ERISA Archives - Page 45 of 54 - McKennon Law Group

A Pro-Insurer Decision Provides Guidance for Insureds on the Application of Estoppel and Waiver to Statute of Limitations Defenses in Disability Insurance ERISA Cases

At times, decisions that appear favorable to insurers can also have unexpectedly positive take-aways for policy holders. Gordon v. Deloitte & Touche, __ F.3d ___, 2014 U.S. App. LEXIS 6688 (9th Cir. April 11, 2014) is just such a case. Although, the Ninth Circuit in Gordon ruled in favor of the insurer in finding that the insured’s ERISA action was barred by the California four-year statute of limitations, the Court also reaffirmed and clarified the standards for evoking waiver and estoppel arguments to prevent insurance companies from raising a statute of limitations or contractual limitations defense.

The plaintiff in Gordon was an insured under a long-term disability plan (the “Plan”) governed by ERISA. The plan was insured and administered by MetLife. The insured sought disability benefits under the Plan due to depression. After initially paying benefits to the insured, MetLife terminated benefits. The insured subsequently filed two appeals. In 2004, MetLife denied the insured’s second appeal, but indicated in the denial letter that she had 180 days to appeal the decision. The insured did not file an appeal and took no action for more than four years. Then, in 2009, after receiving a request from the California Department of Insurance to reevaluate the claim, MetLife reopened her claim. However, MetLife upheld its original decision to terminate benefits. MetLife’s denial letter advised the insured that she had 180 days to appeal and, that if the appeal was denied, she would have the right to bring a civil action under ERISA section 502(a).

In January 2011, the insured filed a complaint in federal district court. The district court granted the Plan’s motion for summary judgment, finding that the insured’s action was barred by the applicable four-year statute of limitation and the Plan’s three-year contractual limitation. The insured appealed arguing that MetLife’s limitation defense does not bar her action because: (1) reopening the claim file reset the statute of limitation; (2) the insurer waived its limitation defense; and (3) the insurer was estopped from asserting a limitation defense. All three arguments were ultimately rejected by the Ninth Circuit who affirmed the district court’s decision. However, in reaching this decision, the Court provided valuable edification of the limits placed on the use of time bars as a defense to claim brought under ERISA. As an initial matter, given the nearly seven years that had passed between the filing of the complaint and when the 180 day period to file an appeal expired, the court found that the statute of limitations had clearly ran and did not consider whether the three-year contractual limitation period applied.

The Court then addressed the insured’s argument that reconsideration of her claim in 2009 revived the statute of limitations pursuant to California law regarding creation of a new cause of action resulting from acknowledgment of debt. However, the Court reiterated that federal law governs determination of the accrual of an ERISA action and the Court found that reopening the claim file by itself is not sufficient to revive the statute of limitations. Next, the Court considered the insured’s estoppel argument. Significantly, the Court definitively acknowledged that, as a general rule, an insurance carrier will be estopped from relying on a statute of limitations defense when its own prior representations or conduct have caused the plaintiff to run afoul of the statute and equity justifies holding the defendant responsible for the outcome. However, the Court found that in this particular case, the statute of limitations had already run when MetLife informed the insured in its 2009 denial letter that she could bring an ERISA action.

Finally, the Ninth Circuit addressed for the first time in this case, whether a waiver argument can be used by insureds to prevent insurers from raising a limitation defense in ERISA cases. Turning to California law for guidance, the Court concluded that, based on a review of California decisions, an insurance company cannot waive the statute of limitations after it has run. Nevertheless, adopting the position taken by the Seventh Circuit, the Court found that even if waiver or estoppel were available in this case, the insured would have to show either detrimental reliance or some misconduct by the insured. Here, the Court held the insured had simply not shown any detrimental reliance or unfair conduct by MetLife. However, it is important to note that the Court in Gordon did not address the United States Supreme Court’s recent decision in Heimeshoff. In that decision, which was discussed in our prior blog article, the Supreme Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel. Given, the Supreme Court’s clear position on this issue, the Ninth Circuit will likely be more inclined to allow waiver arguments to be used to prevent insurers from raising a limitation defense in the future.

The Gordon decision highlights many of the potential pitfalls for insureds in dealing with navigating often complex rules regarding statute of limitations and contractual limitations. More importantly, it reaffirmed that estoppel can still prevent insurers from raising a limitations defense. The decision leaves open whether waiver may be used as well to prevent insurance companies from using contractual limitation periods as a defense if the insured can show detrimental reliance or self-serving misconduct by the insurer. However, given the Supreme Court’s affirmation of the applicability of traditional equitable remedies in ERISA cases in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., 134 S. Ct. 604 (Dec. 16, 2013) courts in the Ninth Circuit will likely allow insureds to use waiver and estoppel to overcome statute of limitation defenses in certain limited situations. The Gordon decision should serve as a reminder to insureds to act immediately if their claims are denied and to contact an attorney to ensure that they do not forfeit their right to file a lawsuit. This is especially true in dealing with disability LTD insurance, health insurance and life insurance matters.

ERISA Administrator Must Show That a Theoretical Job Actually Exists in Order to Serve as Justification for Claim Denial

A common justification for denying a claim for long-term disability insurance benefits or short-term disability insurance benefits is that the claimant is capable of returning to work in another job. However, insurers / ERISA administrators are not allowed to deny a claim just because an insured might be capable of returning to any job, rather the identified job must be based on the insured’s education, training and experience. Further, the occupation must be “gainful,” which usually means that it pays the insured at least 50%-60% of his or her pre-disability income. In Kennard v. Means Industries, Inc., 2014 U.S. App. LEXIS 2846 (6th Cir. Feb. 13, 2014), the Sixth Circuit imposed another important requirement — the insurer must prove that the theoretical job actually exists.

During an accident, Kyle Kennard inhaled fumes from a chemical spill, which severely injured his lungs and rendered him ultra-sensitive to noxious fumes. Following the accident, Kennard’s treating physician found that for the rest of his life, Kennard would be limited to working in a “clean-air environment.” Kennard was awarded disability benefits by the Social Security Administration, and then applied for disability insurance benefits under his employer’s ERISA-governed employee welfare benefit plan.

Pursuant to the terms of the Plan, Kennard was required to submit to an examination by a physician chosen by the Claim Administrator. Following an examination, the physician found that Kennard was employable “as long as he could be guaranteed that he would be placed in an absolute clean air environment with absolutely no noxious fumes or inhalants, as he is extremely sensitive to this.” Given this finding, the ERISA administrator denied Kennard’s claim for disability insurance benefits on the grounds that he was capable of sedentary work in a clean-air environment. The district court ruled that this decision was not arbitrary and capricious, but the Sixth Circuit reversed that ruling.

In finding that the denial of Kennard’s claim for long-term disability insurance benefits was improper, the court noted that “a valid denial of benefits premised on Dr. Levinson’s opinion would need to include evidence of the existence of absolute-clean-air jobs available to Kennard,” and noted that the SSA found that there are no jobs in the national economy that Kennard could perform. To support the denial decision, the administrator was required to identify a job he could perform “in terms of a real American workplace,” and present evidence of jobs available to the claimant. Because the ERISA administrator offered no evidence of the existence of the job used as the basis for the denial, the court found that the denial decision was improper.

In other words, if an insurer denies a claim for benefits after finding that the claimant can perform a particular job, there must be evidence that the job exists. It is improper to deny a claim based on a job that only hypothetically exists.

California District Court Rules That a Treating Physician’s Observations are “More Persuasive” Than a Paper Reviewer’s Contrary Opinions

When reviewing a claim for disability insurance, insurers and other claim administrators often rely on the opinions of paid physicians to support their improper denial decisions. For example, a disability insurance company will hire a doctor to conduct a “paper review” – that is, reviewing an insured’s medical records, without actually examining the insured – and then offer an opinion on the insured’s ability to return to work. If the “paper reviewer” opines that the insured is capable of returning to work, the insurance company will then rely on that opinion to deny the claim for benefits; even if the insured’s own treating physicians repeatedly state that the insured is disabled. However, in Oldoerp v. Wells Fargo & Co. Long Term Disability Plan, 2014 U.S. Dist. LEXIS 9847, 2014 WL 294641 (N.D. Cal. Jan. 27, 2014), the court held that with a psychological disability, a treating mental health professional’s observations are “more persuasive” than a paper reviewer’s opinion. This opinon is beneficial for policyholder/insureds, espeically in ERISA cases, because insurers will have a harder time using the opinions of paid, so-called “experts” who do not examine the insured to support their improper claim decisions.

In 2007, Kerilei Oldoerp was forced to stop working after experiencing a host of symptoms, including pain, fatigue and depression. Eventually, Oldoerp was diagnosed with a variety of conditions, including depression, chronic fatigue syndrome, fibromyalgia, generalized anxiety, panic disorder and Bartonella. Oldoerp made a claim for short-term disability (“STD”) benefits, and then long-term disability (“LTD”) benefits. MetLife, the claim administrator, approved her STD claim, and also paid her LTD benefits for one month before denying the claim, and forcing Oldoerp to bring an ERISA lawsuit to recover the disability benefits to which she was rightfully entitled.

In Oldoerp, the District Court originally upheld MetLife’s claim decision, ruling that its decision to deny benefits was not an abuse of discretion. However, on appeal, the Ninth Circuit, following CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), overturned that ruling because the discretionary language was contained in a summary plan description, but not the acutal plan. On remand, applying the de novo standard of review, the district court ruled in Oldoerp’s favor, finding that “Oldoerp, more likely than not, was disabled under the plan’s[IC1] terms beginning in August 2007,” and that her disability persisted after February 13, 2008, the date MetLife determined she was capable of returning to work.

In reaching this ruling, the District Court reviewed the medical evidence in the Administrative Record, as well as Oldoerp’s Social Security Disability Insurance file, after finding that it was “necessary . . . for an adequate de novo review.” First, noting that MetLife had previously approved Oldoerp’s LTD claim, in order to find that Oldoerp was not longer disabled, “one would expect the [evidence] to show an improvement, not [simply] a lack of degeneration.” However, the record did not reveal that Oldoerp’s condition improved. Rather, the records of Dr. Becky Simonelic, a psychologist who “treated Oldoerp longer and more often than any other medical professional in the record,” showed that Oldoerp’s condition had actually “deteriorated without significant improvement.”

In defending the denial decision, MetLife relied on psychologist Marcus J. Goldman, its paid physician who did not examine Oldoerp, but, after conducting a “paper review” opined that she failed to demonstrate psychiatric functional limitations after November 2007. The Court found Dr. Goldman’s conclusions to be “minimally persuasive.” First, while Dr. Goldman criticized the “subjective evidence” used to support Oldoerp’s disablity, the Court noted that an insured is “entitled to rely on credible subjective evidence in support of her claim,” especially when “the record lacks persuasive objective evidence to rebut the credible evidence” supporting the disability. In addition, the court noted that while Dr. Simonelic “consistently observed Oldoerp throughout the pendency of her claim, Goldman never examined Oldoerp,” and explained that “[w]hile an ERISA plan administrator need not provide in-person medical evaluations of its claimants, Simonelic’s in-person observations are more persuasive than Goldman’s paper review.” The Court also noted that “in-person examinations can prove more conducive to an accurate assessment of a claimant’s condition.”

Based on Dr. Simonelic’s opinions, and the other medical evidence in the record, the Court ruled that Oldoerp was entitled to a reinstatement of her LTD benefits. This opinion is very good for insureds. In addition, to holding that the opinions of a doctor who only conducted a “paper review” was only minimally persuasive in the face of a contradictory opinion by a treating physician, the Court also ruled that a Social Secuity Disability Insurance file was necessary for a full de novo review (following Mongeluzo v. Baxter Travenol Long Term Disability Ben.[IC2] Plan, 46 F.3d 938, 943 (9th Cir. 1995)) and that a disability claim can be supported by subjective evidence, especially where there is no contrary objective evidence.

Policyholder Wins Handed Down in Insurance Decisions. Daily Journal Publishes McKennon Law Group PC Article.

The February 10, 2014 edition of the Los Angeles Daily Journal featured Robert McKennon’s article entitled: “Policyholder Wins Handed Down in Insurance Decisions.” In it, Mr. McKennon discusses six insurance decisions handed down in California and federal courts in 2013 that were favorable to policyholders.

The article includes a discussion of Zhang v. California Insurance Co., 57 Cal. 4th 364 (2013), which empowered policyholders to pursue Unfair Competition Law claims against insurers, as well as Rochow v. Life Insurance Company of North America, 737 F.3d 415 (6th Cir. 2013), in which the 6th U.S. Circuit Court of Appeals affirmed a large disgorgement of profits award in long-term disability case governed by the Employee Retirement Income Security Act of 1974 (ERISA). Also discussed are Barnes v. Western Heritage Insurance Co., 217 Cal. App. 4th 249 (2013), Nickerson v. Stonebridge Life Insurance Co., 219 Cal. App. 4th 188 (2013), Aguilar v. Gostischef, 220 Cal. App. 4th 475 (2013) and American Safety Indemnity Co. v. Admiral Insurance Co., 220 Cal. App. 4th 1 (2013). The article is posted here with the permission of the Daily Journal.

Supreme Court Looks at ERISA Plan Terms to Govern Limitation Periods to File Lawsuits

In a highly anticipated decision, a unanimous United States Supreme Court held that insureds with employer-sponsored plans are contractually bound by the limitations periods set forth in their plan documents. These limitations periods, which specify when insureds must file any legal actions under the Employee Retirement Income Security Act of 1974 (“ERISA”), are enforceable so long as they are not unreasonably short. The Court held in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., __ U.S. __ , 2013 U.S. LEXIS 9026 (Dec. 16, 2013), that the Plan’s contractual limitations period governs when a participant/beneficiary may file a legal action. The Court concluded that the Plan’s contractual statute of limitations period was enforceable and that the time spent in the administrative claims process did not toll the running of the statute.

Heimeshoff involved plaintiff Julie Heimeshoff (“Heimeshoff”), a Senior Public Relations Manager for Wal-Mart, who sought long-term disability benefits from her employer-sponsored plan issued by Respondent Hartford Life & Accident Insurance Co (“Hartford”) to Wal-Mart employees. The Plan imposed a three-year statute of limitations from the date proof of claim is due for legal action brought against the Plan, which commenced on the date proof of loss was to be submitted. Hartford required Heimeshoff’s proof of loss by December 2005, but she failed to submit the requisite documents and Hartford denied her claim. Hartford issued its second denial in November 2006, and denied her final appeal in November 2007. Heimeshoff brought suit to recover her benefits in November 2010 within three years after the final denial, but almost six years after the proof of loss was due. The district court dismissed her suit, finding the Plan terms explicitly prohibited legal action beyond the three-year limitations period. The Second Circuit Court of Appeals affirmed.

The Supreme Court granted certiorari to determine whether the Plan’s limitations provision, which began before the administrative review process ended, was enforceable. Prior to Heimeshoff, the majority rule, including in the Ninth Circuit, was the statute of limitations begins to run when the cause of action “accrues,” which was typically when the appeal was denied. In ERISA actions, a claimant cannot file suit until he or she has exhausted the plan’s internal administrative process. While ERISA imposes requirements on plans to respond and decide claims within certain periods of time, practical obstacles, such as difficulties obtaining medical information or proof of loss, can delay this process.

Heimeshoff first argued that the Plan’s limitations provision would undermine the internal review process because participants will sacrifice the benefits of internal review to preserve time for filing suit. However, the Court rejected this contention because participants failing to develop evidence during the first review run the risk of forfeiting use of that evidence at trial. Secondly, the Court believed participants are unlikely to prioritize judicial review over internal review.

Next, Heimeshoff contended that permitting plans to initiate limitations periods prior to completion of the review process endangers judicial review. However, the Court noted ERISA regulations require administrators to act in good faith and take prompt action in their internal reviews. If administrators fall short, the participant can directly seek judicial review. Furthermore, if administrators unreasonably delay, participants can raise equitable defenses to the statute of limitations. In addition, the United States argued, as amicus curiae, that if the limitations provision is enforced, good faith administration will also diminish the availability of judicial review. The Court disagreed, stating the three-year limitation provision is required by most states and no significant evidence showed the provision impedes judicial review. Importantly, the Supreme Court reassured claimants that lower courts can apply waiver, estoppel or equitable relief if claimants are stalled in the internal review process. The Court explained:

Moreover, even in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial review, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense. See, e.g., Thompson v. Phenix Ins. Co., 136 U. S. 287, 298–299 (1890); LaMantia v. Voluntary Plan Adm’rs, Inc., 401 F.3d 1114, 1119 (CA9 2005). To the extent the participant has diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply. Irwin v. Department of Veterans Affairs, 498 U. S. 89, 95 (1990) (limitations defenses “in lawsuits between private litigants are customarily subject to ‘equitable tolling’”).

The Court quickly addressed two additional arguments. First, it rejected Heimeshoff’s argument that the limitations period should be tolled during internal review, stating this constituted contract revision. Next, the Court rebuffed Heimeshoff’s argument that state law should toll the limitations period during the internal process. In doing so, the Court explained the parties clearly “agreed” [this is a misnomer as ERISA plans are classic contracts of adhesion] to a limitations period and did not seek to borrow the State’s limitations period. Ultimately, the Court ruled that Plan’s limitations provision controlled the question of when a claimant could pursue litigation.

Certainly, the Court’s decision favors insurance companies and other plan/claim fiduciaries who have the ability to delay processing claims. However, ERISA imposes strict timelines on actions by insurance companies and other plan/claim fiduciaries and as a result, these rules will serve to mitigate the potentially harsh consequences of this decision. Furthermore, the Court clearly limited its holding to limitations provisions which are reasonable.

The best part of this decision for plan participants and beneficiaries who typically have life, health and disability insurance claims, as discussed above, the Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel to ensure Heimeshoff does not cause harsh results when the actions of insurance companies and other plan/claim fiduciaries cause delays or their actions otherwise result in unfairness to plan participants. As long as claimants and their attorneys act promptly to hold insurance companies and other plan/claim fiduciaries accountable to the timelines applicable to the claim review process and/or if they otherwise act diligently, Heimeshoff will not act as a bar to their litigation. Indeed, administrators are required by ERISA regulations governing the internal review process to take prompt action, and the penalty for failure to meet those deadlines is immediate access to judicial review for plan participants. See 29 CFR §2560.503–1(l).

Rochow v. LINA: A Game-Changer in ERISA Disability Benefits Litigation

While this blog often discusses disability, life and health insurance/employee benefit decisions under the Employee Retirement Income Security Act of 1974 (“ERISA “), we rarely discuss federal circuit court of appeal decisions from outside the Ninth Circuit Court of Appeals (which governs California). We are making an exception here, as a recent case from the Sixth Circuit Court of Appeals really caught our attention. The case is Rochow v. Life Insurance Company of North America, __ F.3d ___ (6th Cir. December 6, 2013). It is a “game-changer” in the world of ERISA disability, life and health insurance/employee benefit litigation, and could fundamentally change the way in which ERISA remedies are discussed and how these cases are litigated. To say this is a “plaintiff friendly” case is probably to understate it.

The case otherwise involved a typical denial of disability insurance benefits matter under ERISA in which the amount of benefits owed was determined to be $910,629. Despite the large award, that was not actually the interesting part of the case. The much more interesting part of the case is the court’s ruling affirming an almost $3.8 million disgorgement of profits award.

Daniel Rochow sued for disability benefits under 29 U.S.C. section 1132 (a)(1)(B) of ERISA and also sought equitable accounting and disgorgement of profits as “appropriate equitable relief” under section under 29 U.S.C. section 1132(a)(3). The district court determined that Life Insurance Company of North America’s (LINA) benefit determination had been arbitrary and capricious, and the Sixth Circuit affirmed that decision. After the case was remanded to the district court, Rochow sought an accounting and disgorgement of profits under 29 U.S.C. section 1132(a)(3). The district court applied a return-on-equity (“ROE”) analysis to the disgorgement claim, and awarded an additional $3.8 million in disgorged profits against LINA.

LINA appealed the second district court decision as well, but in a 2-to-1 decision, the Sixth Circuit again affirmed the district court. The court addressed and upheld Rochow’s argument that ERISA allows separate claims for withheld benefits under 29 U.S.C. section 1132(a)(1)(B) and breach of fiduciary duty claims under 29 U.S.C. section 1132(a)(3). The majority held that because Rochow had sought the disgorgement remedy as a separate claim of relief, disgorgement was an appropriate remedy for the arbitrary and capricious benefit denial. This remedy was based on LINA’s ill-obtained earnings on the amount it did not pay Rochow but should have paid him. The court explained that “disgorgement does not result in double compensation, nor does it represent punishment.

The court rejected LINA’s argument that allowing Rochow to maintain a breach of fiduciary duty claim based on a denial of benefits would frustrate ERISA’s goal of providing an inexpensive and expeditious dispute resolution process, by explaining that “ERISA also has a goal of ensuring that plan fiduciaries act solely in the interest of the participants and for the exclusive purpose of providing benefits to their participants.” The majority also affirmed the district court’s application of a ROE method of calculating the disgorgement claim, rather than LINA’s analysis that equated disgorgement of profits to an award of prejudgment interest on the withheld benefits. The court, quoting the Ninth Circuit’s phraseology that the fundamental tenet of disgorgement is “if you take my money and make money with it, your profit belongs to me,” determined that the rationale for the more generous disgorgement award was the fact that LINA did not retain the unpaid benefits in a segregated account, but rather retained the money in its general assets.

The dissent echoed LINA’s positions, viewing the majority’s holding as shortsighted. It criticized the majority decision as “willfully blind to the negative repercussions that undoubtedly will ensue in ERISA benefits litigation,” with the dissent also stating:

Furthermore, disgorgement under the circumstances of this case fundamentally alters how denied disability-benefits claims are litigated, forcing district courts to wrestle with complex calculations of profits and raising the specter that any claimant who was arbitrarily and capriciously denied benefits would have a viable claim for disgorgement.

We expect to see a request for reconsideration and/or rehearing en banc. Although we would not be surprised if the decision survives circuit review, LINA will almost certainly seek relief in the United States Supreme Court as this decision has too many implications for LINA to let this ground-breaking decision remain good law. There can be little question that in the short term, this case will substantially alter ERISA litigation. As for this firm, we will attempt to use this decision to assist our plan participant/beneficiary clients, including amending some of our existing complaints to expand the relief we are requesting to include disgorgement claims. We look forward to seeing how this all unfolds. It will be very interesting for sure.

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