Disability Insurance Archives - Page 15 of 44

The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Four: Denial of an ERISA Disability Claim or Appeal

In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment and disability claim, from navigating a claim, to handling a claim denial and through preparing a case for litigation. In Part Four of this series, we discuss ERISA claim denials. Our focus in this article will be mostly on disability insurance claim denials.

When denying a claim, an insurer is required to provide a written explanation of the basis of its denial. Under Section 503 of ERISA, “every employee benefit plan shall . . . provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant.” 29 U.S.C. § 1133(1). In any subsequent litigation, the insurer is mostly limited to the basis for the denial that is asserted in a denial letter. Once a claimant has sued the insurer, the insurer or its attorneys cannot formulate new reasons why it is believed that the denial was proper. See, e.g., Lauder v. First Unum Life Ins. Co., 284 F.3d 375, 380-82 (2d Cir. 2002).

Generally, denials of disability claims fall into two broad categories: (1) lack of objective evidence in support of the disability, and (2) insufficient medical evidence to support the disability (i.e., that even though the claimant may be suffering from a diagnosable medical condition, there exists insufficient support that the medical condition is so severe so as to render the claimant unable to work). As for a lack of objective evidence of a diagnosis or disability, unless a provision of the plan states otherwise, a claimant can rely on a variety of forms of evidence, even if there is no objective evidence to support the disability. Evidence may include: current symptoms; other medical conditions that might affect or lengthen the recovery period; existing abnormalities or deficiencies; results from physical examinations; observations made by the treatment provider during office visits / therapy sessions; diagnostic tests and their results; treatment plans; any prescribed medications and the responses to those medications; level of functionality (restrictions and limitations); clinical documentation that supports the rationale that the treatment provider used when determining level of functionality; and a description of the impact that the employee’s level of functionality has on her ability to perform her job or any other job assigned by the company.

Of course, insurance companies do not want to pay most claims, and they often look for an excuse to deny ERISA claims. Most of the time, they have their own medical personnel examine the medical evidence to determine whether the evidence supports a diagnosis and whether the evidence supports significant restrictions and limitations to the claimant’s ability to perform the substantial and material duties of his occupation. However, the insurer cannot arbitrarily refuse to credit a claimant’s reliable evidence that supports his disability. See Michaels v. Equitable Life Assur. Soc., 305 F.App’x 896, 906–07 (3d Cir. 2009). A letter from a treating physician explaining that a claimant has a particular condition and cannot work because of that condition is reliable evidence that cannot properly be ignored without a reasonable basis. When filing a claim, or appealing the denial of a claim, the ERISA claimant should always obtain letters from his treating physicians explaining the nature of the condition, the basis for the diagnosis, the claimant’s symptoms and the reason why the claimant cannot return to work. Even if the insurer refuses to give the letters adequate weight, a judge in a subsequent lawsuit will likely consider the treating physicians’ opinions strongly.

ERISA claimants should carefully examine the plan to see if it requires “objective” evidence of a diagnosis or disability. If so, the plan’s documents usually state what kind of evidence is required. The plan may limit the relevant objective evidence to a specific and narrow list of symptoms and results from tests such as magnetic resonance imaging or electromyography. Each plan is different, and the plan’s documents should be examined before deciding how to attempt to meet this requirement. Insurers very often state in denial letters that there is no objective evidence of disability or diagnosis, even though the plan does not require objective evidence. The denial letter may emphasize the lack of a test or documented restriction of movement. Unless the plan requires the specific evidence that the denial letter demands, this may be an improper attempt to require that a claimant meet a heightened standard of disability that is not found in the plan. Courts often criticize insurers for this type of conduct. See Saffle v. Sierra Pacific Power Co., 85 F.3d 455, 459–60 (9th Cir. 1996). Such conduct on the part of an insurer can compel a court to rule that the insurer improperly denied a claim and that it must pay a claimant’s benefits under a policy.

Insurers also often deny disability claims because there allegedly is insufficient support for the diagnosis, the disability and/or the claimant’s inability to perform his occupation. This reason often takes the form of an assertion that the given diagnosis and restrictions do not support the conclusion that the claimant cannot perform her job duties. For example, a claimant with chronic and severe irritable bowel syndrome may receive a denial letter stating that the claimant’s reported time spent in the bathroom is exaggerated and that, even if he suffers from the diagnosed condition, the claimant only needs ready access to a bathroom and permission to use it once every two hours. The insurer will then assert that the diagnosis does not support a determination that the claimant simply cannot work. Of course, this conclusion may be contradicted by the claimant’s treating physicians, but the insurer may discount those opinions because, in its opinion, the diagnosis does not support the level of restrictions prescribed.

Insurers often combine both of these methods when denying a claim. An insurer may emphasize that a claimant can perform a sedentary occupation and will only disagree with a narrow, but critical, range of restrictions on the claimant’s behavior. An example of this form of denial is one with regard to an office worker who has horrible back problems. His job requires that he sit at a desk all day and work on a computer. His back pain renders him incapable of performing a variety of tasks, including sitting for eight hours per day. The insurer may acknowledge all of the limitations except for the restriction on the claimant’s ability to sit, stating that the back condition is not sufficiently severe so as to prevent the office worker from sitting. The insurer then concludes that given that the claimant can allegedly perform the main requirement of the office job — sitting — the pain and other limitations are irrelevant, and the claimant is not entitled to benefits under the plan.

There are a variety of ways to overcome these denials. A claimant can obtain independent evaluations of the condition in question. This independent testing may reveal more evidence of the claimed restrictions. The claimant may also undergo vocational assessments. This testing by an independent evaluator may help to provide more concrete evidence that the claimant suffers from the contested condition and restrictions. A determination affirming disability by a governmental agency, such as the Social Security Administration, may also help to overcome this form of denial. Personal statements from the claimant, family and friends are also helpful.

The McKennon Law Group PC periodically publishes articles on its Insurance Litigation and Disability Insurance News blogs that deal with frequently asked questions in insurance bad faith, life insurance, long-term disability insurance, annuities, accidental death insurance, ERISA and other areas of law. To speak with a highly skilled California/Nationwide disability insurance lawyer or ERISA lawyer at the McKennon Law Group PC, call (714)274-6322 for a free consultation or go to our website at www.mckennonlawgroup.com and complete our free consultation form today.

The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Two: Filing an ERISA Disability Claim

In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment and disability claim, from navigating a claim, to handling a claim denial and through preparing a case for litigation. In Part Two of this series, our focus in this article will be on the filing of a claim.

Often, clients contact our firm before they have filed any life, health, accidental death and dismemberment and disability claim for benefits with their insurer. In these circumstances, we can assist them on an hourly or contingency fee basis. Our firm is able to put the client in the best position possible to ensure their claim gets paid. Before collecting documents and submitting a claim to an insurer, it is important to determine first if there are any issues with the timeliness of a claim.

Most first-party insurance policies, including life insurance, disability insurance, property insurance and liability insurance policies, require that an insured policyholder provide notice of a claim within a specified period of time, typically, “as soon as practicable,” “during the Elimination Period” or a similar formulation. See e.g. Ins. Code Section 10350.7 (requirement in disability policies). With respect to liability insurance policies, notice of a claim is required in both claims-made and occurrence policies. Notice generally must be given within a “reasonable time” or within a specified period. Insurance policies often specify that timely reporting of claims is a condition precedent to coverage. While there are different rules for insurance policies that require a timely notice of a claim, a policy-holder friendly rule known as the “notice-prejudice rule” has been adopted by the California courts. The rule provides that unless an insurer can demonstrate actual, substantial prejudice from late notice of a claim, the insured’s failure to provide timely notice will not defeat coverage. See our Blog post regarding the Notice-Prejudice Rule here.

There are many steps we can take to assist our clients with filing claims for insurance/ERISA benefits, even if a claim has already been filed and before an insurer has made a decision on a claim. With respect to a short-term disability or long-term disability claim, we can assist our clients with obtaining key documents to start the claim process. We can also assist with obtaining the necessary claim forms to file a disability claim and to obtain a copy of the disability insurance policy. It is critical that we review the policy to give our client advice about the claim, including the type of claim to file (e.g., total vs. residual disability, mental vs. physical, etc.). For example, if a client wishes to assert a mental-nervous claim, we will evaluate whether such a claim will be limited to a period of years (such claims are typically limited to two years of benefits) and we will evaluate if there is a “physical” cause of the disability our client can assert that could potentially give our client far more benefits for a much longer period of time. We will also evaluate what type of evidence will be required to prove the claim. We can assist the client with obtaining medical records, physician certification letters, attending physician’s statements, personal statements/letters in support of a client’s disability from the client, his/her family and friends. We can also work with the client to obtain the necessary experts to support the type of medical claim at issue. Due to our history of handling claim denials with insurers, we can perform an analysis of ways an insurer might attempt to deny a client’s disability claim, review all claim forms and medical records before submission, and ensure that there are no inconsistencies or irregularities in any of the documents. We can also assist the client with answering questions regarding how their disability affects their activities of daily living and their work, how best to identify the client’s occupational duties, how best to identify how long they can sit/stand/walk, and other information in support of a disability.

Many clients attempt to submit claims on their own, and often fall into pitfalls set by insurance companies that are structured to help an insurer deny a claim. We can assist in navigating the maze of rules and traps insurers set. Retaining an attorney early in the claim process to handle this process will maximize the likelihood a claim with get approved, and help to ensure ongoing future benefit payments.

Later in our Blog series, we will discuss the denial of a disability insurance claim, and steps to taking regarding an appeal of an insurer’s claim denial.

A “Three-Year” Limitations Period in a Disability Policy Can Extend California’s Two-Year Statutory Limitations Period for Insurance Bad Faith

Life, health and disability insurers are always looking for ways to deny insurance claims. When they do so unreasonably, insured policyholders may be able to sue them for insurance bad faith under California law. Count on insurers to argue everything they can to defeat a bad-faith claim, including asserting the statute of limitations for bad-faith claims. Life, health and disability insurance plaintiff attorneys must remain current as to changes in the law so they can defeat these insurance company tactics. One notable question they must answer is this: Can a disability policy provision setting forth the timing of a lawsuit against the insurer “extend” California state tort law (e.g., statute of limitations to three years) from the statutory two-year limitations period? Recently, a United States District Court in San Francisco held that it could. That court denied an insurance company’s motion to dismiss, because the policy’s contractual language (that barred an action “more than three years after the time proof of claim is required”) could be one that a “reasonable layperson” interprets as meaning she had three years (rather than the statutory two-year period) to bring any action, including both contractual and tort claims, based upon an allegedly wrongful cancelation of the policy. Alberts v. Liberty Life Assurance Company of Boston, 65 F.Supp.3d 790, 795 (2014). Therefore, it is crucial to closely compare any policy language that varies from the statute of limitations, in order to successfully argue for a longer timeframe within which to bring such a California state action.

Plaintiff, Karen Alberts, was a police officer for the University of California when she suffered an injury to her right wrist during physical-training exercises in September 2009. After her injury, Alberts resumed work in a modified-duty capacity, but her condition worsened and, eventually, the UC police department could no longer accommodate her medically prescribed work restrictions. On March 19, 2010, Alberts stopped working for the police department. She was initially approved by Liberty Life Assurance Company of Boston (“Liberty”) for short-term-disability (“STD”) benefits from February 1 through July 31, 2011; she was subsequently extended coverage through February 28, 2012. Sometime between February 9 and February 22, 2012, Alberts received a letter from Liberty that stated that Liberty would be terminating her STD payments because it had determined that she did not qualify for continued benefits under the policy’s provision for long-term coverage.

Under the standard two-year statute of limitations period set forth in California Code of Civil Procedure Section 339(1) for tortious breach of the covenant of good faith and fair dealing (also known as a bad-faith claim), Liberty argued that Alberts’ claim was filed too late, by at least three days, on February 25, 2014. The District Court compared the policy language barring such an action (“more than three years after the time proof of claim is required”) to California Insurance Code Section 10350.11, which sets forth that disability policies must include the following (at a minimum): “No action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished.” That exact language in the Insurance Code has repeatedly been held to not displace the two-year statute of limitations for purposes of federal ERISA claims. Nonetheless, since this was a state claim (even though it was being tried in federal court) and did not use exactly the same language as Insurance Code Section 10350.11, the trier of fact could find that a “reasonable layperson” would assume that she had three years, rather than two, within which to file her lawsuit.

In the meantime, however, in non-ERISA state-law disability insurance claims (even in federal court), it is imperative that the contractual language in each disability policy be closely examined. Where the statutory two-year limitation period is an issue, does the policy language vary at all from California Insurance Code Section 10350.11: “No action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished”? If it does, even by a few words, the plaintiff may be able to argue that a longer, three-year limitations period applies, for both contractual and tort claims.

Cassim v. Allstate Insurance: Attorney’s Fees in Contingency-Fee “Bad Faith” Cases

Since 2004, when the California Supreme Court ruled that a “portion” of contingency attorney’s fees are recoverable in bad-faith insurance cases, plaintiffs and their lawyers have been able to recover attorney’s fees based in part on the specific terms of the contingency-fee retainer agreement. For starters, in order to recover attorney’s fees in these actions, a policyholder must prove that (1) contractual benefits were withheld in bad faith, and (2) reasonable fees were incurred by the policyholder to recover those benefits. However, any attorney’s fees incurred merely to prove the alleged “bad faith” claims are not recoverable at all; only fees incurred to prove actual coverage are recoverable. Cassim v. Allstate Insurance, 33 Cal.4th 780, 811 (2004).

In Cassim, plaintiffs Fareed and Rashida Cassim purchased a home in Palmdale in 1989 and insured the property against loss with Allstate Insurance. In December 1990, a fire (later determined to be arson) caused damage to the home. Although the fire burned only in the master bedroom and kitchen, the extensive heat, smoke and water damage to the rest of the structure rendered the entire home uninhabitable. After plaintiffs proved “bad faith” on the part of Allstate Insurance, a jury awarded plaintiffs a combined $3,594,600 in compensatory damages and $5 million in punitive damages. The plaintiffs’ attorney had a 40%-contingency-fee agreement.

The Cassim court held that a proper calculation of attorney’s fees requires the trier of fact to determine the percentage of fees attributable to securing just the contract recovery. This formula is based on the percentage of the attorney’s overall efforts devoted to the contractual recovery portion of the case and is divided into three categories: contract claim only, bad-faith claim only, and both claims. The Supreme Court remanded the case to the trial judge to make the calculation.

Using hypothetical numbers, and assuming a total compensatory award of $1 million, the 40% contingency fee would be $400,000. If the policyholder’s lawyer spent 1,500 total hours on the case and can prove the breakdown as follows: 200 hours on the contract claim only, 800 hours on the bad-faith claim only and 500 hours on both claims, then the trier of fact could, reasonably, conclude that one-half of the hours spent on the joint “contract and bad faith” issues are fairly attributable to the contract; i.e., half of 500 hours, or 250 hours, plus the 200 hours from the contract claim only, would total 30%. That 30% of the total attorney’s fee ($400,000) would be recoverable as well: $120,000 extra paid to the plaintiffs.

However, the Cassim court also cautioned judges to disregard fee agreements designed solely to manipulate the calculation of recoverable costs to the policyholder’s benefit, as have been shown to exist in some cases in the intervening years. For instance, the case of Pulte Home Corporation v. American Safety Indemnity, 14 Cal.App.5th 1086 (2017) disallowed a last-minute modification of a fee agreement from contingency to hourly, as an improper attempt to inflate the attorney’s fee (and punitive damage) award. This case involved the development of two residential housing projects that were built beginning in 2003 and sold between 2005-2006. The various subcontractors were required to name the developer as an “additional insured” on their policies, some of which were issued by American Safety. In 2013, several homeowners sued Pulte for alleged defects in the work performed by the subcontractors who were insured by American Safety. American Safety denied coverage and refused to provide a defense to Pulte because the construction had taken place 10 years prior.

Pulte sued American Safety, and prevailed on the “bad faith” claims, but American Safety then appealed the trial court’s award of attorney’s fees and punitive damages as violating the dictates set forth in the Cassim case, specifically improperly attempting to inflate the attorney’s fee (and punitive damage) award. Pulte’s lawyer in the bad-faith case originally had entered into a contingency-fee agreement with Pulte, which would have resulted in a fee award of only $371,000 under the Cassim formula, set forth above.

After the trial on bad faith, but before the punitive damage phase, Pulte “modified” the fee agreement to be based on an hourly rate instead and, thereafter, claimed an additional $274,000 in attorney’s fees actually incurred and paid, for a total of $645,000. The trial court disagreed with American Safety’s assertion that the change in the fee agreement was to manipulate the process. After making deductions for fees unrelated to pursuing amounts due under the insurance contract, the trial court awarded Pulte $471,313.52 in attorney’s fees. Based on the one-to-one ratio with attorney’s fees, the trial court also awarded $500,000 in punitive damages.

The Court of Appeal reversed, stating, “We have serious concerns that this change in Pulte’s fee agreement was apparently ‘designed to manipulate the calculation of Brandt fees’ to the plaintiff’s benefit.” Id. at 1132. The court also rejected Pulte’s argument that, because Pulte had actually incurred and paid the hourly fee, that amount must be considered as the proper amount for the attorney-fee award. The court concluded that the judge should have based the attorney-fee award on the agreement in force during the trial and, therefore, remanded the case to recalculate the proper amount of attorney’s fees (and to adjust the punitive damage award, since because it was based on the improper attorney-fee award). Id. at 1133.

The good news for plaintiffs’ attorneys is that any “bad faith” case can be prosecuted under a contingency-fee agreement, based on the Cassim case, and an award of attorney’s fees based on that fee agreement may be possible. California courts continue to define the outlying boundaries for recovering contingency attorney’s fees, but at least there is no question that “reasonable” fees (attributable to proving actual coverage) are recoverable.

In Harlow v. MetLife, Judge Bernal Brings Clarity to Disputes Involving “Reasonable” Attorneys’ Fees Adopting Standards Favorable to ERISA Claimants

The topic of attorneys’ fees has long been of interest to insurance lawyers and clients alike. Recently, the courts have grappled with issues such as: When are attorneys’ fees recoverable? What types of billing practices are reasonable? What are reasonable hourly rates? Attorneys want the assurance that the fees they charge will be deemed “reasonable,” and defendants (the insurance companies) want to know when they can raise defenses to the amount of an attorneys’ fees they may be expected to pay. In this article, we will consider a recent case that has helped bring some clarity to the issue of “reasonable” fees for legal work. Robert J. McKennon of McKennon Law Group PC acted as an expert in this case as to reasonable hourly rates. The court adopted his testimony in full.

In a recent decision by the U.S. District Court for the Central District of California, Harlow v. Metropolitan Life Insurance Company, 2019 WL 2265136, the Plaintiff successfully challenged the insurer’s decision to terminate her long-term disability payments. She then moved for attorney’s fees, with each side submitting multiple declarations and exhibits for or against specific amounts and practices. There was no question about the court’s discretionary authority to award reasonable attorneys’ fees in an ERISA case, and case law holds that a court must initially determine whether the plaintiff has “achieved some degree of success on the merits.” Simonia v. Glendale Nissan/Infinity Disability Plan, 608 F.3d 1118, 1119 (9th Cir. 2010). That success must go beyond a victory on mere procedural issues or some “trivial” matter. Beyond this test, a court must consider the five factors derived from Hummell v. S. E. Rykoff & Co., 634 F.2d 446, 452 (9th Cir. 1980). These “Hummell factors” are as follows:

(1) the degree of the opposing parties’ culpability or bad faith;

(2) the ability of the opposing parties to satisfy an award of fees;

(3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances;

(4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and

(5) the relative merits of the parties’ positions.

The Harlow court ruled that the Plaintiff was entitled to reasonable attorney’s fees, pointing out that MetLife itself made no argument denying the Plaintiff had “achieved success on the merits of her action,” nor cited any “special circumstances” that might have precluded the fee demand. Moreover, the Hummell factors only apply when the merits of the Plaintiff’s claim are still under serious consideration.

The court next addressed what makes an attorney’s fee “reasonable.” A reasonable fee is determined by means of “a hybrid lodestar/multiplier approach.” McElwaine v. US West, Inc., 176 F.3d 1167, 1173 (9th Cir. 1999) (citations omitted). A lodestar amount is determined by “multiplying the number of hours reasonably expended by each attorney’s reasonable hourly rate.” Id. This determination notwithstanding, a court would be within its rights to disallow “excessive, redundant, or otherwise unnecessary” claims. Id. When—as in Harlow—a Plaintiff seeks an award of $184,750 for attorneys’ fees, the issue of “reasonableness” deserves scrutiny. The court first cited case law in favor of looking to “the prevailing market rate for similar services ‘by lawyers of reasonable comparable skill, experience, and reputation.’” Mardirossian v. Guardian Life Ins. Co. of Am., 457 F.Supp.2d 1038 (C.D. Cal. 2006), citing Blum v. Stenson, 465 U.S. 886, 895 n.11 (1984). The Plaintiff’s counsel charged $400 per hour, a figure she reached upon making partner, while her fellow counsel billed at $700 per hour. The court found these sums reasonable due to the respective attorneys’ long experience with ERISA claims. In support of the Plaintiff’s counsel on this matter of relevant experience, Robert J. McKennon, managing shareholder of The McKennon Law Group PC, submitted evidence via testimony based on his more than thirty years in insurance law and ERISA law, especially in the areas of life, disability and health.

In opposition to MetLife’s assertion that the fees quoted run contrary to “policy considerations” and ERISA’s purpose “to provide inexpensive, expeditious resolution to disputes concerning qualifying employee benefit plans” (citations omitted), the court pointed to the Ninth Circuit’s determination that courts should not arrive at an appropriate rate “by reference to the rates actually charged the prevailing party” but instead “by reference to the fees that private attorneys of an ability and reputation comparable to that of prevailing counsel charge their paying clients for legal work of similar complexity.” Welch v. Metro. Life Ins. Co., 480 F.3d 942, 947 (9th Cir. 2007). With regard to the claim made by MetLife about ERISA’s public policy imperative, the court again cited the Ninth Circuit, which determined that among ERISA’s goals were “protect[ing] employee rights” and “secur[ing] access to federal courts.” Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir. 1984). The court found that allowing “reasonable” attorneys’ fees would in fact help clients gain such access. If attorneys cannot charge the prevailing rate, they might be unwilling to take on ERISA clients, which would effectively deprive such clients of access to the courts.

MetLife also made a number of unavailing arguments against the sums charged by the Plaintiff’s counsel. MetLife argued that the hours billed were excessive, duplicative, overly reliant on prefabricated “boilerplate” language, prone to non-itemized block-billing, and inclusive of inappropriate administrative or merely clerical labor. The court’s responses to these concerns testified to the complexity and dynamic quality of the labor involved in lawyering, and affirmed the awarding of reasonable attorneys’ fees to be in line with ERISA’s overarching purpose: providing plaintiffs with access to the federal court system in their attempts to recover benefits to which they believe they are entitled. With respect to supposedly “duplicative” hours billed, the court cited case law: “a lot of legal work product will grow stale; a competent lawyer won’t rely on last year’s, or even last month’s, research.” Moreno v. City of Sacramento, 534 F.3d 1106, 1112 (9th Cir. 2008). Essentially, the court inferred that since the law itself changes, so must an attorney’s research undergo diligent updating. As for the tendency of several lawyers to work on the same set of tasks, while the court acknowledged it as a genuine concern, it found that where there is appropriate division of labor among the attorneys—in their example from the present case, one attorney drafts a document while others review it carefully—there is little need to worry about the reasonableness of work thus accomplished. The court deducted only $2,100 from the total of the Plaintiff’s counsel’s fees, stemming from a charge of 7.8 hours for half a day’s mediation work. With regard to the issue of “boilerplate” language in legal pleadings and other documents, the court accepted the view of the Plaintiff’s counsel that not using such language would only have occupied more of their time: “the time spent preparing this Motion would have been substantially greater had they not efficiently re-used past efforts.” Finally, the court did not find that the Plaintiff’s counsel’s block-billing reached the point where a reviewer could not tell “how much time was spent on particular activities,” and neither did it accept MetLife’s argument that preparing subpoenas using partially recycled language, or preparing exhibits, was too “clerical” to call for an attorney’s full hourly fee.

In summary, the court’s decision prevents defendant insurers from too easily challenging the fees claimed by counsel in their efforts to help ERISA clients recover duly owed long-term disability benefits.

Tenth Circuit Finds that Policy Terms in an ERISA Plan Did Not Unequivocally Grant an ERISA Administrator Discretion to Interpret Plan Terms, Applies De Novo Review

Insurance companies acting as ERISA plan administrators often are guilty of abusing their discretion to interpret policy language related to the level of benefits payable to a claimant under a long-term disability (“LTD”) policy in a manner most beneficial to them, rather than the claimant. In a recent decision by the Tenth Circuit Court of Appeals, Hodges v. Life Insurance Company of North America, 920 F.3d 669 (10th Cir. 2019), the court addressed the ability of insurance companies such as Life Insurance Company of North America (“LINA”) from interpreting policy language that may determine the level of benefits payable to a claimant.

In Hodges, the Tenth Circuit Court of Appeals affirmed the ruling of the district court that LINA failed to meet its burden to show it was entitled to deference in deciding who qualified as “Sales Personnel” and who did not under a group LTD policy issued to Endo Pharmaceuticals, Inc. The policy language did not give the Plan Administrator the authority to interpret the meaning of Sales Personnel yet LINA did so, depriving the claimant of thousands of dollars in benefits.

Lou Hodges was a cryotherapy technician for Endo Pharmaceuticals, Inc. (“Endo”) until he was forced to retire due to a degenerative eye condition in 2012. Hodges was insured under Endo’s group LTD insurance policy which was part of its ERISA Plan, administered by LINA. The Policy divided Endo’s employees into two classes: Class I employees included “all active, Full-time and part-time Employees of the Employer, excluding Sales Personnel, regularly working a minimum of 20 hours per week.” Class 2 employees included “all active, Full-time Employees of the Employer classified as Sales Personnel regularly working a minimum of 20 hours per week.”

The policy entitled all Class 1 and Class 2 employees to monthly LTD benefits of 60% of their average pre-disability earnings, but defined the earnings of Class 2 Sales Personnel far more broadly than non-Sales Personnel. The definition of earnings for all Class 2 Sales Personnel included payments “received from bonuses or target incentive compensation bonus[es].”

In evaluating Hodges’s claim for LTD benefits, although concluding he was medically eligible, LINA sought information on his job description and duties from both Hodges and his employer, Endo, to determine whether he qualified as Class 2 “Sales Personnel” for determining the level of benefits to which he was entitled. LINA informed Hodges his claim for benefits was approved but that they deemed him a Class 1 employee. This meant a much lower amount of benefits would be paid to Hodges because he would not be able to include his bonus and/or incentive compensation in LINA’s calculation of 60% of his pre-disability income.

Hodges challenged LINA’s determination, appealing twice. After the denial of his second appeal, Hodges filed suit in the United States District Court for the District of Colorado. In February 2017, the district court concluded the policy failed to reserve LINA discretion to decide employee-classification questions and remanded the case for LINA to conduct further fact finding on Hodges’s employment classification. On remand, LINA again determined that Hodges was a Class 1 employee, relying upon a statement from Endo’s Senior Vice President and Associate General Counsel.

After Hodges asked the district court to reopen the case, in June 2018 it ruled that LINA had once again failed to adequately investigate Hodges’s employment classification. Concluding that a second remand would be futile, the district court determined that Hodges was a salesperson under the ordinary meaning of that term, reversed LINA’s contrary decision, and awarded Hodges Class 2 benefits.

Upon appeal by LINA, the Tenth Circuit agreed with the district court that Hodges indeed qualified as a Class 2 Sales Personnel employee due to his responsibilities to sell and promote Endo’s commercial products and services at every available juncture; to sell doctors on performing more cryotherapy procedures; to assist in the growth and development of existing and new business lines, to market the technology and submit a minimum of one lead a month for new cryotherapy users, new applications for existing cryotherapy users, or any other lead for any of Endo’s business.

The Tenth Circuit based its decision on a lack of discretionary authority granted to LINA in construing the terms of the plan. The Tenth Circuit noted that it reviews de novo a plan administrator’s denial of benefits “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Hodges, 920 F.3d at 675 citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). However, the court considered whether the plan granted discretion to determine whether or not benefits were payable in accordance with the terms of the policy. The court acknowledged that plans which contain clear and unambiguous discretion-conveying language afford the court the ability to grant discretion over all decisions that arise in the claims process. Here, however, the court found that nothing in the policy granted LINA the discretion to conclude who qualified as a salesperson under the plan, and noted that thirty years have passed since the Supreme Court’s holding in Firestone. Thus, plan drafters have had ample time to include language giving discretion if they so desired.

Turning to the issue of whether Hodges qualified as a salesperson, the record reflected that Hodges received a significant portion of his income from bonuses when he did sell products and services and those earnings were designated as bonuses on his pay stubs. Hodges received $3,000 for every $100,000 of pathology work that a doctor performed using Endo’s equipment and services and a monthly bonus for every case he worked on. The Tenth Circuit found that these substantial sales responsibilities and sales driven compensation would cause a reasonable person such as Hodges to believe he was a salesperson and devote his efforts to sales to increase his compensation. In addition, although he derived a majority of his compensation from performing cryotherapy services, he could not continue cryotherapy services without selling the company’s products.

The Court of Appeal’s ruling resulted in a higher level of LTD benefits payable to Hodges than he would have received had the Court determined the plan administrator had discretionary authority to interpret policy definitions regarding employee job classifications. This set an important precedent that without the clear and unambiguous authority to do so, a plan administrator does not have the discretionary authority to interpret policy language related to an employee’s job classification that would negatively affect his or her level of benefits payable under an ERISA Plan.

Hodges’s case against LINA reveals that skilled and aggressive legal representation is often necessary if you have any concerns regarding an ERISA plan administrator’s interpretation of a long-term disability policy under which you are insured and the level of disability benefits payable to you. Insurers are notorious for interpreting policy language in their favor in order to protect their own financial interests, to the detriment of ERISA claimants and in conscious disregard of their rights.

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