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The California Court of Appeals for the Second District has upheld a trial court finding that may effectively limit and discourage attorneys from filing class actions based on misrepresentations in the sale of insurance policies through agents. In Fairbanks et al. v. Farmers New World Life Ins. Co. et al., __ Cal. App. 3d __ (2011), the court of appeal affirmed the trial court’s denial of class certification on the basis that common issues did not prevail, and that the issue was incapable of common proof. The case involved Farmers’ marketing and sale of universal life insurance policies. It was alleged that Farmers created a common marketing strategy with respect to the marketing and sale of such policies, and that Farmers instructed its agents to implement such strategy by using Farmers’ marketing materials in the agents’ sales pitch to prospective customers. After a lengthy discussion of the types of life insurance policies at issue, the appellate court focused on the actual narrow bases on which Plaintiffs sought relief, which was based on a single unified theory relating to fraudulent misrepresentations and concealments made by agents during the marketing of the policies to the individual prospective customers. The court determined that the bases for class certification “were not four separate bases for class relief, but part of one overarching allegedly fraudulent scheme.” The court noted, “Plaintiffs argued that proof of this fraudulent scheme could be established by common, rather than individual, proof, based on a combination of common policy language, common language in annual policyholder statements, and a common marketing scheme.” Plaintiffs sought to certify a class based on very broad conduct involving myriad misrepresentations made in written marketing materials as well as alleged misrepresentations by Farmers’ agents. Farmers argued that plaintiffs’ broad theory could not sustain a certifiable class in that it would require independent proof as to each policyholder. Specifically, it would require proof as to the individual representations made to each policyholder, and the materiality of such representations as to each policyholder.

The trial court agreed with Farmers and denied Plaintiffs’ motion for class certification, and the Court of Appeals affirmed the ruling. The appellate court, citing a string of recent Court of Appeals rulings, held:

Nonetheless, a class action cannot proceed for a fraudulent business practice under the UCL when it cannot be established that the defendant engaged in uniform conduct likely to mislead the entire class. (Knapp v. AT&T Wireless Services, Inc. (2011) 195 Cal.App.4th 932, 942-943 petn. for review filed June 1, 2011; Kaldenbach, supra, 178 Cal.App.4th at p. 850.) Specifically, when the class action is based on alleged misrepresentations, a class certification denial will be upheld when individual evidence will be required to determine whether the representations at issue were actually made to each member of the class. (Knapp v. AT&T Wireless Services, Inc., supra, 195 Cal.App.4th at p. 944-945, Kaldenbach, supra, 178 Cal.App.4th at p. 850; see also Pfizer Inc. v. Superior Court, supra, 182 Cal.App.4th at p. 632.) “ ‘[W]e do not understand the UCL to authorize an award for injunctive relief and/or restitution on behalf of a consumer who was never exposed in any way to an allegedly wrongful business practice.’ ” (Knapp v. AT&T Wireless Services, Inc., supra, 195 Cal.App.4th at p. 945; see also Pfizer Inc. v. Superior Court, supra, 182 Cal.App.4th at p. 632.)

The court discussed at length Kaldenbach v. Mutual of Omaha Life Ins. Co., 178 Cal. App. 4th 830, 848 (2009), which was a case in which it was alleged, as in Fairbanks, that the insurer had utilized uniform marketing materials in the sale of insurance policies, and directed its agents to use those materials in their sales pitch to prospective customers. The court in Kaldenbach found, based on evidence provided by the insurer, that there was no evidence that the sales presentations were actually common. The Fairbanks court followed the lead of the Kaldenbach court and found similarly that there was no evidence that the sales presentations, and therefore the alleged misrepresentations made by Defendants’ agents were common to all policyholders and prospective class members. The court held that “In the absence of a common marketing scheme, the class action fails.” In essence, the court held that the broad scope of the alleged misrepresentations made it impossible to certify a common class based on common proof. The Court here distinguished Massachusetts Life Insurance Company v. Superior Court, 97 Cal. App. 4th 1282, 848 (2002) on the basis that Massachusetts Mutual “involved identical misrepresentations and/or nondisclosures by the defendants to the entire class.”

In an effort to overturn the trial court’s ruling, Plaintiffs argued in the alternative on appeal that a class could be certified based solely on the misrepresentations made in the policies themselves. However, in dicta, the court also rejected this argument, stating, “[I]t is still impossible to consider the language of the policies without considering the information conveyed by the Farmers agents in the process of selling them. “ (citation omitted.) The court therefore indicated that alleged misrepresentations in the policies could not be evaluated independent from the sales presentations made by the agents when evaluating whether the allegations could be established by common proof. Such a statement brings into question the potential for certification of any class based on representations in an insurer’s marketing materials and/or policy.

The court also noted that the issue of materiality of the representations was not subject to common proof. The court noted that under the circumstances of this case, the possible reasons for which an individual policyholder purchased the type of insurance at issue were many, and therefore must be a matter of individual proof. The Court left it to the trial court to determine on remand whether plaintiffs could successfully establish any other basis for class certification.

The Ninth Circuit has reversed itself and ruled that insurance companies that make claim decisions or are responsible for paying benefits can serve as defendants in ERISA actions for benefits or to enforce the terms of the plan. In Cyr v. Reliance Standard Life Insurance Company, 642 F.3d 1202 (9th Cir. 2011), the Ninth Circuit overruled some of its earlier precedents, including Everhart v. Allmerica Financial Life Insurance Company, 275 F.3d 751 (9th Cir. 2001), and ruled that potential liability under 29 U.S.C. section 1132(a)(1)(B) of ERISA is not limited to the benefit plan or the Plan Administrator. In explaining this shift, which allows insurance companies that make the claim decision or are responsible for paying benefits to be named as a defendant, the Ninth Circuit stated:

Some of our previous decisions have indicated that only a benefit plan itself or the plan administrator of a benefit plan covered under ERISA is a proper defendant in a lawsuit under [29 U.S.C. § 1132(a)(1)(B)]. We conclude that the statute does not support that limitation, however, and that an entity other than the plan itself or the plan administrator may be sued under that statute in appropriate circumstances.

Laura Cyr was covered under a group long-term disability plan provided by her employer, Channel Technologies, Inc. Cyr was awarded disability benefits by Reliance Standard, but a dispute arose regarding whether her monthly benefits should be increased in light of a settlement with her employer over a dispute alleging gender discrimination based on unequal pay. Cyr named Reliance Standard as one of the defendants, but the district court granted Reliance Standard’s motion for summary judgment on the grounds that only the plan or the plan administrator could be held liable under section 1132(a)(1)(B). The district court then reversed its ruling in response to the parties’ supplemental briefing and awarded summary judgment to Cyr.

Reliance Standard appealed the decision, and the Ninth Circuit heard the case en banc. In considering only the issue of whether an insurer/claim administrator is a proper defendant in an action to recover benefits under the terms of the plan, the Ninth Circuit noted that “[b]y its terms, § 1132(a)(1)(B) does not appear to limit which parties may be proper defendants in a civil action. Nor has the Secretary of Labor promulgated a regulation setting out such limits.” The Ninth Circuit analyzed the United States Supreme Court’s decision in Harris Trust & Saving Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2008) which examined a similar issue with respect to § 1132(a)(3) and noted that the section “makes no mention at all of which parties may be proper defendants—the focus, instead, is on redressing the ‘act or practice which violates any provision of [ERISA Title I]’” Given the Supreme Court’s analysis of § 1132(a)(3), the Ninth Circuit could “see no reason to read a limitation into § 1132(a)(1)(B).”

The Ninth Circuit explained that, in this litigation, Reliance Standard was a proper defendant because:

Reliance denied Cyr’s request for increased benefits even though, as the plan insurer, it was responsible for paying legitimate benefit claims. Reliance is, therefore, a logical defendant for an action by Cyr to recover benefits due to her under the terms of the plan and to enforce her rights under the terms of the plan, which is precisely the civil action authorized by § 1132(a)(1)(B).

With this ruling, the Ninth Circuit specifically overruled its previous rulings to the contrary, including Everhart, Ford v. MCI Communications Corp. Health & Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005), Spain v. Aetna Life Insurance Co., 13 F.3d 310, 312 (9th Cir. 1993) and Gelardi v. Pertec Computer Corp., 761 F.2d 1323 (9th Cir. 1985).

While, on its face, this case seems to impose liability on insurance companies they did not previously face, in reality, this is not the case. In most ERISA cases for life insurance benefits, health insurance benefits or disability insurance benefits for which the insurance company was financially responsible, the insurance company typically controlled the defense of these lawsuits and paid any amounts due after a settlement or judgment, regardless of whether it was named as a defendant. This decision realized the practical reality that insurance companies should be allowed defendants in ERISA cases involving life insurance benefits, health insurance benefits or disability insurance benefits for which insurance companies are financially responsible. This decision simply put into law what was already happening in actual practice.

An important package of strong consumer protection bills, sponsored by Insurance Commissioner Dave Jones, passed through their respective houses of the Legislature, clearing a major hurdle toward passage. Jones stated in his recent press release:

“When I took office in January, I vowed we would work to strengthen our consumer protection laws,” said Commissioner Jones. “I applaud the authors of the bills I am sponsoring, which protect the rights of consumers and expand the opportunity to purchase and keep insurance. I will continue to work toward ensuring these important pieces of legislation win final passage and become law in order to protect the consumers, vulnerable seniors, and hard-working families of this state.”

The package of Assembly bills includes:

AB 52, which would give the Insurance Commissioner the power to reject excessive health insurance rate increases by requiring health plans and insurers to seek approval from state regulators prior to raising health care premiums, copayments, or deductibles, passed on a vote of 44-27. The bill is jointly authored by Assembly Judiciary Chair Mike Feuer and Assembly Water, Parks and Wildlife Committee Chair Jared Huffman and now moves to the Senate.

AB 315, which would incorporate provisions of the federal Dodd-Frank Wall Street Reform and Protection Act into California law relating to the business and taxation practices of surplus lines of insurance, passed on a vote of 78-0. The bill is authored by Assembly Insurance Committee Chair Jose Solorio and now moves to the Senate Insurance Committee. The bill is an urgency measure and must be enacted by July 21, 2011, to avert federal preemption of California’s surplus lines of activities.

AB 624, which would extend the sunset date to January 1, 2017 on an on-going tax credit program for insurance companies, corporations, and other taxpayers that invest in Community Development Financial Institutions certified by the Department of Insurance’s California Organized Investment Network, passed on a vote of 75-2. The bill is authored by Assembly Speaker John A. Pérez and now moves to the Senate.

AB 689, which would require insurance producers and insurers selling annuities to have reasonable grounds to believe their recommendations are suitable for seniors and consumers and to adopt a comprehensive regulatory process at the Department of Insurance to enforce this new standard, passed on a vote of 79-0. The bill is authored by Assembly Budget Committee Chair Bob Blumenfield and now moves to the Senate Insurance Committee.

AB 793, which would prohibit unscrupulous insurance professionals from participating with, employing, or making referrals to an individual involved in the sale of reverse mortgages with the sole purpose of selling insurance policies and annuities in order to provide further financial protection to seniors, passed on a vote of 70-0. The bill is authored by Assembly Banking and Finance Committee Chair Mike Eng and now moves to the Senate Insurance Committee.

AB 999, which would protect consumers from excessive premium rate volatility that has characterized the long-term care insurance market by modifying the long-term insurance premium rate development process, passed on a vote of 42-33. The bill is authored by Assembly Aging and Long-Term Care Committee Chair Mariko Yamada and now moves to the Senate.

AB1416, which is the annual omnibus bill for the Department of Insurance and makes minor and technical changes to various code sections, passed on a vote of 75-0. The bill is authored by the Assembly Insurance Committee and now moves to the Senate.

The package of Senate bills includes:

SB 51, which would implement broader protections for California consumers in the large group, small group, and individual markets by conforming California law to the federal medical loss ratio and rebate requirements as well as to the federal prohibitions against annual and lifetime dollar limitations on essential health benefits, passed on a vote of 25-15. The bill is authored by Senator Elaine Alquist and now moves to the Assembly.

SB 599, which would protect consumers from being unwittingly enrolled in life insurance “retained asset accounts” by ensuring that beneficiaries have an opportunity to decide how they want their life insurance proceeds paid, passed on a vote of 37-1. The bill is authored by Senate Appropriations Committee Chair Christine Kehoe and now moves to the Assembly.

SB 621, which would prohibit disability insurance policies from containing discretionary clauses that give discretionary authority to insurers to determine eligibility for benefits or coverage insofar that these clauses give so much power to insurance companies that they can easily justify their denial of benefits in court even when the medical evidence overwhelmingly supports the case of the disabled policyholder, passed on a vote of 37-0. The bill is authored by Senate Insurance Committee Chair Ron Calderon and now moves to the Assembly Insurance Committee.

SB 684, which would provide another level of protection for businesses by making workers’ compensation policies more transparent, requiring that these policies be subject to California law, and prohibiting the practice of unfiled collateral agreements often used by insurers to gain the advantage in arbitrations of disputes, passed on a vote of 23-13. The bill is authored by Senate Majority Leader Ellen Corbett and now moves to the Assembly Insurance Committee.

SB 712, which would incorporate the essential elements of the National Association of Insurance Commissioners (NAIC) Model Law relating to Property and Casualty Actuarial Opinion into California law to ensure that the Department of Insurance retains its NAIC accreditation status, passed on a vote of 39-0. The bill is authored by the Senate Insurance Committee and now moves to the Assembly.

This article will be the second in a series of articles by McKennon Law Group PC addressing and answering basic questions concerning insurance law. This one addresses: What are the available remedies against an insurance company that has acted unreasonably in handling an insurance claim?

The most common causes of action against insurers in the non-ERISA context are breach of contract and bad faith.

The breach of contract claim allows an insured to recover policy benefits owed under the insurance policy plus applicable interest from the date the benefits were due (or at the rate of 10% on delayed disability payments in California). The benefits due will depend on the type of policy at issue. They may be a specific amount (e.g., death benefits) or may depend upon a proof of loss (e.g., value of property damaged or destroyed).

The bad faith (aka breach of the implied covenant of good faith and fair dealing) claim potentially allows an insured/policyholder to recover future damages owed under the policy (in disability cases), attorneys’ fees, consequential damages (economic damages caused by the bad faith conduct, such as medical bills as a result of emotional distress, interest paid on borrowed funds, loss on investment where there was a forced sale caused by insurer’s denial, lost investment opportunities because personal funds had to be used to pay expenses), emotional distress and punitive damages.

There are three primary categories of damages recoverable in these types of actions:

Contract Damages – In first-party cases, the measure of contract damages is the benefits due under the policy. In third-party cases, the measure is the amount expended or liability incurred by the insured up to the policy limits. Consequential damages are also recoverable where appropriate, and are defined as those damages the parties should have foreseen as likely to result from a breach when they entered into the contract. Thus, an insured may recover damages that were within the parties’ reasonable expectation at the time of contracting.
Tortious (Extracontractual) Compensatory Damages – In bad faith actions, an insured may recover extracontractual compensatory damages based on an insurer’s tortious conduct. This includes all damages caused by the insurer’s tortious conduct, including both economic loss and non-economic harm (e.g., emotional distress). This will often include attorney’s fees reasonably incurred to compel payment of benefits due under an insurance policy (called Brandt fees).
Punitive Damages – In an action against an insurer where, in addition to bad faith or other tortious conduct, there is clear and convincing evidence of oppression, fraud or malice on the part of the insurer, the insured may recover punitive damages. Punitive damages will be awarded to punish an insurer for tortious conduct giving rise to an action not based on the terms of the insurance contract (e.g., fraud).

In addition to breach of contract and bad faith, other claims available to insureds are fraudulent and negligent misrepresentation, intentional and negligent infliction of emotional distress, invasion of privacy, and intentional interference with economic advantage. Each of these causes of action may allow for recovery of alternative and additional damages, including punitive damages.

For additional information on this and other insurance matters you can visit the FAQ section of our website: www.mslawllp.com.

If you need to consult with an attorney about a possible insurance bad faith or ERISA matter, please contact our office.

Do insurance brokers owe fiduciary duties to their clients? Under California law, until recently, this was an open question. Most attorneys, especially those representing policyholders, included a breach of fiduciary duty cause of action when suing an insurance broker/agent in actions that involve broker/agent malpractice. And, some include these claims when suing a broker/agent and an insurance company for insurance bad faith. California law has now been clarified with the California Court of Appeals for the Second Appellate District’s decision in Workmen’s Auto Insurance Company v. Guy Carpenter & Company, Inc., __ Cal. App. 4th __, Cal. App. LEXIS 533 (May 4, 2011), that held insurance brokers do not owe fiduciary duties to their clients.

Guy Carpenter & Co. (“Carpenter”) is a reinsurance intermediary providing insurance companies with reinsurance coverage. Carpenter placed reinsurance for Workmen’s Auto Insurance Co. (“the company”) with PMA Capital Insurance Company of Philadelphia, Pennsylvania (“PMA”). The company sued Carpenter, alleging causes of action for negligence, breach of fiduciary duty and breach of contract. Regarding the breach of fiduciary duty claim, the company asserted that Carpenter breached its duty by failing to secure timely payments from PMA, failing to secure the best available terms of reinsurance, and acting with the intent to injure the company by incurring inflated commissions.

The trial court dismissed the breach of fiduciary duty claim but the other claims were tried before a jury. The jury found in Carpenter’s favor on both the negligence and breach of contract claim. The company appealed this decision dismissing the breach of fiduciary duty claim.

The court first addressed an insurance broker’s potential liability for failure to exercise reasonable care as follows:

[A]n insurance [broker] will be liable to his client in tort where his intentional acts or failure to exercise reasonable care with regard to the obtaining or maintenance of insurance results in damage to the client. [Citation.]‖ (Saunders v. Cariss (1990) 224 Cal.App.3d 905, 909.) For example, a ―broker‘s failure to obtain the type of insurance requested by an insured may constitute actionable negligence.‖ (Nowlon v. Koram Ins. Center, Inc. (1991) 1 Cal.App.4th 1437, 1447; Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1120.) But as a general proposition, a broker does not have a duty of care to advise a client on insurance matters unless ―(a) the agent misrepresents the nature, extent or scope of the coverage being offered or provided . . . , (b) there is a request or inquiry by the insured for a particular type or extent of coverage . . . , or (c) the agent assumes an additional duty by either express agreement or by ‗holding himself out‘ as having expertise in a given field of insurance being sought by the insured.‖ (Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916, 927; Jones v. Grewe (1987) 189 Cal.App.3d 950, 954 (Jones) [an insurance agent does not have a duty of care ―to advise the insured on specific insurance matters‖ absent an express agreement or holding out as an expert]; Free v. Republic Ins. Co. (1992) 8 Cal.App.4th 1726, 1730 [no general duty of care to advise regarding the sufficiency of insurance].)

The court explained that in a typical agency relationship, there is the principal, and the agent looking out for the interests of the principal. The relationship between the agent and the principal, outside of the insurance industry, has been a fiduciary relationship, wherein the agent owes the principal a fiduciary duty. The company argued that insurance case law should not be applied to the reinsurance intermediary-broker relationship due to the “far more complex and comprehensive relationships with their clients.” Therefore it argued, Carpenter did not just owe a duty to exercise reasonable and due care, but owed a higher level duty, those duties owed by a fiduciary.

The Court of Appeals looked at “whether Carpenter was the company’s agent and, if so, whether that agency imposed a fiduciary duty on Carpenter as a matter of law such that Carpenter can be held civilly liable for breaching those duties.” A reinsurance-intermediary broker, as defined in the Insurance Code Section 1781.2(g) is

any person, other than an officer or employee of the ceding insurer, firm association, or corporation that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to find reinsurance on behalf of that insurer.

Under the statute, the reinsurance intermediary-broker can be characterized as a dual agent. Such a broker acts on the behalf of the interests of two parties, not a single party. The Court held that Carpenter, as a reinsurance intermediary-broker was an agent of the company. However, the Court was hard-pressed to find a fiduciary duty anywhere in insurance law. The Court stated: “we are unaware of even a single California precedent permitting a client to sue an insurance broker for breach of fiduciary duty.” Therefore, the Court did not want to open this door as a matter of public policy. The Court held that “decades of cases have drawn a policy line between what brokers must do and need not do. Because that line has been drawn, we decline to revisit the issue.”

The court went on to review a number of California cases discussing the duties of an insurance broker, including Kotlar v. Hartford Fire Ins. Co (2000), 83 Cal. App. 4th 1116, 1123. In Kotlar, the court held that “a broker only needs to use reasonable care to represent his or her client”, and “a broker’s duties are defined by negligence law, not fiduciary law.” The court then further explained its holding that a broker owes no fiduciary duties under insurance law:

Given the foregoing, and given that a broker is an agent, there is an inherent conflict between insurance law and agency law. Agency law establishes that ―[t]he relations of principal and agent, like those of beneficiary and trustee, are fiduciary in character. . .. [¶] . An agent must disclose to his principal every fact known to him bearing upon the [subject matter of the agency], the concealment of which would lead to the injury of the principal [citation].‖ (Kinert v. Wright (1947) 81 Cal.App.2d 919, 925 (Kinert); Chodur v. Edmonds (1985) 174 Cal.App.3d 565, 571 (Chodur) [―[a]n agent is a fiduciary‖].) Further, an agent has an obligation of ―diligent and faithful service the same as that of a trustee. [Citations.]‖ (Ibid.) As explained by Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29 (Wolf), a fiduciary is bound to act with utmost good faith for the benefit of the other party. If applied in the insurance context, Kinert, Chodur and Wolf would require brokers to disclose all material knowledge and advise client‘s on specific insurance matters even if the broker is not required to do so by the duty of care. Indeed, ―the duty of undivided loyalty the fiduciary owes to its beneficiary . . . [is] far more stringent‖ than the duty of care. (Wolf, supra, at p. 30.) ―‗Many forms of conduct permissible in a workaday world for those acting at arm‘s length, are forbidden to those bound by fiduciary ties. A [fiduciary] is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior.‘ [Citation.]‖ (Ibid.) Thus, it is impossible for us to reconcile insurance law and agency law.

So, unless there are other courts of appeal that disagree or if the California Supreme Court addresses the issue, it appears the level of care an insurance broker owes to its client is measured, not by a fiduciary duty, but by a reasonable standard of care.

Under ERISA, insurers/claim administrators are required to give every insurance claim a full and fair review. Courts in the Ninth Circuit have construed this requirement in a manner that requires insurers/claim administrators to do more than simply have an in-house physician or nurse conduct a paper review of medical records. This trend continues with the decision in Galloway, et. al. v. Lincoln National Life Insurance Company, 2011 U.S. Dist. LEXIS 45866 (W.D. Wash. April 28, 2011).

From 2000 to 2008, Galloway worked as a machinist for Turbine Engine Components Technologies Corporation (“TECT”). On January 1, 2002, Lincoln National issued a group life insurance policy to TECT and on October 14, 2004, Galloway, a TECT employee at the time, enrolled in the policy. The policy contains a provision ensuring continued coverage, without payment of premiums, if a participant becomes totally disabled.

In January 2008, Galloway stopped working at TECT due to Achilles tendonitis. In July 2008, Galloway requested that Lincoln National grant him a waiver from paying premiums on his life insurance policy due to his total disability.

Lincoln National investigated Galloway’s claim of total disability relying on primarily the medical reports provided by Galloway’s podiatrist. Lincoln National did not request additional information regarding the restrictions Galloway reported on his Rehabilitation Survey, nor did it ask Galloway when the self-reported restrictions began, which would have been necessary information for it to determine whether he satisfied the relevant elimination period. The only additional information Lincoln National requested from Galloway, before denying his claim, was an Educational Assessment. The record indicated, however, that Lincoln National intended to deny his claim even before sending him the Educational Assessment form.

After litigation ensued, the court granted the Estate’s motion to supplement the administrative record with the declaration of Dr. Robert T. Fraser, Ph.D., who was the Estate’s vocational assessment expert. In doing so, the court held that the Fraser declaration evidenced Lincoln National’s failure to conduct a proper vocational assessment of Galloway’s self-reported limitations. The court held that this failure prevented the full development of the administrative record, relying on Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 973 (9th Cir. 2006).

The court decided to remand the matter back to Lincoln National so that the parties could conduct a “meaningful dialogue” about Galloway’s self-reported symptoms. Lincoln National once again conducted a cursory review of Galloway’s claim – primarily limited to asking an independent expert to review reports from his podiatrist – but made no attempt to secure additional information regarding Galloway’s reported restrictions and limitations. The limited nature of Lincoln National’s investigation did not prevent it from denying Galloway’s waiver of premium claim again after remand.

The court reviewed Lincoln National’s decision under the abuse of discretion standard of review and ruled that Lincoln National abused its discretion because it failed to conduct an adequate investigation into the basis for Galloway’s request for a premium waiver in large part because it failed to contact Galloway’s treating physician. Specifically, the court ruled:

Here, the legal question before the court is whether Lincoln National abused its discretion in denying Mr. Galloway a waiver of premiums. This determination depends on whether Lincoln National requested the needed information and offered a rational reason for its denial of Mr. Galloway’s claim. See Booton v. Lockheed Med. Benefit Plan, 110 F.3d 1461, 1463 (9th Cir. 1997). If Lincoln National meets this standard its decision to deny benefits would be given substantial deference. Id. After a review of the record before and after remand, the court finds that Lincoln National failed to follow-up with Mr. Galloway, or any medical expert, regarding the limitations Mr. Galloway listed in his self-assessment that, if true, rendered him completely disabled during the elimination period.

Thus, Lincoln National’s denial of benefits was not based on a full and fair review of the record as required by ERISA and Ninth Circuit authority. See id. (“Lacking necessary—and easily obtainable—information, [the plan administrator] made its decision blindfolded.”); see also Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 870-71 (9th Cir. 2008) (the plan administrator must give a “fair chance” to the beneficiary to present evidence to support her claim); see also Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 538 (9th Cir. 1990) (holding that to deny the claim without explanation and without obtaining relevant information is an abuse of discretion). As it turned out, the opportunity for Lincoln National to engage in a meaningful dialogue with Mr. Galloway, before or after it made the initial denial decision, was cut short by the death of Mr. Galloway only a month later.

On remand, Lincoln National was given a second opportunity to attempt a full and fair review of Mr. Galloway’s claimed restrictions. The evidence actually garnered during remand, however, only further exemplified why a meaningful dialogue is required in the first place. On remand, the information provided by the treating physicians supported the claimed restrictions in Mr. Galloway’s self-assessment. These restrictions should have formed the basis of Lincoln National’s original review but, due to its failure to consider fully the claims made by Mr. Galloway before denying his claim, it never contacted his treating physicians.

Lincoln National’s decision to deny Mr. Galloway’s claim without obtaining all the required information and without engaging in a meaningful dialogue with him was an abuse of discretion. Moreover, had it engaged in any dialogue with Mr. Galloway, Lincoln National would have learned that two of his treating physicians believed him to be unable to perform any work, including sedentary work. Based on the record before the court, and on its finding that Lincoln National abused its discretion in denying Mr. Galloway the requested waiver of premiums for his life insurance policy, the court orders Lincoln National to pay life insurance benefits to the Estate of Mr. Galloway. (Emphasis added.)

Thus, because Lincoln National failed to contact Galloway’s treating physicians and otherwise failed to properly gather medical information related to Galloway’s claim, he was denied a full-and-fair review owed to all ERISA claimants. The court determined that Lincoln National’s failure to conduct an adequate investigation and failure to engage in a “meaningful dialogue” with Galloway regarding the claim resulted in an abuse of its discretion, and order Lincoln National to pay the full death benefits due under the policy.

If you believe you have an individual or ERISA-governed life insurance, health insurance or disability insurance policy issued by Lincoln National, or any other insurer, for which you have failed to properly receive benefits, contact McKennon Law Group PC for a free consultation.

California Courts Deal Another Blow To Plaintiffs’ Efforts To Bring Class Actions Based on Insurer and Agents Misrepresentations

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