Firm News Archives - Page 12 of 76

Opportunistic Rescission: When Do Insurers Waive their Right to Rescind an Insurance Policy?

All too often, we see insurance companies deny insurance claims by attempting to opportunistically rescind insurance policies. This practice has become more prevalent in recent years as insurers look for ways to deny insurance claims.

Anyone who has purchased a disability, life or health insurance policy is likely familiar with the significant paperwork involved in the insurance application process. The paperwork includes policy notices, policy applications, supplemental policy applications, personal history questionnaires, policy warnings, medical examination documents, etc. These will include numerous and detailed questions relevant (and often not so relevant) to the risk being insured. An insurance agent or broker will ask questions on the policy application and often additional questions not on the application. Only after the applicant has answered countless questions, will the insurance company decide whether to issue the policy. Many applicants do not appreciate why insurance companies go to such great lengths before issuing a policy. The answer: they want to evaluate the risk that the applicant poses to them. If there exists too much risk of a payout under the policy, they will not underwrite that risk by issuing a policy. Throughout the application process, like the claims process, insurers often have a duty to investigate the information contained on the application. The failure to engage in such an investigation may result in the insurer being precluded under the law from later rescinding a policy that it decided to issue.

When insureds file claims under their policies, insurers often first look to determine if they can rescind the policy, asserting that the policy should be considered null and void as if it was never issued in the first place. As we explained in a previous blog article, rescission legally renders the contract as if it never existed and releases both parties from their obligations under the contract. An insurance company is often allowed to rescind a contract when there is a material misrepresentation on the insurance application. Many times, the omission was an honest mistake or it was excused by the broker or agent as immaterial. Regardless of the purposefulness of the omission, the insurance company may still have the right to rescind the contract.

There are exceptions however. One involves the insurer’s duty to investigate the information on the application at the time the application is submitted and its duty to investigate the possible basis for rescission when handling the claim. If there is an implication that the application was not completely accurate, and the insurer fails to investigate, then the insurer may have waived the right to rescind the policy. For example, the applicant fails to state that she had seen a doctor in the last five years, yet the application reveals she is on several prescription medications. Or, the evidence may arise from an outside source. For example, the insured may submit a claim for a treatment which strongly implies that the applicant had a non-disclosed pre-existing condition at the time the application was submitted. Insurance companies have a duty to explore such information or they may lose the right to rescind the policy. As one court stated, an insurance company “may not blindly ignore evidence of misrepresentation, collect premiums, and then opportunistically rescind once a claim is filed.” Star Insurance Co. v. Sunwest Metals, Inc., 691 F.App’x 358, 360 (9th Cir. 2017). The issue is not just whether the insurer had actual knowledge of the material misrepresentation, but also whether the insurer could have or would have obtained the information if it had exercised reasonable diligence in investigating the claim.

In DuBeck v. California Physicians’ Service, 234 Cal.App.4th 1254 (2015), the California Court of Appeal addressed an insurance company’s failure to diligently investigate an application. Bonnie DuBeck submitted an application for health insurance to California Physicians’ Service, doing business as Blue Shield of California. In her application, she failed to disclose that she had recently visited a doctor to have a lump in her breast examined. DuBeck’s application was approved. Five days after Blue Shield issued the policy, DuBeck underwent breast cancer surgery. She submitted bills for her treatments to Blue Cross. Blue Cross became suspicious that, given the timing of the billings, the condition had arisen before DuBeck’s enrollment. “Yet by its own admission Blue Shield neither commenced an investigation nor obtained records confirming the date of appellant’s first breast cancer-related procedure for another year.” Id. at 1268. By the time Blue Cross had started its investigation, DuBeck had been diagnosed with leukemia. During that time, DuBeck submitted various bills to Blue Cross, some of which Blue Cross refused to pay. Ultimately, Blue Cross cancelled the policy. Of note is that Blue Cross did not rescind the policy – it only cancelled the policy. Two years after Blue Cross canceled the policy, DuBeck sued Blue Cross to force payment of the unpaid medical bills.

In the trial court, Blue Cross moved for summary judgment. It argued that it had the right to rescind the insurance contract because DuBeck had lied on the application. The trial court granted Blue Cross’s motion. DuBeck appealed.

The court of appeals reversed the trial court on several different grounds. One of those grounds was that Blue Cross failed to properly and promptly investigate the information in the application once it received information putting it on notice that DuBeck had omitted information from her application, thus waiving its right to rescind the policy. As the court of appeals explained:

By ignoring information that would have resolved the truthfulness of the representations in appellant’s application at an early stage and determining at that time whether to continue as her insurer, Blue Shield allowed appellant to incur substantial medical expenses and dissuaded her from investigating the availability of government assistance. Blue Shield’s lack of diligence in the early months of the policy and the apparent prejudice to appellant provide a second and independent basis for rejecting its claimed right to rescind. Id.

Insurance companies have an affirmative duty to investigate the applications submitted to them. If they have failed to do so, then they may lose the right to rescind a contract that was less than complete. Insurers will still often attempt to rescind a policy, sometimes years after they had evidence that something was amiss. Determining whether an insurance company can properly rescind a policy is a difficult task for most insureds. McKennon Law Group PC has extensive experience determining whether an insurer can deny your life, health or disability insurance claim by rescinding your policy. Some of the issues we examine: was there actually a misrepresentation? Was the misrepresentation innocent or intentional? Was it material and how can the insurer prove it was material? What did the agent/broker know or say in the application process? Was there some information in the claim file that should have led the insurer to suspect a material misrepresentation? We expertly determine and often are able to successfully challenge an insurer’s attempted rescission. If you have a denied life, health or disability insurance claim that is the subject of an attempted rescission, call us for a free consultation.

A Recent California Supreme Court Decision Clarifies when an Intentional Act with Unforeseen Results is an Accident under a Liability Policy

Generally, an insured will not receive coverage under a liability policy when they intentionally cause the loss or injury for which they are seeking coverage. As expected, insurers regularly deny claims when they are able to characterize an insured’s conduct as intentional, even when the damage or injury caused was accidental or not intended by the insured. In recent years, insurers in California have been able to successfully defend their denial of insurance claims involving an intentional act before California courts. The success experienced by these insurers has largely been the result of a California Supreme Court decision in 2009 holding that “an injury-producing event is not an ‘accident’ within the policy’s coverage language when all of the acts, the manner in which they were done, and the objective accomplished occurred as intended by the actor.” Delgado v. Interinsurance Exchange of the Automobile Club of Southern California, 47 Cal.4th 302 (2009). Prior to the Delgado decision, California courts followed a more expansive interpretation of liability policies requiring insurance companies to defend policyholders against lawsuits even where the underlying claim alleged only intentional conduct. See Gray v. Zurich ins. C.o., 65 Cal.2d 263 (1966).

Recently, the California Supreme Court provided clarity that once again expanded the interpretation of liability policy provisions to provide coverage even when an event involves an intentional act. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., 418 P.3d 400 (2018), Ledesma & Meyer (“L&M”) contracted with a school district to manage a construction project. The assistant superintendent that L&M hired sexually abused a 13 year-old student, and L&M was sued for negligently hiring, retaining and supervising the assistant superintendent. L&M tendered the defense of the case to Liberty, its insurer. L&M’s insurance policy provided coverage for bodily injury caused by an “occurrence,” which was defined in the policy as an accident. Liberty sought declaratory relief from the federal district court contending it had no obligation to defend or indemnify L&M since the injury to the student was not caused by an “occurrence” or accident, since the alleged negligent hiring and supervision of the assistant superintendent was too attenuated from the injury-causing conduct, and the alleged negligent hiring and supervision of the assistant superintendent was not an accident despite the fact L&M did not intend for the injury to occur. Liberty also argued that because the sexual abuse was an intentional act by the superintendent hired by L&M, it could not be an “occurrence” triggering coverage.

The district court granted summary judgment to Liberty on the cause of action for negligent hiring, retention, and supervision. L&M appealed the decision arguing the district court misapplied California law, and the Court of Appeals sought the opinion of the California Supreme Court. The California Supreme Court noted that the applicable definition of “accident” in California means an unexpected, unforeseen, or undersigned happening or consequence from either a known or unknown cause. The Court further explained that the word “accident” in the coverage clause of a liability policy refers to the conduct of the insured for which liability is sought to be imposed (which here would be the conduct of L&M rather than the conduct of the assistant superintendent). The Court determined that the sexual abuse of the student may be deemed an accident or an unexpected consequence of L&M’s independent act of negligently hiring, retaining and supervising the assistant superintendent.

The Court noted that the insured’s “allegedly negligent hiring, retention and supervision were independently tortious acts, which form the basis of its claim against [the insurer] for defense and indemnity.” It then pointed out that the employee’s molestation “was the act directly responsible for the injury, while [the insured’s] negligence in hiring, retaining, and supervising him was an indirect cause.” It reasoned that the insured’s acts:

must be considered the starting point of the series of events leading to the molestation. [The insured] does not rely on any event preceding its own negligence to establish potential coverage. As alleged by [the plaintiff], the ‘occurrence resulting in injury’ began with [the insured’s] negligence and ended with [the employee’s] act of molestation.

The Court further explained that Liberty’s arguments, if accepted, would leave employers without coverage for claims of negligent hiring, retention, or supervision whenever an employee’s conduct is deliberate, and such a result would be inconsistent with California law. The Court concluded that absent an applicable exclusion, employers should expect to provide coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.

This decision should cause concern for insurance providers who have developed a practice of regularly denying general liability claims based upon the premise that there was an intentional act involved. Given that in California, a duty to defend exists if the insurer becomes aware of, or if a third party lawsuit pleads facts giving rise to the potential for coverage, this ruling will apply in a variety of contexts where an intentional act is at issue in a claim involving negligence.

A District Court Rejects Insurer’s Denial of a Long-Term Disability Claim Based Only on a Paper Review of Medical Records and Blind Adherence to the Dictionary of Occupational Titles

A “battle of the experts” is common in legal disputes. But what happens when your doctor determines you are disabled and unable to work, while the insurer’s doctor determines you are not disabled based on a review of your medical file, leading to a denial of your claim for long-term disability (“LTD”) benefits? Under the Employee Retirement Income Security Act of 1974 (“ERISA”), you may have a case for improper denial.

In a recent LTD insurance case governed by ERISA, Popovich v. Metropolitan Life Insurance Company, 281 F.Supp.3d 993 (C.D. Cal. 2017), Judge Andre Birotte explained the limitation of a paper review of a claimant’s medical record, as well as the limitation of relying solely on the definitions of occupations in the Dictionary of Occupational Titles (DOT). Below, we discuss Popovich; why the court found the insurer’s doctor’s opinion, which was based only a paper review, to be unpersuasive; and why it is important for an insurer to determine what a claimant actually does before it bases a claim denial on the material duties of a claimant’s occupation.

In Popovich, Plaintiff Kenneth Popovich (“Popovich”) filed a lawsuit against Metropolitan Life Insurance Company (“MetLife”) and Data Analysis, Inc. Employee Benefit Plan alleging that his claim for long-term disability benefits was improperly denied.

Popovich worked as an assistant news editor for Investor’s Business Daily for ten years. Popovich was responsible for writing and editing online news content for an organization that strived to publish stories and analysis within minutes of breaking news, creating significant deadline pressure. During his tenure working for Investor’s Business Daily, Popovich suffered a heart attack. He went on medical leave for 16 months to have bypass surgery and recover. He returned to work but continued to suffer from poor health.

Popovich went on another medical leave 11 months after returning to work. His second medical leave was less than two months before he returned to work on a part-time basis. Popovich returned to full-time work two weeks later, but after only two more months he was unable to complete his regular shift due to his poor health. That turned out to be his last day of work.

A couple of days later, Popovich saw his attending physician, Dr. Kedan, who indicated that Popovich suffered from a great deal of stress and panic attacks. Dr. Kedan diagnosed Popovich with cardiomyopathy, and advised Popovich to stop working. Dr. Kedan advised Popovich that he could eventually return to work, but his return to work date was unknown. Popovich filed a claim for LTD benefits based on Dr. Kedan’s diagnosis and physician statement.

MetLife’s medical director and nurse consultant reviewed Popovich’s medical records, noted improvement in specific tests conducted on Popovich and opined that Popovich should be capable of sedentary work. MetLife’s claim specialist recommended denial of Popovich’s claim based on insufficient evidence to support disability. A few days later MetLife completed a vocational analysis using only the description of the news editor occupation in the DOT, and denied Popovich’s LTD claim.

Popovich continued to be in poor health following the claim denial. Dr. Kedan recommended further treatment, stating that Popovich’s heart damage made him unfit for physical labor, and that he was not a good candidate for other sedentary jobs either because he suffered from chest pains while seated and exerting himself. Dr. Kedan concluded that Popovich was unable to resume any type of gainful employment.

Popovich appealed MetLife’s denial. MetLife then referred Popovich’s appeal to Dr. Sassower, an independent physician consultant who is board certified in cardiology. Dr. Sassower spoke with Dr. Kedan and reviewed Popovich’s medical records, but did not examine him. In his “paper review” report, Dr. Sassower concluded that Popovich’s test results should not have prohibited his return to work. MetLife accordingly upheld its prior denial of Popovich’s claim for long-term disability benefits.

In this case, the dispute came down to whether Popovich’s heart condition was sufficiently severe to prevent him from working in his usual occupation. The court ruled in favor of Popovich, ordered MetLife to pay his long-term disability benefits owed under the plan for the initial two years, together with prejudgment interest, and ordered MetLife to determine if Popovich met the plan’s criteria to continue receiving benefits beyond the initial benefit period.

The court ruled in Popovich’s favor for two main reasons. First, the court concluded that Dr. Sassower’s opinion was not persuasive because he only conducted a “paper review” of Popovich’s medical records and his report had several critical issues.

While Dr. Sassower is not required to examine Popovich in person, his report, based on a pure paper review, presented several critical issues. For example, Dr. Sassower misstated the diagnosis of Popovich’s heart disease in his medical records, and failed to cite any evidence to support a different, or new, diagnosis. Furthermore, Dr. Sassower selectively interpreted medical reports in Popovich’s file. He relied on certain reports to question the accuracy of some tests, but ignored the same reports when arguing that other tests were not sufficient to demonstrate disability. Additionally, Dr. Sassower was the only doctor in Popovich’s medical records to criticize Popovich’s medication regimen. It was not clear from the record that Popovich’s medication regime was lacking, as Dr. Sassower so claimed.

Finally, Dr. Sassower failed to explain why some of his conclusions differ from other doctors in the medical records. He did not provide evidence or reasoning to support his different conclusions. Taken all together, the court found Dr. Sassower’s opinion unpersuasive. The court found that Popovich’s medical records, including reports from Dr. Kedan and other specialists, demonstrated Popovich suffers from a significant heart condition, and that Popovich is unable to work at a physically and mentally stressful occupation.

Second, the court determined that MetLife did not perform a reasoned and deliberative vocational analysis because it only relied on the DOT’s description of a news editor. To determine if a claimant is able to work in their usual occupation, an insurer must conduct a reasoned and deliberative vocational analysis about the material duties of the claimant’s job. MetLife’s vocational analysis consisted solely of a verbatim reproduction of the DOT’s description of a news editor. The court noted that reference to the DOT is generally reasonable, but explained that the DOT’s description is outdated as it relates to this case. The DOT’s entry for news editor refers only to duties relevant to print media, and Popovich worked in a deadline-driven environment trying to publish stories and analysis online within minutes of breaking news. The DOT description of news editor and the reality of Popovich’s job as a news editor are fundamentally different. The court therefore found that MetLife erred by relying solely on the DOT and failing to consider what Popovich actually did before determining the material duties of Popovich’s occupation. Furthermore, MetLife’s blind reliance on the DOT limited its analysis to physical requirements of the job and failed to consider mental requirements. The court used Popovich’s, and his employer’s, description of news editor over the DOT’s description to define Popovich’s usual occupation.

After reviewing the entire Administrative Record, the court found Popovich submitted sufficient evidence to demonstrate he is disabled from working in stressful occupations. The court further found that Popovich’s usual occupation as an assistant news editor is stressful. The court thus concluded that Popovich was totally disabled from his usual occupation, and entitled to LTD benefits.

As detailed above, a pure paper review of a claimant’s medical records by the insurer’s doctor may not be enough to undermine a treating physician’s medical opinion. And an insurer reliance solely on the definition of a job from the DOT to determine material duties of a claimant’s usual occupation may not be a sufficient vocational analysis.

With this in mind, if your claim for long-term disability benefits is denied and the insurer did not conduct a medical exam, you may have a case of improper denial. Likewise, if an insurer makes a determination about the material duties of your usual occupation without someone talking to you or your employer, you may have a case of improper denial.

Part-Time Work: Is this Sufficient to Preclude a Claim for Long-Term Disability Benefits Under the “Any Occupation” Standard of Total Disability?

Long-term disability insurance policies are an important safety net for employees. In the event of an accident, long-term disability helps to bridge the gap in income when an employee is no longer able to work. But to what extent does it mean for an employee to be no longer able to work? While insureds may be unable to continue fully working in their usual occupation, insurers often argue an insured can perform some other sedentary occupation to account for claimed disability, allowing them to deny the benefit claim.

In the 2003 Northern District of California case, Bruce v. New York Life Ins. Co., 2003 WL 21005313 (N.D. Cal. 2003), the court addressed this very issue. In Bruce, the plan participant Mary Bruce brought suit challenging defendant Aetna Life Insurance Company’s decision to deny her claim for disability benefits in a group insurance policy subject to the Employee Retirement Income Security Act (“ERISA”). ERISA, a 1974 federal law, sets minimum standards for many long-term disability plans and serves to provide protection for individuals in these plans.

The court in Bruce considered a disability policy in which a plan participant is initially eligible for benefits if she cannot perform her “usual occupation” and thereafter only if she cannot perform “another occupation in which he could reasonably be expected to perform satisfactorily in light of his age, education, training, experience, station in life, physical and mental capacity.” Relying upon the Webster’s Dictionary definition of “occupation,” the district court in Bruce held the plain meaning of “another occupation” was performing full-time work in another occupation. The court stated:

Moreover, where, as here, the plan participant’s occupation, prior to injury, was in fact full-time, the phrase “usual occupation” would be understood to mean “usual full-time occupation.” Given the juxtaposition of the terms “usual occupation” and “another occupation,” the latter term ordinarily would be understood to mean “another full-time occupation.”

Interpreting the term “another occupation” to refer to a full-time position is also consistent with New York Life’s practices. In its Physical Capacities form, on which New York Life requests that physicians provide information to assist “in determining the work potential” of a plan participant, New York Life seeks information with respect to the participant’s ability to perform tasks “in an 8–hour workday.” (See, e.g., AR at 56.) Finally, even if the term “another occupation” were ambiguous as to whether it refers to full-time or part-time employment, the term must be interpreted to refer to full-time work because ambiguous terms in policies subject to ERISA are “construed against the insurance company.” See Lang v. Long–Term Disability Plan, 125 F.3d 794, 799 (9th Cir.1997) (holding, in ERISA action where denial of benefits was subject to de novo review, ambiguous language in policy was properly construed in favor of insured). Consequently, the Court finds the term “another occupation,” as used in the policy at issue, is properly construed to encompass only full-time employment.

Accordingly, the court held that the opinion that Bruce could perform limited part-time work out of her home did not support a finding that she could perform “another occupation” within the meaning of the subject policy.

More recently, the Ninth Circuit Court of Appeals further examined the meaning of disability under ERISA as it relates to sedentary work. In Armani v. Northwestern Mutual Life Ins. Co., 840 F.3d 1159 (9th Cir. 2016), the court addressed the definition of sedentary work and the required time one must be physically able to sit to perform such work. Reversing the district court’s order, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work.

The participant Avery Armani was insured under a group long-term disability policy issued by Northwestern Mutual that provided a more-inclusive meaning of disability in the first 24 months of benefits. Under the policy, after 24 months of disability benefits, the claimant must then be “Disabled from all occupations” to be eligible for benefits. Upon injuring his back, Armani was not able to sit continuously without the ability to change position. Armani’s disability claim was initially approved and then denied after further review nearly two years after his initial claim, in July of 2013. After further medical record indicated Armani could sit for four hours a day, Northwestern Mutual closed Armani’s claim asserting he was not precluded from sedentary work.

Armani filed suit under ERISA seeking judicial review of Northwestern Mutual’s claim decision. Following a bench trial, the district court ultimately held that Armani failed to show he was disabled from “all occupations” with the reasoning that Armani failed to demonstrate his disability prevented him from performing some sedentary occupations.

After timely appeal, the court held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work that requires “sitting most of the time.” The court explained that the district court’s rejection of Armani’s definition of “sedentary” was based upon an erroneous application of Social Security law and ERISA law. The court based its ruling on several decisions evaluating ERISA claims that found “sedentary work” generally requires a sitting tolerance of at least 6 hours of an eight-hour work day. This four-hour standard is applicable in assessing the extent to which an employee can claim disability benefits after an injury in occupations where sitting for long periods of time is an essential component of the job.

While factually dissimilar, the court’s ruling in Armani is consistent with the 2003 Bruce district court opinion. Under the Armani four-hour bright line rule, Mary Bruce would have been unable to perform sedentary work, since Bruce’s administrative record indicated she was only able to sit for roughly four hours per day. Conversely, Avery Armani would have been limited to part-time work, as he also was only physically able to sit for four hours.

Even though the district court and the Ninth Circuit reached the same destinations, the courts took different paths of analysis. On the one hand, Bruce considered the plain meaning of “occupation” and the Webster’s Dictionary definition of occupation meaning a full-time job. Thus, part-time work was not a sufficient replacement for “another occupation” in the “any occupation” analysis. On the other hand, Armani considered the analysis from other courts which consistently found that the standard of work from the Department of Labor and Dictionary of Occupational Titles defined sedentary work as requiring the ability to sit for at least six hours.

These tests may seem arbitrary, but they help to provide guidance and protection for a disabled worker with coverage from a disability plan. As disability claimants are often only able to perform sedentary work after injury, insurers now cannot argue that part-time, sedentary work is a sufficient to deny a disability insurance claim under the “any occupation” standard.

Ninth Circuit Interprets the Health Parity Act in Favor of Insureds Seeking Health Insurance Benefits

Insurance companies often attempt to provide different levels of benefits for the treatment of physical injuries and mental health issues in the same policy. Mental health parity describes the equal treatment of mental health conditions and non-mental health conditions in insurance plans. When a plan or policy has parity, it means that if a covered person is provided unlimited doctor visits for a chronic condition like diabetes then that person must offer unlimited visits for a mental health condition, such as depression or schizophrenia. Under federal law, health insurance plans must have parity in benefits.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, 29 U.S.C. § 1185a, requires that if a plan provides for “both [(a)] medical and surgical benefits and [(b)] mental health or substance use disorder benefits,” then the plan must not impose greater restrictions on the latter category of care. In particular, it states:

In the case of a group health plan (or health insurance coverage offered in connection with such a plan) that provides both medical and surgical benefits and mental health or substance use disorder benefits, such plan or coverage shall ensure that–

(i) the financial requirements applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan (or coverage), and there are no separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits; and

(ii) the treatment limitations applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by the plan (or coverage) and there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

Even though the law is relatively clear as to what types of coverage limitations an insurance company can include in its policies, many insurers still attempt to include improper limitations that are applicable solely to mental health and/or substance abuse benefits. In a recent case, Danny P. v. Catholic Health Initiatives, No. 16-35609 (Ninth Cir. June 6, 2018), the Ninth Circuit Court of Appeals addressed a dispute involving such a self-funded group health benefit plan (“Plan”) governed by the Employee Retirement Income Security Act (“ERISA”).

In Danny P., Nicole B. and Danny P. (“Insureds”) were covered under the Plan provided by Catholic Health Initiatives and Catholic Health Initiatives Medical Plan – Blue Cross Blue Shield. The Plan provided “for coverage of ‘Mental Health Services,’ which included coverage for services related to ‘the diagnosis and/or treatment of an Illness Affecting Mental Health.’” Under the Plan, Nicole B. and Danny P. were entitled to “[b]ed, board, and general nursing care” in addition to “[a]ncillary services” in a skilled nursing facility, defined as “an institution or distinct part of an institution which is primarily engaged in providing comprehensive skilled services and rehabilitative Inpatient care.” The Plan also provided for coverage in “Residential Treatment Facilities,” licensed facilities that address mental health issues.

Nicole B. was admitted to an in-patient residential treatment program for approximately 11 months. The insureds filed a claim seeking to have the Plan cover the costs of Nicole B.’s room and board. The Plan denied the claim for the cost of this in-patient residential mental health treatment facility.

The Insureds pursued their administrative remedies. Again, their claim was denied. Insureds brought suit in federal court. “[T]he parties filed cross-motions for summary judgment and the district court granted summary judgment in favor of the Plan[.]” The district court determined that the Plan’s actions did not violate the Parity Act. The Insureds appealed to the Ninth Circuit and it reversed.

The Ninth Circuit began its analysis with the Parity Act itself noting that “it directs that benefits and treatment limitations for mental health problems shall be ‘no more restrictive’ than those for medical and surgical problems.”

The court concluded that the Parity Act did not allow the Plan to provide room and board reimbursements “at licensed skilled nursing facilities for medical and surgical patients, but [] not provide room and board reimbursement at residential treatment facilities for mental health patients.” The Ninth Circuit did not conclude its analysis with a reading of the plain language of the Plan and Parity Act though. It next looked to various government agencies’ interpretations of the Parity Act. No agency had directly addressed the issue before the Court, but “[the agencies] did indicate that mental and medical/surgical benefits must be congruent, and that limiting the former while not placing a similar limitation on the latter would be improper.” As the court noted, the regulations state that:

Although the interim final regulations did not define the scope of the six classifications of benefits, they directed that plans and issuers assign mental health and substance use disorder benefits and medical/surgical benefits to these classifications in a consistent manner. This general rule also applies to intermediate services provided under the plan or coverage. Plans and issuers must assign covered intermediate mental health and substance use disorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefits to these classifications. For example, if a plan or issuer classifies care in skilled nursing facilities or rehabilitation hospitals as inpatient benefits, then the plan or issuer must likewise treat any covered care in residential treatment facilities for mental health or substance user disorders as an inpatient benefit.

Finding no authority contrary to its interpretation, and finding some indirect support for it, the Ninth Circuit reversed the district court’s ruling. The Plan was required to provide the benefits the insureds sought.

Insurance companies often attempt to provide inferior benefits for the treatment of mental health conditions than for the treatment of regular physical injuries. The lack of a physical sign of the condition often drives the insurance companies to fail to appreciate just how serious a mental health condition can be. Insureds are well served by the ruling in Danny P. It is a clear signal to insurance companies that the courts will honor both the letter and the spirit of the Parity Act. Insurance companies cannot attempt to draft their plans or administer their claims in such a manner as to provide for unequal treatment between mental health problems and issues of a non-mental health variety.

Los Angeles Daily Journal Publishes Article by Robert J. McKennon Entitled “Preexisting Condition Doesn’t Preclude Coverage”

On May 24, 2018, the Los Angeles Daily Journal published an article written by Robert J. McKennon of the McKennon Law Group PC. The article examines a recent case by the Ninth Circuit Court of Appeals addressing preexisting conditions and recovery under accidental death and dismemberment policies. The Ninth Circuit held that if an insured with a preexisting medical condition suffers from an injury, the insured is not precluded from recovery under an AD&D policy if the preexisting condition did not substantially contribute to the injury. This holding helps insureds by diffusing an argument that is often used by insurers in an attempt to deny insureds their rights under their policies. For a full view of the article, take a look at the blog, here.

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