Wednesday, March 17, 2010

No surrender! -- redux

This blog is all doom and gloom, and for good reason: ERISA stinks! But that ought not stop us from doing what the little the law allows to try to right these wrongs. Therefore, a periodic call to arms seems appropriate. Herewith, consequently, a reprise:

If you’ve spent any time on this blog, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can sometimes recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

Tuesday, March 16, 2010

Of judicial deference and impartial decision-makers: a partial response to the Boston ERISA & Insurance Litigation Blog

Stephen D. Rosenberg, in his Boston ERISA & Insurance Litigation Blog, offers a very nice counterpoint to many of my rants here about the inequities imposed by ERISA. Mr. Rosenberg’s views are thoughtful, well-reasoned and if not ultimately convincing (says I), certainly colorable. Not to mention he displays significantly more erudition than I typically muster; for example, he does not stoop to conjuring childish pejorative apocryphal names for his targets, as I’ve been known to do. Readers who find themselves agreeing with my positions as expressed here can test their conclusions (and my own) by running them through the filter of Mr. Rosenberg’s opposing viewpoints.

There’s much in Mr. Rosenberg’s blog which merits a thoughtful response, but one old post of his is one I’ve been considering for some time now. In January 2008 he posted about the Fourth Circuit case Evans v. Eaton Corp. Long Term Disability Plan, which he rightfully describes as an “elegant and sustained defense of the granting of discretion to administrators and the application of the arbitrary and capricious standard of review under ERISA.” Mr. Rosenberg considers Evans to be, in effect, a challenge to “critics who complain that the Supreme Court should not have established discretionary authority and the corresponding level of review, explaining, among other things, that such review is instead entirely consistent with the purposes and operation of ERISA, as well as with congressional intent.” He closes with a challenge of his own: “critics of arbitrary and capricious review need to confront and provide a persuasive response to the court’s analysis of these issues, if they are going to criticize, with any credibility, the arbitrary and capricious review standards applied by the courts.”


First, I should stress that, speaking for myself at least, the biggest outrage has to do with insurance companies – UNUM, MetLife, Prudential, and their ilk – who unilaterally stick so-called “discretionary” language in their policies, effectively conferring discretion on themselves. As I wrote in a brief I submitted to the First Circuit a couple of years ago:

When an ERISA insurer unilaterally includes discretionary language in a policy, it is doing so patently for its own benefit, and for the benefit of no one else. Therefore, at its very inception its discretionary authority is the result of self-serving conduct which is antithetical to any notion of fiduciary responsibility, and certainly to any notion of “higher-than-marketplace quality standards.” ... In effect and almost certainly by design, the insurer is building in an escape hatch calculated to shield its conduct from any but the most deferential judicial scrutiny, facilitating avoidance of the fiduciary responsibilities it is about to undertake. In this way the insurer seeks to undermine one of the statutory safeguards noted by the Glenn court: judicial review of individual claim denials. ... A structural conflict of interest necessarily takes on significant additional weight where the conflicted insurer has demonstrated the foresight to attempt to insulate its machinations from judicial scrutiny by unilaterally including discretionary language in its policy. When the insurer flouts the Smith-Newton-Rutanen-Kramer principles, and soft-peddles the language’s presence in its dealings with the employer, it takes on even more weight: in that case, added to the mix of conflicted behavior is a troubling inscrutability.

What that means in English is that an insurance company which not only confers discretion on itself in its insurance policy, but fails to be up front that it is doing so when it sells the policy to an employer, knows going in that it is going to be up to no good.

So that’s one objection to deferential judicial review. Here's another: as Mr. Rosenberg points out in another post, people who think like me believe ERISA cases “should be treated and resolved in the same manner as any other type of breach of contract or insurance denial (non-ERISA division) case.” We believe, in sum, that if a claim denial is wrong – just wrong – it should be reversed by a court, instead of being upheld under phony-baloney deferential analysis “even at times when it appears to be incorrect.” Real lives are very significantly impacted by these decisions, and if the decision is incorrect it ought to be corrected.

Let’s start looking, however, at what the Evans court has to say. First, it describes the purpose of deferential review, and indeed standards of judicial review in general:

The purpose of standards of review is to focus reviewing courts upon their proper role when passing on the conduct of other decision-makers. Standards of review are thus an elemental expression of judicial restraint, which, in their deferential varieties, safeguard the superior vantage points of those entrusted with primary decisional responsibility. The clear error standard, for example, protects district courts' primacy as triers of fact. [citation omitted]. AEDPA's reasonableness standards protect state courts' authority over state criminal convictions. [citation omitted]. Chevron deference, like the Administrative Procedure Act's arbitrary-and-capricious and substantial evidence standards, protects agencies' authority in carrying out the missions for which they are created. [citations omitted]. And trust law, to which ERISA is so intimately linked, [citation omitted], uses the abuse of discretion standard to protect a fiduciary's decisions concerning the trust funds in his care. See Restatement (Third) of Trusts § 87 (2007).

Here Evans talks about the “superior vantage points” these “other decision-makers” have as a reason to defer to their reasonable decisions: trial courts have an opportunity to hear testimony and observe witness demeanor which appellate courts lack; government agencies develop expertise in the issues they consider from day-to-day which judges, generalists that they necessarily are, lack; and trustees, at least presumably, have more intimate knowledge of the trustor’s wishes, or institutional expertise in managing trust benefits, which similarly gives them an advantage over courts coming to a dispute cold.

But this perceived gap in expertise is not – cannot be – the whole enchilada, since experts can also be crooks. So it’s Sesame Street time. Which of these things is not like the others?

Let’s see: district courts, state courts, government agencies, trustees, ERISA insurance companies. Well the first four are, you know, impartial adjudicators of disputes to which they are not themselves parties – federal and state courts, government agencies, and trustees (who, based on the trustor's designation, exercise discretion to pay out funds provided by a trustor and to which the trustee has no claim for its own benefit).

The fifth, ERISA insurers, are profit-driven entities which realize a direct benefit to their own bottom line every time they deny a claim. And when an ERISA dispute goes to court, under deferential review the impartial court has to give deference to the insurer, who is a party to the very dispute its decision brought about. This is the crux of the concern about ERISA’s deferential review: it’s a requirement that a court have a thumb on the scale in favor not of the decision of another impartial (and presumably expert) decision-maker, but of a party to the very dispute in question.

So the Evans court’s account of the purpose of deferential review – to “focus reviewing courts upon their proper role when passing on the conduct of other decision-makers” – makes sense when that “other decision-maker” is itself impartial and uninterested in the outcome of the underlying dispute. Don’t take my word for it: here’s James Madison, in Federalist Papers number 10:

No man is allowed to be judge in his own cause; because his interest would certainly bias his judgment, and, not improbably, corrupt his judgment.

But what does he know?

We’ll come back to this later, as the Evans court, and Mr. Rosenberg’s blog, offer other observations which deserve a response.

Tuesday, March 2, 2010

The Problem, redux

Around the first day of each month I'll be posting a reprise of the first post on this blog, which contains an overview of the Problem. It'll be updated and edited as we go along. But I'd like to have a summary of the Problem available frequently, hence the monthly repeat and update. So off we go...

ERISA is the Employee Retirement Income Security Act, and it is codified in Title 29 of the United States Code, starting with section 1001. It's federal law, enacted in 1974, and it was supposed to protect employees' rights in connection with their pension plans and benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those benefit plans (ERISA is actually not a bad law with respect to pension plans). Pension plans is what they had in mind when they enacted it -- benefit plans were an afterthought.

And it shows. If your insurance company wrongfully denies your claim, you might figure you can always take them to court. You can do that (usually), but when you get there you'll find things don't make any sense. We'll go into the particulars soon, but for now:

If you get your insurance coverage through your employment, then in virtually every case ERISA preempts state law (meaning it cancels it out, eradicates it, takes its place). But, having gutted state law relating to insurance disputes, it fails to provide any reasonable substitute. The remedies it provides (i.e. what you get if you win a lawsuit) are very, very stingy. And ERISA severely compromises your ability to secure even the scant remedies it does provide.

1. Remedies. ERISA limits the recovery you might get to the benefits which should have been provided in the first place, and an award on account of attorney fees in the court’s discretion. Example: you have your disability benefits wrongfully denied. As a result, you have no income, your credit rating is trashed, you lose your home and you are driven into bankruptcy. You file your ERISA suit and against the odds, you win. What do you get? The benefits they should have been paying you back when it might have done you some good. That's all (you might -- might -- get something on account of your attorney fees too).

The trashed credit, the lost home, the bankruptcy, the ruined life? Bupkis. ERISA does not allow for any recovery on account of these sorts of consequential damages -- none. And this applies even if the insurance company committed outright fraud when it denied your claim. Incidentally, I find it quite difficult to understand why the insurance industry, uniquely among all industries in America, needs to have immunity from liability for fraud if it is to offer its services at a reasonable price. Anyway, this concern goes beyond making people whole; it also directly impacts the behavior of insurance companies.

As of now we have a situation where the law tells insurers they face no meaningful consequences if they deny care improperly or even commit outright fraud. As one federal judge has commented, "if an HMO wrongly denies a participant's claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all." Insurance companies, of course, are not charities, but corporations; their boards are subject to a fiduciary duty to maximize shareholder value. If it is possible to accomplish this by mistreating insureds, then it follows insurers will do precisely that (and believe me, they do).

2. Procedure. In ERISA litigation, courts have determined among other things that there is no right to a jury; that discovery (the pre-trial process where you obtain the other side's documents, take depositions and such) is to be significantly abridged; that the evidence which may be introduced at trial is limited to that which the insurer deigned to assemble during its claims evaluation process; and that, when the policy contains language vesting "discretion" in the insurer, if you prove the insurance company was wrong -- you lose. In order to win, you must prove the denial was "arbitrary and capricious" -- that is to say, ridiculous, absurd, unintelligible, crazy. And lo and behold, the insurance companies grant themselves "discretion" when they write their policies. In this way we treat insurance companies as if they were federal judges. But Learned Hand they are not.

These days we're all debating health care reform and what to do about the uninsured. ERISA matters a lot here, because if you get your insurance through your employment, then consider yourself to be in that group. If by "insurance" you mean something like an enforceable promise by an insurance company that it will pay for what it says it will, what you have doesn't qualify. What you have is a piece of paper saying some company will pay your claim if it feels like it. You don't have insurance at all -- you only think you do.