Firm News Archives - Page 29 of 76

National Investigation Continues to Uncover Systemic Practice Among Life Insurers Depriving Beneficiaries of Life Insurance Benefits

The Social Security Administration’s Death Master File database provides insurers with the names of deceased people in the U.S. who have social security numbers. It is a useful tool for insurers to identify deceased policyholders and pay life insurance benefits to beneficiaries who may be unaware that they are owed money. However, until recently many life insurers used the Death Master File only to benefit themselves, such as using it to identify deceased annuity holders in order to stop making annuity payments, but not to pay life insurance benefits.

Four years ago we blogged about Metropolitan Life Insurance Company’s (“MetLife”) inconsistent use of the Death Master File database to deprive beneficiaries of $40 million in life insurance benefits. See “MetLife Pays $40 Million To Settle Allegations That It Failed To Properly Identify And Pay Life Insurance Beneficiaries”. That database, created by the Social Security Administration, is consistently updated with the names and identity of everyone for whom a death certificate is filed in the United States. The Administration licensed it to life insurance companies so they could easily identify decedents, a necessary part of their business. We again blogged about it in April. See “National Investigation Uncovers Systemic Practice Among Life Insurers Depriving Beneficiaries of $5 Billion!”.

Not surprisingly, it turns out that most life insurance insurers are engaged in the same actions. – Insurance Commissioner Dave Jones today announced settlement agreements with Hartford Fire & Casualty Group, Securian, Great American Life, and Standard Insurance Companies related to use of the Death Master File database.

Hartford will pay $2.1 million, Securian $625,000, Great American Life $400,000, and Standard $277,000 to the states participating in the national investigation. All four insurers agreed to reform their business practices to benefit policyholders and use the database to search for policyholder beneficiaries that might be owed benefits from a life insurance policy.

It would therefore behoove policyholders and beneficiaries to vigilantly investigate and protect their own life insurance policies. If you believe that a life insurance company failed to pay the benefits you are owed under a life insurance policy, please contact McKennon Law Group PC for a free consultation.

How do disability benefits from Social Security, the State or from Workers’ Compensation affect your claim?

Most group long-term disability policies and employer-sponsored long-term disability plans include a provision called “Offsets,” “Other Income Benefits,” “Income Which Will Reduce Your Disability Benefit,” “Deductible Sources of Income” or a similar name. These provisions allow the insurer to reduce the monthly disability benefit that you would otherwise receive under the disability insurance policy by the amount of the “other income” paid to you during the same time period. Each policy is different, but the insurer is usually allowed to reduce your monthly disability benefit by the following types of “other income” you receive: (1) Social Security disability benefits; (2) California State disability benefits; (3) disability benefits paid under Workers’ Compensation laws; (4) retirement plan benefits funded by the employer that issued the group policy; (5) unemployment compensation; (6) amounts received in a personal injury lawsuit settlement or judgment for loss of earnings; and (7) amounts received as sick leave, salary continuation, vacation pay and personal time off.

For example, if your monthly disability benefit under your policy is $1,000 and you receive Workers’ Compensation benefits of $400 per month, your disability insurer would only be responsible to pay you $600 per month while you are receiving Workers’ Compensation benefits. Once you stop receiving Workers’ Compensation and, assuming you are still disabled, your monthly disability benefit would increase to $1,000.

Sometimes an insured receives so much in “other income” payments that it totals more than his or her monthly disability benefit. In that case, the insured is typically entitled to receive only a “minimum benefit,” the amount of which is defined in the policy. Many times the minimum benefit is the higher of 10% of the full monthly benefit or $100 per month.

Social Security disability benefits are probably the most important offset. Under most group long-term disability policies, the disability insurer is provided a dollar-for-dollar deduction of Social Security disability benefits received by their insured. The offset lasts through your Social Security retirement age (65 to 67 years old depending on your date of birth) if you are still disabled, much longer than Workers’ Compensation or State disability benefits, typically a maximum of two years and one year, respectively. Social Security can thus reduce your monthly benefit for the entire duration of your policy. Essentially, the United States government and your tax dollars end up paying for a good portion of your disability instead of the disability insurance company to which you or your employer paid premiums.

Social Security disability benefits typically increase over time to compensate for the effect of inflation on fixed incomes. This increase is called a “COLA,” or cost-of-living adjustment. Some states, such as California, have laws that prevent insurance companies from reducing your benefit if your Social Security disability benefit goes up. California Insurance Code section 10127.15 in fact provides that, “Any provision contained in a policy of disability insurance . . . for a reduction of . . . benefits during a benefit period because of an increase in benefits payable under the federal Social Security Act . . . shall be null and void . . .” Even if no law prohibits an insurer from reducing your benefit, insurance policies will often contain a provision stating that the insurer will not do so due to a COLA.

The fact that an insurance company is often not entitled to offset a COLA paid by the Social Security Administration can be very beneficial to an insured. If, for example, your policy’s disability benefit is $1,000 per month before offsets and you are receiving $400 per month in Social Security disability (leaving a net policy benefit of $600 per month and total income of $1,000 per month between both sources), and then you start receiving $50 more per month due to an increase in your Social Security for a COLA, your disability insurer cannot reduce the policy benefit by the $50 COLA increase. Thus, you would continue to receive $600 per month from your insurer (not $550 despite the $50 COLA), in addition to the $450 from Social Security for a net increase in your monthly income of $50 or, $1,050 per month total. That can be particularly important if you are young and permanently disabled. In such a scenario you may end up receiving numerous COLAs from Social Security over a period of decades substantially boosting your “other income,” but in many States such as California, the law will not permit your disability insurer to take advantage of that by reducing the policy benefit by the COLA amounts.

Group disability policies or plans almost always allow the insurer the right to be reimbursed for any “overpayment” it makes to its insured of monthly disability benefits due to your receipt of “other income.” An overpayment of benefits most often occurs if you are approved for Social Security disability. Approval by the Social Security Administration routinely occurs well after you apply for benefits because Social Security disability claims take a long time to process – you have to love our bureaucrats. At that time, the Administration will pay you a retroactive lump sum for past due benefits or “back-pay” (while your application was processed and also because federal law permits an award of Social Security benefits dating back as much as one year before you applied). And it will also start paying you a monthly amount on an ongoing basis. Thus, you may receive monthly benefits from your disability insurer for months or years without a reduction for Social Security because you would not have received Social Security yet. When you receive your lump sum award, however, your insurer will certainly “come knocking” to collect the overpayment it made in past months as a result of the retroactive Social Security back-pay. Your insurer has that right under the policy, though a skilled ERISA lawyer can sometimes avoid you reimbursing the overpayment based on various case law arguments, e.g. if the Social Security money you received was commingled with your other general funds, is not traceable to definitive property, or spent and no longer in your possession. See our article entitled, “Ruling Limits Insurance Company’s Ability to Collect SSDI Overpayments.”

Many group disability policies include language obligating the insured to pursue all “other income benefits” for which the inured may be eligible, including Social Security. If such benefits are not applied for, then under the provisions of most policies, the insurer has the right to estimate the insured’s entitlement to these benefits and then reduce the monthly disability benefit by the estimated amount. Usually, however, the insurer is not entitled under the policy’s language to reduce your monthly benefit by an estimated amount if you: 1) apply for all other income benefits to which you might be entitled; 2) appeal any denial to all administrative levels the insurer feels is necessary (the law requires only that you appeal to the administrative law judge level); and 3) sign the insurance company’s Reimbursement Agreement, which states that the insured promises to pay the insurer any overpayment caused by an award.

If your disability insurer denies your claim, but you were approved to receive disability benefits from Social Security, the State of California or Workers’ Compensation, often times your insurer will completely ignore that disability finding in its claim denial. Experienced ERISA attorneys such as the McKennon Law Group can use that to your advantage. Federal courts have ruled that where a disability insurance company denies a claim without explaining why its decision differs from that of the Social Security Administration, it tends to show that the insurer did not properly evaluate the insured’s claim.

If you are an employee covered under your employer’s group disability plan or policy and had your claim denied, or if you have questions about what sources of “other income” may result in an offset to your disability benefit, you should immediately contact the McKennon Law Group PC at (949) 387-9595 for a free consultation, a law firm specializing in ERISA insurance and employee benefits litigation. Let us decide whether your claim was wrongfully denied or whether your insurer is wrongfully offsetting your benefit, and let us see if we can assist you.

Ninth Circuit Affirms Rule that Ambiguous Policy Terms Must Be Construed Against Insurer in ERISA Disability Insurance Cases

The “reasonable expectations of the insured” doctrine has been around for decades in California. The state Supreme Court started toying with rules that became its foundation after the turn of the century. See Pac. Heating & Ventilating Co. v. Williamsburgh City Fire Ins. Co., 158 Cal. 367, 370 (1910) (“any ambiguity … must be resolved in favor of the insured”).

In the early 1990s, the California Supreme Court first articulated the modern version of the rule in cases like AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990), and Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1265 (1992). Bank of the West explained that courts must interpret ambiguous policy provisions as the insurance company reasonably believed that the insured understood them when making the contract or, stated another way, in accord with “the objectively reasonable expectations of the insured” about what the policy covered.

Federal courts borrowed this insurance policy interpretation principle, highly favorable to policyholders, from state law, and also directly from federal common law. They have applied the doctrine in cases involving group insurance policies governed by ERISA, a federal law pertaining to employee benefits. Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 539-40 (9th Cir. 1990). That is very good news to claimants seeking benefits under their group disability, life or health insurance policies offered through their employers. Crafty ERISA lawyers are skilled at uncovering ambiguities in policy language that may help them win their claim.

The Ninth Circuit recently relied on this rule to award an ERISA policy claimant all of her disability benefits in Anderson v. Sun Life Assurance of Canada, et al., No. 13-17594 (9th Cir. Apr. 6, 2016) (unpublished). The appellate court reversed the district court’s finding that the claimant, registered nurse Diana Anderson, was not entitled to long-term disability insurance benefits. The Ninth Circuit quoted the rule that “ambiguous terms in an insurance policy governed by ERISA are interpreted in the insured’s favor.” It explained that because the policy was “fairly susceptible” to more than one interpretation, it was ambiguous and, therefore, the less restrictive interpretation favoring coverage must be adopted. It found that, although the insurer’s and district court’s interpretation of the “Partial Disability,” “Material and Substantial Duties” and “Own Occupation” definitions in the policy was a reasonable one, Ms. Anderson’s less restrictive interpretation was also reasonable and thus trumped.

Ms. Anderson became unable to perform her duties as a nurse in 2008, but she did not actually lose any income until 2009. The hospital that employed her allowed her to do other, easier jobs which she could perform at her full nurse’s salary, until 2009.

The insurer argued that the policy definitions required Ms. Anderson’s loss of income to occur simultaneously with the onset of her inability to perform the duties of her own occupation as a nurse in order to qualify for partial disability benefits. The Ninth Circuit disagreed. It found the policy definitions were ambiguous noting an “equally reasonable construction of the policy terms allows an employee to make a claim for long-term partial disability benefits even if the loss of income occurs after the onset of the inability to perform,” as in Ms. Anderson’s case. It held, “Because the Policy was ‘fairly susceptible’ of this interpretation, under which Anderson was eligible for benefits, the district court erred in adopting the more restrictive interpretation.” While the lower court awarded zero benefits, the Ninth Circuit identified an ambiguity in the policy which turned the entire case. It reversed and remanded with instructions to the district court to calculate and award Ms. Anderson all of her past and future disability benefits given that the ambiguous policy terms had to be interpreted in the insured’s favor.

If you are looking for more information on this policy interpretation doctrine, we discussed it in our September 22, 2015 article appearing in the Los Angeles Daily Journal entitled, “Examine the ‘reasonable expectations of the insured.” The article is re-published on our website at https://mslawllp.com/robert-mckennon-and-joe-mcmillen-publish-article-examine-the-reasonable-expectations-of-the-insured-2/.

The Anderson case illustrates why it is critical that an employee/insured plan participant who has a short-term disability claim or a long-term disability claim retain an experienced ERISA insurance coverage lawyer before battling his or her insurance company. While the insurer may quote seemingly insurmountable exclusionary language from its policy, federal courts may have interpreted the language differently in favor of policyholders or, as in the case of Anderson, held the policy provision is ambiguous and must be interpreted against the insurer and in favor of the insured.

If you are an employee covered under your employer’s group short-term disability, long-term disability, life insurance or health insurance policy and had your claim denied, do not give up. Insurance companies count on their policyholders doing just that, even for legitimate claims. You should immediately contact the McKennon Law Group PC, a law firm specializing in ERISA insurance and employee benefits litigation. Let us decide whether your claim was wrongfully denied and let us see if we can assist you.

Conclusory Medical Opinions Regarding Disability Status Will Not Carry the Day for ERISA Insurers

An individual suffering from a disabling condition undoubtedly has many concerns. In addition to dealing with physical pain and emotional distress, there is always the thought of how to pay for medical bills and sustain a living if the disability prevents a person from continuing work in the occupation he or she had before the injury or sickness causing the disability occurred.

It can be stressful, time consuming and expensive to be awarded long-term benefits (“LTD”) under an employee benefit plan. However, a recent district court case, Carrier v. Aetna Life Insurance Company, 2015 WL 4511620, may help insureds in this regard by making it more difficult for insurance companies who have issued plans governed by ERISA to summarily deny an insured’s claim without proof of specific findings and detail as to how they reached their conclusion to deny benefits.

In this case, the plaintiff, Gloria Carrier, was employed by Bank of America as a Credit Administrator. Her job duties included, in part, clearly communicating risk analysis, identifying problems on credit-related issues, guidelines & policies, performing research on closed loans, and supervising between twenty and 100 people across multiple states.

After being diagnosed with uterine cancer, she had to have her uterus removed and subsequently underwent three cycles of chemotherapy. After her surgery and chemotherapy, her cognitive abilities were severely affected and, according to her treating physician, she suffered from severe depression and suicidal thoughts.

She initially received short-term disability (“STD”) benefits under her employee benefit plan with Aetna Life Insurance Company through Bank of America. After the expiration of her STD benefits, she applied for LTD benefits under the plan. To receive LTD benefits, she was required to demonstrate that she met the definition of “disability” under the policy:

To be eligible for LTD benefits, an employee must meet the definition of “disability” under the policy: From the date that you first became disabled and until monthly benefits are payable for 18 months you meet the test of disability on any day that:

You cannot perform the material duties of your own occupation solely because of an illness, injury or disabling pregnancy-related condition; and

Your earnings are 80% or less of your adjusted predisability earnings.

Although Carrier was initially awarded LTD benefits, Aetna decided to terminate them a few months later “based on its determination that she no longer met the definition of disability,” despite her treating physician’s opinion that she continued to suffer from major depression and cognitive disorder that prevented her from performing her normal job duties. Aetna’s decision was based on peer evaluations conducted by three Aetna retained doctors of the plaintiff’s treating physician’s records and office notes.

Carrier initially appealed the denial with Aetna, however, the termination of her LTD benefits was upheld by the plan administrator. Pursuant to her rights under the ERISA policy, Carrier filed a civil action in the district court of California. After conducting a de novo review of the case, the court determined that Carrier’s benefits were improperly terminated.

The primary factual issue was whether Carrier “satisfied her burden of establishing that she fit[] the definition of disability under the ‘own occupation’ standard” in the policy, which was defined as “the occupation that [the insured was] routinely performing when [the] period of disability beg[an].” Throughout the duration of her disability, Carrier continued to be treated by the same physician, who continued to communicate to Aetna that she was not fit to return to work because of her psychological and cognitive conditions.

In finding that plaintiff’s LTD benefits were wrongfully terminated and withheld, the court reasoned that the opinions of Aetna’s physicians were “presented in a conclusory fashion, making it unclear how they reached such starkly contrasting results from those of [plaintiff’s treating physician], despite reviewing the same materials.” The court found the opinions of plaintiff’s treating physician that she suffered from severe depression and cognitive disabilities that prevented her from performing her job under the “own occupation” definition of “disability” to be more compelling. Although it indicated that there was no legal deference to the treating physician’s opinion, the court’s ruling demonstrates that insurance companies who rely upon peer-to-peer evaluations in evaluating and potentially denying a LTD claim must ensure that a detailed analysis has been conducted, rather than a simple blanket conclusion made without meeting or treating the insured.

The court awarded Carrier LTD benefits for a portion of the period she was wrongfully denied benefits and remanded the action to the plan administrator to resolve a secondary issue regarding a change in the policy’s language from “own occupation” to “any occupation” that went into effect while the initial dispute was being litigated.

In an Insurance Bad Faith Case, Attorneys’ Fees are “Compensatory Damages” That can Increase a Punitive Damages Award

In 2003, the United States Supreme Court decision State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003) that generally limited punitive damages suffered by a plaintiff. Since then, California courts have stated generally that a 10-1 ratio of punitive damages to compensatory damages may be the legal limit based on the due-process clause, although some California courts have allowed a higher ratio. Given that limitation, plaintiff’s attorneys and defense counsel have waged many battles regarding what constitutes compensatory damages and can be counted when calculating the maximum amount of punitive damages that can be awarded. In Nickerson v. Stonebridge Life Insurance Company, 203 Cal. Rptr. 3d 23 (2016), the California Supreme Court awarded a victory for plaintiffs by ruling that Brandt fees (that is, attorneys’ fees incurred by the policyholder in establishing coverage under the policy when there is also bad faith) determined after a jury verdict by stipulation or by the court are considered compensatory damages for purposes of calculating the ratio of punitive damages to compensatory damages.

The amount of Brandt fees due to a plaintiff following a determination that an insurer acted in bad faith can be set by a jury. However, due to the confusing nature of presenting the issue of attorneys’ fees to a jury, especially given that the facts are completely unrelated to underlying dispute, many parties agree to have issue of Brandt fees decided by the Court, or by stipulation, following the jury’s verdict. Unfortunately for plaintiffs who were able to prove that the insurance company acted in bad faith, that led to a situation where Brandt fees were not being counted when determining the maximum amount of punitive damages a plaintiff could receive.

In Nickerson, after the jury’s verdict, the parties stipulated to the amount of Brandt fees, but the defendant appealed the large punitive damages award. The Court of Appeal, in reducing the punitive damages award, ruled that Brandt fees awarded after the jury verdict must be excluded from the calculation in determining whether, and to what extent, the jury‘s punitive damages award exceeds constitutional limits. The California Supreme Court ruled that the Court of Appeal erred in excluding Brandt fees from that analysis and that “Brandt fees may be included in the calculation of the ratio of punitive to compensatory damages, regardless of whether the fees are awarded by the trier of fact as part of its verdict or are determined by the trial court after the verdict has been rendered.”

Thus, while the punitive damages award initially awarded by the jury was reduced in accordance with State Farm, Nickerson is a victory for plaintiffs as it adds another measure of damages that can be used to support a larger punitive damages award.

Ruling Limits Insurance Company’s Ability to Collect SSDI Overpayments

When and under what circumstances an insurer paying long-term disability benefits may collect retroactive benefits paid to an ERISA plan participant under the Social Security Act has been the source of conflicting opinions over the years. The most recent pronouncement: a long-term disability plan administrators must “specifically identify a particular fund” from which it will be reimbursed in order to seek to recover of alleged overpayment of disability benefits. So held the Southern District of California in its recent plaintiff-friendly decision in Wong v. Aetna Life Insurance Company, 2014 U.S. Dist. LEXIS 135661 (S.D. Cal. 2014). Through its decision in Wong, the district court reaffirmed that simply because an ERISA governed long-term disability plan’s language provides for recovery of an award of back-dated SSDI benefits does not mean that an insurance company may seek reimbursement from an insured’s general assets. Instead, the onus is on the insurer to specifically identify specific funds, separate from a plan participant’s general assets, on which it may place an attachment.

In Wong, the plan a participant was initially granted benefits under her ERISA governed long-term disability plan. However, the plan administrator, Aetna, repeatedly denied and then reinstated her benefits. After the third denial, the plan participant filed an appeal with Aetna, which was subsequently denied. However, while she was still on claim, Aetna had advised her to apply for Social Security benefits, which was eventually approved and the Social Security Administration also agreed to back-date her award for over a year. However, very soon after being approved for the award, Aetna contacted the plan participant and asserted that it was entitled to reimbursement of the retroactive SSDI benefits she received.

Following Aetna’s demand for reimbursement, the plan participant filed an ERISA action seeking benefits owed to her. Aetna in turn filed a counterclaim seeking recovery for the retroactive social security benefits received by the plan participant. First, as to the plan participant’s claim, the court concluded that it was unreasonable and an abuse of discretion for Aetna to terminate the plan participant’s benefits. Second, and more significantly, the court held that Aetna may not retroactively attach the plan participant’s social security benefits because it failed to meet the necessary criteria for seeking overpayment. In reaching its holding, the court explained that there are “at least three criteria” that a plan administrator must satisfy in order to recover the overpayment:

First, there must be a promise by the beneficiary to reimburse the fiduciary for benefits paid under the plan in the event of a recovery from a third party. Second, the reimbursement agreement must specifically identify a particular fund, distinct from the beneficiary’s general assets, from which the fiduciary will be reimbursed. Third, the funds specifically identified by the fiduciary must be within the possession and control of the [beneficiary]. (internal quotations omitted).

Here, as in most plans, the first criteria is satisfied because, as the plan participant did not dispute that she contracted to reimburse overpayment of benefits to Aetna. However, the court held that Aetna did not satisfy second criteria. The court focused on the fact that the Social Security Act provides that “none of the moneys paid or payable or rights existing under this [Social Security] subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process.” As such, although Aetna attempted to do so, the court found that Aetna could not identify the SSDI benefits as themselves a particular fund because they had already been paid. Furthermore, Aetna did not dispute that the long-term disability benefits had already been spent by the plan participant. As such, the court held that Aetna is not permitted to attach the plan participant’s SSDI benefits because it could not identify a fund distinct from her general assets that permits such an attachment.

This decision demonstrates that simply because a plan participant contracted to reimburse an insurer for an overpayment does not mean that the plan has an unfettered ability to seek recovery of overpaid benefits. Indeed, especially in the case of retroactive social security benefits, the insurance company may well be unable to meet its burden of identifying particular fund from which it can properly be reimbursed. Plan participants and beneficiaries can take some solace from this decision.

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