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An insurance company may waive its right to deny benefits when it accepts premiums for coverage that its policy did not actually provide. It may also waive its right to deny benefits where, even for a short period of time, it provides the very benefits it later seeks to deny and discontinue.

In O’Connor v. Provident Life & Acc. Co. (E.D. Mich. 2006), an employee received, through his employer, a life insurance policy covering his life with a death benefit of $273,000. After the insured employee died, the insurance company declined to pay $273,000 to the insured’s beneficiary. Under the terms of the policy, the insured was only eligible to receive basic and optional coverage of up to five times his annual salary. Because his salary rounded up to $24,000, he was eligible for a maximum death benefit of no more than $120,000.

Two years before the insured passed away, however, he filled out an enrollment form in which he opted for $250,000 in supplemental coverage, plus a core benefit equal to his annual salary, adding up to a total death benefit of $273,000. Importantly, the enrollment form the insured completed stated that premiums would not be deducted from his paycheck unless the coverage was approved. Nevertheless, the insured’s employer deducted premiums from his paycheck based on the $273,000 death benefit he elected to receive, even though he wasn’t eligible to receive it. As a result, the insured had no reason to believe that he did not qualify for the full amount of the benefit he selected.

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In Travelers Ins. Co. v. Webb (1996), the Court of Appeals of Tennessee noted that a life insurance policy is a contract between the insured and the insurance company and, as such, courts will construe insurance policies from their “four corners.” In Webb, the decedent had a life insurance policy through his employer and named his wife at the time as his beneficiary. Later, the decedent and his wife divorced and the decedent re-married. At the time of his death, he never changed the beneficiary of his life insurance policy from his ex-wife to his subsequent wife.

The insurance company interpled the policy proceeds with the court on the grounds that both the ex-wife and widow of the decedent had competing claims to the proceeds of the insurance policy. After the trial court ruled in favor of the ex-wife, the decedent’s widow appealed arguing that the decedent intended to name her as a beneficiary.

In upholding the decision of the lower court, the Court of Appeals held that the parties’ intent is “irrelevant” when the language of the policy is clear and unambiguous. It found there was no ambiguity in the policy language at issue. The decedent had named his ex-wife as a beneficiary to his insurance policy and there was nothing in the four corners of the document suggesting any contrary intent.

The Webb opinion is at odds, somewhat, from the decision in S. Elec. Ret. Fund v. Gruel, (M.D. Tennessee 2019), an ERISA case decided by the federal district court for the Middle District of Tennessee which was the subject of a previous blog post. In Gruel, the district court upheld a plan administrator’s decision to deny benefits to a beneficiary designated by the decedent. At the time of the designation, the beneficiary was the decedent’s girlfriend. The decedent and the beneficiary later ended their relationship and, at the time of the decedent’s death, the beneficiary was married to someone else.

In denying benefits to the decedent’s girlfriend, the plan administrator stated that the decedent described her as his “girlfriend,” which meant that he intended her to be his beneficiary until, and unless, that status changed. In explaining its decision not to reverse the decision of the plan administrator, the district court found that the plan administrator’s decision was “sufficiently grounded in reason.”

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In an ERISA disability case, a federal district court reviews a decision to deny benefits under “an arbitrary and capricious” standard. Under this standard, a court will not overturn a denial of long-term disability benefits if a plan administrator can offer a “reasoned explanation” for its decision. Simply put, even if a denial of disability benefits is clearly wrong, a court will not overturn it if the plan administrator can provide some factual basis, however thin, for its decision.

Still, courts in the Sixth Circuit have said, repeatedly, that the arbitrary and capricious standard is “not a rubber stamp.” So what exactly constitutes an arbitrary and capricious decision? Unfortunately, there is no clear rule. However, the Sixth Circuit does have a substantial body of case law explaining reasons why a denial of disability benefits will not be upheld. Below are several important ERISA cases that can help Plaintiff’s lawyers attack a denial of long-term disability benefits:

In Calvert, the Sixth Circuit said that, while there is nothing inherently objectionable about a plan administrator using a file review of a claimant’s medical evidence, a plan administrator’s decision to conduct a file review, instead of a physical examination, is a “factor to consider in [the court’s] overall assessment of whether [plan administrator] acted in an arbitrary and capricious fashion.” According to the Calvert court, the lack of a physical examination “may raise questions about the thoroughness and accuracy of the benefits determination.”

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Many life insurance lawsuits involve disputes over the designation of beneficiaries. In Humana Ins. Co. of Kentucky v. O’Neal (2018), the Sixth Circuit Court of Appeals had to evaluate two competing claims for life insurance proceeds under an ERISA plan (“Plan”).

Under the Plan, the decedent (“Decedent”) could name a beneficiary.  If the Decedent did not name a beneficiary, Humana, the administrator of the plan, would pay the benefit at its option to either the surviving spouse or the estate of the Decedent. One year prior to the Decedent’s death in 2015, he named his then girlfriend as his beneficiary (“Prior Beneficiary”). The following year, during the re-enrollment period, the Decedent did not select any person or entity to be his beneficiary.

Shortly after the Decedent’s death, Humana received claims from both the administrator of the Decedent’s estate (“Estate”) and the Prior Beneficiary. After the district court determined that the Estate was entitled to the Decedent’s life insurance benefit, the Prior Beneficiary appealed.

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In an ERISA disability lawsuit, the plan administrator’s “denial letter” is one of the most important documents for a plaintiff. The letter is supposed to explain why the plan administrator denied a claim for disability benefits. A denial letter may also describe why the plan administrator rejected an administrative appeal of an earlier decision to deny benefits.

A denial letter should detail what evidence (medical exams, functional capacity evaluations, file reviews) the plan administrator relied on in making its determination that the claimant is disabled under the policy.  Too often, however, plan administrators craft denial letters to sound official by simply reciting the policy language and claimant’s medical diagnosesꟷwithout actually explaining the basis for their decisions. These letters may run 8-10 pages, but they often don’t say anything of substance.

A vague, conclusory denial letter is not merely irritating, it runs afoul of ERISA and Sixth Circuit case law. As a result, an attorney representing an ERISA disability plaintiff can use a defective denial letter against a plan administrator by arguing that the letter indicates an arbitrary and capricious review of the disability claim. Under ERISA, courts usually will only overturn a denial of disability benefits if the plaintiff can show that the decision was “arbitrary and capricious.” A flawed, incomplete denial letter can be evidence of just that.

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Plan administrators will often deny claims for total disability benefits on the basis that the claimant is still able to work. However, under precedent in Tennessee and in the Sixth Circuit, you can hold a full-time job and still qualify for total disability benefits, unless your policy says otherwise.

In Nylander v. Unum Life Ins. Co. of Am. (M.D. Tenn. 2018), our firm represented the plaintiff, an experienced OB-GYN, who suffered an accident that prevented her from performing surgeries. Despite her disability, the plaintiff was still able to maintain a clinical practice.  After Unum denied her claim for total disability benefits, the plaintiff filed suit. In her suit, she requested an award of total disability benefits, or, alternatively, benefits for partial disability (sometimes referred to as “residual disability”).

Unum filed a motion for partial summary judgment asking the court to dismiss the plaintiff’s claim for total disability benefits in part because she was still able to work as a physician. The court, however, turned its attention to the language of the plaintiff’s policies. Under the policies at issue, the plaintiff entitled to total disability benefits if she could not perform the “important” and “material and substantial” duties of her occupation.

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In an ERISA disability case in which a plaintiff is challenging a plan administrator’s denial of long-term disability benefits, a court can do one of three things: (1) It can uphold the plan administrator’s decision; (2) it can reverse the decision and award the plaintiff disability benefits; or, (3) it can order the plan administrator to re-evaluate the plaintiff’s disability claim.

The third option is called a remand. Usually, in a remand, the court will order the plan administrator to follow specific instructions in re-evaluating the disability claim. The court’s instructions could require the plan administrator to evaluate medical evidence it previously ignored. A remand could also require a plan administrator to take a closer look at the physical and cognitive demands of the plaintiff’s occupation.

Although a remand may seem like an unsatisfactory conclusion to a lawsuit, it can prompt the plan administrator to make a reasonable settlement offer to the plaintiff, since the court has already determined that the plan administrator’s review of the disability claim was flawed. It is likely that the plan administrator will be influenced by the fact that, if it denies the claim again, it may be before the same court that previously found fault with its decision-making process.

An award of disability benefits is obviously preferable to a remand. Once a court decides to overturn a plan administrator’s denial of long-term disability benefits, how does it determine whether to order a remand or make an award of benefits? If the court is able to determine from the administrative record whether the plaintiff is clearly disabled under the terms of the Policy, it will award the benefits that the plan administrator should have awarded. If the court finds that the review of the disability claim was flawed but cannot determine from the record whether the claimant is disabled, it will have to remand the matter.

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Most ERISA disability plans require claimants to file an administrative appeal of any denial of long-term disability benefits prior to filing a lawsuit. Under Sixth Circuit case law, if you fail to file an administrative appeal (also referred to as failing to exhaust administrative remedies), the court will likely dismiss your action regardless of the merits of your case. There are exceptions, however, that allow you to challenge a denial of benefits in court, even if you did not exhaust your administrative remedies.

In a ruling that will provide immediate help to many ERISA disability claimants, the United States Court of Appeals for the Sixth Circuit recently held that a plan administrator cannot require a claimant to exhaust his or her administrative remedies unless the relevant plan document specifically discusses required internal appeal procedures. In its opinion in Wallace v. Oakwood Healthcare, Inc. (Mar. 31, 2020), the Sixth Circuit does not go so far as to hold that the plan documents “affirmatively require exhaustion.” Practically speaking, however, the Wallace decision will make it difficult for plan administrators to deny a disability claim due to a disability claimant’s failure to appeal a denial of benefits if the policy did not require the claimant to submit an appeal before bringing suit.

Recently, our law firm represented a client who was discouraged after her disability case manager told her it would be a “waste of time” to appeal her denial of long-term disability benefits since she had already been turned down for short-term benefits. Long after her appeal deadline had passed, the client contacted us to file a lawsuit challenging the insurer’s denial of her claim.

After we brought suit on behalf of the claimant, the plan administrator filed a motion for summary judgment requesting that the court dismiss her case due to her failure to exhaust her administrative remedies. In our response, we argued that the client’s lawsuit was allowed under the “futility doctrine” based on the case manager’s discouraging comments. Under the futility doctrine, you can be relieved of the obligation to file a mandatory appeal if you can show that your appeal would have been unsuccessful based on how the plan administrator handled your claim.

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Many life insurance policies provide for benefits, in addition to the face amount of the policies, when an insured dies as a result of an accident. These extra benefits can be significant, as many policies will pay twice the face amount of the policy, where the insured’s death is by accident.

While insurance companies market accidental death benefits as a way to provide families and dependents with extra security, many policies include clauses (or exclusions) that allow them to deny coverage for these benefits even if the insured died of an accident.  As a result, claims for accidental death benefits can be complex and fact-intensive.

For example, in Duncan v. Minnesota Life Ins. Co. (S.D. Ohio 2020), the Decedent was insured under a policy issued by Minnesota Life. While hospitalized for complications of leukemia, he stood up from his wheelchair and fell to the floor. He died later that day at the age of 65.

The Decedent’s death certificate stated that the immediate cause of death was a subdural hematoma, while describing the manner of death as “accidental.”

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It seems like a matter of common sense: Plan administrators should evaluate the physical and cognitive demands of a claimant’s occupation when reviewing a claim for disability benefits. Too often, however, our clients show us denial letters from plan administrators that fail to discuss the unique aspects of their jobs and whether our clients can still perform them.

 A recent case decided by the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”) sharply criticized that practice, while offering favorable guidance to disability claimants and attorneys alike.

In Card v. Principal Life Ins. Co. (October 2019), the plaintiff (“Plaintiff”) was a nurse at a long-term care and skilled rehabilitation center when she was diagnosed with chronic lymphocytic leukemia in February 2013. She continued to work until December 2013 when she had to end her employment due to feelings of fatigue and weakness. Later that month, Plaintiff filed a claim for short-term, long-term and total disability benefits with Principal Life Insurance Company (“Principal Life”), the plan administrator.

Principal Life denied Plaintiff’s disability claims. After the Plaintiff filed a lawsuit challenging the denial of disability benefits in federal district court, the court sided with Principal Life finding “substantial evidence in the record” supporting the denial. The Sixth Circuit disagreed and overturned Principal Life’s denial of disability benefits.

As a part of its analysis in the Card case, the Sixth Circuit observed that Principal Life did not follow the “plain language” of its own plan’s terms. Under the plan, Principal Life had to consider whether each claimant could perform the specific duties of his or her job or occupation before making a decision regarding short-term and long-term disability benefits.

In Card, Plaintiff’s nursing job was not a sedentary position. Rather, her job required her to stand, walk, push/pull, lift and bend frequently. On occasion, Plaintiff also had to exert 50 to 100 pounds of force. Plaintiff’s job also entailed “frequent” exposure to infections and exposure to infectious waste, diseases and blood-borne pathogens. To put it simply, this was not an ordinary desk job.

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