Disability Insurance Archives - Page 19 of 44

Opportunistic Rescission: When Do Insurers Waive their Right to Rescind an Insurance Policy?

All too often, we see insurance companies deny insurance claims by attempting to opportunistically rescind insurance policies. This practice has become more prevalent in recent years as insurers look for ways to deny insurance claims.

Anyone who has purchased a disability, life or health insurance policy is likely familiar with the significant paperwork involved in the insurance application process. The paperwork includes policy notices, policy applications, supplemental policy applications, personal history questionnaires, policy warnings, medical examination documents, etc. These will include numerous and detailed questions relevant (and often not so relevant) to the risk being insured. An insurance agent or broker will ask questions on the policy application and often additional questions not on the application. Only after the applicant has answered countless questions, will the insurance company decide whether to issue the policy. Many applicants do not appreciate why insurance companies go to such great lengths before issuing a policy. The answer: they want to evaluate the risk that the applicant poses to them. If there exists too much risk of a payout under the policy, they will not underwrite that risk by issuing a policy. Throughout the application process, like the claims process, insurers often have a duty to investigate the information contained on the application. The failure to engage in such an investigation may result in the insurer being precluded under the law from later rescinding a policy that it decided to issue.

When insureds file claims under their policies, insurers often first look to determine if they can rescind the policy, asserting that the policy should be considered null and void as if it was never issued in the first place. As we explained in a previous blog article, rescission legally renders the contract as if it never existed and releases both parties from their obligations under the contract. An insurance company is often allowed to rescind a contract when there is a material misrepresentation on the insurance application. Many times, the omission was an honest mistake or it was excused by the broker or agent as immaterial. Regardless of the purposefulness of the omission, the insurance company may still have the right to rescind the contract.

There are exceptions however. One involves the insurer’s duty to investigate the information on the application at the time the application is submitted and its duty to investigate the possible basis for rescission when handling the claim. If there is an implication that the application was not completely accurate, and the insurer fails to investigate, then the insurer may have waived the right to rescind the policy. For example, the applicant fails to state that she had seen a doctor in the last five years, yet the application reveals she is on several prescription medications. Or, the evidence may arise from an outside source. For example, the insured may submit a claim for a treatment which strongly implies that the applicant had a non-disclosed pre-existing condition at the time the application was submitted. Insurance companies have a duty to explore such information or they may lose the right to rescind the policy. As one court stated, an insurance company “may not blindly ignore evidence of misrepresentation, collect premiums, and then opportunistically rescind once a claim is filed.” Star Insurance Co. v. Sunwest Metals, Inc., 691 F.App’x 358, 360 (9th Cir. 2017). The issue is not just whether the insurer had actual knowledge of the material misrepresentation, but also whether the insurer could have or would have obtained the information if it had exercised reasonable diligence in investigating the claim.

In DuBeck v. California Physicians’ Service, 234 Cal.App.4th 1254 (2015), the California Court of Appeal addressed an insurance company’s failure to diligently investigate an application. Bonnie DuBeck submitted an application for health insurance to California Physicians’ Service, doing business as Blue Shield of California. In her application, she failed to disclose that she had recently visited a doctor to have a lump in her breast examined. DuBeck’s application was approved. Five days after Blue Shield issued the policy, DuBeck underwent breast cancer surgery. She submitted bills for her treatments to Blue Cross. Blue Cross became suspicious that, given the timing of the billings, the condition had arisen before DuBeck’s enrollment. “Yet by its own admission Blue Shield neither commenced an investigation nor obtained records confirming the date of appellant’s first breast cancer-related procedure for another year.” Id. at 1268. By the time Blue Cross had started its investigation, DuBeck had been diagnosed with leukemia. During that time, DuBeck submitted various bills to Blue Cross, some of which Blue Cross refused to pay. Ultimately, Blue Cross cancelled the policy. Of note is that Blue Cross did not rescind the policy – it only cancelled the policy. Two years after Blue Cross canceled the policy, DuBeck sued Blue Cross to force payment of the unpaid medical bills.

In the trial court, Blue Cross moved for summary judgment. It argued that it had the right to rescind the insurance contract because DuBeck had lied on the application. The trial court granted Blue Cross’s motion. DuBeck appealed.

The court of appeals reversed the trial court on several different grounds. One of those grounds was that Blue Cross failed to properly and promptly investigate the information in the application once it received information putting it on notice that DuBeck had omitted information from her application, thus waiving its right to rescind the policy. As the court of appeals explained:

By ignoring information that would have resolved the truthfulness of the representations in appellant’s application at an early stage and determining at that time whether to continue as her insurer, Blue Shield allowed appellant to incur substantial medical expenses and dissuaded her from investigating the availability of government assistance. Blue Shield’s lack of diligence in the early months of the policy and the apparent prejudice to appellant provide a second and independent basis for rejecting its claimed right to rescind. Id.

Insurance companies have an affirmative duty to investigate the applications submitted to them. If they have failed to do so, then they may lose the right to rescind a contract that was less than complete. Insurers will still often attempt to rescind a policy, sometimes years after they had evidence that something was amiss. Determining whether an insurance company can properly rescind a policy is a difficult task for most insureds. McKennon Law Group PC has extensive experience determining whether an insurer can deny your life, health or disability insurance claim by rescinding your policy. Some of the issues we examine: was there actually a misrepresentation? Was the misrepresentation innocent or intentional? Was it material and how can the insurer prove it was material? What did the agent/broker know or say in the application process? Was there some information in the claim file that should have led the insurer to suspect a material misrepresentation? We expertly determine and often are able to successfully challenge an insurer’s attempted rescission. If you have a denied life, health or disability insurance claim that is the subject of an attempted rescission, call us for a free consultation.

A District Court Rejects Insurer’s Denial of a Long-Term Disability Claim Based Only on a Paper Review of Medical Records and Blind Adherence to the Dictionary of Occupational Titles

A “battle of the experts” is common in legal disputes. But what happens when your doctor determines you are disabled and unable to work, while the insurer’s doctor determines you are not disabled based on a review of your medical file, leading to a denial of your claim for long-term disability (“LTD”) benefits? Under the Employee Retirement Income Security Act of 1974 (“ERISA”), you may have a case for improper denial.

In a recent LTD insurance case governed by ERISA, Popovich v. Metropolitan Life Insurance Company, 281 F.Supp.3d 993 (C.D. Cal. 2017), Judge Andre Birotte explained the limitation of a paper review of a claimant’s medical record, as well as the limitation of relying solely on the definitions of occupations in the Dictionary of Occupational Titles (DOT). Below, we discuss Popovich; why the court found the insurer’s doctor’s opinion, which was based only a paper review, to be unpersuasive; and why it is important for an insurer to determine what a claimant actually does before it bases a claim denial on the material duties of a claimant’s occupation.

In Popovich, Plaintiff Kenneth Popovich (“Popovich”) filed a lawsuit against Metropolitan Life Insurance Company (“MetLife”) and Data Analysis, Inc. Employee Benefit Plan alleging that his claim for long-term disability benefits was improperly denied.

Popovich worked as an assistant news editor for Investor’s Business Daily for ten years. Popovich was responsible for writing and editing online news content for an organization that strived to publish stories and analysis within minutes of breaking news, creating significant deadline pressure. During his tenure working for Investor’s Business Daily, Popovich suffered a heart attack. He went on medical leave for 16 months to have bypass surgery and recover. He returned to work but continued to suffer from poor health.

Popovich went on another medical leave 11 months after returning to work. His second medical leave was less than two months before he returned to work on a part-time basis. Popovich returned to full-time work two weeks later, but after only two more months he was unable to complete his regular shift due to his poor health. That turned out to be his last day of work.

A couple of days later, Popovich saw his attending physician, Dr. Kedan, who indicated that Popovich suffered from a great deal of stress and panic attacks. Dr. Kedan diagnosed Popovich with cardiomyopathy, and advised Popovich to stop working. Dr. Kedan advised Popovich that he could eventually return to work, but his return to work date was unknown. Popovich filed a claim for LTD benefits based on Dr. Kedan’s diagnosis and physician statement.

MetLife’s medical director and nurse consultant reviewed Popovich’s medical records, noted improvement in specific tests conducted on Popovich and opined that Popovich should be capable of sedentary work. MetLife’s claim specialist recommended denial of Popovich’s claim based on insufficient evidence to support disability. A few days later MetLife completed a vocational analysis using only the description of the news editor occupation in the DOT, and denied Popovich’s LTD claim.

Popovich continued to be in poor health following the claim denial. Dr. Kedan recommended further treatment, stating that Popovich’s heart damage made him unfit for physical labor, and that he was not a good candidate for other sedentary jobs either because he suffered from chest pains while seated and exerting himself. Dr. Kedan concluded that Popovich was unable to resume any type of gainful employment.

Popovich appealed MetLife’s denial. MetLife then referred Popovich’s appeal to Dr. Sassower, an independent physician consultant who is board certified in cardiology. Dr. Sassower spoke with Dr. Kedan and reviewed Popovich’s medical records, but did not examine him. In his “paper review” report, Dr. Sassower concluded that Popovich’s test results should not have prohibited his return to work. MetLife accordingly upheld its prior denial of Popovich’s claim for long-term disability benefits.

In this case, the dispute came down to whether Popovich’s heart condition was sufficiently severe to prevent him from working in his usual occupation. The court ruled in favor of Popovich, ordered MetLife to pay his long-term disability benefits owed under the plan for the initial two years, together with prejudgment interest, and ordered MetLife to determine if Popovich met the plan’s criteria to continue receiving benefits beyond the initial benefit period.

The court ruled in Popovich’s favor for two main reasons. First, the court concluded that Dr. Sassower’s opinion was not persuasive because he only conducted a “paper review” of Popovich’s medical records and his report had several critical issues.

While Dr. Sassower is not required to examine Popovich in person, his report, based on a pure paper review, presented several critical issues. For example, Dr. Sassower misstated the diagnosis of Popovich’s heart disease in his medical records, and failed to cite any evidence to support a different, or new, diagnosis. Furthermore, Dr. Sassower selectively interpreted medical reports in Popovich’s file. He relied on certain reports to question the accuracy of some tests, but ignored the same reports when arguing that other tests were not sufficient to demonstrate disability. Additionally, Dr. Sassower was the only doctor in Popovich’s medical records to criticize Popovich’s medication regimen. It was not clear from the record that Popovich’s medication regime was lacking, as Dr. Sassower so claimed.

Finally, Dr. Sassower failed to explain why some of his conclusions differ from other doctors in the medical records. He did not provide evidence or reasoning to support his different conclusions. Taken all together, the court found Dr. Sassower’s opinion unpersuasive. The court found that Popovich’s medical records, including reports from Dr. Kedan and other specialists, demonstrated Popovich suffers from a significant heart condition, and that Popovich is unable to work at a physically and mentally stressful occupation.

Second, the court determined that MetLife did not perform a reasoned and deliberative vocational analysis because it only relied on the DOT’s description of a news editor. To determine if a claimant is able to work in their usual occupation, an insurer must conduct a reasoned and deliberative vocational analysis about the material duties of the claimant’s job. MetLife’s vocational analysis consisted solely of a verbatim reproduction of the DOT’s description of a news editor. The court noted that reference to the DOT is generally reasonable, but explained that the DOT’s description is outdated as it relates to this case. The DOT’s entry for news editor refers only to duties relevant to print media, and Popovich worked in a deadline-driven environment trying to publish stories and analysis online within minutes of breaking news. The DOT description of news editor and the reality of Popovich’s job as a news editor are fundamentally different. The court therefore found that MetLife erred by relying solely on the DOT and failing to consider what Popovich actually did before determining the material duties of Popovich’s occupation. Furthermore, MetLife’s blind reliance on the DOT limited its analysis to physical requirements of the job and failed to consider mental requirements. The court used Popovich’s, and his employer’s, description of news editor over the DOT’s description to define Popovich’s usual occupation.

After reviewing the entire Administrative Record, the court found Popovich submitted sufficient evidence to demonstrate he is disabled from working in stressful occupations. The court further found that Popovich’s usual occupation as an assistant news editor is stressful. The court thus concluded that Popovich was totally disabled from his usual occupation, and entitled to LTD benefits.

As detailed above, a pure paper review of a claimant’s medical records by the insurer’s doctor may not be enough to undermine a treating physician’s medical opinion. And an insurer reliance solely on the definition of a job from the DOT to determine material duties of a claimant’s usual occupation may not be a sufficient vocational analysis.

With this in mind, if your claim for long-term disability benefits is denied and the insurer did not conduct a medical exam, you may have a case of improper denial. Likewise, if an insurer makes a determination about the material duties of your usual occupation without someone talking to you or your employer, you may have a case of improper denial.

Part-Time Work: Is this Sufficient to Preclude a Claim for Long-Term Disability Benefits Under the “Any Occupation” Standard of Total Disability?

Long-term disability insurance policies are an important safety net for employees. In the event of an accident, long-term disability helps to bridge the gap in income when an employee is no longer able to work. But to what extent does it mean for an employee to be no longer able to work? While insureds may be unable to continue fully working in their usual occupation, insurers often argue an insured can perform some other sedentary occupation to account for claimed disability, allowing them to deny the benefit claim.

In the 2003 Northern District of California case, Bruce v. New York Life Ins. Co., 2003 WL 21005313 (N.D. Cal. 2003), the court addressed this very issue. In Bruce, the plan participant Mary Bruce brought suit challenging defendant Aetna Life Insurance Company’s decision to deny her claim for disability benefits in a group insurance policy subject to the Employee Retirement Income Security Act (“ERISA”). ERISA, a 1974 federal law, sets minimum standards for many long-term disability plans and serves to provide protection for individuals in these plans.

The court in Bruce considered a disability policy in which a plan participant is initially eligible for benefits if she cannot perform her “usual occupation” and thereafter only if she cannot perform “another occupation in which he could reasonably be expected to perform satisfactorily in light of his age, education, training, experience, station in life, physical and mental capacity.” Relying upon the Webster’s Dictionary definition of “occupation,” the district court in Bruce held the plain meaning of “another occupation” was performing full-time work in another occupation. The court stated:

Moreover, where, as here, the plan participant’s occupation, prior to injury, was in fact full-time, the phrase “usual occupation” would be understood to mean “usual full-time occupation.” Given the juxtaposition of the terms “usual occupation” and “another occupation,” the latter term ordinarily would be understood to mean “another full-time occupation.”

Interpreting the term “another occupation” to refer to a full-time position is also consistent with New York Life’s practices. In its Physical Capacities form, on which New York Life requests that physicians provide information to assist “in determining the work potential” of a plan participant, New York Life seeks information with respect to the participant’s ability to perform tasks “in an 8–hour workday.” (See, e.g., AR at 56.) Finally, even if the term “another occupation” were ambiguous as to whether it refers to full-time or part-time employment, the term must be interpreted to refer to full-time work because ambiguous terms in policies subject to ERISA are “construed against the insurance company.” See Lang v. Long–Term Disability Plan, 125 F.3d 794, 799 (9th Cir.1997) (holding, in ERISA action where denial of benefits was subject to de novo review, ambiguous language in policy was properly construed in favor of insured). Consequently, the Court finds the term “another occupation,” as used in the policy at issue, is properly construed to encompass only full-time employment.

Accordingly, the court held that the opinion that Bruce could perform limited part-time work out of her home did not support a finding that she could perform “another occupation” within the meaning of the subject policy.

More recently, the Ninth Circuit Court of Appeals further examined the meaning of disability under ERISA as it relates to sedentary work. In Armani v. Northwestern Mutual Life Ins. Co., 840 F.3d 1159 (9th Cir. 2016), the court addressed the definition of sedentary work and the required time one must be physically able to sit to perform such work. Reversing the district court’s order, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work.

The participant Avery Armani was insured under a group long-term disability policy issued by Northwestern Mutual that provided a more-inclusive meaning of disability in the first 24 months of benefits. Under the policy, after 24 months of disability benefits, the claimant must then be “Disabled from all occupations” to be eligible for benefits. Upon injuring his back, Armani was not able to sit continuously without the ability to change position. Armani’s disability claim was initially approved and then denied after further review nearly two years after his initial claim, in July of 2013. After further medical record indicated Armani could sit for four hours a day, Northwestern Mutual closed Armani’s claim asserting he was not precluded from sedentary work.

Armani filed suit under ERISA seeking judicial review of Northwestern Mutual’s claim decision. Following a bench trial, the district court ultimately held that Armani failed to show he was disabled from “all occupations” with the reasoning that Armani failed to demonstrate his disability prevented him from performing some sedentary occupations.

After timely appeal, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work that requires “sitting most of the time.” The court explained that the district court’s rejection of Armani’s definition of “sedentary” was based upon an erroneous application of Social Security law and ERISA law. The court based its ruling on several decisions evaluating ERISA claims that found “sedentary work” generally requires a sitting tolerance of at least 6 hours of an eight-hour work day. This four-hour standard is applicable in assessing the extent to which an employee can claim disability benefits after an injury in occupations where sitting for long periods of time is an essential component of the job.

While factually dissimilar, the court’s ruling in Armani is consistent with the 2003 Bruce district court opinion. Under the Armani four-hour bright line rule, Mary Bruce would have been unable to perform sedentary work, since Bruce’s administrative record indicated she was only able to sit for roughly four hours per day. Conversely, Avery Armani would have been limited to part-time work, as he also was only physically able to sit for four hours.

Even though the district court and the Ninth Circuit reached the same destinations, the courts took different paths of analysis. On the one hand, Bruce considered the plain meaning of “occupation” and the Webster’s Dictionary definition of occupation meaning a full-time job. Thus, part-time work was not a sufficient replacement for “another occupation” in the “any occupation” analysis. On the other hand, Armani considered the analysis from other courts which consistently found that the standard of work from the Department of Labor and Dictionary of Occupational Titles defined sedentary work as requiring the ability to sit for at least six hours.

These tests may seem arbitrary, but they help to provide guidance and protection for a disabled worker with coverage from a disability plan. As disability claimants are often only able to perform sedentary work after injury, insurers now cannot argue that part-time, sedentary work is a sufficient to deny a disability insurance claim under the “any occupation” standard.

Los Angeles Daily Journal Publishes Article on May 24, 2018 by Robert McKennon Entitled “Preexisting Condition Doesn’t Preclude Coverage”

In the May 24, 2018 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group’s Robert J. McKennon. The article addresses a recent case by the Ninth Circuit Court of Appeals, which held that if an insured with a preexisting medical condition suffers from an accidental injury, the insured is not precluded from recovery under an accidental death and dismemberment policy if the preexisting condition did not substantially contribute to the injury. Insurers often attempt to use preexisting conditions as an excuse to deny payment under AD&D policies. This recent Ninth Circuit opinion helps insureds by making it clear that a preexisting condition’s slight contribution to an injury is insufficient to bar compensation.

This article is posted with the permission of the Los Angeles Daily Journal.

Preexisting Condition Doesn’t Preclude Coverage

The 9^th Circuit ruled that if an insured with a preexisting medical condition gets in an accident, but the condition does not substantially contribute to the injury, the insured can recover.

By Robert J. McKennon

Insurance policies providing accidental death and dismemberment benefits are fairly common. Many employers provide this important insurance for their employees. These policies are often governed by the Employee Retirement Income Security Act of 1974. A large percentage of AD&D policies exclude coverage for accidental injuries “caused or contributed by” a preexisting medical condition. If a preexisting condition led to the injury, even in a small way, most insurers will deny an AD&D claim. Many people have preexisting conditions that they have managed for years that could be relevant to AD&D coverage. Conditions such as diabetes, for example, can prevent wounds caused by an accident from healing properly, potentially leading to dismemberment.

If an insured with a preexisting medical condition gets in an accident, but the condition does not substantially cause or contribute to the dismembering injury, does the preexisting condition bar an AD&D claim? The 9th Circuit Court of Appeals in a recently published case, Dowdy v. Metro. Life Ins. Co., 2018 DJDAR 4576 (9th Cir. May 16, 2018), answered this question in the negative and explained that such insureds are not necessarily barred from obtaining payment under an AD&D policy. Tommy Dowdy suffered from diabetes. Unfortunately, Dowdy was in a car accident in which his car rolled off California State Route 4. He suffered extensive injuries, including a “semi-amputated left ankle.” Dowdy was hospitalized and discharged after a month-long stay. However, his ankle failed to improve in part because of his diabetes and because he suffered from a persistent leg infection. Five months after the accident, Dowdy’s left leg was amputated below the knee.

Dowdy and his wife were covered by an AD&D policy provided by Metropolitan Life Insurance Company. The policy was governed by ERISA. The policy stated in the Coverage Provision that:

If You or a Dependent sustain an accidental injury that is the Direct and Sole Cause of a Covered Loss described in the SCHEDULE OF BENEFITS, Proof of the accidental injury and Covered Loss must be sent to Us. When We receive such Proof We will review the claim and, if We approve it, will pay the insurance in effect on the date of the injury.

Direct and Sole Cause means that the Covered Loss occurs within 12 months of the date of the accidental injury and was a direct result of the accidental injury, independent of other causes[.]

The policy also included an exclusion which stated that MetLife would not pay “for any loss caused or contributed to by . . . physical . . . illness or infirmity, or the diagnosis or treatment of such illness or infirmity[.]”

Dowdy filed a claim under his AD&D policy with MetLife. MetLife denied the claim on the basis that Dowdy’s diabetes contributed to the medical problems that resulted in the amputation. Dowdy then filed an administrative appeal with MetLife challenging the claim denial. MetLife upheld its denial determination, concluding that the accident was not the “direct and sole cause” of the amputation “independent of other causes” as set forth in the Coverage Provision, and that the policy’s Illness or Infirmity Exclusion applied because Dowdy’s diabetes contributed to the loss.

Dowdy then sued MetLife. Both parties filed cross-motions for judgment under Federal Rule of Civil Procedure 52. The district court found that diabetes caused or contributed to the need for amputation, affirmed the denial of benefits and entered judgment in favor of MetLife. Dowdy appealed to the 9th Circuit.

The court reversed the district court, first reviewing its holding in McClure v. Life Ins. Co. of N. Am., 84 F.3d 1129 (9th Cir. 1996). There, the court determined that where the applicable plan language is inconspicuous, the “policyholder reasonably would expect coverage if the accident were the predominant or proximate cause of the disability.” If, however, the applicable language is conspicuous, recovery could be barred if a preexisting condition substantially contributed to the loss, “even though the claimed injury was the predominant or proximate cause of the disability.”

It was undisputed that Dowdy’s diabetes condition contributed to the complications with his wounds and thus to his leg amputation. MetLife therefore argued that the accident was not the “direct and sole cause of the loss,” which was not a covered loss. The court rejected this contention, explaining that “[i]n order to be considered a substantial contributing factor for the purpose of a provision restricting coverage to direct and sole causes of injury, a pre-existing condition must be more than merely a contributing factor.” (Emphasis original).

The court looked to a variety of sources to determine what should be deemed to be “a substantial cause.” For example, one respected source explained that the word “substantial” denotes that the conduct had an effect strong enough that it would lead “reasonable [people] to regard it as a cause” in the more concrete sense and not just in some “philosophic sense.” Ultimately, the court held that there must be evidence showing that the preexisting ailment contributed a “significant magnitude of causation.” The preexisting condition cannot “merely [be] related to the injury[.]”

The 9th Circuit ruled that there was no evidence in the administrative record that Dowdy’s diabetes substantially caused or contributed to the amputation of his leg. Thus, under the policy’s Coverage Provision, Dowdy was eligible to collect policy benefits.

The court also rejected MetLife’s position that the exclusion applied since Dowdy’s diabetes condition was a “cause” of or “contributed to” the amputation, noting that exclusions are narrowly construed and that the “substantial contribution” standard applied in interpreting the exclusion. Because there was no evidence that Dowdy’s diabetes condition substantially caused the amputation, the court reversed the district court, finding that Dowdy was entitled to payment under the policy.

Insurers often attempt to use preexisting conditions to deny payment under AD&D policies. Given how common chronic conditions are in modern life, it is not surprising that insurers often have numerous arguments as to why they should not be forced to pay under these policies. However, the 9th Circuit’s decision gives effect to “the policy of [ERISA] to protect . . . the interests of participants in employee benefit plans and their beneficiaries” and to “increase the likelihood that participants and beneficiaries . . . receive their full benefits.” 29 U.S.C. Sections 1001(b), 1001b(c)(3). Insureds reasonably expect that simply having a preexisting condition that is somewhat related to the injury is not sufficient to deny an accident claim under an AD&D policy. Whether it is diabetes or countless other conditions, persons with a preexisting condition may still have the right to collect under an AD&D policy as long as the preexisting condition is not a substantial cause of the injury. Plan participants are well served under Dowdy now that insurers like MetLife cannot argue that inconsequential preexisting conditions bar coverage for policy benefits that they desperately need.

Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith, ERISA and unfair business practices litigation. He can be reached at (949) 387-9595 or rm@mckennonlawgroup.com. His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.

Los Angeles Daily Journal Publishes Small Firm Profile on the McKennon Law Group PC Entitled “Shifting Allegiance: No Longer Insurers’ Advocates, McKennon Law Group Attorneys Stand Up for Policyholders”

In the May 7, 2018 issue of the Los Angeles Daily Journal, Daily Journal Staff Writer Melanie Brisbon authored a “small firm profile” article on the McKennon Law Group PC. The article covers the firm’s path to success, starting with its unconventional background: several of the firm’s attorneys left established careers defending insurance companies before “shifting allegiance” to represent insureds, policyholders and claimants. The firm started with three lawyers, including founding partner Robert J. McKennon and senior associate Scott E. Calvert. Now, the firm consists of five attorneys and has a thriving practice in insurance litigation representing policyholders, especially involving life, health and disability insurance cases governed by insurance bad faith or ERISA. The text portion of the profile is reprinted in full below.

This article is posted with the permission of the Los Angeles Daily Journal.

Shifting Allegiance

No longer insurers’ advocates, McKennon Law Group attorneys stand up for policyholders.

By Melanie Brisbon

Daily Journal Staff Writer

Insurance policyholders throughout the country call McKennon Law Group PC for counsel in complex conflicts with their insurers.

The five-attorney outfit in Newport Beach has secured many favorable results for its clients through settlements, trials and alternative dispute resolution.

“Our specialty is bad faith insurance litigation and [Employee Retirement Income Security Act] litigation involving insurance and pension issues, focused mostly on disability insurance, health insurance and life insurance claims,” said Robert J. McKennon, the firm’s founding and name partner.

Complex legal issues with insurers don’t intimidate McKennon Law Group. In fact, three of the firm’s lawyers, including its founding partner, used to advocate for the insurers. McKennon defended insurance companies for nearly 25 years as an attorney and partner at Barger & Wolen LLP. He changed sides in 2010 and created McKennon Law Group two years later.

“My heart was always sort of with claimants and policyholders because I saw a lot of claimants and policyholders when I was on the defense side getting poor representation by plaintiffs lawyers,” McKennon said.

“Secondly, I was hired by a few insurance companies in difficult bad faith cases while I was on the defense side and they asked me to get involved in mock trials as a plaintiff’s attorney in bad faith disability insurance cases,” he added. “In every mock trial that I did, I ended up winning substantial damages and it whet my appetite to start to work on the plaintiff’s side doing policyholder litigation.”

Challenges arose when McKennon decided to represent plaintiffs instead of insurance companies. For starters, he was known as a lawyer who represented insurance companies.

“One of my biggest challenges was getting my name out there to prospective insureds who I would now represent and also to lawyers letting them know I was now representing policyholders against insurance companies in primarily life, health and disability matters,” McKennon said. “The way I did that was communicating with a number of lawyers that I knew in Orange County especially, letting them know that I was now suing insurance companies.”

Marketing strategies also helped McKennon overcome the challenges.

“I developed a very strong and vibrant website and insurance litigation blog,” he said. “I started doing a lot of blogging and my lawyers do a lot of writing and blogging.”

The firm started with three lawyers, including associate Scott E. Calvert, who McKennon hired at Barger & Wolen.

“He hired me for my first job out of law school,” Calvert said. “Talking to him and seeing the fulfillment he got in working for policyholders made me think that might be something I would want to do too.”

More business started coming in and the firm added more lawyers—Joseph S. McMillen, David S. Rankin and Stephanie L. Talavera.

In a federal court case, McKennon Law Group represented a former lawyer who sought long-term disability benefits under his employer’s welfare benefit plan based on a “mental breakdown,” according to court documents.

The plan was funded by an insurance policy which set forth the eligibility requirements for receipt of benefits. The insurer denied the benefit claim after concluding that McKennon Law Group’s client was not totally disability during the entire period set forth in the eligibility requirements, court documents say.

“The insurer felt that he was able to work, and after we won the case at trial, they found some records that he actually represented himself in his own divorce proceeding and in a post-trial proceeding. They tried to use that against him saying he wasn’t disabled,” McKennon said. “We were able to convince the court to disregard that evidence.”

The insurer appealed the judgment to the 9th U.S. Circuit Court of Appeals, which upheld the lower court’s decision and awarded attorney fees.

In another case, McKennon Law Group represented a plaintiff who sued his health insurer, claiming his daughter was covered under an ERISA-governed health plan issued by a large insurance company.

The plaintiff alleged the child required residential rehabilitation substance abuse treatment for a variety of problems. The insurer denied the claim, saying additional residential treatment was not medically necessary under the plan, according to court documents.

The court found in favor of the firm’s client and awarded him $113,000 plus prejudgment interest, along with substantial attorney fees and costs.

“We obviously have to look at and provide sufficient medical information that our client is disabled, but we also have to prove that our client is disabled under a particular definition under a particular contract,” McKennon said. “Depending on whether we are litigating an ERISA-governed insurance policy, versus a policy that is governed by California law or some other state law, the legal proof will differ.”

“We have to be comfortable with laws of various states in order to litigate disability, life or health insurance issues in California and in other states.”

Business litigation is also one of the firm’s practice areas.

Erwin J. Shustak, managing partner of Shustak Reynolds & Partners PC, first met McKennon as opposing counsel.

“Robert McKennon was an adversary of mine probably six years ago in a large arbitration dispute,” Shustak said. “He won the case and did an excellent job for his client. I was so impressed with him that years later I hired him to represent me in a personal matter.”

Agents, Brokers and Rescission of Insurance Policies

Generally, an insurer need not investigate statements made in an application for insurance, subject to certain exceptions. Instead, the potential policyholder or applicant must fully disclose all known material information. If a potential insured does not correctly disclose information on an application (even innocently), the insurer may later try to rescind the insurance policy. When an insurer “rescinds” a policy, it renders the contract as if it never existed and frees both parties from their obligations under the contract. Practically, this means that the insurance company is no longer obligated to pay the claims for life insurance, accident insurance, health insurance, long-term care insurance or long-term disability insurance benefits and the policyholder no longer has to pay the policy’s premiums. Insurers often look for ways to rescind insurance policies so they can deny insurance claims.

When can an insurer rescind?
Under California law, an injured party is entitled to rescind an insurance policy where there has been concealment on the application, regardless of intent to deceive, including where a representation is false in a material point. Upon discovery of the material misstatement or nondisclosure on the application, the insurer can promptly rescind the policy. The rescinding insurer must also give notice to the policyholder and return any benefits gained under the contract, such as all premium payments paid to the insurer. For example, if an applicant for life or accidental death and dismemberment insurance failed to disclose a history of smoking on the application, and then later died of cancer, the insurer would likely attempt to rescind the policy. If the insurer successfully rescinds the policy, it must also return the premium payments to the insured, but is no longer obligated to pay the death benefits.

“But I told the insurance agent when I applied for the policy…”
Oftentimes, potential insureds apply for insurance with the help of a licensed insurance agent or broker. Although both an insurance agent and an insurance broker assist a potential policyholder in the application process, the primary distinction between the two is who each represents. An insurance agent represents the insurer; a broker does not. Although this distinction has important legal implications, courts sometimes use “agent” and “broker” interchangeably. This usage confuses terminology that already relies on an unpredictable, independent factual examination of the relationship on a case-by-case basis.

Regardless, in practice, the broker vs. insurance agent distinction becomes particularly important when an insurer attempts to rescind a policy based on a material misrepresentation on the initial application, i.e., a failure to disclose pertinent medical or lifestyle history. Occasionally, a potential insured will make accurate disclosures to the insurance agent or broker as part of the application process, but the agent or broker will tell the potential insured that such disclosure on the application is unnecessary. Depending on whether the insurance agent is treated as an agent of the insurer, knowledge of the misrepresentation, and consequent liability, will be imputed differently.

O’Riordan v. Federal Kemper Life Assurance
In O’Riordan v. Federal Kemper Life Assur., 36 Cal.4th 281 (2005), the California Supreme Court discussed the importance of the distinction between an insurance agent and a broker when it comes to rescission. In O’Riordan, potential policyholder, Amy O’Riordan, applied for life insurance through an independent insurance agent, Robert Hoyme. The application for the life insurance policy asked the following two questions:

“Have you smoked cigarettes in the past 36 months?”

“Have you used tobacco in any other form in the past 36 months?”

Ms. O’Riordan answered “no” to both questions on the application, although she apparently told the insurance agent that she was a former smoker and “might have had a couple of cigarettes in the last couple of years.” In response, the insurance agent assured Ms. O’Riordan “[t]hat’s not really what they’re looking for. They’re looking for smokers.”

Several years later, Ms. O’Riordan died of breast cancer. When her husband attempted to collect the death benefits under the policy, the insurer attempted to rescind. The insurer conducted an investigation and found that Ms. O’Riordan’s physician, a year before she applied for the policy and within the thirty-six-month period, noted her request for a nicotine patch. The physician’s report said that, although she quit smoking years earlier, “recently due to some stressors, she did start to smoke a little bit again, but is not smoking as much as she smoked previously.” On this basis, the insurer rescinded the policy and refused to pay the death benefits to Mr. O’Riordan.

Mr. O’Riordan filed a lawsuit and the case made it all the way to the California Supreme Court. Ultimately, the Court determined that Ms. O’Riordan’s disclosure to the insurance agent raised an issue as to whether the insurer could rescind the policy. If the agent was acting as an agent of the insurer, then the agent’s knowledge of Ms. O’Riordan’s disclosures of a past history of smoking would be imputed to the insurer. In other words, because the agent knew, the insurance company had constructive knowledge of the disclosure. Thus, despite the fact that the agent had not actually communicated Ms. O’Riordan’s history of smoking to the insurer, the court still reversed the lower court opinion and allowed Mr. O’Riordan’s case to proceed since the insurer could not rescind the policy.

Insurers often use rescission of insurance policies to deny insurance claims, especially life, disability and health claims. Most policyholders do not understand their rights and assume insurers can rescind their policies. If you are a victim of an insurer’s attempt to rescind your life, health or disability insurance policy, do not cash the insurer’s check for premium refund until you call McKennon Law Group PC to assess your rights to fight this type of abusive insurance company practice. You may be able to sue your insurer for breach of contract and breach of the implied covenant of good faith and fair dealing (insurance bad faith) for attempting to rescind your valuable insurance policy.

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 to a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or complete the free consultation form on the firm’s website.

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