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Many life insurance policies contain  exclusions that prevent the recovery of any benefits if the insured commits suicide.  (In many policies, the suicide exclusion is only effective for two years from the date of issuance of the policy.)  Under Tennessee law, if there is inadequate proof to determine if the death was by accident or suicide, or if the proof is conflicting or equally balanced, courts will presume the death was an accident.   This is an important rule because, in many cases, it is not clear how the insured died.

For example, in Smith v. Prudential Ins. Co. of Am., 2012 WL 405504 (M.D. Tenn. 2012), facts in the record indicated both that Gary Smith, the life insured (“Smith”), committed suicide, and that he died accidentally.  The Defendant (“Prudential”) argued that Smith staged his suicide to make it look like a hunting accident, and noted that the medical examiner ruled Smith’s death a suicide.  In further support of its theory that Smith took his own life, Prudential also pointed to the nature of the contact wound, the location and direction of the shot, and to the fact that Smith was an experienced hunter who Prudential asserted was too skilled to have shot himself accidentally.

Prudential also argued that Smith had a motive to take his own life because he was faced with sudden and overwhelming debts triggered by a disastrous business partnership.  The insurer also rested on the fact that he died just five weeks after doubling the limits on his life insurance policy.

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In an ERISA case, at the center of any dispute over a claimant’s eligibility for long-term disability benefits is the administrative record.

The administrative record is legalese for all the medical records, documents and other information obtained by, and submitted to, the plan administrator during the initial stages of the claim and through the appeal process.

One reason the administrative record is so important is that a claimant who challenges a denial of long-term disability benefits by filing a court action generally cannot present evidence to the court that is not in the record.  Another reason is that disability insurers and plan administrators can—and will—take information from the administrative record out of context to justify denying a claim for disability benefits.

Here is a real-life example: A claimant filled out an “Activities Questionnaire” for her plan administrator and answered questions about her abilities.  In the questionnaire, the claimant reported that she walked two miles a week on an underwater treadmill.  One key advantage of the underwater treadmill is that it can make it easier for a person experiencing joint pain to walk because the water diminishes the pounding on the person’s knees, hips and neck.  In addition, the person can hold onto the handlebars of the treadmill for support.  Given these features, it is much easier to walk on an underwater treadmill than on a sidewalk or around a high school track.

The plan administrator denied the claim.  In its letter explaining why it rejected the disability claim, the plan administrator specifically mentioned that the claimant was able to walk two miles a week, while neglecting to point out that she did so on an underwater treadmill.  This omission was obviously self-serving because it gave an exaggerated depiction of the claimant’s abilities and condition.

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If you have an ERISA long-term disability claim, you cannot file a lawsuit challenging an insurer’s denial of benefits until you have exhausted your administrative remedies.  So, even if the insurer, or plan administrator, denied your claim for long-term disability benefits, you still need to take the time to file an administrative appeal, unless you do not want pursue your right to disability benefits.

There is an exception, however, to the rule that you must appeal the initial denial.  If filing an appeal would be “futile,” a court will allow a disability lawsuit to proceed even if the claimant did not exhaust his or her administrative remedies.  This exception is called the “futility doctrine,” and it is recognized by the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee).

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For claimants, it is not easy to challenge an insurer’s denial of long-term disability benefits in court, particularly in an ERISA case.  Courts review the insurer’s or administrator’s decision under an “arbitrary and capricious” standard meaning that they will uphold the decision as long as it was the result of a “deliberate, principled reasoning process.”  To put it simply, a court will uphold a decision to deny long-term disability benefits even if it disagrees with it, so long as the insurer can point to some facts justifying the denial.

Because no two disability cases are alike, courts have not, and cannot, set out clear rules on what constitutes an arbitrary and capricious denial of benefits.  However, a recent decision from the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee) provides important guidance on when an insurer’s disability determination, under the arbitrary and capricious standard, will be reversed. Continue reading →

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If you’re applying for long-term disability benefits, not much of your private life is off limits. Whether you’re mowing your lawn or posting on your Facebook page, your disability insurer can monitor your activities in search of any reason to deny your claim for benefits.  And, it may well do so.

In O’Bryan v. Consol Energy, Inc., (2012), the Sixth Circuit (which includes all federal courts in Tennessee) held that there is nothing improper with a plan administrator conducting surveillance on a claimant for long-term disability benefits.  In that case, Liberty Life Assurance Company (“Liberty”) paid an investigator to put a disability claimant under surveillance.  The investigator then observed the claimant performing common daily tasks, such as getting in and out of his vehicle, putting fuel in his vehicle, and mowing the lawn. Because of the investigator’s findings, Liberty denied the disability claim.  When the Plaintiff challenged the company’s decision, the court upheld Liberty’s decision to deny benefits, specifically citing Liberty’s argument that the investigator’s surveillance report contradicted the symptoms the claimant reported to his medical examiners.

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In our last post, we discussed the insurable interest requirement in Tennessee. Under that requirement, the prospective owner of the policy must prove that he or she would suffer some type of loss if the insured were to die while the policy was in effect. This requirement prevents speculators from buying insurance on a person’s life in the hopes that the person dies before the death benefit exceeds the amount of premiums paid.

Obtaining and assigning financial instruments can be a lucrative business. So, sometimes, parties may try to structure a life insurance policy in such a way that it appears that the policy were supported by an insurable interest.  Courts, however, may well scrutinize such policies, especially if it appears that a speculator used an elderly person as a conduit to acquire a beneficial interest in a life insurance policy that the speculator otherwise could not acquire.

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The law which requires a policy owner to have an insurable interest in whatever is being insured seems fairly straightforward.  Under Tenn. Code Ann. § 56–7–101, a person who buys an insurance policy must have an insurable interest in what is being insured.  For example, you can only take out a homeowner’s policy on your own home, and not on the home of a stranger.

In the context of life insurance, the insurable interest rule requires that the beneficiary of the policy suffer some type of loss if the insured were to die while the policy was in effect.

For example, a minor child would have an insurable interest in his or her parents.  An investment firm would have an insurable interest in an entrepreneur to whom it had just given a sizable loan to start a company. In contrast, if a stranger convinced a wealthy senior citizen to let him or her take out a policy insuring the senior citizen’s life, that policy would be void.

As it relates to life insurance, the insurable interest requirement prevents speculators from buying insurance on a person’s life in the hopes that the person dies before the death benefit exceeds the amount of premiums paid.

In practice, the insurable interest requirement is not as simple as it seems.  For example, what if there is an insurable interest at the time the policy is issued, but not at the time the person whose life is insured dies? That question was answered by the Court of Appeals of Tennessee in Trent v. Parker (1979).  In that case, a corporation took out a life insurance policy on its CEO.  The CEO later left the company, and then filed suit against the company asking the court to cancel the policy.  Ruling in favor of the CEO, the lower court voided the policy stating that the company no longer had an insurable interest in its former employee.

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In lawsuits challenging an ERISA plan’s denial of long-term disability benefits, can claimants who have qualified for Social Security disability benefits use that as evidence in their case?  Or, to put it another way, can a decision from the Social Security Administration (SSA) on a claimant’s disability status be a factor in a court’s overall analysis of whether an ERISA plan improperly denied long-term disability benefits?

The answer to both questions is “yes,” although with caveats.  Courts are mindful that the standards for determining disability under the Social Security requirements may vary considerably from the standards for determining disability under a private ERISA plan.  However, as noted by the district court in Gellerman v. Jefferson Pilot Fin. Ins. Co.  (S.D.Tex.2005) “no court has held that an SSA determination is completely irrelevant” in an ERISA dispute over disability benefits.

In Glenn v. Metlife (2006), the Sixth Circuit found that the insurer’s failure to give any weight to the claimant’s SSA disability determination was “perplexing” and a “significant factor” in its analysis of the claimant’s claim for long-term disability benefits.  (The Sixth Circuit includes the federal district courts in Tennessee.)

In Glenn, the claimant qualified for the first phase of long-term disability benefits under her ERISA plan after she showed that she could not complete the material duties of her regular job.   In order to reduce the amount of disability payments it had to make to the claimant, the insurer hired a law firm to help her with her disability claim with the SSA.  The claimant then qualified for total disability benefits through the SSA, and the insurer deducted those government benefits from the disability payments that it was obliged to pay, as provided for under the policy.  (All long-term disability policies this author has seen and is aware of allow the insurance company a credit for Social Security benefits.)

After receiving long-term disability benefits for two years, the claimant then had to meet the more difficult standard in phase two of her disability plan.  Now, she had to show that she could not perform the material duties of any gainful occupation, as opposed to the specific material duties of her prior job.  Despite receiving repeated and detailed correspondence from her physician supporting her claim, the insurer determined that she failed to meet the “any gainful occupation” standard and terminated her benefits.  The claimant filed a lawsuit in district court challenging the decision, and the district court ruled in favor of the insurer.  She then appealed her case to the Sixth Circuit.

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Under what circumstances will a court rule that the named beneficiary under a life insurance policy is not entitled to receive the proceeds of the policy?  In Estate of Lane v. Courteaux (2017), the Court of Appeals of Tennessee wrestled with that issue, before ruling against the party who argued that a named beneficiary should not be entitled to any proceeds under the policy.  According to the court, a named beneficiary of a life insurance policy will almost always be able to recover the death benefit, even when there are compelling reasons to award the proceeds to another party.

The facts of Estate of Lane are tragic.  A wife had a $600,000 life insurance policy in which she named her husband the sole beneficiary. Later, she was diagnosed with terminal cancer.  Shortly after, her husband learned he also had terminal cancer.

Although the husband was not expected to outlive his wife, she passed away before he did.  Shortly before her death, the wife, while retaining her husband as a co-beneficiary, added her sister, Amanda Courteaux, as a co-beneficiary.  This caught the husband by surprise.  When he discovered, after her death, that his wife did add her sister as a beneficiary of the life insurance policy proceeds, he speculated that his wife wanted her sister to provide for their son, who was on the verge of losing both his parents.  Under the life insurance policy at issue, the wife’s sister was entitled to $300,000 of the policy proceeds.

Later, the husband believed Courteaux was going to use the proceeds for purposes other than his son’s welfare.  He then filed a complaint against Courteaux seeking to have nearly all of her share of the proceeds placed into a trust for the benefit of his son.  In his lawsuit, the husband sought relief, in part, under the legal principle of promissory estoppel.

Prior to the trial, the husband passed away, and his executor and estate were substituted in his place.  Before he died, the husband gave a deposition in which he testified about a document created by his wife that he discovered after her death.  According to the husband’s testimony, the document indicated his wife wanted Courteaux to have only $30,000 of the proceeds for herself, with the remainder of her share to be transferred to her husband to use for their son’s benefit. (It is not clear from the court opinion what exactly this document was, or what it said.)  At trial, the deceased wife’s half-sister also testified wife wanted Courteaux to receive only a $30,000 share of the proceeds.

At trial, Courteaux conceded that she and her sister both promised to take care of each other’s children if anything ever happened to one of them.  Nevertheless, she testified that the life insurance proceeds were “my money.”

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Even when plaintiffs win ERISA disability lawsuits, their attorney’s fees can cut into their awards.  In some ERISA disability cases, however, plaintiffs can recover their attorney’s fees (and costs) under federal law.

What do plaintiffs need to show in order to be awarded their attorney’s fees in an ERISA disability lawsuit?  In Sec’y of Dep’t of Labor v. King (1985), the Court of Appeals for the Sixth Circuit, the circuit which includes federal courts in Tennessee, set out five guidelines for district courts to apply when deciding whether to award attorney’s fees under ERISA. They include:

(1) the degree of the opposing party’s culpability or bad faith;

(2) the opposing party’s ability to satisfy an award of attorney’s fees;

(3) the deterrent effect of an award on other persons under similar circumstances;

(4) whether the party requesting fees sought to confer a common benefit on all  participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and

(5) the relative merits of the parties’ positions.

Sixth Circuit courts regularly use the above guidelines–referred to as the “King Factors”– in evaluating claims for attorney’s fees. For example, in Moon v. Unum Provident Corp. (2006), the Sixth Circuit applied the King Factors in awarding the plaintiff attorney’s fees even though the lower court initially ruled against her claim for long-term disability benefits.  After the Sixth Circuit reversed the district court’s ruling (Moon 1), the case was remanded to the district court to decide whether the plaintiff was entitled to attorney’s fees.

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