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Federal District Court Grants Partial Summary Judgment Under the Voluntary Payment Doctrine to Our Client, Allowing Her to Keep Over $1 Million Mistakenly Paid to Her

On March 6, 2024, in an 11-page order, the Honorable Jesus G. Bernal granted partial summary judgment in favor of McKennon Law Group PC’s client, Diane Le, ruling that American General Life Insurance Company (“AIG”) could not recover over $1 million it claimed it had mistakenly paid Ms. Le. The court granted McKennon Law Group PC’s partial motion for summary judgment based on the voluntary payment doctrine, permitting Ms. Le to retain over $1 million in life insurance benefits AIG recklessly paid her in error.

AIG paid Ms. Le the proceeds from another person’s $1 million life insurance policy and then filed an aggressive complaint against her to recover the money, even though Ms. Le had accurately submitted all requested information from AIG, and had quit her job and spent a substantial portion of the money by the time she was served.

As we discovered in the ensuing litigation, the correct beneficiary shared the same first and last name and date of birth as Ms. Le’s late husband. However, nothing else matched – the Social Security numbers for the correct policyholder and beneficiary were different from Ms. Le and her late husband; Ms. Le had different first and middle names from the correct beneficiary; the correct policy holder had a different middle name from Ms. Le’s late husband; the contact information on file was in a state where Ms. Le and her husband had never lived; and Ms. Le’s date of birth was different from the correct beneficiary’s date of birth. During the claim review process, Ms. Le even asked for a copy of the policy – which would have informed her that she was not, in fact, the correct beneficiary – but AIG refused to provide it to her.

After filing counterclaims for Ms. Le’s 18-plus months of lost wages and significant emotional damages, we ultimately moved for partial summary judgment seeking a ruling that Ms. Le was entitled to retain the $1 million she was paid under the voluntary payment doctrine defense.

The voluntary payment doctrine is an affirmative defense that bars a plaintiff from bringing an action to recover funds mistakenly paid if the payment was “voluntarily made with knowledge of the facts.” Here, AIG had knowledge of all of the relevant facts, as Ms. Le readily and accurately supplied all requested information. Moreover, the AIG claims representative who was primarily responsible for the egregious error honestly admitted (to her credit) that she did, in fact, review a number of claims documents whereby she should have been able to discover that Ms. Le was not the true beneficiary, but she failed to notice a number of significant discrepancies that should have made it clear to her that she was not the correct beneficiary.

The judge granted partial summary judgment in Ms. Le’s favor, affirming that AIG’s payment to Ms. Le was made with no “mistake of fact,” thereby absolving her of any liability to return the funds.

This is a case of first impression in California, as most insurance companies unsurprisingly have safeguards in place to prevent reckless conduct like that which occurred here. Significantly, the court cited the voluntary payment doctrine cases from the Seventh Circuit Court of Appeals that we cited in our pleadings with approval, making it easier for future litigants in California to prevail under similar circumstances.

Ms. Le is now able to keep the money she was recklessly paid by AIG, for which she is extremely grateful to McKennon Law Group PC.

Robert J. McKennon Recognized as 2024 “Super Lawyer”

Robert J. McKennon Recognized as 2024 “Super Lawyer” in Insurance Coverage; This is the 13th Year in a Row He Has Been Recognized

McKennon Law Group PC is proud to announce that its founding shareholder Robert J. McKennon has been recognized as one of Southern California’s “Super Lawyers” in insurance coverage for 2024, and appears in the 2024 edition of Southern California Super Lawyers magazine published today. Mr. McKennon has received this designation every year since 2011.

Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 14 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation, the most prestigious award to be given to lawyers, is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.

McKennon Law Group PC Wins Significant Victory in Ninth Circuit Court of Appeals for Employee Disability Benefits

NEWPORT BEACH, Calif., Jan. 24, 2024 /PRNewswire/ — McKennon Law Group PC, a national law firm specializing in representing claimants and employees in bad faith insurance and ERISA benefits cases, is proud to announce a significant victory for disability benefits claimants.

The case, Kayle Flores v. Life Insurance Company of North America, No. 22-55779, 2024 WL 222265 (9th Cir. Jan. 22, 2024), involved a claimant who had short-term disability (“STD”) and long-term disability (“LTD”) coverage through her employer. She was denied STD benefits and brought suit in federal court. The claimant also sought LTD benefits, even though she had never submitted an LTD claim. The district court agreed that the insurance company incorrectly denied STD benefits but also held that the claimant was not entitled to LTD benefits because she did not file an LTD claim.

The claimant then filed an LTD claim with the insurer which was also denied. She brought a second lawsuit and the insurer moved to dismiss the case on the grounds that the question of eligibility for LTD benefits was already decided and could not be relitigated. The district court agreed and dismissed the case because of the res judicata/claim preclusion doctrine.

The claimant appealed and the Ninth Circuit reversed the dismissal. The Court concluded that the claimant’s cause of action for LTD benefits did not accrue until she submitted an LTD claim and received the denial from the insurance company. Since the LTD denial came after her first lawsuit, the question of eligibility for LTD benefits could not have been litigated in the first case.

“We are very pleased with the Ninth Circuit’s decision in this case,” said Robert McKennon, founding shareholder of McKennon Law Group PC and attorney for the plaintiff. “The decision was correct from both an equitable and legal perspective. Our client will now be able to pursue the LTD benefits that she desperately needs, and we look forward to continuing our fight against the insurance company.”

This decision is significant because the issue of res judicata/claim preclusion in this situation had never been addressed in the history of U.S. jurisprudence and substantially protects employee benefits to ensure technical legal doctrines do not deprive them of their much needed employee benefits.

Attorneys Robert McKennan and Joseph Hoff represent the plaintiff, Kayle Flores.

McKennon Law Group has over 70 years of experience specializing in long-term disability and short-term disability insurance, life insurance, health insurance, accidental death insurance, and long-term care claims, as well as all types of ERISA litigation claims involving employee benefits, including group insurance claims, pension claims and severance claims.

Insurer and Fiduciaries Liable for Incorrect Calculations and Advice about the Amount of ERISA Plan Benefits

Is an ERISA Insurer or Other Fiduciary Liable When They Incorrectly Calculate and Misrepresent the Amount of Your Plan Benefits?

Most employee benefits are governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”), including disability insurance, life insurance, accidental death insurance, health insurance, pensions, and other benefits offered by employers to their employees through their employee benefit plans. Sometimes the plan’s administrator or an insurance company (if the plan’s benefits are funded by an insurance policy), miscalculates the employee’s monthly benefit and misrepresents to him the amount due, which in turn can lead to dire financial results if the employee relies to his detriment on the insurer’s misrepresentation. Is an ERISA insurer liable to an employee for such wrong calculations and misrepresentations?

That is a complicated question under ERISA fiduciary duty law. Until the very recent decision from the Ninth Circuit Court of Appeals in Irina Morris v. Aetna Life Insurance Company, No. 21-56169, 2023 WL 3773656 (9th Cir. Jun. 2, 2023), the answer was unclear. The courts had found that when an administrator made a mistake in calculating plan benefits while following the procedures set by another entity, it engaged in a “ministerial” function, not a fiduciary one, because no discretion or judgment was required. So held the Ninth Circuit of Appeals in Bafford v. Northrup Grumman Corp., 994 F.3d 1020 (9th Cir. 2021). But, going forward, the answer is a resounding yes, insurers, plan administrators and their third-party administrators who make “calculation” errors are performing a fiduciary function when those calculation errors are accompanied by other actions, thanks to the Morris decision.

In that case, the McKennon Law Group PC obtained a favorable decision for one of its ERISA plan long-term disability clients. The Ninth Circuit clarified and drastically expanded the scope of an ERISA insurer’s fiduciary duty liability for miscalculating and misrepresenting plan benefits. That is a fair result because ERISA insurers and administrators are fiduciaries of plan participants and their beneficiaries. As fiduciaries, they have a duty to act solely in the interest of the plan’s participants and beneficiaries for the exclusive purpose of providing them their benefits, and with care, skill, prudence, and diligence. See 29 U.S.C. § 1104(a)(1). With these very high duties of loyalty and prudence, why would a court allow an insurer to cavalierly misinform a plan participant about his benefit amount to his financial detriment with no consequence.

Morris is significant because it changed the landscape of ERISA fiduciary duty law on these types of issues in a favorable way for ERISA plan participants. To that end, the Morris Ninth Circuit Court of Appeals limited its landmark Bafford decision. Let’s step back for a moment. In Bafford, the Court held that a third-party administrator that incorrectly calculated a pension plan benefit amount within the framework of a policy and procedure set by another entity did not have to exercise any discretion, and so its error did not constitute a fiduciary function but was just a ministerial calculation error that could not be a fiduciary duty breach. The TPA selected the wrong salary data which caused it to overstate the employee’s monthly pension. ERISA insurers and administrators had successfully relied on Bafford to avoid liability for breach of fiduciary duties (when they miscalculated a plan participant’s benefits), on the ground that they did not exercise any discretion or judgment, the prerequisite of a fiduciary function. That is still the law in that very specific factual circumstance, i.e., when the person that mistakenly miscalculated the benefits did not exercise any discretion and acted within the framework of procedures set by someone else. However, Morris drastically expanded the scope of fiduciary duty liability for ERISA plan insurers and administrators when they commit a wrong subsequent to such a ministerial benefit calculation error. And Morris even implied that some benefit miscalculations similar to the mistake in Bafford are not ministerial but fiduciary.

In the wake of Bafford, the Ninth Circuit’s Morris decision swung the pendulum back toward plan participants. The case expanded what constitutes a fiduciary function. The Morris case clarified that, in relation to even a ministerial benefit calculation error, an ERISA insurer still can perform fiduciary functions in many respects. A plan participant can recover damages when an insurer or administrator incorrectly calculates her plan benefits if the insurer exercises discretion in other misconduct related to such a non-fiduciary benefit calculation error that harms the plan participant.

In Morris, the group insurer, Aetna, of the employer’s long-term disability plan negligently miscalculated the employee plaintiff Morris’ monthly LTD benefit, overstating it by hundreds of dollars per month. In collecting data to calculate Morris’ benefit, Aetna made a mistake about the amount of Morris’ salary, that she was paid 26 times per year when she was really paid 24 times per year. Since her monthly LTD benefit was a percentage of her pre-disability salary, Aetna’s mistake caused it to overstate her benefit. Aetna paid Morris the wrong monthly benefit amount, and misrepresented the amount to her and her lenders, for nine years. Aetna did not verify that its initial calculation was correct for almost a decade, even in response to Morris’ several phone calls and letters to Aetna’s benefit counselors asking the amount of her benefit because she wanted to apply for a mortgage and later refinance based on her disability income.

In a key part of the opinion, the Morris Court rejected the insurer Aetna’s contention that Bafford controlled because Aetna performed a ministerial benefit calculation error and, therefore, could not have performed a fiduciary function. Morris found, “But this misreads Bafford’s holding.” It held that, “Even assuming Aetna’s initial mathematical calculation is not discretionary, its subsequent actions – which were central to Morris’ injury – were” discretionary. Thus, the appellate court reversed the district court, which had held that all of Aetna’s subsequent misconduct and misrepresentations were inextricably entwined with its initial ministerial benefit calculation error and, therefore, were not fiduciary functions under Bafford.

The Morris Ninth Circuit Court found that Aetna performed fiduciary functions in several respects after its calculation error (even if Aetna’s initial long-term disability plan benefit calculation error was not a fiduciary act under Bafford because it did not exercise discretion). Specifically, Morris found the following conduct by Aetna were fiduciary functions that involved discretion (and thus subjected Aetna to liability to its insured Morris for breach of fiduciary duty):

After Aetna miscalculated Morris’ monthly LTD plan benefit amount, Aetna provided Morris with “individualized consultations with benefit counselors” about the incorrect amount of her monthly plan benefit.
In contrast to Bafford’s use of an online mechanism to calculate benefits and mail auto-generated statements to the plan participants: (1) Aetna’s employee ability specialists, team leaders, and customer service representatives consulted with Morris by phone about her benefit amount numerous times; (2) Aetna’s Long Term Disability Benefit Manager sent letters Aetna knew Morris would share with lenders as proof of her benefits; and (3) Aetna communicated with Morris’ financial institutions to verify her benefit amount.
Morris cited Bafford and other cases that, “‘[C]onveying information about the likely future of plan benefits’ through benefit counselors amounts to a fiduciary act.”
Aetna communicated with Morris and her lenders, and represented to them, the incorrect monthly benefit amount, which was a fiduciary function, unlike Bafford, because of the extent of Aetna’s involvement in her financial life.
After Morris phoned Aetna and asked whether Aetna made a benefit calculation error, Aetna did not verify the accuracy of its benefit calculations. Instead, Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, which higher income misrepresentations allowed Morris to take out a mortgage, refinance, enter a divorce settlement, and pay taxes on the basis that she was entitled to a higher income, to her financial detriment.
Aetna exercised discretion when it decided to aggressively collect its $56,000 overpayment of disability benefits back from Morris, even suspending her monthly benefit to recoup the money, which put her in dire financial straits, despite its knowledge that Morris had relied on Aetna’s incorrect statements about her monthly benefit amount to make important financial decisions.

In addition, the Morris Court held that Aetna exercised discretion and thus performed a fiduciary function when it gathered Morris’ salary information and interpreted the Plan’s terms to determine which benefits and deductions or offsets applied in order to determine Morris’ monthly benefit amount, which was different than the ministerial calculations in Bafford where a third-party administrator calculated benefits within the framework of a preset online formula set by another entity and did not have to exercise discretion. Though the Court did not explicitly say so, this implies that Aetna’s benefit calculation error was fiduciary in nature, not ministerial. The Morris Court also reiterated established Ninth Circuit ERISA fiduciary duty law that: (1) The “alleged wrong must occur in connection with the performance of a fiduciary function to be cognizable as a breach of fiduciary duty;” and (2) “Thus, the ‘threshold question’ in cases involving fiduciary breach is whether the fiduciary ‘was performing a fiduciary function[] when taking the action subject to complaint.’ ”

Key Take Away
The Ninth Circuit Morris Court expanded ERISA plan participant’s rights, as well as insurer’s fiduciary duties, particularly in the context of benefit calculation errors, benefit amount misrepresentations, and other related conduct. ERISA fiduciary duty law is quite complex. Whether an insurer performed a fiduciary function in a specific case requires careful analysis by an expert.
You should hire an experienced ERISA lawyer to represent you if your claim for disability, life, accidental death, health, or pension benefits is denied, or if your insurer or plan administrator miscalculates and misrepresents to you the amount of your plan benefits to your financial detriment. You can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA California insurance bad faith claims.

SSDI Award Letter Helps Client Win ERISA Case

New Hope If Your Disability Insurance Claim is Denied

If you file a claim for long-term disability insurance benefits, and that claim is denied, arrange at once to meet with a California life and disability insurance claims attorney. That attorney will take the appropriate steps to fight for the disability insurance benefits you deserve and need.

If you have purchased long-term disability insurance through your employer, your policy is likely governed by ERISA, the Employee Retirement Income Security Act of 1974. ERISA sets minimum standards for the group insurance plans provided through private employers.

If your ERISA disability insurance claim is rejected, you will not be alone. Claims for disability benefits under ERISA are frequently rejected. If your own claim for disability benefits is denied, arrange at once to speak with a California life and disability insurance claims lawyer.

What Determines Your Eligibility for Disability Insurance Benefits?

Proving to an insurance company that you are disabled is a challenge. A doctor’s statement is usually not sufficient. Even disability claims that are approved by the Social Security Administration may be rejected by an insurance company if you are covered under a group disability policy through an employer.

It is the insurance company’s definition of a disability – and not the Social Security Administration’s definition – that will determine if you qualify for long-term disability insurance benefits.

However, in a recent California case, the Social Security Administration’s award of disability benefits played a key role in a judge’s decision in favor of the plaintiff. It is a precedent-setting decision that may help many more disability insurance applicants obtain their benefits.

What is an Administrative Record?

What is notable about Logan v. Prudential Insurance Company of America is the way the judge considered Mrs. Logan’s Social Security Disability Insurance (SSDI) award letter.

Her attorneys at McKennon Law Group PC filed a motion to include the SSDI award letter with the administrative record of the case because it was evidence that Mrs. Logan was in fact disabled and because the award letter was not available until after the case’s administrative record had already been prepared.

Generally speaking, new evidence may not be introduced in these cases. When a federal judge hears an ERISA case, the administrative record is typically the only evidence considered. It includes every document provided by the plaintiff or the plan administrator that is pertinent to the case.

Why Was Logan v. Prudential Insurance Company of America Important?

The motion to include the SSDI award letter with the administrative record of Mrs. Logan’s case was denied. However, the judge wrote that the “Social Security Administration’s decision . . . corroborates [Mrs.] Logan’s own and her doctors’ accounts of her disabling pain.”

While the SSDI award letter did not become part of the administrative record, the simple fact that the SSDI award letter was issued was considered supporting evidence for Mrs. Logan’s claim.

As a result of Logan, a court can now use the issuance of an SSDI award letter to support a disability insurance claim even if the award letter is not included in the administrative record of the case.

What if Your Own Disability Insurance Claim is Denied?

If your own ERISA-based disability insurance claim is denied, consult a California life and disability insurance claims attorney and appeal that denial. Your lawyer will help you prepare an appeal and ensure that you are compliant with ERISA guidelines.

U.S. District Courts have jurisdiction over ERISA-related cases. If you file an administrative appeal with the insurance company to no avail, your California life and disability insurance claims lawyer may then bring a lawsuit against the insurance company in federal court.

After Logan v. Prudential Insurance Company of America, if you have been awarded disability benefits by the Social Security Administration, your lawsuit against an insurance company that has denied your disability claim is now more likely to prevail.

If you need ERISA disability or life insurance benefits and your claim has been rejected, act now, and promptly schedule a consultation with a California life and disability insurance attorney such as the highly successful and experienced team for ERISA Claims at McKennon Law Group PC.

McKennon Law Group Wins Case Regarding The Abuse of Discretion Standard

Good News if Your Claim for Long-Term Disability Insurance Has Been Rejected

If your application for long-term disability insurance is denied, discuss your rights at once with a California life and disability insurance claims lawyer. That lawyer will take legal action to help you obtain the disability benefits you need and deserve.

In some cases, the denial of a claim for disability insurance may constitute an abuse of discretion by the insurance company, according to a recent ruling handed down by the U.S. District Court for the Central District of California entitled McGuire v. Life Insurance Company of North America, a case that McKennon Law Group PC handled for its client, Brenda McGuire.

The case was heard in federal rather than state court because the plaintiff’s insurance plan was purchased through her employer, and employer-provided group insurance plans are governed by ERISA, the federal Employee Retirement Income Security Act of 1974.

What Are the Two Standards of Review?

If you sue an insurance company that rejects your ERISA governed disability claim, and your California life and disability insurance claims attorney persuades the court that the company’s decision was wrong, even then, your lawsuit may not succeed, depending on the review standard.

Two review standards are used by the courts that hear these cases. A court may use the “abuse of discretion” standard of review or the “de novo” standard of review:

To win a lawsuit under the abuse of discretion review standard, a court must determine that an insurance company’s rejection of your claim abused that company’s discretion. This standard, in which courts must give some deference to disability insurers, is a more difficult standard for a disability insurance claimant to prove under ERISA.

Under the de novo standard of review, a judge only decides whether an insurance company’s rejection of your claim was wrong or right. The de novo standard provides neither side with an advantage going to trial.

What Was Decided in McGuire v. Life Insurance Company of North America?

The District Court determined that Life Insurance Company of North America (LINA) abused its discretion by denying long-term disability benefits to a former community relations manager at Republic Services, a firm that provides waste disposal services across the United States.

The case was decided under the abuse of discretion standard, which is uncommon in ERISA cases pending in California because of a California statute that makes most ERISA cases subject to the de novo standard of review. The court clarified under what circumstances an insurer who denies a disability insurance claim has abused its discretion.

When a court reviews a decision to reject benefits in an ERISA case, it often does so under the de novo standard, which gives no advantage to the insurance company.

Most policies, however, give an insurance company the discretion to determine eligibility for benefits and to construe the policy’s conditions and terms. In these types of cases, the abuse of discretion standard applies if the claimant is from a state that does not have an anti-discretion statute, such as California’s anti-discretion statute.

What Were the Issues in McGuire v. LINA and Why is this Decision Important?

LINA contended that ERISA did not require them to have particular specialists review McGuire’s medical records. The judge Carmac Carney disagreed and found LINA’s failure to use specialists was a procedural irregularity indicating an abuse of discretion.

LINA contended that ERISA does not require that an insurance company have a claimant examined in-person by one of its health professionals and that by not doing so, it did not matter and had no effect on whether it abused its discretion. However, in deciding whether LINA abused its discretion, Judge Carney ruled that this decision to do so does matter.

LINA additionally contended that McGuire’s medical records did not precisely explain how her medical condition prevented her from working. The judge noted that LINA never contacted the doctors to seek clarification and ignored other evidence that verified McGuire’s reports of pain.

LINA also insisted that because McGuire declined surgery and pain medication, she was not disabled. The judge stated that McGuire could not be faulted because pain medications and surgery both carry considerable risk.

The judge found no evidence that McGuire was a malingerer, but he determined that LINA had abused its discretion. The court ruled in McGuire’s favor and awarded her the long-term disability benefits.

Read from the full case file here.

What Should You Know About Disability Insurance Claims?

If you file a disability insurance claim and your claim has been denied – you need the advice that a California life and disability insurance claims lawyer can provide.

Your first legal consultation is provided without cost or obligation. It is your chance to receive the advice you may need and to find out more about how the law may apply to your own situation.

If you need ERISA disability or life insurance benefits and your claim has been rejected, act now, and promptly schedule a consultation with an ERISA claims lawyer such as highly successful and experienced team at McKennon Law Group PC.