ERISA Archives - Page 53 of 55 - McKennon Law Group

New Appeal Regulations For Health Plans Require Final Claims Decision To Be Made By External Reviewer

The Department of Health and Human Services issued new appeal regulations under the recently enacted Patient Protection and Affordable Care Act (“Affordable Care Act”). These regulations give claimants the right to appeal decisions made by their health plan to an outside, independent decision maker, regardless of what state they live in or what type of health coverage they have, i.e., both group and individual coverage. If a particular health plan or insurance is governed by a state law, the state regulations will apply as long as the protections offered to consumers is at least as strong as the National Association of Insurance Commissioners (“NAIC”) Model Act. At a minimum, the state external review process must provide:

External Review of plan decisions to deny coverage for case based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit.
Clear information for consumers about their right to both internet and external appeals – both in the standard plan materials, and at the time the company denies a claim.
Expedited access to external review in some cases – including emergency situation, or cases where their health plan did not follow the rules in the internal appeal.
Health plans must pay the cost of the external appeal under State law, and States may not require consumers to pay more than a nominal fee.
Review by an independent body assigned by the State. The State must also ensure that the reviewers meet certain standards, keep written records, and are not affected by conflict of interest.
Emergency process for urgent claims, and a process for experimental or investigational treatment.
Final decision must be binding so, if the consumer wins, the health plan is expected to pay for the benefit that was previously denied.[1]

For plans governed by ERISA or not otherwise covered by a state law external appeal process, a federal external review program will be required. Since these are still interim rules, a framework for the federal external review process has not been established. However, the federal review process will likely be modeled along the NAIC Model Act.

These regulations are clearly a win for consumers who have long complained that the internal appeals process is biased towards insurance companies. Unfortunately, it will take some time for consumers to reap the benefits of these changes. Health plans that were in effect on March 23, 2010 and have not been significantly modified since then are considered “grandfathered” and not subject to these regulations. However, over time, expect to see an external review process become a standard component of the claim review process.

[1] Source: “Fact Sheet: The Affordable Care Act: Protecting Consumers and Putting Patients Back in Charge of Their Care,” dated July 22, 2010.

Ninth Circuit Applies New Hardt Decision to Deny ERISA Participant Attorney’s Fees

Last month, the U.S. Supreme Court handed ERISA plan participants a big victory when they decided the important ERISA disability case of Hardt v. Reliance Standard Life Insurance, __ U.S. __ (Decided May 24, 2010)(see our blog discussion here) holding that an ERISA plan participant may be able to collect attorneys’ fees from a plan or claim administrator without obtaining a judgment in the action. It did not take long for the Ninth Circuit Court of Appeals to apply Hardt. In Simonia v. Glendale Nissan/Infiniti Disability Plan, __ F.3d __ (9th Cir. June 24, 2010), the court rejected a plan participant’s claim for attorney’s fees. In Simonia, Aleck Simonia became physically disabled due to a herniated disc. He had disability insurance under his employer’s group insurance plan, which was ultimately insured by the Hartford Insurance Co. Hartford concluded that Simonia was no longer physically disabled but had a mental disorder subject to his ERISA plan’s twelve-month payment limit. Hartford also learned that Simonia had been awarded $1,551 per month in Social Security Disability Insurance (“SSDI”) benefits retroactively, which should have been offset against his payments from Hartford. Thus, Hartford informed Simonia he would be receiving payments subject to the plan’s twelve-month mental disorder limit and that he owed Hartford $22,310. Simonia sued Hartford for improperly reclassifying his disability as a mental disorder. Hartford filed a counterclaim to recover its overpayment. Simonia informed Hartford that the Social Security Administration had retroactively reduced his SSDI award, and he requested that Hartford recalculate the alleged overpayment. The parties later settled the counterclaim and stipulated to its dismissal. Simonia did not prevail in his claims against Hartford for continuing benefits. Simonia thereafter filed a motion seeking $63,745 in attorney’s fees because he “was successful as a counter-defendant in that the defendant dismissed its counterclaim.” The district court, applying the five factors in Hummell v. S.E. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980), denied the motion for fees. Simonia appealed. The Ninth Circuit affirmed. The court initially explained that the Supreme Court in Hardt expressly declined to foreclose the possibility that, once a court has determined that a litigant has achieved some degree of success on the merits, it may then evaluate the traditional five factors under Hummell, before exercising its discretion to award attorney’s fees. Thus, once a court has found that a litigant has made the Hardt showing, it must consider, under Hummell, the opposing parties’ culpability and ability to pay fees, whether an award would deter similar conduct, whether the claimant sought to benefit all beneficiaries or resolve a significant issue, and the merits of the parties’ positions. The court held that even assuming Simonia achieved some degree of success on the merits, fees would be inappropriate according to the relevant factors. The court explained its rationale:

First, there is no “culpability” or “bad faith” evidenced by Hartford’s actions. Simonia began receiving retroactive SSDI benefits in 2006. Under Simonia’s policy, these benefits –when combined with certain forms of income–offset his award from Hartford. At the time Hartford filed its counterclaim, it had a good faith belief that Simonia had been overpaid by $22,309.51, and that the deduction of Simonia’s remaining mental disorder benefits would result in a balance due of $8,589. Hartford was then informed that Simonia’s SSDI benefits had been retroactively reduced. Hartford thereafter stipulated to a dismissal of the counterclaim. These actions evidence good faith. Second, Hartford undoubtedly has the ability to satisfy an award of fees. However, no single Hummell factor is necessarily decisive. See Carpenters S. Cal. Admin. Corp. v. Russell, 726 F.2d 1410, 1416 (9th Cir. 1984). Third, given Hartford’s good faith actions, we do not wish to deter others from acting in the same manner. Fourth, in seeking to settle the counterclaim following the Social Security Administration’s retroactive reduction in benefits, Simonia did not seek “to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA.” Hummell, 634 F.2d at 453. Instead, as the district court found, Simonia sought to benefit only himself. Finally, the district court correctly noted that the counterclaim was meritorious when it was filed. When the Social Security Administration’s adjustment allegedly deprived the counterclaim of merit, Hartford settled and voluntarily dismissed. The district court did not exceed the permissible bounds of its discretion in determining that the Hummell factors weigh against an award of attorney’s fees. Even assuming that, as Simonia argues, Hartford mistakenly calculated the amount of overpayment and the counterclaim was of questionable merit when filed, there is no evidence in the record to indicate that Hartford acted in bad faith. On the contrary, Hartford’s subsequent voluntary dismissal is indicative of its good faith in this matter. Simonia’s claim would therefore still fail after considering all of the factors.

This was an easy decision for the Ninth Circuit as there was not a good basis for the plaintiff to argue for attorney’s fees here. However, it is also a rare case where ERISA claimants applied for and do not receive an award of attorney’s fees in an ERISA action.

District Court Provides Additional Guidance on Scope of Discovery Under Glenn

In the last several years, the scope of discovery in ERISA cases has been a point of contention between plaintiff and defense counsel. Plaintiffs typically want free range to conduct discovery on any potentially relevant information addressing the conflict of interest issue while defense counsel would like discovery requests to be as narrow as possible. Generally, discovery in ERISA cases is limited to what was before the plan administrator at the time the claim decision was made. In other words, the administrative record. However, in 2008, the Supreme Court in Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) held that a conflict of interest “should be weighted as a factor in determining whether there is an abuse of discretion.” Id. As a result, most Circuit courts have held that Glenn allows for discovery outside the administrative record, when it pertains to whether the plan/claims administrator acted in a manner consistent with the conflict of interest. Recently, in Zewdu v. Citigroup Long Term Disability Plan, 264 F.R.D. 622 (N.D. Cal 2010), Magistrate Judge Maria Elena James addressed the scope of discovery under Glenn and allowed the Plaintiff to subpoena the following information:

Number of claims reviewed, granted and/or denied by the medical review company.

Employment agreements between Insurer and the medical review company.
Invoices from the medical review company relating to the plaintiff’s claim.
Information regarding the compensation between the insurer and the physician reviewer.
Documents pertaining to the training of medical staff and handling of disability claims.
Performance evaluations of medical professionals involved in the handling of the claim.

Similarly, Judge James denied requests for the following information:

Insurance company’s underwriting file.
Information from physician reviewer on time spent reviewing claims.
Financial information regarding amount of benefits paid and total premiums collected.
Medical Reports drafted by Physician Consultant on claims other than the plaintiffs.
Documents relevant to Insurers decision to hire the physician reviewer.

These rulings from the district courts are far from consistent on the subject. Nevertheless, a consensus is beginning to develop among the district courts that mirror the rulings in this case. Of course, until the Ninth Circuit provides additional guidance, the district courts will continue decide for themselves what constitutes the proper scope of discovery. This case, and the opinions cited within, represent an excellent starting point for understanding the scope of discovery in ERISA cases.

Submission of the Claim File: Seal or Redact?

For most insurance litigation, the majority of the evidence used by both sides comes from the claim file, also known as the administrative record in ERISA cases. The claim file represents the insurance carrier’s written record of its handling and processing of an insurance claim. Obviously, this information is highly relevant whenever coverage or a claim is disputed. Moreover, in the case of life, health, or disability insurance cases, the claim file will also be full of personal and confidential information such as medical records and social security numbers.

The question becomes how best to utilize the information in the claim file during the course of litigation while still addressing the privacy concerns of a public court record. Generally, there are two courses of action. The first is to go through the entire record and redact any personal information, also known as “personal identifiers.” See Federal Rule of Civil Procedure 5.2(a). This can be a very time consuming and expensive process since the claim file can easily encompass several hundred or thousand pages. The second course of action is to submit the claim file under seal. This is usually the quickest, easiest and most cost effective choice when dealing with confidential medical information. The downside to this course of action is that counsel must demonstrate to the court a “compelling reason” to file records under seal. See Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). Many federal courts have their own Local Rules regarding filing documents under seal. For example, in the Central District of California, Local Rule 79-5.1 provides:

L.R. 79-5.1* Filing Under Seal – Procedures . Except when authorized by statute or federal rule, or the Judicial Conference of the United States, no case or document shall be filed under seal without prior approval by the Court. Where approval is required, a written application and a proposed order shall be presented to the judge along with the document submitted for filing under seal. The proposed order shall address both the sealing of the application and order itself, if appropriate. The original and judge’s copy of the document shall be sealed in separate envelopes with a copy of the title page attached to the front of each envelope. Conformed copies need not be placed in sealed envelopes. Where under-seal filings are authorized by statute or rule, the authority therefor shall appear on the title page of the proposed filing. Applications and Orders to Seal, along with the material to be placed under seal, shall not be electronically filed but shall be filed manually in the manner prescribed by Local Rule 79-5. A Notice of Manual Filing shall also be electronically filed identifying materials being manually filed.

If you opt to file the claim file under seal, what constitutes a compelling reason to do so? At least one court in the Ninth Circuit has held that difficulty in redacting thousands of pages of documents does not, by itself, qualify as a “compelling reason.” In Nash v. Life Insurance Company of North America, 2010 WL 2044935 (Decided May 18, 2010), both parties submitted a joint motion to file a unredacted copy of the administrative record under seal, citing difficulty in redacting 4,500 pages of documents. The parties argued that redacting social security numbers, dates of birth, the names of minor children, and financial account numbers from the administrative record is “impracticable” However, despite being unopposed, the court nonetheless declined to grant the motion, stating:

Historically, courts have recognized a ‘general right to inspect and copy public records and documents, including judicial records and documents. Except for documents that are traditionally kept secret, there is a strong presumption in favor of access to court records. A party seeking to seal a judicial record then bears the burden of overcoming this strong presumption by meeting the compelling reasons standard. That is, the party must articulate compelling reasons supported by specific factual findings, … that outweigh the general history of access and the public policies favoring disclosure, such as the public interest in understanding the judicial process.

Id. (internal citations omitted). Although Nash is unpublished and can be factually distinguishable based on the contents of the claim file at issue, its holding should serve as a warning to future litigants to be wary about filing under seal. That does not mean that filing under seal is never appropriate. Instead, the lesson is to approach the court early in the litigation and seek permission to file under seal. The last thing any attorney wants to do on the eve of a motion filing deadline is to spend countless hours redacting documents.

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com
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U.S. Supreme Court Hands ERISA Plan Participants Major Victory in Allowing Recovery of Attorneys’ Fees

As predicted in my April blog post, the U.S. Supreme Court today handed ERISA plan participants a big victory when they decided the important ERISA disability case of Hardt v. Reliance Standard Life Insurance, __ U.S. __ (Decided May 24, 2010) holding that an ERISA plan participant may be able to collect attorneys’ fees from a plan or claim administrator without obtaining a judgment in the action.

In that case, Bridget Hardt filed suit against the plan’s disability insurer, arguing that Reliance Standard Life Insurance Co. wrongly denied her claim for long-term disability benefits. The district court found that Reliance’s original decision denying benefits disregarded pertinent medical evidence in violation of ERISA and found that the decision was otherwise unsupported by substantial evidence. Based on those findings, the district court remanded the matter to Reliance for reconsideration, ordering it to make a new benefits determination, after which it finally granted the benefits due. The district court then awarded Hardt $39,149 in attorney fees.

The Fourth Circuit Court of Appeals reversed, holding that 29 U.S.C. Section 1132(g)(1)of ERISA provides a district court discretion to award attorney fees only to a prevailing party, and Hardt was not a prevailing party because her only request for relief was the award of benefits, which the district court did not award.

The questions presented were: (1) Whether ERISA section 502(g)(1) provides a district court with discretion to award reasonable attorney’s fees only to a prevailing party; and (2) whether a party is entitled to attorney’s fees pursuant to section 502(g)(1) when she persuades a district court that a violation of ERISA has occurred, successfully secures a judicially ordered remand requiring a redetermination of entitlement to benefits, and subsequently receives the benefits sought on remand.

In a 9-0 decision authored by Justice Thomas, the United States Supreme Court reversed, holding that because Section 1132(g)(1) does not use the term “prevailing party,” district court judges have discretion to award attorneys’ fees to either party, even in a situation where there is no judgment in favor of the plan participant. “We hold instead that a court ‘in its discretion’ may award fees and costs ‘to either party,’ ibid., as long as the fee claimant has achieved ‘some degree of success on the merits,’ Ruckelshaus v. Sierra Club, 463 U. S. 680, 694 (1983).”

The Court further explained its holding:

Ruckelshaus lays down the proper markers to guide a court in exercising the discretion that §1132(g)(1) grants. As in the statute at issue in Ruckelshaus, Congress failed to indicate clearly in §1132(g)(1) that it “meant to abandon historic fee-shifting principles and intuitive notions of fairness.” 463 U. S., at 686. Accordingly, a fees claimant must show “some degree of success on the merits” before a court may award attorney’s fees under §1132(g)(1), id., at 694. A claimant does not satisfy that requirement by achieving “trivial success on the merits” or a “purely procedural victor[y],” but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a “lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’” Id., at 688, n. 9.

This decision will encourage the proper adjudication of ERISA rights so that when plan participants achieve some measure of success in their actions against plan/claim administrators, they will be in a position to collect their attorney’s fees.

What Does a Deferential Standard of Review Mean in ERISA Cases? The U.S. Supreme Court Gives Some Clarification

The federal courts have for a long time struggled with how to apply the deferential standard of review to actions taken by ERISA plan administrators in light of the United States Supreme Court holding in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Firestone held that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion. Courts have reached different results on an important issue: is a plan administrator that incorrectly interprets a plan document still entitled to an abuse of discretion standard of review when courts review the administrator’s actions? The Supreme Court answered that question in the affirmative in Conkright v. Frommert, __ U.S. __ (April 21, 2010). The Court telegraphed how it would rule when it framed the issue as: “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan.”

This is the Court’s first foray into the post-Glenn era of ERISA. In Metropolitan Life Insurance Co. v. Glenn, 554 U.S. __, 128 S. Ct. 2343 (2008), the Court reaffirmed Firestone’s adoption of a deferential standard of review under section 1132(a)(1)(B). Glenn elucidated the Court’s statement in Firestone and directed courts to proceed by “taking account of several different, often case-specific, factors, reaching a result by weighing all together.” Id. at 2350. The Court observed that a conflict of interest “should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision,” and “should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy.” Id.

Conkright involved Xerox Corporation’s pension plan (“Plan”) in which Xerox acted as the plan administrator (“Plan Administrator”). The Plan granted the Plan Administrator broad discretion to “[c]onstrue the Plan” and “to take such action as may be necessary to correct [any] defect, rectify [any] omission or reconcile [any] inconsistency”.

Respondents were employees who left Xerox in the 1980’s, received lump-sum distributions of retirement benefits earned up to that point, and were later rehired. To account for the past distributions when calculating respondents’ benefits, the Plan Administrator initially interpreted the Plan to call for an approach that has come to be known as the “phantom account” method. Respondents challenged that method in an action under the Employee Retirement Income Security Act of 1974 (“ERISA”).

The District Court granted summary judgment for the Plan, but the Second Circuit vacated and remanded, holding that the Plan Administrator’s interpretation was unreasonable and that Respondents had not received adequate notice that the phantom account method would be used to calculate their benefits. On remand, the Plan Administrator proposed a new interpretation of the Plan that accounted for the time value of the money Respondents had previously received. The District Court declined to apply a deferential standard to this interpretation, and adopted instead an approach proposed by Respondents that did not account for the time value of money. The District Court ordered the Plan Administrators to pay a lump sum in the amount of the difference between their total accrued benefits and the prior lump sum distribution, without any reference to phantom accounts or hypothetical investment gains.

Affirming in relevant part, the Second Circuit held that the District Court was correct not to apply a deferential standard on remand, and that the District Court’s decision on the merits was not an abuse of discretion. The Second Circuit stated that it was unclear whether a de novo or arbitrary and capricious standard of review applied. It found, however, that “under either an arbitrary and capricious standard or as a matter of law,” that the Plan Administrator’s use of the phantom account method was a violation of ERISA.

The Supreme Court reversed, holding that the District Court should have applied a deferential standard of review to the Plan Administrator’s interpretation of the Plan on remand. The Court addressed the standard for reviewing the decisions of ERISA plan administrators in light of Firestone. Firestone looked to “principles of trust law” for guidance. Id. at 111. Under trust law, the appropriate standard depends on the language of the instrument creating the trust. In Firestone the court held that when a trust instrument gives the trustee “power to construe disputed or doubtful terms, . . . the trustee’s interpretation will not be disturbed if reasonable.” Id. The Court explained that under Firestone and the Plan’s terms, the Plan Administrator would normally be entitled to deference when interpreting the Plan. The Court of Appeals, however, crafted an exception to Firestone deference, holding that a court need not apply a deferential standard when a plan administrator’s previous construction of the same plan terms was found to violate ERISA.

The Court found that the Second Circuit’s “one-strike-and-you’re-out” approach had no basis in Firestone. The Court explained that the Plan granted the Plan Administrator general interpretive authority without suggesting that the authority was limited to a first effort to construe the Plan and noted that although trust law does not resolve the specific question of whether courts may strip a plan administrator of Firestone deference after one good faith mistake, guiding principles underlying ERISA do. The Court placed significant importance on the conclusion that Firestone deference serves the “interest of uniformity, helping to avoid a patchwork of different interpretations of a plan, like the one here, that covers employees in different jurisdictions—a result that ‘would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them.’” The Court, seemingly annoyed at the District Court’s interpretation of the Plan that did not include the time value of money, recognized that according to actuaries this interpretation was “highly unforeseeable.”

Respondents asserted that deference is less important once a plan administrator’s interpretation has been found unreasonable, but the court rejected this, stating that the interests in efficiency, predictability, and uniformity do not suddenly disappear simply because of a single honest mistake.

The Court dismissed Respondents’ claim that plan administrators will adopt unreasonable interpretations of their plans, receiving deference each time, thereby undermining the prompt resolution of benefit disputes, driving up litigation costs, and discouraging employees from challenging plan administrators’ decisions. The Court explained that these concerns were “overblown.” But, the Court acknowledged that multiple erroneous interpretations of the same plan provision, even if issued in good faith, could support a finding that a plan administrator is too incompetent to exercise his discretion fairly. The Court determined that applying a deferential standard of review also does not mean that the plan administrator will always prevail on the merits. It means only that the plan administrator’s interpretation “will not be disturbed if reasonable.”

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com All rights reserved

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com All rights reserved

The California Insurance and Life, Health, Disability Blog at californiainsurancelitigation.com and at mslawllp.com All rights reserved

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