ERISA Archives - Page 42 of 56 - McKennon Law Group

Ninth Circuit Creates Bright-Line Rule in ERISA Disability Cases: the Inability to Sit for More Than Four Hours Precludes Work in a Sedentary Occupation

It is very common for an insurance company to deny a claim for long-term disability insurance governed by ERISA after concluding that a claimant can perform the duties of a sedentary occupation. The U.S. Department of Labor’s Dictionary of Occupational Titles (DOT) states that “[s]edentary work involves sitting most of the time, but may involve walking or standing for brief periods of time.” In other words, an occupation is classified fbifas “sedentary” when a majority of the work can be performed while sitting down, and the job does not require much, if any, movement and heavy lifting.

Insurers often assert that disability insurance claimants can work in a sedentary occupation, regardless of the physical restrictions from which the claimants suffer, including the ability to sit for four-to-six hours per day at a sedentary job. However, this practice was recently rejected by the Ninth Circuit Court of Appeals in Armani v. Northwestern Mutual Life Insurance Company, __ F.3d __, No. 14-56866, 2016 WL 6543523, *3-4 (9th Cir. November 4, 2016), which created a bright-line rule that a person who cannot sit for more than four hours a day cannot perform a sedentary occupation.

In Armani, a case governed by ERISA, the Ninth Circuit held that, when all of claimant’s attending physicians agreed he could sit at most four hours of an eight-hour workday, he was unequivocally disabled from performing his own sedentary occupation (and from any other sedentary occupation), because sedentary jobs require mostly sitting and generally at least six hours per day. After citing numerous cases that offered similarly findings, the Armani court stated:

[T]hese cases reflect the logical conclusion that an employee who is unable to sit for more than half of the workday cannot consistently perform an occupation that requires sitting for “most of the time.” We agree with this commonsense conclusion and hold 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.” Id. at *4 (emphasis added).

Given the finding by the claimant’s treating physicians that he could not sit for more than four hours, the Armani court ruled that the claimant was entitled to long-term disability benefits. This ruling was made despite the fact that the insurer’s medical consultants disagreed with the insured’s attending physicians about the claimant’s sitting limits. The insurer’s paid physicians concluded, based on reviewing his medical records, that the claimant had no sitting restrictions or limitations that would prevent him from performing a full-time sedentary job (when the insurer had contended sedentary work involves sitting most of the time). Id. at *2. The Ninth Circuit placed no weight on the insurer’s paper review opinions and, despite them, stated there was “undisputed evidence that . . . Armani was unable to sit for more than four hours a day” based solely on the attending physicians’ opinions. Id. at *4 (emphasis added).

Overall, this is a very good ruling for disability insurance claimants who are unable to sit for more than four-to-six hours a day. With this ruling, insurers are precluded from asserting that a claimant can work at a sedentary job if he or she cannot sit for more than four hours a day. In fact, the Armani court even suggested that someone who can sit for more than four, but less than six hours a day, would also be precluded from sedentary work as the court cited to several decisions holding that a disability claimant who is unable to sit for more than six hours per day is disabled.

If you are an employee covered under your employer’s group short-term disability, long-term disability, life insurance or health insurance policy and had your claim denied, do not give up. If your insurer denied your claim without examining you, or, even after you were awarded Social Security disability benefits, there is a good chance we can help. You should immediately contact the McKennon Law Group, a law firm specializing in ERISA insurance and employee benefits litigation. Let us decide whether your claim was wrongfully denied and let us see if we can assist you.

Robert McKennon and Scott Calvert Publish Article: Insurers turn to Drones

In the October 18, 2016 edition of the Los Angeles Daily Journal, Robert McKennon and Scott Calvert of the McKennon Law Group published an article regarding the use of drones by insurance companies in their insurance claims investigations. In the article entitled “Insurers Turn to Drones,” Mr. McKennon and Mr. Calvert explained that insurers are increasingly using drones as part of the insurance claims handling/investigation process, including disability insurance claims, but noted the use of drones is regulated by a series of Federal, State and local laws. In addition, the article noted that courts are increasingly questioning the use of and reliance on surveillance by insurance companies in ERISA and non-ERISA insurance cases.

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

Insurers Turn to Drones

By Robert J. McKennon and Scott E. Calvert

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 Ins. Co., 24 Cal. 3d 809, 819 (1979);Guebara v. Allstate Ins. Co., 237 F.3d 987, 996 (9th Cir. 2001).

In the process of those investigations, insurers often secretly enlist private investigators to gather information on their insureds. With respect to disability insurance claims, for example, insurers typically hire private investigators to follow and videotape their insureds whenever they ventured out of the home, whether to take the trash out, go to a doctor’s office, or travel to the grocery store. Typically, insurers will attempt to use that surveillance to assert that their insureds are capable of working and not entitled to disability benefits, often overstating the level of activity depicted on tape and the conclusions that can be drawn from such surveillance.

However, with technological advances, the methods of surveillance are changing. Recently, insurance companies started moving beyond the proverbial “guy in a van” method of surveillance, and began using unmanned drones to conduct photographic and video surveillance. There are many different kinds of drones, but some can travel on auto-pilot to a preset location, and slowly fly above an insured and his property, undetected, while taking high-resolution photos and video. Others need to be operated by someone who keeps the aerial vehicle within the line of sight.

Drones, also referred to as unmanned aerial systems (UASs) or unmanned aerial vehicles (UAVs), are increasingly being used for commercial purposes. The use of drones is regulated both by the Federal Aviation Administration (FAA), and a variety of state and local laws and regulations. Those regulations have not prevented insurance companies from making drones part of the claim review process. In 2015, multiple insurance companies, including AIG, State Farm Mutual and USAA, were granted permission by the FAA to use drones for commercial purposes. More recently, in July, the FAA promulgated rules permitting the use of drones weighing less than 55 pounds for all commercial applications, including by insurance companies.

Most often, drones are used for claims involving property and casualty insurance, to examine the condition of tall buildings or inspect property in hard-to-reach locations or even disaster areas. However, the neither the FAA nor any other authority strictly limits the use of drones to these specific situations.

Some private investigators believe that drones are preferable to more traditional methods of surveillance, as they can often provide quicker, cheaper and safer surveillance and documentation while also reducing the risk than an investigator will be spotted, and can be used to gain access to otherwise inaccessible locations.

With FAA approval, insurers are working to research and develop best practices, safety and privacy protocols, and procedures as they further develop plans for operational use. Privacy protocols will be especially important as insurers can be sued if they obtain surveillance that impermissibly intrudes on an insured’s privacy. Thus, even with FAA approval to utilize drones, insurance companies are not simply permitted to use drones in every situation in order to attempt to assert that an insured does not qualify for benefits. They will have to be prudent using them.

As drones multiply in number and category, cities and states are setting their own boundaries. For example, while over the last two years Gov. Jerry Brown repeatedly vetoed bills that would have criminalized the use of drones in certain situations, including over wildfires, schools, prisons and jails, he did sign a law modifying California Civil Code Section 1708.8 so that the definition of a “physical invasion of privacy” now includes sending a drone into the airspace above someone’s land in order to make a recording or take a photo. A person who violates the “airspace above the land of another person” is now liable for up to three times the amount of any general and special damages caused by the invasion, as well as a civil fine between $5,000 and $50,000. While this change was developed mainly to prevent paparazzi from flying drones over private property, it would equally apply to insurance company employees and contractors conducting surveillance of insureds.

Florida has gone a step further, as the Freedom from Unwarranted Surveillance Act provides a private right of action which can be pursued when a drone is used to take pictures or video that would not be otherwise available to someone standing on ground level. Cities are also passing similar laws. For example in 2015, Poway, in San Diego County, passed an ordinance banning the use of drones in any open space or rural residential area.

In light of these rules, in any case involving photographs or videos taken by drone, attorneys on either side of litigation involving such evidence are well-advised to ensure that the evidence was gathered within the confines of the law.

While insurers often use the results of surveillance to assert that an insured does not qualify for insurance benefits, courts are increasingly weary of how insurance companies use and interpret video footage. For example, in one influential 9th U.S. Circuit Court of Appeals case involving a long-term disability insurance claim,Montour v. Hartford Life & Accident Insurance Co., 588 F.3d 623 (9th Cir. Cal. 2009), the insurer relied on surveillance footage of the claimant engaged in short periods of activity over four nonconsecutive days and concluded he was capable of sustaining this activity in a full-time occupation. The court criticized the insurer’s decision, explaining the insurer over-relied on footage and this bias pervaded its decision process, eventually ruling that the claimant was entitled to long-term disability benefits.

Similarly, inBeaty v. Prudential Insurance Co., 313 Fed. Appx. 46, 49 (9th Cir. 2009), the 9th 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 is improper, and warn that activities observed for a short amount of time do not necessarily translate into full-time work capacity. For example, inThivierge 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 she was under surveillance does not mean that Plaintiff is able to work an eight-hour a day job.”

Thus, while insurers increasingly use drones to gather information on their claimants, gathering and using that information to support claims denials may not be as easy as it seems. This is especially true in the case of disability insurance claims. Not only are insurers obligated to obey an increasingly number of federal, state and local rules and regulations limiting the use of drones, but courts are growing increasingly weary of insurers’ attempts to over-rely on surveillance. Thus, while surveillance, especially the use of drones, becomes increasingly popular in insurance investigations, insurers will have to be especially wary of its use in making decisions on their insurance claims.

Federal Court Criticizes Long-Term Disability Insurer for “Paper Reviews” and Dismissing SSA Award

Were you denied benefits by your group long-term disability insurer without the insurance company’s doctor examining you in-person? Did your insurer deny your claim even though the Social Security Administration concluded you are disabled? If so, the McKennon Law Group may be able to help get your disability benefits by appealing the insurer’s decision or by filing a lawsuit against it in federal court. As experienced ERISA disability insurance lawyers who have handled hundreds of individual and group long-term disability claims, we see all too often insurance companies unjustly deny claims based purely upon a “paper review” of the employee’s medical records by a biased medical consultant and, worse yet, often by just an unqualified nurse employed by the insurer. No rational doctor would determine whether his patient is disabled from working without examining him. But that is precisely how group disability insurers deny claims on a regular basis, hiring a doctor to perform a cursory review of the claimant’s medical records without ever examining him or speaking to him. Unfortunately, it is a widespread, endemic practice in the disability insurance industry.

Fortunately for claimants, courts often criticize this “pure paper review” practice to decide claims. A federal court in Oakland, California recently did in the case of Lin v. Metropolitan Life Insurance Company, 2016 WL 4373859 (N.D. Cal. Aug. 16, 2016). In that case, Senior United States District Judge Saundra Brown Armstrong was persuaded that Metropolitan Life Insurance Company (“MetLife”) improperly terminated Steven Lin’s disability benefits based in large part on the fact that MetLife’s doctors never examined him.

Mr. Lin has a Ph.D. in chemistry and was employed by TriNet as its Director of Polymer Technologies when he had to stop working because his kidney failed. His job required him to generate ideas, focus and concentrate, and provide leadership and direction to subordinate chemists. Fortunately, years earlier he had enrolled in TriNet’s employee welfare benefit plan, including for long-term disability benefits, in case of such a dire event. The plan was funded by a group disability insurance policy issued by MetLife to TriNet for the benefit of its employees including Mr. Lin.

Mr. Lin submitted a claim to MetLife for long-term disability benefits and reported he could not perform his job because of kidney failure, headaches, chest pain, fatigue, loss of memory and sleepiness. At just 48 years old he underwent a kidney transplant obtained from a cadaver. He was positive for Hepatitis B at the time of his surgery.

MetLife initially approved Mr. Lin’s claim. Over the course of the next several years Mr. Lin was regularly examined by his personal physician, Shahrzad Zarghamee, a nephrologist, to mandate his continuing disability. After documenting Mr. Lin’s consistent fatigue and headaches in her progress notes, Dr. Zarghamee concluded that her patient, Mr. Lin, could not work because he was unable to focus or concentrate, experienced extreme exhaustion when he tried to focus on even mundane matters, and consistently suffered from debilitating headaches and chronic fatigue on a daily basis.

Despite the opinion of Dr. Zarghamee, MetLife terminated Mr. Lin’s benefits four years after it started paying them based upon the opinions of three other doctors, two of which were MetLife’s employees and another, nephrologist Michael Gross, M.D., of which MetLife hired as a consultant. MetLife’s doctors reviewed Mr. Lin’s medical records and concluded based purely on that review, without ever examining him, that his kidney function was normal and there was no objective support in his medical records for his subjective complaints of fatigue and pain. MetLife thus concluded Mr. Lin was not disabled from working based on what its doctors said.

MetLife acknowledged in its termination letter that the Social Security Administration awarded Mr. Lin Social Security disability benefits. But MetLife summarily dismissed the award by stating that a Social Security finding of disability does not guarantee the continuation of long-term disability benefits. Without analyzing why, MetLife stated that its decision may differ from the Social Security Administration because it “may not have the same information that was utilized in making our decision.”

Mr. Lin sued MetLife for recovery of disability benefits under ERISA. The Court conducted a bench trial to determine whether MetLife properly terminated Mr. Lin’s benefits. The Court found MetLife made the wrong decision, that Mr. Lin was in fact disabled. It reinstated his disability benefits and ordered MetLife to pay them plus interest and attorneys’ fees.

In the key part of its analysis, the Court criticized MetLife’s use of “paper reviews” instead of retaining a doctor to actually examine Mr. Lin:

[O]ther aspects of the administrative record also persuade the Court that MetLife erroneously terminated Plaintiff’s benefits. In particular, the Court finds it significant that MetLife terminated Plaintiff’s benefits without actually examining him.

The Ninth Circuit has recognized that an insurer’s decision to conduct “a ‘pure paper’ review. . ., that is, to hire doctors to review [the claimaint]’s files rather than to conduct an in-person medical evaluation of him” may raise “questions about the thoroughness and accuracy of the benefits determination.” Montour v. Hartford Life & Acc. Ins. Co., 588 F.3d 623, 634 (9th Cir. 2009) . . . .

Here, MetLife’s termination decision was predicated principally on the reports of its outside consultant, Dr. Gross, and its Medical Director. Both of these individuals evaluated Plaintiff’s claim for benefits without physically examining him. . . . While MetLife was not necessarily required to conduct a personal examination of Plaintiff as a prerequisite to terminating his benefits, the fact that MetLife failed to do so—in contravention to the recommendation of its own consultant—further underscores the result-driven nature of MetLife’s decision to terminate Plaintiff’s benefits.

The Court found the opinions of Mr. Lin’s treating physicians more than sufficient to establish he was disabled despite the contrary opinions from the insurance company’s “paper reviewers.” The Court also rejected MetLife’s contention that “objective” medical findings showing disability is required, not just a treating physician documenting Mr. Lin’s subjective complaints of chronic fatigue and pain in her progress notes.

Finally, the Court held that, in order to terminate Mr. Lin’s insurance policy benefits, MetLife was required to meaningfully address why its decision differed from that of the Social Security Administration who, in fact, had found Mr. Lin disabled under its rules. It held that analysis must entail comparing and contrasting the definition of disability in MetLife’s policy to that used by the Social Security Administration and also the medical evidence considered by each, not simply dismissing the Social Security award with an entirely generic, conclusory analysis like MetLife did. Because of that conduct, coupled with MetLife’s decision to rely on “paper reviews,” the Court was persuaded that MetLife improperly terminated Mr. Lin’s benefits and that he was disabled within the meaning of its policy.

The Court also explained that MetLife was not allowed to discount the Social Security Administration’s disability finding in court based upon a rationale MetLife first raised during the litigation. In other words, by failing to use the rationale during the claim administrative process, MetLife waived any right to employ it in court: “MetLife cannot attempt to downplay the significance of the SSA award on a ground that was not specified in its termination letter.”

Robert McKennon Publishes Article: Ninth Circuit: ‘Independent’ Physicians may Favor Insurers

In the September 8, 2016 edition of the Los Angeles Daily Journal, Robert McKennon of the McKennon Law Group published an article regarding the use of so-called “independent” physicians used by insurance companies as a pretense to deny valid claims. In the article entitled “9th: ‘Independent’ Physicians may Favor Insurers,” Mr. McKennon summarized the recent U.S. Court of Appeals for the Ninth Circuit case, Demer v. IBM Corporation LTD Pan, 2016 DJDAR 8929 (9th Cir. Aug. 29, 2016), in which the Court noted that insurance companies frequently pay doctors a substantial amount of money to review files, and therefore their opinions are likely biased in favor of the insurance company that pays them.

The article is postedbelowwith the permission of the Los Angeles Daily Journal.

9th: ‘Independent’ Physicians may Favor Insurers

By Robert J. McKennon

Insurance companies that provide group long-term disability insurance benefits governed by the Employee Retirement Income Security Act of 1974 (ERISA) usually hire a doctor which they typically refer to as an “Independent Physician Consultant” (IPC) to review the insured’s medical records and give an opinion about whether the insured is disabled. But is the insurance company’s doctor really independent and unbiased? Often times, the IPC never meets with or examines the insured, and does not even discuss the matter with the insured’s physicians. Yet, the IPC determines that the insured is capable of working simply by spending a few hours reviewing his medical records. The IPC typically disagrees with the opinions of the insured’s treating physicians, who have treated the insured for months or even years. Almost invariably, the insurer favors the opinion of its IPC over the opinions of the insured’s physicians. When this happens, what is an insured to do?

In a published opinion favorable to insureds that addresses this issue,Demer v. IBM Corporation LTD Pan, 2016 DJDAR 8929 (Aug. 29, 2016), the 9th U.S. Circuit Court of Appeals demonstrated that it understands that insurance companies frequently use doctors and pay them a substantial amount of money for their services, and therefore their opinions are likely biased in favor of the insurance company that pays them. The 9th Circuit held that a district court’s review of an insurance company’s benefits decision, when it is based upon the opinion of an IPC, should be tempered by skepticism because of the financial incentive that the IPC has to pander to the insurer’s interests (again, who uses them often and pays them significant amounts of money).

InDemer, the plan participant, Daniel Demer, was an employee of IBM Corporation LTD Plan. Suffering from severe recurrent depression, spinal stenosis, chronic osteoarthritic pain, and chronic headaches and unable to continue working, he filed a claim for long-term disability benefits. MetLife, which had a structural conflict of interest because it both evaluated claims made against the plan and funded claims, initially approved his claim after concluding he was incapable of performing the duties of his occupation. However, after two years, the plan required that Demer be unable to work in any occupation for which he was suited by education, training and experience in order to qualify for benefits, and MetLife denied his claim relying primarily on the opinion of its IPC indicating that despite his supported functional limitations, Demer was capable of working in a sedentary position.

Demer appealed MetLife’s claim denial, and MetLife subsequently upheld its denial relying on the opinions of two other IPCs. One of the IPCs was board certified in physical medicine and rehabilitation. He determined that while Demer “likely had a modicum of discomfort” from “neck and back pain related to spinal degeneration,” he retained physical functional capacity to perform a sedentary occupation despite a contrary conclusion from Demer’s treating physician. MetLife’s other “independent” physician consultant, board certified in psychiatry, claimed that despite the fact that Demer was taking powerful narcotic and neurological medications and asserted that he suffered from significant medication side-effects that cause fatigue and an impediment to his comprehension and communication, there was no objective data to establish functional impairment as a result of the medications he was taking.

Demer filed suit, arguing in part that MetLife operated under a conflict of interest because two of the IPCs that MetLife hired to review the medical record previously conducted a substantial number of reviews for Metlife and received significant compensation from MetLife for their services. For 2009 and 2010, one IPC performed more than 250 reviews/addendums per year, earning more than $125,000 each year. For the same time period, the other IPC performed between 200-300 reviews/addendums each year, and received more than $175,000 from MetLife each year. Based on the number of reviews and the amount of compensation, Demer asserted that the IPCs’ opinions should be questioned because the doctors had financial incentives to render opinions favorable to MetLife. Demer further argued that, because MetLife relied on the doctors’ opinions in denying him relief, the doctors’ conflict is imparted to MetLife and therefore the court should view their opinions with skepticism. The court noted that this argument is comparable to conventional approaches to discrediting the testimony of retained experts whose objectivity may be challenged based on the number of times he or she has served as an expert in support of a party and the amount of compensation received.

The district court entered judgment in favor of IBM and MetLife finding no abuse of discretion, but the 9th Circuit reversed. Thec court concluded that because MetLife’s consulting physicians earned a substantial amount of money from, and performed numerous medical record reviews for, MetLife, an inference was raised that there was a financial conflict which influenced the physicians’ assessment. It held that this conflict was a factor to be considered in reviewing MetLife’s decision under the abuse of discretion standard. Since MetLife failed to negate any inference of a financial conflict of interest, the court determined that “the number of examinations referred and the size of the professional fees paid to a reviewer may compromise the neutrality of an expert.”

The court further concluded that MetLife abused its discretion in denying Demer’s claim that his mental functional capacity was affected by his medications. The court determined that since it was undisputed that Demer took powerful narcotic medications, that these medications were medically necessary, and because they have known strong side-effects, MetLife’s conclusion (that Demer’s complaints regarding medication side-effects was not credible) was unsupported. A dissent disagreed, and stated that he would abandon “skepticism” as a separate standard of review in ERISA cases.

Even though theDemercase involved the abuse of discretion standard of review, insurers will argue that this case will have little application in de novo review cases in which the conflict analysis is not used. In California, the abuse of discretion standard of review will likely become uncommon in future cases because of California Insurance Code Section 10110.6, which renders discretionary language “void and unenforceable” in policies, contracts and certificates that provide funds for life insurance or disability insurance coverage for California residents. However, even in de novo review cases, it is advisable to remind the courts of the rationale behind the “skepticism” rule as even the 9th Circuit noted the similarity to the arguments made in non-ERISA cases. Thus, this case is useful to establish that the opinion of an insurance company IPC who never examined the insured and who undermines or rejects an insured’s credible evidence of disability should be viewed skeptically where the insured’s disability is supported and verified by the insured’s treating physicians who treated and examined the insured.

ERISA Penalties: When Can Plan Administrators Be Fined for Failing to Timely Produce the Administrative Record?

When insurance companies deny long-term or short-term disability, life or health insurance claims, it is vital that the plan participants and their beneficiaries be able to receive the claim file (also known as the Administrative Record) and ERISA Plan documents so that they can review them and challenge these claim denials. It is therefore not surprising that ERISA Plan administrators are required to comply with certain claims procedures and requests for information from plan participants, otherwise, under ERISA, they could be fined up to $100 per day for each day they fail to comply. Pursuant to 29 U.S.C. § 1332(c)(1), a plan administrator:

… who fails or refuses to comply with a request for any information which such administrator is required to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.

The Ninth Circuit Court of Appeals, in Lee v. ING Groep, N.V., No. 14-15848, No. 14-15936, 2016 WL 3974176 (9th Cir. 2016), recently joined all other Circuits except for the Fourth and Fifth Circuits, in finding that only on the plan itself, not the claims administrator, can be penalized under 29 U.S.C §1332(c)(1).

In Lee, Mr. Lee, a former employee of ING Management, LLC, filed a claim with his long-term disability plan governed by ERISA and initially received long-term disability benefits before his claim for benefits was later terminated. ING North America Insurance Corporation (“ING”) was the plan administrator of Mr. Lee’s long-term disability plan, and the claims administrator was ReliaStar Life Insurance Company (“ReliaStar”). On February 5, 2010, Mr. Lee’s attorney requested from ReliaStar copies of all communications, including e-mails, from ING’s attorney, and a copy of all documents including the Plan Documents. ING did not produce the requested e-mails until November 9, 2011 (over 1.5 years later) and did not produce the Plan Documents until March 11, 2013 (over 2 years later). The district court imposed a penalty of $27,475.00 on ING for failing to timely produce the Plan Documents and the requested e-mails. ING subsequently appealed this decision.

The Ninth Circuit Court of Appeals affirmed the district court’s decision to impose a penalty on ING for its failure to timely produce the Plan Documents, but reversed the district court’s decision to impose a penalty on ING for its failure to produce the requested e-mails. The Court of Appeals noted that the e-mails were only required to be provided to Mr. Lee pursuant to C.F.R. §2560.503-1(h)(2)(iii), which imposed requirements on benefit plans and not plan administrators, and 29 U.S.C. §1332(c)(1) only applies to documents that plan administrators are required to produce. The Court of Appeals noted that a failure to follow claims procedures imposed on benefits plans, such as those outlined in C.F.R. §2560.503-1(h)(2)(iii), does not give rise to penalties under 29 U.S.C. §1332(c)(1). The Court of Appeals further noted that “Plans” and “plan administrators” are separate entities with separate definitions under ERISA and penalties under 29 C.F.R. §1132(c)(1) can only be assessed against “plan administrators.” Because C.F.R. §2560.503-1(h)(2)(iii) does not impose any requirements on plan administrators, it cannot form the basis for a penalty under 29 U.S.C. §1332(c)(1). The Court remanded the case to the district court to assess a penalty based solely on the failure to timely produce the Plan Documents.

Given that many of the claims procedures governing the handling of an ERISA claim are imposed upon benefit plans and not on plan administrators, ERISA plan participants might not have the opportunity to seek penalties when they are unable to obtain claim related documents. However, they can expect that when a claims administrator fails to comply with ERISA regulations designed to protect the integrity of the claims and appeal process, their claims will be given the appropriate review before a judge. Claim and plan administrators are aware that they face significant liability at trial, even without statutory penalties, such a plan benefits due under long-term or short-term disability policies or life and/or health insurance policies. This is why seeking out highly experienced ERISA attorneys such as the McKennon Law Group PC will substantially increase the chance of obtaining the disability, health and life insurance benefits to which plan participants and their beneficiaries are entitled.

How do disability benefits from Social Security, the State or from Workers’ Compensation affect your claim?

Most group long-term disability policies and employer-sponsored long-term disability plans include a provision called “Offsets,” “Other Income Benefits,” “Income Which Will Reduce Your Disability Benefit,” “Deductible Sources of Income” or a similar name. These provisions allow the insurer to reduce the monthly disability benefit that you would otherwise receive under the disability insurance policy by the amount of the “other income” paid to you during the same time period. Each policy is different, but the insurer is usually allowed to reduce your monthly disability benefit by the following types of “other income” you receive: (1) Social Security disability benefits; (2) California State disability benefits; (3) disability benefits paid under Workers’ Compensation laws; (4) retirement plan benefits funded by the employer that issued the group policy; (5) unemployment compensation; (6) amounts received in a personal injury lawsuit settlement or judgment for loss of earnings; and (7) amounts received as sick leave, salary continuation, vacation pay and personal time off.

For example, if your monthly disability benefit under your policy is $1,000 and you receive Workers’ Compensation benefits of $400 per month, your disability insurer would only be responsible to pay you $600 per month while you are receiving Workers’ Compensation benefits. Once you stop receiving Workers’ Compensation and, assuming you are still disabled, your monthly disability benefit would increase to $1,000.

Sometimes an insured receives so much in “other income” payments that it totals more than his or her monthly disability benefit. In that case, the insured is typically entitled to receive only a “minimum benefit,” the amount of which is defined in the policy. Many times the minimum benefit is the higher of 10% of the full monthly benefit or $100 per month.

Social Security disability benefits are probably the most important offset. Under most group long-term disability policies, the disability insurer is provided a dollar-for-dollar deduction of Social Security disability benefits received by their insured. The offset lasts through your Social Security retirement age (65 to 67 years old depending on your date of birth) if you are still disabled, much longer than Workers’ Compensation or State disability benefits, typically a maximum of two years and one year, respectively. Social Security can thus reduce your monthly benefit for the entire duration of your policy. Essentially, the United States government and your tax dollars end up paying for a good portion of your disability instead of the disability insurance company to which you or your employer paid premiums.

Social Security disability benefits typically increase over time to compensate for the effect of inflation on fixed incomes. This increase is called a “COLA,” or cost-of-living adjustment. Some states, such as California, have laws that prevent insurance companies from reducing your benefit if your Social Security disability benefit goes up. California Insurance Code section 10127.15 in fact provides that, “Any provision contained in a policy of disability insurance . . . for a reduction of . . . benefits during a benefit period because of an increase in benefits payable under the federal Social Security Act . . . shall be null and void . . .” Even if no law prohibits an insurer from reducing your benefit, insurance policies will often contain a provision stating that the insurer will not do so due to a COLA.

The fact that an insurance company is often not entitled to offset a COLA paid by the Social Security Administration can be very beneficial to an insured. If, for example, your policy’s disability benefit is $1,000 per month before offsets and you are receiving $400 per month in Social Security disability (leaving a net policy benefit of $600 per month and total income of $1,000 per month between both sources), and then you start receiving $50 more per month due to an increase in your Social Security for a COLA, your disability insurer cannot reduce the policy benefit by the $50 COLA increase. Thus, you would continue to receive $600 per month from your insurer (not $550 despite the $50 COLA), in addition to the $450 from Social Security for a net increase in your monthly income of $50 or, $1,050 per month total. That can be particularly important if you are young and permanently disabled. In such a scenario you may end up receiving numerous COLAs from Social Security over a period of decades substantially boosting your “other income,” but in many States such as California, the law will not permit your disability insurer to take advantage of that by reducing the policy benefit by the COLA amounts.

Group disability policies or plans almost always allow the insurer the right to be reimbursed for any “overpayment” it makes to its insured of monthly disability benefits due to your receipt of “other income.” An overpayment of benefits most often occurs if you are approved for Social Security disability. Approval by the Social Security Administration routinely occurs well after you apply for benefits because Social Security disability claims take a long time to process – you have to love our bureaucrats. At that time, the Administration will pay you a retroactive lump sum for past due benefits or “back-pay” (while your application was processed and also because federal law permits an award of Social Security benefits dating back as much as one year before you applied). And it will also start paying you a monthly amount on an ongoing basis. Thus, you may receive monthly benefits from your disability insurer for months or years without a reduction for Social Security because you would not have received Social Security yet. When you receive your lump sum award, however, your insurer will certainly “come knocking” to collect the overpayment it made in past months as a result of the retroactive Social Security back-pay. Your insurer has that right under the policy, though a skilled ERISA lawyer can sometimes avoid you reimbursing the overpayment based on various case law arguments, e.g. if the Social Security money you received was commingled with your other general funds, is not traceable to definitive property, or spent and no longer in your possession. See our article entitled, “Ruling Limits Insurance Company’s Ability to Collect SSDI Overpayments.”

Many group disability policies include language obligating the insured to pursue all “other income benefits” for which the inured may be eligible, including Social Security. If such benefits are not applied for, then under the provisions of most policies, the insurer has the right to estimate the insured’s entitlement to these benefits and then reduce the monthly disability benefit by the estimated amount. Usually, however, the insurer is not entitled under the policy’s language to reduce your monthly benefit by an estimated amount if you: 1) apply for all other income benefits to which you might be entitled; 2) appeal any denial to all administrative levels the insurer feels is necessary (the law requires only that you appeal to the administrative law judge level); and 3) sign the insurance company’s Reimbursement Agreement, which states that the insured promises to pay the insurer any overpayment caused by an award.

If your disability insurer denies your claim, but you were approved to receive disability benefits from Social Security, the State of California or Workers’ Compensation, often times your insurer will completely ignore that disability finding in its claim denial. Experienced ERISA attorneys such as the McKennon Law Group can use that to your advantage. Federal courts have ruled that where a disability insurance company denies a claim without explaining why its decision differs from that of the Social Security Administration, it tends to show that the insurer did not properly evaluate the insured’s claim.

If you are an employee covered under your employer’s group disability plan or policy and had your claim denied, or if you have questions about what sources of “other income” may result in an offset to your disability benefit, you should immediately contact the McKennon Law Group PC at (949) 387-9595 for a free consultation, a law firm specializing in ERISA insurance and employee benefits litigation. Let us decide whether your claim was wrongfully denied or whether your insurer is wrongfully offsetting your benefit, and let us see if we can assist you.

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