The Death of the Abuse of Discretion Standard of Review in ERISA Disability Insurance Cases in CaliforniaJuly 29, 2015 Scott Calvert
When an insured obtains his or her disability insurance coverage from an employer, more often than not, that claim is governed by Employee Retirement Income Security Act of 1974, also known as ERISA. Litigation under ERISA is very different from “normal” bad faith insurance litigation where the insured sues the insurer for breach of contract and breach of the implied covenant of good faith and fair dealing. Some of the differences favor the insured, while others favor the insurance company/claims administrator. However, thanks to the California Legislature and recent District Court rulings, one of the insurer’s asserted weapons is longer available.
In an ERISA case, the court reviews the claim decision by applying one of two different standards of review: the abuse of discretion standard of reviewor de novo review. Under the abuse of discretion standard of review, the Court is required to give some deference to the insurer’s decision. However, under the de novo standard of review, the Court does not give any deference to the insurer’s decision, but rather determines in the first instance if the claimant has adequately established that he or she is disabled under the terms of the Plan. Between these two options, obviously, the abuse of discretion standard of review could be viewed as more favorable to disability insurance companies. (We believe that in practice there is not much difference between them as the abuse of discretion standard of review gives a disability insurance claimant more access to good discovery from the insurer and we believe that if judges are convinced that a claimant is really totally disabled, they will rule in favor of the claimant no matter the standard). However, the abuse of discretion standard is no longer available to insurers in California.
An insurer can only reap the benefits of the abuse of discretion standard of review by pointing to language in the insurance plan/policy in which the insurer is specifically granted the “discretion” to make claim decisions and interpret the plan provisions. Such a provision is referred to the “discretionary clause.” California Insurance Code section 10110.6 has now completely foreclosed the inclusions (and effect) of any discretionary clause contained in an plan/policy with a “renewal date” of 2012 or later.
California Insurance Code section 10110.6 states in the relevant part:
(a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable.
(b) For purposes of this section, “renewed” means continued in force on or after the policy’s anniversary date.
(c) For purposes of this section, the term “discretionary authority” means a policy provision that has the effect of conferring discretion on an insurer or other claim administrator to determine entitlement to benefits or interpret policy language that, in turn, could lead to a deferential standard of review by any reviewing court.
(g) This section is self-executing. If a life insurance or disability insurance policy, contract, certificate, or agreement contains a provision rendered void and unenforceable by this section, the parties to the policy, contract, certificate, or agreement and the courts shall treat that provision as void and unenforceable.
This section, by its own terms, applies to any policy or agreement that provides “disability insurance coverage” to “any California resident” regardless of where it was offered, issued, delivered, or renewed. Thus, when determining whether a subject policy is governed by this section of the California Insurance Code, the only issue is whether the policy was offered, issued, delivered, or renewed on or after January 1, 2012 and before the claim accrued. However, this is typically a minor hurdle for an insured to clear as, for the purposes of section 10110.6, a policy automatically renews every year on the policy’s anniversary date. See Cal. Ins. Code § 10110.6(b) (providing that “renewed” means “continued in force on or after the policy’s anniversary date”). Most Policies renew every year, which means, that as of now, a vast majority of disability insurance policies’ issuance dates (and renewal dates) fall within the relevant time period.
Indeed, numerous recent Court rulings establish that, even if the Policy contains a discretionary clause, per California Insurance Code section 10110.6, that language is unenforceable, and de novo is the proper standard of review. See Polnicky v. Liberty Life Assur. Co. Of Boston, 999 F. Supp. 2d 1144, 1148 (N.D. Cal. 2013) (applying de novo standard of review to ERISA claim for denial of benefits because “[t]he Policy was continued in force after its January 1, 2012 anniversary date, [so] any provision in the Policy attempting to confer discretionary authority to Liberty Life was rendered void and unenforceable”); see also Gonda v. The Permanente Med. Grp., Inc., 10 F. Supp. 3d 1091, 1093-1094 (N.D. Cal. 2014); Cerone v. Reliance Std. Life Ins. Co., 9 F. Supp. 3d 1145 (S.D. Cal. 2014); Curran v. United of Omaha Life Ins. Co., 38 F. Supp. 3d 1184 (S.D. Cal. 2014); Rapolla v. Waste Mgmt. Employee Benefits Plan, 2014U.S. Dist. LEXIS 87256, 2014 WL 2918863 (N.D. Cal. June 25, 2014); Snyder v. Unum Life Ins. Co. of Amer., 2014 WL 7734715 (C.D. Cal. Oct. 28, 2014); Jahn-Derian v. Metro. Life Ins. Co., 2015 U.S. Dist. LEXIS 28652, 2015 WL 900717 (C.D. Cal. Mar. 3, 2015).
Given these rulings, it appears that the abuse of discretion standard of review is now, more than three years after the effective date of the statute, dead in ERISA cases that are filed in Federal Courts in California.
If your claim for short-term disability insurance or long-term disability insurance has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group, several of whom previously represented insurance companies, who are exceptionally experienced in handling ERISA short-term and long-term disability insurance litigation.
Have you ever wondered whether the liability policy you purchased covers losses you already knew about before you bought the policy? How much do you have to know? What if you knew about certain property damage at a construction project you caused but not about other related damage your policy would otherwise cover? A recent case from the Ninth Circuit sheds light on these issues, and it is good news for policyholders.
When a person suffers from a disability caused by an injury or sickness, the resulting restrictions and limitations, be they physical or mental, can have a devastating impact on that person’s ability to return to work. What is often overlooked, is that the side effects of the medication prescribed to treat a medical condition can themselves also impede a person’s ability to perform in the work place, thus resulting in a long-term disability. Recently, Central District of California Federal Court Judge Percy Anderson, in Hertan v. Unum Life Insurance Company of America, 2015 WL 363244 (C.D. Cal. June 9, 2015), ruled that a long-term disability insurer had to consider how the side effects of an insured’s medication impacted her cognitive abilities, and therefore, her ability to perform her job.
Recent verdicts from across the nation in disability, life and health insurance policy cases must be alarming for big corporate insurance companies. The trend is for jurors to award individual plaintiffs astronomical punitive damage verdicts, showing their general disdain for insurance companies and tendency to empathize with policyholders, particularly where a person’s health is at issue.
Did your disability insurer follow the law when it denied your insurance claim? Don’t count on it. If you have long- term disability insurance through your employer, you may need a lawyer with expertise in the Employee Retirement Income Security Act of 1974 (“ERISA”) to evaluate that. We routinely see disability insurers violate ERISA laws, either intentionally or negligently.
Under most long-term disability insurance plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a claimant must appeal the denial of any claim for benefits within 180 days of the denial letter. Unless the appeal is made within that strict 180-day period, the claimant may forfeit the right to any short-term disability benefits or long-term disability benefits available under the plan. At least, that was the law until a recent ruling by the United States Court of Appeals for the Ninth Circuit cracked open the window for a timely appeal.
We do not normally focus on dissents in our blogging but we made an exception here with a published Per Curiam opinion from the Ninth Circuit Court of Appeals, Guam Industrial Services, Inc. v. Zurich American Insurance Co., 2015 DJDAR 5948 (9th Cir. June 1, 2015). This insurance coverage case arose out of the sinking of a dry dock, loaded with barrels of oil, during a typhoon on Guam. The issues pertain to whether either of two insurance policies covered costs of damage to the dock and the associated cleanup which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean. Guam Industrial Services, Inc. (“Guam Industrial”) owned the dry dock. At the time of the sinking, one of its insurance policies, an Ocean Marine Policy, covered liability for property damage caused by pollutants, issued by Zurich American Insurance Company (“Zurich”). After the dock sank, Guam Industrial filed a claim under each policy. Zurich denied the claim, and Guam Industrial brought suit. The district court granted summary judgment for the insurers, finding that the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were released. Guam Industrial appealed the decision and the Ninth Circuit affirmed.
Robert J. McKennon Named Corporate LiveWire’s Global Awards 2015 Insurance & Risk Management Lawyer of The Year for Orange County, CaliforniaMay 12, 2015 Robert McKennon
McKennon Law Group PC is proud and honored to announce that Robert J. McKennon, founding shareholder of McKennon Law Group PC, has been named as Corporate LiveWire’s Global Awards 2015 Orange County, California Insurance & Risk Management Lawyer of the Year. The annual Global Awards Lawyer of the Year recognition honors the achievements of those individuals that have consistently shown best practice and demonstrated general excellence in every endeavor on a global and national level. Mr. McKennon specializes in all types of insurance litigation but especially focuses his efforts in long-term disability insurance, life insurance, long-term care insurance, health insurance and insurance bad faith litigation.
The Corporate LiveWire Global Awards 2014 Lawyer of the Year winner’s guide is available here.
In actions brought under the Employee Retirement Income Security Act of 1974 (“ERISA”), two roads diverge in federal court—and the court’s choice regarding the applicable standard of review can make all the difference in the scope of permissible evidence. If the court applies the abuse of discretion standard of review, the court more typically (but not always) only considers evidence received by the insurer in time for its decision and limits its review to the “administrative record” to determine whether the insurer’s denial was an abuse of discretion. Alternatively, the court may review a case “de novo,” and may consider documents not previously provided to the insurer to determine whether the insured is entitled to benefits.
On April 22, 2015, the United States Court of Appeals for the Ninth Circuit issued a decision affirming the district court’s decision to award McKennon Law Group PC’s client, an attorney (“insured”), his past-due ERISA plan benefits, as well as attorneys’ fees, costs and interest against Sun Life & Health Insurance Company in connection with his short-term and long-term disability insurance claim.