ERISA Archives - Page 21 of 56 - McKennon Law Group

Los Angeles Daily Journal Publishes Article on April 21, 2021 by Robert McKennon Entitled “Ruling Clarifies who Qualifies as an ERISA Fiduciary”

In the April 21, 2021 issue of the Los Angeles Daily Journal, the Daily Journal published an article entitled “Ruling Clarifies who Qualifies as an ERISA Fiduciary” written by the McKennon Law Group PC’s Managing Shareholder, Robert J. McKennon. The article addresses a recent case by the Ninth Circuit Court of Appeals, Bafford v. Northrop Grumman Corp., which addressed the available legal remedies for ERISA plan members who are harmed as the result of repeated gross misstatements of pension benefits. The court held that the ministerial conduct of a third-party delegee who made incorrect pension calculations pursuant to a formula provided to it and transmitted the calculations to the plaintiffs did not constitute fiduciary actions. It also held that pension plan participants could bring state-law professional negligence and negligent misrepresentation claims against non-fiduciaries who make representations regarding plan benefits because such claims are not preempted by ERISA. The ruling provides an important avenue for relief for plan members who are harmed as the result of such repeated gross misrepresentations of plan benefits.

Ruling Clarifies who Qualifies as an ERISA Fiduciary

By Robert McKennon

In its landmark 2011 decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the U.S. Supreme Court signaled a broad expansion of the availability of equitable remedies to plan participants and their beneficiaries under the Employee Retirement Income Security Act of 1974. The claims are typically brought through actions for breach of fiduciary duty against plan fiduciaries. Courts continue to grapple with issues such as: Who are ERISA fiduciaries and when do they engage in fiduciary acts?

ERISA has been interpreted to limit legal recourse to conduct of plan fiduciaries that is “fiduciary” in nature, as opposed to “ministerial.” Thus, an ERISA breach of fiduciary duty claim will depend on whether the actions at issue involve a fiduciary function.

But what happens when a pension plan’s third-party delegee grossly miscalculates the level of plan benefits and the plan administrator communicates this misinformation to plan members who rely on them? Can the plan sponsor, the plan administrator, or the third-party delegee be liable for breach of fiduciary duty? If the third-party delegee is not liable for breach of fiduciary duty, can it be sued for state law claims because such claims are not preempted by ERISA?

The 9th U.S. Circuit Court of Appeals recently answered these questions in Bafford v. Northrop Grumman Corp., 2021 DJDAR 3501 (April 15. 2021).

Northrop Grumman sponsored an employee pension plan governed by ERISA. Northrop delegated administration of the plan to an administrative committee, which in turn contracted with Hewitt, a company that provided outside administrative services for the plan. One of Hewitt’s responsibilities was to generate statements showing plan participants what their monthly pension benefit would be when they retired. Plaintiffs Stephen Bafford and Evelyn Wilson both requested these statements using an online platform Hewitt provided.

The statements mailed to the plaintiffs in response to their online platform requests grossly overestimated the benefits to which each plaintiff would be entitled. After the plaintiffs retired and began collecting benefits in the amount the statements predicted they would, Northrop sent them notices that the statements generated by the online platform had been incorrect. Instead of the approximately $2,000 and $1,600 per month benefit Hewitt previously estimated, Bafford and Wilson were only entitled to receive $807 and $823 per month, respectively.

The plaintiffs sued. They alleged that Hewitt, the committee, and Northrop had breached their fiduciary duties, and that the committee failed to provide ERISA-required benefit information. In an alternative to their ERISA claims, the plaintiffs asserted state-law professional negligence and negligent misrepresentation claims against Hewitt. The district court granted the defendants’ motion to dismiss, and the plaintiffs appealed.

The Bafford court affirmed in part and reversed in part. The court found that because the calculation of benefits was a “ministerial” task requiring no fiduciary skill or judgment, there was no legal liability under ERISA of the employer, its administrative committee, or of the entity that “ran the numbers” and communicated the grossly inaccurate information to plan members. The court found the Department of Labor regulatory guidance as persuasive evidence regarding whether a task is fiduciary or ministerial. The DOL’s interpretive bulletin identifies a variety of tasks as “ministerial” if they are done by persons who “have no power to make any decisions as to plan policy, interpretations, practices or procedures” and who merely implementing the “policies, interpretations, rules, practices and procedures” in a framework created by other persons, including: “preparation of employee communication material” and “calculation of benefits.” See 29 C.F.R. Section 2509.75-8 (Cmt. D-2). Because, in its view, the error was merely a miscalculation of benefits by a non-fiduciary who was provided a formula to follow — a ministerial duty — the Bafford court found no ERISA legal liability for any of the companies responsible for the error. And it was a big error — Bafford’s benefit amount was overstated by nearly 60%.

The 9th Circuit panel did, however, reverse the district court’s dismissal of the state law claims, holding that the company that miscalculated the benefit amount could be potentially liable for its negligence in the performance of its duties under its contract with Northrop, noting that plaintiffs were intended beneficiaries of that contract. The court concluded that ERISA did not preempt state common law professional negligence and negligent misrepresentation claims for relief. Following Paulsen v. CNF, Inc., 559 F.3d 1061, 1082 (9th Cir. 2009), it held that “the state-law professional negligence claim does not have a ‘connection with’ an ERISA plan … , and ERISA does not preempt the cause of action.”

The Bafford court also recognized that sometimes plan administrators perform fiduciary functions through ministerial agents and that those actions will be imputed to the named and functional fiduciaries. The court cited approvingly the recent 2d Circuit opinion in Sullivan-Mestecky v. Verizon Communications Inc., 961 F.3d 91, 104 (2d Cir. 2020), where the court permitted a suit for breach of fiduciary duty against an employer based on the imputed gross negligence of a third-party ministerial benefits administrator.

Sullivan-Mestecky involved clerical errors by a life insurer that created a higher coverage amount than believed covered by the insurer. Due to a calculation error, Aon Hewitt had coded Sullivan’s annual $18,600 income as her weekly income and represented that her life insurance policy had a death benefit of $582,600. But this mistake was not caught until after she died. Sullivan did not obtain an additional life insurance policy due to the generous value of her employer policy. Based on her mother’s age at the time of her death, the plaintiff believed her mother’s life insurance policy was worth $582,600. After her mother’s death, the plaintiff submitted a claim to Prudential, but Prudential paid only $11,400, which amount it stated was the policy’s correct death benefit. The plaintiff filed suit. The court held that the plaintiff could proceed against Verizon under the equitable remedies of estoppel, surcharge, reformation and breach of fiduciary duty because of Verizon’s continuing negligent misrepresentations regarding the amount of coverage, actions that were undoubtedly fiduciary in nature.

The 9th Circuit distinguished Sullivan-Mestecky because that case involved gross misrepresentations by a plan fiduciary to a plan beneficiary regarding plan benefits: “In other words, if a fiduciary delegates a fiduciary function to an entity that normally performs a ministerial function, that entity’s performance of a fiduciary function can still constitute a breach of fiduciary duty, imputed to the delegating fiduciary.” In Bafford, Northrop’s ministerial delegee Hewitt did nothing more than calculate plan benefits pursuant to a formula provided to it and send estimates of plan benefits based on additional information provided by plan members. The court found the activity to be ministerial “because Plaintiffs [did] not allege that Hewitt was ‘issuing written plan materials like summary plan descriptions,’ or providing ‘individualized consultations with benefits counselors,’” both activities that are clearly fiduciary in nature.

In addition to miscommunication of benefits, the negligence in handling other fiduciary functions that have been held to support claims against ERISA fiduciaries include:

Cases where the benefit calculation under the plan is based on ambiguous plan language. See Kenseth v. Dean Health Plan, Inc., 722 F.3d 869, 883 (7th Cir. 2013); Daniels v. Thomas & Betts Corp., 263 F.3d 66, 74-75.

Cases where the plan accepts premiums and misrepresents coverage based on a misstatement to the plan member of eligibility for the benefit. See McBean v. United of Omaha Life Ins. Co., 2019 WL 1508456 (S.D. Cal. Apr. 5, 2019); Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226 (3d Cir. 1993); Smith v. Hartford Ins. Group, 6 F.3d 131 (3d Cir. 1993).

Cases where the plan approves benefits and then, based on the same information, denies coverage. See Cohorst v. Anthem Health Plans of Kentucky, Inc., 2017 WL 6343592, at *2 (C.D. Cal. Dec. 12, 2017).

In these cases, very often key elements are material misrepresentations to a plan member, which misrepresentations can be imputed to the employer or to the insurers administering the plans. Such circumstances can and do provide aggrieved plan members and their beneficiaries important equitable relief, including surcharge, reformation, estoppel, and waiver.

The Bafford ruling will have limited impact on ERISA claims against plan administrators based on the broad scope of fiduciary functions and the availability of equitable remedies under ERISA. The main significance is its holding is that state-law professional negligence and negligent misrepresentation claims against plan delegees who perform “ministerial “ duties are not preempted by ERISA, thereby providing a potential remedy to plaintiffs for the harm caused by the negligence of the entities performing the ministerial tasks. This is a just and fair result for employees and their beneficiaries, who would potentially be significantly harmed by losing their expected benefits if such a remedy were unavailable.

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

District Court Finds that Insurer Misinterpreted Key Policy Term in an ERISA Long-Term Disability Plan, Allowing Remand and Award of Attorneys’ Fees

Insurance companies acting as ERISA plan administrators often misinterpret the definition of “disability” when considering a claimant for long-term disability (“LTD”) benefits. In Reyes v. USAble Life, 2019 WL 1549430 (W.D. Ark. Apr. 9, 2019), this misinterpretation proved costly because the District Court awarded attorneys’ fees against the plan administrator and remanded with instructions to reopen the administrative record.

In Reyes, the District Court found that Dinora Reyes was deprived a full and fair review of her claim for LTD because, at each stage of the review process, USAble Life, the administrator of a group policy for LTD benefits, failed to follow the definition of “disability” as written in the Policy. The Policy required USAble to identify the material duties of a Mental Health Professional.

Dinora Reyes was a Mental Health Professional at Western Arkansas Counseling & Guidance Center, Inc. (“WACGC”). On June 30, 2015, Reyes applied for LTD. WACGC sponsors a group policy for LTD benefits administered by USAble Life (the “Policy”). Reyes submitted statements from three physicians indicating she was “totally disabled.” In evaluating Reyes’s claim for LTD, USAble declined her claim because there was no evidence of her disability. Reyes appealed the first denial of benefits. After further review, Reyes’s appeal was denied because she did not meet the definition of disability.

The Policy defined disability or disabled through two tests: the Occupation Test or the Earnings Test. The Occupation Test applied to employees who have not received disability payments or are within the first 24 months of their disability, to be under regular care of a physician and prevents them from performing material duties. The Earnings Test applied to employees receiving disability payments after 24 months and they are able to perform one of the material duties. Material duties were defined as a set of tasks or skills generally required by the employers.

After the denial of her second appeal, Reyes filed suit in the United States District Court for the Western District of Arkansas. Reyes had to show evidence that she was disabled under the terms of the Policy. Because the Policy was issued after March 1, 2013, Rule 101 of the Arkansas Insurance Department required a de novo review. Ark. Admin. Code 054.00.101-7.

The Occupation Test applied to Reyes’s claim for LTD; the court had to determine if the administrator had correctly denied benefits during the initial 24 months of Reyes’s disability as section 1 of the Test. If the District Court determines the administrator incorrectly denied benefits, they must decide if Reyes meets the definition of disability under section 2 of the Test.

The District Court was unable to determine whether USAble correctly denied Reyes’s initial application for benefits because USAble, failed to identify and consider the material duties of Reyes’s occupation and failed to follow the Policy’s definition of “disability.” The District Court was left to speculate as to what duties were “material” to Reyes’s regular occupation. In their initial review of Reyes’s application, USAble only sought information pertaining to her physical capacity to perform her job and not her material duties.

The District Court’s ruling resulted in remanding the case to the plan administrator. The District Court also found it appropriate to award attorney’s fees to Reyes in its discretion. On remand, USAble was to evaluate Reyes’s claim based on the definition of “disability” as written in the Policy. USAble must identify the material duties of a Mental Health Professional and not solely the physical demands of Reyes’s occupation.

Reyes last worked at WACGC on April 20, 2015 and applied for LTD benefits on June 30, 2015. She suffered from severe neck, joint pain, headaches, infection, and fatigue. Her case was remanded to the plan administrator nearly four years later. If she does ultimately receive LTD benefits, it will be at great cost, but for both sides. The Reyes case demonstrates the importance of a thorough review of the policy at issue.

Categories: Disability Insurance, ERISA, Insurance Litigation Blog, Policy Interpretation, Standard of Review

Tagged: Claims, Claims Administrator, Denial, disability claims, Disability Insurance, Discretion, discretionary authority, ERISA, healthcare professional, insureds, insurers, Long Term Disability, LTD, plan administrator, policy, policy interpretation

ERISA Claimants Can Make Use of the Futility Exception to the Requirement to Exhaust Administrative Remedies in Limited Circumstances When STD Claim is Denied to Avoid Filing LTD claim

The Employee Retirement Income Security Act of 1974 (“ERISA”) mandates that claimants under an ERISA plan have access to the federal courts. But courts have ruled that prior to litigation, a claimant must exhaust all administrative remedies, such as appealing insurers’ denials of claims. However, the futility doctrine provides an exception to this requirement that, while narrow, can prove valuable for some claimants.

Joni Dioquino (“Dioquino”) was eligible for short-term disability (“STD”) and long-term disability (“LTD”) benefits through United of Omaha Life Insurance Co (“Omaha”), which served as claims administrator and claims fiduciary for the plan. When she was diagnosed with conditions causing her leg pain, especially when sitting for more than a few minutes, which her job required, she made an STD claim to Omaha. Omaha denied her claim, supporting its denial with the opinions of an unknown nurse case manager and two “paper review” doctors, each of whom had clearly ignored at least some of her medical records. She appealed Omaha’s decision twice and Omaha upheld its denial both times, despite clear and extensive medical evidence supporting her claim. The reasoning provided for its decisions made it clear that Omaha simply ignored substantial medical evidence, including statements contradicting the evidence.

Dioquino sued Omaha to recover both STD and LTD benefits. Omaha filed a Motion for Summary Judgment arguing in part that Dioquino lacked standing to sue for LTD benefits because she never filed an LTD claim to Omaha. Dioquino opposed Omaha’s motion, arguing under the futility doctrine that she had legal standing to sue for LTD benefits as well as STD benefits because submitting an LTD claim with Omaha would have been futile. The Court agreed with Dioquino and denied Omaha’s Motion for Summary Judgment, finding that Dioquino’s allegations could demonstrate that for her to submit an LTD claim to Omaha would be an act of futility.

The futility doctrine provides an exception to the jurisprudential rule that claimants must exhaust all administrative remedies prior to filing legal action. It applies in cases in which an administrative review is demonstrated to be doomed to fail. Diaz v. United Agr. Emp. Welfare Ben. Plan & Tr., 50 F.3d 1478 (9th Cir. 1995). In Burnett v. Raytheon Co. Short Term Disability Basic Benefits Plan, 784 F.Supp.2d 1170 (C.D. Cal. 2011), the Court provided four factors to be considered in determining whether the futility exception applies: 1) whether the definitions for “fully disabled” for purposes of STD and LTD benefits are substantially the same; 2) whether the plans are integrated, such that they rely on and refer to each other; 3) whether the denial or termination of STD benefits essentially dooms any LTD claim; and 4) whether the plans are administered by the same entity.

The presence of the Burnett factors in Dioquino’s case was the basis on which the Court denied Omaha’s Motion for Summary Judgment, thus allowing her case to move forward. While plan terms can be widely varied and vastly different for any claimant, situations like Dioquino’s can and do occur. To go through the LTD claim process can set a claimant’s ability to recover benefits back by several months. Thus, awareness of plan terms can be of vital importance for some claimants. McKennon Law Group PC has significant experience in handling ERISA and non-ERISA insurance cases in which an insurer denied a claim. If your insurer or plan administrator has denied your claim, please contact us for a free consultation so that we may assess your matter.

The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Fourteen: Motions for Attorneys’ Fees and Costs

In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment & disability claim, from navigating a claim, to handling a claim denial, through the subsequent appeal and litigation. In Part Fourteen of this series, we discuss motions for attorneys’ fees and costs. Under the Employee Retirement Income Security Act of 1974 (“ERISA”), a prevailing party can file a motion for “reasonable” attorneys’ fees and costs associated with the litigation process. Whereas ERISA discusses awarding fees to either party that achieves “some degree of success on the merits,” Hardt v. Reliance Standard. Life Insurance Co., 560 U.S. 242, 244-45, 251-52 (2010), courts seldom award fees to prevailing insurers, see Operating Eng’rs Pension Trust v. Gilliam, 737 F.2d 1501, 1502 (9th Cir. 1984). As such, this article mostly applies to prevailing beneficiaries.

When awarding attorneys’ fees, a court focuses on two key issues: (1) whether the moving party achieved some degree of success on the merits, and (2) how large of an award of fees is reasonable. Both of these issues are addressed in a manner that is favorable to beneficiaries.

As for the first issue, success on the merits, most beneficiaries will satisfy this requirement if they receive even a portion of their benefits. They need only achieve “some degree of success on the merits.” Hardt, 560 U.S. 244-45, 251-52. This is a very low standard. For example, a beneficiary need not proceed to trial and obtain a court ruling in his or her favor. Whereas that would certainly satisfy the requirement, it is not required. Instead, an insurer may realize that it made a mistake and reinstate the beneficiary’s benefits in the middle of litigation. This will still qualify as sufficient success on the merits for a beneficiary to receive an award of fees. See, e.g., Smith v. Aetna Life Ins. Co., 2020 WL 6055147 (S.D. Cal. Oct. 14, 2020). In fact, here at the McKennon Law Group, we often encounter that very scenario. We sue an insurer and, rather than litigating against us, it agrees to reinstate our client’s benefits. Afterwards, we file a motion with the court seeking attorneys’ fees and costs. The courts have always granted our motions and have in every case awarded us attorneys’ fees. We also often include an amount to cover our attorneys’ fees when negotiating a settlement with an insurance company. The law is clear: When we obtain a portion, or all, of our client’s benefits, regardless of whether the court ruled on our client’s behalf, the insurer must pay our client’s reasonable attorneys’ fees and costs.

The main fight in these cases is whether the amounts of the attorneys’ fees requested are reasonable. To calculate an award of fees, the court first “establishes a lodestar by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate.” Welch v. Metro. Life Ins. Co., 480 F.3d 942, 945-46 (9th Cir. 2007). When determining the reasonable hourly rate, “the court may take into account: (1) the novelty and complexity of the issues; (2) the special skill and experience of counsel; (3) the quality of representation; and (4) the results obtained.” See Caplan v. CNA Fin. Grp., 573 F.Supp.2d 1244, 1251 (N.D. Cal. 2008). The court has the discretion to adjust the presumptively reasonable lodestar fee using a multiplier in “rare and exceptional cases.” Welch, 480 F.3d at 946.

When calculating a reasonable fee, courts often look to what other courts have approved. For some attorneys, this can be problematic if they have limited ERISA experience. For firms such as the McKennon Law Group PC, this greatly simplifies matters. Our firm has quite possibly been awarded attorneys’ fees more times than any other firm in the State of California over the last several years. As such, the attorneys here can simply direct the court to a stack of cases that show previously awarded rates. This is usually sufficient for the court to approve our hourly rates. For an attorney without that experience, the court will often see what other courts have approved for rates of other attorneys with similar levels of experience. The same principle applies for time worked on a case. A court will examine the amount of time worked on each aspect of the case and determine if the time was reasonable considering the complexity of the case and what other courts have approved. See generally Smith, 2020 WL 6055147.

Courts rarely use a multiplier on the calculated award. However, in its discretion, the court can raise or lower the award of fees by a flat percentage if it feels that the fee award warrants a further modification. Such changes are usually due to extraordinary circumstances such as excessive or unclear billing. The court may also impose a modification if the attorney achieved an extraordinary result in a particularly complicated case. Ultimately, courts rarely apply a modifier.

Even though this area of the law favors beneficiaries, it contains one very important limitation to awards of fees and costs. A beneficiary cannot obtain fees for work done during the administrative appeals process. See Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974, 987‑88 (9th Cir. 2001). For frame of reference, under almost all ERISA plans, a beneficiary must first pursue an administrative appeal if the insurer denies the claim. Only after the insurer denies the appeal does the beneficiary obtain the right to sue. Because ERISA fails to provide fees for the administrative appeals stage, sometimes beneficiaries financially benefit from losing their administrative appeal and then settling the matter after suing the insurer. An award of attorneys’ fees is then available to the beneficiary.

McKennon Law Group PC has significant experience in handling ERISA and non-ERISA insurance cases in which an insurer denied a claim. If your insurer or plan administrator has denied your claim, please contact us for a free consultation so that we may assess your matter.

A Dose of Healthy Skepticism: Court Finds LINA Abused its Discretion in Denying Accidental Death Benefits Claim Because Heart Attack Did Not “Substantially Contribute” to Insured’s Death

Learned Hand, the renowned American jurist and judicial philosopher, once said: “Words are chameleons, which reflect the color of their environment.” Nowhere is this truth more apparent than when an insurance plan or policy contains a “discretionary language provision” which gives the insurer nearly absolute power to, among other things, interpret the terms of its own policies or determine an insured’s eligibility for benefits. The presence of these types of provisions in insurance plans/policies not only benefit insurance companies when determining whether to approve or deny benefits as part of its own internal claims process, but also in the event an insured challenges a denial of benefits in court.

There are two judicial standards of review which can be applied to ERISA cases: “de novo” review and “abuse of discretion” review. When a court reviews an ERISA claim “de novo” (from Latin, meaning “from the new”), it is not required to accord any weight to the insurer’s decision or rationale for the denial in the first instance; the court is free to review the administrative record and determine if the claim should have been approved or denied. However, in instances where the plan or policy at issue contains discretionary language provisions, the “abuse of discretion” standard applies. This standard requires the court to accord deference to the insurer’s determination, and the court will only overturn a denial where the insurer “render[s a] decision[ ] without any explanation,[ ] construe[s] provisions of the plan in a way that conflicts with the plain language of the plan, or rel[ies] on clearly erroneous findings of fact.” Day v. AT&T Disability Income Plan, 698 F.3d 1091, 1096 (9th Cir. 2012).

However, recognizing the inherent conflicts of interest that inevitably arise from discretionary language provisions, courts have tempered the deference accorded to insurers under the “abuse of discretion” standard by applying a “level of skepticism” analysis to the insurer’s decision. For example, if the court’s review of the administrative record makes it clear that the insured’s denial was based upon a complete and thorough review of the insured’s medical records, and interprets and applies the provisions of the plan/policy in a reasonable manner, then significant deference is afforded to the insurer’s decision. If, on the other hand, the court finds that the denial resulted from an inconsistent interpretation or application of plan/policy provisions, or from an incomplete or inadequate investigation and review of the claim, then the level of deference will be low.

The United States District Court in Hawaii recently addressed a clear example of the latter situation in a decision from Masuda-Cleveland v. Life Insurance Company of North America, 2020 WL 7048257 (D. Hi. Nov. 30, 2020). In Masuda, Plaintiff’s husband was a participant in his employer’s Group Accident Plan (“the Plan”) who passed away following a single car collision. An autopsy was performed in which it was concluded that the cause of death was “blunt force trauma to the face and neck” and that the manner of death was accidental. The autopsy report also speculated that it was possible that an acute medical event, such as a heart attack or seizure, caused the Plaintiff’s husband to lose consciousness and crash.

According to the terms of the Plan policy:

We agree to pay benefits for loss from bodily injuries:

a) caused by an accident which happens while an insured is covered by this policy; and
b) which, directly and from no other causes, result in a covered loss.

We will not pay benefits if the loss was caused by:

a) sickness, disease, or bodily infirmity; or
b) any of the Exclusions listed in the policy.

Defendant denied Plaintiff’s claim for benefits, taking the position that the “[husband’s] death was not caused by an accident as mandated by the policy, but rather, a medical event which caused a motor vehicle crash.” Plaintiff then appealed the denial, but the denial was upheld on the basis “that there is no coverage for [husband’s] death because an illness, disease or bodily infirmity directly caused the fatal accidental injury.” In other words, although the husband’s cause of death was “blunt force trauma” from the accident, the accident itself was caused by his medical condition (a heart attack or seizure), thereby eliminating coverage.

Plaintiff administratively appealed the denial once more. The denial was upheld yet again, but this time, the rationale was that Plaintiff’s husband “suffered a heart attack which caused both the crash and Masuda’s death, and that the cause of death was not … blunt force trauma to the face and neck.” In other words, this time the basis for the denial was that Plaintiff’s husband had died from a heart attack and thus not from an accident at all, once again eliminating coverage.

After the second denial, Plaintiff filed a complaint under ERISA. The insurer subsequently filed a Motion for Summary Judgment, which was granted by the trial court under the “abuse of discretion” standard. Plaintiff appealed the ruling to the Ninth Circuit Court of Appeals, which reversed, finding that the trial court should have applied a higher level of skepticism (i.e., given less deference) to the insurer’s determination. The case was then remanded back to the trial court to determine, essentially, whether the insurer’s decision could survive the heightened scrutiny. It could not.

Applying a higher level of skepticism, the trial court found that the insurer: 1) failed to construe the provisions of the plan in accordance with their plain language; and 2) relied on clearly erroneous findings of fact.

Specifically, the trial court found that “Defendant’s changing explanation for denial created a moving target for Plaintiff during the appeals process ….” The court went on to note:

Viewed with the appropriately elevated level of skepticism, Defendant’s inconsistent use of “accident,” in the first instance to attribute Masuda’s death to fatal injuries received in an accident, and in the second instance, to deny the existence of an accident and assert a new cause of death suggests that in at least one of those instances, Defendant did not construe the terms “accident” and “cause” in accordance with the plain language of the policy.

The court then went on to examine the insurer’s factual findings. In reviewing the administrative record and additional rebuttal evidence presented by the Plaintiff, the court noted that it was the opinion of four out of five doctors in the case (including the insurer’s own in-house medical director), that the cause of the husband’s death was the blunt force trauma from the accident. The court therefore found untenable the insurer’s position that Plaintiff’s husband’s death was the result of a heart attack rather than injuries sustained in the accident:

Viewed skeptically, Defendant’s factual finding that Masuda’s death was caused by a heart attack and not the injuries to his face and body was clearly erroneous because the Court is left with the firm and definite conviction that Defendant made a mistake in reaching that decision.

The court explained that in McClure v. Life Ins. Co. of N. Am., 84 F.3d 1129 (9th Cir. 1996), determined that where the applicable plan language is less than obvious (“inconspicuous”), the “policy holder reasonably would expect coverage if the accident were the predominant or proximate cause of the disability.” Id. at 1135–36. If, however, the applicable language is conspicuous, recovery could be barred if a preexisting condition substantially contributed to the loss, “even though the claimed injury was the predominant or proximate cause of the disability.” Id. at 1136. (Emphasis added).

The court then cited to Dowdy v. Metro. Life Ins. Co., 890 F.3d 802, 808 (9th Cir. 2018). Under Dowdy, where the applicable language is conspicuous, “[i]n order to be considered a substantial contributing factor for the purpose of a provision restricting coverage to ‘direct and sole causes’ of injury, a pre-existing condition must be more than merely a contributing factor,” (See id. at 809), it must have substantially contributed to the death. The court determined that the medical record did not support LINA’s conclusion that a medical event substantially contributed to Masuda’s death; at most, it was a contributing factor.

Ultimately, having determined that the insurer’s denial could not withstand the appropriate level of skepticism, the trial court did not even bother to remand the case back to the insurer. Instead, in a complete reversal of its prior ruling, entered judgment in favor of the Plaintiff and directed the insurer to pay Plaintiff’s claim.

Conclusion

The Masuda case illustrates the importance of having a skilled ERISA attorney on your case. While many, if not most, attorneys are generally familiar with the concept of “abuse of discretion,” these types of cases demand an attorney who understands the nuances of this standard of review as it applies specifically to ERISA matters, and who can marshal the legal and factual arguments necessary to invoke a court’s heightened level of skepticism.

The experienced attorneys at McKennon Law Group have a long and successful track record of representing ERISA claimants in all aspects of the claim process, from appealing the initial denial of benefits and, if necessary, through each stage of litigation. If you’ve been denied benefits under an employee benefit plan, contact our office today for a free initial consultation.

The Current Wave of “Long-Haul” COVID-19 Patients Likely Means an Overwhelmed Social Security Disability System and More Long-Term Disability Claims

Even after the current COVID-19 pandemic is declared to be over, many people – possibly up to 10% or even 15% – of COVID-19 patients may continue to display symptoms of the virus beyond the couple weeks for which most people experience them. With 29 million Americans already contracting COVID-19, the number of people in the U.S. who may suffer from the virus for an elongated span of time is substantial. According to a recent Los Angeles Times article by Michael Hiltzik, the emergence of long-haul COVID-19 cases during this pandemic is likely to result in a drastic increase of long-term disability claims and a corresponding delay in the processing of those claims.

The Social Security disability program currently serves about 9.6 million people, including 8.1 million disabled workers and 1.5 million dependents of those workers. Given the volume of long-term COVID-19 cases which have and continue to present themselves in the U.S., if even a fraction of those affected by COVID-19 attempt to secure disability benefits through Social Security, the system may be utterly overwhelmed. Even at its most efficient, anyone who has applied for benefits will likely describe the process as slow, confusing and frustrating, at the very least. For the system to be inundated with possibly several times as many applicants as the system normally sees may be catastrophic for those with no alternative financial support.

Compounding the problem, access to the already-overburdened system is currently even more limited than it was prior to the pandemic due to the closing of Social Security field offices. While a portion of applicants are eligible to apply for benefits online, the vast majority are not so eligible; and even those eligible for online applications often require assistance to even attempt to navigate through the daunting, complex, labyrinth-like application process.

While the thought of facing the Social Security application process may drive away those who have other means of support, for many Americans, the disability benefits provided through Social Security will be vital to their ability to obtain even the most basic of human needs. Thus, the prospect of having an application take several months or longer to even begin to be reviewed will not dissuade those in dire need from submitting applications. When the field offices begin to re-open, the net result may very well be a backup of applications for which the system could not possibly be prepared, given the glacial pace of the machine on even its best day in non-pandemic circumstances.

Those able to have their applications reviewed will still face an uphill battle: the symptoms of long-haul COVID-19, which include chronic fatigue, nonspecific pain, headaches and “brain fog” are difficult to quantify and do not show up in medical tests, resulting in many denials of benefits based on a lack of tangible evidence regardless of the amount of pain or fatigue applicants actually experience.

While the Social Security Administration claims it evaluates applications based on function over diagnosis and that workers unable to work should receive benefits. It has also created a database of common symptoms of long-haul COVID-19, which will provide some guidance for judges ruling on appeals of benefit denials. But getting to a point where a worker’s appeal is reviewed by a judge can already take months or years, even without a massive back-up of applications.

Only time will tell how well the Social Security Administration handles the issues presented by long-haul COVID-19. If the current state of the system is an indicator, we anticipate long-haul COVID-19 workers applying for disability benefits to experience as much fatigue and headache from the application process as they do from the virus itself.

We believe this issue is not confined to the Social Security Administration. Along with Social Security applications will likely come a corresponding increase of claims for short-term disability and long-term disability benefits by workers through their respective insurance providers. Additionally, we believe that with such an increase in applications, both the Social Security Administration and insurance providers will be motivated to find any justification for denying workers benefits due to the impending surge in applications and the inevitable financial impact payment of so many claims could have for them. Accordingly, we recommend that if you have an individual disability policy or a group disability policy obtained through your employer, you should review your policy terms to determine what benefits, if any, may be available in the case you contract COVID-19 and have a resulting disability.

The experienced attorneys at McKennon Law Group PC have a long and successful track record of representing disability claimants in all aspects of the claim process, from appealing the initial denial of benefits and, if necessary, through each stage of litigation. If you have been denied benefits under an employee benefit plan, contact our office today for a free initial consultation.

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