Monday, July 21, 2014

Eighth Circuit: “Discretion” means insurers can retroactively change policy terms to defeat coverage

The Eighth Circuit today issued Kutten v. Sun Life Assurance Co. of Canada,an ERISA disability case about whether a pre-existing-condition exclusion in Sun Life’s disability policy precluded Mr. Kutten from receiving benefits he would otherwise have realized. Under the Sun LIfe policy, Mr. Kutten was eligible for the benefits. Under the re-writing interpretation offered by Sun Life and approved by the Eighth Circuit, not so much.

Mr. Kutten was diagnosed with retinitis pigmentosa (RP) in 1994, and at his doctor’s suggestion took a Vitamin A supplement, over-the-counter, no prescription required, which, it was thought,might slow the disease’s progression. The RP eventually forced him to stop working in September 2010. Sun Life’s ERISA “insurance” policy, which had become effective starting in June 2010, had an exclusion for pre-existing conditions, contractually defined as “during the 3 months prior to the Employee’s Effective Date of Insurance the Employee received medical treatment, care or services, including diagnostic measures, or took prescribed drugs or medicines for the disabling condition.”

The only thing Mr. Kutten did for his RP in the three months prior to his Effective Date of Insurance was to take these vitamin A supplements. Sun Life, of course, said this so-called “medical treatment” meant his condition was pre-existing.

Sun Life had a problem here, though. The contract said a pre-existing condition was one for which “medical treatment” or  “drugs or medicines” were received during the critical three-month period. But a stinking vitamin supplement isn’t a drug or medicine, and if it’s going to count as “medical treatment” then, necessarily, so would any actual drug or medicine, and that interpretation means the entirely distinct reference to “drugs or medicines” is utterly meaningless. The court described the argument thusly:

Kutten urges us to adopt the district court’s rationale, that because the Pre-Existing Condition clause separates “medical treatment” from “prescribed drugs or medicines” with the conjunction “or,” Sun Life intended to exclude all “drugs or medicines” from the phrase “medical treatment.” Kutten argues if “prescribed drugs or medicines” are excluded from the phrase “medical treatment,” then vitamin A supplements must be excluded from the phrase as well because vitamin supplements require even less medical intervention than “prescribed drugs or medicines.” To construe the phrase “medical treatment” to include vitamin supplements but exclude “prescribed drugs or medicines” would create an internal inconsistency in the Pre-Existing Condition clause, and to construe the phrase “medical treatment” as broad enough to encompass both “prescribed drugs or medicines” and vitamin supplements would render the phrase “prescribed drugs or medicines” meaningless.
That’s pretty persuasive stuff; one of  the most basic rules if you’re interpreting a contract is that you don’t adopt an interpretation which would render one or more words or phrases meaningless – if at all possible every word should have some meaning and some effect.

Unfortunately for Mr. Kutten, Sun Life had conferred discretion upon itself when it issued its policy, and we know what that means. As the Eight Circuit allowed, the exclusion did not “neatly fit Kutten’s course of treatment,” but hey, where an ERISA “insurer” has “offered a reasonable interpretation of disputed provisions, courts may not replace it with an interpretation of their own.” (Internal punctuation and citations omitted). We certainly can’t have courts interpreting contracts, after all.


Wednesday, June 25, 2014

Score one for our side: Supremes get it right in Fifth Third Bancorp

It’s not very often we get a favorable decision from the Supreme Court these days, particularly a unanimous one, but that happened today in Fifth Third Bancorp v. Dudenhoffer. This ERISA pension case involved ESOPs – Employee Stock Ownership Programs – and something called a “presumption of prudence” a lot of courts were invoking. Not unlike the absurd deferential level of analysis applied in the majority of ERISA benefits cases, the presumption was a big thumb on the scale in favor of pension plan administrators who bought and held stock in their own company while it went down in flames, gutting the retirement security of the company’s pensioners.

In a nutshell (if it isn’t already too late for that) ERISA imposes a duty of prudence on all ERISA administrators, which essentially requires that they behave like a reasonably prudent person would under the circumstances. The “presumption of prudence” posited that, in buying and holding their own company’s stock for their ESOP plans, administrators were presumed to act prudently, and you had to move heaven and earth to overcome the presumption. The Supremes today said that the ERISA statute requires prudence, and just because an ESOP is involved doesn’t mean we change the rules. The ruling, however, promises to have effects on all sorts of ERISA claims and ERISA fiduciaries, as suggested by this:
Consider the statute’s requirement that fiduciaries act “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter.” [Citation omitted]. This provision makes clear that the duty of prudence trumps the instructions of a plan document such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary. See also §1110(a) (With irrelevant exceptions, “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility . . . for any . . . duty under this part shall be void as against public policy”). This rule would make little sense if, as petitioners argue, the duty of prudence is defined by the aims of the particular plan as set out in the plan documents, since in that case the duty of prudence could never conflict with a plan document.
And this:
[Fifth Third’s] argument fails, however, in light of this Court’s holding that, by contrast to the rule at common law, “trust documents cannot excuse trustees from their duties under ERISA.” Central States, Southeast & Southwest Areas Pension Fund, 472 U. S., at 568; see also 29 U. S. C. §§1104(a)(1)(D), 1110(a).
Now, in English: the ERISA statute applies to all ERISA fiduciaries, and they are required to comply with it, and they can’t get around that with some phoney-baloney provision in a plan document (which they themselves usually draft in the first place) providing otherwise. It’s a rather sad commentary that a Supreme Court decision requiring these people to, you know, obey the law seems so earthshaking, but there you go.

We’ll see how this one plays out.

Tuesday, June 24, 2014

Judge Acker: the hits just keep on coming

Somewhere in judicial heaven there has to be an abundant bounty set aside for U.S. District Judge William M. Acker, Jr., whose work we've enjoyed many, many, times before. His latest single to go platinum for the Rising Judicial Chorus is a little number we like to call Criss v. Union Security Insurance Company, released just this year. Time to stand aside and let the lead singer have the stage:
This court devoutly wishes that the Supreme Court of the United States had not blindly stumbled off on the wrong foot and in the wrong direction when it handed down Firestone Tire & Rubber Co. v. Bruch, 49 U.S. 101 (1989), the case in which it invented a strange quasi-administrative regime for court review of denials of ERISA benefits claims. It inexplicably substituted a procedure borrowed from administrative law for the clear congressional mandate that the filing of a “civil action” (a simple, straight-forward, garden-variety suit for breach of contract) is the only means for challenging such denial decisions. In the amicus curiae brief filed by the Solicitor General in Bruch,he did his best to keep the Supreme Court from wandering off track and ignoring Congress. The Solicitor General, who was representing both Congress and the persons whom Congress intended to benefit from ERISA, failed to talk the Supreme Court out of its misguided step, a misstep that has led to a series of further judicial glosses, distillations, penumbras, and emanations, eventuating in the sad state of affairs now faced by ERISA claimants and by the courts who have to deal with ERISA benefits claims.
If Congress itself had enacted the weird scheme created by the Bruch court out of whole cloth, ERISA would have been promptly and successfully attacked for its patent unconstitutionality as a violation of “due process”. A quick application of the universally recognized legal maxim, nemo judex in causa sua, would have kept any such statute off the statute books. Chief Justice Sir Edward Coke in Dr. Bonham's Case, 8 Co. Rep. 107a, 77 Eng. Rep. 638 (C.P.1610), carved in granite for all time this fundamental jurisprudential principle when he said, using the vernacular: “No man should be a judge in his own case.”
The justices of the Supreme Court, including some who decided Bruch, routinely recuse themselves when there is even the slightest hint of any possible self-interest by the recusing justice. And yet, today, clearly conflicted ERISA plan administrators and insurers, when granted by the plan document that they drafted full discretion to interpret their plans and to decide the ultimate issue of entitlement, are routinely allowed, even required, to rule on their own cases. Not surprisingly, this court has not found a single case in which an insurance company has recused itself in an ERISA case under the rule of nemo judex in causa sua. There is no scheme remotely like the one created byBruch in the annals of Anglo–American jurisprudence. Chief Justice Coke is uncomfortable in his crypt.

Justice Coke ain't the only one. Thanks, Judge Acker. 

Three things to add to Market Intelligence Center’s Guide to Understanding Long-Term Disability Insurance

Joseph Favorito, a Certified Financial Planner, has an article up over at Market Intelligence Center entitled A guide to understanding long-term disability insurance. I think it's a quite decent overview, and Mr. Favorito certainly does touch on the obstacles ERISA imposes on folks who are trying to secure long-term disability benefits under a group plan with their employer. There are, however, a few things to add in order to make the story complete.

First, Mr. Favorito indicates "a large number of employers provide LTD insurance for free as a benefit for their employees." If you ask me, no employer anywhere provides anything to any employee free; everything you get from your employer, from wages to fringe benefits to insurance coverage to haircuts is something you earn with your labor. None of this stuff falls out of the sky for "free"; it is provided only after you contribute your own blood, sweat and tears to maximize your employer’s profits. There's absolutely nothing wrong with that, but it is simply inaccurate to say that LTD insurance, or any other benefit of employment, is provided for "free." And, because these are things you have earned, the courts should not treat LTD these benefits as some sort of windfall.

Apropos of that, Mr. Favorito also provides a generally accurate account of what you have to go through once an ERISA "insurer" denies your claim; he discusses the fact you have 180 days to file an internal appeal with the same insurance company who just denied your claim, so that they can determine whether they want to pay benefits, and thus reduce their profits (spoiler alert unnecessary). And he indicates the insurance company can then wait another 90 days to respond, and while this process plays out, "you are potentially without income as you are unable to work." This apparent 90-day time limit supposedly imposed on these "insurers," however, is most often a completely toothless requirement: they can blow through that deadline with no meaningful consequence whatsoever. You, on the other hand, who are given 180 days to submit this "appeal," are going to be held to very strict compliance, to the point where if you are so much as one day late your claim is foreclosed for all time. On top of that, the information you submit along with this "appeal" is, in all likelihood, the only information a court would ever consider if you end up in litigation over your claim. Most folks do not realize, and the "insurance" companies certainly do not go out of their way to tell them, that when they are submitting an informal, internal “appeal,” they are actually assembling all the evidence they will ever be able to admit in court – and all too often without the assistance of a knowledgeable attorney.

Finally, Mr. Favorito notes accurately that a long-term disability plan is not the only potential source of benefits. As he says, you can certainly apply for Social Security Disability Insurance (SSDI) benefits, and see if you can get a claim (eventually) approved that way. Mr. Favorito notes that "should you qualify for SSDI, you can be almost assured that your claim against a long-term disability policy will be approved."

Would that it were true. While the law has changed favorably in recent years, and ERISA "insurance" carriers are generally required to pretend to consider what the Social Security Administration might have had to say about a claimant’s disability, the fact remains they are in no sense required to follow the determination by the Social Security Administration, and in a great many cases choose simply to ignore it (more about the impact of SSDI decisions on ERISA claims here soon, so you have that going for you). And, of course, in cases where ERISA applies, they all too often get away with it.

None of this is intended to criticize Mr. Favorito’s article, which provides a quite accurate overview of the issues surrounding long-term disability insurance and the impact ERISA has on your rights. As with all things pertaining to ERISA, however, what might appear to be the case on the surface very often obscures the ugly truth hidden underneath  this most unjust of laws.

Thursday, September 26, 2013 -- a site by someone who's dealt with ERISA's injustices firsthand

Luciana Baker had disability coverage, issued by Hartford, through her employment with Bloomberg news.

Luciana Baker became disabled.

ERISA allowed Hartford to cheat her out of promised benefits with impunity.

So Ms. Baker has started a website, trying to motivate us to agitate for a change in ERISA.

Congratulations to Ms. Baker. This is the sort of advocacy we need to effect change, and her site deserves your attention and support. Well done.

Thursday, August 29, 2013

What’s the big deal about time limits? I mean, how long can it take to bend over?

As we’ve discussed the Supreme Court will soon consider whether ERISA “insurers” can get away with unilaterally imposing time limits on your ability to start a lawsuit against them when they deny your benefit claim. If you want an example of their breathtaking arrogance, get a load of one of their arguments.
Thanks to the "insurers'" efforts over the years, and the courts’ unfortunate acceptance of their pitches, ERISA claimants have the deck stacked against them when they go to court. As relevant here, their ability to conduct discovery and present their case to a court using the usual sorts of evidence and arguments has been vastly limited if not destroyed. In a word claimants’ rights in that connection have been gutted.
And now ERISA “insurers” are arguing to the Supreme Court that, those rights having been thusly gutted, claimants really don’t need much time at all to get their case into court once their claim has been denied. The American Council of Life Insurers, America’s Health Insurance Plans, and the U.S. Chamber of Commerce, for example, submitted a brief to the Court arguing:
And the Defense Research Institute similarly argued to the Court:

These guys certainly do not lack for chutzpah. Their argument here amounts to: since we've gutted the claimant's ability to conduct discovery or investigation, and reduced their day in court to a judicial rubber stamp, claimants don't need much time at all to don their blindfolds and line up against the wall.

Tuesday, August 27, 2013

The ERISA time machine: when your claim is denied the clock is ticking faster than you know

ERISA, in addition to drastically limiting the remedies you might secure in the unlikely event you are able to prevail on a benefits claim in court, imposes strict deadlines for you to act in response to a denied claim. If you fail to keep careful track of the calendar, your claim — regardless of how strong it may be on the merits — could very well perish simply because of the passage of time.

You’ll need to be careful in at least two respects: the time limit for submitting an internal appeal to the ERISA “insurer” who just denied your claim, and the time limit for filing you complaint in court after that. Blow either deadline and you’re out of luck.


1. You must submit the internal appeal within either 60 or 180 days of claim denial

Federal regulations require that ERISA “insurers” give you at least 60 days (in the case of non-health or disability claims, e.g., life or accidental death insurance) or 180 days (in the case of health or disability claims) after a denial to submit an internal appeal — a reconsideration by the “insurer” as to whether it should continue to pay benefits, and thus reduce its profits. Humanitarians that they are, ERISA "insurers" always do the bare minimum, and so the 60- or 180-day minimums are effectively the maximums as well. So, unless your benefit plan is exceedingly rare, you’ll have either 60 or 180 days to get that appeal in.

As we’ve seen, the “insurer” has its own deadlines to respond once your appeal is submitted, with one big difference: if you blow your deadline, you are out of luck, but if the “insurer” blows its deadline … well, everybody makes mistakes, right? Bottom line: the “insurer” can miss its deadline with no meaningful consequence, but if you miss your deadline, game over. So be careful with that deadline.


2. You must file your lawsuit within the statute of limitations – whenever that is

ERISA, model of clarity that it is, doesn’t impose a deadline for filing a lawsuit to try to recover the meager remedies it allows. So, no worries, right?

Wrong. Just because ERISA doesn’t have a deadline doesn’t mean we can’t come up with one anyway, so that claimants who wait too long to file their lawsuit can be unceremoniously ejected from court. So, at the behest of ERISA “insurers,” courts have decided to just borrow a time limit from state law, and apply that, never mind that ERISA doesn’t have a time limit of its own.

OK, so at least we can just check the law of our state to figure out what the deadline is, and then at least we’ll know.

Wrong again. ERISA “insurers” insert time limits into their “insurance” policies, and the courts generally allow this, so your deadline to file your lawsuit is … whatever the “insurer” says it is.

A pending Supreme Court case, Heimeshoff v. Hartford, will decide what the outer limits are on an “insurer’s” ability to just impose its own deadline on your ability to pursue remedies in the federal courts your tax dollars pay for. So we’ll know a bit more about that before too long.

One thing you can count on is that if you miss the deadline, whatever it is, for filing your lawsuit, you are out of luck from the get-go. It’s a deal-breaker. A death-knell. The fat lady singing.

So, it’s important in an ERISA case to pay very close attention to time limits. Miss one by even a day and your claim is over before it starts. Indeed, it never really starts at all.