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Coronavirus, or COVID-19, has hit California extremely hard. Since the outbreak, there have been many questions from clients regarding what kind of impact the novel coronavirus (COVID-19) will have on the ability of policyholders to maintain and utilize their insurance policies. While the situation continues to change from day to day, on April 3, 2020, the California Insurance Commissioner, Ricardo Lara, issued a “NOTICE RE: Extension of Policyholder Deadlines that Impact Claims or Coverage Due to the current State of Emergency Caused by Coronavirus (COVID-19) Outbreak” as an effort to protect policyholders during these uncertain times.

Commissioner Lara has instructed all insurance companies to stop enforcing policy or statutory deadlines on policyholders for claims or coverage until 90 days after the COVID-19 state of emergency has ended. The notice states, “Commissioner Lara now finds it necessary to issue this Notice to protect policyholders from losing, limiting, or waiving policy benefits, as a result of the current national state of emergency.”

This Notice quickly follows Commissioner Lara’s March 18, 2020 Notice, which requested all insurance companies to provide their policyholders with at least a 60-day grace period to pay insurance premiums. This is an action taken by the Commissioner to ensure policies are not canceled for nonpayment of premium due to the national COVID-19 public health emergency.

While the COVID-19 pandemic is a circumstance beyond anyone’s control, it is comforting that the California Department of Insurance is working to protect your ability to maintain and use your insurance policies. If you have a problem with a claim under your disability, life, health, accidental death, ERISA or long-term care insurance matter, please contact us.

Categories: Disability Insurance, Life Insurance, Health/Medical Insurance,Accidental Death or Dismemberment Insurance, Property and Casualty Insurance, ERISA, Insurance Commissioner, Insurance Questions and Concepts, Disability Insurance News, News, Regulations

Tags: Coronavirus, COVID-19, Department of Insurance, insurance, grace period, deadlines

Life, health and disability insurers are always looking for ways to deny insurance claims. When they do so unreasonably, insured policyholders may be able to sue them for insurance bad faith under California law. Count on insurers to argue everything they can to defeat a bad-faith claim, including asserting the statute of limitations for bad-faith claims. Life, health and disability insurance plaintiff attorneys must remain current as to changes in the law so they can defeat these insurance company tactics. One notable question they must answer is this: Can a disability policy provision setting forth the timing of a lawsuit against the insurer “extend” California state tort law (e.g., statute of limitations to three years) from the statutory two-year limitations period? Recently, a United States District Court in San Francisco held that it could. That court denied an insurance company’s motion to dismiss, because the policy’s contractual language (that barred an action “more than three years after the time proof of claim is required”) could be one that a “reasonable layperson” interprets as meaning she had three years (rather than the statutory two-year period) to bring any action, including both contractual and tort claims, based upon an allegedly wrongful cancelation of the policy. Alberts v. Liberty Life Assurance Company of Boston, 65 F.Supp.3d 790, 795 (2014). Therefore, it is crucial to closely compare any policy language that varies from the statute of limitations, in order to successfully argue for a longer timeframe within which to bring such a California state action.

Plaintiff, Karen Alberts, was a police officer for the University of California when she suffered an injury to her right wrist during physical-training exercises in September 2009. After her injury, Alberts resumed work in a modified-duty capacity, but her condition worsened and, eventually, the UC police department could no longer accommodate her medically prescribed work restrictions. On March 19, 2010, Alberts stopped working for the police department. She was initially approved by Liberty Life Assurance Company of Boston (“Liberty”) for short-term-disability (“STD”) benefits from February 1 through July 31, 2011; she was subsequently extended coverage through February 28, 2012. Sometime between February 9 and February 22, 2012, Alberts received a letter from Liberty that stated that Liberty would be terminating her STD payments because it had determined that she did not qualify for continued benefits under the policy’s provision for long-term coverage.

Under the standard two-year statute of limitations period set forth in California Code of Civil Procedure Section 339(1) for tortious breach of the covenant of good faith and fair dealing (also known as a bad-faith claim), Liberty argued that Alberts’ claim was filed too late, by at least three days, on February 25, 2014. The District Court compared the policy language barring such an action (“more than three years after the time proof of claim is required”) to California Insurance Code Section 10350.11, which sets forth that disability policies must include the following (at a minimum): “No action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished.” That exact language in the Insurance Code has repeatedly been held to not displace the two-year statute of limitations for purposes of federal ERISA claims. Nonetheless, since this was a state claim (even though it was being tried in federal court) and did not use exactly the same language as Insurance Code Section 10350.11, the trier of fact could find that a “reasonable layperson” would assume that she had three years, rather than two, within which to file her lawsuit.

In the meantime, however, in non-ERISA state-law disability insurance claims (even in federal court), it is imperative that the contractual language in each disability policy be closely examined. Where the statutory two-year limitation period is an issue, does the policy language vary at all from California Insurance Code Section 10350.11: “No action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished”? If it does, even by a few words, the plaintiff may be able to argue that a longer, three-year limitations period applies, for both contractual and tort claims.

The McKennon Law Group PC periodically publishes articles on its Insurance Litigation and Disability Insurance News blogs that deal with frequently asked questions in insurance bad faith, life insurance, long-term disability insurance, annuities, accidental death insurance, ERISA and other areas of law. To speak with a highly skilled California/Nationwide disability insurance lawyer or ERISA lawyer at the McKennon Law Group PC, call (714)274-6322 for a free consultation or go to our website at www.mckennonlawgroup.com and complete our free consultation form today.

Since 2004, when the California Supreme Court ruled that a “portion” of contingency attorney’s fees are recoverable in bad-faith insurance cases, plaintiffs and their lawyers have been able to recover attorney’s fees based in part on the specific terms of the contingency-fee retainer agreement. For starters, in order to recover attorney’s fees in these actions, a policyholder must prove that (1) contractual benefits were withheld in bad faith, and (2) reasonable fees were incurred by the policyholder to recover those benefits. However, any attorney’s fees incurred merely to prove the alleged “bad faith” claims are not recoverable at all; only fees incurred to prove actual coverage are recoverable. Cassim v. Allstate Insurance, 33 Cal.4th 780, 811 (2004).

In Cassim, plaintiffs Fareed and Rashida Cassim purchased a home in Palmdale in 1989 and insured the property against loss with Allstate Insurance. In December 1990, a fire (later determined to be arson) caused damage to the home. Although the fire burned only in the master bedroom and kitchen, the extensive heat, smoke and water damage to the rest of the structure rendered the entire home uninhabitable. After plaintiffs proved “bad faith” on the part of Allstate Insurance, a jury awarded plaintiffs a combined $3,594,600 in compensatory damages and $5 million in punitive damages. The plaintiffs’ attorney had a 40%-contingency-fee agreement.

The Cassim court held that a proper calculation of attorney’s fees requires the trier of fact to determine the percentage of fees attributable to securing just the contract recovery. This formula is based on the percentage of the attorney’s overall efforts devoted to the contractual recovery portion of the case and is divided into three categories: contract claim only, bad-faith claim only, and both claims. The Supreme Court remanded the case to the trial judge to make the calculation.

Using hypothetical numbers, and assuming a total compensatory award of $1 million, the 40% contingency fee would be $400,000. If the policyholder’s lawyer spent 1,500 total hours on the case and can prove the breakdown as follows: 200 hours on the contract claim only, 800 hours on the bad-faith claim only and 500 hours on both claims, then the trier of fact could, reasonably, conclude that one-half of the hours spent on the joint “contract and bad faith” issues are fairly attributable to the contract; i.e., half of 500 hours, or 250 hours, plus the 200 hours from the contract claim only, would total 30%. That 30% of the total attorney’s fee ($400,000) would be recoverable as well: $120,000 extra paid to the plaintiffs.

However, the Cassim court also cautioned judges to disregard fee agreements designed solely to manipulate the calculation of recoverable costs to the policyholder’s benefit, as have been shown to exist in some cases in the intervening years. For instance, the case of Pulte Home Corporation v. American Safety Indemnity, 14 Cal.App.5th 1086 (2017) disallowed a last-minute modification of a fee agreement from contingency to hourly, as an improper attempt to inflate the attorney’s fee (and punitive damage) award. This case involved the development of two residential housing projects that were built beginning in 2003 and sold between 2005-2006. The various subcontractors were required to name the developer as an “additional insured” on their policies, some of which were issued by American Safety. In 2013, several homeowners sued Pulte for alleged defects in the work performed by the subcontractors who were insured by American Safety. American Safety denied coverage and refused to provide a defense to Pulte because the construction had taken place 10 years prior.

Pulte sued American Safety, and prevailed on the “bad faith” claims, but American Safety then appealed the trial court’s award of attorney’s fees and punitive damages as violating the dictates set forth in the Cassim case, specifically improperly attempting to inflate the attorney’s fee (and punitive damage) award. Pulte’s lawyer in the bad-faith case originally had entered into a contingency-fee agreement with Pulte, which would have resulted in a fee award of only $371,000 under the Cassim formula, set forth above.

After the trial on bad faith, but before the punitive damage phase, Pulte “modified” the fee agreement to be based on an hourly rate instead and, thereafter, claimed an additional $274,000 in attorney’s fees actually incurred and paid, for a total of $645,000. The trial court disagreed with American Safety’s assertion that the change in the fee agreement was to manipulate the process. After making deductions for fees unrelated to pursuing amounts due under the insurance contract, the trial court awarded Pulte $471,313.52 in attorney’s fees. Based on the one-to-one ratio with attorney’s fees, the trial court also awarded $500,000 in punitive damages.

The Court of Appeal reversed, stating, “We have serious concerns that this change in Pulte’s fee agreement was apparently ‘designed to manipulate the calculation of Brandt fees’ to the plaintiff’s benefit.” Id. at 1132. The court also rejected Pulte’s argument that, because Pulte had actually incurred and paid the hourly fee, that amount must be considered as the proper amount for the attorney-fee award. The court concluded that the judge should have based the attorney-fee award on the agreement in force during the trial and, therefore, remanded the case to recalculate the proper amount of attorney’s fees (and to adjust the punitive damage award, since because it was based on the improper attorney-fee award). Id. at 1133.

The good news for plaintiffs’ attorneys is that any “bad faith” case can be prosecuted under a contingency-fee agreement, based on the Cassim case, and an award of attorney’s fees based on that fee agreement may be possible. California courts continue to define the outlying boundaries for recovering contingency attorney’s fees, but at least there is no question that “reasonable” fees (attributable to proving actual coverage) are recoverable.

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

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

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

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

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

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

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

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

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

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

Conclusion

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

Letters denying an insured’s claim often end by listing what steps an insured can take to challenge an unfavorable determination. Assuming all administrative appeals have been exhausted, this generally involves filing a lawsuit. Depending on the language in the underlying insurance policy, the denial letter may state that if an insured wishes to bring suit, they must bring suit in a specific court in a particular state that could be on the other side of the country. Clauses in contracts, such as insurance policies, that require filing suit in a particular jurisdiction are called “forum selection clauses.”

Courts often enforce forum selection clauses. When determining whether to enforce a forum selection clause, a court will ask if the forum selection clause is “fundamentally unfair.” Many people would question the fairness of forcing a Californian to bring suit in Vermont or Connecticut in order to vindicate their rights under an insurance policy bought in California. Unfortunately for insureds, courts make the question of fundamental fairness rather complicated. To make the determination, courts consider three factors: “(1) whether the forum selection clause was motivated by bad faith; (2) whether accession to the forum selection clause was obtained by fraud or overreaching; and (3) whether a plaintiff was ‘given notice of the forum provision and, therefore, presumably retained the option of rejecting the contract with impunity.’” Laasko v. Xerox Corp., 566 F.Supp.2d 1018, 1024 (C.D. Cal. 2008) (quoting in part Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991)). The Supreme Court stated that “forum-selection clauses should control except in unusual cases.” Atlantic Marine Construction Co. v. U.S. District Court for Western District of Texas, 571 U.S. 49, 64 (2013).

A further complication arises when the Employee Retirement Income Security Act of 1974 (“ERISA”) governs a policy or plan with a forum selection clause. ERISA provides a systematic framework for the determination of an insured’s rights under many insurance policies. ERISA governs numerous life, accidental death and dismemberment, health and disability insurance policies. When drafting ERISA, Congress attempted to protect the rights of insureds so that venue of an ERISA lawsuit is in a location that is typically close in proximity to the insured. ERISA provides that:

Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found.

29 U.S.C. § 1132.

ERISA provides for a wide variety of locations where an insured may file a lawsuit to vindicate their rights. If a policy governed by ERISA includes a forum selection clause, can an insurer require that a matter be venued in a particular court thousands of miles away from the insured? Most appellate courts have yet to rule on this issue. However, all appellate courts to have addressed the issue agree that courts should enforce forum selection clauses in policies governed by ERISA if the clauses are not “fundamentally unfair.” In the ERISA context, courts look to the same factors previously listed.

To date, only two appellate courts have addressed this issue. The Sixth Circuit Court of Appeals addressed the issue in Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014). The Seventh Circuit Court of Appeals addressed the issue in In re Mathias, 867 F.3d 727 (7th Cir. 2017). Both courts upheld the enforcement of the forum selection clauses in their respective cases. Both courts reasoned that 29 U.S.C. section 1132 speaks in terms of permission. See, e.g., Smith, 769 F.3d at 932 (“ERISA’s venue provision is permissive: suit ‘may be brought’ in one of several districts.”). The courts noted that no language in 29 U.S.C. section 1132 contains a command. The courts further emphasized that because courts have a strong tendency to honor forum selection clauses in contracts, and here the statute does not clearly prohibit forum selection clauses, ERISA does not deny an insurer the right to have a forum selection clause in a plan.

In each appellate opinion, one of the three judges dissented. The dissenting judges presented largely identical arguments. The dissenters focused on how ERISA was meant to guarantee that insureds had ready access to a convenient court where the insured could bring suit. The dissenters reasoned that Congress intended for insureds to have the chance to conveniently vindicate their rights in court. Furthermore, unlike other forum selection clauses, insurance companies and employers negotiate the contents of ERISA policies. The insured/plan participant almost never takes part in those negotiations and thus has no chance to advocate for a plan that does not have a forum selection clause. A forum selection clause, so the dissenting judges reasoned, denies insureds some of the very rights Congress intended to establish and protect.

The Secretary of Labor also addressed the applicability of ERISA to forum selection clauses. The Secretary argued as amicus curiae in several cases, including Mathias and Smith. The Secretary consistently argues that ERISA supersedes forum selection clauses. For example, in Mathias, the Secretary argued “that the statute ought to be read to protect . . . the interests of participants in employee benefit plans . . . by providing for appropriate remedies, sanctions, and ready access to the Federal courts[.]” Mathias, 867 F.3d at 735 (internal quotations omitted). The Secretary concludes that such a reading of ERISA results in the invalidation of forum selection clauses. To date, the Secretary has had little success in persuading courts not to honor the clauses.

A majority of appellate courts have yet to address this issue. Possibly, other circuits will rule contrary to their already decided sister courts. To date, only a handful of district courts have struck down forum selection clauses in insurance plans governed by ERISA. McKennon Law Group PC will soon be briefing this issue in an ERISA pension case advocating for a district court in Orange County, California to reject the application of a forum selection clause in an ERISA plan.

Few Americans can retire on their savings alone. Many workers participate in an employee benefits plans, which serve to provide financial security in case of disability or retirement. In the case of insurers that decide who qualifies for life, health and disability insurance benefits, there exists a major concern about the significant conflict of interest that exists when these insurers make these decisions and also pay for these benefits. Will these insurers exalt their own interests of bottom line profitability over the interests of ERISA plan participants and beneficiaries who file claims for life, health and disability benefits? It is not a leap of logic that this conflict of interest results in insurance companies wrongfully denying ERISA benefit claims.

In Nichols v. Reliance Standard Life Insurance Co., 2018 WL 3213618 (S.D. Miss. June 29, 2018), the court considered the actions of Reliance Standard Insurance Company (“Reliance”), one of the country’s largest disability insurers. The court addressed whether Reliance’s denial of disability benefits to the claimant Juanita Nichols (“Ms. Nichols”) was an abuse of discretion. In its ruling, the court discovered a decades-long pattern of arbitrary claim denials and other misdeeds, a pattern the court considered when assessing Reliance’s actions.

Ms. Nichols was a 62-year-old employee of Peco Foods’ (“Peco”) chicken processing factory in Sebastopol, Mississippi. Ms. Nichols’ duties included spending a minimum of twenty percent of her work day in processing areas, where temperatures at the factory were kept at eight degrees above freezing. After being diagnosed with circulatory system disorders that were exacerbated in cold environments, her doctors concluded that exposure to the cold could give her serious circulatory problems, including gangrene. As a result, Ms. Nichols stopped working at Peco, as she spent much of her day in near-freezing conditions.

Ms. Nichols applied for long-term disability benefits through the group insurance plan administered by Reliance. Reliance admitted that Ms. Nichols’ medical conditions prevented her from working in cold temperatures yet determined that Ms. Nichols’ occupation as it was performed in the national economy was “sanitarian,” an occupation with duties that do not require exposure to cold temperatures. Based on this determination, Reliance denied Ms. Nichols’ application for disability benefits. After a subsequent appeal of the claim denial that Reliance upheld, Ms. Nichols filed a lawsuit against Reliance to challenge her denial under ERISA. ERISA’s purpose is, in part, to protect workers by establishing standards of conduct for those who manage their benefit plans. ERISA allows employees to recover benefits due under a covered plan, like Pecos’ plan with Reliance.

The Nichols court considered whether Reliance based its denial of Ms. Nichols’ claim on substantial evidence. The court responded in the negative, finding that it was unreasonable for a vocational expert to define occupational duties by relying exclusively on a single Dictionary of Occupational Titles description that does not refer to important job duties.

The court also considered whether Reliance had a conflict of interest. As Reliance admitted, it “potentially benefits from every denied claim,” and therefore was operating under a conflict of interest. Id. at *5. The Supreme Court has held that, when an insurer is “operating under a conflict of interest,” that conflict “must be weighed as a factor in determining whether there is an abuse of discretion.” Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 117 (2008) (emphasis added). Such circumstances include when there is evidence that an insurer has a “history of biased claims administration.” Id. The question turned, however, to how much weight the court should give to Reliance’s conflict of interest. Glenn held that this evidence “can take many forms,” and “may be shown by a pattern or practice of unreasonably denying meritorious claims.” Id. at 123.

The court considered an approach delineated by the United States District Court for the District of Massachusetts in Radford Trust v. First Unum Life Ins. Co. of Am., 321 F.Supp.2d 226, 247 (D. Mass. 2004), which revealed a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.

In its review addressing Reliance’s behavior in disability cases, the court found over 100 opinions in the last 21 years criticizing Reliance’s disability decisions, including over 60 opinions reversing a decision as an abuse of discretion or as arbitrary and capricious. The court found that judges describe the behavior underlying Reliance’s claims administration as “arbitrary,” “blind,” “conclusory,” “extreme,” “flawed,” “fraught,” “illogical,” “inadequate,” “inappropriate,” “incomplete,” “indifferent,” “lax,” “misguided,” “opportunisti[c],” “precursory,” “questionable,” “remarkable,” “selective,” “self-serving,” “skewed,” “tainted,” “troubling,” “unfair,” “unreasonable,” and “unreliable.” Nichols, 2018 WL 3213618 at *7.

The court noted these opinions revealed that Reliance takes a range of extraordinary steps to deny claims for disability benefits. Reliance makes “unreasonable” interpretations of benefit plan language, going so far as to “misconstru[e] the concept of occupational disability.” Reliance “selectively interpret[s]” evidence so it can “opportunistically deny [a] claim” for “selfserving reasons,” creating a “skewed administrative record discounting all of the substantial evidence of … disability.” Reliance’s denials are “overwhelmingly outweighed by evidence to the contrary,” “fraught with procedural irregularities,” and “blind or indifferent.” Those denials “rel[y] upon mere assumptions” and “demonstrate a pattern of arbitrary and capricious decision making.” Reliance uses “obfuscation and delay tactics,” “fail[s] to engage in ongoing communications with [claimants] to keep [them] informed of the process,” makes “misstatement[s]” to claimants, “miscalculate[s] the amount owed,” and generally exhibits behavior that “reeks of bad faith.” Reliance “regularly retain[s]” experts with “an incentive to [make] outcomes in [their] favor,” and uses expert reports that “betray a palpable bias in favor of rejecting the claim.” Despite being “[put] on notice of this bias issue” by “prior judicial criticism,” Reliance still tells courts that “it does not choose … third-party contractor[s] based on the outcomes.” Courts often conclude that Reliance’s denials are “greatly impacted” by “self-interest,” making it “clear that Reliance put[s] its own financial interest above its fiduciary duty.” Id.

The court went on to criticize the way Reliance used the Department of Labor’s Dictionary of Occupational Titles to ignore the actual duties of a claimant’s job. Further, the court criticized the vocational expert involved in Ms. Nichols’ appeal for her cursory methodology and paper reviews of claimant files. Ultimately, the court held that Reliance’s long past of biased and wrongful claims denials supported the court’s finding that the decision to deny Ms. Nichols’ claim was an abuse of discretion. Further, in deciding to award attorney’s fees to Ms. Nichols, the court found that Reliance had a severe degree of culpability and hoped that such an award would have some deterrent effect on Reliance and other insurers.

Conclusion

Opinions like Nichols give hope to victims of wrongful claim denials that the courts will seek justice in viewing the actions of insurance companies. Nichols highlights the inherent conflict of interest between insurance companies and insureds, as insurance companies decide when claimants receive benefits, and at the same time, benefit financially when benefit claims are denied. While Reliance was singled out by the court’s opinion, denials like these by insurance companies are a logical result of situations where “foxes guard the henhouse.” Hopefully this opinion evidences a trend of scrutiny toward insurance companies that also act as plan administrators.

Determining whether an insurance company wrongfully denied a benefit claim is a difficult task for most insureds. A claim denial can be an especially traumatic experience when an insured expects a life and disability insurance company like Reliance to provide benefits in a time of need. McKennon Law Group PC has extensive experience determining whether an insurer improperly denied a life, health or disability insurance claim. If you believe your insurer improperly denied your life, health or disability insurance claim, call us for a free consultation.

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