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The Wednesday August 11, 2010 edition of the Los Angeles Daily Journal featured my article, entitled “The Waiver Doctrine, Alive And Well in ERISA Cases,” in the Perspective column. It explains a very recent case from the Ninth Cirhttp://www.dailyjournal.comcuit Court of Appeals in Mitchell v. CB Richard Ellis Long Term Disability Plan, 2010 DJDAR 11532 (9th Cir. July 26). The article is posted below with permission of Daily Journal Corp. (2010).
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.
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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.
