Unlike a state law claim for benefits under an individual insurance policy, an ERISA claim generally limits recovery to benefits due under the plan: prejudgment interest, declaratory or equitable (non-monetary) relief and attorneys’ fees. Accordingly, looming attorneys’ fees serve as an important financial disincentive for an ERISA plan administrator’s misconduct. In today’s edition of the Los Angeles Daily Journal, Robert J. McKennon and Stephanie L. Talavera of the McKennon Law Group PC discuss the importance of ERISA attorneys’ fees and how a recent case positively impacts the ability to recover those fees. In a column entitled “Ruling Clears Up Attorney Fees in ERISA Cases,” we evaluate the effect of the new Ninth Circuit Court of Appeals case, Micha v. Sun Life Assurance of Canada, Inc., 2017 DJDAR 10411 (Nov.1, 2017) and explain how the decision provides ERISA plan participants, beneficiaries and fiduciaries with a solid foundation for recovery of certain attorneys’ fees in the future.
When a disability insurance claim is denied, the process of challenging that wrongful denial can be daunting. At McKennon Law Group PC, we represent policyholders in their insurance disputes and help guide our clients through the complex insurance claims process. We pride ourselves on the relationships we build with our clients and work hard to ensure that our clients understand the status of their matter every step of the way.
As part of our firm’s dedication to serving insureds, Robert J. McKennon, the firm’s founder, answered some of the most frequently asked questions regarding disability insurance benefits and the Employee Retirement Income Security Act, or ERISA. In the Q&A, Mr. McKennon briefly explains the role of ERISA, the body of law that governs most employer-sponsored group benefit plans. He also briefly discusses insurance bad faith, which governs most individual disability insurance policies. Additionally, Mr. McKennon covers some common misconceptions regarding the disability insurance claims handling process, as well as the remedies available to an insured should they successfully overturn their wrongful denial.
At McKennon Law Group PC, we believe in establishing lasting relationships with our clients and providing the highest quality of legal services, with integrity. Part of that requires effective communication and taking the time to respond to your questions. If your claim for life, retirement, health, short-term disability or long-term disability benefits has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA state law insurance bad faith claims.
This was issued as a press release and appeared in numerous legal and non-legal publications. To see if Mr. McKennon answered your questions, please review the press release in full, below.
Attorney Robert J. McKennon Educates Policyholders on ERISA and Disability Insurance Claims
Southern California insurance litigation attorney Robert J. McKennon, of McKennon Law Group PC, examines four common insurance law issues.
NEWPORT BEACH, Calif. (PRWEB) October 25, 2017
Robert J. McKennon, founder of McKennon Law Group PC, which represents policyholders in their insurance disputes with insurers, asks and answers the top four most frequently asked questions concerning insurance law.
No. 1: What is ERISA? The Employee Retirement Income Security Act of 1974, ERISA, governs most employer-sponsored group benefit plans, including plans that provide health insurance, disability insurance and life insurance to employees.
“ERISA protects employees and requires that plan and claim administrators adhere to strict standards and deadlines when resolving disputes,” said McKennon. “As such, litigation under ERISA is very different from other forms of litigation, even other insurance litigation.”
No. 2: How do I get my disability benefits claim paid? Most people think that simply providing the insurance company with their medical records will be enough to support a claim for disability benefits. “In a perfect world that would be the case, but insurance companies are not typically interested in making it easy for people to collect their benefits,” noted McKennon. “If your claim is denied, the best thing you can do is hire an attorney who has experience dealing with insurance companies, which will greatly increase your odds of getting your claim paid.”
No. 3: What are my remedies if I sue the insurance company over my disability, life or health insurance claim and win? The remedies available to someone insured under an individual disability insurance policy are very broad and under a breach of contract claim include past due benefits and all future benefits. Under a bad faith claim, damages include emotional distress damages, economic damages and other compensatory and consequential damages, punitive damages, attorneys’ fees and interest.
“If the policy is issued through an employer to provide coverage to eligible employees, the remedies are very different. These are referred to as ‘group’ policies,” added McKennon. “Most people who have life, health and disability insurance are covered under group policies. Because most group policies are governed by ERISA, the remedies available to insureds are much more limited. If an individual insured under an ERISA group policy prevails at trial, he or she is only entitled to past due benefits, interest and attorneys’ fees.”
No. 4: What is insurance bad faith? “If you purchased an individual life, health or disability insurance policy, ERISA will not apply to your claim,” stated McKennon. “Instead, separate principles of tort law govern your claim, which includes what is referred to as ‘insurance bad faith.’ Litigation of an insurance bad faith claim involves proving that the insurer denied a claim or other policy benefit unreasonably or without proper cause. If a claimant can prove that the insurer acted with fraud, oppression or malice, punitive damages may be awarded.”
About Robert J. McKennon, McKennon Law Group PC
Robert J. McKennon represents individuals and corporations in insurance litigation matters in state and federal court. He has an AV Preeminent rating from Martindale-Hubbell and a “Superb” Avvo rating. He has been awarded the Super Lawyer designation every year since 2011. Practice areas of McKennon Law Group PC include bad faith insurance, disability insurance, life insurance, ERISA/employee benefits, health insurance, long-term care, property and casualty insurance, directors and officers liability insurance, professional liability insurance, insurance agent and broker liability, business litigation and unfair competition and unfair business practices. For more information, please call (949) 387-9595, or visit https://mslawllp.com.
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In the October 9, 2017 Los Angeles Daily Journal, Robert J. McKennon and Stephanie L. Talavera of the McKennon Law Group PC published a column entitled “An Agent of the Insurer,” covering a very important new Ninth Circuit Court of Appeals case, Salyers v. Metro. Life Ins. Co., 2017 DJDAR 9291 (Sept. 20, 2017). The article details the case’s key holdings, as it establishes federal ERISA common law rules that follow California’s employer-friendly rules. The decision provides a solid foundation for future ERISA plan participants and beneficiaries to vigorously attack ERISA coverage denials on theories of estoppel, waiver and breach of fiduciary duty.
In the May 25, 2017 edition of the Los Angeles Daily Journal, Robert McKennon and Joseph McMillen of the McKennon Law Group PC published an article entitled “Decision Marks the End of an Era for Employee Benefit Plans,” about a new Ninth Circuit case.In the article, Mr. McKennon and Mr. McMillen explain that the case makes void and unenforceable “discretionary clauses” in insurer-funded employee benefit plans providing disability and life coverage to California residents.The decision will lead to a de novo standard of review in most ERISA actions, which is quite favorable for claimants. Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 2017 DJDAR 4376 (May 17, 2017).
A slightly longer version of the article is posted below with the permission of the Los Angeles Daily Journal under a different title, “9th Circuit puts final nail in coffin for discretionary clauses in insurer-funded ERISA plans.”
By Robert J. McKennon and Joseph S. McMillen
Long-term disability insurers and life insurers frequently include clauses in their insurance policies affording them complete discretion to decide whether the claimant is eligible for the policy’s benefits, to decide the amount, if any, of benefits to which they are entitled, and to interpret the policy’s terms how they see fit. Employers and their claims fiduciaries (i.e., the insurers) regularly include these same types of “discretionary clauses” in their employee welfare benefit plan documents, and if the insurer is the funding source of the plan’s benefits, the inherent conflict of interest becomes readily obvious.
Employee benefit plans and the corresponding group insurance policies that fund them are governed by the Employee Retirement Income Security Act of 1974 (ERISA), codified at 29 U.S.C. Section 1001 et seq. The result of these discretionary provisions in ERISA cases, until recently, has been that a federal court reviewing the insurance company’s claim decision had to give deference to whatever the insurer decided, even if the court disagreed with the insurer’s decision, unless the insurer abused its discretion by acting arbitrarily and capriciously. The district court was required to apply an “abuse of discretion” or “arbitrary and capricious” standard of review rather than a de novo standard (where no such deference to the insurer’s decision is given). The former standard is more difficult than the latter for an insured to meet. While a district court applying an abuse of discretion standard to the insurer’s claim decision is not required to “rubber stamp” it with no oversight, its ability to overturn the decision is far more limited than when reviewing the insurer’s decision de novo.
On Jan. 1, 2012, no doubt aware of this potential for abuse by insurers, the California Legislature decided to put an end to discretionary provisions in disability and life insurance contracts. It enacted California Insurance Code Section 10110.6, which made void and unenforceable any grant of discretionary authority to an insurer or agent of the insurer in “a policy, contract, certificate, or agreement” that provides or funds disability or life insurance coverage for California residents. More than a dozen states have similar laws. Several of these states banned or limited discretionary clauses in response to notorious examples of insurers who, to boost their profits, intentionally used discretionary clauses to repeatedly deny claims they knew were valid.See, e.g.,Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 867 (9th Cir. 2008).
Despite California’s statutory ban on insurer discretionary clauses, group disability and life insurers have steadfastly challenged the statute’s application to ERISA-governed policies and related employee welfare benefit plan documents. They routinely argue that ERISA preempts the statutory bans on insurer discretionary clauses and that the statutory ban applies just to insurance policies but not plan documents. Their arguments have been repeatedly rejected by most California federal district courts.
On May 11, the 9th U.S. Circuit Court of Appeals, inOrzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 2017 DJDAR 4376, put the final nail in the coffin for grants of discretionary authority to insurers in ERISA-governed insurance policies and employer plan documents. In that case, The Boeing Company offered its employees long-term disability coverage through an ERISA-governed plan. Boeing arranged a group disability insurance coverage through Aetna Life Insurance Company to fund the plan’s disability benefits and vested Aetna with discretion to decide the merits of benefit claims. The plan documents granted it discretionary authority to “review all denied claims,” “determine whether and to what extent employees and beneficiaries are entitled to benefits,” and “construe any disputed or doubtful terms of the policy.” The plan further specified that, “Aetna shall be deemed to have properly exercised such authority unless Aetna abuses its discretion by acting arbitrarily and capriciously.” Boeing’s principal plan document, The Boeing Company’s Master Welfare Plan, similarly contained a broad grant of discretionary authority delegated to Aetna which included the power to “determine all questions that may arise including all questions relating to the eligibility of Employees and Dependents to participate in the Plan and amount of benefits to which any Participant or Dependent may become entitled.”
A Boeing employee, Talana Orzechowski, submitted a claim for long-term disability benefits under the plan because she suffered from physical illnesses, chronic fatigue syndrome and fibromyalgia, and could no longer perform her job duties as a result. After paying the claim for two years, Aetna decided to terminate her benefits based upon the plan’s 24-month limit for disabilities primarily caused by mental illness. Aetna determined Orzechowski’s condition was not physical, but only mental, based upon the opinions of medical consultants it hired to review her medical records. Aetna disagreed with Orzechowski’s treating physicians. They concluded that she had a physical disability and that her mental illness, depression and anxiety, were secondary to her physical problems, chronic fatigue syndrome and fibromyalgia.
Orzechowski filed suit in federal district court under ERISA to recover her disability benefits. The trial court upheld Aetna’s benefit decision. It reviewed Aetna’s decision for an abuse of discretion (because Boeing’s Master Plan gave Aetna discretionary authority), rather than de novo, the default standard in an ERISA case.
The 9th Circuit reversed, holding that the district court should have applied a de novo standard of review to Aetna’s claim decision. It ruled that California Insurance Code Section 10110.6 voided the discretionary provisions in both Aetna’s insurance policy and Boeing’s plan documents, including in the Master Plan. It remanded the case to the district court for it to review the insurer’s claim denial de novo, with instructions to focus on Orzechowski’s physical illnesses that Aetna had ignored when terminating her benefits.
The 9th Circuit first rejected Boeing’s argument that ERISA preempts the California statute. The court reasoned that while the California statute came within ERISA’s broad preemption clause, which preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan,” 29 U.S.C. Section 1144(a), ERISA’s savings clause saved the California law from preemption. The savings clause saves from preemption “any law of any State which regulates insurance, banking, or securities.” 29 U.S.C. Section 1144(b)(2)(A). For the savings clause to apply, the state law must satisfy a two-part test set forth inKentucky Association of Health Plans v. Miller, 538 U.S. 329, 342 (2003). First, the state law must be specifically directed toward entities engaged in insurance, and second, the law must substantially affect the risk pooling arrangement between the insurer and insured. TheOrzechowskicourt held the California statute meets both prongs of theMillertest, “regulates insurance,” and, therefore, is saved from ERISA preemption.
The court rejected Boeing’s other arguments that Section 10110.6 did not void the discretionary clause in the Master Plan because it (1) only voids discretionary clauses in insurance policies but not in employer plan documents, and (2) is not retroactive and became effective on Jan. 1, 2012 after the Jan. 1, 2011, Master Plan. The court reasoned the California statute, by its terms, covers not only “policies” that provide or fund disability insurance coverage but also “contracts, certificates, or agreements” that do so. It cited to 9th Circuit precedent holding that an ERISA plan is a “contract” and concluded Boeing’s Master Plan fell under Section 10110.6, not just Aetna’s policy.
The court rejected Boeing’s second argument because the California statute, while not retroactive, voids discretionary provisions in any policy “or contract” that renews after the statute’s effective date of Jan. 1, 2012. The statute defines “renewed” as “continued in force on or after the policy’s anniversary date.” The policy’s anniversary date was Jan. 1, 2012, and the Master Plan continued in force thereafter. The Master Plan, a contract, thus “renewed” after the statute’s effective date.
Conclusion
WhileOrzechowskimarks the end of an era that had allowed discretionary clauses in insurer-funded employee benefit plans providing disability and life coverage to California residents, there is still an open question whether California’s statutory ban will be extended to self-funded plans.Orzechowskidid not reach that issue. Many large employers fund their benefit plans. Thus, even afterOrzechowski, employers and their self-funded plans will continue to argue California’s ban does not apply to them. One thing we know for certain based on the 9th Circuit’sOrzechowskidecision: Discretionary clauses are void and unenforceable in insurer-funded ERISA employee benefit plans providing disability or life coverage for California residents, whether the clause appears in the insurer’s group policy, the employer’s separate plan document or both. Federal judges will thus have to apply a de novo standard of review more favorable to claimants in insurer-funded ERISA plans. This will lead to better results for claimants in litigated cases and, potentially, less claim denials from group disability and life insurers in the first instance.
The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law. To speak with 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 go to our website at www.mckennonlawgroup.comand complete the free consultation form.
Disability insurance provides you with income in the unfortunate circumstance that your earnings are halted by disability. Employers often offer disability insurance in the benefits packages they provide to their employees, but many employees fail to take advantage of the benefit. The Employment Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including disability insurance plans. The legislature enacted ERISA to protect employees from abuse of their employer-sponsored benefits. As such, ERISA requires that the plan administrator, which is usually the insurance company, employer, or both, adhere to a strict standards and deadlines. This blog post demystifies the general timeline of a disability insurance claim under ERISA. First, we briefly explain the basics of a disability benefits plan and when a disability benefits plan will be governed by ERISA. Next, we cover the life of a disability insurance claim under ERISA, including some of the important deadlines that apply.
What is a disability insurance plan and when is it governed by ERISA?
First, what is a disability insurance plan? Generally, long-term disability insurance covers a portion of your income when a disability permanently halts your ability to work. Long-term disability insurance pays a portion of your previous monthly salary, subject to certain offsets for state and federal disability benefits. Before the provider pays the benefits, disabled employees must satisfy certain eligibility requirements. For many disabled employees, the following requirements typically apply:
- a minimum length of service;
- a minimum waiting period before benefits begin; and,
- qualifies under the plan’s definition of total disability.
The next question to address is whether the disability insurance plan is governed by ERISA? When making a disability claim, you will first want to determine whether ERISA applies to your claim. Just like health insurance, employers often provide disability insurance as part of an employee’s benefits package. Unlike purchasing an individual plan directly from the insurance company, ERISA usually governs such employer-sponsored benefit plans. However, it is important to keep in mind that ERISA does not apply to some employers, such as government entities or a churches.
Some of the Important Dates and Deadlines in an ERISA Case.
If ERISA applies to your long-term disability or short-term disability insurance plan, the following timeline is generally applicable after you file your initial claim.
The Initial Claim
- Within forty-five days of receipt, a claim should be approved or denied. 29 C.F.R. § 2560.503-1 (f)(3).
- But, the plan may extend the forty-five-day time frame by up to thirty days. The insurer must inform the insured of its request for an extension within the initial forty-five-day period. That request for an extension must also explain why the insurer needs additional time, what additional time or information is necessary, whether there are unresolved matters, and when a final decision will be made. 29 C.F.R. § 2560.503-1 (f)(3).
- If the insurer requests new or additional information, the insured has forty-five days to respond to the request. 29 C.F.R. § 2560.503-1 (f)(3).
- Once the insured has provided the requested information, the claim should be decided no later than thirty days or as required by the plan, whichever date comes first. See 29 C.F.R. § 2560.503-1 (f)(3).
Appeal of the Initial Claim
- If the insurer rejects your request for disability benefits, you have 180 days following receipt of a notification of an adverse benefit determination to file an appeal. 29 C.F.R. § 2560.503-1 (h)(3)(i). If you fail to adhere to this time limit, you may have no avenue to further pursue your claim.
- An appeal should be decided within forty-five days of receipt by the insurer. 29 C.F.R. § 2560.503-1 (i)(3).
- In special cases, review of the appeal request may require additional time. The plan may request up to an additional forty-five days, but must provide an explanation of the circumstances and an expected date when the decision will be rendered. 29 C.F.R.§ 2560.503-1 (i)(3). Additionally, some plans may allow for a second appeal.
The Statute of Limitations to File Suit
If your appeal is denied and once you have exhausted all available administrative remedies, you may file suit in court. However, your ability to file suit is also subject to a separate time limit that is important to keep in mind. If you fail to adhere to this time limit, you may have no avenue to pursue your claim.
- Prior to the Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013), California ERISA lawsuits could be brought up to four years after the denial on appeal. After the Supreme Court’s ruling, an ERISA plan may impose a shorter time frame on an ERISA claim so long as the time frame is reasonable and no controlling statute prevents the limitations period from taking effect. For disability insurance claims in California, it is likely that California Insurance Code Section 10350.11’s three-year time limit will apply and override any shorter limitations period. Section 10350.11 applies a statute of limitations of three years after you are required to provide written proof of loss to the insurer.
How the Department of Labor’s New Regulations may affect the timeline
The Department of Labor (the “Department”) regulates disability and health insurance claims subject to ERISA. Recently, the Department finalized new regulations codified at 29 C.F.R. § 2560.503-1 and discussed at 81 Fed. Reg. 92316. The regulations hope to reduce the potential for a conflict of interest in managing an ERISA plan and better inform the insured as to why their disability benefits were denied. As far as the timeline goes, the following four points are important to remember.
- The regulations only apply to claims for disability benefits filed on or after January 1, 2018.
- Per the new regulations, the insured may file suit when a claim is “deemed denied” even if the administrative remedies have not been exhausted. The regulations outline that a claim is “deemed denied” once the plan fails to comply with the appropriate regulations.
- The regulations also outline the insured’s ability to request the administrator’s written rationale for the alleged violation. The administrator must respond to such a request within ten days, including a written explanation addressing the alleged violation.
- Finally, the new regulations require that the final denial adequately describe any applicable contractual limitations period, including the specific date that the statute of limitations to file ends.
For a full discussion of the Department’s new regulations, see our article in the Daily Journal, available at https://mslawllp.com/robert-mckennon-and-scott-calvert-publish-article-in-the-los-angeles-daily-journal-new-regulations-will-benefit-claimants-in-disability-insurance-cases/.