Monday, May 16, 2011

News: Claimants prevail before Supreme Court. Not news: "insurance" industry spins big loss as big win

See update below!

The Supremes issued a very, very nice opinion today in CIGNA Corp. v. Amara. CIGNA had played fast and loose with its workers' pensions, unilaterally changing its pension plan to shortchange the workers without telling them about the negative effects of the change. This all gets pretty arcane, because the claimants had prevailed before the Second Circuit, and the Supremes reversed, which is what CIGNA wanted.

But CIGNA should be careful what it asks for, because the reason they reversed was nothing but bad news for CIGNA and good news for the claimants.

The claimants had based their case on 29 USC section 1132(a)(1)(B), which allows courts to award aggrieved claimants the benefits due under the terms of their benefit plan. The trouble has been that no recovery beyond that has been available, other than -- maybe -- something on account of attorney fees. To get there the lower courts, based on CIGNA's lies about the terms of the replacement pension plan, ordered that the plan be "reformed": that it be amended so that it reads consistently with what CIGNA's promises to its workers had been. And then based on the terms of the plan as the court had amended it, an award of benefits to the claimants followed.

So CIGNA appealed to the Supreme Court. The Supreme Court agreed today with CIGNA that the lower courts had incorrectly used section (a)(1)(B) to reform CIGNA's benefit plan. So CIGNA won that battle.

But CIGNA lost the war, because the Court went on to hold the plan could be reformed under a different subsection of the same statute, subsection (a)(3). AND... under section (a)(3) it said a court could do a lot of other stuff too, most notably imposing a surcharge against CIGNA.

This surcharge concept is very important, because up until now the remedies available under ERISA have been severely limited. A surcharge, though, allows claimants to recover for any actual out-of-pocket losses an ERISA insurer's bad acts cause, not limited to the amount of benefits due. So, after the Amara opinion, if an ERISA insurer denies your disability benefits and causes, for example, damage to your credit rating because you can't pay your bills, and that means your cost of credit is all of a sudden higher than it had been, you can be made whole (what a concept!) for that. If an ERISA health insurer wrongfully denies your claim and you have to foot the medical bill in question, now you can probably recover for that. The precise parameters will be determined through future cases, but at long, long last the absolute bar to any compensation beyond the amount of benefits in question has been significantly weakened.

So that's a big win for claimants no matter how you look at it.

Unless you're a flak for the ERISA "insurance" industry. Let's take a look at how industry rag National Underwriter reports on the decision, in a piece remarkably entitled "Supreme Court Favors CIGNA in Summary Plan Description Case":

WASHINGTON BUREAU -- The U.S. Supreme Court has significantly narrowed the grounds an employee can use to sue for additional pension benefits based on errors in a plan’s summary plan description (SPD).
The court ruled 8-0 in favor of the plan sponsor, CIGNA Corp., Philadelphia (NYSE:CI), in CIGNA Corp. v. Amara, No. 09-804, a 2001 class-action case triggered by CIGNA's move to turn a traditional defined benefit pension plan into a cash balance plan in 1998.

Yeah, they significantly narrowed the grounds all right -- it narrows down to "CIGNA loses."

As you might expect the insurance industry will immediately start misrepresenting the meaning of the Amara case to courts all over the map, and they may well succeed in persuading some judges that Amara doesn't stand for what I say it does. But those on my side will be working equally hard to make sure Amara has the effect it should.

This is a very good day for workers, retirees, and the disabled and sick. It's a bad day for fraud and bad faith. But we need to keep working so we'll have more good days in the future, because Amara is really the first small step on a long, long road back to achieving anything approaching justice in ERISA world.

UPDATE: Roy Harmon III has posted a good discussion at his Health Plan Law blog.

UPDATE 2: My colleague Joe Creitz also weighs in with an informative post.

- Posted using BlogPress from my iPad

Thursday, May 5, 2011

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 welfare benefit plans (health, disability, life insurance, that sort of thing). But it doesn't. Quite the contrary.

Way, way to the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those welfare 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 -- welfare 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:

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 in the vast majority of cases a successful claimant is not made whole; not even close. 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. 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, and ERISA says there is no meaningful consequence for that, then it follows that's what insurers will 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 generally limited to that which the insurer unilaterally decided to include within its claim file; 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.

The Republicans are gearing up to take a shot at repealing Obamacare. If that happens, then the least we could do is to ensure that those people who are fortunate enough to have insurance at least have some meaningful ability to enforce insurers' promises in court.

But never mind Obamacare; ERISA matters a lot anyway. If you get your insurance through your employment, then -- thanks to ERISA -- consider yourself to be uninsured. 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.