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Robert McKennon Publishes Article: Ninth Circuit: ‘Independent’ Physicians may Favor Insurers

In the September 8, 2016 edition of the Los Angeles Daily Journal, Robert McKennon of the McKennon Law Group published an article regarding the use of so-called “independent” physicians used by insurance companies as a pretense to deny valid claims. In the article entitled “9th: ‘Independent’ Physicians may Favor Insurers,” Mr. McKennon summarized the recent U.S. Court of Appeals for the Ninth Circuit case, Demer v. IBM Corporation LTD Pan, 2016 DJDAR 8929 (9th Cir. Aug. 29, 2016), in which the Court noted that insurance companies frequently pay doctors a substantial amount of money to review files, and therefore their opinions are likely biased in favor of the insurance company that pays them.

The article is postedbelowwith the permission of the Los Angeles Daily Journal.

9th: ‘Independent’ Physicians may Favor Insurers

By Robert J. McKennon

Insurance companies that provide group long-term disability insurance benefits governed by the Employee Retirement Income Security Act of 1974 (ERISA) usually hire a doctor which they typically refer to as an “Independent Physician Consultant” (IPC) to review the insured’s medical records and give an opinion about whether the insured is disabled. But is the insurance company’s doctor really independent and unbiased? Often times, the IPC never meets with or examines the insured, and does not even discuss the matter with the insured’s physicians. Yet, the IPC determines that the insured is capable of working simply by spending a few hours reviewing his medical records. The IPC typically disagrees with the opinions of the insured’s treating physicians, who have treated the insured for months or even years. Almost invariably, the insurer favors the opinion of its IPC over the opinions of the insured’s physicians. When this happens, what is an insured to do?

In a published opinion favorable to insureds that addresses this issue,Demer v. IBM Corporation LTD Pan, 2016 DJDAR 8929 (Aug. 29, 2016), the 9th U.S. Circuit Court of Appeals demonstrated that it understands that insurance companies frequently use doctors and pay them a substantial amount of money for their services, and therefore their opinions are likely biased in favor of the insurance company that pays them. The 9th Circuit held that a district court’s review of an insurance company’s benefits decision, when it is based upon the opinion of an IPC, should be tempered by skepticism because of the financial incentive that the IPC has to pander to the insurer’s interests (again, who uses them often and pays them significant amounts of money).

InDemer, the plan participant, Daniel Demer, was an employee of IBM Corporation LTD Plan. Suffering from severe recurrent depression, spinal stenosis, chronic osteoarthritic pain, and chronic headaches and unable to continue working, he filed a claim for long-term disability benefits. MetLife, which had a structural conflict of interest because it both evaluated claims made against the plan and funded claims, initially approved his claim after concluding he was incapable of performing the duties of his occupation. However, after two years, the plan required that Demer be unable to work in any occupation for which he was suited by education, training and experience in order to qualify for benefits, and MetLife denied his claim relying primarily on the opinion of its IPC indicating that despite his supported functional limitations, Demer was capable of working in a sedentary position.

Demer appealed MetLife’s claim denial, and MetLife subsequently upheld its denial relying on the opinions of two other IPCs. One of the IPCs was board certified in physical medicine and rehabilitation. He determined that while Demer “likely had a modicum of discomfort” from “neck and back pain related to spinal degeneration,” he retained physical functional capacity to perform a sedentary occupation despite a contrary conclusion from Demer’s treating physician. MetLife’s other “independent” physician consultant, board certified in psychiatry, claimed that despite the fact that Demer was taking powerful narcotic and neurological medications and asserted that he suffered from significant medication side-effects that cause fatigue and an impediment to his comprehension and communication, there was no objective data to establish functional impairment as a result of the medications he was taking.

Demer filed suit, arguing in part that MetLife operated under a conflict of interest because two of the IPCs that MetLife hired to review the medical record previously conducted a substantial number of reviews for Metlife and received significant compensation from MetLife for their services. For 2009 and 2010, one IPC performed more than 250 reviews/addendums per year, earning more than $125,000 each year. For the same time period, the other IPC performed between 200-300 reviews/addendums each year, and received more than $175,000 from MetLife each year. Based on the number of reviews and the amount of compensation, Demer asserted that the IPCs’ opinions should be questioned because the doctors had financial incentives to render opinions favorable to MetLife. Demer further argued that, because MetLife relied on the doctors’ opinions in denying him relief, the doctors’ conflict is imparted to MetLife and therefore the court should view their opinions with skepticism. The court noted that this argument is comparable to conventional approaches to discrediting the testimony of retained experts whose objectivity may be challenged based on the number of times he or she has served as an expert in support of a party and the amount of compensation received.

The district court entered judgment in favor of IBM and MetLife finding no abuse of discretion, but the 9th Circuit reversed. Thec court concluded that because MetLife’s consulting physicians earned a substantial amount of money from, and performed numerous medical record reviews for, MetLife, an inference was raised that there was a financial conflict which influenced the physicians’ assessment. It held that this conflict was a factor to be considered in reviewing MetLife’s decision under the abuse of discretion standard. Since MetLife failed to negate any inference of a financial conflict of interest, the court determined that “the number of examinations referred and the size of the professional fees paid to a reviewer may compromise the neutrality of an expert.”

The court further concluded that MetLife abused its discretion in denying Demer’s claim that his mental functional capacity was affected by his medications. The court determined that since it was undisputed that Demer took powerful narcotic medications, that these medications were medically necessary, and because they have known strong side-effects, MetLife’s conclusion (that Demer’s complaints regarding medication side-effects was not credible) was unsupported. A dissent disagreed, and stated that he would abandon “skepticism” as a separate standard of review in ERISA cases.

Even though theDemercase involved the abuse of discretion standard of review, insurers will argue that this case will have little application in de novo review cases in which the conflict analysis is not used. In California, the abuse of discretion standard of review will likely become uncommon in future cases because of California Insurance Code Section 10110.6, which renders discretionary language “void and unenforceable” in policies, contracts and certificates that provide funds for life insurance or disability insurance coverage for California residents. However, even in de novo review cases, it is advisable to remind the courts of the rationale behind the “skepticism” rule as even the 9th Circuit noted the similarity to the arguments made in non-ERISA cases. Thus, this case is useful to establish that the opinion of an insurance company IPC who never examined the insured and who undermines or rejects an insured’s credible evidence of disability should be viewed skeptically where the insured’s disability is supported and verified by the insured’s treating physicians who treated and examined the insured.

The Number of Disabled Employees Increase as More Employers Drop Long-Term Disability Coverage

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/

Why Is It Important To Exhaust Your Administrative Remedies Under ERISA When Your Insurer Denies Your Disability Insurance Claim?

The Employee Retirement Income Security Act of 1974 (“ERISA”) provides an exclusive remedial scheme for insureds who have been denied benefits. 29 USC section 1001 et seq. Under ERISA, a plan participant may sue “to recover benefits due to him under the terms of their plan, to enforce their rights under the terms of the plan, or to clarify their rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). However, before plan participants can pursue a lawsuit against the plan/plan administrator for benefits, attorneys’ fees and costs, they must first pursue their ERISA appeal rights under the doctrine of exhaustion of administrative remedies. 29 USC section 1133. If they do not do so, they may lose all of their rights to pursue an appeal or litigation of a disability, life or health insurance claim denial.

Although not expressly set out in ERISA, federal courts require that an ERISA plan participant avail himself of a plan’s own internal review procedures before bringing suit in court. This generally means that if a claim for benefits is denied or adversely decided, the plan participant must timely file an administrative appeal with the plan administrator within the time period provided by the plan. Under ERISA, plan participants have at least 180 days to file an appeal. It is crucial for plan participants/claimants to note that, failure to request an administrative appeal within the time period provided will be deemed a waiver of their future rights to dispute the decision, including the right to file suit against the plan.

If a plan participant files a lawsuit without exhausting his administrative remedies first, the plan/plan administrator may file a motion under Federal Rules of Civil Procedure 12(b) to dismiss the case for failure to exhaust administrative remedies. The plan may even seek to dismiss the action with prejudice. Typically, courts will likely either remand the case to the plan’s administrative appeals board with instructions to hear the plan participant or dismiss the case without prejudice where it finds that the plaintiff failed to exhaust their administrative remedies prior to filing suit.

However, courts may find that administrative remedies have been exhausted even if a formal appeal was not filed where an ERISA plan fails to establish or follow the claims procedures required under ERISA. The plan participant is deemed to have exhausted the administrative remedies available under the plan and may pursue a lawsuit against the plan where: (1) the initial claims was not completed within 90 days, or 45 days for disability claims; (2) the plan administrator did not give the beneficiary written notice stating the specific reasons for the denial, and “written in a manner calculated to be understood” by the beneficiary; or (3) the plan failed to afford a reasonable opportunity to the beneficiary whose claim has been denied for a “full and fair review by the appropriate named fiduciary.” 29 USC section 1133. Additionally, because the general rule of exhaustion of administrative remedies is not a statutory requirement, a court may waive the exhaustion requirement where exhaustion would be futile.

Given the complexities involved in the ERISA claims and litigation process, it is absolutely crucial for claimants to seek the advice to attorneys who have knowledge and experience in this highly specialized area of law. The attorneys at McKennon Law Group PC specialize in handling ERISA disability insurance claims, in litigation or on appeal, and we have successfully litigated hundreds of disability insurance cases over the past 28 years.

For additional information, please see our Disability Insurance FAQs and Insurance Bad Faith FAQs.

In MLG Case, the San Francisco Superior Court Rules that Plaintiff Therabotanics May Pursue Claims Against Sephora and Solazyme For Interference With Contract and Unfair Competition

McKennon Law Group recently filed a case on behalf of Therabotanics, LLC, a subsidiary of Ideal Living, for breach of contract, unfair competition, misappropriation of trade secrets, harmful interference with contract, and conversion of assets against Sephora, USA, Inc. and Solazyme, Inc. Therabotanics and Solazyme had entered into an exclusive agreement for a joint venture to sell a line of algae-based skin care products through a television infomercial. The exclusive agreement contained a carve-out that allowed Solazyme to sell a “premium” product with other distributors, but at a higher price and under a specific name.

The complaint alleges that Sephora and Solazyme entered into a separate joint venture to sell the same or similar skin-care products in violation of the agreement between Therabotanics and Solazyme, and they did this knowingly and with the intent to frustrate the agreement between Therabotanics and Solazyme. The complaint alleges that Therabotanics shared trade secrets and other assets with Solazyme to develop the skin-care product, and that Solazyme used those trade secrets and assets to develop a competing product with Sephora in violation of the agreement between Therabotanics and Solazyme. The product sold by Sephora was not a “premium” product being sold at a higher price, but instead the same or similar product that was to be sold by Therabotanics, and was marketed at the same price point. Solazyme thereafter backed out of the agreement with Therabotanics and continued its sales with Sephora.

Solazyme and Sephora challenged the complaint filed by Therabotanics on the grounds that their conduct did not amount to unfair competition or harmful interference, and asserted that there was no wrongdoing on the part of either party. The court found that Therabotanics sufficiently alleged that Sephora had wrongfully interfered with the agreement between Therabotanics and Solazyme, and overruled many of Sephora’s and Solazyme’s objections to Therabotanics claim for unfair competition, allowing Therabotanics the opportunity to state with more specificity the wrongdoing that is alleged to have occurred. The court also overruled Sephora and Solazyme’s objections to Therabotanics claim for conversion of assets. Thus, Sephora and Solazyme will be forced to defend themselves against these claims in court. A further synopsis of the court’s ruling was published on Law360.com at the following link: http://www.law360.com/articles/416708/sephora-can-t-dodge-competition-claims-over-skin-care-deal. Commenting on the court’s ruling, Robert McKennon of the McKennon Law Group told Law360:

We are very pleased that the Court has substantially overruled Defendants Solazyme, Inc.’s and Sephora, USA, Inc.’s attempt to have my clients’ claims dismissed at the demurrer stage of this litigation. We are equally pleased that the Court has allowed us to amend our causes of action for fraud and unfair competition to add the requisite specificity to pursue those claims against Solazyme and Sephora, as well as against Solazyme’s Senior Vice President and General Manager, Frederick Stoeckel. We are confident that our clients will prevail in their claims against the defendants in this litigation.

Insurance Commissioner Jones Advises Consumers on the Importance of Disability Insurance Policies

Very recently, California Insurance Commissioner Dave Jones issued a bulletin advising consumers about the importance of understanding their options when considering disability income insurance. Here is what he had to say:

“In a down economy many people may not think their most valuable asset is their ability to work,” said Commissioner Jones. “But if illness or injury were to keep you from earning a living you would still need to pay your bills. Disability income insurance could be a viable option for people and their families, and that’s why consumers need to take the time and evaluate their options closely.”

According to the U.S. Census Bureau, one in four of today’s 20-year-olds will become disabled before reaching retirement age; however, only 32 percent of U.S. private industry workers have long-term disability income insurance as part of their benefits package.

An individual may obtain disability income insurance coverage in two ways – either through a group-sponsored setting or purchased as an individual. Group insurance is available through an employer or an association, and these policies may offer short-term and long-term coverage. Short-term disability income insurance typically replaces a portion of the policyholder’s salary up to a year following the disability, while long-term disability income insurance may begin six months after the disability and can last a few years or even until retirement.

Individual insurance is coverage that can be purchased from any insurance company that offers it. The terms of the policy, length and type of coverage are negotiated between the individual and the insurance company and are generally subject to underwriting requirements.

Comparing Disability Policies – When considering disability income insurance policy options there are definitions and benefits consumers should carefully compare.

Definition of disability – the definition varies from policy to policy. Some may pay benefits if you cannot perform the duties of your own occupation, while others may require that your disability keep you from performing tasks of any occupation you are reasonably expected to perform based on your age, education, training and experience.

Extent of disability – Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job.

Disabilities Covered – The list of covered injuries or illnesses considered disabilities under the policy will vary. Coverage for pre-existing conditions may be limited or excluded.

Residual benefits – This coverage fills in a gap in come if you are partially disabled, you return to work, and your income is reduced because you can’t perform all of the duties of your job.

Determining How Much Coverage You Need

Before purchasing disability income insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.

Becoming disabled can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount and type of coverage you could need.

The amount of benefits you receive is based on a percentage of your pre-disability earned income. The benefit amount received can be reduced by other sources of disability support such as Social Security disability payments, employer long-term disability insurance, among others.

If the long-term disability income insurance coverage your employer offers is not enough to cover your needs, there are options for purchasing additional coverage”.

As a corollary to this article, you may by wondering: what are the advantages of buying disability insurance? What should you be looking for in a disability policy? McKennon Law Group PC partner partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance in his article: Buying Disability Insurance: What You Should Be Looking For

If you have any questions about your disability coverage, your disability claim or ERISA disability claim, please contact us. Insurance consumers can learn more about insurance by visiting the California Department of insurance web site at www.insurance.ca.gov.

MCKENNON LAW GROUP PC OBTAINS $3.93 MILLION DAMAGE AWARD FOR CLIENTS IN BUSINESS DISPUTE OVER INTELLECTUAL PROPERTY AND LICENSING RIGHTS

In January 2010, McKennon Law Group PC was approached by weight loss supplement company TriPharma, LLC, about a dispute involving its exclusive rights to advertise, market and sell a revolutionary patented and clinically studied weight loss product that was manufactured by San Diego based company Imagenetix, Inc. TriPharma discovered Imagenetix’s multiple breaches of its exclusive license agreement with Imagenetix which had all but destroyed its ability to sell its weight loss product, destroyed much of the goodwill built up for the product, and was threatening to destroy the years of hard work put in developing TriPharma’s one-of-a-kind weight loss beverage, which was due to hit the stores in a few short months. Shortly thereafter, Imagenetix wrongfully terminated TriPharma’s exclusive license and began to sell product directly to TriPharma’s customers.

The attorneys at McKennon Law Group PC LLP took immediate action and filed lawsuits in federal court against the companies which were infringing on TriPharma’s exclusive license through product sales of their own, and filed claims in JAMS arbitration against Imagenetix for, among other things, fraud, breach of contract, and injunctive relief, seeking damages as well as reinstatement of the exclusive license agreement

After aggressive discovery and motion practice in the JAMS arbitration for over a year-and-a-half, and after a fourteen (14) day arbitration hearing, TriPharma prevailed and was awarded $2.1 million in compensatory damages, pre and post-judgment interest, and its attorneys’ fees and costs in both prosecuting TriPharma’s claims as well as successfully defending frivolous claims asserted against its CEO. The McKennon Law Group PC LLP attorneys were also able to prove TriPharma’s claim of promissory fraud and obtained punitive damages in the amount of $250,000, as well as personal, and joint and several liability against Imagenetix CEO William Spencer. The total monetary award amounted to over $3.93 million.

Even more significantly, the McKennon Law Group PC LLP attorneys were able to obtain the injunctive relief they fought for so vigorously on behalf of TriPharma. The arbitrator reinstated TriPharma’s exclusive license agreement, extended the term of the agreement, provided a six month abeyance of minimum obligations so that TriPharma could get its business back up and running, and enjoined Imagenetix from selling its weight loss product, or any other weight loss product based on the patent or clinical studies, to any other company. The award effectively won back the rights that TriPharma had bargained for and which had been stolen by Imagenetix through its various activities relating to the sales and distribution of the product.

The victory for TriPharma and the McKennon Law Group PC LLP law firm was a complete success. Not only did TriPharma recoup the ability to conduct business, but TriPharma and its CEO were vindicated and awarded significant monetary compensation for the fraud perpetrated on him and his company. In issuing the award, the arbitrator gave particular mention to McKennon Law Group PC partner Robert J. McKennon:

McKennon l Schindler achieved substantial success in this litigation and its chief trial attorney Robert McKennon demonstrated exceptional skill in cross-examining [Imagenetix’s CEO and other employees]. Indeed, those examinations exposed the lack of credibility of those witnesses, which was a decisive factor in the Arbitrator’s findings and rulings.

Robert J. McKennon and Reid A. Winthrop tried the case on behalf of TriPharma.

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