Benefits Archives - McKennon Law Group

If you have life insurance providing for Accidental Death and Dismemberment (AD&D) benefits, your policy includes various exclusions which, if any apply, may allow the insurer to avoid paying you benefits. For example, an insurer may refuse to pay benefits if the person covered under the policy was killed or dismembered while committing a felony. Or, an insurer may refuse to pay benefits if the person died in an accident while intoxicated based on the policy’s intoxication exclusion. Naturally, some exclusions will apply such that an insurer will not pay benefits. The Southern District of California has provided some guidance to Californians relating to exclusions in accidental death cases. Ciberay v. L-3 Commc’ns Corp. Master Life & Acc. Death & Dismemberment Ins. Plans, 2013 WL 2481539 (S.D. Cal. 2013).

Mr. Ciberay was carrying some dishes through his home when he fell down a flight of stairs and broke his pelvis. He was highly intoxicated at the time – his blood alcohol content (BAC) was .422%, over five times the legal limit for driving. He had a history of chronic alcohol dependence. Mr. Ciberay did not undergo any surgical procedures, but stayed in the hospital following his fall. On the third day in the hospital, he developed a high fever, and the doctors determined that he had bacterial infections that had stopped responding to antibiotic treatment. On his ninth day in the hospital, he died. The medical examiner’s report listed the cause of death as complications following pelvic fractures, with other significant conditions of hypertensive cardiovascular disease, alcohol abuse, obesity, and diabetes mellitus. The manner of death was characterized as an “accident.”

The Plaintiff, Mrs. Ciberay, submitted a claim under the ERISA-governed AD&D policy, which was denied based on an exclusion stating that the policy “does not cover any loss caused in whole or in part by, or resulting in whole or in part from the following … (5) the Insured Person being under the influence of drugs or intoxicants, unless taken under the advice of a Physician.” The claims administrator, Chartis, sent Mrs. Ciberay a denial letter which stated it had determined Mr. Ciberay’s death “was caused in whole or in part by, or resulting in whole or in part from [Mr. Ciberay] being under the influence of intoxicants.”

To support its denial, Chartis cited the report provided by a forensic pathologist it had hired, which stated:

In essence, Mr. Ciberay came to medical attention because, while he was intoxicated, he fell down the stairs and fractured his pelvis.

The pre-hospital factors that played a role in Mr. Ciberay’s death were pelvic fractures from the fall, acute alcohol intoxication, chronic alcoholism, diabetes, and hypertension. Complicating factors that developed in the hospital were aspiration pneumonia, small bowel obstruction, and renal failure (of note, his creatinine already appeared slightly elevated at admission). Based on the echocardiogram, it appears that the complication most closely linked to causing his death was a massive pulmonary embolism.

I would agree with the amended death certificate that the complications of the pelvic fractures from the fall were the direct cause of Mr. Ciberay’s death. [T]he apparent presence of a massive pulmonary embolism would most likely have been a result of the decreased mobility that occurred as a result of the fractures. Mr. Ciberay’s alcoholism was clearly a very significant factor in causing his death. His very high blood alcohol level at the time of admission would have to be regarded as playing a role in causing his fall. His chronic alcoholism very clearly and significantly complicated the medical management of his fractures – so much so that his discharge/death summary stated, “most of his admission was for alcohol withdrawal concerns.”

Mrs. Ciberay sued Chartis, arguing that Chartis abused its discretion because it relied on an unenforceable exclusion and ignored controlling law, and Mr. Ciberay’s intoxication at the time of his fall was not the cause of his death nine days later. Because, with fully insured plans, California statutes governing insurance are not preempted by ERISA, the court applied California Insurance Code Sections 10369.1 through 10369.12, which apply to AD&D claims. Section 10369.1 provides in relevant part:

No disability policy delivered or issued for delivery to any person in this State shall contain provisions respecting the matters set forth in Sections 10369.2 to 10369.12, inclusive, unless such provisions are in the words in which the same appear in such sections; provided however, that the insurer mar, at its option, use in lieu of any such provision a corresponding provision of different working approved by the commissioner, which is not less favorable in any respect to the insured or the beneficiary. (Emphasis added.)

The court explained that Section 10369.12 is one of eleven standard provisions that must be directly inserted into insurance policies delivered in California unless the insurer gets approval from California’s insurance commissioner to use alternate, though not less favorable, wording. The court then stated that Section 10369.12, the intoxication exclusion, must supplant the Policy’s intoxication exclusion language, which provides:

Intoxicants and controlled substances: The insurer shall not be liable for any loss sustained or contracted in consequence of the insured’s being intoxicated or under the influence of any controlled substance unless administered on the advice of a physician. (Emphasis added.)

Applying Section 10369.1, the Court concluded the language of Section 10369.12 differs from the Policy’s intoxication exclusion because, while Section 10369.12 excludes “any loss sustained or contracted in consequence of the insured’s being intoxicated,” the Policy excludes “any loss caused in whole or in part by, or resulting in whole or in part from, […] the Insured Person being under the influence of drugs or intoxicants.”

In analyzing whether the Policy language was less favorable than the statutory language, the court stated:

A loss that is caused/resulting “in whole or in part” from the insured’s being intoxicated is more expansive than a loss that is “in consequence of” the insured’s being intoxicated. Accordingly, under the Policy’s language, Defendant is able to deny more claims than it would be able to under the statutory language.

Importantly, the court held that “This conclusion alone dictates a finding that Defendant abused its discretion by failing to consider the appropriate standard in considering Plaintiff’s claim.”

The court went on to analyze how to interpret Section 10369.12’s “in consequence of” language and relied on California law to interpret this statutory language, Olson v. American Bankers Ins. Co., 30 Cal.App.4th. 816. 828 (1994), stating:

The [Olson] trial court instructed the jury that the statutory language of Section 10369.12 applied and that it should interpret the term “in consequence of” to mean “the proximate cause.” The California Court of Appeal approved the trial court’s interpretation. [ ] Thus, in applying the language of Section 10369.12, the Court will interpret the “in consequence of” term to require the insured’s intoxication to be the “efficient proximate cause” of the loss in order for the loss. to be excluded.

The court then cited Sabella v. Wisler, 59 Cal.2d 21 (1963), stating that:

The California Supreme Court has explained that the “efficient proximate cause” is the cause “that sets the others in motion.” It is the “cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.” Thus, “where there is a concurrence of different causes, the efficient cause – the one that sets the other in motion – is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.

The court also referred to Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 257 Cal.Rptr. 292, 770 P.2d 704 (1989), stating that “[s]till, ‘the fact that an excluded risk contributed to the loss would not preclude coverage if such a risk was a remote cause of the loss.’” The court also looked to other federal courts in its causation analysis, and stated:

Other federal courts have interpreted policy exclusions to require proof of a causative connection between an insured’s excluded state (e.g., intoxication, illness, etc.) and the insured’s loss.

The court cited multiple United States Courts of Appeals cases: First, in Hastie v. J.C. Penney Life Insurance Company, 115 F.3d 895 (11th Cir. 1997), the Eleventh Circuit rejected the insurer’s argument that the insured’s status as intoxicated triggered the relevant exclusion and required some proof of a causal connection between the insured’s intoxication and his death. Second, the court cited to Kellogg, supra. The Ciberay court noted that the Kellogg court relied on Vickers v. Boston Mutual Life Insurance Co., 135 F.3d 179 (1st Cir. 1998), in which the insured had a heart attack while driving, crashed into a tree, and died. The First Circuit held that while the heart attack caused the crash, the crash was the sole cause of death, and the illness exclusion thus did not apply. Finally, the court cited Johnson v. Life Investors’ Insurance Co., 98 Fed. Appx. 814 (10th Cir. 2004), in which the insured, who had muscular dystrophy and a history of falls, fell down stairs, broke his neck, and was taken to the hospital, where he later developed pneumonia and died. While the immediate cause of his death was “pneumonia due to, or as a consequence of, a cervical spine fracture, and the underlying cause of death [w]as myotonic dystrophy,” the Tenth Circuit held that his death was undisputedly caused by a fall, and it was irrelevant under the policy terms whether the fall was caused by the myotonic dystrophy.

In analyzing the intoxication exclusion, the court reasoned:

[T]he record contains insufficient evidence for Defendant to have reasonably concluded that Mr. Ciberay’s death was “in consequence” of his intoxication. In the first instance, there is insufficient evidence to reasonably conclude that Mr. Ciberay’s intoxication caused his fall. But, even assuming there was sufficient evidence to reach that conclusion, Mr. Ciberay’s intoxication was too remote from his death to reasonably conclude his intoxication was the efficient proximate cause of his death.

Mr. Ciberay very likely died of a pulmonary embolism. The pulmonary embolism was very likely due to Mr. Ciberay’s decreased mobility. Mr. Ciberay’s decreased mobility was due to his pelvic fractures. Mr. Ciberay’s pelvic fractures were due to his fall. And while one may argue, as Defendant does here, that Mr. Ciberay’s intoxication was the efficient proximate cause of his death because it began the chain of events leading to his death, there is simply insufficient evidence to reasonably conclude Mr. Ciberay’s intoxication caused him to fall.

Other than a generic list of the typical effects associated with a blood alcohol level similar to that of Mr. Ciberay’s at the time of his fall – which, importantly, appears to be entirely contradicted by Mr. Ciberay’s activity before falling and by his disposition when paramedics arrived [ ] – one may only speculate as to what actually caused Mr. Ciberay to fall. (Emphasis added).

The court ultimately concluded that “Defendant could not have reasonably decided if Mr. Ciberay’s intoxication was the efficient proximate cause of his death.”

The upshot of the Ciberay holding is that where an insurer wants to deny a claim based on a policy exclusion in California, the language of the exclusion in the policy must be at least as favorable to the insured as the language in the corresponding California Insurance Code section, otherwise the Code language supplants the policy language. Whereas insurers could previously use extremely broad language in their policies to justify applying exclusions, under Ciberay and other later cases, policy exclusionary language in California will be construed only as broadly as the Code language. Therefore, insurers are held to demonstrating an actual and substantial causal connection between the excluded condition and the loss. Since insurers know they must connect the exclusion to the loss to legitimately apply the exclusion, we would hope that fewer claims will be denied based on overbroad exclusionary language in the first instance. However, we continue to find that insurers are applying their own very broadly worded exclusions and not applying the applicable California statutory language. This is why it is important to contact the highly experienced California accidental death attorneys at McKennon Law Group PC if you have a denied AD&D claim.

A recent trend of lawsuits has involved Insurers who seek to avoid paying out life insurance or disability insurance benefits even though they have collected premiums on the policy, because they and the plan participant’s employers never obtained Evidence of Insurability (“EOI”). These insurers deny claims for life insurance and disability insurance benefits on the ground that a claimant was never covered by the policy. The Eighth Circuit Court of Appeals, in Corey Skelton v. Reliance Standard Life Ins. Co., 33 F.4th 968 (8th Cir. 2022), recently provided some clarity as to when an insurer and employer have a fiduciary duty to the insured with respect to life insurance and disability insurance coverage and when those fiduciary duties are breached. In Skelton, Plaintiff worked for Davidson Hotels LLC (“Davidson”) and obtained supplemental life insurance coverage for his wife. The life insurance policy was issued by Reliance Standard (“Reliance”). The policy generally required EOI, including proof of good health, for a member to obtain coverage. However, if an applicant for supplemental life insurance was changing coverage amounts within 31 days of “a life event change (such as marriage, birth, or specific changes in employment status),” then the applicant was not required to submit an EOI and receive Reliance’s approval.

Mrs. Skelton had life insurance coverage for $100,000 and wanted to increase the coverage to $238,000. Her husband regained custody of his son, Mrs. Skelton’s step-son, and she asked Davidson whether this qualified as a life event that would allow her to elect supplemental life insurance. Davidson told her that this did qualify as a life event. Skelton applied for the supplemental coverage and in Davidson’s response she received a notice informing her that she was required to submit EOI. Mrs. Skelton subsequently received a “Benefit Verification / Deduction Authorization” document indicating that she had “Supplemental Term Life” insurance, with the reason for completing the form being listed as “Regaining custody of dependent child.” She then paid premiums for a few months, but stopped, and one year later she qualified for a waiver of her premiums retroactive to when her coverage began. She then passed away and her husband made a claim for death benefits under her policy, which Reliance denied for lack of coverage, stating that Mrs. Skelton was never covered because she did not provide EOI.

Reliance argued that because Davidson’s practice was to collect the premiums and then forward the premiums to it, Reliance did not have a fiduciary duty to Mrs. Skelton. However, the district court held that Reliance had a fiduciary duty to ensure that its system of administration did not allow it to collect premiums until coverage was actually effective. The court held that

“Fiduciary status . . . is not an all or nothing concept. A court must ask whether an entity is a fiduciary with respect to the particular activity in question.” Maniace v. Com. Bank of Kansas City, 40 F.3d 264, 267 (8th Cir. 1994), quoting Kerns v. Benefit Tr. Life Ins. Co., 992 F.2d 214, 217 (8th Cir. 1993). “[A]n insurer who is not the plan administrator has no ERISA fiduciary duty” for a particular activity “unless the policy documents or the insurer’s past practices have created [such] an obligation.” Id.

The court held that the “ability to determine Mrs. Skelton’s eligibility for supplemental life insurance made Reliance a fiduciary for Skelton’s application process.” Reliance argued that while it had fiduciary duties related to eligibility and making claims decisions, those duties did not extend to enrollment. But because the policy language provided that enrollment occurred automatically as a result of Reliance’s eligibility decision, Reliance was therefore Mrs. Skelton’s fiduciary, as it essentially determined enrollment. The “plan documents and the insurer’s acts determine whether it is a fiduciary for the relevant function.” See Kerns, 992 F.2d at 217. Thus, as the entity that determined eligibility and conducted enrollment, Reliance was Skelton’s fiduciary.

The court further held that Reliance breached its fiduciary duty by failing to maintain an effective enrollment system. The court held that a reasonably prudent insurer would use a system that avoids the employer and the insurer having different lists of eligible, enrolled participants, and that Reliance used an insufficient, haphazard system. Reliance sent Davidson monthly status reports listing pending applications, but the reports did not include employees who had not submitted EOI, which resulted in a “ships passing in the night” situation between Reliance and Davidson as to who was eligible for coverage.

With respect to Reliance Standard’s argument that it did not communicate with the employer about enrollment in the ERISA plan, the court rejected it, explaining:

Reliance cannot insulate itself by failing to communicate with Davidson about enrollment—which Reliance controlled—while having Davidson remit ill-gotten premiums. ERISA seeks “to protect … the interests of participants in employee benefit plans and their beneficiaries” and to “increase the likelihood that [they] receive their full benefits.” 29 U.S.C. §§ 1001(b), 1001b(c)(3). This Circuit has emphasized that allowing plaintiffs to seek full recovery for breach of fiduciary duty “is so important” because this eliminates the “‘perverse incentive[ ]’” for fiduciaries to “‘enjoy essentially risk-free windfall profits from employees who paid premiums on non-existent benefits but who never filed a claim for those benefits.’” Silva, 762 F.3d at 725, (quoting McCravy v. Metro. Life Ins. Co., 690 F.3d 176, 183 (4th Cir. 2012)). Allowing an insurer to use “a compartmentalized system to escape responsibility” would undermine ERISA’s purposes. See Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 940 (9th Cir. 2017) (quotations omitted).

Indeed, allowing a fiduciary to escape liability because it designed an enrollment system that ensured it would not know it was collecting “premiums on non-existent benefits” would endorse willful blindness—and the exact “perverse incentive” this Circuit has decried. See generally Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140, 1150 (C.D. Cal. 2013) (“Reliance Standard did not conduct any such investigation and only investigated the eligibility of Ms. Dietrich for *979 supplemental life insurance coverage after her death.”); Cho v. First Reliance Standard Life Ins. Co., 852 Fed. Appx. 304, 305 (9th Cir. 2021) (holding Reliance liable where employer erroneously collected premiums from ineligible person for over a year despite unsubmitted EOI); cf. Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (stating, in ERISA breach-of-fiduciary-duty case, that under the duty of prudence, “If a fiduciary was aware of a risk to the fund, he may be held liable for failing to investigate fully the means of protecting the fund from that risk”).

Indeed, allowing a fiduciary to escape liability because it designed an enrollment system that ensured it would not know it was collecting “premiums on non-existent benefits” would endorse willful blindness—and the exact “perverse incentive” this Circuit has decried. See generally Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140, 1150 (C.D. Cal. 2013) (“Reliance Standard did not conduct any such investigation and only investigated the eligibility of Ms. Dietrich for *979 supplemental life insurance coverage after her death.”); Cho v. First Reliance Standard Life Ins. Co., 852 Fed. Appx. 304, 305 (9th Cir. 2021) (holding Reliance liable where employer erroneously collected premiums from ineligible person for over a year despite unsubmitted EOI); cf. Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (stating, in ERISA breach-of-fiduciary-duty case, that under the duty of prudence, “If a fiduciary was aware of a risk to the fund, he may be held liable for failing to investigate fully the means of protecting the fund from that risk”).

Skelton, 33 F.4th at 978–79. The court additionally held that Reliance breached its fiduciary duty by accepting Skelton’s premiums without providing coverage. “ERISA fiduciaries must comply with the common law duty of loyalty, which includes the obligation to deal fairly and honestly with all plan members.” Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997). This includes the duty to not profit at the beneficiary’s expense.

Reliance argued that because it received all of the premiums from Davidson, it had no way of knowing whether Mrs. Skelton’s payments were made, but it presented no evidence that it did not receive payment for Mrs. Skelton’s life insurance policy from Davidson. The court thus held that Reliance breached its fiduciary duty to Mrs. Skelton by receiving her premiums without giving her a corresponding benefit of coverage, while serving as a fiduciary for her eligibility and enrollment, and thus profited at her expense by avoiding any financial risk of having to pay benefits for her.

Notably, the court did not hold that Reliance became a fiduciary merely by receiving premiums from an ineligible employee. The court found that Reliance told Mrs. Skelton that she would not pay premiums until it approved her application, then it took her premiums without approving her application, thus profiting on its broken promise. This act of misleading Mrs. Skelton (by causing her to believe that if she was paying premiums, she was covered for the supplemental coverage), then profiting off of her premiums without approving her application, was Reliance’s breach of its fiduciary duty.

The Skelton court’s decision demonstrates that an insurer can be held liable for a breach of fiduciary duty even where it does not have actual knowledge that a participant is paying premiums. Because a reasonably prudent insurer would have facilitated a system that reliably informed Davidson as to which participants’ premiums were being paid and which participants were required to provide EOI, Reliance breached its duty. The Skelton court’s holding provides a blueprint of recourse for participants whose insurers have breached such fiduciary duties.

If you or someone you know has experienced the same or similar treatment from an insurer or employer, you may be able to hold them accountable. McKennon Law Group PC is highly experienced in handling denied ERISA claims, including those involving the insurer’s breach of fiduciary duty. Contact McKennon Law Group today for a free consultation.

Suppose some unforeseen event leaves you unable to continue working. If you have insurance covering short-term disability, long-term disability, or both, you will be eligible to receive benefits determined by your income prior to becoming disabled. Now you can rest easy, right? Not necessarily. Regardless of the proportion of your pre-disability income that you will be eligible to receive as disability benefits, those benefits can be reduced through offsets. What is an offset? Simply put, it is a mechanism through which your disability insurance company can and will reduce your disability benefits on a dollar-for-dollar basis. If you have a group disability policy (as opposed to an individual disability policy), your policy almost certainly contains a provision allowing the insurer to reduce your benefits by the amount you receive as “Other Income Benefits.” Other Income Benefits can include income from Social Security Disability Income (SSDI) benefits, state disability benefits, worker’s compensation benefits, Veteran’s Administration benefits or other sources.

For example, if your employment income was $10,000 per month and you became totally disabled, and you therefore became eligible for long-term disability benefits of 60% of your pre-disability income, your monthly benefit would be $6,000. However, if you applied for SSDI as required by your policy, and were approved for benefits of $2,000 per month, your insurer will offset your policy benefits by $2,000, and will now only pay you $4,000 per month. While this is a relatively straightforward concept, it can quickly become convoluted and complicated, and can compound the headaches and frustration that often are associated with a disability claim. Therefore, it is important to consider several factors in order to avoid being caught off guard by receiving less than you anticipated in disability benefits.

First, it is important to know the source of any income you receive, and whether the income is subject to offset. Your disability insurance policy, which is often part of an ERISA plan offered by your employer, will discuss sources of income and whether they qualify as “Other Income Benefits” that are subject to offset. But what about income that is not discussed in the policy? If you cash in some of your retirement savings account, will your insurance company consider that “income” and reduce your disability benefits? It depends on the plan language. Rest assured that your insurer will take advantage of any possible offset, so if your policy is unclear as to whether a certain kind of income is subject to offset, you should expect the insurance company to err on the side of offsetting benefits. To avoid your benefits being improperly reduced, you should read your disability plan carefully and understand the source of your other income to decide whether the income is subject to offset. If you believe that your insurer is improperly reducing your benefits via an offset that is not provided for in the plan, an experienced California disability insurance attorney can assist you in determining whether your insurer is properly offsetting your disability income benefits.

Second, the timing of when you receive “other” income can significantly impact the overall picture of your benefits. The Social Security Administration currently takes several months to make claims determinations in many cases, so you may not get an answer to your claim for SSDI benefits until long after you started receiving policy disability benefits. However, if your SSDI benefits are approved, those benefits will likely be initially paid in a lump sum that covers the previous several months, which can be a substantial amount. But if your insurance company has been paying your long-term disability benefits throughout that time, it will apply the offset retroactively and require you to reimburse it for this “overpayment,” which can mean repaying your insurer the amount of your lump-sum payment. For example, suppose you have been receiving $4,000 per month in long-term disability policy benefits for one year ($48,000 total) and you receive one year’s worth of retroactive SSDI benefits of $2,000 per month ($24,000). Your insurance company will expect to be reimbursed that $24,000. It may be easy enough to issue a check to your insurance company for the amount that you received in SSDI benefits; however, it may not. Your insurer may not request reimbursement until later, during which time you may have spent some of this much-needed money; you may have been unaware that you need to reimburse the insurance company in such a scenario. Being in a situation where your insurer is requesting reimbursement for offsets can lead to distress and anxiety.

Third, it is important to be aware of the amount of the offset. An insurance company may try to offset more than it is allowed to offset under the policy. For example, if you receive SSDI benefits, they will periodically increase due to cost-of-living adjustments. But cost-of-living adjustments are not subject to offset under group disability policies. Or consider a recent case that McKennon Law Group handled that involved a Sheriff’s Deputy who became totally disabled due to injuries suffered in a devastating auto accident. Our client received long-term disability benefits according to his policy (after we successfully handled his ERISA appeal); but those benefits did not cover his household expenses, and his wife had to reduce her work time to be able to care for him and their two young children. The Deputy was fortunate enough to have many colleagues in the Sheriff’s Department willing and wanting to help him, and many did so by donating their accrued sick time to him. To facilitate these donations, our client was paid through his employer’s payroll system, and the donations appeared on his pay stubs as “Donated Sick Time.” The policy allowed the insurer to offset income from normal accrued sick time that our client was paid while receiving his disability benefits. The insurer considered all of the sick time pay donated to our client by his colleagues to be subject to offset. Because these donations amounted to just as much as the Deputy’s monthly disability benefits, the net result was that he received the minimum benefit under the policy, or $100 per month.

Obviously, none of the Deputy’s colleagues donated their sick time to him so that the insurer could benefit from those donations; the notion that an insurance company would intercept donations from individuals who are trying to give aid to their Sheriff colleague in need is enough to infuriate any reasonable person. In fact, had his colleagues known their donations would not go to him, but would rather be collected by the insurance company for its sole benefit, they would not have made the donations in that manner. The policy allowed for the insurer to offset any income that the Deputy received from the employer, including undonated “sick time.” However, the policy was silent as to whether “sick time” included donated sick time. The insurer argued that because the money was distributed via the employer’s payroll system, any money labeled “sick time” was subject to offset. McKennon Law Group filed a lawsuit to recover all of the donated sick-time pay that the insurer took as an offset. Because the insurer did not respond to the lawsuit, our client obtained a substantial default judgment in excess of $350,000, indicating a high likelihood that the insurer realized that its position was meritless.

This case serves as a reminder that offsets can significantly impact a claimant’s disability benefits. Insurance companies paying disability benefits will likely claim as many offsets as possible, including offsets to which they are not entitled. Thus, it is important to understand what offsets your insurer is taking, and whether it is entitled to take those offsets. Because you may not know whether your insurer is taking improper offsets, you should consult with an experienced California disability attorney like those at McKennon Law Group. The highly experienced lawyers helping clients with disability insurance at McKennon Law Group can help you determine whether your insurer is improperly reducing your disability benefits via offsets, and if that is happening, our firm can help you recover the benefits to which you are entitled.

The Employee Retirement Income Security Act of 1974 (“ERISA”) mandates that claimants under an ERISA plan have access to the federal courts. But courts have ruled that prior to litigation, a claimant must exhaust all administrative remedies, such as appealing insurers’ denials of claims. However, the futility doctrine provides an exception to this requirement that, while narrow, can prove valuable for some claimants.

Joni Dioquino (“Dioquino”) was eligible for short-term disability (“STD”) and long-term disability (“LTD”) benefits through United of Omaha Life Insurance Co (“Omaha”), which served as claims administrator and claims fiduciary for the plan. When she was diagnosed with conditions causing her leg pain, especially when sitting for more than a few minutes, which her job required, she made an STD claim to Omaha. Omaha denied her claim, supporting its denial with the opinions of an unknown nurse case manager and two “paper review” doctors, each of whom had clearly ignored at least some of her medical records. She appealed Omaha’s decision twice and Omaha upheld its denial both times, despite clear and extensive medical evidence supporting her claim. The reasoning provided for its decisions made it clear that Omaha simply ignored substantial medical evidence, including statements contradicting the evidence.

Dioquino sued Omaha to recover both STD and LTD benefits. Omaha filed a Motion for Summary Judgment arguing in part that Dioquino lacked standing to sue for LTD benefits because she never filed an LTD claim to Omaha. Dioquino opposed Omaha’s motion, arguing under the futility doctrine that she had legal standing to sue for LTD benefits as well as STD benefits because submitting an LTD claim with Omaha would have been futile. The Court agreed with Dioquino and denied Omaha’s Motion for Summary Judgment, finding that Dioquino’s allegations could demonstrate that for her to submit an LTD claim to Omaha would be an act of futility.

The futility doctrine provides an exception to the jurisprudential rule that claimants must exhaust all administrative remedies prior to filing legal action. It applies in cases in which an administrative review is demonstrated to be doomed to fail. Diaz v. United Agr. Emp. Welfare Ben. Plan & Tr., 50 F.3d 1478 (9th Cir. 1995). In Burnett v. Raytheon Co. Short Term Disability Basic Benefits Plan, 784 F.Supp.2d 1170 (C.D. Cal. 2011), the Court provided four factors to be considered in determining whether the futility exception applies: 1) whether the definitions for “fully disabled” for purposes of STD and LTD benefits are substantially the same; 2) whether the plans are integrated, such that they rely on and refer to each other; 3) whether the denial or termination of STD benefits essentially dooms any LTD claim; and 4) whether the plans are administered by the same entity.

The presence of the Burnett factors in Dioquino’s case was the basis on which the Court denied Omaha’s Motion for Summary Judgment, thus allowing her case to move forward. While plan terms can be widely varied and vastly different for any claimant, situations like Dioquino’s can and do occur. To go through the LTD claim process can set a claimant’s ability to recover benefits back by several months. Thus, awareness of plan terms can be of vital importance for some claimants. McKennon Law Group PC has significant experience in handling ERISA and non-ERISA insurance cases in which an insurer denied a claim. If your insurer or plan administrator has denied your claim, please contact us for a free consultation so that we may assess your matter.

Under the Employee Retirement Income Security Act of 1974 (“ERISA”), an employee who prevails in a lawsuit against his insurance company to collect ERISA-governed plan benefits – including life, health, disability or accidental death benefits – is entitled to recover his attorneys’ fees incurred in the lawsuit. The Supreme Court in Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242, 245 (2010) concluded that a plan participant is eligible to recover “reasonable attorneys’ fees” if he achieved “some degree of success on the merits” of his claim. What constitutes a reasonable fee in an ERISA case will vary greatly depending on the experience and skill of the attorney involved and the complexity of the case. The two main components of a reasonable fee are reasonable hourly rates and reasonable time expenditures.

In the matter of Earl Durham v. Aetna Life Insurance Company, Case No. 8:19-cv-01494-DOC-DFM, the McKennon Law Group PC filed a motion to recover attorneys’ fees after prevailing in the ERISA lawsuit. Aetna had wrongfully terminated our client’s long-term disability benefits based on an improper interpretation of a plan limitation asserting that the alcohol limitation in the plan limited our client’s claim to two years because he had alcohol induced liver damage. Shortly after we filed the complaint asserting that Aetna’s interpretation was wrong, Aetna reversed its denial decision, reinstated our client’s disability claim and paid him all past-due disability benefits. We then filed a motion seeking attorneys’ fees, costs and interest, which Aetna vigorously opposed. In granting the motion, the Court approved hourly rates of $750 for Managing Shareholder Robert McKennon and $525 and $375 for associates Andrea Soliz and Nicholas West, respectively.

The Court found that our client had achieved “some degree of success on the merits” because Aetna ultimately reinstated his LTD claim, issued payment for past-due benefits and continued to pay benefits. The Court concluded, “Durham litigated his claim and caused Aetna to reconsider its position and grant him his benefits, thereby obtaining full relief through settlement.” The Court also rejected several of Aetna’s arguments for a reduction of fees, including that our client should not recover fees for work done after the administrative denial but prior to filing the Complaint. Aetna’s argument was based on the well-settled principle that recovery under ERISA is limited to work done in connection with a formal action. Cann v. Carpenter’s Pension Trust Fund for Northern California, 989 F.2d 313, 316 (9th Cir. 1993). Aetna claimed that McKennon Law Group PC’s work done after the administrative denial but five months prior to filing the lawsuit was not done in connection with the formal action. The Court disagreed and determined that all of McKennon Law Group PC’s pre-filing efforts were in direct pursuance of the litigation and were, thus, recoverable. The Court also rejected Aetna’s argument that fees incurred after Aetna made a $35,000 settlement offer were not compensable, finding that there was no precedent to support this argument and that Aetna’s $35,000 offer was not reasonable. In the end, the Court awarded our client almost $90,000 in fees, costs and interest.

Because ERISA permits claimants to recover attorneys’ fees when they prevail in litigation, claimants should not be deterred from hiring experienced, well-qualified ERISA lawyers like the McKennon Law Group PC to help them recoup their wrongfully denied benefits in court. In these instances where attorneys’ fees are awarded, the insurance company pays the fees and the claimants are able to keep all of their life, health, disability or accidental death benefits. This result affords claimants fair access to federal courts and is consistent with ERISA’s underlying purpose, which is to protect the interests of participants in employee welfare benefit plans.

Life insurance lapse generally refers to coverage ending for insufficient or nonpayment of policy premiums. If premiums are not paid during the grace period to sustain the policy, then the life insurance ends. The lapse of a life insurance policy at the wrong time could have disastrous consequences for persons or families because policyholders could easily lose their life insurance if a single premium is accidentally missed, even if they have been paying premiums on time for years. On January 1, 2013, California added new sections 10113.71 and 10113.72 to the Insurance Code, as a way of providing consumer safeguards against life insurance policy lapse.

California Insurance Code Sections 10113.71 and 10113.72 primarily do three things: (1) mandate that life insurance policies issued or delivered in California have a 60-day grace period; (2) set forth notice of pending lapse and termination requirements; and (3) require insurers to provide notice to applicants and annual notice to policyholders of their right to designate someone other than themselves to receive lapse notices. The latter requirement, which applies only to individual life insurance policies, was an important addition to the California Insurance Code because it allows policyholders to designate persons who can receive lapse notices so that if the policyholder is too sick to read a premium notice and/or pay a premium, he may still be protected. While both statutes went into effect on January 1, 2013, a question remained as to whether these safeguards would apply to life insurance policies issued or delivered prior to January 1, 2013. As discussed below, the answer to this question is “no.”

In a recent decision, McHugh v. Protective Life Insurance, 40 Cal.App.5th 1166 (2019) (“McHugh”), the California Court of Appeals ruled that Insurance Code Sections 10113.71 and 10113.72 only apply to policies issued or delivered after January 1, 2013. William Patrick McHugh (“Insured”) purchased a life insurance policy (“Policy”) from Protective Life Insurance Company (“Protective Life”) on January 9, 2005, that provided for a 31-day grace period. The insured failed to make his 2013 premium payment; therefore, on February 9, 2013, the Policy lapsed per its express terms. Protective Life never received an additional premium payment or reinstatement application from the insured. The insured died in August 2013. Plaintiffs, the policy beneficiaries, sued Protective Life for breach of contract and insurance bad faith, alleging that Protective Life did not provide the insured with a 60-day grace period per code section 10113.71 and therefore, the lapse notices and subsequent termination of the policy were void. The court found that the 2013 statutes did not apply retroactively to the Policy, stating:

Sections 10113.71, subdivision (a)(1) and 10113.72, subdivision (a)(1), refer to term life insurance policies “issued or delivered,” a term that in California case law imports prospective application: “the terms ‘issued’ and ‘delivered’ must refer to the original issuance and delivery of the policy; they are fixed as to time and do not stretch into infinity.” (Ball v. California State Auto Assn. Inter-Ins. Bureau (1962) 201 Cal.App.2d 85, 87.) Therefore, as this policy was issued and delivered to McHugh in 2005, it could not incorporate the statutory amendments that became effective in 2013. Id.

Since the Policy was issued in 2005, Protective Life was not obligated to comply with California Insurance Code Sections 10113.71 and 10113.72. Thus, the express terms in the Policy dictated the duration of the grace period and any terms as to notice to the insured regarding the termination of the Policy. The court also rejected the contention that the statutes applied if the Policy was renewed after January 1, 2013.

This is an unfortunate ruling that does not protect insureds who have paid premiums for years and who may become too sick to pay a premium, thus allowing a policy lapse at the time the insured needs the life insurance the most. Policyholders need to be aware of the date their life insurance policy was first issued and/or delivered. If the policy was issued or delivered prior to January 1, 2013, a policyholder needs to carefully read the express terms of the policy to make sure they understand how their policies can lapse and they should take steps to protect themselves. When it comes to life insurance policies, a lack of knowledge can lead to big problems.

If you have questions about the lapse of a life insurance policy, McKennon Law Group PC has significant experience with most issues involving life insurance and we may be able to assist you. Please contact us for a free consultation.

Insurers Cannot Deny California ERISA Accidental Death Claims Based on a Policy’s Intoxication Exclusion That is More Broad Than the Language of the California Insurance Code

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