Firm News Archives - Page 32 of 76

Recent Juror Attitudes Should Frighten Insurance Companies

Recent verdicts from across the nation in disability, life and health insurance policy cases must be alarming for big corporate insurance companies. The trend is for jurors to award individual plaintiffs astronomical punitive damage verdicts, showing their general disdain for insurance companies and tendency to empathize with policyholders, particularly where a person’s health is at issue.

That trend in juror attitudes is supported by jury consultant research. For example, Mark S. Sobus, Ph.D., J.D. of EDGE Litigation Consulting, LLC, found insurers are at a great disadvantage when trying to persuade jurors to side with them because jurors tend to have a negative attitude toward insurance companies. Dr. Sobus in his research asked jurors, “In a dispute between a policyholder and his/her insurance company, are you someone who without knowing any facts would automatically side with the policyholder or the insurance company?” Dr. Sobus found no one ever said they would side with the insurance company, but around thirty percent of jurors admitted that they would automatically side with the policyholder. That thirty percent of jurors can almost never be persuaded to change their minds.

Dr. Sobus also found:

While most jurors believe policyholders make fraudulent claims to insurance companies and that such conduct is wrong, this rarely leads to jurors adopting such a position when they decide a case, even where the insurer presents strong evidence the policyholder made misrepresentations to the insurer.
Jurors hold insurance companies to an incredibly high standard of constructive knowledge. Jurors very often forgive misconduct by the insured when they conclude (as they most often do) that the insurance company could have and should have independently learned about “missing” information left out by the insured on his application for insurance.
An example of this happened in a life insurance dispute in which the insured was murdered. The murder happened during the policy’s two-year contestability period, which allowed the insurance company to rescind the $5 million policy if it found material misrepresentations in the application. The insured omitted that he was bankrupt on his application. He misrepresented his assets. And he failed to disclose he had been turned down by other insurance companies. In this case and similar cases, according to Dr. Sobus, jurors consistently found in favor of the beneficiary. The jurors concluded that the company did not adequately investigate the insured prior to issuing the policy. The common refrain from jurors was the company wanted the premiums and didn’t care about the insured’s material financial history until he died and the insurance company’s assets were on the line. Only then did the company properly investigate the underwriting risk, when it should have done so before it sold the policy.

Jury consultant conclusions that jurors are predisposed to side with individual insureds over their insurance companies are borne out by recent jury verdicts against insurance companies. In Latham v. Time Ins. Co., No. 2006-cv-1040 (Boulder Colo. Dist. Ct. Jan. 2010), after just six hours of deliberating, a jury awarded a thirty-nine year old teacher and her two children almost $50 million in damages, mostly punitive damages. Her health insurer, the defendant, had rescinded her insurance policy after she submitted a claim for $185,000 in medical bills for the broken bones, internal injuries and brain damage she and her children suffered in an automobile accident caused by a drug dealer fleeing from police. The insurer decided not to pay the claim and rescind the policy because it discovered the insured had failed to disclose certain medical information on her application for the insurance.

The insured’s omission did not matter to the jury, which emphasized the lack of humanity and concern by the insurance company for the insured mother of two. Indeed, the insured admitted she failed to disclose the medical information on her insurance application. But, according to the local news report, jurors contacted after the verdict stated that the defendant insurance company failed to show that plaintiff deliberately misrepresented her health on her application for insurance or that the company had conducted a reasonable investigation before revoking her coverage. Another juror stated:

Most of [the insurance company’s] witnesses seemed dishonest, defensive and just showed a basic lack of humanity. It was kind of frightening. I was blown away by just how much they acted like robots.

The jury foreman even stated that he had been in favor of awarding as much as $150 million to the insured, “as a way of punishing the company and sending it a message.”

The message of this case to insurance companies is obvious. Do not discount the role emotions play on jurors involving a dispute between an insurance company and individual insured over her medical condition. Jurors will tend to side with the insured based purely on their emotions. Jurors will give the insured considerable grace and big damage awards whenever the evidence will remotely allow it.

Another example is Hull v. Ability Ins. Co., No. 1:10-cv-116 (D. Mont. April 6, 2012). In that case, an insurance company stopped paying an elderly woman’s benefits, after two years of paying them, under her long-term care insurance policy. The company claimed her dementia did not qualify her for the benefits under the policy’s terms. The insured presented evidence the insurer had not obtained information from her treating physician and had not obtained her medical records before denying her claim. She also presented evidence that the insurer’s claims manual recommended claims representatives avoid relying on information from the insured’s treating physicians. The jury awarded the elderly woman $250,000 in benefits for the insurance company breaching its insurance contract and $32 million in punitive damages (later reduced on appeal to $10 million).

No doubt, as these and other cases illustrate, there is a trend developing among jurors to punish recalcitrant insurers with large punitive damage awards, particularly in cases involving an individual insured’s claim for disability, life or health benefits. The lesson to “big business” insurance companies is unmistakable, don’t discount the human element juries use to decide cases. That element puts corporate insurance companies at a distinct disadvantage from day one of a jury trial involving an individual and his or her health problems.

Disability Insurers Can’t Seem to Get it Right – Another Tale of Insurance Claimant Woe

Did your disability insurer follow the law when it denied your insurance claim? Don’t count on it. If you have long- term disability insurance through your employer, you may need a lawyer with expertise in the Employee Retirement Income Security Act of 1974 (“ERISA”) to evaluate that. We routinely see disability insurers violate ERISA laws, either intentionally or negligently.

The case of Puccio v. Standard Ins. Co., 2015 U.S. Dist. LEXIS 21412 (N.D. Cal. Feb. 20, 2015) is a recent example. In Puccio, Judge James Donato issued a favorable opinion for policyholders that reiterated three longstanding legal principles disability insurers cannot seem to get right: (1) a “purely paper review” of the insured’s medical records by the insurer’s consulting physician, without personally examining the insured, is generally not sufficient to deny the insured’s disability claim; (2) although an insurer is not bound by a decision from the Social Security Administration (“SSA”) to award disability benefits, it must evaluate the decision and provide legitimate reasons for a contrary conclusion; and (3) an insurer cannot reject an insured’s claim without explaining in detail what specific additional information would be sufficient for it to award disability benefits.

Defendant Standard Insurance Company (“Standard”) violated every single one of these well-established principles when evaluating Plaintiff Annina Puccio’s long-term disability claim. In January 2009, Ms. Puccio submitted a claim to Standard under her group disability insurance policy asserting disability for a mental disorder. That commenced a six year process of numerous claims and appeals involving different mental and physical conditions. Each time Standard initially denied Ms. Puccio’s claim, she appealed. Standard would then reverse its claim decision and award Ms. Puccio disability benefits. This pattern proceeded for years until Standard finally upheld its claim denial in the final administrative appeal.

In the first two claims, Standard reversed its denials and decided to extend disability benefits for a mental disorder, then later for fibromyalgia and osteoarthritis (both musculoskeletal conditions). The policy had a twenty-four month limit for mental and musculoskeletal disorders. Standard thus rightfully limited Ms. Puccio’s benefits to two years based on those disabling conditions.

When Standard denied the insured’s final appeal, a different medical condition was at issue, Addison’s disease, a potentially crippling endocrine disorder. That disease was not subject to the policy’s two-year limit unlike Ms. Puccio’s earlier claims. Standard nonetheless upheld its denial. It concluded based on reviewing Ms. Puccio’s medical records her Addison’s disease symptoms were well controlled and not disabling. It concluded only her musculoskeletal conditions prevented her from working in her sedentary job. It therefore denied her claim for benefits based on Addison’s disease. It stopped paying any further disability benefits because the policy’s two-year limit on mental and musculoskeletal disabling disorders had expired.

Standard retained no less than nine different doctors during the six-year claim process to review Ms. Puccio’s medical records. None of them personally examined her. Each time they concluded Ms. Puccio was either disabled or not disabled based purely on a “paper review” of her medical records. None of them spoke to her treating physicians. Although Standard was well aware that the SSA concluded Ms. Puccio was disabled and had awarded her disability benefits, it failed to review or even ask for their records. While it reduced Ms. Puccio’s disability benefits based on the amount of the SSA award, as it was entitled to do under the policy, it apparently was not interested in understanding why the SSA found her disabled.

Ms. Puccio filed a lawsuit against Standard under ERISA for her long-term disability benefits beyond the two-year limit. She alleged her Addison’s disease symptoms prevented her from performing her job duties. Standard filed a motion for summary judgment and argued its decision to pay benefits for two years based on Ms. Puccio’s mental and musculoskeletal disorders, but to deny further benefits based on her other physical conditions like Addison’s disease, was proper. It contended her Addison’s disease symptoms did not disable her within the meaning of the policy because they did not prevent her from performing her sedentary job duties.

Judge Donato of the Northern District of California soundly rejected Standard’s argument and denied its motion. As discussed above, Judge Donato found it extremely important that Standard had concluded there was no disability based on a “pure paper review” of the insured’s medical records without ever having a doctor personally examine her. He also criticized Standard for not obtaining, evaluating and distinguishing the SSA’s finding of disability. Finally, he reasoned Standard should have told the insured precisely what additional information she needed to submit to change its denial decision and allow her that opportunity on appeal, but it did not.

Judge Donato discussed these legal principles in his opinion as follows:

Standard should have conducted an in-person medical evaluation to assess the disability impact of Puccio’s Addison’s disease . . . Standard limited itself purely to a paper review of her medical records at the cost of ascertaining all the facts from an in-person exam. That alone raises questions about the thoroughness and accuracy of the benefits determination.

* * * *

Evidence of a Social Security Award of disability benefits is of sufficient significance that failure to address it offers support that the plan administrator’s denial was arbitrary, an abuse of discretion. While Standard was not bound by the SSA’s determination, complete disregard for a contrary conclusion without so much as an explanation raises questions about whether an adverse benefits determination was the product of a principled an deliberative reasoning process. . . .

Taken together, these factors alone support a finding that Standard abused its discretion, but there is more. Standard also failed to request the specific evidence that it and its reviewing physicians concluded was necessary to evaluate Puccio’s claim.

* * * *

The Ninth Circuit has emphasized that ERISA regulations call for a meaningful dialogue between a claims administrator and plan beneficiary. A beneficiary is entitled to a description of any additional material or information that was necessary for her to perfect the claim, and to do so in a manner calculated to be understood by the claimant. Standard never informed Puccio that it needed information specifically stating that her Addison’s disease or gastrointestinal issues would prevent her from performing sedentary level work, separate and apart from the other conditions. . . . If Standard required specific information to evaluate Puccio’s claim, Standard needed to ask for it. [Citations omitted].

Based on that reasoning, Judge Donato held Standard abused its discretion when it denied Ms. Puccio’s long-term disability benefits beyond the mental health and musculoskeletal coverage. He remanded the case back to the plan administrator, Standard, to reconsider whether Ms. Puccio is entitled to additional disability benefits. He found Standard must obtain and evaluate the evidence it should have in the first place in reaching its decision, i.e., opinions from Standard’s “paper review” doctors after personally examining the insured, the SSA record, and the insured’s medical records that specifically address how Addison’s disease impacts her ability to work.

Do disability claims administrators diligently follow the law and act in the best interests of the plan’s participants as they are obligated to do as an insured’s fiduciary? You would not be surprised that the answer is that they do not. Often, as Standard did here, a disability claims administrator has a conflict of interest because it acts as both the decider of your claim and the entity ultimately responsible to pay it. Saddled with that conflict, Standard, like other similarly situated insurers, had a financial incentive to deny Ms. Puccio’s claim and ignore well-established legal principles about how a disability claims administrator must act when investigating the claim. Now ask yourself this question: did your claims administrator do so in handling your long-term disability insurance claim?

For ERISA Disability Insurance Appeals, A Claimant Who is a Day Late May Not Be a Dollar Short

Under most long-term disability insurance plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a claimant must appeal the denial of any claim for benefits within 180 days of the denial letter. Unless the appeal is made within that strict 180-day period, the claimant may forfeit the right to any short-term disability benefits or long-term disability benefits available under the plan. At least, that was the law until a recent ruling by the United States Court of Appeals for the Ninth Circuit cracked open the window for a timely appeal.

In LeGras v. Aetna Life Insurance Company, __ F.3d __, 2015 WL 3406182, 2015 DJDAR 5798, (9th Cir. May 28, 2015), the Ninth Circuit ruled that when the 180-day deadline falls on a weekend or holiday, the claimant has until the next business day to appeal a denial decision.

After injuring himself while working for Federal Express Corporation, LeGras filed a claim for long-term disability insurance benefits under the employee welfare benefit plan administered by Aetna. After initially approving LeGras’ disability claim, on April 18, 2011, Aetna denied his claim for ongoing benefits, and informed him that he could “file a request to appeal this decision within 180 days of receipt of this notice.” That 180-day period ended on October 15, 2011, a Saturday. However, because LeGras mailed his appeal letter on the following Monday, Aetna denied the appeal as untimely.

LeGras sued Aetna for long-term disability benefits, but the district court judge granted Aetna’s motion for judgment on the pleadings, on the grounds that LeGras failed exhaust his administrative remedies because he mailed his appeal letter after the end of 180-day period. LeGras appealed the district court’s ruling.

In considering the appeal, the Ninth Circuit noted that:

LeGras faces the possibility of losing his long-term disability benefits because of a two-day difference in the computation of the time period to pursue an administrative appeal. Although the stricter time-computation method may be convenient for AETNA’s purposes, it would be contrary to the purposes of ERISA to adopt a method that is decidedly protective of plan administrators, not plan participants.

The Ninth Circuit noted that, in enacting ERISA, Congress empowered the courts to develop federal common law governing employee welfare benefits plans. The Court then noted that federal common law has developed to protect and further the interests of plan participants, such as LeGras.

Next, the Ninth Circuit explained that “[t]here is nothing novel about the principle” of extending a deadline to the next business day, when that deadline falls on a weekend or holiday. The Ninth Circuit also noted that not only have numerous courts, including the United States Supreme Court, enforced this concept, but this rule is codified in Rule 6 of the Federal Rule of Civil Procedure.

In light of this precedent, and to further the interests of claimants such as LeGras, the Ninth Circuit explained that:

Therefore, we hold that, where the deadline for an internal administrative appeal under an ERISA-governed insurance contract falls on a Saturday, Sunday, or legal holiday, the period continues to run until the next day that is not a Saturday, Sunday, or legal holiday.

With this ruling, ERISA claimants will no longer be denied the opportunity to appeal their claim for benefits when the deadline falls on a weekend or holiday, simply because they mailed their appeal on the next business day. This case highlights the importance of having competent and experienced ERISA counsel assisting claimants who are working on appeals. There are indeed many traps for the unwary.

“Slimy Conduct That Gives Insurance Companies a Bad Name:” Some Quotes from Judge Alex Kozinski

We do not normally focus on dissents in our blogging but we made an exception here with a published Per Curiam opinion from the Ninth Circuit Court of Appeals, Guam Industrial Services, Inc. v. Zurich American Insurance Co., 2015 DJDAR 5948 (9th Cir. June 1, 2015). This insurance coverage case arose out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon on Guam. The issues pertain to whether either of two insurance policies covered costs of damage to the dock and the associated cleanup which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean. Guam Industrial Services, Inc. (“Guam Industrial”) owned the dry dock. At the time of the sinking, one of its insurance policies, an Ocean Marine Policy, covered liability for property damage caused by pollutants, issued by Zurich American Insurance Company (“Zurich”). After the dock sank, Guam Industrial filed a claim under each policy. Zurich denied the claim, and Guam Industrial brought suit. The district court granted summary judgment for the insurers, finding that the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were released. Guam Industrial appealed the decision and the Ninth Circuit affirmed.

The court found no ambiguity in the terms of the policy, and under the ordinary meaning of the relevant endorsement, Zurich would have to provide coverage of Guam Industrial’s damages if either oil or pollutants were discharged into the water. However, the court determined that although the barrels or containers were discharged, the oil was not. The parties agreed that the oil remained sealed inside its containers at all relevant times. Thus, the majority found that under the ordinary meaning of applicable endorsement, Zurich’s coverage was not triggered by a “discharge, dispersal, release, or escape” of oil. Furthermore, it ruled that sealed containers did not qualify as “pollutants” under the plain meaning of the Policy, which limited the term “pollutants’ to chemicals and other hazardous substances.

Judge Alex Kozinski dissented. His incendiary comments on Zurich’s actions are particularly notable:

If you slap a silk suit on a monkey, you still won’t want to take it to the prom. And if you pour crude oil into a barrel, you still won’t want it in your hot tub.

Zurich’s Ocean Marine Policy covers claims “arising out of the discharge, dispersal, release, or escape of . . . oil . . . or pollutants into . . . any watercourse or body of water.” Guam Industrial paid for this coverage and Zurich happily accepted the premiums. (Insurance companies seldom have trouble with this part of the bargain.) What risk was Zurich paid to assume? The risk that something nasty would get into the water and Guam Industrial would be under a legal obligation to clean it up. That’s just what happened here: Some very nasty stuff—barrels containing over 100,000 gallons of industrial oil—plunged into the harbor when the dry dock sank. To no one’s surprise, the Coast Guard immediately issued Guam Industrial a clean-up notice. This wasn’t an invitation to the prom; it was a clean-up-or-else-we’ll-do-it-ourselves-and-make-you-pay-through-the-nose notice . . . .

Like the majority, I start with the dictionary definitions of “discharge,” “dispersal,” “release” and “escape” to ascertain their ordinary meaning. A “discharge” is a “release from confinement, custody, or care.” Merriam-Webster’s Collegiate Dictionary 356 (11th ed. 2003). A “dispersal” is the act of “spread[ing] or distribut[ing] from a fixed or constant source.” Id. at 361. A “release” is the act of “set[ting] free from restraint [or] confinement,” id. at 1051, and an “escape” is “flight from confinement,” id. at 425. The majority concludes that “barrels or containers were discharged, dispersed, and released” from the dry dock. Op. at 11. It then follows that the contents of those barrels were likewise “discharged, dispersed, and released” from the dry dock.

Let’s say you place your cell phone in your backpack while hiking, and the backpack falls into a crevice and can’t be recovered. You’d certainly be right in claiming that you lost your cell phone, even though the phone is still inside your backpack. What matters is that the backpack and its contents are no longer in your control. If the phone was insured against loss, no insurance company (except maybe Zurich) would claim that the phone isn’t lost because it’s still inside your backpack.

* * *

No rational dry dock owner would buy a policy that covers government-ordered pollution clean-up if containment vessels filled with toxic waste break apart upon sinking but not if they remain intact. It’s absurd. Zurich’s denial of coverage is the type of slimy conduct that gives insurance companies a bad name. This opinion should serve as fair warning to those who would throw away good money doing business with Zurich.

Judge Kozinski will not be taking Zurich to the prom any time soon.

Robert J. McKennon Named Corporate LiveWire’s Global Awards 2015 Insurance & Risk Management Lawyer of The Year for Orange County, California

McKennon Law Group PC is proud and honored to announce that Robert J. McKennon, founding shareholder of McKennon Law Group PC, has been named as Corporate LiveWire’s Global Awards 2015 Orange County, California Insurance & Risk Management Lawyer of the Year. The annual Global Awards Lawyer of the Year recognition honors the achievements of those individuals that have consistently shown best practice and demonstrated general excellence in every endeavor on a global and national level. Mr. McKennon specializes in all types of insurance litigation but especially focuses his efforts in long-term disability insurance, life insurance, long-term care insurance, health insurance and insurance bad faith litigation.

The Corporate LiveWire Global Awards 2014 Lawyer of the Year winner’s guide is available here.