Interpretation of Policy Archives - Page 4 of 7

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949) 387-9595 for a free consultation or go to our website at www.mckennonlawgroup.comand complete the free consultation form.

Disability insurance provides you with income in the unfortunate circumstance that your earnings are halted by disability. Employers often offer disability insurance in the benefits packages they provide to their employees, but many employees fail to take advantage of the benefit. The Employment Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including disability insurance plans. The legislature enacted ERISA to protect employees from abuse of their employer-sponsored benefits. As such, ERISA requires that the plan administrator, which is usually the insurance company, employer, or both, adhere to a strict standards and deadlines. This blog post demystifies the general timeline of a disability insurance claim under ERISA. First, we briefly explain the basics of a disability benefits plan and when a disability benefits plan will be governed by ERISA. Next, we cover the life of a disability insurance claim under ERISA, including some of the important deadlines that apply.

What is a disability insurance plan and when is it governed by ERISA?

First, what is a disability insurance plan? Generally, long-term disability insurance covers a portion of your income when a disability permanently halts your ability to work. Long-term disability insurance pays a portion of your previous monthly salary, subject to certain offsets for state and federal disability benefits. Before the provider pays the benefits, disabled employees must satisfy certain eligibility requirements. For many disabled employees, the following requirements typically apply:

a minimum length of service;
a minimum waiting period before benefits begin; and,
qualifies under the plan’s definition of total disability.

The next question to address is whether the disability insurance plan is governed by ERISA? When making a disability claim, you will first want to determine whether ERISA applies to your claim. Just like health insurance, employers often provide disability insurance as part of an employee’s benefits package. Unlike purchasing an individual plan directly from the insurance company, ERISA usually governs such employer-sponsored benefit plans. However, it is important to keep in mind that ERISA does not apply to some employers, such as government entities or a churches.

Some of the Important Dates and Deadlines in an ERISA Case.

If ERISA applies to your long-term disability or short-term disability insurance plan, the following timeline is generally applicable after you file your initial claim.

The Initial Claim

Within forty-five days of receipt, a claim should be approved or denied. 29 C.F.R. § 2560.503-1 (f)(3).
But, the plan may extend the forty-five-day time frame by up to thirty days. The insurer must inform the insured of its request for an extension within the initial forty-five-day period. That request for an extension must also explain why the insurer needs additional time, what additional time or information is necessary, whether there are unresolved matters, and when a final decision will be made. 29 C.F.R. § 2560.503-1 (f)(3).
If the insurer requests new or additional information, the insured has forty-five days to respond to the request. 29 C.F.R. § 2560.503-1 (f)(3).
Once the insured has provided the requested information, the claim should be decided no later than thirty days or as required by the plan, whichever date comes first. See 29 C.F.R. § 2560.503-1 (f)(3).

Appeal of the Initial Claim

If the insurer rejects your request for disability benefits, you have 180 days following receipt of a notification of an adverse benefit determination to file an appeal. 29 C.F.R. § 2560.503-1 (h)(3)(i). If you fail to adhere to this time limit, you may have no avenue to further pursue your claim.
An appeal should be decided within forty-five days of receipt by the insurer. 29 C.F.R. § 2560.503-1 (i)(3).
In special cases, review of the appeal request may require additional time. The plan may request up to an additional forty-five days, but must provide an explanation of the circumstances and an expected date when the decision will be rendered. 29 C.F.R.§ 2560.503-1 (i)(3). Additionally, some plans may allow for a second appeal.

The Statute of Limitations to File Suit

If your appeal is denied and once you have exhausted all available administrative remedies, you may file suit in court. However, your ability to file suit is also subject to a separate time limit that is important to keep in mind. If you fail to adhere to this time limit, you may have no avenue to pursue your claim.

Prior to the Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013), California ERISA lawsuits could be brought up to four years after the denial on appeal. After the Supreme Court’s ruling, an ERISA plan may impose a shorter time frame on an ERISA claim so long as the time frame is reasonable and no controlling statute prevents the limitations period from taking effect. For disability insurance claims in California, it is likely that California Insurance Code Section 10350.11’s three-year time limit will apply and override any shorter limitations period. Section 10350.11 applies a statute of limitations of three years after you are required to provide written proof of loss to the insurer.

How the Department of Labor’s New Regulations may affect the timeline

The Department of Labor (the “Department”) regulates disability and health insurance claims subject to ERISA. Recently, the Department finalized new regulations codified at 29 C.F.R. § 2560.503-1 and discussed at 81 Fed. Reg. 92316. The regulations hope to reduce the potential for a conflict of interest in managing an ERISA plan and better inform the insured as to why their disability benefits were denied. As far as the timeline goes, the following four points are important to remember.

The regulations only apply to claims for disability benefits filed on or after January 1, 2018.
Per the new regulations, the insured may file suit when a claim is “deemed denied” even if the administrative remedies have not been exhausted. The regulations outline that a claim is “deemed denied” once the plan fails to comply with the appropriate regulations.
The regulations also outline the insured’s ability to request the administrator’s written rationale for the alleged violation. The administrator must respond to such a request within ten days, including a written explanation addressing the alleged violation.
Finally, the new regulations require that the final denial adequately describe any applicable contractual limitations period, including the specific date that the statute of limitations to file ends.

For a full discussion of the Department’s new regulations, see our article in the Daily Journal, available at https://mslawllp.com/robert-mckennon-and-scott-calvert-publish-article-in-the-los-angeles-daily-journal-new-regulations-will-benefit-claimants-in-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.

Group life insurance policies often have confusing language about when they become effective. A trial court recently interpreted one to mean that the policy had not become effective to a full-time employee, though he was already eligible for the coverage, because he was not physically present at work when the policy was issued to his employer. Instead he was at home for a paid holiday and then in the hospital on sick-leave because of a sudden and fatal illness. The insurer and trial court penalized the employee for taking his paid holiday and sick-leave. They docked him the life insurance proceeds for which he had paid. The dispute centered around the policy’s “effective date of coverage” provision: whether being a full-time employee was enough to make the policy commence even if out for a sick-day. Or whether the employee had to be actively working in the employer’s building.

Fortunately for Michelle Sequeira, the California Court of Appeal, in Michelle Sequeira v. Lincoln National Life Ins. Co., — Cal. App. 4th — (Aug. 31, 2015), reversed the trial court’s draconian decision denying her life insurance benefits based on such a policy interpretation. The trial court had concluded Mrs. Sequeira was not entitled to receive the life insurance proceeds for which her husband had already paid premiums because the policy had not yet become “effective” when her husband died because he had yet to return to actual work from his paid holiday and sick-leave. The trial court got this wrong, buying the insurer’s literal interpretation of confusing policy language the insurer drafted. The Court of Appeal correctly noted that the trial court failed to interpret ambiguous policy language in favor of the insured, which has been the law in California for decades.

Mrs. Sequeira’s husband Donald Sequeira, like most of us, did not work on January 1, 2010 because it was a paid holiday. Tragically, he was hospitalized the next day, a Saturday, due to a sudden viral infection of his heart. He died four days later on Wednesday, January 6. He did not work during that period. But Mr. Sequeira had worked for his employer, the City of Vacaville since 1990. He had dutifully worked as a full-time employee for the City for two decades when his wife Michelle (the beneficiary of his group life insurance policy through the City) submitted a claim for his life insurance proceeds.

The insurer, Lincoln National Life Insurance Company denied the claim on a technicality. It argued under convoluted policy language that because Mr. Sequeira was not physically present at work on the day the policy incepted and he became eligible for coverage (nor any time before he died), the group policy was not yet effective as to him. Even though he was eligible for coverage, had paid premiums for the policy and had been a full-time employee for years before he died, the insurer still denied the claim contending the policy was not yet effective to him. Thankfully the appellate court rejected National Life’s and the trial court’s non-sensical, though technically feasible, policy interpretation. It just doesn’t make any common sense that a full-time employee eligible for group life insurance through his employer should be penalized because he did not work on a paid holiday or during his paid sick-leave.

Under the policy’s language, Mr. Sequeira became “eligible” for coverage on January 1, 2010 when the policy was issued by Lincoln National to his employer, the City. But the policy limited his “effective date of coverage” until “the day you resume Active Work, if you are not Actively at Work on the day you become eligible.” The policy defined “Active Work” and “Actively at Work” as “the full-time performance of all customary duties of an employee’s occupation at the EMPLOYER’S place of business . . .” Thus, Mr. Sequeira’s “effective date of coverage” was when he resumed performing his job-duties full-time at the City if he was not performing them full-time on January 1, 2010, the day he became “eligible” for coverage (or January 1 if he was performing his job duties full-time for the City on that date).

The insurer (and the trial court) determined the policy’s definition of Active Work unambiguously meant Mr. Sequeira had to be physically present at the City’s office building actually working on or after his date of eligibility for the insurance to kick-in, rather than merely having the status of a full-time employee like he did. Since Mr. Sequeira was not physically at the City’s office building working on January 1, 2010 and did not come back to work before he died, the trial court held the policy was not yet “effective” to him.

The Court of Appeal soundly rejected the trial court’s interpretation of the policy. It concluded the policy language was ambiguous, meaning it was susceptible to at least two reasonable interpretations and, therefore, under long-standing California law, had to be strictly interpreted against the insurer and in accordance with the insured’s reasonable expectations of coverage. The appellate court had no trouble at all finding what the insured would have reasonably expected:

We have no trouble determining that Sequeira reasonably expected that the supplemental policy was effective before his death. He enrolled in coverage in October 2009 and made premium payments for coverage later that year. Lincoln then issued a policy on January 1, 2010. Sequeira could reasonably expect that the supplemental policy was effective on January 1, 2010, and he certainly would not expect that the coverage he paid for would be ineffective because he took New Year’s Day off from work and became ill the next day. “An employee reasonably would expect his coverage to extend beyond the time periods that he is physically at work and to cover those hours and days when he is out of the plant due to an illness.” “Surely, employees are entitled to take their sick leave, vacations, and holidays without losing their status as full-time workers.” [Citations omitted].

The Court of Appeal concluded the policy’s definition of “Active Work” had two reasonable interpretations, the one advanced by the trial court and also the one advanced by Mrs. Sequeira, i.e. her husband only had to be a full-time employee to be considered “Actively at Work,” not actually perform his job duties while physically present at the City’s building. The Court looked at other parts of the policy to construe the phrase “full-time performance” in the “Active Work” definition in the context of the entire policy, as it must under the law. It noted the policy defined “full-time employee” to mean a worker that is permanent, not a temporary worker that has another job and regularly works limited hours for the City. Because that definition did not depend on the employee being physically present on the job at a given moment in time but on his employment status, the Court reasoned a reasonable insured could interpret “full-time performance” in the definition of “Active Work” to also refer to employment status.

The Court of Appeal also examined out-of-jurisdiction decisions that reached the same conclusion when interpreting similar policy provisions. And it applied the insurer’s interpretation of “Active Work” to other policy provisions that used the same policy definition. It concluded the insurer’s interpretation led to bizarre meanings to those provisions but the insured’s to far more sensible results. For example, the policy had a waiting period requiring “30 days of continuous Active Work.” Under the insurer’s interpretation of “Active Work,” an insured employee would have to actually work thirty days continuously including weekends and holidays to be eligible for coverage under the policy. The Court found that was a strained interpretation of the waiting period provision “as a matter of common sense.” It would cause an insured to jeopardize coverage by not working on a weekend or calling in sick, an absurd result not in accord with an insured’s reasonable expectations.

Luckily the Court of Appeal took a common sense approach when interpreting the policy. Had it not, employees purchasing group life insurance policies would be severely penalized for taking a vacation or not working on a paid holiday. That is just not the American way. The trial court even commented, “Although sympathetic to Plaintiff, the court cannot redraft this insurance contract.” Apparently the court was not well versed in the “black letter” insurance law that ambiguous policy provisions must be strictly construed against the insurer. That a policy provision must be interpreted in the context of the policy as a whole. And that a policy cannot be interpreted in a way that leads to absurd or unreasonable results. The Court of Appeal applied each of these well-known policy interpretation rules and arrived at the only sensible result.

By: Joe McMillen
McKennon Law Group PC
20321 SW Birch Street, Suite 200
Newport Beach, California 92660
877-MSLAW20
(877) 675-2920

The California Insurance and Life, Health, Disability Blog at www.californiainsurancelitigation.com and at www.mckennonlawgroup.com
All rights reserved

Have you ever wondered whether the liability policy you purchased covers losses you already knew about before you bought the policy? How much do you have to know? What if you knew about certain property damage at a construction project you caused but not about other related damage your policy would otherwise cover? A recent case from the Ninth Circuit sheds light on these issues, and it is good news for policyholders.

In Kaady v. Mid-Continent Casualty Co., 2015 WL 3894394 (9th Cir. June 25, 2015), the Ninth Circuit, applying Oregon law, strictly construed the known-loss provision in a commercial general liability policy in favor of the insured. Despite that the insured subcontractor knew about property damage to his work before he purchased a policy to cover it, the Court held the provision did not preclude coverage. Namely, it did not preclude coverage for different property damage to the work of others the insured did not know about, though the damage resulted from the insured’s work.

In Kaady, the insured, a masonry subcontractor, was sued in a construction defect action because the wall sheathing and deck posts behind the manufactured stone he installed over them had deteriorated. He did not install the underlying wall sheathing and posts, which were installed by other subcontractors. He was sued in the construction defect case for wall and post deterioration caused by his defective masonry work.

The insured settled the construction defect case and then tendered to his commercial general liability insurer seeking coverage for the settlement. He claimed the wall and post deterioration of which he settled was “property damage” covered under his policy, defined as “physical injury to tangible property . . . .” The insurer denied his claim and the insured sued for breach of the policy.

The insurer argued the insured’s claim was barred because he purchased the policy after he already knew about the “property damage.” More specifically, the insurer contended the insured’s settlement of the construction defect case was not covered based on the policy’s known-loss provision. That provision states the policy “applies to ․.. ‘property damage’ only if ․.. no insured ․.. knew that the ․.. ‘property damage’ had occurred, in whole or in part.” The insurer argued that the manufactured stone and underlying structural components are the same “property” and part of the same structure, and, “so long as the insured knew about any damage to a structure, the known-loss provision bars coverage of any other damage to the same structure.”

There was undisputed evidence that the insured knew about some cracks in the manufactured stone he had installed. But he did not know about any of the property damage for which he sought coverage: the damage to the wall sheathing and deck posts behind the stone facade.

The insurer prevailed on summary judgment but the Ninth Circuit reversed. It rejected the insurer’s argument that it should treat components the insured provided and components provided by others as the same “property.” The Court reasoned that a commercial general liability policy, in the construction defect context, necessarily distinguishes between the two in every other policy provision and therefore should also in the known-loss provision.

Mid–Continent has offered no reason to treat the insured’s work and the work of others as different property in every provision of the policy except the known-loss provision. Thus, we conclude that the known-loss provision also distinguishes between them. The insured’s knowledge of damage to his own work doesn’t automatically constitute knowledge of damage to the components of the structure furnished by others.

The Ninth Circuit then soundly rejected the insurer’s next argument. Even if the insured’s masonry stone and the underlying walls and deck posts (furnished by others) were considered the same “property,” the Court concluded the known-loss provision still did not preclude coverage. It reasoned the provision does not preclude coverage for a different type of “property damage” than the type the insured knew about when he bought the policy, even if both types of damage were to the same “property.” In other words, the insured only knew about the cracks in the stone, not about the deteriorated walls and posts, which is a completely different type of “property damage.” Since the policy’s known-loss provision bars coverage for “property damage” if the insured “knew that the . . . ‘property damage’ had occurred,” the Court reasoned use of the definite article “the” particularizes the subject which it precedes and indicates “that the claimed damage must be the same as the known damage.”

The Court went on to explain that the insurer’s interpretation of the policy would eviscerate the known-loss provision’s “continuing property damage” language, which states that if the insured “knew, prior to the policy period, that the ․.. ‘property damage’ occurred, then any continuation, change or resumption of such ․.. ‘property damage’ during or after the policy period will be deemed to have been known prior to the policy period.” The Court correctly reasoned that “if the insured’s knowledge of any damage to any part of the structure automatically barred coverage of all damage to that structure, it wouldn’t matter whether the claimed damage was a ‘continuation, change or resumption’ of the known damage,” rendering that policy provision meaningless.

The Court summarized its holding as follows:

Applying our interpretation of the policy to [the insured’s] claim, we conclude that [the insured’s] knowledge of the cracks in the masonry before he bought the policy doesn’t constitute knowledge of the claimed “property damage” to the structural components. Not only are the wooden deck posts and wall sheathing different “property” than the manufactured stone . . ., the claimed damage is of a different type. We don’t think that the ordinary purchaser of the policy would interpret the known-loss provision as broadly as [the insurer] advocates.

Lastly, the Court concluded the insured’s knowledge of one type of “property damage” when purchasing the policy would only preclude coverage for different, unknown “property damage” under the known-loss provision if the latter was a continuation of the former. It stated,

the correct inquiry is whether the claimed damage to the structural components was a ‘continuation, change or resumption’ of the cracks. If it was, [the insured’s] knowledge of the cracks would bar coverage of the claimed damage; if not, his knowledge of the cracks wouldn’t bar coverage.

Courts regularly interpret policy provisions in favor of coverage, particularly where they are ambiguous or involve an exclusion. This case is no different. The Court looked at the policy and interpreted it as written, rejecting the insurer’s extremely broad reading of a provision limiting coverage. Just because an insured knows some facts about a potential loss when he buys a policy does not necessarily mean there is no coverage.

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.

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.

Demystifying an ERISA Disability Insurance Claim: A Timeline for a Misunderstood Employee Benefit

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