ERISA Archives - Page 49 of 56 - McKennon Law Group

United States Supreme Court to Decide When the Statute of Limitations Period Begins in an ERISA Disability Case

By granting certiorari in Heimeshoff v. Hartford Life and Accident Insurance Co., 496 Fed. Appx. 129, 2012 U.S. App. LEXIS 19269, 2012 WL 4017133 (2d Cir. September 13, 2012), the United States Supreme Court is poised to address an issue that has left countless ERISA claimants without a remedy to challenge a wrongful denial of disability benefits. Specifically, the Supreme Court will consider when the statute of limitations accrues following a decision to deny a claim for disability benefits. Or, as a claimant would ask the question, “What is my deadline to file a lawsuit in an ERISA matter?”

In Heimeshoff, the claimant was a Wal-Mart employee who filed long-term disability claim under an ERISA plan, asserting that she could no longer work as of June 2005 because of a variety of conditions, including lupus and fibromyalgia. Her claim was denied in November 2007, and she filed her lawsuit in November 2010, believing that she met the Policy’s three-year internal limitations period. However, the District Court granted Hartford’s motion to dismiss, based on the policy language stating that a lawsuit must be brought “within 3 years after written proof of loss is required to be furnished,” which would have been in September 2008 (because proof of loss was due within 90 days of Heimeshoff’s last day at work).

The Second Circuit Court of Appeals affirmed the District Court’s ruling, rejecting the arguments that the Hartford’s contractual limitations period did not begin to run until the final denial of benefits and that Hartford erred by not disclosing the deadline to file a lawsuit in the final denial letter.

Hopefully, in addressing these issues, the United States Supreme Court’s ruling will simplify the calculation of deadlines to file a lawsuit. The clearer the rules, the fewer claimants who will be unwittingly left with no remedy to challenge a final denial decision.

Many claimants (and some lawyers) are confused by the deadlines associated with ERISA claims. If your claim for disability benefits was denied by an insurance company, you should speak with an attorney as soon as possible to ensure that you do not forfeit your right to file a lawsuit. If you have a dispute with an insurance company and would like to discuss your matter with an attorney, please contact us for a free consultation.

FAQs: Can an Insured Sue for Future Policy Benefits and Attorneys’ Fees in a Lawsuit Against an Insurer for Disability Insurance Benefits?

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith and ERISA area of the law. This is another such article in that series.

If an insurance company has unfairly denied an insured’s disability benefits or has otherwise committed bad faith, an insured may be entitled to substantial compensation for harm that the insured has suffered. In fact, not only may an insured seek payment of all the unpaid benefits, but the insured can also sue for future policy benefits, among other damages.

Under a breach of contract theory, an insured generally can only recover accrued unpaid benefits where payments under the policy are made periodically. However, under California law, insurers are subject to an implied covenant of good faith and fair dealing. If an insurer acts in bad faith in handling an insured’s disability insurance claim, the insured can sue to recover future disability benefits. See Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1012-1013 (9th Cir. 2004). Furthermore, if the insured can establish bad faith by the insurer, the insured can also recover reasonable attorneys’ fees incurred in proving the benefits owed in a lawsuit. See Brandt v. Sup.Ct. (Standard Ins. Co.), 37 Cal. 3d 813, 817 (1985). Generally, an insured can establish bad faith by showing that an insurer’s delay or withholding of benefits under the disability insurance policy was unreasonable or without proper cause. For a detailed discussion of what constitutes insurance bad faith, see the article on our California Litigation Blog.

If the insured’s insurance disability plan is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), then the remedies available under California law for breach of the implied covenant of good faith are not available. This means that, under ERISA, the insured/participant will not be able to recover future disability benefits. However, pursuant to ERISA, section 502(a)(1)(B), an insured/participant may sue for benefits due under the terms of an ERISA plan and also a declaration of the insured’s/participant’s rights to future benefits under the disability insurance plan. Furthermore, as under California law, ERISA allows the judge to exercise discretion to award the prevailing party attorneys’ fees and costs incurred during court proceedings. See 29 U.S.C. §1132(g)(1).

Being denied disability benefits during an insured’s/participant’s time of physical and emotional hardship is extremely upsetting. However, both California and federal law provide insureds with considerable remedies where their benefits have been wrongfully denied by insurers. It is crucial for insureds/participants to understand that they have a right to their disability benefits and that they can take action to protect them. If you have a dispute with an insurance company and would like to discuss your matter with an attorney, please contact us for a free consultation.

Ninth Circuit Emphasizes Need for an Insurer to Have a Meaningful Dialogue With the Claimant When Denying Benefits

A recent Ninth Circuit Court of Appeals decision reaffirmed the need for plan administrators to state the reasoning behind their denial of coverage. In Lukas v. United Behavioral Health, __ F.3d __, 2013 U.S. App. LEXIS 1230 (9th Cir. Jan. 17, 2013) the Ninth Circuit was faced with evaluating whether the district court properly weighed the factors necessary to determine if there was an abuse of discretion by the plan administrator in denying the benefits to the claimant. On de novo review, the Ninth Circuit found that the lower court failed to properly weigh these factors and reversed the decision, remanding the case back to the district court for a benefit award and further necessary proceedings related to that award.

The claim at issue in Lukas was based upon Lukas’ stay at a residential treatment facility for an eating disorder and co-morbid conditions. United Behavioral Health denied Lukas’ claim for benefits because it did not think the treatment at the facility was a medical necessity. Furthermore, United Behavioral Health stated that Lukas had not provided adequate documentation to prove a medical need for the treatment. However, Lukas had provided United Behavioral Health with a letter from the medical treatment facility expressing why the treatment was necessary. At no time during the initial denial or the appeals process, did United Behavioral Health explain why the letter from the medical treatment facility was insufficient in proving a medical necessity, nor did they request any further information. The Ninth Circuit specifically found that the lower court had not properly weighed the factors pertaining to the existence of a conflict of interest and the procedural requirements for review of the claim. The Court made it clear that the weight given to the conflict interest factor depends on the facts of each case, and the Administrative Record revealed that United Behavioral Health committed numerous procedural errors that caused the conflict of interest to weigh more heavily in the analysis.

The Ninth Circuit found that United Behavioral Health committed three clear ERISA statutory violations during the review process, including a failure to provide a meaningful explanation in the initial determination of denial of benefits, a failure to provide a complete case file on request and a failure to reveal the name of the reviewing doctor upon the second appeal. Additionally, the Court stated that United Behavioral Health inadequately investigated the claim by not clearly defining their decision and requesting more information. This was particularly troublesome because of the conflict presented by United Behavioral Health acting as both a payor and evaluator of claims.

The Court stated that United Behavioral Health’s:

Reliance upon a lack of documentation was unreasonable because it was not supported by the record and because [United Behavioral Health’s] numerous procedural violations deprived [Lukas] of the opportunity to provide additional relevant records.

The Ninth Circuit’s decision suggests that a single statement denying coverage does not meet the standard necessary to constitute meaningful dialogue, and without a further explanation by the plan administrator or a request for further information from the claimant, a plan administrator likely exposes itself to the risk of liability under ERISA.

There are several procedural protections ERISA affords claimants in ensuring that their claims are properly investigated and reviewed. This opinion is one of many recent Ninth Circuit opinions explaining how a claims administrator’s violation of these procedural protections will positively impact the outcome of a court’s review of a insured’s/participant’s claim.

Can an ERISA Claims Administrator Engage in Post-Trial Discovery Regarding Benefit Issues? No, Says District Court

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.

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