Disability Insurance Archives - Page 35 of 44

Policyholder Wins Handed Down in Insurance Decisions. Daily Journal Publishes McKennon Law Group PC Article.

The February 10, 2014 edition of the Los Angeles Daily Journal featured Robert McKennon’s article entitled: “Policyholder Wins Handed Down in Insurance Decisions.” In it, Mr. McKennon discusses six insurance decisions handed down in California and federal courts in 2013 that were favorable to policyholders.

The article includes a discussion of Zhang v. California Insurance Co., 57 Cal. 4th 364 (2013), which empowered policyholders to pursue Unfair Competition Law claims against insurers, as well as Rochow v. Life Insurance Company of North America, 737 F.3d 415 (6th Cir. 2013), in which the 6th U.S. Circuit Court of Appeals affirmed a large disgorgement of profits award in long-term disability case governed by the Employee Retirement Income Security Act of 1974 (ERISA). Also discussed are Barnes v. Western Heritage Insurance Co., 217 Cal. App. 4th 249 (2013), Nickerson v. Stonebridge Life Insurance Co., 219 Cal. App. 4th 188 (2013), Aguilar v. Gostischef, 220 Cal. App. 4th 475 (2013) and American Safety Indemnity Co. v. Admiral Insurance Co., 220 Cal. App. 4th 1 (2013). The article is posted here with the permission of the Daily Journal.

Supreme Court Looks at ERISA Plan Terms to Govern Limitation Periods to File Lawsuits

In a highly anticipated decision, a unanimous United States Supreme Court held that insureds with employer-sponsored plans are contractually bound by the limitations periods set forth in their plan documents. These limitations periods, which specify when insureds must file any legal actions under the Employee Retirement Income Security Act of 1974 (“ERISA”), are enforceable so long as they are not unreasonably short. The Court held in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., __ U.S. __ , 2013 U.S. LEXIS 9026 (Dec. 16, 2013), that the Plan’s contractual limitations period governs when a participant/beneficiary may file a legal action. The Court concluded that the Plan’s contractual statute of limitations period was enforceable and that the time spent in the administrative claims process did not toll the running of the statute.

Heimeshoff involved plaintiff Julie Heimeshoff (“Heimeshoff”), a Senior Public Relations Manager for Wal-Mart, who sought long-term disability benefits from her employer-sponsored plan issued by Respondent Hartford Life & Accident Insurance Co (“Hartford”) to Wal-Mart employees. The Plan imposed a three-year statute of limitations from the date proof of claim is due for legal action brought against the Plan, which commenced on the date proof of loss was to be submitted. Hartford required Heimeshoff’s proof of loss by December 2005, but she failed to submit the requisite documents and Hartford denied her claim. Hartford issued its second denial in November 2006, and denied her final appeal in November 2007. Heimeshoff brought suit to recover her benefits in November 2010 within three years after the final denial, but almost six years after the proof of loss was due. The district court dismissed her suit, finding the Plan terms explicitly prohibited legal action beyond the three-year limitations period. The Second Circuit Court of Appeals affirmed.

The Supreme Court granted certiorari to determine whether the Plan’s limitations provision, which began before the administrative review process ended, was enforceable. Prior to Heimeshoff, the majority rule, including in the Ninth Circuit, was the statute of limitations begins to run when the cause of action “accrues,” which was typically when the appeal was denied. In ERISA actions, a claimant cannot file suit until he or she has exhausted the plan’s internal administrative process. While ERISA imposes requirements on plans to respond and decide claims within certain periods of time, practical obstacles, such as difficulties obtaining medical information or proof of loss, can delay this process.

Heimeshoff first argued that the Plan’s limitations provision would undermine the internal review process because participants will sacrifice the benefits of internal review to preserve time for filing suit. However, the Court rejected this contention because participants failing to develop evidence during the first review run the risk of forfeiting use of that evidence at trial. Secondly, the Court believed participants are unlikely to prioritize judicial review over internal review.

Next, Heimeshoff contended that permitting plans to initiate limitations periods prior to completion of the review process endangers judicial review. However, the Court noted ERISA regulations require administrators to act in good faith and take prompt action in their internal reviews. If administrators fall short, the participant can directly seek judicial review. Furthermore, if administrators unreasonably delay, participants can raise equitable defenses to the statute of limitations. In addition, the United States argued, as amicus curiae, that if the limitations provision is enforced, good faith administration will also diminish the availability of judicial review. The Court disagreed, stating the three-year limitation provision is required by most states and no significant evidence showed the provision impedes judicial review. Importantly, the Supreme Court reassured claimants that lower courts can apply waiver, estoppel or equitable relief if claimants are stalled in the internal review process. The Court explained:

Moreover, even in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial review, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense. See, e.g., Thompson v. Phenix Ins. Co., 136 U. S. 287, 298–299 (1890); LaMantia v. Voluntary Plan Adm’rs, Inc., 401 F.3d 1114, 1119 (CA9 2005). To the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply. Irwin v. Department of Veterans Affairs, 498 U. S. 89, 95 (1990) (limitations defenses “in lawsuits between private litigants are customarily subject to ‘equitable tolling’”).

The Court quickly addressed two additional arguments. First, it rejected Heimeshoff’s argument that the limitations period should be tolled during internal review, stating this constituted contract revision. Next, the Court rebuffed Heimeshoff’s argument that state law should toll the limitations period during the internal process. In doing so, the Court explained the parties clearly “agreed” [this is a misnomer as ERISA plans are classic contracts of adhesion] to a limitations period and did not seek to borrow the State’s limitations period. Ultimately, the Court ruled that Plan’s limitations provision controlled the question of when a claimant could pursue litigation.

Certainly, the Court’s decision favors insurance companies and other plan/claim fiduciaries who have the ability to delay processing claims. However, ERISA imposes strict timelines on actions by insurance companies and other plan/claim fiduciaries and as a result, these rules will serve to mitigate the potentially harsh consequences of this decision. Furthermore, the Court clearly limited its holding to limitations provisions which are reasonable.

The best part of this decision for plan participants and beneficiaries who typically have life, health and disability insurance claims, as discussed above, the Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel to ensure Heimeshoff does not cause harsh results when the actions of insurance companies and other plan/claim fiduciaries cause delays or their actions otherwise result in unfairness to plan participants. As long as claimants and their attorneys act promptly to hold insurance companies and other plan/claim fiduciaries accountable to the timelines applicable to the claim review process and/or if they otherwise act diligently, Heimeshoff will not act as a bar to their litigation. Indeed, administrators are required by ERISA regulations governing the internal review process to take prompt action, and the penalty for failure to meet those deadlines is immediate access to judicial review for plan participants. See 29 CFR §2560.503–1(l).

Rochow v. LINA: A Game-Changer in ERISA Disability Benefits Litigation

While this blog often discusses disability, life and health insurance/employee benefit decisions under the Employee Retirement Income Security Act of 1974 (“ERISA “), we rarely discuss federal circuit court of appeal decisions from outside the Ninth Circuit Court of Appeals (which governs California). We are making an exception here, as a recent case from the Sixth Circuit Court of Appeals really caught our attention. The case is Rochow v. Life Insurance Company of North America, __ F.3d ___ (6th Cir. December 6, 2013). It is a “game-changer” in the world of ERISA disability, life and health insurance/employee benefit litigation, and could fundamentally change the way in which ERISA remedies are discussed and how these cases are litigated. To say this is a “plaintiff friendly” case is probably to understate it.

The case otherwise involved a typical denial of disability insurance benefits matter under ERISA in which the amount of benefits owed was determined to be $910,629. Despite the large award, that was not actually the interesting part of the case. The much more interesting part of the case is the court’s ruling affirming an almost $3.8 million disgorgement of profits award.

Daniel Rochow sued for disability benefits under 29 U.S.C. section 1132 (a)(1)(B) of ERISA and also sought equitable accounting and disgorgement of profits as “appropriate equitable relief” under section under 29 U.S.C. section 1132(a)(3). The district court determined that Life Insurance Company of North America’s (LINA) benefit determination had been arbitrary and capricious, and the Sixth Circuit affirmed that decision. After the case was remanded to the district court, Rochow sought an accounting and disgorgement of profits under 29 U.S.C. section 1132(a)(3). The district court applied a return-on-equity (“ROE”) analysis to the disgorgement claim, and awarded an additional $3.8 million in disgorged profits against LINA.

LINA appealed the second district court decision as well, but in a 2-to-1 decision, the Sixth Circuit again affirmed the district court. The court addressed and upheld Rochow’s argument that ERISA allows separate claims for withheld benefits under 29 U.S.C. section 1132(a)(1)(B) and breach of fiduciary duty claims under 29 U.S.C. section 1132(a)(3). The majority held that because Rochow had sought the disgorgement remedy as a separate claim of relief, disgorgement was an appropriate remedy for the arbitrary and capricious benefit denial. This remedy was based on LINA’s ill-obtained earnings on the amount it did not pay Rochow but should have paid him. The court explained that “disgorgement does not result in double compensation, nor does it represent punishment.

The court rejected LINA’s argument that allowing Rochow to maintain a breach of fiduciary duty claim based on a denial of benefits would frustrate ERISA’s goal of providing an inexpensive and expeditious dispute resolution process, by explaining that “ERISA also has a goal of ensuring that plan fiduciaries act solely in the interest of the participants and for the exclusive purpose of providing benefits to their participants.” The majority also affirmed the district court’s application of a ROE method of calculating the disgorgement claim, rather than LINA’s analysis that equated disgorgement of profits to an award of prejudgment interest on the withheld benefits. The court, quoting the Ninth Circuit’s phraseology that the fundamental tenet of disgorgement is “if you take my money and make money with it, your profit belongs to me,” determined that the rationale for the more generous disgorgement award was the fact that LINA did not retain the unpaid benefits in a segregated account, but rather retained the money in its general assets.

The dissent echoed LINA’s positions, viewing the majority’s holding as shortsighted. It criticized the majority decision as “willfully blind to the negative repercussions that undoubtedly will ensue in ERISA benefits litigation,” with the dissent also stating:

Furthermore, disgorgement under the circumstances of this case fundamentally alters how denied disability-benefits claims are litigated, forcing district courts to wrestle with complex calculations of profits and raising the specter that any claimant who was arbitrarily and capriciously denied benefits would have a viable claim for disgorgement.

We expect to see a request for reconsideration and/or rehearing en banc. Although we would not be surprised if the decision survives circuit review, LINA will almost certainly seek relief in the United States Supreme Court as this decision has too many implications for LINA to let this ground-breaking decision remain good law. There can be little question that in the short term, this case will substantially alter ERISA litigation. As for this firm, we will attempt to use this decision to assist our plan participant/beneficiary clients, including amending some of our existing complaints to expand the relief we are requesting to include disgorgement claims. We look forward to seeing how this all unfolds. It will be very interesting for sure.

How to Read Your ERISA Disability Denial Letter: A Gritty Exploration of the Common Language in Actual Denial Letters and How to Respond to Them

If your ERISA short-term disability or long-term disability claim was denied, you likely received a dry, lengthy rejection letter explaining the basis for the denial. This letter may appear persuasive, but insurers/claims administrators often offer improper justifications to support their denial decisions to increase their profits. Calling an experienced ERISA attorney should be your next move. However, if you decide to handle the matter yourself, then you must critically examine each basis relied upon to deny your claim. You should never blindly accept what the insurance company is telling you. Below is language we frequently see in our review of ERISA insurance denial letters, and tips on how to view and respond to them.

1. “The clinical information within your long-term disability claim file was reviewed by a Board Certified on-Staff Medical Director who concluded that your restrictions and limitations do not render you totally disabled under your policy.”

An insurer’s review process often raises questions about its bias and accuracy. This is because there is an inherent conflict of interest in its claims handling function: it makes the decision as to whether to pay benefits under a policy and it is also the funding source for these payments. Staff and peer reviewers employed by the insurer may feel pressured to overemphasize certain aspects of your medical records that would support a claim denial, and downplay other portions that support your disability claim. Additionally, a “paper review” of your claim file – when a medical professional just looks at your medical records but does not take the time to personally examine you – tends to be less informative than a face-to-face examination. In both cases, while your insurer is required to take active steps to ensure the decision rendered accurately reflects your condition and fully explain the basis of its decision, that often does not occur. Finally, this medical reviewer must have appropriate expertise to assess your condition. A Medical Director practicing internal medicine will not be qualified to review psychological conditions. Moreover, look for what the Medical Director was provided and reviewed. If he or she did not receive all of the important and material records necessary to render an opinion, this may be a proper basis to challenge the physician’s opinions and thus the insurer’s opinions.

If the insurance company did not properly follow all of these steps, the denial of your claim might be improper and could be overturned by a court of law.

2. “Your asserted restrictions and limitations are not supported.”

This one appears in most denial letters as the insurer must typically make a determination that your asserted restrictions and limitations are not supported by the information in the insurer’s file. The insurance company is not allowed to just generally state that you do not meet the definition of disability in your policy. Rather, the insurer must give a reasonably detailed explanation of why this is so. Very often there is scant evidence to support the insurer’s decisions in this regard. Further, the denial letter must specify the evidence needed to perfect your claim. See 29 C.F.R. § 2560.503-1(g)(iii). Courts have held that a plan administrator committed a procedural error by issuing a denial without describing the additional information needed for the claim and why. Letvinuck v. Aetna Life Ins. Co., 439 Fed. Appx. 585, 586-87 (9th Cir. 2011). Typically, letters itemize the medical records and documents reviewed and summarize content relevant to the claim. If the documents referenced do indeed support your restrictions and limitations and thus your claim, or if the denial letter fails to explain the additional records and information needed, the denial of long-term disability benefits may be improper.

3. “Your physician indicated you had subjective complaints of pain, but there were no further objective findings on exams or recent studies to support restrictions or limitations.”

While blood tests and X-rays can detect infections and broken bones, other disabling medical conditions such as chronic pain or mental illness often have no measureable objective symptoms. It is not uncommon that insurer’s will use this lack of “objective” evidence to deny a long-term disability claim, even when the Plan does not specifically require that objective evidence be shown. Luckily, courts have acknowledged that pain may be debilitating, even in the absence of supporting objective evidence. See Saffron v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 872-73 (9th Cir. 2008). In addition, courts have ruled that requiring a claimant to meet an additional standard that is not present in the policy is improper because it impermissibly “imposes a new requirement for coverage.” Saffle v. Sierra Pacific Power Co., 85 F.3d 455, 459-60 (9th Cir. 1996). Consequently, insurers cannot typically require objective evidence if your disability is not physically detectable.

4. “Covert surveillance captured numerous inconsistencies in your self-reported complaints and abilities verses observed activities of daily living and provided some insight into your functional abilities.”

Insurers like to hire investigators to secretly follow their disabled insureds around and videotape them. This is especially true with orthopedic injuries or sicknesses, like severe back problems. If your insurer paid a company to obtain video surveillance of your activities, you should make sure you obtain the Administrative Record from the insurer that contains the surveillance report and you should obtain videotape. Then carefully read all references in the report and carefully review the video footage to ensure they do not mischaracterize your abilities. In one influential case, the insurer relied on surveillance footage of the claimant engaged in short periods of activity over four nonconsecutive days and concluded he was capable of sustaining this activity in a full time occupation. A court criticized the insurer’s decision, explaining the insurer over-relied on footage and this bias pervaded its decision process, eventually ruling that the claimant was entitled to long-term disability benefits. Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. Cal. 2009). Similarly, you should question whether the insurer’s description of the video surveillance overstates your functional abilities.

Admittedly, recovering your benefits will require more than recognizing a few flaws in your denial letter. If you suspect your ERISA benefits were improperly denied, our attorneys can offer you a free and confidential consultation.

Equitable remedies gain favor in ERISA cases

The November 21, 2013 edition of the Los Angeles Daily Journal featured Robert McKennon’s article entitled: “Equitable remedies gain favor in ERISA cases.” In it, Mr. McKennon discusses a significant development in the Employee Retirement Income Security Act of 1974 (ERISA) in the last couple of years. This significant development is due to the 2011 U.S. Supreme Court decision in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011). In that case, the Supreme Court indicated a shift away from the federal courts aversion to the granting of equitable remedies in ERISA cases, especially equitable estoppel. The Seventh and Fourth Circuit Courts have started a trend in applying equitable estoppel claims by both plan participants and beneficiaries. The article is posted here with the permission of the Daily Journal.

California Court of Appeal Finds That a 10:1 Ratio Between Punitive Damages and Compensatory Damages Awards Satisfies Due Process

A 10-to-1 ratio of punitive damages to compensatory damages awards in an insurance bad faith case passes Constitutional muster. So says the California Court of Appeal in its decision in Nickerson v. Stonebridge Life Insurance Company, __ Cal. App. 4th ___, 2013 Cal. App. LEXIS 583 (2013). The decision is significant in that it affirms that punitive damages are not limited to a single-digit ratio and that a ratio of punitive to compensatory damages of 10-to-1, and perhaps higher, falls within the maximum permitted under due process. Additionally, the decision clarifies what damages may be included in fixing the ratio of compensatory to punitive damages.

The Nickerson case concerns a disabled veteran, Nickerson, who was covered under a policy providing coverage for hospital confinement, intensive care unit and emergency room visits issued by Stonebridge. After suffering an injury to his leg, Nickerson was hospitalized for over 100 days. However, Stonebridge contended that only a small portion of the time Nickerson stayed in the hospital was considered “Necessary Treatment” under his policy. On this basis, Stonebridge denied benefits for the rest of the time Nickerson was hospitalized.

Following the denial of his benefits under the policy, Nickerson filed a claim against Stonebridge for breach of the insurance contract and for breach of the implied covenant of good faith and fair dealing. The trial court found that Nickerson was entitled to $31, 500 in unpaid benefits for the breach of contract cause of action. The jury returned a special verdict finding Stonebridge’s failure to pay policy benefits was unreasonable and that Nickerson suffered $35,000 in damages for emotional distress. Finally, the jury awarded Nickerson $19 million in punitive damages, which constituted 5% of Stonebridge’s net worth. Stonebridge immediately moved for a motion for new trial seeking to reduce the punitive damages award. The trial court conditionally granted a new trial unless Nickerson agreed to accept a reduction of the punitive damage award to 10 to 1 in accordance with “recent California and federal authority.” In calculating the amount of punitive damages, the trial court only included the $35,000 in compensatory damages for bad faith and did not include damages for the insurer’s breach of contract or the $12, 500 in attorney’ fees awarded to Nickerson pursuant to Brandt v. Superior Court, 37 Cal. 3d 813, 817 (1985) (when the defendant insurer’s tortious conduct forces insured to retain counsel to obtain policy benefits, the insurer is liable for attorney’s fees). Thus, the trial court offered Nickerson a reduction of punitive damages to $350,000.

Nickerson rejected the trial court’s offer and appealed, arguing that the trial court erred (1) in concluding it was constrained by law to limit punitive damages to no more than 10 times the compensatory award; and (2) in excluding certain categories of compensatory damages.

The Court of Appeal began its analysis by reciting that a punitive damages award violates the due process clause of the Fourteenth Amendment if the award is “grossly excessive.” In determining whether the trial court’s remittance of the jury’s award of punitive damages to a 10-to-1 ratio with compensatory damages was constitutional, the court followed the three guideposts set out in BMW of North America, Incorporated v. Gore, 517 U.S. 559, 575 (1996): (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. As to the first guidepost, the court found that the degree of reprehensibility factor weighs in favor of Nickerson because, although Nickerson did not suffer physical harm, Stonebridge acted with indifference toward Nickerson’s health and safety, Nickerson was a financially vulnerable individual, Stonebridge’s conduct was intentionally deceitful and was not an isolated incident. The court did not consider the third guide post relating to comparable civil penalties because Nickerson conceded that this guide post was of “limited utility.” Turning to the second and most important guidepost, the court noted that the Supreme Court has consistently refused to establish a ratio beyond which a punitive damage award could not exceed, but that awards significantly exceeding a single-digit ratio between punitive and compensatory damages generally will not satisfy due process. The court then stated that the California Supreme Court has found that ratios significantly greater than 9 or 10-to-1 are suspect and may not pass constitutional muster absent “special justification.” Based on both federal and state case law, the court concluded that the message gleaned from these cases is that due process analysis is flexible and the constitutionality of any award must be based upon the particular facts and circumstances of the case.

Based on its analysis of the three guideposts, the circumstances of this case, the high level of reprehensibility of Stonebridge’s conduct, Stonebridge’s net worth and the small economic damage award justifies an outside constitutional limit of a 10-to-1 ratio of punitive to compensatory damages. As such, the Court of Appeal upheld the trial court’s decision to remit the jury’s award to a 10-to-1 ratio.

Additionally, it is important to note that the court also addressed what categories of compensatory damages are included in calculating the ratio of punitive to compensatory damages. Nickerson argued that “uncompensated potential harm” should be included into the calculation. However, the court rejected this argument because Nickerson was fully compensated for his emotional distress injuries. The court also refused to include the $31, 500 in policy benefits awarded to Nickerson because, citing Major v. Western Home Insurance Company, 169 Cal. App. 4th 1197, 1224 (2009), punitive damages are not authorized in contract actions. The court also refused to include attorney’s fees awarded pursuant to Brandt because they were awarded after the jury awarded punitive damages. However, it should be noted that if the jury had awarded attorney’s fees, they would have been considered in determining if the ratio of punitive damages to compensatory damages is excessive because Brandt fees “are considered extra contractual tort damages that compensate a plaintiff for an insurer’s bad faith refusal to pay policy benefits.” Id (emphasis in original).

The Nickerson decision is highly significant in that the Court of Appeal made it clear that punitive damages awards are not limited to a single-digit ratio and that there is no bright line maximum ratio of punitive damages to compensatory damages required by due process. Although the court strongly suggested that a punitive damage award significantly exceeding a 9 or 10-to-1 ratio could violate due process, the court refused set the 10 to 1 ratio as a maximum cap on all punitive damages awards. Indeed, given the highly flexible due process analysis adopted by the court, instances where insurers engage in significantly reprehensible acts of bad faith, as determined under the guidepost analysis, may well justify a punitive to compensatory damages ratio which exceeds the 10-to-1 ratio applied in Nickerson.

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