ERISA - Life Insurance Archives - McKennon Law Group

In a case of first impression in California, McKennon Law Group PC has successfully defeated American General Insurance Company’s (“American General’s”) attempt to dismiss the counterclaims of our client, Nguyet Minh Le, in federal court in the Central District of California. McKennon Law Group PC is an insurance litigation law firm that attempts to compel insurance companies to pay insurance benefits that the insurers improperly refuse to pay. In some of our cases, unusual circumstances arise. Ms. Le’s case was one of those cases. We were hired to address an insurer’s negligence and recklessness when it paid over $1,000,000 in life insurance proceeds to the wrong person: Ms. Le. American General mistakenly paid her because it thought she was the true beneficiary of a life insurance policy it issued. Because of its gross negligence, American General confused Ms. Le with another beneficiary and confused the insured as Ms. Le’s husband. It sued Ms. Le to recover the money it paid to her. She turned to us for help. We mounted a vigorous defense against American General’s lawsuit and also countersued American General for negligence, negligent misrepresentation, and fraud. American General attempted to convince the court to dismiss Ms. Le’s counterclaims. In a June 22, 2023 opinion, the court concluded that Ms. Le had properly alleged claims against American General. See Am. General Life Ins. Co. v. Nguyet Minh Le, EDCV 22-867, slip op., (C.D. Cal. June 22, 2023). The question before the court had never been litigated in California previously: when a person is mistakenly paid life insurance benefits and relies on that money to pay off loans, buy cars, and otherwise make expenditures she would not have otherwise made, does she have a cause of action against the insurance company for wrongfully and negligently paying her life insurance benefits? The federal court answered this question with a resounding “yes.”

Ms. Le’s story is a sad and unusual one. Her husband passed away. Before his death, he informed Ms. Le that he had life insurance. However, he did not provide specific details about the policy. After his passing, Ms. Le contacted the National Association of Insurance Commissioners (“NAIC”) about the potential policy. The NAIC offers a service that helps people locate unclaimed life insurance benefits. In response to the inquiry to the NAIC, American General contacted Ms. Le. They informed her that her late husband had over one million dollars in life insurance coverage.

In fact, Ms. Le’s husband was not covered under the million-dollar policy that American General had identified. American General provided our client with a claim form and encouraged her to file a claim for the million dollars. When she did so, American General encountered numerous errors in its system. Unbeknownst to our client, various pieces of her and her husband’s identifying information did not match American General’s records for the policy. The Social Security numbers for the actual insured and Ms. Le’s late husband did not match. The Social Security numbers for the beneficiary and our client did not match. Our client and her husband lived in California. The policy’s insured and beneficiary did not live in California. American General still insisted that our client was the proper beneficiary and it paid her the policy’s death benefit.

After receiving the death benefit, Ms. Le drastically altered her life. She quit her job, she purchased an expensive car, she traveled, she paid expenses for her family members and she otherwise spent hundreds of thousands of dollars that she would not have spent had she not received over $1,000,000. She adjusted to a new life with these additional funds.

After having paid Ms. Le the death benefit, American General realized that it had erred. American General promptly sued our client to recover the money it had paid her. We responded to American General’s lawsuit with a counterclaim for negligence, negligent misrepresentation, and fraud. American General filed a motion to dismiss the counterclaim.

American General raised a variety of arguments why Ms. Le’s counterclaims should be dismissed. Its first argument was that the litigation privilege compelled the court to dismiss Ms. Le’s claims. The litigation privilege “precludes liability arising from a publication or broadcast made in a judicial proceeding or other official proceeding.” Fremont Reorganizing Corp. v. Faigin, 131 Cal.Rptr.3d 478, 493 (Ct. App. 2011). “[C]ommunications with some relation to judicial proceedings are absolutely immune from tort liability by the litigation privilege.” Chaffey Joint Union High Sch. Dist. v. Fieldturf USA, Inc., 2016 WL 11674265, at *2 (C.D. Cal. May 19, 2016). In its motion, American General argued that Ms. Le’s claims all arose out of it attempting to take the money back and, therefore, the litigation privilege applied because its attempts to take the money back were inherently part of litigation. Ms. Le argued that her statements were “non-communicative” in nature and it was American General’s negligent and/or reckless handling of the claim and insurance proceeds that had caused her harm, and thus the privilege did not apply. The Court dismissed American General’s argument. It explained that “American General’s alleged negligent and reckless acts were not communications made in a judicial proceeding or in connection with a judicial proceeding, and [thus] do not qualify for the litigation privilege.” See Nguyet Minh Le, EDCV 22-867, at **4-5. The mishandling of the claim and payment of insurance proceeds were the acts at the root of Ms. Le’s harm.

American General also argued that our client had not suffered any harm from its actions. The Court again disagreed. It explained that taking on financial obligations because of American General’s actions constituted a legally recognizable harm. See id. at **5-6.

American General next argued that Ms. Le could not bring a claim for fraud. “Under California law, the elements of a cause of action for fraud are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Id. at *6 (citations omitted and emphasis in original). Given that an insurance company would not knowingly give the wrong person a million dollars, American General insisted that Ms. Le’s fraud claim failed as a matter of law. American General’s argument was incorrect. As the Court explained, if American General had acted recklessly, then, in fact, Ms. Le could bring a claim for fraud. Even if an entity does not know that it made misrepresentations, if it made statements in reckless disregard for the truth, the harmed party may still bring a claim for fraud. The Court found that Ms. Le had adequately alleged that American General had acted recklessly. As the Court explained, “The Court cannot overlook American General’s failure to investigate the mismatching SSNs, or take further steps to confirm the identity of the claimant before dispersing more than a million dollars in funds.” Id. at *7.

Finally, American General argued that it did not owe a duty of care to Ms. Le. Ms. Le’s negligence claims all required her to establish that American General owed her a duty of care. A “duty of care” is the legal requirement that a person act toward another with the care and prudence that a reasonable person would use. This duty does not extend to all people under all circumstances, and American General argued that no such duty extended from American General to Ms. Le in this context. The Court found that American General did owe Ms. Le a duty of care. As it explained:

[T]he Court concludes that American General owed a duty of care to Ms. Le because it treated her as if she were the proper beneficiary under the insurance policy. . . . Although the original life insurance policy was not intended to affect Ms. Le, it was highly foreseeable that if American General made Ms. Le believe she was the proper beneficiary of the policy [although] she [actually] was not, she would be harmed by the misrepresentations. Ms. Le certainly suffered injury by undertaking financial obligations she would not have [undertaken] if she were not paid the insurance money. American General’s alleged conduct directly caused Ms. Le’s injury. According to Ms. Le, she had done no more than request information of policies that matched her and her late husband’s information, and it was American General that contacted her and informed her that she was a beneficiary. American General’s mess was of its own making. Public policy should incentivize insurance companies to handle claims with reasonable care, such as to confirm basic identifying information, before dispersing more than a million dollars in funds. The Court is confident that Ms. Le’s circumstances are unusual enough that finding a duty of care here would not have an outsized “adverse impact on a class of defendants upon whom the duty is sought to be imposed.” Cf. Adelman v. Assoc. Int’l Ins. Co., 108 Cal. Rptr. 2d 788, 796 (Ct. App. 2001).

Id. at *8 (emphasis in original). The Court concluded that an insurer owes a duty of care when telling people that they are entitled to benefits under a life insurance policy.

The Court’s denial of American General’s motion was significant. Not only did it allow Ms. Le to pursue her claims in Court, but it also set the precedent that insurance companies cannot recklessly conduct their business and then just walk away with a complete disregard for the lives that they damage. When people receive significant amounts of insurance proceeds, they often make life-altering decisions based on the money that they received. An insurer must be held accountable for its actions.

What Are The Differences Between Accidental Death And Dismemberment insurance And Life Insurance?

The main difference between AD&D insurance and life insurance is the types of events they cover. Both provide coverage in the case of the death of the insured, although accidental death and dismemberment insurance, as the name suggests, only covers a death if it is caused by an accident, as defined in the policy. AD&D Policies define accident differently and all have various types of exclusions, such as intentional acts, self-inflicted injuries, and medical conditions that cause or contribute to an accidental death.

AD&D insurance is usually added to a standard insurance policy, as a rider or supplemental insurance. AD&D insurance generally does not stand on its own, but rather as a product added on to a standard policy. Death benefits for an accidental death are not included in a standard life insurance policy, but having AD&D coverage on top of the standard life policy provides for an additional benefit for an accidental death covered by an AD&D policy.

Is A Sudden Death Because Of Illness Considered An Accidental Death?

Accidental death and dismemberment policies exclude coverage for death resulting from a sudden onset of illness. Similarly, if the insured person undergoes medical treatment and subsequently passes away, the death may be excluded from AD&D coverage. The Covid-19 pandemic has brought this factor into a new light as it relates to AD&D insurance. Because Covid-19 is a medical condition, death resulting from Covid-19 will likely be excluded from coverage under most AD&D policies. However, if the exact cause of death is uncertain and whether death is caused by an underlying condition or if some other cause cannot be determined, the matter may need to be litigated to determine whether AD&D coverage applies or is excluded. It is critical that if you believe you have an AD&D claims resulting from an accidental death, you should consult an accidental death insurance lawyer to assist you to determine if you have a covered claim. Many times we find that persons who think they do not have a valid accidental death insurance claim actually do have a valid claim.

What Is A Dismemberment Claim?

Dismemberment coverage applies when a covered person loses a body part or function, or loses the use of a body part or function. Examples of dismemberment that AD&D may cover include:

• Permanent or partial loss of limb or limbs
• Permanent or partial paralysis of limb or limbs
• Loss of speech
• Loss of eyesight
• Loss of hearing

However, coverage varies from policy to policy. The exact coverage will be delineated in the policy.

In cases where an underlying condition contributes to an injury, the many courts will follow what is called a substantial contribution standard. This means that if injuries result from an accident (like a car accident) and require an amputation, the courts will have to determine if the insured had any underlying condition that substantially contributed to the need for amputation. If so, the amputation would be excluded from coverage. If not, there may exist a valid accidental death insurance claim.

If The Deceased Person Was Partially At Fault In Causing The Accident, Does Their AD&D Insurance Still Apply?

As noted above, AD&D policies come with a list of applicable exclusions, which typically include self inflicted injuries or death and deaths occurring in the course of committing a crime. For example, if an insured with AD&D insurance slips, falls, and dies while they are robbing a bank, their death would be excluded from coverage. However, an exclusion will not apply to AD&D coverage unless it is specifically and clearly notated in the policy. Insurers always have the burden of proving the applicability of any exclusions in their policies.

Should I Have Both Life And AD&D Insurance?

Having both life insurance and AD&D insurance is not always necessary but it is recommended. The cost of AD&D insurance is low because the risk of accidental death is low for the average American. Given a choice between the two, life insurance offers a much more stable and secure financial plan if you or a family member pass away. But if you have a job or live a lifestyle that carries a higher risk of accidental injury or death, you should consider AD&D insurance in additional to traditional life insurance.

The dedicated and knowledgeable accidental death insurance attorneys at McKennon Law Group PC are available and ready to answer questions you may have about life insurance, AD&D insurance, and how the two differ. McKennon Law Group PC offers free initial consultations, so you risk nothing by contacting us with your questions.

Defined Benefit Plans vs. Defined Contribution Plans: What You Need to Know

Saving for retirement is a common goal for many. One means of achieving this is for employees to take advantage of different types of retirement benefits offered by their employers to save money for their future retirement. Different retirement plans provide different options for how you can save, how much you can save, and what benefits you can expect from your employer. It is important to have an understanding of your benefits that allows you to protect yourself in the case that you are denied your benefits.

The Employment Retirement Income Security Act of 1974, or ERISA, is the federal statute that protects employees’ benefits. You can find out all you need to know about ERISA on our frequently asked questions page and on our ERISA and Insurance Litigation Blog. If you believe you are not getting your benefits, reach out to us to find out how we can utilize ERISA to help you recover the benefits you are owed.

Additionally, find out more about the difference between defined benefit plans and defined contribution plans below.

What Is a Defined Benefit Plan?

A defined benefit plan is a retirement plan that promises to pay a specific benefit each month once you reach a certain age. The plan defines the age of eligibility, commonly between 62 and 65. Some defined benefit plans promise a specific dollar amount as a benefit, like $200 per month once you reach retirement age and retire. Others promise a benefit that is calculated based on your salary and years of service with your employer.

For example, determining the benefit might involve calculating your average salary over the last few years and multiplying it by a percentage determined by your years of service with your employer(s).

Positive Aspects of Defined Benefit Plans

Employers often contribute more to defined benefit plans than to defined contribution plans every year, which can benefit you in the form of tax savings. A defined benefit plan may also allow you to accrue more benefits in less time than with other plans, depending on the plan structure. A defined benefit plan also allows you to rely on the security of predictable payments in retirement.

Example of a Defined Benefit Plan

Imagine that Bob works for a company that offers a defined benefit plan. Bob’s employer contributes a certain amount to the plan. The plan, or a contracted third party, will then invest the contributions. Bob does not have any say in those investments or how they are handled, but his employer guarantees that Bob will receive a certain pension benefit upon retirement, which may be $100 per month in pension funds for every year he works for his employer. If Bob worked 10 years with the employer, his employer would guarantee him a pension of $1,000 per month.

What Is a Defined Contribution Plan?

A defined contribution plan is a savings vehicle that helps employees save for retirement, but it does not provide a specific promised benefit amount. The employee contributes to the plan, typically with pre-tax dollars. The employer may match the employee’s contribution up to a certain amount.

Contributions are invested to accrue additional value over time. Once you reach retirement age, you can begin to withdraw from the retirement plan as needed and according to IRS tax requirements. Examples of defined contribution plans include 401(k) and 403(b) plans.

Positive Aspects of a Defined Contribution Plan

While employee and employer contributions are capped at lower annual rates annually in a defined contribution plan, contributions are discretionary, allowing for greater flexibility in employers offering, and employees participating in, such plans. Defined contribution plans tend to be more common in the private sector today and are more favored by many employers, partly because they are less complex and less expensive to manage than defined benefit plans.

Hypothetical Example of a Defined Contribution Plan

Use Bob as an example again, but now he has a defined contribution plan rather than a defined benefit plan. Bob decides to contribute 4% of his salary to the plan and the employer matches up to 3%. The money contributed goes into a retirement fund specifically for Bob, and he is able to see and make changes to how the money is invested. Bob can decide whether he wants to play it safe or be a bit more aggressive with his retirement investments.

When he retires, Bob does not receive a specific amount every month based on his tenure and average salary. Rather, he can simply withdraw the amounts he needs, in accordance with IRS rules, from his retirement fund.

Does ERISA Cover Both Defined Benefit and Defined Contribution Plans?

Both a defined benefit and a defined contribution plan are covered by ERISA, so long as the plan is offered as an employer-sponsored benefit by a business in the private sector.

What If You Are Being Denied the Benefits You Are Owed?

Based on the above information, the importance of understanding the nature of your retirement benefits is clear. If you do not understand how your benefits work, you do not know whether you are getting what you are owed.

If you believe you are not getting the benefits you are owed, your best course of action is to reach out to someone with expertise in handling ERISA pension/retirement matters, like the experienced ERISA attorneys at McKennon Law Group PC. The knowledgeable ERISA pension attorneys at McKennon Law Group PC have helped their clients recover benefits owed to them and can help ensure that you receive the pension benefits you are due under your pension plan. Contact McKennon Law Group PC today for more information.

How Do I File An Accidental Death And Dismemberment Claim?

If you are insured by an Accidental Death and Dismemberment (AD&D) policy, your beneficiary will be entitled to benefits if an accident causes your death or dismemberment. Similarly, if you are the beneficiary of someone else’s AD&D policy, you may be entitled to benefits if an accident causes that person’s death or dismemberment. However, AD&D policies typically have stringent requirements and several exclusions to coverage. An insurance company will deny benefits whenever it is able to use a policy requirement or exclusion to do so. Therefore, it is important that you understand and properly follow the claims process.

When there has been a death or dismemberment caused by an accidental event, the first thing to do is gather all the relevant documentation, which will include:

AD&D policy
AD&D claim documents
Copies of medical records
Records of any hospital stays or surgery
Autopsy reports
Police/Accident reports
Death certificate.

The next step will be demonstrating that your claim is payable because it is covered by the policy. The death or dismemberment must be the result of some type of accidental event. Simply because a death certificate or autopsy report characterizes death as an “accident” does not make it an accident in the skeptical eyes of an insurer. If there is any other contributing cause of the loss, such as an illness, medical event or intoxication, you can expect the insurance company to deny your claim. For example, if the insured passed away at a hospital, you should provide evidence that the death was caused by an accident and not solely by an illness, like a subdural hematoma, which may have been caused by an accidental event, such as a car accident or fall. The more relevant evidence you provide, the more likely the insurance company will pay your claim.

What Can I Do If My Claim Is Denied?

If your claim for AD&D benefits is denied, you should immediately contact an experienced accidental death insurance/AD&D lawyer. Insurance companies deny claims for many different reasons, and they often deny claims that should be paid. If your claim is denied, you will likely be left wondering what your options are or what to do next. An experienced accidental death insurance/AD&D lawyer will be able to evaluate the merits of the case and advise you on your next steps, which may be an administrative appeal to the same insurer or a lawsuit. A qualified lawyer can recommend documents to obtain, can perform legal research, can hire needed experts, and can assemble the evidence necessary to convince the insurer or a court of law that the accidental death/AD&D claim is payable.

At McKennon Law Group PC, we have the experienced and knowledgeable attorneys to provide you with the representation you need. We offer free consultations to assess your accidental death insurance/AD&D matter. Contact McKennon Law Group PC today and speak to our highly qualified team of accidental death insurance/AD&D lawyers for all your AD&D insurance needs.

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.

A recent trend of lawsuits has involved Insurers who seek to avoid paying out life insurance or disability insurance benefits even though they have collected premiums on the policy, because they and the plan participant’s employers never obtained Evidence of Insurability (“EOI”). These insurers deny claims for life insurance and disability insurance benefits on the ground that a claimant was never covered by the policy. The Eighth Circuit Court of Appeals, in Corey Skelton v. Reliance Standard Life Ins. Co., 33 F.4th 968 (8th Cir. 2022), recently provided some clarity as to when an insurer and employer have a fiduciary duty to the insured with respect to life insurance and disability insurance coverage and when those fiduciary duties are breached. In Skelton, Plaintiff worked for Davidson Hotels LLC (“Davidson”) and obtained supplemental life insurance coverage for his wife. The life insurance policy was issued by Reliance Standard (“Reliance”). The policy generally required EOI, including proof of good health, for a member to obtain coverage. However, if an applicant for supplemental life insurance was changing coverage amounts within 31 days of “a life event change (such as marriage, birth, or specific changes in employment status),” then the applicant was not required to submit an EOI and receive Reliance’s approval.

Mrs. Skelton had life insurance coverage for $100,000 and wanted to increase the coverage to $238,000. Her husband regained custody of his son, Mrs. Skelton’s step-son, and she asked Davidson whether this qualified as a life event that would allow her to elect supplemental life insurance. Davidson told her that this did qualify as a life event. Skelton applied for the supplemental coverage and in Davidson’s response she received a notice informing her that she was required to submit EOI. Mrs. Skelton subsequently received a “Benefit Verification / Deduction Authorization” document indicating that she had “Supplemental Term Life” insurance, with the reason for completing the form being listed as “Regaining custody of dependent child.” She then paid premiums for a few months, but stopped, and one year later she qualified for a waiver of her premiums retroactive to when her coverage began. She then passed away and her husband made a claim for death benefits under her policy, which Reliance denied for lack of coverage, stating that Mrs. Skelton was never covered because she did not provide EOI.

Reliance argued that because Davidson’s practice was to collect the premiums and then forward the premiums to it, Reliance did not have a fiduciary duty to Mrs. Skelton. However, the district court held that Reliance had a fiduciary duty to ensure that its system of administration did not allow it to collect premiums until coverage was actually effective. The court held that

“Fiduciary status . . . is not an all or nothing concept. A court must ask whether an entity is a fiduciary with respect to the particular activity in question.” Maniace v. Com. Bank of Kansas City, 40 F.3d 264, 267 (8th Cir. 1994), quoting Kerns v. Benefit Tr. Life Ins. Co., 992 F.2d 214, 217 (8th Cir. 1993). “[A]n insurer who is not the plan administrator has no ERISA fiduciary duty” for a particular activity “unless the policy documents or the insurer’s past practices have created [such] an obligation.” Id.

The court held that the “ability to determine Mrs. Skelton’s eligibility for supplemental life insurance made Reliance a fiduciary for Skelton’s application process.” Reliance argued that while it had fiduciary duties related to eligibility and making claims decisions, those duties did not extend to enrollment. But because the policy language provided that enrollment occurred automatically as a result of Reliance’s eligibility decision, Reliance was therefore Mrs. Skelton’s fiduciary, as it essentially determined enrollment. The “plan documents and the insurer’s acts determine whether it is a fiduciary for the relevant function.” See Kerns, 992 F.2d at 217. Thus, as the entity that determined eligibility and conducted enrollment, Reliance was Skelton’s fiduciary.

The court further held that Reliance breached its fiduciary duty by failing to maintain an effective enrollment system. The court held that a reasonably prudent insurer would use a system that avoids the employer and the insurer having different lists of eligible, enrolled participants, and that Reliance used an insufficient, haphazard system. Reliance sent Davidson monthly status reports listing pending applications, but the reports did not include employees who had not submitted EOI, which resulted in a “ships passing in the night” situation between Reliance and Davidson as to who was eligible for coverage.

With respect to Reliance Standard’s argument that it did not communicate with the employer about enrollment in the ERISA plan, the court rejected it, explaining:

Reliance cannot insulate itself by failing to communicate with Davidson about enrollment—which Reliance controlled—while having Davidson remit ill-gotten premiums. ERISA seeks “to protect … the interests of participants in employee benefit plans and their beneficiaries” and to “increase the likelihood that [they] receive their full benefits.” 29 U.S.C. §§ 1001(b), 1001b(c)(3). This Circuit has emphasized that allowing plaintiffs to seek full recovery for breach of fiduciary duty “is so important” because this eliminates the “‘perverse incentive[ ]’” for fiduciaries to “‘enjoy essentially risk-free windfall profits from employees who paid premiums on non-existent benefits but who never filed a claim for those benefits.’” Silva, 762 F.3d at 725, (quoting McCravy v. Metro. Life Ins. Co., 690 F.3d 176, 183 (4th Cir. 2012)). Allowing an insurer to use “a compartmentalized system to escape responsibility” would undermine ERISA’s purposes. See Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 940 (9th Cir. 2017) (quotations omitted).

Indeed, allowing a fiduciary to escape liability because it designed an enrollment system that ensured it would not know it was collecting “premiums on non-existent benefits” would endorse willful blindness—and the exact “perverse incentive” this Circuit has decried. See generally Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140, 1150 (C.D. Cal. 2013) (“Reliance Standard did not conduct any such investigation and only investigated the eligibility of Ms. Dietrich for *979 supplemental life insurance coverage after her death.”); Cho v. First Reliance Standard Life Ins. Co., 852 Fed. Appx. 304, 305 (9th Cir. 2021) (holding Reliance liable where employer erroneously collected premiums from ineligible person for over a year despite unsubmitted EOI); cf. Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (stating, in ERISA breach-of-fiduciary-duty case, that under the duty of prudence, “If a fiduciary was aware of a risk to the fund, he may be held liable for failing to investigate fully the means of protecting the fund from that risk”).

Indeed, allowing a fiduciary to escape liability because it designed an enrollment system that ensured it would not know it was collecting “premiums on non-existent benefits” would endorse willful blindness—and the exact “perverse incentive” this Circuit has decried. See generally Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140, 1150 (C.D. Cal. 2013) (“Reliance Standard did not conduct any such investigation and only investigated the eligibility of Ms. Dietrich for *979 supplemental life insurance coverage after her death.”); Cho v. First Reliance Standard Life Ins. Co., 852 Fed. Appx. 304, 305 (9th Cir. 2021) (holding Reliance liable where employer erroneously collected premiums from ineligible person for over a year despite unsubmitted EOI); cf. Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (stating, in ERISA breach-of-fiduciary-duty case, that under the duty of prudence, “If a fiduciary was aware of a risk to the fund, he may be held liable for failing to investigate fully the means of protecting the fund from that risk”).

Skelton, 33 F.4th at 978–79. The court additionally held that Reliance breached its fiduciary duty by accepting Skelton’s premiums without providing coverage. “ERISA fiduciaries must comply with the common law duty of loyalty, which includes the obligation to deal fairly and honestly with all plan members.” Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997). This includes the duty to not profit at the beneficiary’s expense.

Reliance argued that because it received all of the premiums from Davidson, it had no way of knowing whether Mrs. Skelton’s payments were made, but it presented no evidence that it did not receive payment for Mrs. Skelton’s life insurance policy from Davidson. The court thus held that Reliance breached its fiduciary duty to Mrs. Skelton by receiving her premiums without giving her a corresponding benefit of coverage, while serving as a fiduciary for her eligibility and enrollment, and thus profited at her expense by avoiding any financial risk of having to pay benefits for her.

Notably, the court did not hold that Reliance became a fiduciary merely by receiving premiums from an ineligible employee. The court found that Reliance told Mrs. Skelton that she would not pay premiums until it approved her application, then it took her premiums without approving her application, thus profiting on its broken promise. This act of misleading Mrs. Skelton (by causing her to believe that if she was paying premiums, she was covered for the supplemental coverage), then profiting off of her premiums without approving her application, was Reliance’s breach of its fiduciary duty.

The Skelton court’s decision demonstrates that an insurer can be held liable for a breach of fiduciary duty even where it does not have actual knowledge that a participant is paying premiums. Because a reasonably prudent insurer would have facilitated a system that reliably informed Davidson as to which participants’ premiums were being paid and which participants were required to provide EOI, Reliance breached its duty. The Skelton court’s holding provides a blueprint of recourse for participants whose insurers have breached such fiduciary duties.

If you or someone you know has experienced the same or similar treatment from an insurer or employer, you may be able to hold them accountable. McKennon Law Group PC is highly experienced in handling denied ERISA claims, including those involving the insurer’s breach of fiduciary duty. Contact McKennon Law Group today for a free consultation.

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