FAQs: What Factors Contribute to the Valuation of a Lump Sum Buyout of a Disability Insurance Claim?

Posted in: Insurance Blog March 16, 2015

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law.  This article is the second of two articles focusing on lump sum buyouts of a disability insurance claim.  The first article discussed the various times the opportunity to enter into a lump sum buyout might be available to an insured, and some factors to consider when contemplating a disability insurance buyout.  This article focuses on how to value the claim and the various factors considered when calculating the buyout sum.

As detailed in the first article, an insured receiving long-term disability insurance benefits might desire to negotiate a lump sum buyout with the insurance company, where the company makes a one-time, lump sum “buyout” of claim and policy.  However, the most important question for an insured to consider is “what is my disability insurance policy worth?”  This is a complicated question that can only be answered by assessing a variety of different factors.

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How Long-Term Care Insurance Benefits Get Denied

Posted in: Insurance Blog March 14, 2015

Like long-term disability insurance policies, it stands to reason that an insurance plan that is intended to pay insurance benefits for long-term care would be a relatively safe investment for your or a loved one’s future. After all, again like long-term disability insurance policies, many such policies are sold to people years before any anticipated long-term care needs present themselves. With premiums having been faithfully paid for many years, you might think there would not be a problem when the time comes to use the benefits. But, alas, we are talking about insurance companies and their motivation to deny claims.

Unfortunately, as Forbes magazine reported recently, the world of long-term care insurance can be fraught with red tape that can prevent claims from getting paid. And while long-term care policies have changed in how they are written over the years, every long-term care insurance policyholder should receive the benefits that they are due.

Part of the problem lies in the fact that policies from the 1990s were written differently than today’s policies. As a result, some people with older contracts—the ones that would appear to be the strongest because they have been paid into the longest – sometimes encounter significant trouble.

Various ways in which some insurers seek to deny claims include the following.

Some insurers require that the facility that is providing long-term care meet certain licensing and personnel requirements. Still others require that the facility meet certain criteria even if the criteria are not specified in the policy.

Something known as the “gatekeeper provision” is fairly common in older long-term care policies. This provision requires that a policyholder have a prior hospital say, a nursing home confinement or even both before claims are paid for long-term care. Many states, however, have outlawed these kinds of provisions.

Insurers have also been known to say that they will not pay benefits for so-called personal care such as errands a caregiver runs for the policyholder, or for tasks such as light housekeeping. A number of policies exclude care provided by family members, as well, but the policy’s specific wording should be carefully checked. Care provided by a spouse may not be covered, but that care given by, say, a grandson, could be.

At times, insurers will deny benefits because a policyholder neglected to pay premiums due to a cognitive impairment. However, many states require a certain period of time to cover such lapses, and if a physician’s statement can be obtained attesting to the cognitive impairment, the policy can be reinstated.

As you can see, long-term care insurance policies can present unique challenges or disabilities. Feel free to contact us for a free consultation regarding your specific situation.

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FAQs: When Does an Insured Have the Opportunity to Consider a Lump Sum Buyout of His or Her Disability Insurance Claim?

Posted in: Insurance Blog March 09, 2015

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law.  This article is the first of two articles that will focus on lump sum buyouts of a disability insurance claims.  This article will discuss the various times the opportunity to enter into a lump sum buyout might be available to an insured, and some factors to consider when contemplating a disability insurance buyout.  Part two will focus on how to value the claim and the various factors considered when calculating the buyout sum.

Long-term disability insurance claimants currently receiving long-term disability insurance benefits from their insurer might have the opportunity to receive a lump sum buyout, where the insurance company pays the insured a one-time, lump sum payment to “buyout” the claim and policy.  In exchange for that payment, the insured gives up his or her rights under the policy forever and the insurance company has no obligation to make any additional payments.  A lump sum buyout is potentially available even if the disability insurance coverage was provided by the insured’s employer and the claim is governed by the Employee Retirement and Income Security Act of 1974 (“ERISA”).  However, given the amount of money involved, there are a many things an insured should take into account when considering a lump sum buyout. 

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Director’s and Officer’s Liability FAQS

Posted in: Insurance Blog March 06, 2015

What do you need to know about Directors & Officers Liability Insurance (commonly called D&O Insurance)? Isn’t having a commercial liability insurance policy enough? No, here’s why.

D&O Insurance usually covers all current and former directors and officers of a company for attorney fees that result from defending lawsuits that allege wrongful actions on the part of those persons acting in their official capacities covering discrete wrongful conduct typically not covered by commercial liability insurance, including the direct liability of the corporation itself for securities fraud.  However, D&O policy forms change from one insurer to the next, which can cause confusion at the moment your company desperately needs clarity.

Here are a few answers to some common questions:

Why buy D&O insurance?

Lawsuits against officers and directors have of a company have exploded in recent years. In some cases, companies are financially unable indemnify their officers and directors. In these situations, directors and officers would have to use their own personal funds to defend themselves against lawsuits. It is therefore usually important to buy this insurance to protect themselves.  Further providing this insurance assists companies in attracting talent to the company as often outside directors demand D&O coverage before agreeing to sit on a company’s board.

What does a D&O policy NOT cover?

Generally, exclusions include accounting of profits, fraud, pending and prior litigation, personal profiting, pollution and late claim notice, among others. Again, because each policy is unique, insurers may elect to specify other exclusions. Such policies usually cover “Wrongful acts” which are usually defined to include “any breach of duty, neglect, error, misstatement, misleading statement, omission or act by directors or officers in their capacity as such.”

Can you explain the “insured versus insured” exclusion?

A D&O policy is meant to operate as third-party coverage or to insure claims brought against the officers and directors by outside parties – but not any claims brought by one insured against another. This would simply be a case of one insider fighting another, which is generally not viewed as the purpose of a D&O policy. Again, there are exceptions, which is another reason to seek expert advice for your particular situation.

When do claims need to be reported?

Usually, claims need to be made and reported during the period in which the policy is effective. Some policies may require that claims be brought to the attention of the insurer during the same policy period. Some policies allow for a reporting “tail”—a brief period of time after the policy expires during which notice of claims can be provided.

It should be noted that, while some D&O insurance situations may seem relatively open and shut, any claim brought against an insurance company must be carefully examined in light of the above issues, as well as others that might apply. This is why you should always seek expert advice on D&O matters from a qualified attorney.

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Employees Must Follow ERISA Plan Documents in Designating Retirement Plan Beneficiaries or Risk Losing Critical Rights

Posted in: Case Updates, De Novo Review, ERISA February 09, 2015

Have you properly designated your intended beneficiaries for your retirement plan at work?  What about for your savings plan, life insurance policy or other employee benefit plans you have through your employer?  If you have not, the impact could be dire and life-changing for your loved ones after you pass.  Make sure you follow the law so your family is properly taken care of when the inevitable happens.

The Ninth Circuit Court of Appeal recently addressed these issues in Becker v. Williams, 2015 U.S. App. LEXIS 1554 (9th Cir. Jan. 28, 2015). There, a 30 year employee of Xerox Corporation died in 2011, Asa Williams, Sr.  Because Asa, Sr. did not follow through in changing his intended beneficiary with a written form after his telephone request to his employer, his son and ex-wife were left fighting each other over his retirement proceeds.  The Court framed the issue as:

We must decide whether a decedent succeeded in his attempt to ensure that his son—and not his ex-wife—received the benefits to which his employer’s retirement plans entitled him.

Before his retirement, Asa, Sr. participated in Xerox’s retirement and savings plan (“Retirement Plans”).  The Retirement Plans were subject to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. (as are most employer sponsored employee benefit plans such as life insurance policies and disability insurance policies).

Asa, Sr. married Carmen Mays Williams and formally designated her as his beneficiary on his Retirement Plans.  After their divorce, Asa, Sr. changed his designated beneficiary from his ex-wife to his son, Asa, Jr., by telephoning Xerox and instructing it to make the change three different times.  Each time, following his phone conversation with Xerox, Asa, Sr. received, but did not sign and return, the beneficiary designation forms Xerox gave him to confirm the change.

After Asa, Sr. died, Carmen immediately wrote Xerox and claimed to be the beneficiary under the Retirement Plans.  Asa, Jr. asserted the same claim.  Rather than decide the family squabble, Xerox filed an interpleader action in federal district court and interpleaded the retirement proceeds.

Carmen moved for summary judgment, asserting that because Asa, Sr. failed to fill out and return the beneficiary designation forms, he did not properly designate Asa, Jr. as beneficiary in her place.  Asa, Jr. argued that his father calling Xerox on the telephone and changing the beneficiary to himself from Carmen was enough.  The district court sided with the ex-wife and granted her motion, despite that Asa, Sr. apparently intended his son to receive his retirement benefits.  It reasoned the beneficiary forms were “plan documents” under ERISA and, therefore, Asa, Sr. was required to follow their instructions to legally complete the beneficiary change (they had language requiring the employee to sign and return the forms to validate a beneficiary change).

Asa, Jr. appealed.  The Ninth Circuit Court of Appeal reversed, holding that the beneficiary designation forms were not “plan documents” under ERISA.  Relying on another case that addressed a slightly different ERISA issue, Hughes Salaried Retirees Action Comm. v. Adm’r of the Hughes Non-Bargaining Ret. Plan, 72 F.3d 686 (9th Cir. 1995), the Court of Appeal found the beneficiary designation forms were not plan documents because:

only those [documents] that provide information as to where [the participant] stands with respect to the plan, such as [a] [summary plan description] or trust agreement might, could qualify as governing documents with which a plan administrator must comply in awarding benefits under [ERISA].

The Court of Appeal reasoned because an ERISA plan administrator must distribute employee benefits in accordance with the governing “plan documents,” Xerox was not required to follow the instructions on the beneficiary designation forms when distributing Asa, Sr.’s retirement proceeds.  Instead, Xerox was required to follow the requirements of the plan documents, including the Retirement Plans’ Agreement and Summary Plan Description.  Those documents permitted an unmarried employee like Asa, Sr. to change his beneficiary over the telephone simply by calling the Xerox Benefits Center.  The plan documents did not require a written form.  The Court of Appeal thus found the district court erred in determining that Asa, Sr. was required to abide by the language in the forms – but not in the governing plan documents – to change his beneficiary designation from Carmen to Asa, Jr.

The Court next addressed the issue of whether the evidence showed Asa, Sr. actually changed his beneficiary to Asa, Jr. in accordance with the plan documents.  It held that, based on Xerox’s call logs which showed Asa, Sr. called Xerox to change his beneficiary from Carmen to Asa, Jr., a reasonable jury could find he intended to make the change and that his phone calls substantially complied with the plan documents.  The Court therefore found summary judgment in Carmen’s favor was inappropriate.  It reversed and remanded to the district court for a trial in accordance with the rules espoused in its opinion on the issue of Asa, Sr.’s intent.

The Court addressed one final matter, the proper standard of review.  The issue was whether it should defer to the Retirement Plan administrator’s decisions in the matter or, instead, should decide “de novo” if Carmen or Asa, Jr. should receive the retirement benefits.  It held that because the Retirement Plan administrator did not exercise any discretion in deciding whether Asa, Sr. telephonically designating his son was valid under the Plans, it must decide the case de novo.  Stated another way, the Court found there was no discretion exercised by the Plan administrator to which it could defer.

It looks like this case will turn out fine for now deceased Asa, Sr. and his son, albeit at great expense and aggravation to Asa Jr.  But it teaches an important lesson to employees with employer sponsored retirement plans, life insurance policies and disability policies.  Make sure you carefully follow the plan documents whenever effectuating your rights.  The consequence of being careless could cost you or your family hard earned employee benefits.

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Standing Spine(dex) Adjustment – Ninth Circuit Finds Healthcare Providers Have Article III Standing in Denial of Benefit Claims Under ERISA

Posted in: Case Updates, ERISA, Fiduciary Duty, Standing January 13, 2015

A universal part of the American medical experience is paperwork. Everyone is familiar with visiting a healthcare provider for the first time, filling out history forms and signing pages of documents that they either do not understand or do not care about. The Ninth Circuit recently grappled with a minimally explored legal issue surrounding one such document: whether a non-participant healthcare provider, as assignee of health plan beneficiaries under an assignment form, has Article III standing to bring a denial of benefits claim under ERISA.

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"Expanding equitable remedies in ERISA cases:" Robert J. McKennon and Scott Calvert Publish Article in Los Angeles Daily Journal

Posted in: Equitable Relief, ERISA January 10, 2015

The January 8, 2015 edition of the Los Angeles Daily Journal featured Robert McKennon and Scott Calvert’s article entitled:  “Expanding Equitable Remedies in ERISA Cases.”  In it, Mr. McKennon and Mr. Calvert discuss a new case, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014) and also discuss equitable remedies generally in ERISA cases and, in particular, how the Ninth Circuit Court of Appeals has joined other circuits in allowing certain equitable remedies, most especially the surcharge remedy.  Mr. McKennon and Mr. Calvert also explain how insurance claimants should go about proving equitable remedies.  The article is posted below with the permission of the Daily Journal.

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Nine consumer protection bills sponsored by insurance commissioner signed into law in 2014

Posted in: Insurance Commissioner, Legislation, News January 08, 2015

Insurance Commissioner Dave Jones announced that during the 2014 legislative session that Governor Jerry Brown signed nine bills sponsored by the California Department of Insurance (“CDI”).  A bill that adds protections for small businesses that took effect in 2014 and five other consumer protection bills that were implemented January 1, 2015.   Here is a list of them (taken from a CDI bulletin):

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Ruling Limits Insurance Company’s Ability to Collect SSDI Overpayments

Posted in: Case Updates, ERISA January 08, 2015

When and under what circumstances an insurer paying long-term disability benefits may collect retroactive benefits paid to an ERISA plan participant under the Social Security Act has been the source of conflicting opinions over the years.   The most recent pronouncement:  a long-term disability plan administrators must “specifically identify a particular fund” from which it will be reimbursed in order to seek to recover of alleged overpayment of disability benefits.  So held the Southern District of California in its recent plaintiff-friendly decision in Wong v. Aetna Life Insurance Company, 2014 U.S. Dist. LEXIS 135661 (S.D. Cal. 2014).  Through its decision in Wong, the district court reaffirmed that simply because an ERISA governed long-term disability plan’s language provides for recovery of an award of back-dated SSDI benefits does not mean that an insurance company may seek reimbursement from an insured’s general assets.  Instead, the onus is on the insurer to specifically identify specific funds, separate from a plan participant’s general assets, on which it may place an attachment.

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