ERISA Archives - Page 34 of 56 - McKennon Law Group

When Guarding the Henhouse, Some Foxes Go Rogue: When an Insurer’s Conflict of Interest Factors into Administrating Group Long-Term Disability ERISA Plans

Few Americans can retire on their savings alone. Many workers participate in an employee benefits plans, which serve to provide financial security in case of disability or retirement. In the case of insurers that decide who qualifies for life, health and disability insurance benefits, there exists a major concern about the significant conflict of interest that exists when these insurers make these decisions and also pay for these benefits. Will these insurers exalt their own interests of bottom line profitability over the interests of ERISA plan participants and beneficiaries who file claims for life, health and disability benefits? It is not a leap of logic that this conflict of interest results in insurance companies wrongfully denying ERISA benefit claims.

In Nichols v. Reliance Standard Life Insurance Co., 2018 WL 3213618 (S.D. Miss. June 29, 2018), the court considered the actions of Reliance Standard Insurance Company (“Reliance”), one of the country’s largest disability insurers. The court addressed whether Reliance’s denial of disability benefits to the claimant Juanita Nichols (“Ms. Nichols”) was an abuse of discretion. In its ruling, the court discovered a decades-long pattern of arbitrary claim denials and other misdeeds, a pattern the court considered when assessing Reliance’s actions.

Ms. Nichols was a 62-year-old employee of Peco Foods’ (“Peco”) chicken processing factory in Sebastopol, Mississippi. Ms. Nichols’ duties included spending a minimum of twenty percent of her work day in processing areas, where temperatures at the factory were kept at eight degrees above freezing. After being diagnosed with circulatory system disorders that were exacerbated in cold environments, her doctors concluded that exposure to the cold could give her serious circulatory problems, including gangrene. As a result, Ms. Nichols stopped working at Peco, as she spent much of her day in near-freezing conditions.

Ms. Nichols applied for long-term disability benefits through the group insurance plan administered by Reliance. Reliance admitted that Ms. Nichols’ medical conditions prevented her from working in cold temperatures yet determined that Ms. Nichols’ occupation as it was performed in the national economy was “sanitarian,” an occupation with duties that do not require exposure to cold temperatures. Based on this determination, Reliance denied Ms. Nichols’ application for disability benefits. After a subsequent appeal of the claim denial that Reliance upheld, Ms. Nichols filed a lawsuit against Reliance to challenge her denial under ERISA. ERISA’s purpose is, in part, to protect workers by establishing standards of conduct for those who manage their benefit plans. ERISA allows employees to recover benefits due under a covered plan, like Pecos’ plan with Reliance.

The Nichols court considered whether Reliance based its denial of Ms. Nichols’ claim on substantial evidence. The court responded in the negative, finding that it was unreasonable for a vocational expert to define occupational duties by relying exclusively on a single Dictionary of Occupational Titles description that does not refer to important job duties.

The court also considered whether Reliance had a conflict of interest. As Reliance admitted, it “potentially benefits from every denied claim,” and therefore was operating under a conflict of interest. Id. at *5. The Supreme Court has held that, when an insurer is “operating under a conflict of interest,” that conflict “must be weighed as a factor in determining whether there is an abuse of discretion.” Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 117 (2008) (emphasis added). Such circumstances include when there is evidence that an insurer has a “history of biased claims administration.” Id. The question turned, however, to how much weight the court should give to Reliance’s conflict of interest. Glenn held that this evidence “can take many forms,” and “may be shown by a pattern or practice of unreasonably denying meritorious claims.” Id. at 123.

The court considered an approach delineated by the United States District Court for the District of Massachusetts in Radford Trust v. First Unum Life Ins. Co. of Am., 321 F.Supp.2d 226, 247 (D. Mass. 2004), which revealed a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.

In its review addressing Reliance’s behavior in disability cases, the court found over 100 opinions in the last 21 years criticizing Reliance’s disability decisions, including over 60 opinions reversing a decision as an abuse of discretion or as arbitrary and capricious. The court found that judges describe the behavior underlying Reliance’s claims administration as “arbitrary,” “blind,” “conclusory,” “extreme,” “flawed,” “fraught,” “illogical,” “inadequate,” “inappropriate,” “incomplete,” “indifferent,” “lax,” “misguided,” “opportunisti[c],” “precursory,” “questionable,” “remarkable,” “selective,” “self-serving,” “skewed,” “tainted,” “troubling,” “unfair,” “unreasonable,” and “unreliable.” Nichols, 2018 WL 3213618 at *7.

The court noted these opinions revealed that Reliance takes a range of extraordinary steps to deny claims for disability benefits. Reliance makes “unreasonable” interpretations of benefit plan language, going so far as to “misconstru[e] the concept of occupational disability.” Reliance “selectively interpret[s]” evidence so it can “opportunistically deny [a] claim” for “selfserving reasons,” creating a “skewed administrative record discounting all of the substantial evidence of … disability.” Reliance’s denials are “overwhelmingly outweighed by evidence to the contrary,” “fraught with procedural irregularities,” and “blind or indifferent.” Those denials “rel[y] upon mere assumptions” and “demonstrate a pattern of arbitrary and capricious decision making.” Reliance uses “obfuscation and delay tactics,” “fail[s] to engage in ongoing communications with [claimants] to keep [them] informed of the process,” makes “misstatement[s]” to claimants, “miscalculate[s] the amount owed,” and generally exhibits behavior that “reeks of bad faith.” Reliance “regularly retain[s]” experts with “an incentive to [make] outcomes in [their] favor,” and uses expert reports that “betray a palpable bias in favor of rejecting the claim.” Despite being “[put] on notice of this bias issue” by “prior judicial criticism,” Reliance still tells courts that “it does not choose … third-party contractor[s] based on the outcomes.” Courts often conclude that Reliance’s denials are “greatly impacted” by “self-interest,” making it “clear that Reliance put[s] its own financial interest above its fiduciary duty.” Id.

The court went on to criticize the way Reliance used the Department of Labor’s Dictionary of Occupational Titles to ignore the actual duties of a claimant’s job. Further, the court criticized the vocational expert involved in Ms. Nichols’ appeal for her cursory methodology and paper reviews of claimant files. Ultimately, the court held that Reliance’s long past of biased and wrongful claims denials supported the court’s finding that the decision to deny Ms. Nichols’ claim was an abuse of discretion. Further, in deciding to award attorney’s fees to Ms. Nichols, the court found that Reliance had a severe degree of culpability and hoped that such an award would have some deterrent effect on Reliance and other insurers.

Conclusion

Opinions like Nichols give hope to victims of wrongful claim denials that the courts will seek justice in viewing the actions of insurance companies. Nichols highlights the inherent conflict of interest between insurance companies and insureds, as insurance companies decide when claimants receive benefits, and at the same time, benefit financially when benefit claims are denied. While Reliance was singled out by the court’s opinion, denials like these by insurance companies are a logical result of situations where “foxes guard the henhouse.” Hopefully this opinion evidences a trend of scrutiny toward insurance companies that also act as plan administrators.

Determining whether an insurance company wrongfully denied a benefit claim is a difficult task for most insureds. A claim denial can be an especially traumatic experience when an insured expects a life and disability insurance company like Reliance to provide benefits in a time of need. McKennon Law Group PC has extensive experience determining whether an insurer improperly denied a life, health or disability insurance claim. If you believe your insurer improperly denied your life, health or disability insurance claim, call us for a free consultation.

Orange County Lawyer Publishes Article in July 2018 edition by Robert J. McKennon Entitled “Insurers’ Intermediaries: The Implications of Actions Taken by Agents, Employers, and Third-Party Administrators”

In July 2018, The Orange County Bar Association published an article written by Robert J. McKennon and Stephanie L. Talavera of the McKennon Law Group PC in the Orange County Lawyer. The article addresses the liability implications of the relationship between insurers and various types of intermediaries. As the article explains, depending on the nature of the relationship between the insurer and others involved in the process, the insurer may be held liable for the actions of those who act as its intermediaries. The article gives tips on how to make an insurer vicariously liable for the acts of those functioning as intermediaries in the insurance process.

Insurers’ Intermediaries: The Implications of Actions Taken by Agents, Employers and Third-Party Administrators[1]

By Robert J. McKennon & Stephanie L. Talavera[2]

Those engaged in the business of insurance often act through intermediaries: agents, brokers, third-party administrators (“TPAs”) and employers. For example, an appointed insurance agent may sell an insurance policy and a TPA might handle the policyholder’s claim for benefits. In the context of employer-sponsored, group insurance plans, an employer may act on behalf of an insurer in collecting premiums via payroll deductions or investigating eligibility, temporarily transmuting the employer-employee relationship. Occasionally, the employer may, itself, act as the insurer, providing benefits through a self-funded plan (typically with the help of a TPA). It goes without saying that how an intermediary relates to each party imports different contours of liability. In this article, we explore some of those theories as they relate to insurance agents, brokers, TPAs and employers, as a good insurance litigator must be able to use all available theories of liability.

Agents of the Insurer

In assessing an insurer’s liability, or an employer stepping into the role of an insurer, it is critical to first identify the various parties involved in the insurance procurement and claims process. Once identified, you must determine when each party acts on behalf of the insurer, so as to render the insurer vicariously liable for the actions of its agents. The most important parties to the insurance procurement and claims process are discussed below, and at least include insurance agents, insurance brokers, TPAs and employers.

Insurance Agents vs. Brokers

Courts sometimes use “agent” and “broker” interchangeably. This inconsistent usage confuses terminology that already relies on an unpredictable, independent factual examination of the relationship on a case-by-case basis. But, the primary distinction between an insurance agent and broker is who each represents.

An “insurance agent” is “a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life insurance.” Cal. Ins. Code § 31. A life agent is a person authorized by and on behalf of a life, disability, or life and disability insurance company to transact life and disability insurance. Cal. Ins. Code §§ 32, 1622. An appointed life insurance agent is always at least the agent of the insurer. See Loehr v. Great Republic Ins. Co., 226 Cal.App.3d 727 (1995). “The most definitive characteristic of an insurance agent is his ability to bind his principal, the insurer.” Marsh & McLennan v. City of Los Angeles, 62 Cal.App.3d 108, 117 (1976). An agent may bind the insurer by “acts, agreements, or representations within the ordinary scope and limits of the insurance business entrusted to him … even if the agent’s actions violate private restrictions on his or her authority.” Troost v. Estate of DeBoer, 155 Cal.App.3d 289, 298 (1984).

In contrast, “‘[i]nsurance broker’ means a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer.” Cal. Ins. Code § 33; Krumme v. Mercury Ins. Co., 123 Cal.App.4th 924, 929 (2004). Brokers represent potential insureds or policyholders in purchasing insurance and typically act independently, working with several insurance companies. Id. at 929. Thus, a broker acts only on behalf of the client, the potential insured or policyholder, and not the insurer. Carlton v. St. Paul Mercury Ins. Co., 30 Cal.App.4th 1450, 1457 (1994).

Employers

Much of the insurance in force in the United States is placed through employers in the form of employee benefits, such as long-term disability insurance, short-term disability insurance, life insurance and health insurance. Employers play a vital role as plan sponsors and plan administrators of these group insurance policies, and are often responsible for enrolling new members, collecting premium contributions via payroll deductions and submitting claims for policy benefits on behalf of the insurer.

Although the Employee Retirement Income Security Act of 1974 (“ERISA”) governs many of these employer-sponsored plans, occasionally, employers “self-fund” such plans and qualify for an exemption from ERISA on that basis. When a plan is self-funded, the employer steps into the role of the insurer. Because the employer is not routinely engaged in the business of insurance, it may hire a TPA to handle the group policy’s administration. Under this arrangement, an employer begins to look even more like an insurer, using a TPA’s insurance expertise while retaining the benefits of having a self-funded plan.

TPAs

Sometimes referred to as the “downstream” intermediaries, TPAs play an important, but different, role in the insurance process. TPAs handle the rote tasks that keep the insurance industry moving, such as recordkeeping, policy administration, underwriting, investigating and claims handling. TPAs are not typically involved with individual policies, but increasingly play a key role in employer-sponsored group policies, where they assist employers in all aspects of plan administration.

Insurers’ Vicarious Liability Based on Actions of Insurance Agents, Employers and TPAs

The most complicated of the third-party relationships is the agent vs. broker distinction, which becomes particularly important concerning which actions will be imputed to the insurer. Generally, an agent’s actions are imputed to the insurer, but a broker’s do not, and only the former renders the insurer vicariously liable. See LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal.App.4th 1259 (2007). This distinction is often important in insurer rescission matters, based on an alleged misrepresentation in an application for the insurance policy. Frequently, a potential insured will make accurate disclosures to the agent or broker as part of the application process, but the agent or broker will tell the potential insured that such disclosure on the application is unnecessary. Depending on whether the agent is treated as an agent of the insurer or an agent of the insured (a broker), knowledge of the misrepresentation, and consequent liability, will be imputed differently. If an agent is responsible for the alleged material misrepresentation, the insured may argue that the insurer is responsible for the misrepresentation and thus cannot rescind the policy regardless of whether the disclosure was actually communicated to the insurer. See e.g., O’Riordan v. Federal Kemper Life Assur., 36 Cal.4th 281 (2005) (imputing agent’s knowledge despite agent’s failure to actually communicate insured’s history of smoking).

Like insurance agents, traditional theories of agency and contractual privity immunize TPAs from independent liability for their claims handling misconduct.[3] TPAs act as the principal’s disclosed agents and lack contractual relationships with the insureds. So, a TPA is not typically liable for its bad faith claims handling conduct, even if its sole responsibility is to handle claims. See Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 576 (1973).

When it comes to group policies, California law treats employers as agents of the insurer. The rationale behind this application of liability is that when an employer administers an insurance policy on behalf of the insurer, it acts as its TPA and thus its agent. Accordingly, an employer’s conduct is attributable to the insurer. See McCormick v. Sentinel Life Ins. Co., 153 Cal.App.3d 1030 (1984); Elfstrom v. New York Life Ins. Co., 67 Cal.2d 503 (1967). But, as noted above, ERISA governs many group policies offered through employer-sponsored plans and consequently, preempts state laws that would otherwise determine the agent relationship and vicarious liability. See UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999). For some time, the question remained as to whether employers also acted as agents of the insurer when administering a group policy governed by ERISA. Recently, in Salyers v. Metro. Life Ins. Co., 871 F.3d 934 (9th Cir. 2017), the Ninth Circuit squarely addressed this issue, ultimately applying California’s rule on employers as agents. As a result, when employers collect premiums, enroll individual plan members and otherwise administer claims, they act as agents of the insurer. Accordingly, the knowledge and conduct of the employer may be imputed to the insurer, even if it was not communicated to the insurer directly.

Employers Treated as Insurers

In some situations, there may not be an insurance company involved in the traditional sense. Instead, an employer or some other entity not typically engaged in the business of insurance may act as the functional equivalent of an insurer. This may arise when an employer self-funds or self-insures a group policy covering its employees that qualifies for an exemption under ERISA. Whether the entity is acting as an “insurer” is important because the special relationship involved in an insurance contract may give rise to a cause of action for insurance bad faith–allowing the individual to pursue extra-contractual recovery against the employer, such as emotional distress damages, attorney’s fees and punitive damages.

Although ERISA traditionally preempts state law causes of action for breach of contract and insurance bad faith, when the group policy is exempt from ERISA, traditional preemption principles will not apply. Accordingly, the question then becomes whether an employer, when it self-funds a plan exempt from ERISA, may be liable for extra-contractual remedies where it has tortuously breached the implied covenant of good faith and fair dealing.

The Ninth Circuit Court of Appeals effectively addressed whether an employer acts as an “insurer” when administering a plan that may be exempt from ERISA in Williby v. Aetna Life Ins. Co., 867 F.3d 1129 (9th Cir. 2017). The Court found that the employer’s self-funded disability plan met both elements of the broad definition of “insurance” under California Insurance Code section 22 because: (1) it shifted one party’s risk of loss to another and (2) distributed that risk among similarly situated persons. Id. at 1134. Although the underlying plan in Williby was actually governed by ERISA, thus preempting the state bad faith claim, it could have qualified under the pay practices exemption to ERISA. As the Court noted, the plan could have met the requirements for the pay practices exemption (and, therefore, California law would have applied), but the argument was rejected because it was raised for the first time on appeal. See Id. at 1136–37. If the plaintiff had argued for the exemption earlier in the case, it is likely that the employer, having issued disability “insurance” to its employees, could have been successfully sued for insurance bad faith. This situation gives employees a powerful procedural tool to fight their employer’s insurance claims denials.

Conclusion

The ultimate success of an insurance litigation matter may turn on whether an insurer is vicariously liable for the actions of a third-party intermediary. How an intermediary relates to the insurer and the insured has important legal implications. Understanding how these relationships operate in various circumstances could have an important impact on the outcome of your next insurance litigation matter.

[1] This article was first published as Insurers’ Intermediaries: The Implications of Actions Taken by Agents, Employers and Third-Party Administrators, Robert J. McKennon and Stephanie L. Talavera, Orange County Lawyer, July 2018 (Vol. 60 No. 7), p. 42.

[2] The views expressed herein are those of the Authors. They do not necessarily represent the views of the Orange County Lawyer magazine, the Orange County Bar Association, The Orange County Bar Association Charitable Fund, or their staffs, contributors, or advertisers. All legal and other issues must be independently researched.

[3] Jeffrey W. Stempel, The “Other” Intermediaries: The Increasingly Anachronistic Immunity of Managing General Agents and Independent Claims Adjusters, 15 Conn. Ins. L. J. 599 (2009).

A District Court Rejects Insurer’s Denial of a Long-Term Disability Claim Based Only on a Paper Review of Medical Records and Blind Adherence to the Dictionary of Occupational Titles

A “battle of the experts” is common in legal disputes. But what happens when your doctor determines you are disabled and unable to work, while the insurer’s doctor determines you are not disabled based on a review of your medical file, leading to a denial of your claim for long-term disability (“LTD”) benefits? Under the Employee Retirement Income Security Act of 1974 (“ERISA”), you may have a case for improper denial.

In a recent LTD insurance case governed by ERISA, Popovich v. Metropolitan Life Insurance Company, 281 F.Supp.3d 993 (C.D. Cal. 2017), Judge Andre Birotte explained the limitation of a paper review of a claimant’s medical record, as well as the limitation of relying solely on the definitions of occupations in the Dictionary of Occupational Titles (DOT). Below, we discuss Popovich; why the court found the insurer’s doctor’s opinion, which was based only a paper review, to be unpersuasive; and why it is important for an insurer to determine what a claimant actually does before it bases a claim denial on the material duties of a claimant’s occupation.

In Popovich, Plaintiff Kenneth Popovich (“Popovich”) filed a lawsuit against Metropolitan Life Insurance Company (“MetLife”) and Data Analysis, Inc. Employee Benefit Plan alleging that his claim for long-term disability benefits was improperly denied.

Popovich worked as an assistant news editor for Investor’s Business Daily for ten years. Popovich was responsible for writing and editing online news content for an organization that strived to publish stories and analysis within minutes of breaking news, creating significant deadline pressure. During his tenure working for Investor’s Business Daily, Popovich suffered a heart attack. He went on medical leave for 16 months to have bypass surgery and recover. He returned to work but continued to suffer from poor health.

Popovich went on another medical leave 11 months after returning to work. His second medical leave was less than two months before he returned to work on a part-time basis. Popovich returned to full-time work two weeks later, but after only two more months he was unable to complete his regular shift due to his poor health. That turned out to be his last day of work.

A couple of days later, Popovich saw his attending physician, Dr. Kedan, who indicated that Popovich suffered from a great deal of stress and panic attacks. Dr. Kedan diagnosed Popovich with cardiomyopathy, and advised Popovich to stop working. Dr. Kedan advised Popovich that he could eventually return to work, but his return to work date was unknown. Popovich filed a claim for LTD benefits based on Dr. Kedan’s diagnosis and physician statement.

MetLife’s medical director and nurse consultant reviewed Popovich’s medical records, noted improvement in specific tests conducted on Popovich and opined that Popovich should be capable of sedentary work. MetLife’s claim specialist recommended denial of Popovich’s claim based on insufficient evidence to support disability. A few days later MetLife completed a vocational analysis using only the description of the news editor occupation in the DOT, and denied Popovich’s LTD claim.

Popovich continued to be in poor health following the claim denial. Dr. Kedan recommended further treatment, stating that Popovich’s heart damage made him unfit for physical labor, and that he was not a good candidate for other sedentary jobs either because he suffered from chest pains while seated and exerting himself. Dr. Kedan concluded that Popovich was unable to resume any type of gainful employment.

Popovich appealed MetLife’s denial. MetLife then referred Popovich’s appeal to Dr. Sassower, an independent physician consultant who is board certified in cardiology. Dr. Sassower spoke with Dr. Kedan and reviewed Popovich’s medical records, but did not examine him. In his “paper review” report, Dr. Sassower concluded that Popovich’s test results should not have prohibited his return to work. MetLife accordingly upheld its prior denial of Popovich’s claim for long-term disability benefits.

In this case, the dispute came down to whether Popovich’s heart condition was sufficiently severe to prevent him from working in his usual occupation. The court ruled in favor of Popovich, ordered MetLife to pay his long-term disability benefits owed under the plan for the initial two years, together with prejudgment interest, and ordered MetLife to determine if Popovich met the plan’s criteria to continue receiving benefits beyond the initial benefit period.

The court ruled in Popovich’s favor for two main reasons. First, the court concluded that Dr. Sassower’s opinion was not persuasive because he only conducted a “paper review” of Popovich’s medical records and his report had several critical issues.

While Dr. Sassower is not required to examine Popovich in person, his report, based on a pure paper review, presented several critical issues. For example, Dr. Sassower misstated the diagnosis of Popovich’s heart disease in his medical records, and failed to cite any evidence to support a different, or new, diagnosis. Furthermore, Dr. Sassower selectively interpreted medical reports in Popovich’s file. He relied on certain reports to question the accuracy of some tests, but ignored the same reports when arguing that other tests were not sufficient to demonstrate disability. Additionally, Dr. Sassower was the only doctor in Popovich’s medical records to criticize Popovich’s medication regimen. It was not clear from the record that Popovich’s medication regime was lacking, as Dr. Sassower so claimed.

Finally, Dr. Sassower failed to explain why some of his conclusions differ from other doctors in the medical records. He did not provide evidence or reasoning to support his different conclusions. Taken all together, the court found Dr. Sassower’s opinion unpersuasive. The court found that Popovich’s medical records, including reports from Dr. Kedan and other specialists, demonstrated Popovich suffers from a significant heart condition, and that Popovich is unable to work at a physically and mentally stressful occupation.

Second, the court determined that MetLife did not perform a reasoned and deliberative vocational analysis because it only relied on the DOT’s description of a news editor. To determine if a claimant is able to work in their usual occupation, an insurer must conduct a reasoned and deliberative vocational analysis about the material duties of the claimant’s job. MetLife’s vocational analysis consisted solely of a verbatim reproduction of the DOT’s description of a news editor. The court noted that reference to the DOT is generally reasonable, but explained that the DOT’s description is outdated as it relates to this case. The DOT’s entry for news editor refers only to duties relevant to print media, and Popovich worked in a deadline-driven environment trying to publish stories and analysis online within minutes of breaking news. The DOT description of news editor and the reality of Popovich’s job as a news editor are fundamentally different. The court therefore found that MetLife erred by relying solely on the DOT and failing to consider what Popovich actually did before determining the material duties of Popovich’s occupation. Furthermore, MetLife’s blind reliance on the DOT limited its analysis to physical requirements of the job and failed to consider mental requirements. The court used Popovich’s, and his employer’s, description of news editor over the DOT’s description to define Popovich’s usual occupation.

After reviewing the entire Administrative Record, the court found Popovich submitted sufficient evidence to demonstrate he is disabled from working in stressful occupations. The court further found that Popovich’s usual occupation as an assistant news editor is stressful. The court thus concluded that Popovich was totally disabled from his usual occupation, and entitled to LTD benefits.

As detailed above, a pure paper review of a claimant’s medical records by the insurer’s doctor may not be enough to undermine a treating physician’s medical opinion. And an insurer reliance solely on the definition of a job from the DOT to determine material duties of a claimant’s usual occupation may not be a sufficient vocational analysis.

With this in mind, if your claim for long-term disability benefits is denied and the insurer did not conduct a medical exam, you may have a case of improper denial. Likewise, if an insurer makes a determination about the material duties of your usual occupation without someone talking to you or your employer, you may have a case of improper denial.

Part-Time Work: Is this Sufficient to Preclude a Claim for Long-Term Disability Benefits Under the “Any Occupation” Standard of Total Disability?

Long-term disability insurance policies are an important safety net for employees. In the event of an accident, long-term disability helps to bridge the gap in income when an employee is no longer able to work. But to what extent does it mean for an employee to be no longer able to work? While insureds may be unable to continue fully working in their usual occupation, insurers often argue an insured can perform some other sedentary occupation to account for claimed disability, allowing them to deny the benefit claim.

In the 2003 Northern District of California case, Bruce v. New York Life Ins. Co., 2003 WL 21005313 (N.D. Cal. 2003), the court addressed this very issue. In Bruce, the plan participant Mary Bruce brought suit challenging defendant Aetna Life Insurance Company’s decision to deny her claim for disability benefits in a group insurance policy subject to the Employee Retirement Income Security Act (“ERISA”). ERISA, a 1974 federal law, sets minimum standards for many long-term disability plans and serves to provide protection for individuals in these plans.

The court in Bruce considered a disability policy in which a plan participant is initially eligible for benefits if she cannot perform her “usual occupation” and thereafter only if she cannot perform “another occupation in which he could reasonably be expected to perform satisfactorily in light of his age, education, training, experience, station in life, physical and mental capacity.” Relying upon the Webster’s Dictionary definition of “occupation,” the district court in Bruce held the plain meaning of “another occupation” was performing full-time work in another occupation. The court stated:

Moreover, where, as here, the plan participant’s occupation, prior to injury, was in fact full-time, the phrase “usual occupation” would be understood to mean “usual full-time occupation.” Given the juxtaposition of the terms “usual occupation” and “another occupation,” the latter term ordinarily would be understood to mean “another full-time occupation.”

Interpreting the term “another occupation” to refer to a full-time position is also consistent with New York Life’s practices. In its Physical Capacities form, on which New York Life requests that physicians provide information to assist “in determining the work potential” of a plan participant, New York Life seeks information with respect to the participant’s ability to perform tasks “in an 8–hour workday.” (See, e.g., AR at 56.) Finally, even if the term “another occupation” were ambiguous as to whether it refers to full-time or part-time employment, the term must be interpreted to refer to full-time work because ambiguous terms in policies subject to ERISA are “construed against the insurance company.” See Lang v. Long–Term Disability Plan, 125 F.3d 794, 799 (9th Cir.1997) (holding, in ERISA action where denial of benefits was subject to de novo review, ambiguous language in policy was properly construed in favor of insured). Consequently, the Court finds the term “another occupation,” as used in the policy at issue, is properly construed to encompass only full-time employment.

Accordingly, the court held that the opinion that Bruce could perform limited part-time work out of her home did not support a finding that she could perform “another occupation” within the meaning of the subject policy.

More recently, the Ninth Circuit Court of Appeals further examined the meaning of disability under ERISA as it relates to sedentary work. In Armani v. Northwestern Mutual Life Ins. Co., 840 F.3d 1159 (9th Cir. 2016), the court addressed the definition of sedentary work and the required time one must be physically able to sit to perform such work. Reversing the district court’s order, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work.

The participant Avery Armani was insured under a group long-term disability policy issued by Northwestern Mutual that provided a more-inclusive meaning of disability in the first 24 months of benefits. Under the policy, after 24 months of disability benefits, the claimant must then be “Disabled from all occupations” to be eligible for benefits. Upon injuring his back, Armani was not able to sit continuously without the ability to change position. Armani’s disability claim was initially approved and then denied after further review nearly two years after his initial claim, in July of 2013. After further medical record indicated Armani could sit for four hours a day, Northwestern Mutual closed Armani’s claim asserting he was not precluded from sedentary work.

Armani filed suit under ERISA seeking judicial review of Northwestern Mutual’s claim decision. Following a bench trial, the district court ultimately held that Armani failed to show he was disabled from “all occupations” with the reasoning that Armani failed to demonstrate his disability prevented him from performing some sedentary occupations.

After timely appeal, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work that requires “sitting most of the time.” The court explained that the district court’s rejection of Armani’s definition of “sedentary” was based upon an erroneous application of Social Security law and ERISA law. The court based its ruling on several decisions evaluating ERISA claims that found “sedentary work” generally requires a sitting tolerance of at least 6 hours of an eight-hour work day. This four-hour standard is applicable in assessing the extent to which an employee can claim disability benefits after an injury in occupations where sitting for long periods of time is an essential component of the job.

While factually dissimilar, the court’s ruling in Armani is consistent with the 2003 Bruce district court opinion. Under the Armani four-hour bright line rule, Mary Bruce would have been unable to perform sedentary work, since Bruce’s administrative record indicated she was only able to sit for roughly four hours per day. Conversely, Avery Armani would have been limited to part-time work, as he also was only physically able to sit for four hours.

Even though the district court and the Ninth Circuit reached the same destinations, the courts took different paths of analysis. On the one hand, Bruce considered the plain meaning of “occupation” and the Webster’s Dictionary definition of occupation meaning a full-time job. Thus, part-time work was not a sufficient replacement for “another occupation” in the “any occupation” analysis. On the other hand, Armani considered the analysis from other courts which consistently found that the standard of work from the Department of Labor and Dictionary of Occupational Titles defined sedentary work as requiring the ability to sit for at least six hours.

These tests may seem arbitrary, but they help to provide guidance and protection for a disabled worker with coverage from a disability plan. As disability claimants are often only able to perform sedentary work after injury, insurers now cannot argue that part-time, sedentary work is a sufficient to deny a disability insurance claim under the “any occupation” standard.

Ninth Circuit Interprets the Health Parity Act in Favor of Insureds Seeking Health Insurance Benefits

Insurance companies often attempt to provide different levels of benefits for the treatment of physical injuries and mental health issues in the same policy. Mental health parity describes the equal treatment of mental health conditions and non-mental health conditions in insurance plans. When a plan or policy has parity, it means that if a covered person is provided unlimited doctor visits for a chronic condition like diabetes then that person must offer unlimited visits for a mental health condition, such as depression or schizophrenia. Under federal law, health insurance plans must have parity in benefits.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, 29 U.S.C. § 1185a, requires that if a plan provides for “both [(a)] medical and surgical benefits and [(b)] mental health or substance use disorder benefits,” then the plan must not impose greater restrictions on the latter category of care. In particular, it states:

In the case of a group health plan (or health insurance coverage offered in connection with such a plan) that provides both medical and surgical benefits and mental health or substance use disorder benefits, such plan or coverage shall ensure that–

(i) the financial requirements applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan (or coverage), and there are no separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits; and

(ii) the treatment limitations applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by the plan (or coverage) and there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

Even though the law is relatively clear as to what types of coverage limitations an insurance company can include in its policies, many insurers still attempt to include improper limitations that are applicable solely to mental health and/or substance abuse benefits. In a recent case, Danny P. v. Catholic Health Initiatives, No. 16-35609 (Ninth Cir. June 6, 2018), the Ninth Circuit Court of Appeals addressed a dispute involving such a self-funded group health benefit plan (“Plan”) governed by the Employee Retirement Income Security Act (“ERISA”).

In Danny P., Nicole B. and Danny P. (“Insureds”) were covered under the Plan provided by Catholic Health Initiatives and Catholic Health Initiatives Medical Plan – Blue Cross Blue Shield. The Plan provided “for coverage of ‘Mental Health Services,’ which included coverage for services related to ‘the diagnosis and/or treatment of an Illness Affecting Mental Health.’” Under the Plan, Nicole B. and Danny P. were entitled to “[b]ed, board, and general nursing care” in addition to “[a]ncillary services” in a skilled nursing facility, defined as “an institution or distinct part of an institution which is primarily engaged in providing comprehensive skilled services and rehabilitative Inpatient care.” The Plan also provided for coverage in “Residential Treatment Facilities,” licensed facilities that address mental health issues.

Nicole B. was admitted to an in-patient residential treatment program for approximately 11 months. The insureds filed a claim seeking to have the Plan cover the costs of Nicole B.’s room and board. The Plan denied the claim for the cost of this in-patient residential mental health treatment facility.

The Insureds pursued their administrative remedies. Again, their claim was denied. Insureds brought suit in federal court. “[T]he parties filed cross-motions for summary judgment and the district court granted summary judgment in favor of the Plan[.]” The district court determined that the Plan’s actions did not violate the Parity Act. The Insureds appealed to the Ninth Circuit and it reversed.

The Ninth Circuit began its analysis with the Parity Act itself noting that “it directs that benefits and treatment limitations for mental health problems shall be ‘no more restrictive’ than those for medical and surgical problems.”

The court concluded that the Parity Act did not allow the Plan to provide room and board reimbursements “at licensed skilled nursing facilities for medical and surgical patients, but [] not provide room and board reimbursement at residential treatment facilities for mental health patients.” The Ninth Circuit did not conclude its analysis with a reading of the plain language of the Plan and Parity Act though. It next looked to various government agencies’ interpretations of the Parity Act. No agency had directly addressed the issue before the Court, but “[the agencies] did indicate that mental and medical/surgical benefits must be congruent, and that limiting the former while not placing a similar limitation on the latter would be improper.” As the court noted, the regulations state that:

Although the interim final regulations did not define the scope of the six classifications of benefits, they directed that plans and issuers assign mental health and substance use disorder benefits and medical/surgical benefits to these classifications in a consistent manner. This general rule also applies to intermediate services provided under the plan or coverage. Plans and issuers must assign covered intermediate mental health and substance use disorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefits to these classifications. For example, if a plan or issuer classifies care in skilled nursing facilities or rehabilitation hospitals as inpatient benefits, then the plan or issuer must likewise treat any covered care in residential treatment facilities for mental health or substance user disorders as an inpatient benefit.

Finding no authority contrary to its interpretation, and finding some indirect support for it, the Ninth Circuit reversed the district court’s ruling. The Plan was required to provide the benefits the insureds sought.

Insurance companies often attempt to provide inferior benefits for the treatment of mental health conditions than for the treatment of regular physical injuries. The lack of a physical sign of the condition often drives the insurance companies to fail to appreciate just how serious a mental health condition can be. Insureds are well served by the ruling in Danny P. It is a clear signal to insurance companies that the courts will honor both the letter and the spirit of the Parity Act. Insurance companies cannot attempt to draft their plans or administer their claims in such a manner as to provide for unequal treatment between mental health problems and issues of a non-mental health variety.

Los Angeles Daily Journal Publishes Article on May 24, 2018 by Robert McKennon Entitled “Preexisting Condition Doesn’t Preclude Coverage”

In the May 24, 2018 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group’s Robert J. McKennon. The article addresses a recent case by the Ninth Circuit Court of Appeals, which held that if an insured with a preexisting medical condition suffers from an accidental injury, the insured is not precluded from recovery under an accidental death and dismemberment policy if the preexisting condition did not substantially contribute to the injury. Insurers often attempt to use preexisting conditions as an excuse to deny payment under AD&D policies. This recent Ninth Circuit opinion helps insureds by making it clear that a preexisting condition’s slight contribution to an injury is insufficient to bar compensation.

This article is posted with the permission of the Los Angeles Daily Journal.

Preexisting Condition Doesn’t Preclude Coverage

The 9^th Circuit ruled that if an insured with a preexisting medical condition gets in an accident, but the condition does not substantially contribute to the injury, the insured can recover.

By Robert J. McKennon

Insurance policies providing accidental death and dismemberment benefits are fairly common. Many employers provide this important insurance for their employees. These policies are often governed by the Employee Retirement Income Security Act of 1974. A large percentage of AD&D policies exclude coverage for accidental injuries “caused or contributed by” a preexisting medical condition. If a preexisting condition led to the injury, even in a small way, most insurers will deny an AD&D claim. Many people have preexisting conditions that they have managed for years that could be relevant to AD&D coverage. Conditions such as diabetes, for example, can prevent wounds caused by an accident from healing properly, potentially leading to dismemberment.

If an insured with a preexisting medical condition gets in an accident, but the condition does not substantially cause or contribute to the dismembering injury, does the preexisting condition bar an AD&D claim? The 9th Circuit Court of Appeals in a recently published case, Dowdy v. Metro. Life Ins. Co., 2018 DJDAR 4576 (9th Cir. May 16, 2018), answered this question in the negative and explained that such insureds are not necessarily barred from obtaining payment under an AD&D policy. Tommy Dowdy suffered from diabetes. Unfortunately, Dowdy was in a car accident in which his car rolled off California State Route 4. He suffered extensive injuries, including a “semi-amputated left ankle.” Dowdy was hospitalized and discharged after a month-long stay. However, his ankle failed to improve in part because of his diabetes and because he suffered from a persistent leg infection. Five months after the accident, Dowdy’s left leg was amputated below the knee.

Dowdy and his wife were covered by an AD&D policy provided by Metropolitan Life Insurance Company. The policy was governed by ERISA. The policy stated in the Coverage Provision that:

If You or a Dependent sustain an accidental injury that is the Direct and Sole Cause of a Covered Loss described in the SCHEDULE OF BENEFITS, Proof of the accidental injury and Covered Loss must be sent to Us. When We receive such Proof We will review the claim and, if We approve it, will pay the insurance in effect on the date of the injury.

Direct and Sole Cause means that the Covered Loss occurs within 12 months of the date of the accidental injury and was a direct result of the accidental injury, independent of other causes[.]

The policy also included an exclusion which stated that MetLife would not pay “for any loss caused or contributed to by . . . physical . . . illness or infirmity, or the diagnosis or treatment of such illness or infirmity[.]”

Dowdy filed a claim under his AD&D policy with MetLife. MetLife denied the claim on the basis that Dowdy’s diabetes contributed to the medical problems that resulted in the amputation. Dowdy then filed an administrative appeal with MetLife challenging the claim denial. MetLife upheld its denial determination, concluding that the accident was not the “direct and sole cause” of the amputation “independent of other causes” as set forth in the Coverage Provision, and that the policy’s Illness or Infirmity Exclusion applied because Dowdy’s diabetes contributed to the loss.

Dowdy then sued MetLife. Both parties filed cross-motions for judgment under Federal Rule of Civil Procedure 52. The district court found that diabetes caused or contributed to the need for amputation, affirmed the denial of benefits and entered judgment in favor of MetLife. Dowdy appealed to the 9th Circuit.

The court reversed the district court, first reviewing its holding in McClure v. Life Ins. Co. of N. Am., 84 F.3d 1129 (9th Cir. 1996). There, the court determined that where the applicable plan language is inconspicuous, the “policyholder reasonably would expect coverage if the accident were the predominant or proximate cause of the disability.” 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.”

It was undisputed that Dowdy’s diabetes condition contributed to the complications with his wounds and thus to his leg amputation. MetLife therefore argued that the accident was not the “direct and sole cause of the loss,” which was not a covered loss. The court rejected this contention, explaining that “[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.” (Emphasis original).

The court looked to a variety of sources to determine what should be deemed to be “a substantial cause.” For example, one respected source explained that the word “substantial” denotes that the conduct had an effect strong enough that it would lead “reasonable [people] to regard it as a cause” in the more concrete sense and not just in some “philosophic sense.” Ultimately, the court held that there must be evidence showing that the preexisting ailment contributed a “significant magnitude of causation.” The preexisting condition cannot “merely [be] related to the injury[.]”

The 9th Circuit ruled that there was no evidence in the administrative record that Dowdy’s diabetes substantially caused or contributed to the amputation of his leg. Thus, under the policy’s Coverage Provision, Dowdy was eligible to collect policy benefits.

The court also rejected MetLife’s position that the exclusion applied since Dowdy’s diabetes condition was a “cause” of or “contributed to” the amputation, noting that exclusions are narrowly construed and that the “substantial contribution” standard applied in interpreting the exclusion. Because there was no evidence that Dowdy’s diabetes condition substantially caused the amputation, the court reversed the district court, finding that Dowdy was entitled to payment under the policy.

Insurers often attempt to use preexisting conditions to deny payment under AD&D policies. Given how common chronic conditions are in modern life, it is not surprising that insurers often have numerous arguments as to why they should not be forced to pay under these policies. However, the 9th Circuit’s decision gives effect to “the policy of [ERISA] to protect . . . the interests of participants in employee benefit plans and their beneficiaries” and to “increase the likelihood that participants and beneficiaries . . . receive their full benefits.” 29 U.S.C. Sections 1001(b), 1001b(c)(3). Insureds reasonably expect that simply having a preexisting condition that is somewhat related to the injury is not sufficient to deny an accident claim under an AD&D policy. Whether it is diabetes or countless other conditions, persons with a preexisting condition may still have the right to collect under an AD&D policy as long as the preexisting condition is not a substantial cause of the injury. Plan participants are well served under Dowdy now that insurers like MetLife cannot argue that inconsequential preexisting conditions bar coverage for policy benefits that they desperately need.

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, ERISA and unfair business practices 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.

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