Category: ERISA

Five Red Flags in Disability Insurance Claims

We often discuss issues with ERISA-governed disability insurance. Certain issues tend to crop up regularly when these issues lead to litigation. Here are the top five.

1: The company ignores your doctors.

Typically the first step in making a disability insurance claim is having the doctor complete a form identifying your diagnosis, the resulting symptoms, and their impact on your ability to work. This makes sense. After all, when a person can’t work because they’re sick or injured, the doctor treating them usually has all the firsthand medical knowledge.

So, ERISA requires that the insurance company consider the claimant’s treating doctor’s opinions. Of course, the insurance company doesn’t have to pay benefits just because your doctor says you can’t work. Sometimes the doctor doesn’t understand the person’s job duties or the insurance policy terms have other requirements besides medical evidence that aren’t met. But the company can’t just ignore your doctor.

So if the company can’t seem to engage with your doctor’s opinions, it’s a good sign something is wrong. Sometimes it’s obvious: the insurer just doesn’t address your doctor’s conclusions. Other times, it’s more circumspect: the insurer pays its own doctor to perform a medical review that summarizes your doctor’s opinions and then makes the one-sentence conclusion that the insurer’s doctor disagrees, without providing any explanation.

Regardless of how it’s done, an insurer that disregards your doctor without engaging with their opinions in detail probably isn’t doing the right thing.

2: The company ignores your job duties.

The details of a person’s job can be just as important to a disability claim as the medical evidence. Many disability insurance polices pay benefits if you can’t perform your “own occupation,” as opposed to being totally disabled from any work. That’s important protection that costs extra. Many skilled professionals have demanding jobs that a person could be disabled from performing without being totally unable to work. This makes the claimant’s job duties a very important part of a robust investigation in a disability insurance claim.

So if the company doesn’t engage with your job duties when the claim is under an “own occupation” insurance policy, that’s a big problem. This often happens in claims involving skilled professionals. A software engineer, for example, has demanding mental and organizational duties. If she develops an autoimmune disorder that leaves her too exhausted and in too much pain to perform her duties and makes a disability insurance claim and the insurance company only evaluates the physical demands of her job–i.e., the ability to sit at a desk and use a computer–the company misses the big picture.

This also crops up in cases involving medical conditions that impose intermittent symptoms. Often, a person becomes disabled due to a disease that manifests symptoms occasionally and unpredictably. For example, a person with heart disease might feel fine Monday thru Thursday and then have crippling pain and shortness of breath that keeps them from doing much of anything on Friday. If that person can’t reliably commit to attending their job full-time, they’re likely disabled within the meaning of most insurance policies, which provide a person is disabled if they can’t perform their job duties with “reasonable continuity.” After all, most jobs require you to be able to do your job full time and on a regular schedule.

If the company ignores that reliable attendance is among the person’s job duties, it can lead to a wrongful denial of coverage. The company might conclude that a person can still perform their job duties when they’re asymptomatic without addressing the fact that they can’t commit to regular attendance because they can’t predict when their symptoms will flare up. No boss wants an employee who can’t show up for work reliably.

3: The company declines to investigate.

ERISA requires the insurance company to reasonably investigate benefit claims for a good reason: turning a blind eye to the facts is an easy way to deny valid claims. Often, the company will deny a claim for lack of evidence–but they won’t make any effort to obtain it. For example, the company might say “we can’t pay your claim without additional medical records.” If they don’t make an effort to obtain the information they say is missing, it’s probably a sign that the company is more interested in finding excuses not to pay the claim than it is in performing a legitimate investigation.

4: The company cherry-picks irrelevant evidence.

Since disability claims depend on the intersection of work capacity and symptoms from illness or injury, a person could reasonably expect their disability insurer to focus on evidence relevant to how their symptoms impact their ability to work. Unfortunately, that isn’t always the case.

Often, the company will cherry-pick facts that aren’t relevant to how your symptoms impact your job. It’s distressingly common to read a letter denying a disability insurance claim that ignores the medical evidence of disability and instead recites facts that have nothing to do with that evidence.

Sometimes this happens with the analysis of medical records. A person might visit their doctor to discuss a new diagnosis of an autoimmune condition that leads them to make a disability insurance claim. That visit might include discussion about the test results leading to the diagnosis, the likely prognosis, the symptoms that the person can expect, and possible treatment. If the insurance company ignores all that and instead quotes only the sentence of the doctor’s note that reflects the patient was in no acute distress during the visit, that’s a bad sign. It shows the company is looking only for evidence that could permit it to deny the claim.

Other times, it might happen with ancillary facts about a person’s activities. Let’s say a person’s autoimmune condition keeps them at home most days due to exhaustion and pain. They might report to their disability insurer that they barely leave the house, rely on friends and family for grocery shopping, can no longer play sports, and limit their physical activity to a walk around the block once a day. A denial letter from the insurance company ignoring this and reciting that the person must be healthy because they can walk is a sure sign that the company isn’t doing the right thing.

5: The company doesn’t communicate what it wants.

ERISA requires the insurance company to have a meaningful conversation with claimants about the insurance claim. If the company thinks that something more than what’s been submitted is necessary in order to pay benefits, it must say so.

So when the company denies coverage and won’t say what’s missing, that’s a red flag. Too often, coverage is denied in a letter that summarizes the person’s treatment and then arbitrarily concludes there is insufficient evidence of disability. If the company doesn’t specify what evidence it says is missing, that’s a bad sign.

For example, a knowledge worker with severe mental health diagnoses might become unable to work due to cognitive impairment and make a disability insurance claim. The company might deny the claim because there is insufficient evidence of cognitive impairments. A company trying to do the right thing will tell you what additional evidence is needed. They might request results from specific testing. Or, they might request information from your employer about your performance.

What an insurance company acting in good faith probably won’t do is dismiss the claim with a one-sentence conclusion of “insufficient evidence” without telling you what additional evidence they need. If that happens, it’s a red flag.

Ninth Circuit Establishes Pro-Employee Test for Releasing ERISA Rights

The Ninth Circuit Court of Appeals recently decided the question of whether and how employees can be induced to give up their right to sue under ERISA.

In Schuman v. Microchip Technology, Inc., the Ninth Circuit (the court that hears appeals from federal trial courts in Washington and the west coast) reversed the trial court’s dismissal of ERISA claims by two employees who participated in the defendant’s ERISA plan.

The ERISA plan was unusual. Most employees who participate in ERISA plans receive what we think of as the “normal” benefits of employment: health insurance, disability or life insurance, etc.

The Plan in Schuman was created especially for the purpose of providing severance benefits to employees who might be laid off following an anticipated merger. One employer was about to merge with another, and wanted to offer the understandably anxious employees some reassurance about their job security. If an employee was deemed redundant after the merger, they would receive severance benefits from the ERISA plan.

Or so the employees thought. Unsurprisingly, this became a point of contention when the merger was consummated and layoffs ensued without the promised severance.

Schuman was fired without cause by the new employer shortly after the merger. Like most layoffs, Schuman’s involved an offer of some cash (much less than the ERISA plan had promised) in exchange for signing a standard severance agreement releasing all of Schuman’s claims against the company.

Critically, the employer told Schuman and others that the benefits promised under the ERISA plan were no longer available, claiming the plan had “expired.” Confronted with this all-or-nothing proposition, Schuman signed the release.

Schuman and other employees later filed a class action lawsuit. They alleged that the employers violated ERISA by, basically, lying to them about the availability of severance benefits under the ERISA plan to induce them to sign a release that gave up those benefits in favor of substantially smaller severance payments. The lawsuit sought benefits under the ERISA plan for severance. It also sought to void the releases signed by Schuman and other workers.

The trial court held the releases were valid. It dismissed the lawsuit.

The Ninth Circuit reversed. First, the appellate court established the test for whether an ERISA plan participant’s release of claims is valid.

Such a release, the court said, is valid only if it survives “special scrutiny.” That is because Congress enacted ERISA for the special purpose of protecting employees’ benefits. Employers are “fiduciaries” under ERISA. They have to put the interests of their plan participants first.

The appellate court therefore stated that the test for whether a release of claims under an ERISA plan is valid depends on the “totality of the circumstances” including, importantly, whether the company that procured the release is accused of improper conduct. The court listed the circumstances that should be considered as part of this decision, including the employee’s sophistication and knowledge of their rights, how the payment for the release compares to the value of the benefits the employee is giving up by signing, and whether the employer improperly induced the employee to sign.

Having formulated this test, the Ninth Circuit sent the case back to the lower court to apply it.

This recognizes the reality that allowing employers to seduce their workers into signing away their rights under the employer’s ERISA plan is like letting the fox guard the henhouse. The Ninth Circuit’s test helps ensure that employers cannot deceive their workers into releasing claims under the statute designed to protect them from just this sort of manipulation.

Firing Employee Who Made Expensive Health Plan Claims Violated ERISA, Says Federal Court

ERISA doesn’t just protect the right to receive your benefits under the company benefit plan. It also prohibits your employer from retaliating against you or interfering with your claims for those benefits.

A recent decision from the Third Circuit Court of Appeals (the federal appellate court that hears appeals from Pennsylvania and its neighboring states in the mid-Atlantic region) has an interesting illustration of ERISA’s protections from retaliation. Although the decision, Kairys v. Southern Pines Trucking, Inc., isn’t binding precedent on courts in Washington State, it’s still a useful application of ERISA’s protections against retaliation.

Shortly after Kairys was recruited as Southern Pines Trucking’s Vice President of Sales, he was diagnosed with degenerative arthritis. He required expensive treatment.

This treatment was covered by Southern Pines Trucking’s ERISA plan. The plan was self-funded, meaning that, instead of buying insurance to cover health claims, Southern Pines Trucking paid claims out of its own pocket. This is a not uncommon feature of ERISA-governed health plans. Among other things, self-funding can make it easier for the plan’s administrators to insulate their decisions about which claims to pay from judicial review.

Southern Pines Trucking wasn’t happy about paying for this. It terminated Kairys shortly after the bills came in. The company told Kariys his position was eliminated because there was no work for that role to perform. But it hired a part-time replacement to do the same work soon after terminating Kariys.

Kariys filed a lawsuit alleging, among other things, that the company violated ERISA by retaliating against him for using the company’s medical plan. The case went to trial. The jury found in favor of the company on several of Kariys’ claims.

But, because ERISA doesn’t allow for jury trials, the judge considered the evidence independently. The judge determined Kariys had proved the company fired him in retaliation for making medical benefit claims under the company health plan. It ordered the company to pay Kariys his lost wages and attorneys’ fees.

Southern Pines Trucking appealed that decision to the Third Circuit. First, the company argued that the jury’s finding against Kariys on his other claims should have required the judge to dismiss the ERISA claim. The Third Circuit disagreed. It decided the jury’s verdict, which was in the form of a “check the box” verdict slip, did not address the specific facts of Kariys’ ERISA claim.

The Third Circuit also found the evidence supported Kariys’ ERISA claim. Section 510 of ERISA makes it unlawful to fire workers for claiming benefits under an employee benefit plan. ERISA also prohibits terminating employees for the purpose of preventing them from claiming those benefits. In other words, ERISA prevents employers from either retaliating against employees for using their benefits in the past or from interfering with employees’ attempts to use those benefits in the future.

The appellate court had little difficulty determining the evidence supported a verdict against the company on those claims. It noted Kariys’ testimony that he was told to “lie low” because company leadership was angry at his expensive health plan claims. It rejected the company’s argument that it terminated Kariys for a lack of work, citing evidence that the company’s workload for that position varied on a monthly basis and that the company’s witness testimony about the supposed lack of work had never been disclosed before trial. And, it emphasized that Kariys had been a high performing employee who was paid a bonus a week before being fired, with no documentation explaining the decision to terminate him. Perhaps most importantly, the company leadership admitted under oath that they may have reviewed health claim invoices shortly before making the decision to fire Kariys.

This decision is an excellent illustration of the facts that are important to prove a claim for illegal retaliation under ERISA.

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.

Ninth Circuit Considers When Death By Drunk Driving Is “Accidental”

Is death “accidental” when a person gets in a fatal car crash while over the legal alcohol limit? Courts have had a hard time answering this question. A recent Ninth Circuit ruling provides some clarity.

In Wolf v. Life Insurance Company of North America, the Ninth Circuit held that death resulting from drunk driving was “accidental” for purposes of insurance policy coverage.

In that case, the insured died after driving 65 miles per hour going the wrong way on a one-way road with a 10 mile per hour speed limit. An autopsy found he had a blood-alcohol level of 0.20%.

His family made an insurance claim with Life Insurance Company of North America (LINA). LINA had sold the deceased an insurance policy covering “accidental” death.

LINA denied the claim. It determined that death under these circumstances was not “accidental” because it was foreseeable that driving with a 0.20% blood-alcohol level would result in death or serious injury.

The family filed a lawsuit contesting the denial under ERISA. The Seattle federal court sided with the family. The court ruled that the decedent’s behavior was “extremely reckless” but did not make death so certain as to render it not “accidental”. LINA appealed to the Ninth Circuit Court of Appeals.

The Ninth Circuit agreed with the lower court. It acknowledged that courts have applied different tests to determine whether death under these circumstances is “accidental.” It decided that the most appropriate question is whether death was “substantially certain” to occur: if death is substantially certain, it can’t be accidental.

Applying that test, the Ninth Circuit agreed that death was accidental. Although the insured’s behavior was reckless, it did not make death substantially certain. The court emphasized: “there is no doubt that drunk driving is ill-advised, dangerous, and easily avoidable.” But death was still accidental.

The court concluded with the truism that insurers who don’t want to cover death resulting from drunk driving should just add an explicit exclusion to their policies:

The solution for insurance companies like [LINA] is
simple: add an express exclusion in policies covering
accidental injuries for driving while under the influence of
alcohol, or for any other risky activity that the company
wishes to exclude….This would allow policyholders to form reasonable expectations about what type of coverage they are purchasing without having to make sense of conflicting bodies of caselaw that deal with obscure issues of contractual interpretation.