Shawn E. McDermott - Blog

Often times, both potential clients and inexperienced attorneys will contact our office and are surprised to learn that insurance bad faith claims cannot be pursued when a group insurance policy is governed by Employee Retirement Income Security Act of 1971 (For a more detailed summary of “ERISA” click here). A group insurance policy obtained through an employer, such as a long term disability income replacement policy, looks like an ordinary policy but is not treated as such in the eyes of the law. That is because it is a group policy provided to an individual by his or her employer, and is thus governed by ERISA. The United States Supreme Court has addressed this issue and held that bad faith claims cannot be pursued under ERISA. Pilot Life v. Dedeaux, 481, U.S. 41 (1987). In the Pilot Life case, the Supreme Court ruled that state law claims of bad faith were preempted by the federal ERISA statutory scheme. The court relied on a specific statute found within ERISA which states that it “shall supercede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan…” Although all state laws are preempted, ERISA does contain a saving clause which provides that some state laws are not preempted, such as those laws which regulate “insurance, banking, or securities.” See ERISA § 514(2), 29 U.S.C. § 1144(b)(2)(A). The Pilot Life court determined that Louisiana’s bad faith laws did not specifically regulate insurance.

As a result, the only real recovery available to a claimant aggrieved by an insurance company in the ERISA context is the recovery of the contract benefit itself, interest on past due benefits, and the possibility the reviewing court might award attorney’s fees. This limitation on recovery, and many other nuances of the ERISA laws, have resulted in a dearth of attorney’s practicing in this area, and especially impacts an attorney’s ability to represent an insured on a contingency fee basis. However, at the Law Office of Shawn E. McDermott, LLC we have extensive experience in handling disability insurance claims, both governed by ERISA and non-ERISA, and have the ability to make recommendations on the viability of your claim.

On November 30, 2007, the 10th Circuit Court of Appeals issued the decision in Jewell v. Life Ins. Co. of North America, 2007 WL 4218919. In this case, Mr. Jewell was seeking long term disability benefits through a group policy purchased with LINA (CIGNA) on behalf of the employees of Sprint Telecommunications. Mr. Jewell was suffering from severe headaches, dizziness, panic attacks, and depression. His benefits were denied under the policy’s mental illness limitation. After the lawsuit was transferred to federal court, the attorney for Plaintiff sought to introduce two additional opinions from Plaintiff’s physicians. Whether or not additional evidence can be presented following the insurance company’s determination of a claim is dependent upon the standard of review the court is to apply. If discretionary authority has been granted to the insurance company, the “arbitrary and capricious” standard of review will be applied by the trial court. If discretion has not been granted, the court’s review is “de novo” (of new). The Jewell decision addresses the admissibility of evidence in a de novo proceeding, and, in clarifying a previous decision in Hall v. Unum Life Insurance Co. of America, 300 F.3d 1197 (10th Cir. 2002), narrowly defines the limited circumstances in which additional evidence can be reviewed by the trial court. The Jewell case effectively makes it much more difficult to introduce relevant evidence for a judge’s review even in these de novo cases.

The Jewell case follows prior 10th Circuit decisions which have essentially concluded that all ERISA cases brought to court are mere “administrative reviews” of an insurance company’s denial. In this author’s opinion, neither the ERISA statutes nor regulations can be interpreted to conclude that the typical rights of a litigant and the applicability of the Rules of Civil Procedure have been stripped away, but that is exactly what it appears the Jewell decision has done. A restriction of the court’s review to the “administrative record” as it existed at the time of the insurance company’s final denial should, at best, only exist under the more deferential “arbitrary and capricious” standard of review. The Jewell decision makes it that much more difficult for a district court to review evidence even in a de novo review situation. Importantly, the Jewell and Hall decisions of the 10th Circuit are in direct conflict with the approach taken by some of the other circuits in this country. Those other decisions make it clear that the district courts are not reviewing anything under a “de novo” review but rather “making an independent decision about the employee’s entitlement to benefits.” See Diaz v. Prudential Ins. Co. of America, 499 F.3d 640 (7th Cir. 2007). In this Seventh Circuit decision, the Diaz court concluded that the district court “can and must come to an independent decision on both the legal and factual issues that form the basis of the claim.” Another circuit has ruled that, in a de novo review, the court may in its discretion take whatever additional evidence it deems necessary for it to conduct an adequate de novo review. Mongeluzo v. Baxter Travenol Long Term Disability Ben. Plan, 46 F.3d 938, 943-44 (9th Cir. 1995). In Mongeluzo, the court “held that a district court should admit evidence outside the administrative record when that evidence ‘‘is necessary to conduct an adequate de novo review of the benefit decision.’’ Id. at 944 (quoting Quesinberry v. Life Ins. Co. of North America, 987 F.2d 1017, 1025 (4th Cir. 1993)). Evidence that meets this standard need not satisfy the strict rules for the admissibility of evidence in a civil trial, and may be considered so long as it is relevant, probative, and bears a satisfactory indicia of reliability. See Mongeluzo, 46 F.3d at 941, 943 n.2 (doctor’s report and two affidavits admissible)

The Jewell case is just another example of the ever changing law of ERISA. If your claim for long term disability or life insurance benefits under a group insurance policy has been denied, it is crucial to obtain advice and representation of an experienced ERISA long term disability lawyer. At the Law Office of Shawn E. McDermott, LLC, we have committed a large portion of our time and legal practice to understanding and pursuing ERISA governed claims on behalf of claimants in Colorado, Kansas, Missouri, Arizona, Wyoming, Montana and other states.

Each year, Colorado’s General Assembly amends the Colorado Worker’s Compensation Act. The changes in 2007 are critical in many respects. They are highlighted below.

Senate Bill 07-258

• Slight changes to worker’s compensation evidentiary hearings specific to notice, time schedule, evidence and orders;
• Increases the aggregate of all lump sums granted to $60,000, from the old maximum of $37,560;
• Requires automatic payment of up to $10,000 in a lump sum for both scheduled and non-scheduled awards.

House Bill 07-1297

• Increases the award for disfigurement to a maximum of $4,000, and an award of up to $8,000 for extensive facial or body scars, burn scars, or stumps resulting from loss of limbs.

House Bill 07-1008

• Creates a presumption of an occupational disease for a disability, death, or impairment suffered by a fire fighter which results from certain types of cancer.

House Bill 07-1176

• Affords a claimant the opportunity to select a treating physician from a list of at least two physicians or provider systems designated by the employer. Previously, the Respondent selected the authorized treating physician with no choice being offered to the injured worker;
• Allows the claimant a one-time change of position to a physician or provider on the employer’s designated list. This changes in addition to the existing procedure which allows the claimant to request a change of physician at any time with permission from the insurer.

House Bill 07-1366

• Requires that a person contracting construction work on a construction site either provide or require proof of worker’s compensation insurance coverage for every person performing construction work on that site;
• Does not apply to independent contractors who have formed corporations and have rejected coverage; corporate officers and members of limited liability companies who have rejected coverage; owners, occupants (or both), of a qualified residence who contract work to be done by a person not in their employ; owners, occupants (or both), who contract for routine repair or maintenance.

On December 13th, California Insurance Commissioner Steve Poizner announced his intent to seek $12.6 million dollars in fines and penalties against insurer Blue Cross Blue Shield based upon the results of a Market Conduct Examination. The examination revealed extensive violations in claims handling and improper rescissions.

Among these violations, the examination found Blue Cross had not paid claims in a timely manner; failed to maintain all documents and notes in the claim file; failed to pay interest when required to do so; misrepresented the coverage available under a policy by, in some instances, including misleading ERISA language in non-ERISA policies; sought immaterial information or information already in its possession in handling claims; failed to engage in prompt and fair settlement of claims after liability was established; and failed to complete medical underwriting after receiving the application for insurance, among other violations.

Commissioner Poizner took a strong position against these practices, stating, “[l]et this be a message to all health insurers that we will not tolerate irresponsible rescissions and shoddy claims handling. We will target this behavior on an industry-wide basis and continue to take appropriate action as needed.” You can read the Market Conduct Examination here and can read a copy of the California Department of Insurance press release here.

Heather L. Petitmermet
Blog Author

During Colorado’s most recent legislative session, a new law was added to the books which will effectively increase a Colorado insured’s limits under their Uninsured or Underinsured (UM/UIM) motorist coverage. To refresh yourself on the nature of UM/UIM coverage please click here.

Prior to this legislative change, the coverage available to an injured party in Colorado under their UM/UIM coverage was reduced by the amount of money paid to him or her by the responsible party’s Bodily Injury insurance carrier. As an example, if your policy provides for the minimum limits of $25,000 per person/$50,000 per accident underinsured motorist coverage, but you have received the limits of the responsible driver’s insurance policy which were also $25,000/$50,000, then no claim existed under your UM/UIM feature of your own insurance policy. However, starting in 2008, the UM/UIM carrier is no longer entitled to offset amounts of money the injured insured received under another policy. In the scenario above, the total available under all insurance policies effectively increases to $50,000/$100,000, if your injuries and losses justify the recovery of course. This new law only applies to policies issued or renewed after the January 1, 2008 effective date.

We have always counseled our clients that UM/UIM coverage is perhaps the most important type of coverage to be purchased on your automobile policy. While Bodily Injury (BI) protection is required by law, an insured in Colorado may reject UM/UIM coverage in writing. In our opinion, this would be a mistake. UM/UIM coverage is typically the least expensive type of coverage you can obtain on your policy and effectively insures every other driver out on the road who either does not have insurance or does not have enough insurance. We recommend that you purchase BI and UM coverage limits of at least $100,000/$300,000, even more if you are able to do so.

Often times, insurance policies contain enforceable provisions that may dramatically differ from one’s expectations, especially if the insured has not reviewed th policy in detail. For instance, many health insurance policies contain “subrogation clauses” which provide the insurer the ability to be reimbursed for medical expenses paid pursuant to the insurance policy if the insured also recovers in a separate legal action against the party responsible for the insured’s injuries. Subrogation clauses can, in some instances, be limited by a common law principal called the “make whole” doctrine. Under the make whole doctrine, the health insurer would not be able to recover medical expenses unless the insured had been “made whole,” in other words, unless the insured had been compensated fully. Across the country, courts are split on the applicability of the make whole doctrine in the ERISA context.

The oft-stated purpose of the subrogation clause is to avoid double recovery to an insured; however, the practical effect is that many people are unable to be fully compensated for their losses. (more…)

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Clients and lawyers alike are often surprised to learn that when ERISA litigation is successful, and a plan administrator’s decision is overturned by a court as arbitrary and capricious, the court “may either remand the case to the plan administrator for a renewed evaluation of the claimant’s case or . . . may order an award of benefits.” Flinders v. Workforce Stabilization Plan, 491 F.3d 1180 (10th Cir. 2007). According to this 10th Circuit Court of Appeals decision, if the plan administrator (often an insurance company) failed to make adequate factual findings or failed to adequately explain the grounds for the decision, then the proper remedy is to remand the case to the administrator (insurance company) for further findings or additional explanation. The judge makes the decision to either remand the case or to issue an award of benefits. If the judge remands the case, the claimant will have technically won the case without having actually obtaining a recovery. In this circumstance, the case/claim is simply remanded back to the insurance company (more…)

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The term “contra proferentem” refers to a doctrine of contractual interpretation which instructs courts to construe ambiguous language found in contracts against the drafter of the contract. In our practice, we often come across terms or provisions of insurance contracts which are capable of more than one meaning. In the non-ERISA context, this ambiguity is always construed against the insurance company. However, in ERISA governed cases, the analysis can change in favor of the insurance company. The 10th Circuit Court of Appeals has rejected the applicability of contra proferentem in cases where the Administrator (e.g. insurance company) retains discretion, thus the court’s review of an adverse benefit determination (more…)

During this 110th Congress, there have been two proposed bills intended to amend the Employee Retirement Income Security Act of 1974 (“ERISA”) to improve the protection of employee benefits, such as a employee’s long term disability (LTD) claim.

The first is a bill proposed by Congresswoman Carolyn McCarthy, of the Fourth District of New York, titled the “Equality for Workers under ERISA Act of 2007.” HR2622. This very short amendment to the ERISA statute would simply add a paragraph to Section 502(e) to clarify that any civil action commenced in court shall be decided by the court as a “de novo” proceeding without any deference to any claim determination made prior to commencement of such actions. In other words, the judge reviewing a (more…)

The Tenth Circuit Court of Appeals issued a decent decision in favor of an ERISA long term disability benefit claimant on May 7, 2007 in the case of Bishop v. LTD Plan of SAP America, Inc and LINA (Cigna), 2007 WL 1314523. The appeals court overturned an Oklahoma district court judge which had been favorable to LINA. Of particular interest was the Court’s rejection of LINA’s use of the DOT definitions of “sedentary” when the insurance policy language defines disability in terms of a claimant’s inability to perform “his occupation.” In this new case, Mr. Bishop was a technology consultant for SAP whose job required extension travel. The insurance company failed to consider travel as an essential duty of his job. Instead, in terminating his long term disability benefits, LINA determined (more…)