to her questions, and a non-existent employee handbook. TriNet failed to refer the Echagues to the Certificate of Insurance, the only document which describes how to convert or continue life insurance coverage, and explain when the premiums for the policies would end. Therefore, TriNet breached its fiduciary duties because its response failed to provide complete and accurate information to the claimant’s specific questions. Accordingly, the court granted Mr. Echague the face value of the policies under the doctrine of equitable surcharge.

Echague is a clear win for insureds in several ways. First, Echague clarifies that even if an insurer denies a claim on a reasonable basis, insureds may assert breach of fiduciary duty claims. Secondly, the district decision expanded a plan fiduciary’s duty to provide insureds with complete and accurate policy/plan information. The court indicates that insurers must provide specific answers when asked specific questions, and implies a general response referring an insured to a number of documents may be insufficient. In addition, the insurer must provide specific answers even when an insured asks a general question—such as providing Ms. Echague with information pertaining to her life policies when her questions inquired as to all insurance policies. Finally, this court allowed insureds to sue simultaneously for benefits and for breach of fiduciary duty where these claims request alternate relief, distinguishing cases that held to the contrary.

The dual roles insurers hold, as funding sources and claim administrators of disability plans, often impact their impartiality. Indeed, insurers have the discretion and financial incentive to deny claims and often do so improperly. Claimants may shudder at the thought of an insurer’s access to nearly unlimited resources, trained claims personnel and attorneys, and stop fighting for their benefits in light of their insurer’s seeming decided advantage. Although recovering long-term disability insurance benefits can be an uphill battle, pursuing a denied claim for benefits is very often well worth the effort.

If insurers deny insurance claims in bad faith or by abusing their discretion, claimants may be entitled to recover past-due policy benefits plus future benefits, consequential damages, emotional distress and punitive damages (for individual policies) and attorneys’ fees and costs and interest (for employer-sponsored policies governed by the Employee Retirement Income Security Act of 1974 (“ERISA”)). Accordingly, claimants should consult with an attorney experienced in handling disability/ERISA insurance claims before forfeiting their claims for disability benefits. Experienced attorneys can help evaluate claims, communicate with insurers and preserve litigation rights. Below are a few cases in which we have helped clients recover their disability benefits:

Following a field engineer’s an on-the-job accident, examining doctors determined he was over 50% functionally impaired and unable to compete in the job market. The insurer terminated his long-term disability benefits after about a year, stating he was capable of working “any occupation.” Less than three months into litigation, McKennon Law Group PC convinced the insurer to reinstate his benefits and pay interest on the past due benefits. In addition, McKennon Law Group PC is currently pursuing a bad faith claim against the insurer for attorneys’ fees, consequential damages, emotional distress and punitive damages worth several million dollars.
When a dental hygienist purchased two individual disability policies, the insurer’s agent negligently misrepresented her income on her applications. Based on this misrepresentation, the insurer issued, and the hygienist paid for, policies with higher premiums and benefits than it otherwise would have. When the hygienist filed for disability benefits, the insurer accused her of fraud and denied the claims. McKennon Law Group PC convinced the insurer to pay all of the past-due and ongoing benefits under the policies as issued and obtained a large six-digit settlement against the agent. McKennon Law Group PC is currently pursuing a bad faith claim against the insurer for attorneys’ fees, consequential damages, emotional distress and punitive damages worth several million dollars.
An escrow officer was diagnosed with a variety of debilitating conditions. The insurer terminated her long-term disability benefits after one year, based on its paid physician’s determination that her medical diagnoses, evaluated individually, did not render her disabled. McKennon Law Group PC convinced the insurer to reverse its decision, reinstate the escrow manager’s full benefits without a mediation and pay interest on her past-due benefits. A motion for attorneys’ fees and costs is pending.
A courier was forced to stop working after her arthritis caused severe hip and abdominal pain such that she could not tolerate the extensive driving, bending and lifting required for her occupation. The insurer ignored evidence of multiple surgeries and other serious medical issues, and denied the claim. McKennon Law Group PC challenged the insurer’s denial and the insurer placed the courier back on claim and paid all past-due benefits and is paying all future benefits. In addition, the insurer paid her substantial attorneys’ fees.
After an attorney became disabled, she worked another part-time job. Her insurer denied her claim, stating improperly that she was capable of working at this second job. McKennon Law Group PC convinced the insurer reverse its decision and pay a six-digit settlement to buy out her policy.
A senior analyst at Bank of America stopped working due to severe arthritis. The insurer paid some short-term disability benefits then terminated the disability insurance claim. McKennon Law Group PC contacted the insurer, and the insurer conducted another review of the senior analyst’s claim, overturned its initial denial, paid back the past-due short term benefits and approved his long term disability claim.
A software developer was unable continue working following postoperative complications which caused persistent pain. McKennon Law Group PC subsequently filed a complaint and argued the insurer misinterpreted the medical evidence. While the case was pending, McKennon Law Group PC convinced the insurer to place the software developer back on claim and to pay all past-due disability benefits and to pay on-going disability benefits. McKennon Law Group PC then obtained a court order requiring the insurer to pay the software developer’s attorneys’ fees and costs.

All of these clients came to our firm desperate to have their disability insurance benefits paid. While your case may be different, these success stories show how the attorneys at McKennon Law Group PC have helped a variety of policyholders who had their disability insurance claims denied receive the benefits they deserved. If you are in need of highly experienced and qualified attorneys to handle your ERISA or individual disability insurance claims denials, call us for a free consultation.

New California Law Requires that Short-Term Disability Policies Provide Coverage for Severe Mental Illness

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