Articles Posted in insurance litigation

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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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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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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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Under Tennessee law, all life and disability insurance policies must include an “incontestability provision” stating that, after a period of no more than two years, the policy “shall be incontestable.”  In essence, an incontestability provision prohibits an insurance company from voiding the policy because of misrepresentation in the policy application (other than an intentional or fraudulent one). Although Tennessee law requires the incontestability period to begin no more than two years after the issuance of the policy, insurers may allow for shorter periods in their policies.

Why are incontestability provisions required under law? Tennessee courts have explained that the purpose of an incontestability provision is to provide a “statute of limitations in favor of the insured” by setting out a limited period for the insurer to examine the validity of the policy.  An incontestability provision gives an insurer an incentive to scrutinize an application carefully on the front end, before it begins accepting premiums.  Without incontestability provisions, an insurer could overlook questionable statements on an application for coverage knowing that, years later, if the insured makes a claim for benefits, it could rely on any misstatements to deny coverage.

Even with an incontestability provision, an insurer may be able to void a policy and deny coverage based on any intentional misstatement in an application for insurance. For insurers, however, it can be difficult to prove that the person who completed the application intentionally provided incorrect information, as is necessary to establish fraud.  Often, claimants and beneficiaries will be able to argue successfully that any misrepresentations made on an application for life insurance were oversights or misunderstandings.

An incontestability provision can make a critical difference in a claim for benefits. Say, for example, the owner of a life insurance policy incorrectly states in the application that the person whose life is insured by the policy has not been diagnosed with hypertension. Until the incontestability provision is triggered, the insurance company may be able to withhold death benefits on the basis that the owner’s misrepresentation voids the policy.  Once the incontestability provision is in effect, however, the insurance company cannot use the owner’s misrepresentation as a reason to deny benefits, unless they can show that the misrepresentation is covered under an exception to the incontestability provision for fraud.

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