The Insurance and Reinsurance Report

NEVADA AUTHORIZES TORT CLAIMS AGAINST ERISA ENTITY

Lynam v. Health Plan of Nevada (Nev. March 21, 2012)

The plaintiff, Donald Lynam, received managed health care services from a health plan.  As part of his “managed care,” he was referred by the health plan to a medical services provider for treatment.  During the course of his treatment, allegedly through the unsafe practices of the provider, he contracted hepatitis C.  He sued the health plan asserting that the plan “knew or should have known” about the unsafe conditions and failed to have a quality assurance program as required by Nevada law. 

The health care plan asserted ERISA preemption as a defense and the trial court accepted the defense.  Noting that while ERISA is broad, the Supreme Court also noted it is not presumed to preempt a state’s police powers.  If the health plan had leased out its own providers (rather than facilitating selection of providers), the ERISA would not preempt state law.  Likewise, if it had purchased a policy from a HMO, ERISA would also not preempt the application of state law. 

Since the allegations in the complaint and moving papers did not present sufficient information to determine whether ERISA would preempt the claims, the case was remanded to the trial court to give the plaintiff the opportunity to prove Nevada law applied.

A copy of the decision can be found here

Sarah Delaney and Sharon Angelino

Supreme Court Takes Up Health Care Reform

The Supreme Court today began a record three-day session to hear oral argument on the constitutionality of President Obama's Patient Protection and Affordable Care Act. In today's 90-minute hearing, the high court considered arguments on the issue of whether it has jurisdiction in the case, or must wait until the law goes into effect and is enforced with penalties after 2014. The justices appeared to favor the view that the Anti-Injunction Act -- which bars legal action to impose prior restraint on Congress' power to tax people -- does not apply in this case. Widely seen as the main event, Tuesday's arguments will address the Act's so-called "individual mandate" provision, which requires most people to buy health insurance by 2014 or pay a tax penalty. Challengers to the provision, including 26 of the 50 states, claim that the Act violates the Constitution's commerce clause and could lead to a wide range of other requirements. The Obama administration counters that the insurance market is unique because virtually every person will need medical care and those who opt not to purchase insurance disproportionately burden the system. The justices will take up two questions on Wednesday, including whether, if the individual mandate is declared unconstitutional, it can be severed from the rest of the law.

The justices will also consider whether Congress improperly put new burdens on states when it expanded eligibility under Medicaid. A ruling is not expected until June. If the court decides that it does not have jurisdiction pursuant to the Anti-Injunction Act, any action would be set aside at least until 2015.

For copies of the respective briefs click here

Carrie Appler and Jeffrey Kingsley

SOCIAL SECURITY DEPENDENT BENEFITS OFFSET PARENT’S LOST WAGES

SCHULTZ v. AVAILL, INC. LONG TERM (7^th Cir. March 2, 2012)

Proposed class-action plaintiffs sought a ruling that Social Security Benefits provided to children of disabled parents did not constitute “loss time disability payments,” subject to an offset under long-term disability insurance. 

According to the opinion, the plaintiffs argued that the dependent payments were “additional” and did not constitute replacement of income: “Essentially, they argue, the purpose of Social Security payments to a dependent child of a disabled parent is not to replace the income that the household has lost as a result of the parent’s inability to work. The purpose is instead to provide additional ‘support’ for the child.” Plaintiffs argued that because the dependent’s benefits can only be used for the support of the child, they differed from the general-use benefits which the insurers contracted to provide and did not duplicate them.  In essence, the argument was that the insurers contracted to provide broader benefits, and offsetting them by limited benefits impermissibly reduced the intended scope of coverage.

Rejecting the argument, the court held that the only possible interpretation of the statute required a finding that the dependent benefits were intended to replace the disabled parent’s loss of income due to “loss of time.”  Therefore, they were subject to offset under a policy requiring the offset of “loss time disability payments.”  It found that social security benefits for children were part of the “total package” based on the loss of time from work.

For a copy of the decision click here

Sarah Delaney and Michael Saltzman

N.Y. Court of Appeals: No Excess Coverage for Insured Not Acting as ERISA Fiduciary

Federal Ins. Co. v. IBM N.Y. Ct. Apps., Feb. 21, 2012

The Court of Appeals unanimously affirmed the lower court’s decision declaring that the excess insurer was not required to indemnify the insured where the alleged ERISA claims were not covered under the underlying policy. The issue was whether the allegations against the insured included a breach of fiduciary duties imposed under ERISA.

The underlying policy provides coverage only for the insured’s violations when acting in an ERISA fiduciary capacity. The excess policy was a “follow form” policy and thus Federal argued that the insured was not accused of breaching fiduciary duties under ERISA therefore there was no coverage under either policy.

The underlying allegations were that certain amendments to the benefit plans violated ERISA age discrimination provisions by reducing pension benefits up to 50% for some elderly workers. The case was later settled and after the underlying $25 million policy was exhausted, the insured sought indemnity from the excess insurer.

The New York Court of Appeals agreed with the excess insurer, finding that the allegations were comprised of actions by the insured as a settlor of the plan and not a fiduciary. Thus, there was no coverage under the underlying policy and neither Zurich nor Federal was required to indemnify the insured.

For a copy of the decision click here 

Sarah Delaney and Fallyn Reichert

Sixth Circuit Vacates Class Certification for Cancer Patients Suing Life Investors Insurance Company

Gooch v. Life Investors Ins. Co. of Am. Et al., (United States Court of Appeals for the Sixth Circuit February 10, 2012)

The Sixth Circuit vacated an order of class certification for cancer patients because there was an overlap between class members of this class and a class that had settled on the same issue in another case. Despite this, the Court upheld a preliminary injunction forcing the defendant to pay for the plaintiff’s lymphoma treatment bills in full.

The plaintiff brought a claim against the defendant insurance company for wrongfully denying policyholders payment on cancer treatment claims. The plaintiff brought the case because the defendant changed its previous policy from paying the higher list price of treatments that appeared on hospital bills to paying the actual charges incurred by patients covered under its cancer policies.

The Sixth Circuit Court noted that there was an identical class action case in Arkansas that took on this same issue and settled in 2009. The Arkansas case is known as the Runyan Case. The case involved the same defendant and the same claims that covered cancer patients during the years 2004-2009. The Court found that this class action was precluded by the Runyan Case. The Court found that there was overlap between the settling plaintiffs in the Runyan case. The class members in this case attempted to represent the class members who were covered by cancer policies issued by the defendant from 2001 to present. Moreover, the current plaintiff had opted out of the Runyan Case, and that impacted his status as a class representative.

The Court did not dismiss the defendant’s appeal of the order in which the District Court denied the defendant’s motion to dissolve the preliminary injunction because it could not “review a district court order denying a request for reconsideration of a previously granted preliminary injunction.” Therefore the Court held that the preliminary injunction remained in place forcing the defendant to pay for the plaintiff’s lymphoma treatment bills in full.

The decision can be found here

Sarah Delaney and Joanna Roberto

Insurer RICO Class Action Suit Filed against Walgreen, Par for Overcharging on Generics

United Food & Comm. Workers Unions v. Walgreen Co. U.S. Dist. Ct., N.D. Ill, Filed Jan. 11, 2012

Insurance companies, self-insured employers, and union health and welfare plans filed the class action in Illinois Federal Court alleging several RICO violations against Walgreen Co. and Par Pharmaceutical Co. for engaging in a scheme to overcharge for generic versions of Zantac and Prozac.

Walgreen and Par entered into a “health resource partnership” under which Par manufactured and marketed generic versions of the drugs Zantac and Prozac in dosage forms that were not currently subject to strict reimbursement limitations. The scheme boosted Walgreen’s profits by allegedly systematically and unlawfully filling customer’s prescriptions with the more expensive Par products instead of the inexpensive dosages that had been prescribed. Under the alleged scheme, Walgreen could bring in $80 million per year instead of the $5 million that the originally prescribed tablets would have netted it costing the third-party payers two to four times more.

The complaint alleges that “even though a pharmacy cannot legally change a prescription without a physician’s express authorization, Walgreens filled prescriptions written for low-priced 150-mg ranitidine tablets with much more expensive 150-mg ranitidine capsules manufactured by Par.” Further, Walgreens allegedly made the Par capsules the only form of generics readily available to its retail customers, despite the fact that it was dispensing a drug that was not legally substitutable for tablets. “Walgreens did not have a system to obtain physician or patient authorization for the drug switching, or even a system to notify the physician or patient that a different drug had been dispensed.”

This class action comes months after a similar whistleblower suit was unsealed in July 2011, thereby publicly revealing the details of the alleged schemes. Plaintiff insurers have reproduced documents from that suit in support of its complaint. Back in June 2008, Walgreen settled RICO allegations with the federal government, 42 states and Puerto Rico, by paying $35 million regarding allegations it had overcharged state Medicaid programs by filling prescriptions with the more expensive dosage forms.

The four count complaint seeks to represent thousands of third-party payers who paid for prescriptions from 2001 to 2006. The plaintiff’s seek compensatory damages, treble damages, prejudgment interest and attorney’s fees.

For a copy of the decision click here

Tom Segalla

ERISA Putative Class Action over Defective Database Dismissed as Untimely

Koberg v. John Alden Life Ins. Co. U.S. Dist. Ct. (Mont.) Dec. 8, 2011

The District Court of Montana dismissed a putative class action against insurer John Alden last Thursday citing the Policy’s 3-year statute of limitations. The plaintiff brought suit against the insurer alleging it had used a defective database that produced inaccurate calculations for reimbursement of health care charges. Plaintiff was insured under an ERISA-governed employee welfare benefit plan that included medical coverage.

In 2005, the insured incurred more than $20,000 in health care costs of which he agreed to pay $4500 as required by the policy and submitted the remaining amount to the insurer. The insurer refused to pay the remaining amount, on the basis that the charges exceeded the prevailing rate in the locality as determined by the Ingenix database. The insured retained counsel and filed an internal appeal in 2006. During this appeal process the insured was informed of the insurer’s process in determining the reimbursement amount and of his right to file an ERISA action after exhaustion of the internal appeals process.

Later in 2009, the insured learned of a settlement between the New York Attorney General’s Office and United Healthcare in a lawsuit concerning the database. The insured then filed this lawsuit in March 2011 asserting five ERISA causes of action, a declaratory judgment claim, and state law claims arising out of the insurer’s method of reimbursing policyholders for healthcare services. The court focused on the tardiness of the action finding that the Policy’s three-year statute of limitations was reasonable.

The insured argued that the three-year period should be tolled, or that the insurer should be equitably estopped from raising the defense because it prevented him from filing within the deadline by its affirmative misrepresentations. The court stated that the insured had not met its burden to show any “active conduct by the defendant above and beyond the wrongdoing upon which the plaintiff’s claim is filed.” The court found that there was no allegation that the insurer had lulled the insured into delaying his legal action and therefore, no basis for equitable estoppel.

The court then discussed the insured’s argument that his claim did not accrue until 2009 because he lacked “actual knowledge” of the insurer’s violation until he learned of the settlement regarding the database. The court stated that the insured had ignored contrary mandatory authority from the Ninth Circuit which holds that “actual knowledge” requires only knowledge of all the relevant facts, not that the facts establish a cognizable legal claim under ERISA. The court dismissed the insured’s ERISA claims and the declaratory judgment claim on the basis that they were untimely filed and also dismissed the remaining state law claims as being preempted by ERISA.

For a copy of the decision click here

Sarah Delaney  and Michael Saltzman

Fourth Circuit Requires Causation in ERISA Breach of Fiduciary Duties Suit

Plasterers’ Local Union No. 96 Pension Plan v. Pepper (U.S. Ct. of Apps., 4th Cir., Dec. 1, 2011)

Former trustees of Local Union 96 appealed a district court ruling that they had breached their fiduciary duties regarding investment of plan assets as required under ERISA section 1104(a)(1)(B) and (C). The former trustees presented evidence that in the 1970’s and 80’s the predecessor plan fund had lost substantial amounts of funds and therefore, in 1987 the board implemented the plan with the primary objective to avoid any further losses. From 1992 to 2005 the Plan assets were invested entirely in $90,000 CDs and on-to-two-year Treasury bills. The district court held that the former trustees had failed to investigate its investment options and also failed to diversify its investments. After finding a breach of fiduciary duties to investigate and diversify, the district court turned immediately to damages. The district court awarded damages for a three year period of $432,986.70, $337,935.01 in fees, and $20,014.47 in costs.

The former trustees appealed citing error due to the district court’s failure to make a finding that they held objectively imprudent investments. The Fourth Circuit agreed, stating that a breach of the fiduciary duty to investigate or diversify does not automatically equate to causation of loss and therefore liability. The district court erred in that it did not first determine whether the investments were imprudent and then as required by ERISA, make an independent finding of causation of loss resulting from the breaches identified. The court stated that the failure to investigate alternative options or to diversify does not mean that their actual investments were necessarily imprudent. The Fourth Circuit vacated and remanded the decision with directions to the court that in analyzing the prudence of the former trustees’ actions the court will need to make factual findings of the circumstances that informed the decisions including the Plan’s size and type, the Plan member’s demographics, and the Board’s goals and objectives. The Fourth Circuit stated no opinion on the issue of who has the burden of proving causation although it noted that the circuits are split.

The Fourth Circuit also rejected the district court’s calculation of damages and failure to articulate a reasoned basis for awarding damages based on a three-year period instead of the former trustees urged six year basis. The Court found that the different time periods would result in significantly different awards and therefore “picking a time period out of the air” is clearly not a reasoned basis. Notably, if the six-year period was used, the investments outperformed the expert’s model and so no damages where incurred by the Plan. Additionally, the Court rejected the award of attorney’s fees and costs instructing the district court on remand to first conduct the Hardt analysis and then apply the general guidelines in Quesinberry. The Court cited error in the district court’s finding that an insurance policy would pay the fee award, and so the “Former trustees thus were able to pay any such award” because the policy was not in the record, nor was any evidence of its terms presented.

For a copy of the decision click here

Sarah Delaney and Dan Gerber

Federal Court Finds $10 Million Life Insurance Policy Sold to Wells Fargo Void Ab Initio

Pruco Life Insurance Co. v. Brasner (U.S. Dist. S.D.FL November 14, 2011)

In Pruco, a 72 year old woman attended a seminar promising “free life insurance.”  When she later inquired with the broker agency, she was signed up for a $10 million dollar policy which listed her as the owner and her husband as the beneficiary.  However, the woman was never intended to pay any premiums on the policy and it was understood that the policy proceeds would be collected by a third party to whom the policy would be sold after the “free life insurance” period was over.  The policy was ultimately issued by Pruco Life Insurance which had no knowledge of the arrangement made by the broker agency.

After its issuance, Pruco received numerous change of ownership and beneficiary requests, the last to Wells Fargo.  It was alleged by Pruco that these took place to conceal the sale of the policy’s beneficial interest to an investor with no insurable interest in the insured’s life.

After the Wall Street Journal printed a story about a similar scheme in 2010, Pruco investigated the policy and file suit against the broker agency and Wells Fargo for damages and a declaration that the policy was void.  After a default judgment was awarded against the broker, Pruco sought summary judgment against Wells Fargo and a finding that the policy was void from the onset.  Wells Fargo filed a cross-motion seeking a return of premiums paid since they acquired the policy.

An insurable interest in the life of the insured is necessary for the validity of a life insurance policy.  Absent such an interest, courts have found that such policies are illegal wagers upon a person’s life and are void as against public policy.  Although Florida law permits life insurance policies to be assigned to entities with no insurable interest, this is not permitted in the form of “sham assignments made simply to circumvent the law’s prohibition on wagering contracts.”

The Southern District Court (J. Cohn) found that the policy was void ab initio because the policy was procured in bad faith.  The Court reasoned that there was never an intention that the insured or her husband would maintain the policy and it was understood from the onset that the policy would be transferred to a stranger.  The court held that this “pre-existing” understanding alone was sufficient to show that the policy was not procured in good faith.  The court further held that Pruco was not required to return policy premiums paid by Wells Fargo because the policy was determined to be void ab initio as against public policy and in such circumstances “the parties will be left as the court found them.”

For a copy of the decision click here

Bryan Richmond and Tom Segalla

Life, Health, Disability and ERISA Quarterly - Spring 2011 Edition is Now Available

For a free copy, please click here.

If you wish to receive this via email, please contact Sarah Delaney at sdelaney@goldbergsegalla.com.

Cases for Life, Health, Disability and ERISA Quarterly Spring 2011 Edition

Cases provided courtesy of Lexis.

Bicknell v. Lockheed Martin Group Benefits Plan

Blue Shield of California Life & Health Insurance Company v. The Superior Court of Los Angeles

Crosby v. Louisiana Health Serv. & Indem. Co.

Dormer v. Northwestern Mut. Life Ins. Co.

Fier v. Unum Life Insurance Company

Hartford Life and Accident Insurance Company v. Cain

Lin v. Metropolitan Life Insurance Company

Muniz v. Amec Constr. Mgmt

Protective Life Insurance Company v. Hansen

Sadel v. Berkshire Life Ins. Co.

Union Security Insurance Company v. Blakeley

United States Supreme Court Refuses to Hear Benefits Appeal

Richards v. Hewlett-Packard Corp. (U.S. Sup. Ct. December 6, 2010)

In 1991, Edward Richards filed for long-term disability benefits after being diagnosed with chronic fatigue immune dysfunction and fibromyalgia.  Mr. Richards had worked for Digital Equipment Corp., now Hewlett-Packard Co., as a software engineer since 1984.  Prudential Insurance Co. of America granted his claim and in 1992, Mr. Richards was granted Social Security disability benefits.

The company’s plan permitted Prudential Insurance to confirm Mr. Richards’ condition from time to time.  In 2001, several physicians commissioned by the insurer found that Mr. Richards should be able to perform his job duties and was well enough to work a primarily sedentary job.  As a result, the insurer canceled Mr. Richards’ benefits.  Mr. Richards exhausted his administrative remedies and filed suit against the insurer, arguing that it violated Employee Retirement Income Security Act by basing its decision largely on the evaluation of its own physicians who never examined Mr. Richards. 

The lower court granted summary judgment in favor of the insurer and Mr. Richards’ employer.  In January 2001, the United States Court of Appeals for the First Circuit affirmed.

On December 6, 2010, the United States Supreme Court refused to grant Mr. Richards’ petition for writ of certiorari.

For a copy of the decision click here

Toni Frain and Joanna Roberto

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Roberto.html

Life, Health, Disability and ERISA Quarterly - Fall 2010 Edition is Now Available

For a free copy, please click here.

If you wish to receive this via email, please contact Sarah Delaney at sdelaney@goldbergsegalla.com.

Cases for Goldberg Segalla's Life, Health, Disability and ERISA Quarterly Published November 18, 2010.

Bell v. Pfizer, Inc.

Blumenthal v. New York Life Insurance and Annuity Corporation

Bonner v. Metropolitan Life Ins. Co.

Conseco Life Insurance Company v. Williams

First National Bank & Trust Company v. Stonebridge Life Insurance Company

Flores v. Monumental Life Ins. Co.

Gunn v. Reliance Standard Life Ins. Co.

Hinkle v. Assurant, Inc.

Howley v. Mellon Financial Corporation

Jackson v. Fort Dearborn Life Insurance Company

Klay v. AXA Equitable Life Insurance Company

Kramer v. Phoenix Life Insurance Co.

LeSuer v. HCA Inc.

McClelland v. Life Insurance Company of North America 

Settlement Funding, LLC v. AXA Equitable Life Insurance Co.

Smith v. Lincoln Benefit Life Company

Temme v. Bemis Company, Inc.

Terry v. Metropolitan Life Insurance Company

Cases provided by courtesy of Lexis.

Questions Regarding Whether "Insurable Interest" for Stranger Orginated Life Insurance Policy ("STOLI") Exists Where Intent to Sell the Policy Exists at the Time it was Purchased

AMERICAN GENERAL LIFE INSURANCE v. HELEN GOLDSTEIN (District Court, Delaware  September 30, 2010)

The insured was approached by a "friend" regarding a "fabulous deal":  in exchange for six-figures, the insured would simply have to submit to a medical examination and apply for a life insurance policy.  The insured set up a trust, naming her husband as beneficiary.  She applied for a life insurance policy, listing her unearned income as $200,000 per annum, and her net worth as between $5-6 million.   In fact, her net worth was significantly less and her income about one-half of the claimed amount. She, the trust and the agent all indicated that the policy was being purchased for estate planning purposes.  The agent also signed a statement asserting that the policy was not being issued for purposes of sale to a third-party.

After questioning the insured's income and assets, and being assured by its agent that the insured was liquidating investments to meet the premium, a policy was issued.  Less than a month later, the insured's husband sold the policy to a third-party investor for over $100,000.   Twenty-one days after that, the third-party sold the policy to a third entity for nearly $270,000. 

 

In a routine follow-up investigation after the policy was issued, the insurer discovered the misrepresentations.  It sued for recission of the policy, claiming among other things that the policy was void ab initio because there beneficiary had no insurable interest at the time the policy was issued. The case presented an issue of first impression under Delaware law:  is a STOLI policy voidable from inception if the intent in purchasing the policy was for a beneficiary with an insurable interest to transfer it to a stranger?

 

An insurance policy is valid if there is an insurable interest at the time of issuance.  The policy initially named a trust for the benefit of the insured's husband as beneficiary, i.e. there was an insurable interest at the time the policy was issued.  The federal court found that allegations alleging a unilateral intent to transfer the policy due to its immediate sale was sufficient to allege lack of insurable interest.

The insurer alleged that (1) the stranger paid the premiums; (2) the trust was never intended to maintain a controlling or beneficial ownership interest in the policy; (3) material misrepresentations were made on the application regarding the insured's income, net worth and purpose for the Policy in order to conceal its STOLI nature; (4) the husband sold the policy less than a month after its issuance; (5) an interview with the insured's daughter confirmed that insured's income, net worth, and reason for applying for the policy were misrepresented; and (6) contrary to the representations made to plaintiff, the insured did not liquidate her assets to pay the premiums for the Policy.

The court founds that the complaint sufficiently alleged circumstances demonstrating that no insurable interest existed in the policy at the time it was issued, even though the insured's husband was the beneficiary at the time of issuance.

For a copy of the decision click here

Sarah Delaney and Daniel Gerber

http://www.goldbergsegalla.com/attorneys/Delaney.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Life, Health, Disability and ERISA Quarterly - July 2010 Edition is Now Available

For a free copy, please click here.

If you wish to receive this via email, please contact Sarah Delaney at sdelaney@goldbergsegalla.com.

Life, Health, Disability and ERISA Quarterly Cases - July Edition

Cases provided courtesy of Lexis.

Arunan v. Unum

Blanco v. Prudential

Davis v. Life Ins

Durakovic v. Bldg. Serv

Green v. Hartford

Grimes v. Prudential

Kenseth v. Dean

Manning v. American Republ

Metro v. McLean

Miller v. Mellon

Principal v. Smith

Reamy v. Ferguson

Reliance Standard

Ringwald v. Prudential

Rizzi v. Hartford

Saltzman v. Indepen. BC

Schully v. Contiental Cas

Simonia v. Glendale

Smith v. Cigna

Stevenson v. Bank of NY

Tannebaum v. Unum

Thompson v. Life Ins. Co

Unum v. Epes

Waschak v. Acuity

Williams v. Metro

Williams v. SunLife

MetLife Agrees to Pay $13.5 to Avoid Prosecution of Allegations that it Violated ERISA.

Metropolitan Life Insurance Company (“MetLife”) agrees to pay $13.5 million to the federal government to avoid prosecution of allegations that it violated the Employee Retirement Income Security Act, according to a Department of Justice Press Release by the San Diego Division of the Federal Bureau of Investigation.   As alleged, MetLife made improper payments to a San Diego based insurance broker, by knowingly failing to disclose and report certain information, including commissions and fees paid, required under ERISA.  The U.S. Attorney for the Southern District of California, Karen P. Hewitt, stated, “Insurance commission and fee disclosures are designed to promote and ensure transparency.  Any effort by an insurance company to conceal payment of improper fees or commissions will not be tolerated.”

According to the Non-Prosecution Agreement entered into by MetLife, it made payments to the brokerage firm in order to obtain additional business.  The settlement was reached, in part, as a result of the insurer’s voluntary disclosure of the underlying conduct, cooperation with federal authorities, continuing remedial efforts, including implementing internal controls and payments to its policyholders. 

For a complete copy of the Department of Justice Press Release, click here.

Kim Whistler and Dan Gerber

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Life, Health, Disability and ERISA Quarterly Cases, Vol. 1

Cases

Download BALMERT v. RELIANCE STANDARD LIFE INSURANCE COMPANY 

Download BARINOVA v. ING 

Download BILEZIKJIAN V. UNUM LIFE INS. CO. OF AMERICA 

Download CAPONE v. AETNA LIFE INSURANCE COMPANY 

Download COUNTRY LIFE INSURANCE COMPANY v. MARKS 

Download CUSSON v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON 

Download DARVELL v LIFE INSURANCE COMPANY OF NORTH AMERICA 

Download DYER v. HILL SERVICES PLUMBING AND HVAC 

Download FIDELITY NATIONAL TITLE INS. CO v. REGENT ABSTRACT SERVICE, LTD 

Download HALL v. LIBERTY LIFE ASSURANCE CO. OF BOSTON 

Download JENSEN V. FEDEX FREIGHT, INC. 

Download JOBE v. MEDICAL LIFE INSURANCE COMPANY  

Download JONES v. UNUM PROVIDENT CORPORATION 

Download KRUEGER V. TIPPETT 

Download MCHENRY V. PACIFICSOURCE HEALTH PLANS 

Download NAZARETYAN V. CALIFORNIA PHYSICIAN’S SERVICE 

Download NICELY V. UNUM LIFE INS. CO. ET. AL 

Download NIETO V. BLUE SHIELD OF CALIFORNIA LIFE & HEALTH INS. CO. 

Download RICHARDS v. HEWLETT-PACKARD CORP 

Download SCHEXNAYDER v. HARTFORD LIFE AND ACCIDENT INS. CO 

Download SKEEN V. RITE AID CORP 

Download STONE V. BAYER CORP. LONG TERM DISABILITY PLAN 

Download UQUILLAS V. UNUM LIFE INS. CO. OF AMERICA 

Download W.T. PAINE v. JEFFERSON NATIONAL LIFE INSURANCE COMPANY 

News and Notes

Download LINCOLN NATIONAL LIFE INS. CO. v. MOSBERG (Complaint) 

Download PRINCIPAL LIFE INS. CO. v. MOSBERG (Complaint)

Extra-Record Evidence Denied Challenging Substantive Determination.

Richard v. Fleet Financial Group Incorp. LTD Employee Benefit Plan

(2^nd Cir., February 24, 2010) 

 

In an ERISA action, plaintiff challenged the denial of her long term disability benefits due to chronic fatigue syndrome.  The Court held that, under a discretionary review, the insurer’s decision to deny benefits was reasonable and supported by substantial evidence.  The objective evidence in the administrative record considered by the Second Circuit included surveillance videos, occupational therapy assessment, independent evaluation, independent review of the claims file and statements from her husband. 

 

Plaintiff was denied the use of extra-record evidence to challenge the insurer’s substantive determination.  The Court rejected the plaintiff’s argument that the additional information was admissible given the conflict of interest that existed as a result of the fact the insurer both evaluated the claim and paid the benefits.  Agreeing that a conflict of interest is a factor to be considered when determining the reasonableness of a decision, the Court held that substantial evidence outweighed any such conflict.

 

A copy of the Court’s decision can be found here

 

Kim Whistler and Dan Gerber

 

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

 

Case provided courtesy of Lexis. 

 

Accidental Death and Dismemberment Policy Covered Death Caused by Medical Malpractice

Barnes v. Am. Int'l Life Assur. Co.  (S.D.N.Y., February 4, 2010)

Insured under a group accidental death and dismemberment insurance policy died after a cathe was improperly inserted in her chest, causing cardiac arrest. The insurer denied the claim arguing medical malpractice did not coverage medical malpractice and that her death was the result of sickness or disease. The district court in New York held that the insured's death was unintentional and unexpected and, therefore, an accident entitling the surviving spouse to benefits under the policy. After receiving a claim under the policy, the insurer obtained an independent peer review, which concluded the insured's death was caused by improper placement of the catheter. The physician opined that while the incident was not usual, it was a "known complication of surgery." In its denial, the insurer referenced the fact the deceased signed a disclosure and consent form listing such complications prior to her surgery. Under a deferential standard of review, the court held the insurer's decision was arbitrary and capricious in that it was based on the "generalization that medical malpractice is not accidental in nature," while the facts supported that her death was a result of an accident.

A copy of the Southern District of New York's decision can be found here

Kim Whistler and Dan Gerber

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Eleventh Circuit Court Reversed Lower Court Holding In Favor Of Insurer On Denial Of ERISA Claims

Capone v. Aetna Life Ins. Co.

(United States Court Of Appeals, Eleventh Circuit, January 5, 2010)

 

This action arises out of a diving accident wherein policyholder struck his head on the bottom of the ocean while diving in the Bahamas, paralyzing himself from the neck down.  Policyholder sought benefits under the Accidental Death and Personal Loss provision of his employee health insurance policy administered by Aetna.  Aetna denied the policyholder’s claim for benefits and the district court granted Aetna’s motion for summary judgment holding that Aetna properly applied the plan’s “accidental means” and alcohol exclusion provisions which barred recovery.

 

After determining the proper standard of review for guiding a district court’s review of an administrator’s benefits decision was the Williams v. BellSouth Telecomms, Inc., 373 F3d 1132 (11th Cir. 2004) methodology (as modified by Glenn in Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008)), the court conducted a de novo review as the first step in ERISA’s heightened arbitrary and capricious standard. 

 

The court noted that Georgia law distinguishes between insurance coverage for “accidental results” and coverage for injures caused by “accidental means,” and held that the policy favored an accidental means interpretation.  Specifically, while Aetna argued that the plaintiff’s dive was intentional, the court noted that in order to recover under an accidental means standard, it was incumbent upon the plaintiff to show that the act preceding the injury was effected by and “unforeseen, unexpected, or unusual event” causing the result to differ from the natural or probable consequence of this voluntary action. 

 

The court noted, here, plaintiff made the dive once without incident, other individual were diving or jumping in a contemporaneous fashion without incent, thus noting that prior occurrences of similar acts that did not result in jury was a strong indicator of changed conditions.  Indeed, plaintiff contended that an unexpected wave created the shallowness that had not otherwise existed causing an unforeseen result.  Moreover, the court concluded that because Aetna simply concluded that plaintiff voluntarily dove into shallow water, the resulting injury was foreseeable, but failed to conduct an adequate and thorough investigation into the circumstances behind the injury.  Specifically, the court noted that the insurer failed to investigate the depth of the water at low and high tides and the tidal conditions at the time of the accident and made no attempts to locate and interview other guests at the scene.  Consequently, the court held that the insurer had the responsibility to fully investigate the policyholder’s claim before denying benefits and Aetna’s failure to adequately investigate plaintiff’s contentions was wrong.

 

As to the applicability of the alcohol exclusion, the court held that while Aetna’ reliance on the toxicology tests was proper, it misapplied this results to the policy conditions.  Specifically, the court held it was unreasonable to conclude that plaintiff’s intoxication caused his injury, as there was no mandate in the policy that “legal intoxication” shall be deemed the cause of the accident based on the plain reading of the provision, and thus did not warrant the presumption of causation outside of the motor vehicle context.  Further, the court concluded that Aetna, as a fiduciary, was required to make a reasoned determination after a diligent investigation, yet failed to do so.  The court noted that there was no investigation regarding the series of events leading up to the dive or the intoxication level of the other divers.  As such, the record was insufficient to connect plaintiff’s decision to dive with his state of intoxication, and therefore the court held that Aetna did not present sufficient evidence suggesting that the consumption of alcohol caused or contributed to the accident and resulting injury.  Thus, the denial of benefits based upon this exclusion was de novo wrong.

 

For a copy of the decision click here

 

Paul Steck and Dan Gerber

 

http://www.goldbergsegalla.com/attorneys/Steck.html

 

http://www.goldbergsegalla.com/attorneys/Gerber.html

 

 

Disability Benefits Administrator Did Not Abuse Discretion By Affirming Denial Of Short-term Benefits Prior To Receipt Of Additional Data Requested From The Claimant's Treating Physician

Medina v. Metro. Life Ins. Co

(1st. Cir. (P.R.) November 24, 2009)

 

The claimant's short-term disability benefits were terminated, and upon the claimant's appeal, sent out for independent review.  After the reviewing physician's report was received, the administrator provided the report to the claimant's treating physician, and requested additional information.  The claimant was on notice that such information was requested.  The treating physician never responded.  The administrator, based upon the independent evaluation, re-affirmed its denial of disability benefits.  The claimant sued, asserting that the administrator was required to wait for the treating physician's feedback before denying benefits and its failure to do so was abuse of discretion.  The court rejected that position, noting that the treating physician had numerous opportunities to respond, but remained silent.  The court also held that because the administrator was not required to give particular weight to the treating physician's findings, there could be no obligation to wait for further input, holding that when the treating physician fails to respond to repeated requests for further data, the administrator is entitled to review the information available, so long as that information provides a sufficient basis to make a reasonable determination.

 

A copy of the decision can be located here

 

Sarah Delaney and Dan Gerber

 

http://www.goldbergsegalla.com/attorneys/Delaney.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Eleventh Circuit Affirms Insurer’s Interpretation Of Policy Language In A Cancer And Special Disease Policy Regarding the Meaning Of “Actual Charges Incurred”

Philadelphia American Life Ins. Co. v. Buckles

(United States Court of Appeals, Eleventh Circuit, October 23, 2009)

 

This case involved the interpretation of a provision in a supplemental cancer and specified disease insurance policy.  The district court held that the term “actual charges incurred” is unambiguous and “means the actual amount accepted by a health care provider as full satisfaction of the policyholder’s obligations for treatment covered by the policy.”  The policyholder contended rather that “actual charges incurred” is synonymous with “actual charges.” The amount that the health care provider bills for services, which is generally higher than the amount than the health care provider will accept as full satisfaction of the liability.  Specifically, the policyholder purchased a Cancer and Specified Disease Policy which provided supplemental coverage paying benefits directly to the policyholder for certain treatments.  The policy paid benefits despite the fact that the policyholder’s primary health insurance provided for payment for his medical expenses and he was able to retain all benefits that he received from the supplemental policy which exceeded his medical expenses.  The circuit court held affirmed the district court’s holding that “actual charges incurred is unambiguous” and means the “amount the provider accepted from an insurer as full satisfaction of the policyholder’s liability.” This reasoning was based on the definition of “incurred” which, according to its plain meaning is the amount that “must have been actually paid” or that for which one liable.  In affirming the decision, the court noted that construing the contract in the manner advanced by the policyholder would afford him an unintended benefit based on a fictional amount and would lead to an “absurd result.”  As such, the district court correctly held that “actual charges incurred” is the “actual amount accepted by a health care provider as full satisfaction of the policyholder’s obligation for treatment.”

 

For a copy of the decision, click here

 

Paul Steck and Dan Gerber

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

California Passes Critical Life Insurance Bill

California became the 34^th state to regulate life settlements when Gov. Arnold Schwarzenegger of California signed Bill S.B. 98.  The bill preserves a policyholder’s right to sell the life insurance policy for value prior to lapse or surrender.  Additionally, individuals can obtain life settlements through an agent, an prohibit insurance companies from restricting life insurance agents from informing policyholders about such settlements.  The law provides stronger consumer-orientated provisions, including licensing mandates for brokers and settlement companies, requiring disclosures regarding offers, business relationships and compensation, permits lawful transfers of policy ownership, and allows policyholders to cancel a settlement within 30 days of settlement or 15 days after receiving proceeds.

The Bill will no longer allow policyholders to purchase policies for investors or sale of an existing policy to a third-party for more than the cash surrender value for two years after it was issued.  Moreover, terminally ill individuals who sell a policy must be of sound mind and certified by a physician.

It has been estimated that the life insurance settlement market will grow from approximately $10 billion to an estimated $150 billion in the next 10 years.

For a copy of the Bill click here

Kimberly Whistler and Daniel Gerber

Seventh Circuit Applies “Arbitrary and Capricious” Standard of Review of Long Term Disability Plan

Black v. Long Term Disability Insurance

(7^th Cir. [ Wis.] September 18, 2009)

After being denied coverage under her employer’s long term disability plan, an employee filed an ERISA action for benefits.  The employee argued that the court should review the matter under a de novo standard.  The Seventh Circuit held that the benefits determination was subject to an arbitrary and capricious standard of review rather than de novo because the plan grants the insurer discretion in its benefits determinations.  Since the insurer based its determination upon the findings of five consulting physicians who concluded the employee’s condition was not disabling, the court held that the decision was rationally supported by the record.

 

For a copy of the decision, click here

 

By Bryan D. Richmond and Kimberly E. Whistler

http://www.goldbergsegalla.com/attorneys/Richmond.html

http://www.goldbergsegalla.com/attorneys/Whistler.html

Conflict of Interest Insufficient to Warrant De Novo Review, Denial of Benefits Upheld

Hobson v. Metropolitan Life Ins. Co.

(2^nd Cir., July 29, 2009)

 

The Second Circuit rejected plaintiff’s argument that a de novo review was warranted given the administrator’s structural conflict of interest.  In the wake of MetLife v. Glenn, the court acknowledge that a conflict is created by an administrator’s ability to both determine eligibility and pay benefits, but found there was no evidence suggesting the administrator’s decision was influenced by the conflict and, therefore, afforded it no weight. 

 

Under an arbitrary and capacious standard of review, the court upheld the administrator’s decision to deny benefits.  The court held the decision was based on substantial evidence and was reasonable.  In addition, the court found that the participant was given a full and fair review and the insurer “substantially complied” with ERISA’s notice regulations.

 

The court further found the insurer’s requirement that the participant provide “objective support” for her disability was not unreasonable.  In addition, specifically following the Seventh Circuit, the court said an administrator need not order an IME, even without objective evidence, reducing the “financial burden of conducting repetitive tests and examination.”

 

Finally, addressing the fact the participant received SSDI benefits, the court “encourage[d]” administrators to explain why they reached a contrary conclusion to the SSA.  The administrator’s failure to do so, however, did not render its denial arbitrary and capricious.

 

For a copy of the decision click here

 

By Kimberly E. Whistler and Daniel W. Gerber

 

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

The D.C. Circuit Court Requires the SEC to take a Second Look at its Regulation of Fixed Index Annuities

American Equity Investments v. SEC (D.C. Cir., July 21, 2009)

As any savvy investor knows, “annuity contracts” or “optional annuity contracts” that are the subject of State regulations are exempt from the Securities Act of 1993. See American Equity Investment Life Ins. Co. v. Securities Exchange Comm., Case No: 09-1021 (D.C. 2009). A hybrid annuity termed a “fixed index annuity” combined certain benefits of fixed annuities, along with the earning potential of a security.  Subsequent to their introduction in the mid-1990’the sales volume of FIA’s had reached $24.8 billion with assets reaching $123 billion. Id.  In an effort to bring these annuities within the scope of the Securities Act, the SEC proposed Rule 151A redefining “annuity contract” to exclude FIA’s.

The petitioners, composed of a number of insurance companies, filed suit and sought a review of the rule, contending that the SEC misinterpreted the term “annuity contract” by not including FIA’s and failed to take into account the new effect of the rule. Initially, the Court applied well established rules of deference to governmental agencies and held that the SEC’s rule was not arbitrary and capricious. That said, the Petitioners were not without some degree of victory. The Court did hold that “the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious.” Id. The Court flatly disregarded the SEC’s assertion that the rule would create “clarity in what has been an uncertain area of law.” Id.  It is unclear whether the SEC will continue to pursue this litigation. Regardless, the petitioners have a reprieve, for now.

For a copy of the decision, click here

 

By Brian R. Biggie and Daniel W. Gerber

 

http://www.goldbergsegalla.com/attorneys/Biggie.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

 

Third Circuit Rules that Life Insurer Allowed to Charge Aggregate Premium to Both Smoking and Non-Smoking Juveniles

Alleman v. State Farm Life Insurance Co.

(3^rd Cir. [ Pa.] June 26, 2009)

The owner of two whole life insurance policies insuring the lives of her sons filed suit against the insurer alleging that it breached its insurance contract by charging the same insurance premiums for non-smoking juveniles as it did for smoking juveniles.  Although the insurer asked whether the insureds smoked in the application for insurance, it had a single aggregate premium for all juveniles.  The Third Circuit held that questions by an insurer do not amount to a representation that it will charge any particular type of premium based on the answers and the insurer did not breach its contract by using a single, aggregate premium.

For a copy of this decision, click here

By Bryan D. Richmond and Daniel W. Gerber

http://www.goldbergsegalla.com/attorneys/Richmond.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

District Court Determines that Administrator’s Decision to Deny Benefits was Reasonable

Ramsteck v. Aetna Life Ins. Co.

S.D.N.Y., June 24, 2009

 

Concluding the plaintiff had a full and fair review of her medical claim, the district court held the plan administrator’s decision to deny benefits was reasonable and, therefore, not arbitrary and capricious.   Documentation in the administrative record was sufficient to demonstrate the procedure was “experimental and investigational” and not covered under her medical plan.  Additionally, the court determined that plaintiff did not demonstrate “good cause” to support a review of testimony outside the administrative record. 

 

For a copy of the decision, click here

 

By Kimberly E. Whistler

 

http://www.goldbergsegalla.com/attorneys/Whistler.html

Second Circuit Finds Insurer's Decision Rejecting Life Insurance Benefits Arbitrary and Capricious

Cohen v. Metropolitan Life Ins. Co.

(2^nd Cir., June 9, 2009)

The Second Circuit upheld a district court's ruling that an insurer’s denial of life insurance benefits was arbitrary and capricious.  The court, in upholding the district court's decision, concluded that its rationale that it had a “pre-existing condition” was questionable especially when one factors that the insurer was operating under an actual conflict of interest as both an administrator and fiduciary to the plan. 

 

The Second Circuit, however, finds that an award for attorneys' fees is unwarranted as the insurer diligently attempted to comply with the lower court's rulings on the plan.   

 

For a copy of the decision, click here.

 

By Kimberly E. Whistler and Daniel W. Gerber

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Vermont Passes "Historic" Legislation Regulating The Stranger-Originated Life Insurance (STOLI) Market

Vermont became the latest state to regulate and provide firm disclosure guidelines regarding the selling and marketing of stranger-originated life insurance policies.  This legislation is aimed at curbing the esclating schemes directed at seniors to part with their life insurance policies.  Often times, seniors are not given the necessary information to make an informed decision regarding the positives and negatives in selling their life insurance policy.  Florida and other states have already passed similar legislation. 

Click here to Download Vermont.Stoli.Legislation 

by Daniel W. Gerber and Kimberly E. Whistler

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Whistler.html

Disability insurer had no obligation to provide further disability benefits where participant breached the policy.

Paul Revere Life Ins. Co. v. Cahn

U.S. Ct. of App. (2^nd Circuit, June 2, 2009)

The participant’s willful failure to provide insurer relevant information related to the first-party benefits claim breached the policy conditions, justifying the insurer’s disclaimer.

 

Click here for the decision

 

By Daniel W. Gerber and Kimberly Whistler

 

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Whistler.html

Life Insurance Carrier Waived Right to Rescind Policy, Despite Finding Action was Timely Commenced

Security Mutual Life Ins. Co. v. Rodriguez

(New York State, Appellate Division, 1^st Dept.)  May 26, 2009

Although life insurer’s action was not barred by the incontestability clause, the court held it waived its right to rescind the policy after it continued to collect premiums.  There, the insurance carrier commenced an action seeking to rescind a life insurance policy based on the policyholder’s alleged false and misleading representations.  Pursuant to the statutory requirement of New York Insurance Law §3203, the policy contained an incontestability clause barring any action after two years.  Finding General Construction Law §25-a governed, the court held the action was timely where it was commenced on the next business day after the two year period.  Irrespectively, since it continued to collect premiums after it filed the action, the court held the insurer waived its right to rescind the policy.

 

by Kimberly  E. Whistler and Daniel W. Gerber

 

http://www.goldbergsegalla.com/attorneys/Whistler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

IRS Issues "Stranger Owned Life Insurance" Rules

The Internal Revenue Service (“IRS”) issued two Revenue Rulings on May 1, 2009, addressing certain tax aspects of sales and surrenders of life insurance policies: Rev. Rul. 2009-13 and Rev. Rul. 2009-14. These rulings resolve some longstanding questions regarding sales of life insurance policies and in many respects are consistent with life settlement industry expectations.

www.irs.gov/pub/irs-drop/rr-09-13.pdf

www.irs.gov/pub/irs-drop/rr-09-14.pdf

By Daniel W. Gerber and Kimberly E. Whistler

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Whistler.html

 

Spouse Has No Individual Tort Claim Against Health Insurer

The Mega Life and Health Ins. Co. v. The Superior Court of Riverside County
(Ct. App.Ca., April 14, 2009)

A spouse can recover on a tort claim for fraud based on the issuance of a health insurance policy to his deceased wife. The spouse, however, has no separate and individual tort claim based on the policy.

Here is the full case
http://www.courtinfo.ca.gov/opinions/documents/E0459.pdf

By       Daniel W. Gerber and  Kimberly Whistler

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Whistler.html

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