ERISA – Page 9 – Seattle Insurance and ERISA Blog

Court of Appeals Clarifies Policy Causation Language In Favor Of The Insured

When language in one part of your ERISA policy says your claim is covered, can the company rely on language elsewhere in the policy to deny your claim? The Ninth Circuit Court of Appeals recently answered “no.” In Dowdy v. Metropolitan Life Ins. Co., the court ruled the conflicting language about what caused the insured’s loss did not preclude coverage.

Mr. Dowdy’s leg was amputated following a car crash. He made a claim under his ERISA-governed Accidental Death & Dismemberment insurance policy with MetLife, purchased through Mrs. Dowdy’s employer.

MetLife denied coverage, claiming the amputation was excluded because it was complicated by Mr. Dowdy’s diabetes. MetLife relied on language in the policy requiring the loss to be the “direct result of the accidental injury, independent of other causes,” and excluding injuries for losses related to “illness or infirmity” or “infection occurring in an external accidental wound.” Under this language, MetLife claimed the right to deny coverage for any amputation “contributed to” or “complicated by” diabetes.

The court ruled the language could be read two ways, but that the Dowdys prevailed under either interpretation. Under one interpretation, coverage existed if the injury was the “predominate or proximate cause,” while under the more stringent interpretation, coverage was barred as long as the excluded condition (diabetes) “substantially contributed” to the loss.

While agreeing diabetes was “a factor” in the injury leading to the amputation, the court determined there was no evidence diabetes “substantially” contributed to the injury. The court relied on definitions of “substantial” requiring “a significant magnitude of causation” demonstrating the diabetes was “more than merely related to the injury.”

Since Mr. Dowdy’s medical records established only that diabetes “complicated” Mr. Dowdy’s wound, the court determined diabetes did not “substantially” contribute to the injury. The car crash caused a severe injury that nearly severed Mr. Dowdy’s leg. The subsequent infection and wound issues were complicated by diabetes, but did not cause Mr. Dowdy’s amputation.

Because this type of language frequently appears in Accidental Death & Dismemberment policies as well as health and disability policies, the Dowdy ruling is helpful for many ERISA participants seeking coverage.

Can The Company Deny Your ERISA Claim “Because We Said So?”

Who decides whether a person’s entitled to coverage under an ERISA plan? Given ERISA gives plan participants the right to take the company to court to dispute coverage denials, you might think the judge decides. But the answer’s not that simple. Often, the insurer itself can decide whether you’re covered under the terms of the plan, and the judge in a lawsuit is not always allowed to tell the company it was wrong.

Most ERISA benefit plans contain language in which the plan gives itself (or the administrator it hires) unlimited discretion to decide who’s entitled to benefits. These are called “discretionary clauses.” For example, employer-sponsored health coverage might only cover surgery or prescriptions that are “medically necessary” and give the plan itself the unlimited right to decide what is “medically necessary.” These provisions effectively allow your insurance plan to decide you aren’t entitled to coverage “because we said so,” even if a judge decides the weight of the evidence shows you’re entitled to coverage.

That’s because the U.S. Supreme Court decided, in the Firestone Tire & Rubber Co. v. Bruch case, that “discretionary clauses” mean the judge in an ERISA lawsuit must defer to the company’s decision – even if the judge decides the company was wrong – unless the decision was so badly made that it was “arbitrary and capricious.” For instance, if the company decides the surgery your doctor recommended isn’t “medically necessary,” even though six physicians say you need the surgery and only one says it’s unnecessary, the court can’t say the company got it wrong. Where there’s a discretionary clause, the court can only disagree with the company’s decision if the company’s decision was not just wrong but “arbitrary and capricious.”

Surprising nobody, after the Firestone decision, every ERISA plan promptly added discretionary clauses making it easier for the company to deny claims.

Fortunately for plan participants, voters in many states, including Washington State, responded by enacting legislation prohibiting discretionary clauses.

The upshot is plan participants in states like Washington where discretionary clauses are unlawful have a significantly better chance at obtaining coverage for surgery, prescriptions, disability benefits or other ERISA-governed benefits because the company can’t deny claims simply “because we said so.”

Insurance Regulators Investigating Aetna for Training Employees to Deny Coverage Without Reviewing Patient’s Medical Records

Aetna, the country’s third largest health insurer, is under investigation by state insurance regulators following Aetna’s admission that it routinely denies medical treatment coverage without reviewing the insured’s medical records. Aetna’s admission surfaced in a lawsuit by a California man who claimed Aetna improperly denied coverage for his medical treatment. The insured has a rare autoimmune disorder requiring monthly dosages of an expensive medication.

Aetna’s physician admitted in the course of the lawsuit that he routinely denied coverage for insured’s treatment without reviewing the insured’s medical records. Aetna’s training, the physician testified, permitted him to simply follow the recommendations of Aetna’s nurses.

Since the physician claimed to have followed Aetna’s normal procedures, other Aetna insureds may similarly have had coverage for necessary treatment erroneously denied by reviewing physicians who failed to examine their medical records.

Insurance coverage for chronic conditions has become a hot-button issue. In recent years, patients with rare chronic diseases have faced increasing challenges getting insurers to cover treatment. Insureds’ difficulty covering treatment for chronic diseases is often complicated by pharmaceutical companies’ increasingly common practice of raising prices on chronic disease medications by several hundred percent in a single increase.

Washington insureds who suspect their health coverage was improperly denied have ample legal recourse. If the insurance plan is through an employer, the federal Employee Retirement Income Security Act (“ERISA”) gives the patient the right to appeal a coverage denial, to sue in federal court if the appeal is wrongfully denied, and to obtain coverage and attorneys’ fees. For non-employer insurance, Washington’s Insurance Fair Conduct Act and Consumer Protection Act give insureds the right to bring a lawsuit to obtain coverage as well as exemplary damages and attorneys’ fees.

New ERISA Rule Restores Important Rights to Insureds

For insureds, ERISA (which governs most employer-sponsored insurance) has a serious downside. Insureds and plan participants who dispute the company’s denial of their claims for coverage or benefits must submit to ERISA’s administrative appeal process before they can file a lawsuit challenging the company’s decision. This can disadvantage the participant because failure to dot i’s and cross t’s in the administrative appeal can cause the participant to lose important rights in litigation. Moreover, because ERISA excludes many traditional state-law remedies such as punitive or exemplary damages and gives no right to a jury trial, even plan participants who successfully navigate the administrative appeals process and make it to court often face an uphill battle.

Accordingly, insurance companies spent several decades designing their benefit plans and policies to leverage ERISA against the insured. One recently-published internal memo recommended the company get as many policies as possible covered by ERISA to reduce the money the company had to pay to its insureds. The memo did a test study of 12 non-ERISA cases in which the company paid of a total of $7.8 million, estimating that ERISA’s application would have reduced the company’s liability in those cases to $0 to $0.5 million. The author concluded “the advantages of ERISA coverage in litigious situations are enormous.”

: Wallace Falls, Central Cascades.

Recognizing that ERISA can favor the company over the insured or participant, the federal Department of Labor promulgated a regulation aimed at leveling the playing field, which became effective on April 1, 2018. Because the Department of Labor concluded the majority of ERISA disputes arise in disability and health plans, the new rule focuses on these types of benefits specifically. The rule’s upshot is:

Insurers can no longer pay their employees more, or promote them, or threaten to fire them, based on how many claims they deny;
Claimants under disability policies must receive a clear and detailed explanation of why their claim was denied, and, particularly, the company must explicitly address its disagreement with opinions about the claimant’s condition by treating physicians or Social Security;
Clearly state any deadlines by which the insured or participant must file a lawsuit challenging the denial of benefits;
Disability claimants must also receive a clear statement of their rights to appeal a denial of a benefit claim;
If the company upholds its claim denial based on new information, the company must permit the insured or participant to review and respond to the new information before the denial becomes final;
Claimants must be specifically advised of their right to examine the insurer’s entire claim file to permit them to evaluate the basis for the claim denial; and
Notices must be written in a culturally and linguistically appropriate manner if the situation warrants.

Importantly, violations of the new rule can permit the insured or participant to bypass the administrative appeal process and sue in court directly. This reduces the risk that an insured or participant loses rights in litigation through technicalities in the appeal process.

Hopefully, the Department of Labor’s new rule will go a long way towards leveling the playing field for ERISA policyholders and plan participants.

Can the ERISA Plan Deny Coverage Because you Made a Technical Mistake When Enrolling?

So you sign up for insurance through your employer. The HR people say “yup, you’re signed up all right!” You pay premiums for a few years. Then, you make a claim and the insurance company says you’re not covered – turns out, you filled out the paperwork wrong when you signed up for coverage.

Can they do that? According to at least one federal appeals court, the answer’s “no.” In Salyers v. MetLife, Case No 15-56371 (September 20, 2017), the court found the employee was entitled to coverage despite failing to properly enroll.

Susan Salyers bought a $250,000 life insurance policy on her husband through an employer-sponsored plan. Salyers paid premiums on the $250,000 coverage amount. After Salyers’ husband passed away, the insurer (MetLife) paid out only $30,000 and denied coverage for the full $250,000 Salyers had paid premiums for.

Looking down on Gem Lake in the early morning.

It turned out that Salyers made a mistake when signing up for coverage. Salyers forgot to submit a form regarding evidence of insurability with her coverage election. The terms of the ERISA Plan explicitly required the evidence of insurability form for Salyers to purchase the full $250,000 in coverage.

But the court ruled that MetLife waived its right to deny coverage based on the evidence of insurability requirement. Under the federal common law of agency, the knowledge and conduct of Salyers’ employer could be attributed to MetLife. Salyers’ employer knew (or should have known) that Salyers’ coverage election required evidence of insurability; they knew Salyers signed up for $250,000 in coverage and they knew you could only get $250,000 in coverage with the right form.

Despite having not received evidence of insurability from Salyers, her employer deducted premiums from Salyers’ paycheck, in amounts corresponding to $250,000 in coverage, and sent Salyers a letter confirming $250,000 in coverage. These actions were so inconsistent with an intent to enforce the evidence of insurability requirement that they gave Salyers a reasonable relief that Metlife had relinquished its right to deny coverage under that requirement.

The Ninth Circuit remanded the case to the trial court with instructions to enter judgment in favor of Salyers for the amount of the $250,000 policy that remained unpaid.

The key to Salyers’ case was that Salyers, the employer and Metlife all acted as though Salyers really had signed up for the full $250,000. Salyers paid premiums for the full amount, the employer treated her as purchasing coverage at the full amount, and the mistake Salyers made didn’t really hurt the employer or Metlife.