Category: Disability Insurance

Ninth Circuit Helps Clarify Meaning of “Earnings” In Disability Insurance

Calculating earnings can be really important to disability insurance. Most disability insurance policies define “disability” in relation to how much the insured earned before they became disabled. For instance, a policy might say “we will pay you the insurance benefits if an injury keeps you from being able to earn 60% of what you earned while healthy.” And a person’s earnings often determine the amount of insurance benefits. Many disability policies will pay a person who becomes disabled a certain percentage of what they earned while working.

Calculating these amounts is simple where a person earns a basic salary. But where the insured earned things like bonuses, stock options, or fringe benefits, it can get complicated.

A recent Ninth Circuit Court of Appeals decision provides some guidance on this. In Neumiller v. Hartford Life and Accident Insurance Company, the Ninth Circuit addressed a dispute over how to calculate earnings in a case where the way earnings were calculated made the difference between the insured receiving ongoing disability benefits versus those benefits being terminated.

Neumiller had a disability insurance policy with Hartford. The policy paid benefits if she became disabled. The benefits ended if she earned more than 60% of what she made before becoming disabled.

Hartford decided Neumiller had earned more than that and terminated her benefits. Neumiller disagreed and filed a lawsuit under ERISA. The lower court agreed with Hartford. Neumiller appealed.

The Ninth Circuit focused on the insurance policy’s definition of “Current Monthly Earnings” to determine whether Neumiller had earned more than the 60% pre-disability earnings threshold that allowed Hartford to terminate her insurance benefits. The policy defined Current Monthly Earnings to mean money Neumiller received from any employment while disabled.

Neumiller argued that pre-tax deductions from her paycheck and certain bonuses fell outside this definition. The Ninth Circuit mostly disagreed.

The court looked to the dictionary definition of “earnings”, which meant any revenue gained from labor or services. It decided this definition was simple enough that it didn’t need to further consider what the term “earnings” might mean. Under this definition, the fact that bonuses weren’t explicitly listed in the insurance policy did not mean bonuses weren’t “earnings.”

And Neumiller’s pre-tax deductions were “earnings” too. Even though the deductions didn’t wind up in her paycheck, the Ninth Circuit reasoned that these funds went into her 401(k) because of her voluntary election. They were therefore “earned.”

But the Ninth Circuit did agree with Neumiller that bonuses paid out every four months were not “monthly” earnings under the insurance policy’s use of the term “Current Monthly Earnings.” These bonuses were paid for work performed over a four-month period. The lower court had nevertheless treated the entire amount of each bonus as earned in the month it was received.

The Ninth Circuit found that logic dictated the bonuses should be averaged over the four-month period in which they were earned for purposes of calculating Neumiller’s “monthly” earnings, especially given other parts of the insurance policy explicitly stated that bonuses would be averaged over the period in which they were earned.

This ruling is unpublished, meaning it can’t be relied on as binding precedent, but still provides helpful clarity on the calculation of earnings under disability insurance policies.

Ninth Circuit Ruling Elevates Hidden Fine Print to Reduce ERISA Plan Benefit

If you were to poll the public on why lawyers or the legal system get a bad rap, the experience of getting surprised by something sneaky the other party buried in the fine print might rank high on the list. That was the outcome in Haddad v. SMG Long Term Disability Plan, decided February 10, 2023. There, the Ninth Circuit ruled that an ERISA plan could reduce a former employee’s benefit payments based on inconspicuous language hidden in the benefit plan documents.

Mr. Haddad, like many folks, had long-term disability coverage through his employer’s benefit plan. He became disabled and the plan paid him the benefits.

But the plan reduced his benefits. The insurance company administering the plan decided Mr. Haddad’s settlement with a third party amounted to “lost wages.” The terms of the benefit plan allowed disability benefits to be reduced if the disabled employee had been compensated for lost wages.

Mr. Haddad sued. He argued that the “lost wages” reduction was hidden in the benefit plan documents’ fine print. He pointed to earlier Ninth Circuit rulings that any limitations should be conspicuous and that employees shouldn’t “have to hunt for exclusions or limitations in the policy.”

The Ninth Circuit said this rule didn’t apply to Mr. Haddad. It ruled that reductions in benefit payments on the basis of an “offset” were different from reduced payments due to an “exclusion” or “limitation.” The opinion does not elaborate on whether the average non-lawyer would find the distinction meaningful.

The ruling is “unpublished”, meaning it shouldn’t be relied on as binding precedent for lower courts.

Don’t Assume All Employer-Adjacent Insurance is ERISA-governed, Says Ninth Circuit

There’s often an erroneous assumption that any insurance a person buys in connection with their employment is automatically subject to ERISA. But ERISA does not regulate all employer-adjacent insurance. ERISA only applies to employee benefit “plans.” Whether an ERISA “plan” exists can be complex, but without one, an insurance policy will not be subject to ERISA even if an employer was involved in its purchase.

A recent Ninth Circuit decision is a good reminder of this. In Steiglemann v. Symetra Life Ins. Co., the appellate court determined that an insurance policy purchased in connection with the plaintiff’s employment was not subject to ERISA because the requirements for an employee benefit “plan” were not met. The decision is unpublished, meaning it may be persuasive to lower courts but is not binding.

Jill Steiglemann bought a disability insurance policy from Symetra Life Insurance Company. She had access to the policy through her membership in a trade association for insurance agents. Her company paid for the insurance. The lower court held that the policy was part of an employee benefit plan and subject to ERISA.

The Ninth Circuit Court of Appeals reversed the lower court and held that the policy was not governed by ERISA. Even though Steiglemann’s employer arranged for the option for her to buy coverage and paid premiums, this was not enough to show the employer established an ERISA plan.

The employer never contracted to provide for coverage. It never promised to act as an administrator for the insurance. And it never took the steps necessary to maintain an ERISA plan, like recordkeeping and filing returns with the Department of Labor.

Steiglemann’s trade association also did not do the things necessary to create an ERISA plan. The association did not function for the main purpose of representing employees against their employer.

There was therefore no evidence that Steiglemann’s insurance policy was part of an employee benefit plan. And without a plan, the policy was not subject to ERISA.

This decision is a helpful reminder not to assume that ERISA applies to all employer-adjacent insurance.

Insurers Still Breaking Mental Health Coverage Rules Says Department of Labor

The 2022 report to Congress from the Department of Labor (DoL) on compliance by group health plans with the federal mental health parity laws identifies numerous instances of continued discrimination in coverage for treatment of mental health diagnoses.

Federal law generally prohibits insurers from discriminating against people who need coverage for treatment of mental health conditions. Basically, health insurers cannot have limitations that are more restrictive of treatment for a mental health condition than for other conditions. These rules have only become more important since the COVID-19 pandemic contributed to mental health issues for many Americans; for instance, the CDC noted a 30% increase of overdose deaths since the pandemic.

In large part for this reason, DoL has made enforcement of the mental health parity rules a priority in recent years. One new enforcement tool is a 2021 rule passed by Congress requiring health plans to provide DoL with a comparative analysis of treatment limitations for mental health conditions to help DoL ensure these practices follow the law.

DoL’s report identified many problems with health plans’ reporting about mental health parity. For instance:

  • Failure to document comparisons of treatment limitations for mental health limitations before implementing those limitations;
  • Lack of evidence or explanation for their assertions; and
  • Failure to identify the specific benefits affected by mental health limitations.

DoL also noted that enforcing these reporting rules had led to the removal of several widespread insurer practices that violated the mental health parity rules.

For example, one major insurer was found to routinely deny certain behavioral health treatment for children with Autism Spectrum Disorder. This resulted in denying early intervention that could have lifelong results for autistic children. DoL found over 18,000 insureds affected by this exclusion.

Another example involved the systemic denial of treatment used in combatting the opioid epidemic. New research has found that combining therapy with medication can be more effective for treating opioid addiction than medication alone. DoL found a large health plan excluded coverage for this therapy in violation of the mental health parity rules.

Other treatments DoL’s report identified as being denied on a widespread basis in violation of the law included counseling to treat eating disorders, drug testing to treat addiction, and burdensome pre-certification requirements for mental health benefits.

DoL’s report is a reminder that discrimination on the basis of mental health related disabilities remains a part of the insurance business despite years of federal legislation to the contrary.

Court Ruling Illustrates The Limits ERISA Places On Insurers’ Discretion To Decide Claims

Many ERISA plans give the claims administrator (often an insurance company) discretionary authority to interpret the evidence and the terms of the employee benefit plan in deciding claims. This discretionary authority makes it difficult for claimants to overturn claim denials because court defer to decisions made using this authority.

But ERISA recognizes that claims administrators have an incentive to abuse this discretionary authority and limits it in important ways. Where the facts of a particular claim suggest the insurance company or other claims administrator is abusing its authority, courts are required to view the administrator’s handling of the claim with skepticism.

The Ninth Circuit Court of Appeals’ recent decision in Gary v. Unum is a reminder of the importance that this skepticism has in ERISA disputes. Allison Gary had a medical condition called Ehlers-Danlos Syndrome (EDS). She had disability insurance through Unum as part of her employer’s benefit plan and made a claim. Unum denied her claim and she filed a lawsuit seeking benefits under ERISA.

The lower court sided with Unum and upheld the denial. The Ninth Circuit Court of Appeals reversed.

The Ninth Circuit determined the lower court failed to properly scrutinize Unum’s evaluation of the medical evidence about Gary’s condition. The ERISA plan at issue gave Unum discretion to interpret this evidence. But the Ninth Circuit emphasized that, even where ERISA plan administrators have that discretion, it is checked by common-sense limitations that prevent insurers like Unum from denying claims out of self interest.

The Ninth Circuit held that the facts of Unum’s handling of the claim should have led the lower court to view Unum’s exercise of its discretionary authority to interpret the evidence with skepticism. First and foremost, the Ninth Circuit emphasized that an insurer who, like Unum, is responsible for paying disability claims as well as investigating the claimant’s entitlement to benefits has a perverse incentive to save itself money by looking for evidence to deny claims while ignoring evidence that would support paying benefits. The court emphasized this structural conflict of interest should have been considered.

Second, the appellate court was concerned by Unum’s practice of “cherry picking” certain observations from medical records, i.e., ignoring evidence of Allen’s disability while focusing on evidence that would support denying her claim.

Third, Unum failed to have Gary examined by an EDS specialist. Fourth, Unum cut off Gary’s benefits after exactly six months, an arbitrary measure that was disconnected from the medical evidence.

The Gary decision is unpublished, meaning it is not binding authority but may be relied on at the discretion of lower courts to the extent a judge believes the ruling is helpful.