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Does ERISA Apply to County and City of Los Angeles Employee Disability Benefit Plans? Why You Should Care

Do you have a long-term disability claim with the County of Los Angeles, City of Los Angeles or another Los Angeles government organization? If so, you might be wondering: do the limited remedies available under a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”) apply to your claim? It is crucial that you determine whether the specific Los Angeles or County of Los Angeles employee welfare benefit plan at issue is governed by California’s insurance bad faith laws, ERISA, or the Los Angeles County Code. The answer will dramatically affect your recoverable damages.

ERISA applies to most employer-sponsored disability, life, health, retirement and many other employee benefit plans. ERISA exempts only two types of employer plans (meaning that ERISA does not apply to them):

Government plans (see 29 U.S.C. § 1003); and
Church plans, unless the church employer elects under 26 U.S.C. section 410(d) to be subject to ERISA.

While the general rule of thumb is that a government plan is exempt from ERISA and therefore, by default, subject to California’s bad faith laws, that is not always the case. Be careful. This is a complex issue and likely requires retaining an experienced ERISA disability lawyer.

ERISA defines a government plan as, “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.” 29 U.S.C. § 1002(32). ERISA does not define “political subdivision,” “agency,” or “instrumentality.” Federal courts have adopted complex tests to interpret these statutory terms. Some employers that look like government entities may not meet the tests and, therefore, are subject to ERISA (not exempt from it). Moreover, plans that involve both public and private employers may result in ERISA application to the entire plan, even as applied to the plan participant’s government employees. See, e.g., South Cent. Indiana Sch. Trust v. Poyner, 2007 WL 3102149, at *5 (S.D. Ind. Oct. 19, 2007).

Which law applies to the plan dictates the types of damages you can recover for an incorrectly denied claim. And there is a big difference, so, this is a critically important issue you do not want to overlook. If the plan is governed by California bad faith law (which is generally the case for government plans), the potential damages for a long-term disability claim denied in bad faith are by far the most expansive. They include: (1) the employee’s past-due disability benefits; (2) prejudgment interest on those benefits at the California rate of 10% per annum; (3) future disability benefits that will become due under the plan; (4) attorneys’ fees incurred to recover the employee’s disability benefits; (5) compensation for the emotional distress caused to the employee by the unreasonable denial or delay in paying the benefits; (6) all other damages proximately caused by the bad faith conduct; and (7) punitive damages in the case of oppressive, malicious or fraudulent misconduct.

Under an ERISA plan, the damages for an incorrectly denied claim are far more limited: (1) the employee’s past-due disability benefits through the date of the ERISA trial; (2) prejudgment interest on those benefits, generally limited to the federal rate (a very low rate); and (3) attorneys’ fees incurred in the ERISA action (but not pre-litigation attorneys’ fees incurred for the employee’s administrative appeal). The employee cannot recover future disability benefits, emotional distress, any other type of “tort” damage, nor punitive damages.

Los Angeles County and City Disability Plans
We have represented claimants employed by the County of Los Angeles and the City of Los Angeles (such as LAPD officers) to recover their wrongfully denied long-term disability benefits. We obtained extremely successful results for both County and City employees. See https://mslawllp.com/success-stories/. These County and City employees were not covered by the same disability plan, not even the same type of disability plan. The plans were not subject to the same laws. The City’s plan in our client’s case was exempt from ERISA (and governed by California’s bad faith laws) as a government plan. The insurer argued it was not because its group policy funding the LAPD officers’ benefits was issued to “The RSL Group and Blanket Insurance Trust” rather than the City of Los Angeles. But the insurer paid a handsome settlement including bad faith damages.

Neither ERISA nor California’s bad faith laws applied to the County’s plan in our client’s case. Indeed, some LA County government disability plans are their own distinct animal. The County of Los Angeles’ Long-Term Disability and Survivor Benefit Plan is governed by Chapter 5.38 of the Los Angeles County Code, not ERISA and not bad faith laws. The available damages when the County or its claims administrator, Sedgwick Claims Management Services, incorrectly denies an employee’s long-term disability benefits claim include: the employee’s past-due disability benefits. That’s it! The employee cannot recover prejudgment interest, attorneys’ fees (with one possible exception mentioned below), emotional distress, or any other type of bad faith or punitive damages.

There are other issues peculiar to Los Angeles County’s Long-Term Disability and Survivor Benefit Plan, codified at County Code, Chapter 5.38.

The Plan has an “own position” disability standard for the first 24 months of benefit payments and, thereafter, converts to the standard used by the Social Security Administration to decide if an applicant is disabled.
The employee must exhaust administrative remedies before filing a lawsuit by submitting a written appeal to the claim administrator within 60 days of the benefits denial (unlike ERISA’s 180-day appeal requirement).
If the appeal is denied, the employee must request an evidentiary hearing within 60 days (which is not required for ERISA plans). It takes place before a hearing officer appointed by the County. It is similar to a Social Security disability benefits hearing before an administrative law judge, where witness testimony can be presented. The hearing officer’s decision exhausts administrative remedies.
If the County/Sedgwick’s benefits decision is upheld at the administrative hearing, the employee’s remedy is to file a petition for writ of mandamus in the California Superior Court under California Code of Civil Procedure section 1094.5 asking the trial court to reverse the administrative decision, not a bad faith action.
The trial court on a petition for writ of mandamus reviews the administrative hearing officer’s decision to see if he abused his discretion. The standard to reverse the hearing officer is very difficult per the California Supreme Court, Fukuda v. City of Angels, 20 Cal. 4th 805, 817 (1999) (“In exercising its independent judgment, a trial court must afford a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence.”)
If an employee prevails in the mandamus action and proves that the findings in the administrative proceedings were “the result of arbitrary or capricious action or conduct by a public entity,” he can recover at most $7,500 in attorneys’ fees computed at $100 per hour (far less than in ERISA or bad faith actions where recoverable fees can amount to hundreds of thousands of dollars). See Cal. Government Code § 800.
However, it is unclear whether this section applies to LA County’s self-funded long-term disability Plan since, under section 800(c), the refusal by a public entity “to admit liability pursuant to a contract of insurance shall not be considered arbitrary or capricious action within the meaning of this section.”

Key Take Away
If your claim for disability benefits has been denied by what appears to be a government entity, you should hire an experienced ERISA lawyer to assess your claim and potential damages. Some employers that look like government entities may not be for purposes of ERISA. Whether your employer has a “government plan” in place will dictate the type of damages you can recover for an incorrect benefits decision. Generally, breach of a government disability benefits plan will allow you to recover substantially more damages than a private employer plan, including bad faith and punitive damages in the right case. Your remedies, however, will be limited by ERISA for private-sector employer plans and even further in the case of some LA County plans.

If your claim for short-term disability, long-term disability, life, retirement or health benefits has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA California insurance bad faith claims.

Department of Labor Announces Ninety-Day Delay in Implementing New ERISA Disability Insurance Regulations

Long-term and Short-Term Disability insurance cases dominate ERISA benefits litigation. According to the U.S. Department of Labor (“DOL”), the administrative agency given the authority to regulate employee benefits under, and to enforce the statutory provisions of, the Employee Retirement Income Security Act of 1974 (“ERISA”), disability insurance benefits claims account for almost two thirds of all benefits-related ERISA lawsuits and, based on rough estimates, these disability benefits claims are often denied. To protect disability claimants from having their benefits claims improperly denied, the DOL enforces and promulgates regulations to strengthen the employee protections found in ERISA. As a part of that process, the DOL recently issued a new set of regulations that greatly enhance the protections provided to disability claimants, codified at 29 C.F.R. Section 2560.503-1 and discussed at 81 Fed. Reg. 92316 (“Regulations”). We wrote an article about these Regulations, which you can read here. Importantly, the Regulations give teeth to existing protections, enhancing requirements for independent claims administration, information disclosure and consequences for administrators who fail to comply. Unfortunately, on November 24, 2017, the DOL announced a ninety-day delay in the effective date of the Regulations. Now, instead of applying to disability claims filed on or after January 1, 2018, the Regulations will not take effect until April 1, 2018, unless they are delayed again.

The DOL said that the decision to delay the effective date for the Regulations arose as a result of an executive order issued by President Trump on February 24, 2017 that directed federal agencies to do a regulatory review, and make recommendations, regarding regulations that could be repealed, replaced, or modified in a way that would make them less burdensome. Since then, the DOL said that it received comments from various stakeholders and members of Congress that implementation of the Regulations would increase the costs of administering disability benefit plans by, among other things, imposing new requirements when adjudicating claims, result in more litigation of claims for disability benefits, and make it more difficult for employers to prevail in such litigation and increase the costs of premiums for disability insurance plans.

The DOL’s decision to delay implementation is unfortunate for disability claimants because the Regulations do so much to strengthen the ERISA-provided protections. For example, they inject a regulatory mandate for impartiality and independence of all persons involved in the claims handling process. Often, we see purportedly “independent” medical experts give biased, poorly reasoned opinions in support of a predetermined goal: denial of the claim. While there is already a substantial body of case law that allows claimants to push back on these not-so-independent medical reviews, with these new Regulations, decisions regarding hiring, compensation, termination and promotion cannot be made on the likelihood that someone will support a disability benefits denial.

These new ERISA Regulations also fortify preexisting information disclosure requirements. In an ERISA disability case, the claims administrator gathers the information necessary to evaluate the initial claim. This may involve interviews with the claimants, retrieval of medical records and the “independent” medical reviews described above. The administrator then compiles this information in a claim file, which per ERISA, must be provided to disability claimants free of charge upon request. These new Regulations strengthen this requirement by making claims administrators provide any new evidence gathered during the review on appeal, as it is considered. This allows the claimant an opportunity to challenge additional information as part of the appeal process and build an equally compelling administrative record that fairly considers both sides.

As for information disclosure in denial letters, the Regulations also require that an ERISA disability claims administrator sufficiently state its denial and expressly address opinions to the contrary. Through these enhanced protections, an administrator may no longer ignore or dismiss conflicting findings of disability, including those from its own experts. For example, if the claims administrator disagrees with a finding of disability by the Social Security Administration or the plan participant’s treating physician, then it must rationally explain and support its opposite conclusion.

Finally, the Regulations incentivize compliance with these important procedural protections by formally acknowledging the legal consequences for failure to comply. Under these new DOL Regulations, a claimant may demand a written explanation of any asserted violation, which the administrator must provide within ten days. Further, when a claim is “deemed denied” because the administrator fails to render a decision within the applicable time-frame, a claimant will have exhausted his or her administrative remedies and can file a lawsuit under a de novo standard of review. A de novo standard of review is much more beneficial for the claimant because the court gives no deference to the administrator’s decision to deny benefits.

With these Regulations, the DOL took a strong stance in protecting disability claimants from wrongful denials by attempting to minimize conflicts of interest, promote an open and robust discussion of the claim and ensure that administrators strictly comply with procedural protections. Hopefully, the DOL will not decide to rescind, modify or further delay implementation of these Regulations, which now will apply to disability claims filed on or after April 1, 2018.

Court Reinstates Disability Benefits Because Insurer’s Vocational Expert Ignored Treating Physicians’ Opinions

When an insured becomes disabled and incapable of performing the duties of his or her occupation, long-term disability benefits can provide a much-needed form of substitute income. Given the potential importance of these disability insurance benefits, playing an active role in the claims handling process is integral to the success or failure of an insured’s claim. In marshaling medical evidence in support of a long-term disability, insureds often rely on the opinions of their treating physicians and rightfully so, as the support of a treating physician can make or break a claim. However, the support of treating physicians does not equate to automatic approval of benefits. Typically, an insurer will hire its own medical or vocational expert to evaluate a claim. Often, these experts reach an opposite conclusion, finding that the insured can perform the material duties of his or her own occupation and is not disabled within the meaning of the plan.

Recently, the District Court for the Eastern District of Michigan, in Julie Sun v. United of Omaha Life Ins. Co., 2:16-cv-11339-VAR-RSW, 2017 WL 3050477 (E.D. Mich. July 19, 2017), granted plaintiff’s motion for summary judgment, finding the plaintiff was disabled despite the insurer’s reliance on a vocational expert’s opinion in support of its denial. In this plaintiff-friendly opinion, the court openly criticizes the insurer’s “cherry picking” of evidence and failure to give the opinions of plaintiff’s treating physicians due consideration.

In Julie Sun, Ms. Sun filed a lawsuit under the Employee Retirement Income Security Act of 1974 (“ERISA”) to enforce and clarify her rights under a long-term disability plan issued to her employer by United of Omaha Life Insurance Company (“United”). Prior to her disability, Sun worked as a registered nurse caring for quadriplegic patients. Unlike most sedentary positions, her position demanded a significant level of physical exertion. Ms. Sun’s occupation required that she exert at a “medium” level, which included the ability to lift a maximum of fifty pounds and frequently lift or carry up to twenty-five pounds. Her specific position also required that she be able to operate a “hoyer lift” to move patients, which involved pushing, pulling and lifting about thirty pounds. In addition to assisting patients with daily care activities, such as bathing or dressing, she was also responsible for driving her patients to and from various appointments and other personal errands.

In December 2010, Ms. Sun injured her foot. As a result of her injury and other disabling conditions, she could no longer perform the duties of her occupation as a registered nurse. Unfortunately, Ms. Sun’s foot never healed, and she did not return to work.

After paying Ms. Sun’s long-term disability benefits for some time, United terminated her benefits effective April 6, 2013. In terminating her benefits, United relied on two reviews: a medical review conducted by a Medical Consultant and a Transferable Skills Analysis conducted by a vocational expert. Ultimately, United determined that “the medical documentation fails to substantiate a condition or conditions that would render [Ms. Sun] disabled from performing a Gainful Occupation of a sedentary strength demand.”

The court, however, did not find United’s analysis convincing, noting that the vocational report was “not supported by a reasoned explanation based on the evidence.” Particularly troubling were “United’s findings that Sun can sit for 6 hours in an 8-hour workday and that she can lift less than 10 pounds frequently.” The court found that these statements directly contradicted the reports provided by two of Ms. Sun’s treating physicians, which together supported disability from even sedentary or light work on a sustained basis. On appeal, United’s analysis did not improve, merely restating its position that its “review of the file does not find support for restrictions or limitations which would prevent [Ms. Sun] from performing the material duties of a sedentary occupation from April 6, 2013, and ongoing.”

Contrary to United’s findings, the court concluded that the administrative record did support Ms. Sun’s disability. The court criticized United’s conduct, including the way it “cherry-picked” the opinion of its own, non-examining vocational consultant and failed to give the opinions of Ms. Sun’s treating doctors due consideration. In its opposition to Ms. Sun’s motion for summary judgment, United further argued that its denial was based in part on Ms. Sun’s expected medical improvement. The court found this rationale similarly unconvincing. Although United may have based its termination on “aspirational language in medical reports” it did so while ignoring “ample evidence of disability based on examinations and findings.” Accordingly, the court granted summary judgment in favor of Ms. Sun, finding United’s denial arbitrary and capricious and Ms. Sun disabled within the meaning of the plan.

If your claim for retirement, health, life, short-term disability or long-term disability benefits has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

Robert McKennon and Stephanie Talavera Publish Article in the Los Angeles Daily Journal: “Ruling Clears Up Attorney Fees in ERISA Cases”

Unlike a state law claim for benefits under an individual insurance policy, an ERISA claim generally limits recovery to benefits due under the plan: prejudgment interest, declaratory or equitable (non-monetary) relief and attorneys’ fees. Accordingly, looming attorneys’ fees serve as an important financial disincentive for an ERISA plan administrator’s misconduct. In today’s edition of the Los Angeles Daily Journal, Robert J. McKennon and Stephanie L. Talavera of the McKennon Law Group PC discuss the importance of ERISA attorneys’ fees and how a recent case positively impacts the ability to recover those fees. In a column entitled “Ruling Clears Up Attorney Fees in ERISA Cases,” we evaluate the effect of the new Ninth Circuit Court of Appeals case, Micha v. Sun Life Assurance of Canada, Inc., 2017 DJDAR 10411 (Nov.1, 2017) and explain how the decision provides ERISA plan participants, beneficiaries and fiduciaries with a solid foundation for recovery of certain attorneys’ fees in the future.

The Hartford Agrees to Purchase Aetna’s Group Disability Insurance and Group Life Insurance Business

In a deal between two of the country’s largest disability insurers, The Hartford agreed to purchase Aetna Life Insurance Company’s group life insurance and disability insurance business for $1.45 billion. After the purchase, which is expected to close before the end of 2017, The Hartford will be the second largest group life and disability insurer, with 20 million customers insured by the combined business. A vast majority of these customers’ claims will be governed by ERISA.

According to media reports, The Hartford’s purchase of Aetna’s group life and disability insurance was designed to strengthen the company’s business among mid-sized companies, and take advantage of Aetna’s superior technology infrastructure. Aetna, in turn, will focus on its race with rival health insurance companies like UnitedHealth Group, Cigna and Anthem.

The McKennon Law Group has successfully represented many clients with claims against both The Hartford and Aetna. If your group disability insurance claim or group life insurance claim was denied, please contact the McKennon Law Group at (949) 387-9595 for a free consultation.

Attorney Robert J. McKennon Educates Policyholders on ERISA and Disability Insurance Claims

When a disability insurance claim is denied, the process of challenging that wrongful denial can be daunting. At McKennon Law Group PC, we represent policyholders in their insurance disputes and help guide our clients through the complex insurance claims process. We pride ourselves on the relationships we build with our clients and work hard to ensure that our clients understand the status of their matter every step of the way.

As part of our firm’s dedication to serving insureds, Robert J. McKennon, the firm’s founder, answered some of the most frequently asked questions regarding disability insurance benefits and the Employee Retirement Income Security Act, or ERISA. In the Q&A, Mr. McKennon briefly explains the role of ERISA, the body of law that governs most employer-sponsored group benefit plans. He also briefly discusses insurance bad faith, which governs most individual disability insurance policies. Additionally, Mr. McKennon covers some common misconceptions regarding the disability insurance claims handling process, as well as the remedies available to an insured should they successfully overturn their wrongful denial.

At McKennon Law Group PC, we believe in establishing lasting relationships with our clients and providing the highest quality of legal services, with integrity. Part of that requires effective communication and taking the time to respond to your questions. If your claim for life, retirement, health, short-term disability or long-term disability benefits has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA state law insurance bad faith claims.

This was issued as a press release and appeared in numerous legal and non-legal publications. To see if Mr. McKennon answered your questions, please review the press release in full, below.

Attorney Robert J. McKennon Educates Policyholders on ERISA and Disability Insurance Claims

Southern California insurance litigation attorney Robert J. McKennon, of McKennon Law Group PC, examines four common insurance law issues.

NEWPORT BEACH, Calif. (PRWEB) October 25, 2017

Robert J. McKennon, founder of McKennon Law Group PC, which represents policyholders in their insurance disputes with insurers, asks and answers the top four most frequently asked questions concerning insurance law.

No. 1: What is ERISA? The Employee Retirement Income Security Act of 1974, ERISA, governs most employer-sponsored group benefit plans, including plans that provide health insurance, disability insurance and life insurance to employees.

“ERISA protects employees and requires that plan and claim administrators adhere to strict standards and deadlines when resolving disputes,” said McKennon. “As such, litigation under ERISA is very different from other forms of litigation, even other insurance litigation.”

No. 2: How do I get my disability benefits claim paid? Most people think that simply providing the insurance company with their medical records will be enough to support a claim for disability benefits. “In a perfect world that would be the case, but insurance companies are not typically interested in making it easy for people to collect their benefits,” noted McKennon. “If your claim is denied, the best thing you can do is hire an attorney who has experience dealing with insurance companies, which will greatly increase your odds of getting your claim paid.”

No. 3: What are my remedies if I sue the insurance company over my disability, life or health insurance claim and win? The remedies available to someone insured under an individual disability insurance policy are very broad and under a breach of contract claim include past due benefits and all future benefits. Under a bad faith claim, damages include emotional distress damages, economic damages and other compensatory and consequential damages, punitive damages, attorneys’ fees and interest.

“If the policy is issued through an employer to provide coverage to eligible employees, the remedies are very different. These are referred to as ‘group’ policies,” added McKennon. “Most people who have life, health and disability insurance are covered under group policies. Because most group policies are governed by ERISA, the remedies available to insureds are much more limited. If an individual insured under an ERISA group policy prevails at trial, he or she is only entitled to past due benefits, interest and attorneys’ fees.”

No. 4: What is insurance bad faith? “If you purchased an individual life, health or disability insurance policy, ERISA will not apply to your claim,” stated McKennon. “Instead, separate principles of tort law govern your claim, which includes what is referred to as ‘insurance bad faith.’ Litigation of an insurance bad faith claim involves proving that the insurer denied a claim or other policy benefit unreasonably or without proper cause. If a claimant can prove that the insurer acted with fraud, oppression or malice, punitive damages may be awarded.”

About Robert J. McKennon, McKennon Law Group PC
Robert J. McKennon represents individuals and corporations in insurance litigation matters in state and federal court. He has an AV Preeminent rating from Martindale-Hubbell and a “Superb” Avvo rating. He has been awarded the Super Lawyer designation every year since 2011. Practice areas of McKennon Law Group PC include bad faith insurance, disability insurance, life insurance, ERISA/employee benefits, health insurance, long-term care, property and casualty insurance, directors and officers liability insurance, professional liability insurance, insurance agent and broker liability, business litigation and unfair competition and unfair business practices. For more information, please call (949) 387-9595, or visit https://mslawllp.com.

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