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McKennon Law Group PC founding partner Robert J. McKennon was featured in January 2012 edition of Forbes Magazine. The article discusses Mr. McKennon’s rise to the top of Southern California’s insurance and business litigators.
Insurance Commissioner Dave Jones marked his first full year in office this week by looking back on the California Department of Insurance’s (CDI) major accomplishments during 2011. Some of these achievements were very important for insurance consumers. Here’s what his press release said:
“A little over a year ago, I took my oath as Insurance Commissioner and pledged to make my Administration one of action,” Commissioner Jones said. “I can confidently and proudly say that the Department has fully lived up to that pledge. We have achieved a number of critical successes on behalf of California’s consumers consistent with our vision to be the most effective consumer protection agency in the nation.”
Major Accomplishments of 2011:
Implementing Health Care Reform
The Patient Protection and Affordable Care Act (PPACA) signaled a new day for health care in America. Commissioner Jones has made it a priority of his Administration to implement health care reform.
Literally minutes after being sworn in, Commissioner Jones issued new regulations that require health insurers in the individual market to use a larger percentage of the premiums they collect from Californians to deliver actual medical care, instead of overhead and profit. Then Commissioner Jones successfully sponsored Senate Bill 51 (Alquist), holding health insurers selling to small and large businesses to a similar standard.
Commissioner Jones also issued regulations requiring health insurers to cover children with pre-existing conditions. These regulations will help thousands of California children get the care they deserve without sending their families into financial ruin.
Jones issued regulations preventing “medical rescissions” and establishing a notice and hearing process for consumers. He also oversaw CDI’s review of health insurance policies for conformance with health care reforms such as the elimination of lifetime limits on benefits and eliminating co-payments and co-insurance requirements for preventative services.
Fighting Excessive Health Insurance Premium Increases
The battle to prevent excessive health insurance rates escalated early in 2011 when health insurers proposed new rates that would have saddled consumers with annual cumulative premium increases of up to 87 percent. Although the Insurance Commissioner does not have the authority to reject excessive rate increases, Commissioner Jones was able to reduce health insurance premiums by $107 million this year by using existing, though limited, review authority.
Commissioner Jones continued the fight to obtain legal authority to protect consumers from excessive health insurance rate increases. He sponsored AB 52 (Feuer) which would give the Insurance Commissioner real authority to reject excessive health insurance rate increases. This authority currently exists for other lines of insurance including auto, homeowners, property, and casualty, and it is imperative to secure the same authority over health insurance. The bill cleared the Assembly and has made it through all Senate committees and is now eligible for a vote on the Senate floor in January.
Protecting seniors
Seniors, among the most vulnerable members of communities, often fall victim to predatory scams. Commissioner Jones succeeded in establishing some new protections for them. The Governor signed two important CDI-sponsored consumer protection bills that became law in January. AB 793 (Eng) is designed to stop insurance agents and brokers from exploiting those seniors who recently acquired a reverse mortgage, by inappropriately inducing them to tie up those same funds in unsuitable annuities or other products.
The second law, AB 689 (Blumenfield), more broadly protects seniors and others from the sale of unsuitable annuities.
Premium Rate Savings for Consumers
CDI received more than 7,000 rate, rule, and form filings for property and casualty lines of insurance through December 31, 2011. CDI rejected $50 million in rate increases sought by property and casualty insurers and on top of this obtained close to $398 million in rate decreases using the authority of Proposition 103, for a total annual savings going forward of $448 million for California ratepayers.
New Workers’ Compensation Pure Premium Benchmark
Recognizing the importance of providing timely and meaningful information to employers about workers’ compensation insurance cost trends, Commissioner Jones directed a revamping of the “pure premium” benchmark process. Pure premium is the portion of the workers’ compensation premium needed to cover the cost of claims. While the Commissioner does not set workers’ compensation insurance rates, each year the Commissioner is asked to recommend a pure premium benchmark which helps employers and insurers better understand cost trends in the market. Thanks to the new process established by Commissioner Jones, a pure premium benchmark was approved for the first time in three years, one which is tied to what is actually happening in the market.
Protecting Homeowners from Underinsurance
With natural disasters like wildfires an unfortunate fact of life in California, Commissioner Jones issued new regulations to protect homeowners from being underinsured. The regulations include setting appropriate disclosure standards for agents and brokers who sell homeowners’ insurance and estimate replacement costs.
Rooting Out Fraud
From January through December 2011, CDI’s Enforcement Branch racked up more than 784 arrests for crimes that included auto insurance fraud, fiduciary theft, embezzlement and workers’ compensation fraud. As a result, the courts ordered $13.2 million in restitution due to the investigative actions we took against brokers, agents and producers.
CDI also filed lawsuits against pharmaceutical company Bristol-Myers Squibb for showering doctors with illegal kickbacks to get them to write more prescriptions and against Sutter Hospitals for bogus anesthesia billings. Both of these proceedings show CDI’s deep commitment to go after fraud that causes undue financial strain on California’s health care delivery system.
Making Sure Life Insurance Benefits Are Paid to Beneficiaries
Commissioner Jones held a joint investigative hearing with Controller John Chiang into life insurer death benefit payment practices. The hearing revealed that life insurers with access to the Social Security Administration’s “Death Master File” are not using information about deaths to trigger payments to life insurance beneficiaries. Jones has opened, with other insurance regulators, an investigation of the 10 largest life insurance companies to determine whether they engaged in unfair practices in the payment of death benefits under life insurance policies and annuities.
Other Notable Achievements
• Nine CDI-sponsored consumer protection bills were enacted, including bills to protect consumers from being unwittingly enrolled in life insurance “retained asset accounts” and to protect California businesses from being dragged at their cost to other states to resolve disputes with insurers;
• The Commissioner approved a 12 percent average decrease in residential earthquake insurance rates; and a new component of earthquake insurance that allows homeowners to insure their personal property up to $2,500 without having to first meet the larger deductible requirements of the structure itself;
• Jones initiated an enforcement action against Blue Shield of California for failing to comply with the California Mental Health Parity Act, and supported legislation, signed by the Governor, to require health insurers and HMOs to cover a proven form of treatment for Autism;
• CDI issued guidance requiring health insurers to provide all financial documentation related to health insurance rate increases for review by CDI;
• Commissioner Jones initiated review of medical malpractice rates paid by doctors, nurses, hospitals and clinics;
• The Commissioner hosted two consumer summit meetings to solicit input from leading consumer organizations;
• CDI initiated a pilot project in cooperation with the California Department of Child Services, encouraging California insurers to help make a significant difference in the lives of children by voluntarily agreeing to offset insurance benefit payments against delinquent child support payments;
• The Commissioner initiated actions that can make progress on improving the environment by approving an auto insurer’s application for Pay-As-You-Drive auto insurance; conducting a Green Insurance Summit; and leading efforts at the National Association of Insurance Commissioners (NAIC) to measure the extent to which insurance companies are responding to climate change and global warming;
• Commissioner Jones also sponsored legislation signed into law to extend the sunset date on the California Organized Investment Network’s (COIN) Tax Credit Program to January 1, 2015. This program encourages investment in underserved communities;
• CDI successfully took over a troubled workers’ compensation company (Majestic Insurance), developed a rehabilitation plan, and transferred the financially troubled company and its business to a healthy insurance company, with no interruptions in coverage for policyholders.
“We have made significant progress for consumers this year,” Jones said. “I look forward to another successful year in protecting consumers and making sure that we have healthy insurance markets.”
McKennon Law Group PC is proud to announce that its founding partner Robert J. McKennon has been recognized as one of Southern California’s “Super Lawyers” and he will appear in the upcoming 2012 edition ofSouthern California Super Lawyersmagazine, as well as the upcoming edition of Orange Coast Magazine.
Each year,Super Lawyersmagazine, which is published in all 50 states and reaches more than 13 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.
This article continues our series of articles answering basic questions about insurance law and the Employee Retirement Income Security Act of 1974 (commonly referred to as “ERISA”). This one addresses: In a lawsuit governed by ERISA, what actions taken by the claims administrator (usually an insurance company such as Blue Cross/Blue Shield or CIGNA) will reduce the level of discretion the court gives the insurance company’s decision when reviewing the decision for an abuse of discretion?
Under ERISA, the court does not necessarily review the claims decision by simply attempting to determine whether the insurance company made the “correct” decision. Instead, the court first looks to see whether the plan documents unambiguously confer discretion for determining eligibility on the claim administrator. If discretionary language is present, the abuse of discretion standard of review applies, and the court is required to give some level of deference to the claim administrator’s decision. However, even if such discretionary language is present, the discretion given the claim administrator’s decision is not absolute. Specifically, courts have ruled that the following acts will reduce the level of discretion give to the claims administrator’s decision:
- Rendering a decision without explanation, construing a plan provision in a way that conflicts with the plain language of the plan or relying on clearly erroneous findings of fact.
- “Hiding the ball” by failing to advise claimants of documents needed to obtain approval of claim and an explanation of why such material or information is necessary, and failing to submit forms to claimant or his doctors that would have elicited the information needed.
- Overstatement of and excessive reliance upon claimant’s activities in the surveillance videos and conducting a paper review rather than an “in-person medical evaluation.”
- Encouraging participant to file for Social Security Disability Insurance and, when benefits are awarded by Social Security Administration, failing to deal with and distinguish the contrary disability decision.
- Failing to obtain a physician’s recommendation and relying on medical reports that are not credible.
- “Tainting” medical file reviewer in the medical review process by giving the reviewer inaccurate negative information regarding the claimant.
- Failing to consult with a health care professional who has appropriate training and experience in the applicable field of medicine.
- Emphasizing a report that favored a denial of benefits while deemphasizing other reports suggesting a contrary conclusion, and failing to provide its independent experts with all of the relevant evidence.
- Failing to provide all bases for its denial and suggesting alternate reasons for denial after the fact, thereby precluding the claimant from responding to that rationale for denial at the administrative level.
- Adding new terms to the Plan, particularly when those terms are both imprecise and impose a higher evidentiary burden on a claimant, such as requiring that disability be proved by “compelling objective” evidence.
These are just a select few of the acts that courts have ruled require that the insurer’s decision not be afforded full discretion. Numerous other actions will also cause a court to review a claim decision with something less than full discretion. 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 ERISA or insurance bad faith matter, please contact our office.
McKennon Law Group PC is proud to announce that Robert J. McKennon has been named as a 2012 Southern California Super Lawyer as one of California’s top insurance attorneys. Less than 5% of attorneys nationwide are awarded this status.
The insurance industry is unique in California and in most states: unlike other industries, it is required to act in good faith (known as the covenant of good faith and fair dealing) with its insured customers. The California courts have long held that insurers have a special relationship, in the nature of a fiduciary relationship, that requires them to act with regards to their interests in a manner equal to the interests of their policyholders.
The Huffington Post, in a very interesting article entitled, “Insurance Claim Delays Deliver Massive Profits To Industry By Shorting Customers” reports that since the mid-1990s, “a new profit-hungry model, combined with weak regulation, has upended that ancient social contract” between insurers and claimants.
“Claims has been converted into a money-making process,” the article quotes Russ Roberts, a New Mexico-based management consultant and former business professor at Northwestern University who has studied the insurance industry’s evolution from a service business to what is described in the article as a profit-driven machine.
The change started, according to the article, when consulting giant McKinsey & Company sold Allstate and other leading insurance companies on a “new system to boost the bottom line.” The article states that rather than adjusting claims the traditional way, which gave claims managers wide latitude to serve customers, insurers embraced a computer-driven method that produced purposefully low offers to claimants.
The article explains that this strategy “put profits above all” and insurers like Allstate have certainly gained: Allstate made $4.6 billion in profits in 2007, double its earnings in the 1990s. The stunning increase, the article quotes Russ Roberts as stating, came through “driving down loss values to an average of 30 percent below the actual market cost” — that is, paying dramatically less on claims. Roberts told the Huffington Post that, by his estimate, the companies that take in 70 percent of total insurance profits in the United States “now abuse their obligations to their policyholders.”
According to NAIC data[https://eapps.naic.org/documents/cis_aggregate_complaints_by_reason_codes.pdf], claim delays have long been the most frequent cause of policyholder complaints. As of Nov. 28, 2011, the NAIC had received 11,053 delay-related complaints this year alone, comprising almost a quarter of the year’s total complaints. This data only reflects confirmed complaints — the ones that the state insurance commission has investigated — so the actual number of delayed claims is likely much higher.
This article is interesting reading for all consumers who buy insurance.
