Friday, May 28, 2010

An ERISA defense firm lets the cat out of the bag; so-called "fiduciary" ERISA insurers put their bottom line ahead of the interests of ERISA participants and beneficiaries

McDermott Will & Emery (MWE), among other things, represents ERISA insurers when they get sued. Given the absurd legal rules favoring MWE’s clients, this is roughly as difficult as coaching the Soviet Olympic basketball team.

Last week the Supreme Court issued its decision in Hardt v. Reliance Standard Life Insurance Company, which involved the circumstances under which an ERISA claimant might be eligible for an award on account of his attorney fees.

ERISA is incredibly stingy when it comes to the remedies successful claimant can recover, such that they cannot realistically expect to be made whole for what they’ve lost, never mind recovering any sort of extra award for things like emotional distress, out of pocket losses or punitive damages. So when they have to pay their own attorney out of the meager recovery ERISA allows, that only further diminishes the net compensation they can realize after being defrauded by an ERISA insurer.

The section of ERISA providing for a fee recovery (look for subsection (g)) does not expressly provide, as most other such provisions do, that only a “prevailing party” can recover fees; the judge is allowed to award fees to “either party,” although practically speaking if you lose in court (which is the way to bet) you’re not going to see any fee award. In Hardt the claimant sorta-kinda won, and the court determined Reliance Standard had indeed wrongfully denied Hardt’s disability insurance benefits. You would think that’d be the end of it, but in yet another breathtaking injustice of the sort only ERISA can create the court sent the case back to Reliance Standard to take another look at it. This time (with a pretty good nudge by the judge) Reliance Standard approved the claim and Hardt got the benefits which had been wrongfully withheld.

So Hardt asked for attorney fees, and Reliance Standard argued that all Hardt had been able to do in court was to get a remand, with no actual order that benefits be paid – that Reliance Standard did out of the goodness of its heart of course. The Supremes said Hardt had achieved “some success on the merits,” and that was good enough to allow the court to award fees.

WME represents ERISA insurers, who are supposedly subject to a so-called “fiduciary” duty that they’ll put the interests of ERISA participants and beneficiaries first. So what lesson does WME draw from Hardt? Why, its “fiduciary” clients are going to become more reluctant to award benefits, because if they do they might have to write a check for the claimant’s fees:

The Supreme Court’s decision could also serve as a disincentive for plan administrators to grant benefits voluntarily on remand in the absence of clear language that the reviewing court finds the determination incorrect on the merits.

Yabbut that is not supposed to be any disincentive for these fine upstanding "fiduciaries" who hold the interests of ERISA participants and beneficiaries paramount, is it? I mean if that mattered to them then they’d just be plain old insurance companies who are subject to liability for things like fraud and wrongful death. As it is they’re so squeaky-clean, so pure in their motives, that they’re above the sort of self-interested profit motives which might influence the rest of us mere mortals.

MWE is exactly right, of course: their ERISA insurer clients will be incentivized to screw people to protect their own bottom line. That’s how they roll.

And MWE has simply, if inadvertently, confirmed it.

Tuesday, May 11, 2010

If they’re going to lie cheat and steal when they consider your insurance claim, you really think they’d be straight about what the law is?

A few weeks ago the Supreme Court issued its opinion in Conkright v. Frommert, and told us that if an ERISA administrator has phony-baloney discretion, a “single honest mistake” will not cause a loss of that absurd advantage in court and make it so they lose the case if they’re, you know, wrong.

Conkright was, of course, a win for the dark side, since now, despite a screw-up they still get the judge’s thumb on the scale in their favor.

But that wasn’t good enough for them, no sir. So they’ve been running around saying Conkright did way more than it actually did.

A bit of background: The Supreme Court first addressed this “discretion” nonsense in Firestone v. Bruch, in 1989. Then, in the 2008 case of MetLife v. Glenn, the Court talked further about how a court should conduct its analysis when an administrator has that phony-baloney “discretion.”

Glenn set the ground rules. And now in Conkright the Court has said those Glenn ground rules continue to apply even if the administrator commits a “single honest mistake.” The Court could not have been more clear about that; they said in words even an ERISA insurer could understand that, despite the “single honest mistake” which occurred in Conkright, “the lower courts should have applied the standard established in Firestone and Glenn."

The ERISA mob, though, has been arguing that Conkright actually changed “the standard applied in Firestone and Glenn,” and that after Conkright it is now even easier for them to win despite being wrong. Take for example this take on Conkright, published by the ERISA defense firm of Sonnenschein Nath & Rosenthal LLP. According to these guys, “the Supreme Court's reading of Glenn in Conkright may make those courts more reluctant to rely on Glenn to overturn plan administrator decisions in conflict situations.” Not only that, “the same considerations the Supreme Court marshaled to reject a ‘prior wrong decision‘ exception to judicial deference can be -- and may well be -- applied to virtually any other attempt to override a plan administrator decision, making all such decisions harder to overturn.”

Oh hell yes let’s make ERISA claim denials even harder to overturn, since they’ve been so easy to overturn for all these years.

So here’s how it’s supposed to work according to the ERISA mob:

Oops! What the hell, the wrong team won! That’s OK, “single honest mistake,” right? Time for a do-over:

Damn. Still no good. But let’s use our phony-baloney "discretion" to clean up our mess:

There. That’s more like it.

It’s not fair, it’s not just, and it ruins the lives of real innocent people. But we must preserve phony-baloney “discretion” at all costs. Discretion uber alles!

Friday, May 7, 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.