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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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Maintaining life insurance through an employee benefit plan can be a difficult process. Many plans set out complicated administrative requirements that can trip up an employee, resulting in a loss of coverage.

The good news is that, under ERISA, plan administrators must discharge their duties solely in the interests of participants and beneficiaries. In the context of life insurance, plan administrators cannot take an employee’s premiums for years, and then, upon that employee’s death, rely on technical arguments as a basis for not paying out the proceeds to a beneficiary.

Recently, the Sixth Circuit discussed the fiduciary duties of a plan administrator in Van Loo v. Cajun Operating Co. (2017). In that case, a corporate attorney (the “Employee”) for Church’s Chicken (the “Employer”) had an employee benefit plan that offered her life insurance. Throughout her employment, she gradually increased her coverage, eventually seeking to be insured at over $600,000. However, the Employee failed to submit an “evidence of insurability” form as required to obtain supplemental life insurance coverage over $300,000.

The Employee consistently paid her premiums for her supplemental life insurance until her death from cancer. After she died, the insurance company only paid her parents (the Employee’s beneficiaries), the guaranteed amount, and not the $600,000 the Employee thought she had obtained.

Seeking the remaining amount they believed they were owed, the Employee’s parents filed a lawsuit against the insurer and the Employer, which administered the plan. The parents argued that the Employer made material misrepresentations to their daughter with respect to her life insurance benefits when it led her to believe that she had the full amount of coverage that she had requested. The federal district court granted the plaintiff’s motion for summary judgment on the basis that the Employer breached its ERISA fiduciary duty to administer the group life-insurance policy in the sole interest of the employees and their beneficiaries.

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In our firm’s experience, administrators of ERISA plans (“insurers”) are quick to disregard subjective conditions when evaluating individual claims for long-term disability benefits. Although conditions like chronic pain, stress and fatigue can make it impossible for people to work a full-time job, insurers will regularly discount medical evidence that cannot be measured by an X-Ray, MRI, blood test or other objective measurements. There is good news for claimants, however.  In the Sixth Circuit, which includes the federal district courts in Tennessee, courts have repeatedly stated that insurers cannot ignore subjective evidence in support of a disability claim−unless the policy at issue allows them to do so.

For example, in Evans v. Unumprovident Corp.  (6th Cir.2006), a claimant applied for long-term disability benefits on the basis that her epileptic seizures prevented her from working at her job as a nursing home administrator. Her treating physician stated that the stress from her job led to the severity and frequency of her seizures. While on medical leave, the claimant’s condition improved.  As a result, her treating physician determined that it would be in her best interest not to return to work.

However, the insurer denied the claim finding it unreasonable for the claimant’s physician to opine that a return to work would exacerbate the claimant’s condition.  In reaching this decision, the insurer relied heavily on its own physician’s review of the claimant’s medical records, in which that reviewing physician determined that the impact of stress on the claimant’s condition was entirely self-reported and had not been corroborated by medical studies.

Finding that the insurer’s decision was arbitrary and capricious, the Sixth Circuit affirmed the district court’s re-instatement of disability benefits.  It also affirmed the district court’s award of past-due benefits and attorney’s fees. In explaining its ruling, the court observed that, while the insurer’s physicians described the plaintiff’s stress as “unverifiable,” her disability policy “does not state that self-reported occurrences are to be accorded lesser significance when considering whether a person is able to work.”

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When we are retained by a new ERISA disability client, one of the first documents we review is the letter from the plan administrator denying long-term disability benefits, or, as it is most often called, the “denial letter.” Most denial letters, regardless of the disability at issue, follow the same formula: A general description of the claimant’s physical or mental condition, a brief explanation downplaying the severity of the claimant’s condition, and a conclusory sentence stating that the claimant is able to meet the occupational standard of the policy.

This type of letter can be challenged in court as evidence that the plan administrator’s denial of disability benefits was arbitrary and capricious, and should be overturned. For example, in Elliott v. Metro. Life Ins. Co. (2006), the Sixth Circuit examined a denial letter that noted that the plaintiff’s medical documentation “does not support a condition of a severity that would prevent you from working.” The court took issue with the defendant’s denial letter. It noted that the denial letter included “no statement or discussion” of the plaintiff’s occupational duties or her ability, or inability, to perform them. The court also observed that the physician who reviewed the claim on behalf of the defendant gave no opinion as to how the plaintiff’s “medical condition” related to the demands of the job.

As the Elliot court saw it, the defendant’s denial letter was evidence that the defendant did not make a “reasoned judgment” in evaluating the plaintiff’s claim for long-term disability benefits. More specifically, the defendant failed to rely on medical evidence that assessed the plaintiff’s physical ability to perform her job. Because of the defendant’s flawed review, the court overturned the defendant’s denial of long-term disability benefits.

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In a post from a little over a year ago, we discussed that, if you have an ERISA long-term disability claim, you generally 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 must file an administrative appeal. In most cases, if you do not file an appeal and exhaust your administrative remedies, you will be barred from bringing a lawsuit in court.

In our prior post, we discussed one exception to the exhaustion requirement.  If filing a disability claim 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). So, even if your policy requires that you exhaust your administrative remedies before filing suit, a court will not dismiss your lawsuit if you can show that your appeal would have been unsuccessful based on how your insurer handled your claim.

There is another exception to the exhaustion requirementꟷif your policy simply does not require you to file an administrative appeal before filing suit.  We came across this situation recently with one of our disability clients who decided not to appeal her denial of long-term disability benefits. The client, let’s call her Jen, 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 disability benefits. After about a year had passed, Jen decided to file a lawsuit challenging the insurer’s denial of her claim.

After she brought her lawsuit, the insurer filed a motion for summary judgment asking the court to throw out her case because she failed to exhaust her administrative remedies. In our response, we argued that Jen’s lawsuit was allowed under the “futility doctrine” based on the negative comments of her disability case manager.

Additionally, we argued that Jen’s policy did not require her to exhaust her administrative remedies by appealing the denial of long-term disability benefits. The basis for this was the language in Jen’s policy which provided that a claimant could not initiate any legal action:

(1) Until 60 days after Proof of claim has been given; or

(2) More than three years after the time Proof of claim is required.

Because Jen’s lawsuit complied with the above terms and because she had no obligation under the policy to file an appeal, we argued the insurer’s summary judgment motion should be denied. Although the Sixth Circuit does require that claimants exhaust their administrative remedies before bringing suit, we argued that rule shouldn’t apply if the policy didn’t actually include an exhaustion requirement.

The court agreed. In recommending that the insurer’s motion for summary judgment should be denied, the magistrate judge cited, among other reasons, the policy’s failure to include a requirement that claimants file an administrative appeal before filing a lawsuit. Continue reading

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Like most states, Tennessee has a slayer statute that prevents a person who intentionally caused the death of a victim from inheriting personal or real property from the victim’s estate. Codified at Tenn. Code Ann. § 31–1–106, the statute also prevents the killer from recovering life insurance proceeds from the victim, even if the killer was a named beneficiary under the policy.  The statute is based on the principle that “a wrongdoer will not be allowed to benefit from his crime.”

Under Tennessee case law, a criminal conviction of first-degree murder will allow a third-party to use the slayer statute in civil court to prevent the killer from receiving property or money from the victim. However, even in the absence of a criminal conviction, a person will not be able to recover from the victim if it is shown by a “preponderance of evidence” that he or she caused the victim’s death.

The preponderance of evidence standard is the evidentiary standard used in civil court, and it is easier to meet than the “beyond a reasonable doubt” evidentiary standard used in criminal court. The differences between the two standards are important. A party challenging the killer’s right to a recovery of life insurance proceeds can successfully invoke the slayer statute in civil court, even if the killer was found not guilty of murder in criminal court.

The slayer statute applies not only to someone who kills, but also, to someone who conspires to kill, or hires someone else to kill. It does not apply to acts of self-defense. For example, if a battered wife kills her husband in self-defense, the slayer statute will not prevent her from recovering proceeds from his life insurance policy.

The slayer statute also does not apply to accidental killings, even if the person who caused the death is at fault. The Supreme Court of Tennessee dealt with this issue in Moore v. State Farm Life Ins. Co (1994).  In that case, the victim was killed after her husband lost control of the vehicle. The husband was intoxicated at the time and pled guilty to vehicular homicide.

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Nearly all employee benefit plans are governed by the Employee Retirement Income Security Act of 1974, or ERISA.  ERISA is a federal law.  As a result, claimants who sue their plans for a denial of disability benefits usually will have to try their cases in federal courts.

More importantly, in an ERISA case, a claimant must show the court that a denial of disability benefits was not merely incorrect, but “arbitrary and capricious.”  That’s a difficult standard.  In an ERISA case, it’s not enough for claimants to show that the plan’s decision to deny them benefits was incorrect; they must also show that the decision had no factual basis.

Despite the broad scope of ERISA, it expressly exempts from its provisions any “governmental plan.” What that means for a government employee, or anyone else covered under the exception, is that he or she can bring a lawsuit challenging a denial of disability benefits without having to contend with ERISA’s strict standards and procedural requirements. Usually, that will be an advantage to the claimant bringing the disability lawsuit.

Further, in Tennessee, a claimant exempted from ERISA by the governmental exception can raise state law claims against the disability insurer or plan administrator including a bad faith failure to pay claim. Under Tennessee’s bad faith failure to pay law, a claimant could be awarded up to 25 percent of his or her claim as a bad faith penalty.  In contrast, claimants cannot avail themselves of state law remedies in a standard ERISA action.

As you might expect, under ERISA, a governmental plan includes any plan established by the federal government or by any state government.  However, the definition of a governmental plan does not stop there. ERISA also extends the definition of a governmental plan to include any plan established by a political subdivision or any agency or instrumentality of the government, state or federal.

In most cases, it’s fairly easy to determine if you have a governmental plan.  However, because ERISA does not provide any definition of the terms “political subdivision” or “instrumentality of government,” there are some gray areas as to when an employer’s disability plan meets the governmental exception. What’s important to remember, for claimants and practitioners alike, is that private entities may still be considered an “instrumentality of government,” particularly if they contract with a municipal organization or body.

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At first glance, it did not seem like a strong claim for disability benefits. The claimant, a technician, applied for short-term disability benefits claiming that he was disabled as a result of severe spinal and hip disorders.  He filed his claim after his employer fired him for repeated acts of insubordination. Under the terms of his ERISA policy, no individual could qualify for disability benefits if the period of disability began when he or she was no longer an employee of the company.  Solely due to this provision, the plan administrator (“Plan”) denied the claim for disability benefits.

In his lawsuit seeking to overturn the Plan’s decision to deny him disability benefits, the claimant argued that his period of disability began more than six months before his termination.

His case is Hipple v. Matrix Absence Mgmt., Inc., (E.D. Mich. June 13, 2014), and it is a decision of considerable importance for disability claimants.  In Hipple, the claimant’s argument, on the surface at least, could seem flawed. How could you be disabled during a period in which you were still working? In Hipple, the court denied the Plan’s motion for summary judgment, faulting the Plan’s assumption that, because the claimant continued to show up to work until the day he was fired, “he was not disabled before that date.”

The ruling in Hipple is critical: A disability plan administrator cannot turn down a claim for disability benefits solely because the claimant continued to work after he or she began experiencing the onset of the disabling condition.

Hipple is not an anomaly, but, in fact, expanded on precedent. In the case of Rochow v. Life Ins. Co. of N. Am., 482 F.3d 860 (6th Cir. 2007), the Sixth Circuit held that a plan administrator could not deny an employee’s claim for disability benefits “solely because the employee was present at work on or after the alleged disability onset date.”  In Rochow¸ the Sixth Circuit also determined that the plaintiff, whose employment was terminated before he sought disability benefits, had been disabled under the terms of his policy before he was terminated.  As the court noted: “[T]here is no logical incompatibility between working full-time and being disabled from working full-time.” Continue reading

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