ERISA - Disability Insurance Archives

What Surveillance/Investigation Tactics to Expect From Disability Insurers

Is Your Disability Insurer Watching You?

When you file a disability claim with your insurance company requesting that it pay you monthly disability benefits, it will take all necessary steps to try to disprove your claim. If, for example, you assert that you cannot work due to sickness or injury that causes your inability to work in your occupation or any other occupation, the insurance company may try to show that this is not the case because of the activities you engage in regularly. To do that, the insurance company may engage in surveillance tactics without your knowledge to watch your daily activities.

Insurers who conduct surveillance do not automatically engage in bad-faith conduct. They have a right to protect their bottom line and shareholders by conducting reasonable investigation of claims. Nonetheless, it is important to understand what tactics the insurance company might use and how to protect your rights and your claim.

Physical Surveillance by an Investigator

Disability insurers normally hire undercover private investigators who film you during the day and night. These individuals must adhere to privacy laws, which means they cannot take videos or pictures of you at certain times and in certain locations, such as inside your home, without your permission. However, they can generally capture video and photographs of you outside or in public, and they can record their own observations about what you do and when you do it. Video surveillance is conducted mostly at and around your home and will include your travel to locations near your home when you travel away from it.

Surveillance and Invited Investigations at Your Home

Insurers often conduct surveillance of your home and sometimes they set up a visit to your home to ask you questions. If you invite this person into your home, they have access to your private areas that can be seen from the area in which you invited them. Anything they note while inside the home can be documented for use in an insurance case.

This may not seem like it is very important, but something the representative sees in or around your home while he or she is there might call into question your entire disability claim. For instance, if you are the only person who lives in the home and you have claimed that you cannot work due to physical disabilities and limited mobility, the insurance company might question why its representative saw a mountain bike that seemed recently used in your home.

Video Evidence Can Be Damning to Your Claim or It Can Assist in Proving It

Insurance companies can and often do use video evidence from surveillance as evidence against your case or claim, especially if the matter goes to court. The insurance company might try to gather video footage from traffic cameras or other sources that show you doing things that seem to indicate you would have no trouble working or that your disability or injury is not as serious as you claim. In some cases, insurance companies might try to subpoena video evidence from other cameras, including personal cell phones.

Social Media Investigations

If you use or own social media accounts, these can and will be investigated by your disability insurer to determine if anything you post (whether written or photographic) is inconsistent with your disability claim and the representations you make about your claim. Your own Facebook, Instagram, X, or TikTok account could give your insurance company evidence they might use against you. Some insurance companies engage in social media investigations, which means they hire trained professionals to monitor your accounts.

This is an important consideration, as you must be careful what you share online. You cannot just ensure you keep your photographs and other information to “friends only,” either, as nothing on the internet is completely private.

Consider a hypothetical case where a disability claimant is dealing with extreme back pain and cannot work. However, through the use of medication, days of rest before and after, and help from others, she is able to attend an important family event, where she is seen walking, bending and sitting without any noticeable pain. A disability insurer might try to use pictures and videos to deny your claim, though the pictures do not tell the entire story of what those few hours might have cost the individual after the event is over.

If you use social media platforms, you may also want to select settings that keep people from tagging you in pictures and posts. This helps reduce the chance that others might add information or images to your profile that are damaging to your case. McKennon Law Group PC believes that these types of investigations are so important that it provides all of its disability clients with a Social Media Questionnaire and Warnings document they are required to complete.

Background Checks and General Research

Insurance companies also conduct background checks and research into your life before and after any injury or disability. Investigators may look for information about your previous jobs, where you have lived in the past, who you have lived with, and what your interests and hobbies are. All of this information can inform the rest of their research or the strategy they take in surveilling you in the future.

For example, if background research shows that someone was an avid hunter or hiker, investigators may be on the lookout for evidence that the individual is engaging in these activities despite their claimed disability.

How a Disability Lawyer Can Help

Knowing that an insurance company or investigator might be watching you—literally and figuratively—can be stressful. That is a stress you certainly do not need to pile on in an already stressful time, but it is important to understand what actions might weaken your case and how to protect your rights, privacy, and case.

An experienced disability attorney can help with all of that. At McKennon Law Group, PC, we work hard to protect our clients from bad-faith insurance actions. We also provide guidance throughout your claim and case process so you can live more confidently knowing you are working in the best interests of your case.

Insurer and Fiduciaries Liable for Incorrect Calculations and Advice about the Amount of ERISA Plan Benefits

Is an ERISA Insurer or Other Fiduciary Liable When They Incorrectly Calculate and Misrepresent the Amount of Your Plan Benefits?

Most employee benefits are governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”), including disability insurance, life insurance, accidental death insurance, health insurance, pensions, and other benefits offered by employers to their employees through their employee benefit plans. Sometimes the plan’s administrator or an insurance company (if the plan’s benefits are funded by an insurance policy), miscalculates the employee’s monthly benefit and misrepresents to him the amount due, which in turn can lead to dire financial results if the employee relies to his detriment on the insurer’s misrepresentation. Is an ERISA insurer liable to an employee for such wrong calculations and misrepresentations?

That is a complicated question under ERISA fiduciary duty law. Until the very recent decision from the Ninth Circuit Court of Appeals in Irina Morris v. Aetna Life Insurance Company, No. 21-56169, 2023 WL 3773656 (9th Cir. Jun. 2, 2023), the answer was unclear. The courts had found that when an administrator made a mistake in calculating plan benefits while following the procedures set by another entity, it engaged in a “ministerial” function, not a fiduciary one, because no discretion or judgment was required. So held the Ninth Circuit of Appeals in Bafford v. Northrup Grumman Corp., 994 F.3d 1020 (9th Cir. 2021). But, going forward, the answer is a resounding yes, insurers, plan administrators and their third-party administrators who make “calculation” errors are performing a fiduciary function when those calculation errors are accompanied by other actions, thanks to the Morris decision.

In that case, the McKennon Law Group PC obtained a favorable decision for one of its ERISA plan long-term disability clients. The Ninth Circuit clarified and drastically expanded the scope of an ERISA insurer’s fiduciary duty liability for miscalculating and misrepresenting plan benefits. That is a fair result because ERISA insurers and administrators are fiduciaries of plan participants and their beneficiaries. As fiduciaries, they have a duty to act solely in the interest of the plan’s participants and beneficiaries for the exclusive purpose of providing them their benefits, and with care, skill, prudence, and diligence. See 29 U.S.C. § 1104(a)(1). With these very high duties of loyalty and prudence, why would a court allow an insurer to cavalierly misinform a plan participant about his benefit amount to his financial detriment with no consequence.

Morris is significant because it changed the landscape of ERISA fiduciary duty law on these types of issues in a favorable way for ERISA plan participants. To that end, the Morris Ninth Circuit Court of Appeals limited its landmark Bafford decision. Let’s step back for a moment. In Bafford, the Court held that a third-party administrator that incorrectly calculated a pension plan benefit amount within the framework of a policy and procedure set by another entity did not have to exercise any discretion, and so its error did not constitute a fiduciary function but was just a ministerial calculation error that could not be a fiduciary duty breach. The TPA selected the wrong salary data which caused it to overstate the employee’s monthly pension. ERISA insurers and administrators had successfully relied on Bafford to avoid liability for breach of fiduciary duties (when they miscalculated a plan participant’s benefits), on the ground that they did not exercise any discretion or judgment, the prerequisite of a fiduciary function. That is still the law in that very specific factual circumstance, i.e., when the person that mistakenly miscalculated the benefits did not exercise any discretion and acted within the framework of procedures set by someone else. However, Morris drastically expanded the scope of fiduciary duty liability for ERISA plan insurers and administrators when they commit a wrong subsequent to such a ministerial benefit calculation error. And Morris even implied that some benefit miscalculations similar to the mistake in Bafford are not ministerial but fiduciary.

In the wake of Bafford, the Ninth Circuit’s Morris decision swung the pendulum back toward plan participants. The case expanded what constitutes a fiduciary function. The Morris case clarified that, in relation to even a ministerial benefit calculation error, an ERISA insurer still can perform fiduciary functions in many respects. A plan participant can recover damages when an insurer or administrator incorrectly calculates her plan benefits if the insurer exercises discretion in other misconduct related to such a non-fiduciary benefit calculation error that harms the plan participant.

In Morris, the group insurer, Aetna, of the employer’s long-term disability plan negligently miscalculated the employee plaintiff Morris’ monthly LTD benefit, overstating it by hundreds of dollars per month. In collecting data to calculate Morris’ benefit, Aetna made a mistake about the amount of Morris’ salary, that she was paid 26 times per year when she was really paid 24 times per year. Since her monthly LTD benefit was a percentage of her pre-disability salary, Aetna’s mistake caused it to overstate her benefit. Aetna paid Morris the wrong monthly benefit amount, and misrepresented the amount to her and her lenders, for nine years. Aetna did not verify that its initial calculation was correct for almost a decade, even in response to Morris’ several phone calls and letters to Aetna’s benefit counselors asking the amount of her benefit because she wanted to apply for a mortgage and later refinance based on her disability income.

In a key part of the opinion, the Morris Court rejected the insurer Aetna’s contention that Bafford controlled because Aetna performed a ministerial benefit calculation error and, therefore, could not have performed a fiduciary function. Morris found, “But this misreads Bafford’s holding.” It held that, “Even assuming Aetna’s initial mathematical calculation is not discretionary, its subsequent actions – which were central to Morris’ injury – were” discretionary. Thus, the appellate court reversed the district court, which had held that all of Aetna’s subsequent misconduct and misrepresentations were inextricably entwined with its initial ministerial benefit calculation error and, therefore, were not fiduciary functions under Bafford.

The Morris Ninth Circuit Court found that Aetna performed fiduciary functions in several respects after its calculation error (even if Aetna’s initial long-term disability plan benefit calculation error was not a fiduciary act under Bafford because it did not exercise discretion). Specifically, Morris found the following conduct by Aetna were fiduciary functions that involved discretion (and thus subjected Aetna to liability to its insured Morris for breach of fiduciary duty):

After Aetna miscalculated Morris’ monthly LTD plan benefit amount, Aetna provided Morris with “individualized consultations with benefit counselors” about the incorrect amount of her monthly plan benefit.
In contrast to Bafford’s use of an online mechanism to calculate benefits and mail auto-generated statements to the plan participants: (1) Aetna’s employee ability specialists, team leaders, and customer service representatives consulted with Morris by phone about her benefit amount numerous times; (2) Aetna’s Long Term Disability Benefit Manager sent letters Aetna knew Morris would share with lenders as proof of her benefits; and (3) Aetna communicated with Morris’ financial institutions to verify her benefit amount.
Morris cited Bafford and other cases that, “‘[C]onveying information about the likely future of plan benefits’ through benefit counselors amounts to a fiduciary act.”
Aetna communicated with Morris and her lenders, and represented to them, the incorrect monthly benefit amount, which was a fiduciary function, unlike Bafford, because of the extent of Aetna’s involvement in her financial life.
After Morris phoned Aetna and asked whether Aetna made a benefit calculation error, Aetna did not verify the accuracy of its benefit calculations. Instead, Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, which higher income misrepresentations allowed Morris to take out a mortgage, refinance, enter a divorce settlement, and pay taxes on the basis that she was entitled to a higher income, to her financial detriment.
Aetna exercised discretion when it decided to aggressively collect its $56,000 overpayment of disability benefits back from Morris, even suspending her monthly benefit to recoup the money, which put her in dire financial straits, despite its knowledge that Morris had relied on Aetna’s incorrect statements about her monthly benefit amount to make important financial decisions.

In addition, the Morris Court held that Aetna exercised discretion and thus performed a fiduciary function when it gathered Morris’ salary information and interpreted the Plan’s terms to determine which benefits and deductions or offsets applied in order to determine Morris’ monthly benefit amount, which was different than the ministerial calculations in Bafford where a third-party administrator calculated benefits within the framework of a preset online formula set by another entity and did not have to exercise discretion. Though the Court did not explicitly say so, this implies that Aetna’s benefit calculation error was fiduciary in nature, not ministerial. The Morris Court also reiterated established Ninth Circuit ERISA fiduciary duty law that: (1) The “alleged wrong must occur in connection with the performance of a fiduciary function to be cognizable as a breach of fiduciary duty;” and (2) “Thus, the ‘threshold question’ in cases involving fiduciary breach is whether the fiduciary ‘was performing a fiduciary function[] when taking the action subject to complaint.’ ”

Key Take Away
The Ninth Circuit Morris Court expanded ERISA plan participant’s rights, as well as insurer’s fiduciary duties, particularly in the context of benefit calculation errors, benefit amount misrepresentations, and other related conduct. ERISA fiduciary duty law is quite complex. Whether an insurer performed a fiduciary function in a specific case requires careful analysis by an expert.
You should hire an experienced ERISA lawyer to represent you if your claim for disability, life, accidental death, health, or pension benefits is denied, or if your insurer or plan administrator miscalculates and misrepresents to you the amount of your plan benefits to your financial detriment. 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 California insurance bad faith claims.

What Happens With an ERISA De Novo Review?

Private sector, employer-sponsored insurance plans are regulated by the Employee Retirement Income Security Act of 1974 – ERISA. ERISA is the federal law that establishes the minimum standards for group insurance plans that are offered through private-sector employers. Should your claim for ERISA disability benefits be denied, you will need to have a California ERISA claims attorney challenge that denial on your behalf.

However, under ERISA, before you may bring a lawsuit against an insurance company for denying your claim, you are required to pursue one or more “administrative” appeals through the company. If the appeals fail, only then may you bring a lawsuit challenging the claim denial.

If your own ERISA life, health or disability insurance claim has been denied, and if your administrative appeal does not succeed, what happens when you file a lawsuit to overturn the denial and to obtain your disability insurance benefits?

As we discuss below, there are different review standards used by the courts in these cases, and you will also learn where to turn for the legal help you may need if your own ERISA life, health or disability claim is rejected.

What Is a Standard of Review?

When a lawsuit against an employer or insurance company for denying an ERISA life, health or disability claim gets to court, there is no jury, and even if you can convince the judge that the insurance company was wrong, in some states, your lawsuit still may not prevail – because of the “standard of review.”

Two standards of review may be used by a court in these cases: the “de novo” standard and the “abuse-of-discretion” standard. A court will use one of these review standards when it hears your lawsuit:

To succeed with a lawsuit in a court that uses the abuse-of-discretion review standard, a judge must determine that the insurer was wrong to deny your claim, and the judge also must determine that the company abused its discretion by denying your claim.
To succeed with a lawsuit in a court that uses the de novo standard, the judge, reviewing the administrative record with “fresh eyes,” essentially determines if the insurance company was right or wrong to deny the claim for disability insurance benefits.

In other words, to win under the abuse-of-discretion standard of review, the judge must find that the insurance company’s denial of your life, health or disability claim was so unreasonable that it constituted an abuse of the company’s discretion. This standard of review gives a decided advantage to employers or insurers who deny life, health or disability claims.

But under the de novo review standard, a judge simply decides if the company was right or wrong to deny your claim. This standard of review gives neither party any advantage going into the courtroom. But, a life, health or disability claimant always has the burden of proof.

Why Do Insurance Companies Prefer the Abuse-of-Discretion Standard?

Under the abuse-of-discretion review standard, a court must agree with the employer’s or the insurance company’s denial of your disability claim and its denial of your administrative appeal – unless the company actually “abused” its discretion when it rejected your claim or your appeal.

In recent years, fewer states are allowing insurance companies to hide behind the abuse-of-discretion standard. California and other states now have laws that require courts to use only the de novo standard of review.

If you are seeking ERISA disability or life insurance benefits in California, and if your claim was denied and your appeal also failed, you will in most instances receive a de novo review of your claim if you and your attorney file a lawsuit against your employer or insurance company.

What Does the De Novo Standard Mean?

Even under a de novo review standard, if you have a California life, health or disability ERISA claim, you and your California ERISA claims lawyer still must prove that you are entitled to the ERISA life, health or disability insurance benefits you were denied. The de novo standard, however, lets the court make its determination more fairly and independently than if the abuse-of-discretion review standard applied.

In other words, under a de novo review, the court may consider both the legal and the factual issues about your entitlement to life, health or disability insurance benefits, and the court is not required to give any deference to the plan administrator’s or insurance company’s decision to deny benefits.

This all means that states that have required a de novo review through legislation, such as California, allow courts to make their own decisions in these cases, thus allowing the courts to substitute their own discretion rather than giving deference to the decision of an insurance company or plan administrator who have obvious biases toward denying life, health or disability insurance claims that negatively affect their financial interest.

What is the “Default” Standard of Review and What Standard is Now Used in Most Courts?

The de novo standard of review is the “default” national standard, and it has been since 1989, when the United States Supreme Court held (in Firestone Tire & Rubber Co. v. Bruch) that, by default, claimants are entitled to de novo reviews of ERISA life, health or disability insurance benefit denials.

However, the court also held that the abuse-of-discretion standard may apply if the language of the ERISA-governed plan unambiguously grants the plan administrator or insurance company full “discretionary authority” to determine benefits or to fully interpret the plan’s terms and conditions.

How Does the De Novo Standard Benefit California Consumers?

As explained above, California law prohibits the inclusion of discretionary authority clauses in life, health, and disability plans. The effect of that prohibition is to require California courts to use only the de novo standard of review in all cases that involve fully-insured plans.

Thus, in the words of the Ninth Circuit Court of Appeals (in Abatie v. Alta Health Life Insurance, 2006), the court “must conduct an independent, thorough analysis of the entire administrative record” and “evaluate the persuasiveness of conflicting testimony.”

In fact, to conduct an adequate de novo review, the court may take additional evidence into account by allowing the parties to augment the administrative record to evaluate the credibility of medical opinions or to hear claims that the medical reports in the case are inaccurate. For example, if a disability claimant received a favorable disability opinion from Social Security Administration, courts will typically allow disability claimants to augment the record to include them.

When Do You Need an ERISA Attorney’s Advice and Services?

Would you go to a knee surgeon if you had cancer? Of course not. You need to consult with an experienced ERISA attorney who knows ERISA life, health or disability insurance inside and out. A workers’ comp or personal injury attorney will almost certainly not be familiar with ERISA. You must be represented by a California ERISA life, health or disability insurance claims attorney who has considerable experience advocating for clients who are seeking ERISA insurance benefits.

If you are applying for ERISA life, health or disability insurance benefits – or if your claim has been rejected – you should have the specific and personalized advice that only a lawyer who is familiar with ERISA can provide.

ERISA lawyers usually provide your initial legal consultation at no cost and with no obligation. Your first consultation is your opportunity to obtain the personalized advice you need and to learn how the law applies to your own case and circumstances.

If you are disabled and you are applying for ERISA life, health or disability insurance benefits, or if your claim has been denied, act now. To initiate legal action – or if you need to learn more – contact California ERISA claims lawyers McKennon Law Group PC as quickly as possible.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In analyzing the intoxication exclusion, the court reasoned:

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

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

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

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

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

Ninth Circuit Appeal Court Finds ERISA Disability Claimant Achieved “Some Success on the Merits” Under Hardt Where the District Court Remanded His Disability Claim to the Insurer Due To Deficiencies in the Initial Claims Review Process

The Ninth Circuit has recently joined the majority of federal courts in adopting the rule that if a claimant is able to convince a federal court to rule that an insurer’s review of an ERISA claim is deficient and it remands the matter back to the insurer based on the deficiencies, that constitutes “some success on the merits.” This is significant because it will support a claimant’s motion for attorneys’ fees. The United States Supreme Court decided in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 in 2010, and since then, most federal courts have found that a remand to the claims administrator/insurer is considered “some success on the merits” for purposes of an award of attorneys’ fees under Hardt, but the Ninth Circuit had not spoken on the issue until recently, when it too adopted the rule in its holding of Woolsey v. Aetna Life Ins. Co., No. 20-16885, __ Fed. Appx. __, 2022 WL 1598964 (9th Cir. 2022).

Michael Woolsey filed suit in federal district court after his claim for disability benefits was denied by Aetna. The district court remanded Woolsey’s claim to Aetna, finding that Aetna did not provide him with a full and fair review because its review process was deficient. The district court determined that a remand was warranted because Aetna (1) failed to assess the aggregate effect of Woolsey’s medical conditions; (2) gave dismissive treatment to reports from his treating specialists; (3) failed to address specific vocational requirements as required by the plan; (4) failed to inform Woolsey of a deficiency in the record and to consider those missing records; (5) failed to disclose independent reviewers’ reports; (6) failed to adequately explain what was necessary to correct the record; and (7) failed to adequately investigate his physicians’ reports. While the procedural errors and deficiencies did not warrant a de novo review, the district court concluded that their cumulative effect prevented a full development of the record and a “full and fair review,” relying on 29 U.S.C. Section 1133(2).

Woolsey moved for attorneys’ fees. The district court denied Woolsey’s motion holding that its remand to Aetna did not constitute “some success on the merits” because Woolsey did not prevail on his central claims. Woolsey appealed to the Ninth Circuit, which reversed the district court’s decision, holding that the district court erred in applying the Hardt standard. The Ninth Circuit held that in reaching its decision, the district court failed to comply with the ruling in Hardt that district courts should avoid lengthy inquiries into how substantial a party’s success was. The Ninth Circuit further held that “some success on the merits” does not require a district court to assess the strength of the plaintiff’s claim and noted that while the Supreme Court remained silent on what constitutes the minimum success required to enable a successful motion for attorneys’ fees, it did not suggest that the requisite success was limited to the circumstances of the Hardt remand order. The Ninth Circuit concluded that the Supreme Court’s characterization of the remand in Hardt was far more than a trivial or purely procedural success, and the Hardt court’s decision not to set the remand as the minimum threshold required for “some success on the merits” makes it clear that less favorable relief can also meet the standard.

The Ninth Circuit denoted in its holding that any remand order on its own is not necessarily sufficient to provide a basis for a claimant to be awarded attorneys’ fees. The distinction here is that Woolsey’s claim was remanded because Aetna’s review of his claim had been deficient, suggesting that had the court found Aetna’s claim review to be complete and with no violations of ERISA, but rather remanded the claim on some strictly procedural ground, such remand would likely not provide a basis for him to be awarded attorneys’ fees. Although Aetna argued that the remand did not constitute “some success on the merits” because Woolsey did not expressly seek a remand in his complaint, the Ninth Circuit rejected this argument, holding that a party’s “success” is not required to be in the form of the court granting the relief that was expressly sought in the complaint.

The implication of the Ninth Circuit’s decision in Woolsey is that the door is open for ERISA claimants in the Ninth Circuit to move for attorneys’ fees when there is a remand to the claims administrator/insurer based on a court’s findings that the insurer violated ERISA in a material manner such that a claimant did not receive a full and fair review under ERISA. As the Hardt standard is somewhat vague, Ninth Circuit in Woolsey provided much needed guidance with regard to under what circumstances warrant a finding of “some success on the merits” that can give rise to a recovery of attorneys’ fees.

Aside from the impact that the Ninth Circuit’s decision has on claimants’ ability to move for attorneys’ fees in situations involving remands, another incidental impact it will likely have is to improve of the quality of insurers’ claim-review processes. Prior to Woolsey, insurers litigating in the Ninth Circuit knew that they had a chance of defeating claimants’ motions for attorneys’ fees by arguing that remand does not constitute “success on the merits.” Without any potential liability for attorneys’ fees, insurers are more likely to provide deficient reviews of claims, knowing that a district court may well remand the decision, but that such process would effectively cost the insurer nothing, because there was no risk of being ordered to pay attorneys’ fees based on a remand. Now, however, those insurers know that the Ninth Circuit courts will apply the Hardt standard consistently with other federal courts. Therefore, those insurers are more likely to provide better initial claims reviews in efforts to avoid orders to pay attorneys’ fees.

Considering the Ninth Circuit’s holding in Woolsey, claimants facing similar situations as Woolsey did can now operate with the knowledge that an insurer’s deficient claims review can open the door for attorneys’ fees to be awarded to them.

If you believe your insurer has not given your disability, life or accidental death claim a full and fair review, the experienced attorneys at McKennon Law Group PC can assist you to recover your denied insurance benefits and attorneys’ fees, whether a court determines your eligibility for benefits or remands your claim to the insurer for further review.

Beware The Pitfalls and Unforeseen Ways That Your Disability Benefits Can Be Impacted By Offsets

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

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

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

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

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

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

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