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On March 3, 2020, in the matter of Earl Durham v. Aetna Life Insurance Company, Case No. 8:19-cv-01494-DOC-DFM, Judge David O. Carter of the U.S. District Court, Central District of California granted the McKennon Law Group PC’s motion for attorneys’ fees, costs and interest after its client prevailed in his ERISA lawsuit. Aetna had wrongfully terminated Durham’s disability benefits and then reversed its decision and reinstated his claim shortly after the lawsuit was filed. The Court approved hourly rates of $750 for Managing Shareholder Robert McKennon and $525 and $375 for associates Andrea Soliz and Nicholas West, respectively. In granting the motion, the Court rejected several of Aetna’s arguments, including that Durham should not recover fees for work done after the administrative denial but prior to filing the Complaint. The Court concluded that McKennon Law Group PC’s pre-filing efforts were in direct pursuit of the litigation and were recoverable. The Court also rejected Aetna’s argument that fees incurred after Aetna made a $35,000 settlement offer were not compensable, finding that there was no precedent to support this argument and that Aetna’s $35,000 offer was not reasonable. In the end, after determining that Durham was entitled to a fee award because he had achieved “some degree of success on the merits,” the Court awarded him almost $90,000 in fees, costs and interest.
McKennon Law Group PC and Robert J. McKennon selected as 2019 Best Insurance Litigation Firm and Best Insurance Lawyer in California and in the United States
McKennon Law Group PC is proud to announce that it and its Managing Shareholder Robert J. McKennon have been selected as Best Insurance Litigation Law Firm and Best Insurance Lawyer in California and in the United States for the year 2019 by the following organizations:
Leading Advisor Awards
Worldwide Financial Advisor Awards Magazine
ACQ5 Global Awards
Lawyer International Legal 100
M&A Today Global Awards
Corporate LiveWire Global Awards
Global 100
Corporate Excellence Awards
Lawyer International Legal 100
Los Angeles Daily Journal Publishes Article by Robert J. McKennon Entitled “Leveling the Field Between Insurers and Disability Claimants”
In the November 19, 2019 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a previous 2009 Daily Journal investigation that revealed insurers’ regular practice of improperly denying claims. Since 2009, recent regulations promulgated by the Department of Labor and recent court opinions have helped even the playing field for claimants. A full and fair review of a claim for benefits is required by statute and regulation, and helps prevent insurers from illicit claim denials as detailed in the Daily Journal investigation. However, it remains to be seen whether these recent regulations and court decisions will ultimately have the effect of evening the power imbalance insurers wield against vulnerable disability claimants. For a full view of the article, take a look at our blog, here.
Los Angeles Daily Journal Publishes Article on November 19, 2019 by Robert McKennon Entitled “Leveling the Field Between Insurers and Disability Claimants”
In the November 19, 2019 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a previous 2009 Daily Journal investigation that revealed insurers’ regular practice of improperly denying claims. Since 2009, recent regulations promulgated by the Department of Labor and recent court opinions have helped even the playing field for claimants. A full and fair review of a claim for benefits is required by statute and regulation, and helps prevent insurers from illicit claim denials as detailed in the Daily Journal investigation. However, it remains to be seen whether these recent regulations and court decisions will ultimately have the effect of evening the power imbalance insurers wield against vulnerable disability claimants.
Leveling the Field Between Insurers and Disability Claimants
Every year, millions of Americans seek and obtain individual or group disability insurance, hoping to buy a safety net in case of an unexpected disability.
By Robert McKennon
Every year, millions of Americans seek and obtain individual or group disability insurance, hoping to buy a safety net in case of an unexpected disability. If they become sick or are injured and can no longer work, these disability policies promise to pay disability benefits to cover part of their salaries they may lose when they become disabled. Unfortunately, disability insurers often do not honor their promises. In a two-part series in 2009, the Daily Journal reviewed 576 lawsuits filed in federal court in California against seven of the largest disability insurers in the country. (“Ill Workers Denied Benefits Face Fight Alone,” Oct. 20, 2009, and “Doctors Paid To Aid In Disability Denials,” Oct. 21, 2009.) This investigation found that “insurance companies regularly deny, or terminate, benefits to people …. The companies hire contract doctors who routinely reject the opinion of treating physicians without ever having seen the patients.” The Daily Journal also found that some insurers provide incentives to their employees to deny and terminate disability insurance claims, tying performance evaluations to meeting money-saving goals.
When group disability insurance policies/plans are involved, they are governed by the federal Employee Retirement Income and Security Act of 1974. Under ERISA, a policyholder’s recourse against an insurer is constrained to filing a lawsuit in federal court, in which his or her damages are limited. Unlike state laws such as California’s that allows a policyholder to sue for contract and tort damages, including punitive damages, ERISA limits recovery to plan benefits, interest on the delay in paying these benefits, and attorney fees. And, even attorney fees can be avoided. This can be done if the insurer initially denies the disability claim, waits to see if the policyholder files a mandatory administrative appeal, and if he does, the insurer can pay the claim and avoid any liability for attorney fees. Under ERISA, a policyholder cannot recover attorney fees for work done in the administrative appeals process. If the policyholder does not appeal the wrongful denial, the insurer profits. This results in a system that often does not penalize insurers that deny much needed benefits of disabled workers. Despite the internal conflict of interest insurers have, where they tie denial of disability claims with profitability, insurers often escape any negative ramifications of their illicit claim denials.
Insurers even go so far as to reward employees who deny claims. The Daily Journal’s investigation found that one employee of The Hartford Financial Services Group’s claims department received high praise for work that saved over $4 million. This same employee was chastised for continuing the claim of a 35-year-old worker, rather than speculating the worker could have worked a sedentary desk job. Sun Life Financial sent a memorandum telling claims handlers to “kick it up a notch” because the insurer was behind on its goal to “achieve the planned terminations/denials of 271 by the end of the month.” The Daily Journal found this memo offered a $250 gift certificate lottery to meet the insurer’s bottom line financial results. In nearly half the cases reviewed by the Daily Journal that reached court, judges found that the insurance companies had no appropriate basis to deny benefits.
To assist in the wrongful denial of these claims, insurers often rely upon doctors they hire frequently to write reports on claims they do not want to pay. Insurers will send files to so-called “independent” medical reviewers. The doctors conduct “paper reviews” and render conclusory opinions without seeing or even talking the claimant or her doctors. The reviewers may receive hundreds of assignments per year in repeat business from these insurers and may be their only source of income. Shockingly, these reviewing physicians do not have to be part of an independent panel overseen by regulators. The firms that coordinate these reviews collect millions of dollars a year, sometimes from a single insurer, and aggressively market their services to insurers. The Daily Journal found that these firms coach their doctors to never use the word “disabled” in reports and to use strict medical definitions they provide to determine a person’s ability of work. In many instances, these reviewers are not provided all of the claimant’s medical records and are not even qualified to render opinions for the specialty needed.
The Daily Journal even found one doctor who specialized in reviewing disability cases, Suresh Mahawar, M.D., who “nearly never” disagreed with the insurer. In the 202 cases he was assigned to review for The Hartford Financial Services Group between 2005 and 2007, court records show he only found nine people who were so sick or injured they could not return to work. Dr. Mahawar opined that anybody can work a desk job regardless of reported pain and physical limitations. Another disability case reviewer, Amy Hopkins, M.D., was paid $493,832 for file reviews for just one firm from 2001 to 2004. In 2004, a federal judge in Pennsylvania described her work as a “pick and choose approach” that ignored evidence and “completely mischaracterized” a treating physician’s notes in order to deny a claim.
Regulatory oversight to protect policyholders is weak. While insurers are required to notify policyholders that the California Department of Insurance is available to assist them with claims they feel have been wrongfully denied or rejected, in practice, the department is ineffectual in successfully resolving these complaints. Typically, complaints are ignored or, if the department takes any action, they conduct a routine inquiry with the insurer and, once the insurer responds, they do not pursue the matter, requesting that the policyholder hire an attorney who specializes in insurance denials to pursue the disability insurance benefits. The Daily Journal observed that, “No regulatory agency has taken responsibility for these cases.” “The result is a rare and gaping absence of regulation in a private insurance market that insures nearly a third of the nation’s workforce,” the Daily Journal wrote.
However, recent regulations promulgated by the Department of Labor and recent court opinions may help mend this troubled history. Federal courts have pushed back on insurers who wrongfully deny claims, and have found that a full and fair review of a claim for benefits is required by statute and regulation. The 9th U.S. Circuit Court of Appeals in Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 669 (9th Cir. 2011), found that Life Insurance Company of North America unreasonably denied the plaintiff’s claim for disability benefits. The 9th Circuit determined that the insurer failed to properly conduct a full and fair review of the claim for benefits, “violated its procedural obligations and violated its substantive obligation by abusing its discretion and judging the disability claim arbitrarily and capriciously.” As explained by the Salomaa court, in order to “conform to the claim procedure required by statute and regulation,” Cigna was required to “explain, upon denial, any additional ‘information needed’” to support a claim for benefits. The Salomaa court concluded the insurer did not meet the requirement of meaningful dialogue under this standard. Id. at 680.
Insurers are required to give claimants a full and fair review by explaining specifically what additional information is needed to qualify for disability benefits. As such, insurers are prevented from playing “hide the ball” with claimants by failing to advise them of documents or information needed to obtain approval of a claim, and by failing to send forms to claimants or their doctors that would have elicited the information needed. Boyd v. Aetna Life Ins. Co., 438 F.Supp.2d 1134, 1153–54 (C.D. Cal. 2006); see also Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 870 (9th Cir. 2008); 29 CFR Section 2560.503–1(g).
Furthermore, a full and fair review takes on new significance under two new ERISA regulations, 29 C.F.R. Section 2560.503-1(h)(4)(i) and (ii). They require that if there is “any new or additional evidence considered” or if there is a “new or additional rationale” upon which the insurer intends to rely to deny the claim, the insurer must point out and provide this evidence or rationale to claimants, and they must have an opportunity to respond to the “new or additional evidence considered” or “new or additional rationale” before there is an adverse determination (i.e., a denial).
If, after reviewing the available evidence, an insurer still maintains that a claimant has not presented sufficient medical support for a claim, the insurer must provide a specific list of any tests and/or examination results that must be given and allow claimants an opportunity to meet that request. It is no longer sufficient for insurers to place the burden on claimants to guess which medical records will be found necessary, when they need to be submitted, and why they are necessary. This is particularly the case given the Department of Labor’s recent regulations codified at 29 C.F.R. Section 2560.503-1. The regulations clearly aim to minimize conflicts of interest and provide claimants with additional information, which the Department of Labor indicated was “necessary to ensure that disability claimants receive a full and fair review of their claims, as required by ERISA section 503.” It remains to be seen whether these recent regulations and court decisions will have the effect of evening the power imbalance insurers wield against vulnerable disability claimants.
Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith, ERISA and unfair business practices litigation. He can be reached at (949) 387-9595 or rm@mckennonlawgroup.com. His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.
Los Angeles Daily Journal Publishes Article by Robert J. McKennon Entitled “Ruling Could Send Shock Waves Through ERISA Claims Industry”
On August 28, 2019, the Los Angeles Daily Journal published an article written by Robert J. McKennon of the McKennon Law Group PC. The article addresses a recent case by the Ninth Circuit Court of Appeals, Dorman v. Charles Schwab, which overruled the Ninth Circuit precedent Amaro v. Continental Can Co. and enforced an arbitration clause in a pension plan on the basis that Supreme Court precedent had impliedly overruled its ruling in Amaro. Given the expansive reading of arbitration clauses by the Supreme Court and now the Ninth Circuit, it is likely that more ERISA pension claims will be litigated on an individualized basis and will be litigated in arbitration proceedings. For a full view of the article, take a look at our blog, here.
Los Angeles Daily Journal Publishes Article on August 28, 2019 by Robert McKennon Entitled “Ruling Could Send Shock Waves Through ERISA Claims Industry”
In the August 28, 2019 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a recent case by the Ninth Circuit Court of Appeals, Dorman v. Charles Schwab, which overruled the Ninth Circuit precedent Amaro v. Continental Can Co. and enforced an arbitration clause in a pension plan on the basis that Supreme Court precedent had impliedly overruled its opinion in Amaro. Given the expansive reading of arbitration clauses by the Supreme Court and now the Ninth Circuit, it is likely that more ERISA pension claims will be litigated on an individualized basis and will be litigated in arbitration proceedings.
Ruling Could Send Shock Waves Through ERISA Claims Industry
A 9th Circuit ruling will have the effect of limiting claimants’ much-needed access to the federal courts and class actions.
By Robert J. McKennon
The Employee Retirement Income Security Act of 1974 was the largest statute ever passed by Congress at the time it was enacted. ERISA established pension and employee benefit plan standards for private employers. As the number of retirees and employees covered by ERISA retirement and benefit plans continued to grow, many found that their plan fiduciaries, including former employers and their insurers, were not meeting their obligations with respect to their retirement and other employee benefits. Thus, the last two decades have seen a significant rise in class action litigation involving fiduciaries of 401(k) and pension plans under various legal theories. These class actions typically allege some type of wrongful conduct by plan fiduciaries that resulted in the reduction of plan assets, usually because of excessive fees charged and/or some type of imprudent investment activity.
These actions have been almost exclusively litigated in the federal courts. This is because in the 9th Circuit, plan participants and their beneficiaries were protected from being forced into arbitrating these claims by Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), in which the 9th U.S. Circuit Court of Appeals held that ERISA claims were not arbitrable. The Amaro court based its decision in large part on the premise that arbitrators “lack the competence of courts to interpret and apply statutes as Congress intended.” Amaro was widely seen as rejecting binding arbitration in the ERISA context.
Since the Amaro decision, the U.S. Supreme Court has pushed back on its past criticism of arbitration clauses. In AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345 (2010), ideologically split justices ruled 5-to-4 that an arbitration provision in consumer contracts requiring individual arbitration and preventing class actions or class-wide arbitration was enforceable. The Supreme Court noted that Congress enacted the Federal Arbitration Act in response to widespread judicial hostility to arbitration and that the principal purpose of the FAA is to ensure that private agreements are enforced according to their terms. Id. at 339. In American Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228, 238 n.5 (2013), the Supreme Court ruled that arbitrators are competent to interpret and apply federal statutes and dismissed the interest in ensuring the prosecution of low-value claims in favor of arbitration, permitting the waiver of the class action procedure.
In a momentous decision in Dorman v. Charles Schwab Corp., 2019 DJDAR 7932 (9th Cir. Aug. 20, 2019), the 9th Circuit overruled Amaro and enforced an arbitration clause in a pension plan on the basis that Supreme Court precedent in cases such as American Exp. Co. had impliedly overruled its ruling in Amaro.
Michael Dorman was employed at Schwab from February 2009 to October 2015. Dorman joined the Schwab Retirement Savings and Investment Plan, and voluntarily contributed to his retirement account through payroll deductions until he left Schwab. In December 2014, the plan was amended to add an arbitration provision, which states that “[a]ny claim, dispute or breach arising out of or in any way related to the Plan shall be settled by binding arbitration.” The arbitration provision includes a waiver of class or collective action that requires individual arbitrations, even if, absent the waiver, Dorman could have represented the interests of other plan participants.
In 2017, Dorman filed a class action suit in district court alleging that the defendants violated ERISA and breached their fiduciary duties by including Schwab-affiliated investment funds in the plan, despite the funds’ poor performance, to generate fees for Schwab and its affiliates. In response to his complaint, the defendants moved to compel individual arbitration of the asserted claims pursuant to the arbitration provision in the plan. The district court denied Defendants’ motion.
The court in Dorman addressed these Supreme Court rulings and reasoned further that in Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006), the 9th Circuit acknowledged in dicta that its past “expressed skepticism about the arbitrability of ERISA claims … seem[ed] to have been put to rest by the Supreme Court’s opinions.” The Dorman court further noted that in American Exp. Co., the Supreme Court expressed that arbitrators are competent to interpret and apply federal statutes and that its opinion in Amaro was thus no longer valid.
The 9th Circuit reasoned that while a three-judge panel may generally not overrule a prior decision of the court, if an intervening Supreme Court decision undermines an existing precedent of the 9th Circuit, the three-judge panel may then overrule prior circuit authority. The court found that the holding in American Exp. Co. that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes constitutes intervening Supreme Court authority that is irreconcilable with Amaro. The court thus reversed and remanded the district court’s ruling. Id.
In an accompanying unpublished order, the same panel enforced the arbitration clause in the plan document, finding that Dorman was bound by the plan’s arbitration provision, that the dispute fell within the scope of the arbitration provision, and that the claims challenging the use of Schwab’s proprietary funds were subject to arbitration and had to be arbitrated on an individual rather than a class basis, with recovery limited to the individual plaintiff’s damages.
To be contrasted with Dorman is the 9th Circuit’s ruling in Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018), which recently addressed a situation where an employee sued his employer not on his own behalf, but on behalf of another entity for claims that the employee cannot bring in his individual capacity. In Munro, nine current and former employees of the University of Southern California brought suit against their employer for breach of fiduciary responsibility in the administration of two ERISA plans offered by the employer. The relief sought by the plaintiffs included the following: a determination as to the method of calculating losses, removal of breaching fiduciaries, a full accounting of plan losses, reformation of the plans and an order regarding appropriate future investments.
Since the plaintiffs all signed arbitration agreements as part of their employment contracts, USC filed a motion to compel arbitration. The district court denied USC’s motion and ruled that the arbitration agreements, which the employees entered into in their individual capacities, do not bind the plans because the plans did not themselves consent to arbitration of the claims. The 9th Circuit upheld the district court’s ruling, finding that the claims for breach of fiduciary duty fell outside the scope of the arbitration agreements. In reaching its decision, the court turned to the language of the arbitration agreements, which state that the parties agreed to arbitrate “all claims … that Employee may have against the University or any of its related entities … and all claims that the University may have against Employee.” The court noted that this language does not extend to claims that other entities have against the university.
The Munro court concluded that the ERISA claims for breach of fiduciary duty were not claims that the “Employee may have against the University or any of its related entities.” Rather, the employees brought the claims on behalf of the plans, and, since the plans never consented to arbitration of the claims, the arbitration provision did not apply in this instance. Specifically, the court noted that the ERISA plaintiffs did not seek relief for themselves, but rather sought recovery for injury done to the plans.
Unlike Munro, in Dorman, the arbitration provision was contained in the plan document itself and thus the plan is deemed to consent by virtue of the arbitration provision. Considering the expansive potential reading of the arbitration provision in Dorman and location in the plan document, a claim on behalf of the plan for breach of fiduciary duties under ERISA could reasonably be considered as falling under the purview of the clause.
Dorman has the potential to send shockwaves through ERISA claims industry and will have the effect of limiting claimants’ much-needed access to the federal courts and class actions. Dorman and the above-cited Supreme Court cases appear to stand for the proposition that many types of ERISA claims will be subject to arbitration if the plan documents are drafted properly. Expect that following the Dorman decision, arbitration and class action waiver clauses will become more prevalent in ERISA plans. Given the expansive reading of arbitration clauses by the Supreme Court and now the 9th Circuit, it is likely that more ERISA claims will be litigated on an individualized basis and will be litigated in arbitration proceedings. It remains to be seen whether employers and plans will benefit by this trend.
Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith, ERISA and unfair business practices litigation. He can be reached at (949) 387-9595 or rm@mckennonlawgroup.com. His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.
