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In what may be a matter of first impression, Judge Cormac J. Carney of the United States Federal District Court for the Central District of California denied Sun Life and Health Insurance Company’s Objections to Proposed Judgment in an ERISA long-term disability insurance claim case handled by McKennon Law Group PC. As detailed here, Robert J. McKennon and Scott E. Calvert of the McKennon Law Group secured a victory at trial for their client in an ERISA long-term disability insurance claim lawsuit against Sun Life, with the Court finding that Sun Life abused its discretion in denying Mr. Evans’ claim for long-term disability benefits. Following the Court’s instructions, Mr. Evans filed a “Proposed Judgment Following Trial.” Sun Life offered four separate objections to the Proposed Judgment, all of which were rejected by the Court. Sun Life first objected that Mr. Evans was not entitled to the full 24 months of benefits provided for by the Plan, because he was not disabled for the entire time. Sun Life relied on “an internet search performed by Sun Life’s counsel after” the trial. In rejecting Sun Life’s first objection, the Court noted that it was limited to the evidence found in the Administrative Record, and determined that “there is absolutely no evidence in the administrative record to suggest that Mr. Evans was employed during the 24 month period.” Further, the Court noted that “Sun Life had the opportunity to conduct discovery on this point prior to trial, yet failed to do so” and that “Sun Life made no attempt to either augment the administrative record, or move to have extrinsic evidence considered at trial.” Accordingly, the Court rejected Sun Life’s objection. Sun Life’s second objection was based on the allegation that it needed access to Mr. Evans’ tax returns so it could determine his income level during the relevant 24-month period. Using the same reasoning outlined above, the Court noted that “Sun Life has failed to develop the administrative record on this point” and provided “no reason why it could not have discovered such information prior to trial.” The Court therefore rejected Sun Life’s second objection. The third objection offered by Sun Life was that “Mr. Evans is not entitled to an award of prejudgment interest in excess of the rate for post-judgment interest set forth in 28 U.S.C. § 1961.” The Court criticized Sun Life for making this objection, noting that this issue will be properly addressed in Mr. Evans’ post-trial motion for attorneys’ fees, costs and pre-judgment interest that was not yet filed with the Court. Finally, the Court rejected Sun Life’s fourth objection “that Mr. Evans is not entitled to an award of attorneys’ fees,” again explaining that the issue of attorneys’ fees and costs was not yet before the Court, but would be addressed in Mr. Evans’ Motion for Attorneys’ Fees. In light of the Court’s decision to reject each and every objection offered by the Sun Life in response to the “Proposed Judgment Following Trial,” the Court awarded Mr. Evans $217,068.00, representing long-term disability benefits under the subject ERISA plan from June 1, 2008 to June 1, 2010.
McKennon Law Group Wins Disability Insurance Lawsuit Against Sun Life And Health Insurance Company Following Trial
On November 27, 2012, following a trial before Judge Cormac J. Carney of the United States Federal District Court for the Central District of California, Robert J. McKennon and Scott E. Calvert of the McKennon Law Group secured a victory for their client in a lawsuit against Sun Life and Health Insurance Company. Representing the claimant, Mr. Evans, the McKennon Law Group convinced the District Court that Sun Life abused its discretion in denying Mr. Evans’ claim for long-term disability benefits and that Mr. Evans is entitled to receive his disability benefits that Sun Life denied him.
Mr. Evans was an attorney who unfortunately suffered a mental breakdown that left him unable to return to work. While his claim for short-term disability benefits was approved and paid by Sun Life, the company improperly denied his claim for long-term disability (“LTD”) benefits. When Sun Life refused to overturn its claim decision on appeal, Mr. Evans hired the McKennon Law Group to file a lawsuit against Sun Life, alleging that the decision to deny his claim for LTD benefits violated the Employee Retirement Income Security Act of 1974, also known as ERISA. Mr. Evans filed a Complaint in September 2011.
During the litigation, the parties could not agree as to the proper scope of discovery in an ERISA matter. After the parties presented the dispute the Court, Mr. Evans was permitted to conduct discovery regarding Sun Life’s conflict of interest through written discovery and deposition testimony.
Following the trial, Judge Carney issued a Memorandum of Decision in Mr. Evans’ favor. While explaining that the Plan’s language mandated that Sun Life’s decision should be reviewed under the more lenient “abuse of discretion” standard of review, the Court found that Mr. Evans presented:
evidence that Sun Life failed to credit Mr. Evans’ reliable evidence, failed to adequately investigate the claim, and failed to ask Mr. Evans for necessary evidence. As a result, the Court will give considerable weight to Sun Life’s conflict of interest in determining whether it abused its discretion in denying Mr. Evans’ claim.
The Court then explained that despite being presented with medical evidence supporting Mr. Evans’ claim for disability benefits, Sun Life abused its discretion in denying his claim:
In addition to the conflict of interest, the other factors, “the quality and quantity of the medical evidence, whether the plan administrator subjected the claimant to an in-person medical evaluation or relied instead on a paper review of the claimant’s existing medical records, whether the administrator provided its independent experts with all of the relevant evidence, and whether the administrator considered a contrary SSA disability determination, if any,” Montour, 588 F.3d at 630, weigh in favor of a finding that Sun Life abused its discretion. Specifically, its decisions that Mr. Evans was not disabled until December 13, 2007 and that Mr. Evans was not disabled throughout the elimination period were illogical, implausible, and without support in inferences that could reasonably be drawn from facts in the record because: (1) every doctor who personally examined Mr. Evans concluded that he was disabled and unable to return to his regular work; (2) Sun Life did not subject Mr. Evans to an in-person medical evaluation; (3) Sun Life relied almost exclusively on the deeply flawed assessment by Dr. Himber; (4) and Sun Life failed to engage in a “meaningful dialogue” with Mr. Evans.
In conclusion, the Court ruled that the “evidence in the record overwhelming shows that Mr. Evans was totally disabled prior the date of his termination and throughout the elimination period” and ordered Sun Life “to pay long-term disability benefits to Mr. Evans in accordance with the Policy.”
Robert J. McKennon and Scott E. Calvert litigated the case on behalf of Mr. Evans.
Under ERISA, Communications with In-House Counsel Before a Final Claims Decision are Not Privileged and are Subject to Discovery to Show a Conflict of Interest
Are insureds entitled to communications between an insurance company’s in-house counsel and the claims handlers that might otherwise be protected by the attorney-client privilege? Following a new ruling by the Ninth Circuit Court of Appeals, if the claimant is insured under an ERISA plan, the answer might be “yes.”
For decades, courts, including the Ninth Circuit, have recognized a “fiduciary exception” to the attorney-client privilege in the context of ERISA. Courts have required production of legal advice given to plan fiduciaries when they are acting as fiduciaries for the benefit of the beneficiaries. This “fiduciary exception” has however been subject to exceptions.
In Stephan v. Unum Life Insurance Company of America, __ F.3d __, 2012 U.S. App. LEXIS 19139, 2012 WL 3983767 (9th Cir. September 12, 2012), for the Ninth Circuit for the first time addressed whether the fiduciary exception applies to insurance companies in the ERISA context. The Court ruled that, in an ERISA case, a claimant is entitled to conduct discovery regarding communications between claims handlers and in-house counsel in an attempt to determine whether the insurer’s decision was improperly influenced by a conflict of interest. Following the Third Circuit’s ruling in Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007), the court held that the ERISA “fiduciary exception” to the attorney-client privilege did not apply to communications made while the claim is still being evaluated.
Unlike most cases involving long-term disability insurance, the dispute in Stephan was not over whether the claimant was entitled to benefits, but rather the amount of those benefits. Following a bicycling accident that left him quadriplegic, Unum calculated Stephan’s earnings using only his monthly salary, but not his annual bonus. Given that Stephan’s bonus was 1 ½ times his salary, Unum’s interpretation of the Plan terms to exclude to bonus resulted in a substantial cost savings for the insurer. Stephan, with the full support of his employer, who provided evidence that the bonus was not a discretionary addition to his income, but rather the “main portion” of his compensation, sued Unum to have the bonus included as part of his monthly earnings.
On cross motions for summary judgment, the District Court applied the abuse of discretion standard of review and held that Unum’s interpretation of the Plan was not an abuse of discretion. The District Court also denied Stephan’s motion to compel discovery of a series of internal memoranda created by Unum’s in-house counsel regarding Stephan’s claim. Stephan appealed both rulings.
As to the issue of the proper standard of review, the Ninth Circuit ruled that District Court’s decision to apply the abuse of discretion standard of review was proper, rejecting the plaintiff’s arguments that an agreement between Unum and the California Department of Insurance prohibits the discretionary authority provision, as well as the argument that the discretionary provision is contrary to California state law and public policy and is therefore void. However, the Ninth Circuit criticized the District Court’s failure to consider evidence showing that Unum’s decision might have been improperly influenced by a conflict of interest.
The district court held that “Unum’s conflict of interest did not weigh heavily upon its decision-making process in this case and therefore does not tip the scale towards a finding of an abuse of discretion.” In reaching this conclusion, the district court erred by failing to apply traditional principles of summary judgment; denying Stephan’s motion to compel discovery of certain internal memoranda between Unum’s claim analyst and its in-house counsel; and ignoring evidence that Unum has a history of biased decision making that indicates that its conflict of interest in this case ought to be given more weight.”
Similarly, the Ninth Circuit criticized the District Court’s refusal to compel the production of certain documents that Stephan sought in an effort to demonstrate that Unum’s decision was influenced by its conflict of interest. Specifically, “Stephan sought to discover a series of internal memoranda created between December 2007 and February 2008 by Unum’s in-house counsel, at the request of Unum’s claims analyst.” Acknowledging that ordinarily such documents would fall under the attorney-client privilege, Stephan argued that because Unum is a fiduciary of the ERISA Plan, the fiduciary exception to the privilege permits his discovery of the documents.”
The Ninth Circuit agreed with the District Court’s finding that the fiduciary exception applies to wholly insured ERISA plans, but disagreed with the District Court’s application of the doctrine. The District Court refused to compel the production of the documents because “the interests of plaintiff and defendant had sufficiently diverged at the time the disputed memoranda were created.” However, after reviewing the documents, the Ninth Circuit ruled that they merely “offer[ed] advice solely on how the Plan ought to be interpreted,” and did not address any potential civil or criminal liability Unum might face. The Ninth Circuit further noted that the documents “were prepared to advise Unum claims analysts about how best to interpret the Plan, and were communicated to the analysts before any final determination on Stephan’s claim had been made.” (Emphasis added.) In discussing the issue, the Ninth Circuit rejected the conclusion of Wachtel, expressing its view that the justifications for the fiduciary exception did not support excluding insurers from the fiduciary exception:
ERISA has broad disclosure requirements: It requires that “every employee benefit plan . . . afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133. Because “[t]he opportunity to review . . . pertinent documents is critical to a full and fair review,” Ellis v. Metropolitan Life Insurance Co., 126 F.3d 228, 237 (4th Cir. 1997), the regulations implementing this provision require that upon request, a claimant be provided all “information relevant to the claimant’s claim for benefits,” 29 C.F.R. § 2560.503-1(h)(2)(ii). Neither the statute nor the regulations provide any reason why the disclosure of information is any less important where an insurer, rather than a trustee or other ERISA fiduciary, is the decisionmaker.
Similarly, the obligation that an ERISA fiduciary act in the interest of the plan beneficiary does not differ depending on whether that fiduciary is a trustee or an insurer. There is therefore no principled basis for excluding insurers from the fiduciary exception. Accordingly, because the advice was given before the interests of Unum and the claimant became adverse, the Court ruled that the fiduciary exception to the attorney-client privilege applied.
Finally, while the Ninth Circuit remanded the ruling on the underlying claim decision to the District Court, the Court of Appeals offered a detailed analysis of the Plan language and controlling case law suggesting that there is ample evidence that Unum’s decision was likely tainted by a conflict of interest and the decision to exclude Stephan’s bonus from the calculations of the LTD benefits was improper and should be overturned.
This plaintiff-participant friendly decision has some very beneficial statements and holdings and should be referred to by attorneys for plan participants/beneficiaries.
Equitable Relief in the Ninth Circuit Just Got Better for Consumers
The Wednesday July 11, 2012 edition of the Los Angeles Daily Journal featured Robert McKennon’s and Scott Calvert’s article entitled: “Equitable Relief in the Ninth Circuit Just Got Better for Consumers.” In it, Mr. McKennon and Mr. Calvert discuss two important Ninth Circuit rulings allowing certain equitable relief to ERISA plan participants that have definite pro-consumer holdings. The article is posted below with the permission of the Daily Journal.
California Court of Appeal Upholds Insurance Coverage for Health Net Finding The “Dishonest Acts” Exclusion Did Not Preclude Coverage
In Health Net, Inc. v. RLI Insurance Company, et al., the California Court of Appeal, Second District, reversed a trial court’s entry of judgment on a Motion for Summary Judgment finding some coverage for Health Net, Inc. (“Health Net”) in connection with numerous lawsuits filed against it arising under the Employee Retirement Income Security Act of 1974 (“ERISA”). Health Net brought suit against four of its insurers (one primary and three excess carriers) seeking a declaratory judgment that the insurers had a duty to defend and indemnify Health Net in over 20 underlying actions involving Health Net’s insurance plans provided by employers, which plans were subject to the requirements of the ERISA. The parties, however, directed their attention to two specific underlying actions, as the amount of indemnity sought in those actions would far exceed the combined policy limits of the defendant insurers. Relying on a policy exclusion for “dishonest acts,” the trial court granted summary adjudication to the insurers with respect to Health Net’s claim for reimbursement of its defense costs and the costs of settling the specified underlying actions. The parties subsequently settled their dispute regarding the remaining underlying actions, and summary judgment was granted in favor of the insurers. Health Net appealed the ruling.
On appeal, the Court of Appeals first addressed whether the two underlying actions at issue sought damages covered by Health Net’s insurance policies. The court concluded that the great bulk of the claims asserted in the underlying actions were not covered, but there was a potential for coverage for some of them. The court held that in the “Insuring Agreement” of the applicable policies, including a “HMO/PPO/Managed Health Care Professional Liability” policy, did not provide coverage for the insured’s contractual obligations, even if the insured committed a wrongful act in its failure to pay such benefits.
Second, the court addressed the “dishonest acts” exclusion, and considered whether it barred, as a matter of law, coverage for all of the otherwise covered claims in the underlying actions. The court concluded that, while the “dishonest acts” exclusion was triggered with respect to the underlying actions, the exclusion barred coverage only for those claims alleging dishonest acts, not the entirety of the underlying actions. As some claims for indemnity and defense costs relating to the two underlying actions at issue remained, the court reversed the summary judgment.
Because the court concluded that the “dishonest acts” exclusion relied upon by the trial court excluded some, but not all, of the underlying claims, some of which might potentially allege a covered loss, it remanded the case to the trial court “to determine whether and to what extent there is any merit to the claim of coverage.”
Ninth Circuit Confirms That Plan Language Controls In The Absence of Detrimental Reliance on SPD Language
In Skinner v. Northrop Grumman Retirement Plan B, 673 F.3d 1162 (9th Cir. 2012), the Ninth Circuit applied the Supreme Court’s ruling in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) wherein the high court ruled that ERISA “summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of § 502(a)(1)(B).” (The holding in CIGNA Corp. v. Amara was discussed in our blog) While the Ninth Circuit adopted the Supreme Court’s logic and ruling, it left open the possibility that language contained only in the Summary Plan Description (“SPD”) could be enforced if a claimant relied on that language.
In Skinner, two retirees sued for additional retirement benefits under an ERISA-governed pension plan. The retirees alleged that their pension benefits should be calculated using the formula set forth in the SPD, rather than the plan documents. The Plan moved for, and was granted summary judgment by the trial court on the grounds that the retirees had not raised a genuine issue of material fact with respect to the proper amount of pension benefits they were entitled to receive.
At the district court level, all parties agreed that the plaintiffs were strictly limited “to obtain other appropriate equitable relief” under ERISA. On appeal, the Ninth Circuit explained that “the Amara Court stated that, under appropriate circumstances, § 502(a)(3) may authorize three possible equitable remedies: estoppel, reformation, and surcharge.” The retirees only sought reformation and surcharge. The Ninth Circuit rejected the reformation claim because there was no evidence that the plan documents “fail[ed] to reflect that drafter’s true intent” or “that Northrop Plan B contains terms that were induced by fraud, duress, or undue influence.” Similarly, the Ninth Circuit ruled that the ERISA claimants were not entitled to a surcharge remedy because it found that “by failing to enforce the terms of the 2003 SPD instead of the terms of the plan master document” there was “no evidence that the committee gained a benefit by failing to ensure that participants received an accurate SPD” did not constitute a breach of fiduciary duty.
While the Ninth Circuit ruled against the retirees, it noted that they did not make an estoppel argument because “they presented no evidence of reliance on the inaccurate SPD.” Thus, while the Ninth Circuit found that, in this particular instance, the language of the plan documents would be enforced over the language in the SPD, the Court acknowledged that if a claimant could demonstrate reliance on the SPD, the language in the SPD might well control.
Such a ruling is consistent with the recent ruling in the District Court of Puerto Rico where the court rejected the defendant’s argument that Amara found that equitable estoppel is not an appropriate avenue for relief under ERISA. Indeed, the court noted that “equitable estoppel forms a very essential element in . . . fair dealing, and rebuke of all fraudulent misrepresentation, which it is the boast of courts of equity constantly to promote.” See Guerra-Delgado v. Popular, Inc., 2012 U.S. Dist. LEXIS 44432 (D. P.R. March 29, 2012) (internal quotations removed).
