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Court upholds Commissioner’s Contention: A Single Insurance Code Violation Can Constitute Bad Faith Without Evidence of a General Business Practice

Every insurance policy, including disability, life, health or accidental death policies, contains an implied covenant of good faith and fair dealing between the insurance company and the insured. This covenant requires that insurance companies refrain from acting in a way that unreasonably jeopardizes, impairs or interferes with the rights of the insured to receive the benefit of the insurance contract. The Unfair Insurance Practices Act (California Insurance Code Sections 790, et seq., “UIPA”) was enacted to regulate the business of insurance by defining and prohibiting practices which constitute unfair methods of competition or unfair or deceptive acts or practices.

California Insurance Code Section 790.03(h) (“Section 790.03(h)”) enumerates a list of sixteen specific unfair claims settlement practices that insurance companies are prohibited from engaging in and which, if the insurance company is found to be in violation, could subject the company to severe penalties. These unfair claims settlement practices include, but are not limited to, misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverage at issue, failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under the insurance policies, failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured, and failing to provide promptly a reasonable explanation of the basis relied on for the denial of a claim.

The California Insurance Commissioner (“the Commissioner”) is tasked with implementing regulations necessary to administer the UIPA. The Commissioner’s authority to promulgate such regulations was recently challenged in the matter of PacifiCare Life & Health Ins. Co. v. Jones, No. G053914, __ Cal. App.4th __ (September 20, 2018). The plaintiff PacifiCare Life & Health Ins. Co. (“PacifiCare”) brought an action challenging the validity of three regulations which the Commissioner relied on in finding that PacifiCare engaged in over 900,000 violations of the Insurance Code and imposing penalties in excess of $173 million. Specifically, PacifiCare argued that the regulation which purported to authorize enforcement action based on a single, knowing commission of a violation is facially invalid since it is inconsistent with Section 790.03(h). PacifiCare claimed Section 790.03(h) does not include the single knowing commission of a violation in its definition of an unfair claims settlement practice, but rather applies only to repetitive acts of misconduct which indicate a general business practice. PacifiCare also argued that the regulation which purported to define the term “knowingly committed” as including implied or constructive knowledge was invalid since this definition is inconsistent with the ordinary meaning of the term, and that the regulation which defined the term “willful” or “willfully” as not requiring intent to violate law or to injure another was also invalid snice the definition was inconsistent with the statutory definition of “willful” found in the Insurance Code.

The trial court granted PacifiCare’s motion for judgment on the pleadings and request for injunctive relief. The Commissioner appealed. Upon review, the California Court of Appeal reversed, disagreeing with PacifiCare and concluding that the Legislature intended to authorize the Commissioner to regulate activities based not only on patterns of unfair claims settlement practices, but also on single acts of misconduct by an insurer. The Court therefore upheld the validity of the challenged regulation and found that Section 790.03(h) defines an unfair claims settlement practice to be either a single knowing commission of a violation, or conduct that is committed with such frequency as to indicate a general business practice. The Court also determined that the regulations defining the terms “knowingly committed” and “willful” or “willfully” were permissible interpretations of UIPA and were therefore valid.

This case is significant in that it makes clear that insurance companies can engage in the sixteen prohibited acts enumerated in Section 790.03(h) by just once committing the described misconduct, and that the Commissioner is authorized to pursue enforcement action based on a single knowing commission of a prohibited practice. As the Court of Appeal stated, this result is consistent with the Legislature’s intent in enacting Section 790.03(h) and related provisions of the UIPA to curb insurer violations of the California Insurance Code.

Insurance Company Bias in ERISA Cases: Hartford’s History of Bias and Discovery of an Insurer’s Biased Claims Administration Process

The Employee Retirement Income Security Act (“ERISA”), a 1974 federal law, sets minimum standards for many employee benefit plans and serves to provide protection for individuals in these plans. Discovery in ERISA cases is often limited because the statute’s primary goal is to provide inexpensive and expeditious resolution to employee benefit claims. District courts are generally limited to the administrative record unless a so-called structural conflict of interest exists. Considering that insurers make benefit determinations on life, health and disability insurance claims and profit when an adverse decision is made, this scenario creates an inherent conflict of interest whenever an insurer administers a claim.

Courts find that a conflict of interest exists where the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.” Metro Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008). Where this conflict of interest exists, the plaintiff may be entitled to discovery outside of the administrative record to determine the “nature, extent, and effect” the conflict may have had on the decision-making process. Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 554 F.3d 1016, 1028 (9th Cir. 2008) quoting Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 970 (9th Cir. 2006).

In Black v. Hartford Life Insurance Co., 2018 WL 3872113 (D. Or. Aug. 14, 2018), the court considered the history of bias of Hartford Life Insurance Company (“Hartford”), a leading long-term and short-term disability insurance provider, in deciding whether to allow discovery of its history of biased claims administration. In its ruling, the court found Hartford had a history of biased claims administration based on its litigation history and allowed discovery into this area.

The plaintiff, David Black (“Black”), was employed by DMX Music as a customer service representative. He was diagnosed with Atypical Parkinson’s Disease and obtained Long Term Disability (“LTD”) benefits beginning in December 2005. Black’s LTD policy was insured by Hartford, which was responsible for determining the plaintiff’s eligibility for benefits and for paying benefit awards. He was granted an initial 24 months of LTD benefits based on his inability to perform the material duties of his “own occupation.” After the 24-month period ended, Black continued to receive benefits under the more stringent “any occupation” standard for approximately nine years. See id. at *1.

On November 20, 2015, Defendant Hartford’s Special Investigation Unit (“SIU”) investigated Black’s LTD claim based on online information that Black had started a business. Hartford hired a third-party vendor to conduct surveillance of Black, which showed him walking with a cane, using public transportation, going to the bank, getting his hair cut, shopping and carrying groceries. Hartford also discovered a YouTube video of Black playing in a band in May 2014. The SIU scheduled an interview with Black, which was conducted in March 2016 and hired a neurologist to examine him in June 2016. Based on the neurologist’s examination and review of Hartford’s surveillance footage, he concluded that Black did not have Atypical Parkinson’s disease. See id.

On August 31, 2016, Hartford wrote a letter to Black informing him his LTD benefits had been terminated. Black appealed, which was denied by Hartford. After Hartford’s denial of the plaintiff’s appeal, Black brought suit alleging that Hartford abused its discretion under ERISA when it decided to terminate his LTD benefits claim. Black then served discovery on Hartford and then filed a discovery motion to compel production, seeking three categories of documents: Hartford’s relationships with vendors HUB Enterprises (“HUB”), MES Solutions and/or MES Group (“MES”) and its neurologist, Dr. Robert Egan. Black asserted these areas of discovery would reveal a history of biased claims administration. See id. at *2.

The court noted that permitting “conflict” discovery is well within the discretion of the court and the Ninth Circuit has not endorsed imposing a threshold burden of production on the plaintiff before permitting discovery. See id., citing Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016, 1028 n. 15 (9th Cir. 2008). The court found that in other ERISA cases within the Ninth Circuit, Hartford has used HUB and MES several times to conduct biased investigations. See id.

For example, in Hertz v. Hartford Life & Accessories Insurance Co., 991 F.Supp.2d 1121, 1127 (D. Nev. 2014), Hartford hired HUB to conduct surveillance of the plaintiff in that case. There, the court recognized that Hartford knew its vendors had financial incentives to produce reports that would justify denying benefits. The district court in Hertz granted summary judgment in the plaintiff’s favor, concluding that Hartford’s conflict of interest improperly motivated its benefits decision. Id. at 1143. Similarly, in Caplan v. CAN Financial Corp., 544 F.Supp.2d 984, 991-93 (N.D. Cal. 2008), the Northern District of California considered Hartford’s reliance on a vendor it knew was incentivized to produce biased reports in order to maintain its financial relationship with Hartford. Likewise, a Central District of California court considered Hartford’s “well-established relationship” with MES, noting the increase over time in payments and LTD claim referrals from Hartford to MES. See Black, 2018 WL 3872113 at *2; Kurth v. Hartford Life & Acc. Ins. Co., 845 F.Supp.2d 1087, 1096 (C.D. Cal. 2012).

In the Black case, the court thus found that Hartford operated under a conflict of interest and had a history of biased claims administration. The court was ultimately persuaded by the fact that Hartford used the same vendors as were used in Hertz, Caplan and Kurth and exercised its discretion to allow Black to obtain the discover of Hartford’s financial relationship with its vendors. Black, 2018 WL 3872113 at *3.

The court then considered discovery regarding the performance and evaluation of six Hartford employees involved in terminating Black’s LTD benefits claim. The court noted that whether or not the performance of the employees involved was measured by reference to their ability to deny or terminate LTD claims directly related to whether Hartford’s conflict of interest biased its decision-making process. In Hertz, Hartford’s employees were “acutely aware” that Hartford evaluated them on that basis. Black, 2018 WL 3872113 at *3 citing Hertz, 991 F.Supp.2d at 1134. Evidence produced in that case showed the investigator responsible for terminating Hertz’s claim was evaluated based on her ability to close claims. Another district court found that Hartford’s performance reviews “may reveal a structural incentive for individual claims adjustors to deny disability claims.” Stout v. Hartford Life & Acc. Ins. Co., No. 11-6186 CW JSC, 2012 WL 4464605, at *2 (N.D. Cal. Sept. 25, 2012). The court found that Black’s requests were proportional with the needs of the case and that Black was entitled to discovery of performance evaluations and other incentive-related documents. The court reasoned that such documents have been used by other courts in similar cases as evidence of biased decision-making process. Black, 2018 WL 3872113 at *4.

Conclusion

When dealing with an insurer during an adverse claim decision, it may feel like the company does not have your best interests at heart. Because we litigate often against insurers who deny disability, life and health insurance claims, we know this to be true. While ERISA helps to set guidelines to protect beneficiaries, insurers like Hartford oftentimes overstep these bounds to benefit financially. The Black opinion helps to shed light on the ways insurers administer claims and allow financial bias to permeate their claims decisions. Insurers like Hartford hire biased vendors to render an adverse decision or incentivize employees of the insurers in an attempt to deny benefit claims. Discovery of this evidence may be helpful to determine whether the administrator abused its discretion when it made the benefits decision.

McKennon Law Group PC’s Trial Victory Included in Los Angeles Daily Journal’s September 21, 2018 List of Top Verdicts & Settlements

In the September 21, 2018 issue of the Los Angeles Daily Journal, the Daily Journal published a list of its top “Verdicts & Settlements,” which included the McKennon Law Group’s case of Brian Wright v. AON Hewitt Absence Management LLC, et al. The judgment in Mr. Wright’s favor was rated as the third highest award of damages for a plaintiff for the period of time covered. The McKennon Law Group PC represented Mr. Wright in a dispute over the payment of short-term and long-term disability benefits. We won this ERISA case at trial and our client was awarded all of his disability insurance benefits, attorney’s fees, costs and interest. The list includes a summary of the case. To review the article, take a look at the blog, here.

Attending Physician’s Certifications of Disability: How Important Are They for Disability Insurance Claims Under ERISA?

Many employees are covered by group short-term disability insurance and/or group long-term disability insurance. These plans provide benefits to employees who cannot return to work because of illness or injuries that prevent them from performing their work activities. The Employee Retirement Income Security Act of 1974 (“ERISA”) governs most of these insurance plans. Unfortunately, sometimes an insured becomes disabled and must support his claim for disability benefits. The insured’s attending physician typically has examined the insured and determines that he cannot return to work. The insured will want to use his physicians’ certification of disability to support his disability by submitting it to his insurer. A common question is: Must an insurance company accept the treating physician’s opinion regarding the insured’s disability?

The answer is: not necessarily. The insurance company need not always accept and give credence to the treating physician’s opinion. The Supreme Court of the United States addressed this issue in Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003). In Nord, Kenneth Nord worked for Black & Decker. Black & Decker had a disability plan that provided benefits when an employee suffered “the complete inability… of a Participant to engage in his regular occupation with” Black & Decker. Id. at 825. The disability plan was governed by ERISA. Nord developed degenerative disc disease, which was confirmed by a Magnetic Resonance Imaging scan. Nord consulted with an orthopedist. Both his primary treating physician and the orthopedist agreed that Nord was disabled.

Nord applied for disability benefits, but Black & Decker denied his initial claim. Nord filed an administrative appeal. Black & Decker then referred Nord to a neurologist for an independent medical examination. The neurologist determined that whereas Nord did suffer from degenerative disc disease, he could still work with minor accommodations and pain medication. Black & Decker denied Nord’s administrative appeal.

Nord sued in district court to enforce his rights under ERISA. Both parties filed motions for summary judgment. The district court granted summary judgment for Black & Decker. On appeal, the Ninth Circuit reversed the district court. The Ninth Circuit relied on Social Security Disability law in determining that the treating physician must be awarded special deference and, if a plan administrator disagreed with a treating physician’s opinion, the administrator must provide specific reasons for its decision. The Ninth Circuit held that the specific reasons must be supported by substantial evidence.

The Supreme Court reversed the Ninth Circuit’s ruling. The Supreme Court explained that nothing in ERISA mandated that a treating physician’s opinion receive special deference from an insurance company. On the other hand, in the Social Security context, regulations did in fact require such a result. The Supreme Court explained that determining whether a treating physician should receive such deference was a question best left to Congress or an administrative agency. The Supreme Court overturned the Ninth Circuit’s ruling and remanded the matter for further proceedings. See id. at 834.

Just because an insurer need not give special deference to a treating physician’s opinion, that does not mean that an insurer can ignore the opinion. The Supreme Court expressed sympathy for concerns that treating physicians, “as a rule, have a greater opportunity to know and observe the patient as an individual.” Id. at 832. The Supreme Court also did not question the “concern that physicians repeatedly retained by benefits plans may have an incentive to make a finding of not disabled in order to save their employers money and to preserve their own consulting arrangements.” Id. (internal quotations omitted). The Supreme Court emphasized that “Plan administrators, of course, may not arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician.” Id. at 834. Nord makes clear that a treating physician’s opinion can serve as a significant piece of evidence, but the opinion may not, but often can, necessarily establish disability in of itself.

Courts have been critical of insurers that fail to adequately address a treating physician’s opinion. For example, in Yox v. Providence Health Plan, 659 F. App’x 941 (9th Cir. Sept. 9, 2016), the Ninth Circuit examined whether an insurer had abused its discretion in denying a claim for dental services under an ERISA plan. After the insurer denied the claim, the insured brought suit in district court. The district court found that the insurer had abused its discretion in denying the claim. The Ninth Circuit affirmed. The court based its holding on three grounds: failure to follow certain procedural requirements; failure to properly assess the substance of the insured’s claim, including the assessment of a treating physician; and the presence of a structural conflict of interest.

With respect to the insured’s treating physician’s clinical evaluation, the court stated that, “Moreover, [insurer] arbitrarily refused to address the clinical evaluation submitted by Yox’s treating dentist. When [insurer] did address the evaluation provided by another dentist, it discounted the dentist’s opinion as ‘insufficient’ without further explanation. [Insurer’s] conclusory opinion does not satisfy its duty under ERISA.” Id. at 944.

Other circuits have also expressed skepticism and criticized plan administrators that fail to give the proper weight to the opinions of treating physicians. See Evans v. Unum Provident Corp., 434 F.3d 866, 877 (6th Cir. 2006) (“The Supreme Court nonetheless admonished that plan administrators many not arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician.”) (internal quotations omitted); Michaels v. The Equitable Life Assurance Soc’y of the United States Employees, Managers, and Agents Long-Term Disability Plan, 305 F. App’x 896 (3d Cir. 2009) (overturning a district court’s ruling in part for failing to credit evidence from a treating physician). Insurers cannot rely upon conclusory statements when addressing a treating physician’s assessment. The insurer generally must provide a more thorough and reasoned opinion as to why it will discount the treating physician’s opinion.

In fact, it is incumbent on an insurer’s reviewing doctors explain why his or her opinions differ from the physicians who actually examined the insured. If this is not done, the opinion should carry little weight with a court. See Carrier v. Aetna Life, 116 F. Supp. 3d 1067, 1081-1083 (C.D. Cal. 2015) (An insurer’s reliance on peer reviewers who present their opinions in a conclusory fashion, making it unclear how they reached contrasting opinions from those of the insured’s attending physicians, is improper, and such conclusions should not be relied upon over the opinions of the insured’s physicians).

Courts tend to give a great deal of respect to a treating physician’s opinions and without them, a disability claim may be denied. Having a strong certification letter from a physician can be very helpful, if not critical, to a disability insurance claim. If all of an insured’s doctors are in agreement that the claimant is disabled, then a court will likely be critical in its assessment of an insurer who denies that claim.

Do Arbitration Clauses in Employment Contracts Automatically Preclude Employees From Litigating ERISA Claims?

Many times, employees must sign written employment contracts before beginning a new position. These contracts generally set forth the terms of the relationship between the employer and employee. They also establish both the rights and responsibilities of the two parties. Employers often include an arbitration clause in their employment contract. This means that any disputes that arise between the employer and employee must be settled through arbitration, rather than through the courts.

But what happens when an employee sues his employer not on his own behalf, but on behalf of another entity for claims that the employee cannot bring in his individual capacity? For instance, in the context of ERISA, employees who participate in an employer-sponsored ERISA plan can bring a claim for breach of fiduciary duty on behalf of the ERISA plan against the employer. If the employee signed an arbitration agreement, does that preclude the employee from litigating this particular claim in court?

The Ninth Circuit Court of Appeals recently addressed this issue in the matter of Munro v. University of Southern California, No. 17-55550 (9th Cir. July 24, 2018). In Munro, nine current and former employees of the University of Southern California (“USC”) brought suit against their employer for breach of fiduciary responsibility in the administration of two ERISA plans offered by the employer (collectively, the “Plans”). The relief sought by the plaintiffs included the following: a determination as to the method of calculating losses; removal of breaching fiduciaries; a full accounting of Plan losses; reformation of the Plans and an order regarding appropriate future investments

Since the plaintiffs/employees all signed arbitration agreements as part of their employment contracts, USC filed a motion to compel arbitration, arguing that the arbitration agreements bar the plaintiffs from litigating the claims at issue. The district court denied USC’s motion and ruled that the arbitration agreements, which the employees entered into in their individual capacities, do not bind the Plans because the Plans did not themselves consent to arbitration of the claims. The Ninth Circuit upheld the district court’s ruling, finding that the claims for breach of fiduciary duty fall outside the scope of the arbitration agreements. In reaching its decision, the court turned to the language of the arbitration agreements, which state that the parties agreed to arbitrate “all claims…that Employee may have against the University or any of its related entities…and all claims that the University may have against Employee.” The court noted that this language does not extend to claims that other entities have against the University.

The Munro court concluded that the ERISA claims for breach of fiduciary duty were not claims that the “Employee may have against the University or any of its related entities.” Rather, the employees brought the claims on behalf of the Plans, and, since the Plans never consented to arbitration of the claims, the arbitration provision did not apply in this instance. In reaching its conclusion, the court looked to the case of United States ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), which dealt with a similar issue, specifically, whether a standard employment arbitration agreement covered qui tam claims brought by the employee on behalf of the United States under the False Claims Act (“FCA”). The court in Welch found that because the underlying fraud claims asserted in a FCA case belong to the government and not to the employee, the claims were not claims that the employee had against the employer and therefore were not within the scope of the arbitration agreement. Welch, 871 F.3d at 800 & n.3. In Munro, the Ninth Circuit found similarities between the type of claim brought in Welch and the ERISA claims at issue in Munro. Specifically, the court noted that the ERISA plaintiffs did not seek relief for themselves, but rather sought recovery for injury done to the Plans. This was evident in the relief sought by the plaintiffs, which included removal of breaching fiduciaries, a full accounting of Plan losses, and reformation of the Plans. Furthermore, since the Plans were not parties to the arbitration agreements between the employer and employees, and therefore never consented to arbitration, the court could not compel arbitration in this instance.

The issue of whether a party can be compelled to arbitrate an ERISA claim where the party did not sign an arbitration agreement arose in a prior Ninth Circuit decision, Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006). The plaintiff in Comer participated in an ERISA plan offered by his employer. The plan trustees retained a company, Salomon Smith Barney, Inc. (“Smith Barney”) to provide investment advice. The plan and Smith Barney entered into an investment management agreement that contained an arbitration clause. After Comer sued Smith Barney for breach of fiduciary duty under ERISA, Smith Barney moved to compel arbitration. The court found that pursuant to ordinary contract and agency principles, Comer could not be bound to the terms of a contract he did not sign and could not enforce. Therefore, the arbitration agreement did not apply to Comer’s ERISA claim. The same argument could be made in Munro, where the Plans were not signatories to the individual employment contracts and, therefore, were not bound by the arbitration agreements.

In summary, even though an employee has signed an employment contract containing an arbitration provision, this does not necessarily preclude the employee from bringing a lawsuit against his employer for ERISA violations when the employee is suing on behalf of the ERISA plan and not simply in an individual capacity. In such cases, the claims belong to the ERISA plan itself and, if the plan did not consent to arbitration, then this opens the door for the employee to bring his ERISA breach of fiduciary duty claim in federal court.

“Sole Cause” Provisions in Accidental Death and Dismemberment Policies: Are ERISA Claimants Getting a Fair Shake?

According to the Centers for Disease Control, unintentional injury is the leading cause of death among people ages 1 to 44. For this reason, Accidental Death and Dismemberment (“AD&D”) Insurance should be an essential component of insurance coverage for most families. As preventative care expands and baby boomers remain active, accidental deaths will likely continue to rise as the leading cause of death among individuals. While AD&D coverage is important to protect families from unforeseen injuries and death that can have severe financial repercussions, insurance companies do not like to pay these claims as they often attempt to limit the scenarios in which an insured can recover an AD&D benefit by placing “sole cause” provisions in AD&D policies. These provisions include restrictive language requiring that an insured’s loss be the direct result of accidental injury, independent of other causes. Using this language, insurance companies attempt to deny benefits on the basis that an illness or preexisting condition caused or contributed to an accident.

It should not be surprising that insurers interpret these “sole cause” provisions expansively in an attempt to deny AD&D benefits. We recently wrote here about the important and insured-friendly Ninth Circuit Court of Appeals decision in Dowdy v. Metro. Life Ins. Co., 890 F.3d 802 (9th Cir. 2018). In Dowdy, the court rejected an insurer’s claim denial and held that diabetes did not substantially contribute to amputation of beneficiary’s leg below the knee after he suffered a serious injury to his leg as a result of an automobile accident, and therefore loss was covered. The court further held that the exclusion for “any loss caused or contributed to by illness or infirmity” did not apply to the role that diabetes played in causing the amputation.

In Kellogg v. Metropolitan Life Insurance Co., 549 F.3d 818 (10th Cir. 2008), the Tenth Circuit addressed such a provision and looked at whether the insured’s death was caused by his purported seizure prior to car accident. Kellogg is recognized as one of the leading cases regarding accidental injury/losses involving pre-existing medical conditions and involved an AD&D claim governed by ERISA.

In Kellogg, a witness observed the insured experience an apparent seizure immediately before driving off the road and crashing into a tree. The insured later died of a brain hemorrhage resulting from injuries sustained in the crash. The insured was covered under a policy that provided benefits if the insured had an “accidental injury that is the Direct and Sole Cause of a Covered Loss.” The policy defined “Direct and Sole Cause” as a “direct” and “independent” cause of loss. The policy also contained an exclusionary clause exempting from coverage “any loss … caused or contributed to by … physical or mental illness or infirmity.” The insurer denied the claim for AD&D benefits, reasoning the accident would not have happened but for the insured’s illness. The Tenth Circuit rejected that rationale, concluding “the car crash—not the seizure—caused the loss at issue, i.e., [the insured’s] death, and therefore the exclusionary clause of the policy does not apply.” Id. at 831.

The Tenth Circuit further looked at the plain meaning of the ERISA Plan provisions and the inequality of bargaining position between insurance companies and insureds. The court found that these rules of construction, including contra proferentem, apply equally to ERISA cases governed by federal common law. The court noted that the “[t]he Plan does not contain an exclusion for losses due to accidents that were caused by physical illness, but rather excludes only losses caused by physical illness.” Id. at 832. Ultimately, the Court determined that a “reasonable policyholder would understand this language to refer to causes contributing to the death, not to the accident.” Id.

The Kellogg court explained that courts have long rejected attempts to preclude recovery on the basis that the accident would not have happened but for the insured’s illness. “As then-Judge Taft wrote in Manufacturers’ Accident Indemnity Co. v. Dorgan, 58 F.945, 954 (6th Cir. 1893), “if the deceased suffered death by drowning, no matter what was the cause of his falling into the water, whether disease or a slipping, the drowning, in such case, would be the proximate and sole cause of the disability or death, unless it appeared that death would have been the result, even had there been no water at hand to fall into. The disease would be but the condition; the drowning would be the moving, sole, and proximate cause.” Id. Yet, like those courts, the Kellogg court rejected MetLife’s denial decision, and remanded the matter to the district court “with directions to enter judgment in favor of Kellogg on the administrative record.” Kellogg, supra at 833.

Other courts following this analysis have come to the same conclusion. In Ferguson v. United of Omaha Life Insurance Co., 3 F.Supp.3d 474, 483 (D. Md. 2014), the District Court of Maryland applied the analysis of Kellogg where an insurance company denied AD&D benefits due to the insured’s medical insurance. In that case, the insured suffered from epilepsy that caused him to suffer an apparent seizure twice while swimming. The first incident, in February 2010, led to his near-drowning and a three-day hospitalization, and the second incident, on September 15, 2010, resulted in his death. The court considered whether there was substantial evidence that the insured actually suffered a seizure that caused him to drown on September 15, 2010, and thus, whether it was a seizure that caused him to drown.

The district court in Ferguson went on to opine that a provision that excludes sudden, unexpected, unforeseeable and unintended events that are independent of sickness and all other causes “would appear to eliminate the possibility of any event ever being considered an accident.” Id. at 486. The district court added, “If the insured slips and falls on an icy sidewalk, it would not be an accident under this language because the presence of ice on the sidewalk would be a cause of the event.” Id.

When taken literally, these “sole cause” provisions would exclude coverage for a number of common sense scenarios that would reasonably be labeled an accident. Following the analysis in Kellogg, courts have considered the cause of loss to be independent of the cause of the accident. These courts have denied coverage only when the disease or pre-existing condition was a cause of the death or injury, not when it was simply the cause of the accident that lead to a death or injury.

Conclusion

While AD&D insurance provides coverage for any accidental death or dismemberment, it is often difficult to separate pre-existing conditions and disorders that may have contributed to an accident from the accident itself. This complicates the coverage analysis in AD&D policies with “sole cause” provisions. For instance, it is plausible to surmise that an individual’s history of heart disease caused her to have a heart attack while driving, which then caused an accident resulting in death. An insurer will use the “sole cause” provision to argue that the heart attack caused or contributed to the accident. However, considering the analysis of Dowdy, Kellogg and opinions following these decisions, a court must separate the loss of the insured from the accident, and consider whether the insured would have suffered a loss but for the circumstances of the accident. Under this analysis, even when though a pre-existing condition or disease may have caused or contributed to an accident, recovery of AD&D benefits is likely.

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