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The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Nine: Insurer Reliance on Sub Rosa Surveillance

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 and disability claim, from navigating a claim to handling a claim denial and through preparing a case for litigation. In Part Nine of this series, we discuss insurer reliance on sub rosa surveillance, which can be either the death knell to a claim for benefits or strong proof of disability. Sub rosa, a Latin phrase literally meaning under the rose, is a surveillance investigation that takes place in secrecy.

Insurers often use such surveillance when investigating the activities of their insureds, especially when they investigate disability claims. They spend inordinate amounts of money conducting surveillance on benefits claimants. This often results in insurers paying thousands of dollars for a private investigator to track claimants’ movements and videotape claimants outside of their home. Whatever activity a disability claimant is engaged in will be observed and recorded, such as gardening, running errands, going for a walk, going to the gym or attending a doctor’s appointment. Insurers often conduct surveillance when they have their claimants attend an independent medical examination or functional capacity examination, hoping to catch them in activity inconsistent with their claims of disability or their asserted limitations or restrictions concerning activities of daily living.

Typically, insurers will attempt to use surveillance footage to assert that their insureds are capable of working and thus not entitled to disability benefits, often overstating the level of recorded activity or over-relying on it, drawing the conclusion that because of the activities recorded, a disability claimant can work at a full-time job. While this may seem suspect, insurance companies have the right, and indeed the duty, to thoroughly investigate claims. In California, an insurer’s failure to reasonably investigate an insurance claim may result in bad-faith liability. See Egan v. Mutual of Omaha Life Ins. Co., 24 Cal.3d 809, 819 (1979); Guebara v. Allstate Ins. Co., 237 F.3d 987, 996 (9th Cir. 2001).

However, courts have warned insurers against over-reliance on surveillance, particularly where a plaintiff’s reported restrictions are consistent with the video surveillance. Montour v. Hartford Life & Acc. Ins. Co., 588 F.3d 623, 633 (9th Cir. 2009) (“[T]hat Plaintiff could perform sedentary activities in bursts spread out over four days does not indicate that he . . . is capable of sustaining activity in a full-time occupation.”); Bertelsen v. Hartford Life Ins. Co., 1 F.Supp.3d 1060 (E.D. Cal. 2014). For example, in Lin v. Metropolitan Life Ins. Co., 2016 WL 4373859 (N.D. Cal. Aug. 16, 2016), defendant MetLife suggested that the insured’s ability to travel on a two-week trip to China was inconsistent with his disability. However, the court disagreed and found that a closer reading of the office note mentioning the trip showed that the plaintiff reported consistent symptoms throughout his trip. As the court said, “[T]he mere fact that Plaintiff traveled to China does not undermine his claim that his conditions were debilitating.” Id. at *8; see also Bertelsen, 1.F.Supp.3d at 1073 (“[T]he Court also notes the inordinate amount of weight Defendant placed on the surveillance information. The Ninth Circuit has admonished district courts to not overly rely on surveillance video, particularly where the restrictions are consistent with the video surveillance.”)

It should be obvious that a videotape showing a few minutes of activity does not most of the time indicate full-time work ability. In Beaty v. Prudential Insurance Co., 313 F.App’x 46, 49 (9th Cir. 2009), the Ninth Circuit rejected the insurer’s attempt to rely on “unsupportable inferences from a surveillance video and reports which show the plaintiff engaging in a variety of normal day-to-day activities” and criticized the insurer’s failure to explain how activities show “she can perform the duties of her occupation.” Other courts have likewise ruled that an overstatement of a claimant’s activities in surveillance footage is improper, and they warned that activities observed for a short amount of time do not necessarily translate into full-time work capacity. For example, in Thivierge v. Hartford Life, 2006 WL 823751, *11 (N.D. Cal. Mar. 28, 2006), the district court held that activities observed “for a couple of hours on five out of six days [that the claimant] was under surveillance does not mean that Plaintiff is able to work an eight-hour[-per-]day job.”

In a recent decision, Black v. Hartford Life Ins. Co., 2019 WL 2422481, *9 (D. Or. June 10, 2019), the District Court of Oregon found that the defendant insurer overstated surveillance findings. The court noted that, of the 16 hours of surveillance, including five hours during which the plaintiff was away from his house, the surveillance company returned less than 16 minutes of footage that was comprised of small clips that frequently lasted less than one minute each. The court found the video in this case to be “ambiguous at most, and misleading at worst.” Id. Further, the court found that the activities depicted “do not show [that the plaintiff] is capable of maintaining work and are not necessarily inconsistent with Plaintiff’s reported limitations. Plaintiff is recorded riding a bus and running errands. These errands include getting a haircut, using ATMs, and purchasing food. Defendant provides no explanation for how these activities might translate to the work environment.” Id. Further, the plaintiff’s treating physician reviewed the video and still opined that the plaintiff was disabled. Id. The court ultimately found that the surveillance video evinced a level of functioning that was entirely consistent with the plaintiff’s own self-reported limitations, and that the defendant insurer’s “overstatement and over-reliance on this surveillance weighs against Defendant’s decision to terminate benefits.” Id. at *10; see Montour, 588 F.3d at 633 (“[S]igns of bias” included Hartford’s decision to “overstate . . .and over-rel[y] on surveillance of Plaintiff,” and “[this] bias infiltrated the entire administrative decision-making process, which leads us to accord significant weight to the conflict.”).

It is important to carefully review the surveillance videos to determine exactly what conduct the claimant is doing and compare that to the claimant’s restrictions and limitations. In another recent decision, Fleming v. Unum Life Ins. Co., 2018 WL 6133859 (C.D. Cal. Nov. 20, 2018), the Central District of California heavily criticized the defendant Unum’s overreliance on surveillance footage. Id. at *8. The court in Fleming noted that bending at the waist and leaning into a car did not relate to the claimant’s restrictions and limitations, as her degenerative disc disorder and resulting neck pain are her primary disabling conditions. Id. The court added, “The fact that Fleming took out the trash or bent down to place a one-pound cooler in her car does not render her capable of her full-time employment as a litigation attorney.” Id.; see Vertigan v. Halter, 260 F.3d 1044, 1050 (9th Cir. 2001) (“This court has repeatedly asserted that the mere fact that a plaintiff has carried on certain daily activities . . . does not in any way detract from her credibility to her overall disability. One does not need to be ‘utterly incapacitated’ in order to be disabled.” (citation omitted)).

The Ninth Circuit is understandably skeptical of insurers’ reliance on brief surveillance footage as alleged proof of a claimant’s capacity to work full time. See Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1162 n.36 (9th Cir. 2001) (affirming the district court’s rejection of video surveillance as alleged proof of work capacity and noting that the footage “did not shed much light on whether she could function full time as a trial attorney”); Fleming, 2018 WL 6133859 at *8.

While surveillance videos can sometimes be fatal to a claim, our firm has found that insurers frequently over-rely on surveillance, making great leaps of logic to conclude that minutes of surveillance means our clients can work at a full-time job. It is crucial to carefully scrutinize each second of the surveillance videos relied upon by the insurer to deny a claim. Then, it is necessary to compare the videos and the stated activities to the claimant’s restrictions and limitations, and even have a doctor or treating physician review the surveillance video and provide an opinion. Claimants should be wary of their actions in public and be mindful that an insurer may have hired a private investigator to surveil their activities. But courts have pushed back on over-reliance of these surveillance videos, understanding that these videos often depict a cursory and biased snapshot of a claimant’s abilities. We have significant experience handling cases in which an insurer over-relies on surveillance to deny a claim. If this has occurred, please contact McKennon Law Group PC for a free consultation so that we may assess your matter.

After McKennon Law Group PC Aggressively Won Case and Filed Attorney’s Fees Motion, District Judge David O. Carter Awards Plaintiff in ERISA Disability Case Nearly $90,000 in Attorneys’ Fees, Costs and Interest

Under the Employee Retirement Income Security Act of 1974 (“ERISA”), an employee who prevails in a lawsuit against his insurance company to collect ERISA-governed plan benefits – including life, health, disability or accidental death benefits – is entitled to recover his attorneys’ fees incurred in the lawsuit. The Supreme Court in Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242, 245 (2010) concluded that a plan participant is eligible to recover “reasonable attorneys’ fees” if he achieved “some degree of success on the merits” of his claim. What constitutes a reasonable fee in an ERISA case will vary greatly depending on the experience and skill of the attorney involved and the complexity of the case. The two main components of a reasonable fee are reasonable hourly rates and reasonable time expenditures.

In the matter of Earl Durham v. Aetna Life Insurance Company, Case No. 8:19-cv-01494-DOC-DFM, the McKennon Law Group PC filed a motion to recover attorneys’ fees after prevailing in the ERISA lawsuit. Aetna had wrongfully terminated our client’s long-term disability benefits based on an improper interpretation of a plan limitation asserting that the alcohol limitation in the plan limited our client’s claim to two years because he had alcohol induced liver damage. Shortly after we filed the complaint asserting that Aetna’s interpretation was wrong, Aetna reversed its denial decision, reinstated our client’s disability claim and paid him all past-due disability benefits. We then filed a motion seeking attorneys’ fees, costs and interest, which Aetna vigorously opposed. In granting the motion, the Court approved hourly rates of $750 for Managing Shareholder Robert McKennon and $525 and $375 for associates Andrea Soliz and Nicholas West, respectively.

The Court found that our client had achieved “some degree of success on the merits” because Aetna ultimately reinstated his LTD claim, issued payment for past-due benefits and continued to pay benefits. The Court concluded, “Durham litigated his claim and caused Aetna to reconsider its position and grant him his benefits, thereby obtaining full relief through settlement.” The Court also rejected several of Aetna’s arguments for a reduction of fees, including that our client should not recover fees for work done after the administrative denial but prior to filing the Complaint. Aetna’s argument was based on the well-settled principle that recovery under ERISA is limited to work done in connection with a formal action. Cann v. Carpenter’s Pension Trust Fund for Northern California, 989 F.2d 313, 316 (9th Cir. 1993). Aetna claimed that McKennon Law Group PC’s work done after the administrative denial but five months prior to filing the lawsuit was not done in connection with the formal action. The Court disagreed and determined that all of McKennon Law Group PC’s pre-filing efforts were in direct pursuance of the litigation and were, thus, recoverable. The Court also rejected Aetna’s argument that fees incurred after Aetna made a $35,000 settlement offer were not compensable, finding that there was no precedent to support this argument and that Aetna’s $35,000 offer was not reasonable. In the end, the Court awarded our client almost $90,000 in fees, costs and interest.

Because ERISA permits claimants to recover attorneys’ fees when they prevail in litigation, claimants should not be deterred from hiring experienced, well-qualified ERISA lawyers like the McKennon Law Group PC to help them recoup their wrongfully denied benefits in court. In these instances where attorneys’ fees are awarded, the insurance company pays the fees and the claimants are able to keep all of their life, health, disability or accidental death benefits. This result affords claimants fair access to federal courts and is consistent with ERISA’s underlying purpose, which is to protect the interests of participants in employee welfare benefit plans.

Los Angeles Daily Journal Publishes Article on March 6, 2020 by Robert McKennon Entitled “Victory for Plan Beneficiaries in US Supreme Court Ruling”

In the March 6, 2020 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a recent case by the Supreme Court of the United States, Intel Corporation Investment Policy Committee v. Sulyma, which upheld the Ninth Circuit’s holding that generic disclosures by plan administrators do not trigger the three year statute of limitations for breach of fiduciary duty claims under ERISA. Given the Supreme Court’s emphasis on what the individual plan beneficiary consciously knows and the increasing importance of breach of fiduciary duty claims under ERISA, this will likely help a variety of plan beneficiaries by guaranteeing that their otherwise meritorious claims are not barred by a statute of limitations triggered by stray statements in the volumes of documents ERISA plans send to their beneficiaries every year.

Victory for Plan Beneficiaries in US Supreme Court Ruling

The Supreme Court’s decision in a case last week will have wide-reaching implications. Now, plan administrators can no longer hide behind the volumes of unintelligible disclosures they make every year. Employers and plan fiduciaries may now be exposed to litigation challenging plan actions for a much longer time than they had anticipated.

By Robert J. McKennon

Just a decade ago, breach-of-fiduciary-duty claims under the Employee Retirement Income Security Act were not common. That changed in 2011 when the U.S. Supreme Court broadened the scope of equitable relief available under ERISA utilizing breach of fiduciary claims in its landmark decision in Cigna Corp. v. Amara, 563 U.S. 421, 441 (2011). The Supreme Court recognized that equitable relief under ERISA could take a variety of forms, including, equitable estoppel, waiver and monetary damages in the form of equitable surcharge. Before, even if there had been a breach, the available remedies were often meaningless. Now, courts have the power to order the offending administrator to provide meaningful redress. A claim may arise from a plan’s refusal to honor a life insurance policy after it has received numerous premiums and made repeated statements that someone was covered under the policy. And, a plan may be held liable for making misstatements about the value of someone’s pension benefits. In a post-Amara world, breach of fiduciary duty claims under ERISA have become increasingly important.

Breach of fiduciary duty claims under ERISA are subject to a somewhat complicated statute of limitations. Under 29 U.S.C. Section 1113, there are three different potential deadlines by which a suit must be brought. First, “under §1113(1), suit must be filed within six years of the date of the last action which constituted a part of the breach or violation or, in cases of breach by omission, the latest date on which the fiduciary could have cured the breach or violation.” Second, “suit must be filed within three years of the earliest date on which the plaintiff had actual knowledge of the breach or violation.” Id. (emphasis added). Finally, in cases of fraud or concealment, suit must be brought within six years of the date of discovery. See id.

Given the importance of these claims in a post-Amara world, the significance of the Supreme Court’s recent decision in Intel Corporation Investment Policy Committee v. Sulyma, 2020 DJDAR (Feb. 26, 2020), becomes clear. In Sulyma, the Supreme Court handed down a commonsense opinion that will help employees secure their pension and employee benefits. In Sulyma, the court clarified that disclosure of information by a plan administrator in a generic mailing does not necessarily mean that a beneficiary possesses the “actual knowledge” required to trigger the three-year statute of limitations on a breach of fiduciary duty claim arising under ERISA.

Like many employees, Christopher Sulyma did not pay much attention to the lengthy disclosures and prospectuses associated with his employer’s 401(k) plan. Sulyma worked for Intel Corporation between 2010 and 2012, during which time he was automatically enrolled in Intel’s Target Date 2045 Fund. The fund was managed by an investment committee appointed by Intel’s board of directors. Intel provided Sulyma with various disclosures about the fund’s investments, which were also available on two websites. These documents revealed that the fund had made allocations to alternative investments such as hedge funds and private equity funds, which charged higher-than-average fees and underperformed in the market. Although Sulyma accessed some of the disclosures during his employment, he testified that he did not know that Intel had allocated the fund’s portfolio in alternative investments, or that this was the reason for the fund’s poor performance.

In 2015, Sulyma eventually learned of the fund’s poor performance and brought claims against Intel’s oversight committees under section 1104 of ERISA on the basis that Intel had made imprudent investments, failed to disclose those investments, failed to monitor the performance of those investments and failed to remedy other defendants’ ERISA violations despite knowing about them. What followed was a battle over whether Sulyma’s claims were barred by ERISA’s three-year statute of limitations.

Intel moved to dismiss Sulyma’s complaint, arguing in the district court that ERISA’s three-year statute of limitations barred Sulyma’s claims. Sulyma filed his action against Intel on October 29, 2015, and Intel claimed Sulyma had actual knowledge of the alleged breach before October 2012 because he had access to the fund documents as early as 2010. The district court sided with Intel and imputed the knowledge of the fund’s portfolio allocation to Sulyma.

On appeal, the 9th U.S. Circuit Court of Appeals reversed the district court’s granting of summary judgment. Neither “knowledge” nor “actual knowledge” is defined in ERISA. The 9th Circuit emphasized the plain meaning of the phrase. It concluded that actual knowledge refers to what the person consciously knows. The 9th Circuit found that the district court had erred when it inferred that Sulyma had actual knowledge merely because he had received fund documents that disclosed Intel’s investment strategy.

The Supreme Court affirmed the 9th Circuit’s ruling. The Supreme Court explained that “Although ERISA does not define the phrase ‘actual knowledge,’ its meaning is plain.” “[T]o have ‘actual knowledge’ of a piece of information, one must in fact be aware of it.” The court examined a variety of sources to confirm this meaning, but, as the court explained, “Dictionaries are hardly necessary to confirm the point, but they do.” Of note, the term “actual” separates the type of knowledge required by Section 1113 from the legal concept of constructive knowledge. Constructive knowledge is the kind in which the law imputes knowledge “to a person who fails to learn something that a reasonably diligent person would have learned.” By contrast, actual knowledge means that the person, at some point, consciously knew the fact in question. Here, Congress clearly intended to make clear that the person must be aware of the fact in question in order for the three-year statute of limitations to begin. Mere inclusion of the fact amid the text in volumes of documents regularly sent to plan participants is insufficient to impart actual knowledge.

The Supreme Court’s decision was not entirely bad for Intel or employers. The court explained that the “usual ways” of proving actual knowledge remain available to plan administrators. “Inferences from circumstantial evidence” can still be used by plan administrators to establish when the statute of limitations should begin to run. Furthermore, a participant cannot engage in “willful blindness,” the act of refusing to inform oneself of a piece of information. However, constructive knowledge cannot trigger the three-year statute of limitations.

The Supreme Court’s decision in Sulyma will have wide-reaching implications. Now, plan administrators can no longer hide behind the volumes of unintelligible disclosures they make every year. Employers and plan fiduciaries may now be exposed to litigation challenging plan actions for a much longer time than they had anticipated. Given the significant increase in ERISA breach of fiduciary duty claims and litigation, employees who seek to recover promised employee benefits will greatly benefit from this ruling.

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 mslawllp.com/news-blog/.

Bain v. Oxford Health Insurance: Judge Finds Insurer Liable for Breach of Fiduciary Duty Under ERISA As Medical Necessity Guidelines Were Inconsistent With Medical Standards of Care

In a recent decision by the U.S. District Court for the Northern District of California, Bain v. Oxford Health Insurance, 2020 WL 808236, the Court held that it is an abuse of discretion for an insurance company to rely on unreasonable medical necessity guidelines, to decide benefit claims, when these guidelines are inconsistent with the standards of care generally accepted in the field of mental health treatment. In Bain, the Plaintiffs filed a lawsuit against the plan administrator of their health insurance plan and its affiliate United Behavioral Health (collectively, “UBH”) after their daughter’s claim for mental health services was repeatedly denied. In making its coverage determinations for mental health services, UBH utilized “Level of Care Guidelines” (“LOC Guidelines”), which were not formally part of the Plan.

While the Bain’s lawsuit was filed in July 2015, it was stayed in April 2017 due to another class action lawsuit, Wit v. United Behavioral Health, No. C-14-2346 JCS (N.D. Cal.) pending against UBH. In Wit, the plaintiffs asserted that UBH breached its fiduciary duty because it developed LOC Guidelines which were “far more restrictive than [the standards of care] that are generally accepted [in field of mental health treatment] even though Plaintiff’s health insurance plans provide for coverage of treatment that is consistent with generally accepted standards of care, and by prioritizing cost savings over member’s recovery of benefits.” Plaintiffs maintained that UBH “improperly adjudicated and denied [their] requests for coverage by … relying on the overly restrictive [LOC] Guidelines.”

On the claim for breach of fiduciary duty, the Judge in Wit found in favor of the plaintiffs and held that “by adopting ‘unreasonable’ Guidelines that do not reflect generally accepted standards of care, UBH breached its fiduciary duty.” The LOC Guidelines were found to be flawed as follows: (1) The LOC Guidelines significantly narrowed the scope of coverage by excessively emphasizing “acute symptoms and stabilizing crises while ignoring the effective treatment of underlying conditions;” (2) The LOC Guidelines “actively seek to move patients to the least restrictive level of care at which [patients] can be safely treated, even if a lower level of care may be less effective for that patient;” (3) The LOC Guidelines fail to address the unique needs of children and adolescents; and (4) The LOC Guidelines “deviated from generally accepted standards of care by using an overly broad definition of ‘custodial care’ and an overly narrow definition of ‘active’ treatment and ‘improvement’.”

Based on the decision in Wit, the Bains filed a Motion for Judgment asserting that they were entitled to judgment on their claim based on the ruling in Wit, specifically because (1) in Wit, the Judge found in favor of the plaintiffs on their claim for benefits and (2) that the doctrine of collateral estoppel bars UBH from relitigating the Bains’s claim.

The Bains’s Motion for Judgment was denied in part and granted in part. The Court did agree with the Bains that it should give collateral estoppel effect as to the “standard of review” to be applied to UBH’s decision to deny benefits. The Wit court had previously determined the standard of review to be applied is abuse of discretion, meaning that the UBH’s denial would only be overturned if it was not reasonable. The Bains argued that the Court’s review for abuse of discretion should factor in a significant conflict of interest, since UBH is both paying out on claims of benefits and deciding claims of benefits. Therefore, the Bains argued the LOC Guidelines were based on financial considerations rather than medical considerations. The Court agreed there was a conflict of interest as to the LOC Guidelines and applied a significant amount of skepticism to UBH’s decision to deny the Bains’s benefits. The Court in Bains ultimately held that UBH abused its discretion in denying the Bains’s claim for benefits and remanded the case to the plan administrator for a renewed evaluation.

Lack of medical necessity is the most frequent basis for health insurance denials. As Bains demonstrates, an insurer’s medical necessity guidelines may be out of step with reasonable standards in the medical community. Fighting with your insurer over a legitimate claim for health, life, long-term disability or other insurance benefits can be a daunting task. If you believe your claim for benefits was unjustly denied, please contact us.

The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Eight: Impact of Social Security Disability Insurance on an ERISA Disability Insurance Claim

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 and disability claim, from navigating a claim, to handling a claim denial and through preparing a case for litigation. In Part Eight of this series, we discuss the impact of a finding of disability by the Social Security Administration (“SSA”) on a claim for disability benefits that was filed under an insurance policy governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).

Social Security Disability Insurance (“SSDI”) is an important federal program available to many people who pay into the Social Security system. If a person becomes disabled, they are able to file a claim with the SSA for disability benefits. If the claim is denied, as many are, the claimant has the option of appealing the decision. An administrative law judge (“ALJ”) will hear the appeal and rule on whether the claimant is disabled and entitled to benefits.

When it comes to employees who receive disability policies with an insurance company, the impact on a disability insurance claim depends on the type of disability policy a person has. With respect to most individual disability policies (not issued through an employer), these policies serve as separate sources of funding should the person become disabled. Whether or not a person qualifies for SSDI benefits generally does not impact an individual disability claim. However, there are a myriad of different ways in which an SSDI decision can affect a person’s claim for group disability benefits issued through an employer.

The most significant impact an award of SSDI benefits can have on a group disability claim is that an award of SSDI benefits serves as strong evidence that the person is disabled under the group policy as well. The SSDI determination serves as strong evidence, in part, because the SSA has a more stringent standard for finding a claimant disabled than is found in most group disability policies. See Shaw v. Life Ins. Co. of N. Am., 144 F.Supp.3d 1114, 1135 (C.D. Cal. 2015) (“The Ninth Circuit has warned that ‘in some cases, such as this one, the SSA deploys a more stringent standard for determining disability than does the governing ERISA plan.’ Specifically, to receive Social Security disability benefits, Shaw had to show that she was ‘unab[le] to engage in any substantial gainful activity . . . .’ Under the Plan, however, Shaw had merely to show . . . .”); Bertelsen v. Hartford Life Ins. Co., 1 F.Supp.3d 1060, 1063, 1074 (E.D. Cal. 2014) (finding that “the SSA’s definition of disability [was] stricter than” the policy’s definition). Furthermore, the SSA is an independent entity that has no financial stake in the outcome of a claim for benefits. On the other hand, if a claim is approved by a disability insurer, the insurer will be negatively financially affected to having to pay the claimant. An SSDI benefits award is sufficiently strong evidence of disability that, should an insurance company deny a claim for group disability benefits after the claimant has been awarded SSDI benefits, the insurer must explain why it reached a different result. See Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 679 (9th Cir. 2011) (“Evidence of a Social Security award of disability benefits is of sufficient significance that failure to address it offers support that the plan administrator’s denial was arbitrary, an abuse of discretion. Weighty evidence may ultimately be unpersuasive, but it cannot be ignored.”).

Claimants must be warned, however, that an award of SSDI benefits does not mean that the insurer must pay under a group disability plan. The SSDI award merely serves as strong evidence. See Maher v. Aetna Life Ins. Co., 186 F.Supp.3d 1117, 1126 (W.D. Wash. 2016 (“Maher later received an award of SSDI benefits which, although not binding upon the Court, is evidence weighing in favor of her meeting the Plan’s definition of disability.”). At times, the insurer and court may state that the evidence in the record before it is insufficient to establish disability regardless of what the SSA found. The court and insurer want additional evidence. Even in those circumstances, the SSDI process can help an insured. For example, during the process of acquiring SSDI benefits, the claimant may have undergone medical examinations. Submitting the results of these examinations to the insurer may help the insured establish entitlement to benefits under the group disability plan. Regardless of an award of SSDI benefits, a claimant must take care to build a strong record and submit all relevant evidence to the insurer while pursuing their group disability claim.

Of course, an unfavorable decision by the SSA can harm a claimant’s chances of obtaining SSDI benefits. Many judges look at such a decision and will be persuaded by the ALJ’s findings. While an ALJ’s decision does not control, there are exceptions to this general rule, but they are rare. See Parr v. First Reliance Standard Life Ins. Co., 2017 WL 1364610 (N.D. Cal. Mar. 31, 2017) (granting summary judgment for the insured in a dispute over group disability benefits even though the insured was denied SSDI benefits).

In addition to the evidentiary aspect of an award of SSDI benefits, an insured must also understand the financial implications of such an award. Most group disability policies include clauses that state that the insurance company may deduct the value of payments for SSDI benefits from any payments to the insured issued under the group policy. As such, it is in the insurer’s best interest to encourage a claimant to obtain SSDI benefits. Insurers not only encourage a claimant to apply for SSDI benefits, they often require that disability claimants apply. If they do not, then they will estimate an offset and deduct it from the amount of any benefits owed to the claimant.

A simple example helps to illustrate why an insurer would want such an award:

A claimant earns $100,000 a year. The group disability policy provides that the insurance company will pay 60% of that salary, $60,000, if the insured becomes disabled. That comes to $5,000 per month in group disability benefits. However, the person may also potentially receive $2,200 per month in SSDI benefits. Under the policy, the SSDI benefits are deductible. Therefore, the insurer need only pay $2,800 per month if the person is awarded SSDI benefits.

As the above example makes clear, there is a strong incentive for insurance companies to require insureds to seek out SSDI benefits. If the benefits are awarded, the insurer need only pay a fraction of the original benefits. If the SSDI claim is denied, the insurer acquires some evidence to assist it in denying the insured’s claim. In short, the SSDI process is a win/win scenario for the insurance industry. It is especially a win-win for the insurer when they encourage their claimant to apply for SSDI benefits, then they are awarded and then the insurer denies the disability claim anyway. Believe it or not, we see this occur often. That is when a disability claimant will need the assistance of experienced disability attorneys like McKennon Law Group PC.

Withholding Doctor’s Reports Until the Date of Denial Violates an Insured’s Right to a Full and Fair Review

ERISA requires that an administrator provide a claimant with a “full and fair” review if a denial decision is made. It has long been held that an administrator must provide a claimant with copies of internal medical reports it generated and relied upon when making its decision to deny a claim, but when do these internal medical reports need to be disclosed? This question was addressed in the recent decision, Wagenstein v. Cigna Life Insurance Co., 2020 WL 68394 (9th Cir. Jan. 7, 2020) (“Wagenstein”). The Ninth Circuit held in Wagenstein that when an administrator “has engaged in a procedural irregularity, it must provide the claimant a fair opportunity to submit additional evidence.”

Lea Wagenstein (“Ms. Wagenstein”) filed a lawsuit against Cigna Life Insurance Company (“Cigna”) after Cigna terminated her long-term disability benefits under an ERISA governed insurance policy. The district upheld the termination of benefits.

The Ninth Circuit reversed the district court. The court explained that in response to Ms. Wagenstein’s initial appeal, Cigna provided her with an examining physician’s report that stated she could sit for up to 2.5 hours per workday and perform two sedentary occupations with that limitation. As the Ninth Circuit has created a bright-line rule that an employee who cannot sit for more than four hours in an eight-hour day workday cannot perform sedentary work that requires sitting most of the time, this initial report confirmed Ms. Wagenstein could not perform her sedentary job. See Armani v. Nw. Mut. Life Ins. Co., 840 F.3d 1159, 1163 (9th Cir. 2016). However, in Cigna’s formal denial letter of Ms. Wagenstein’s second, and final, appeal, Cigna for the first time cited a physician’s report that Ms. Wagenstein could sit for up to eight hours per workday and perform two sedentary jobs. Cigna had hidden this report from Ms. Wagenstein until Cigna’s final denial of her appeal of the termination of her benefits. The Court held that by withholding this second report, Cigna deprived Ms. Wagenstein of a fair opportunity to provide a response from her treating physicians, who agreed that Ms. Wagenstein was disabled. By failing to provide Ms. Wagenstein with the second doctor’s report and a fair opportunity to comment on it, Cigna violated ERISA’s rules requiring a full and fair review of her disability claim.

The Court ruled that the district court erred by declining to consider letters from Ms. Wagenstein’s treating physicians rebutting the second physician’s conclusions and vacated and remanded for consideration of the employee’s supplemental evidence. We often see long-term disability claims denied without a full and fair review provided. If you believe your long-term disability claim was denied without a full and fair review, please contact us.

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