- What are Long Term Disability Benefits?
- What is the primary difference between individual disability policies, and group disability policies?
- Why is it important to determine if LTD coverage is individual or group?
- Which, of course, leads to the questions, "What is ERISA?" "What is ERISA pre-emption?" and "Why are these determinations so important?"
- What governs LTD benefits, California Law or Federal Law?
- When is employer provided group LTD coverage NOT governed by ERISA?
- How do you know if you have LTD Coverage?
- What are the basic terms used in LTD language?
- What are the likely coverage issues you need to understand?
- What are other employer provided benefits that may be coordinated with LTD benefits?
- What is the process for submitting an LTD claim?
- What Can Or Will The Claims Administrator Do To Investigate The Claim?
- What to expect as a basis for denial of a claim?
- The Appeal Process - What steps to take once your claim has been denied
- What to do when the claims appeal is finally denied?
- Litigating Claims Under Individual Disability Policies
- Litigating an ERISA Claim
- What Legal Remedies Are Available Under California Common Law?
- Remedies Available under ERISA
- What issues are important regarding the inter-relationship between Worker's Compensation, Social Security Disability Benefits, and Group Long Term Disability Coverage?
- Are LTD benefits taxable?
Simply put, Long Term Disability ("LTD") benefits are provided to an individual to replace lost income in the event of an injury or sickness resulting in an inability to work. The factor distinguishing LTD benefits from Workers' Compensation benefits, State Disability benefits, or Social Security Disability Income benefits is they are neither statutorily mandated, nor provided by the government. LTD benefits are either purchased by the individual on his or her own behalf, or they are provided as a benefit of employment.
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The major difference between these two types of policies, is that individual policies are underwritten with respect to the individual being covered, while group policies are not individually underwritten. Rather, group policies are issued on the basis of underwriting assumptions pertaining to the general health of a group of people. Typically, individual policies are applied for and the premiums are paid for by the insured, separate and apart from an employer. Group coverage on the other hand, is usually made available by an employer or union, and the premiums are paid, at least in part, by the employer. Notwithstanding the foregoing, there are circumstances under which an employer will purchase and pay the premiums for an individual policy on behalf of an employee, or conversely, an individual will personally obtain group LTD coverage unrelated to his or her employment by joining a group which has made available group coverage for its members.
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If the disability policy is an individual policy, the remedies that will be available to the insured are vastly different than if the policy is a group policy. If the coverage is a group policy provided by the insured's employer, chances are the policy is governed by ERISA. If the policy is governed by ERISA, then certain state laws that would otherwise provide relief to the insured are subject to ERISA preemption.
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ERISA is the acronym for the Employee Income Retirement Security Act of 1974, 29 U.S.C. Section 1001, et seq. When passed by Congress in 1974, ERISA was intended to regulate and protect employees' rights under their employer provided pension plans. In 1986, the U.S. Supreme Court decided that it also governed employer provided insurance benefits.
B. ERISA Preemption
The Court also held that all State laws, be they Common Law or statute, affording remedies for the improper denial of employer provided insurance benefits beyond the limited remedies afforded by ERISA, were pre-empted by ERISA. For example, the right under California law to recover extra-contractual damages for the bad faith breach of an insurance contract is pre-empted and not available under ERISA.
If the LTD benefit is governed by ERISA, the insurance company has no exposure to bad faith damages, and thus has no true incentive to pay the claim.
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If your LTD coverage is group coverage and was provided by the employer, it is probably governed by ERISA. In that situation, it will be subject to ERISA, federal Common Law and Department of Labor Regulations governing ERISA claims. As discussed below, these claims will almost certainly be litigated in Federal District Court. However, certain aspects of California Insurance law are "saved from pre-emption" and may be applied to the claim. If the coverage was purchased independently, and is individual coverage, the insurance company's obligations will be governed by the California Insurance Code, California contract law, and the implied covenant of good faith and fair dealing. However, remember that the vast majority of disability insurance companies maintain their headquarters outside of California. As such, diversity jurisdiction will apply, and while the litigation may be subject to California substantive law, you will most likely end up litigating in Federal Court, under Federal Court procedural rules.
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When Congress enacted ERISA, it specifically exempted benefit Plans provided by governmental entities and religious organizations from the requirements of ERISA. While each situation requires an independent analysis, typically, city, county and state employees such as teachers, police officers, and other types of governmental workers are not subject to ERISA pre-emption. It is not unusual that an insurance company will believe a claim is subject to ERISA and will not give a claim the attention it deserves. This may result in a significantly increased settlement when the insurance company becomes aware that it faces an extra-contractual damages claim.
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You ask!!! The more important question is, "Who do you ask?" If you have purchased a disability policy yourself, obviously, the question is answered. If your employer provides you a "package" of insurance services you may not be aware of whether or not LTD coverage is a component of that package. In such circumstances, you or your attorney should send a certified letter to the employer, requesting a copy of the Summary Plan Description ("SPD") for all Benefit Plans provided by the employer. The Summary Plan Description must identify the Plan Administrator for the benefit program. In most instances, the Plan Administrator will be the employer. Under Federal Law, upon written request, the Plan Administrator has an absolute obligation to provide the information regarding your benefit programs within 30 days. If the Plan Administrator fails to provide the information on a timely basis, it can be subject to penalties of up to $110.00 a day. In submitting the request, make sure it is sent via certified mail. Doing so will prevent the employer from denying having received the request.
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A. The Plan
In simple terms, this is the benefit plan established by the employer under ERISA to provide employee benefits. The benefits provided under the Plan are frequently funded by an insurance policy. In ERISA terminology, both the legal entity known as "the Plan" and the insurance policy specifying the terms of coverage are both commonly referred to as "the Plan."
B. The Administrators
There are two types of administrators in an ERISA plan. The Plan Administrator is the entity establishing the plan and is typically the entity whom legal process is served upon. The Claims Administrator is the entity who decides eligibility for coverage and benefits. In most instances, this is the insurance company who issued the policy to fund the benefits under the Plan.
C. The Claimant/Participant/Insured/Plaintiff
An individual insured under a disability policy is commonly referred to as "the insured". Under ERISA, individual employees are "participants" in an ERISA plan. The insured might also be referred to as "the claimant," "the participant," or once a lawsuit has been filed, "the plaintiff." The terms are frequently used interchangeable in ERISA litigation.
D. The Administrative Record
The Administrative Record consists of all papers and evidence presented to the Claim Administrator during the claim and appeal process. In simple terms, it is generally the claim file maintained by the insurer for your claim. In any subsequent civil action for benefits, it is likely that the only evidence that will be considered by the Court is that which is contained in the Administrative Record. Thus, it is very important that all evidence substantiating disability be included in the Record during the claim and appeal process.
E. Standard of Review
This is the test employed by the District Court Judge to decide if the Claim Administrator properly decided the claim. The standard of review is frequently the key issue in determining whether an insured will prevail in court. The standards currently utilized by the 9th Circuit are de novo, arbitrary and capricious, and that of a conflicted administrator.
F. De Novo Standard of Review
Under the de novo standard of review, the Judge decides whether the insured is entitled to benefits without giving any deference to the decision of the insurance company; e.g., the court evaluates the claim strictly on its merits.
G. Arbitrary and Capricious Standard of Review
The Judge will give deference to the decision of the insurance company and will overturn the decision only if it is determined that the decision was "unreasonable."
H. Decisions of a "Conflicted Administrator"
If the entity making benefit decisions would be paying the benefits from its own funds (as in an insurance company), the decision maker is inherently a "conflicted administrator." This, coupled with other evidence, may be used to convert the standard of review from arbitrary and capricious to de novo.
I. Independent Medical Exam ("IME")
This is an exam arranged by the insurance company, for the purposes of the insurance company. There is nothing "Independent" about it.
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While insurance policies differ in many respects, there are certain terms and conditions that are typically present in most policies. The specific language in these terms may vary from policy to policy, however, the concepts underlying these coverage terms are frequently litigated issues in claims litigation.
A. Own occupation
Under most group policies, disability is initially determined on the basis of the claimant's own occupation. This is usually only for a limited period of time and then disability is determined on the basis of "any occupation." Many group policies today define one's own occupation as that which is generally performed in the national economy as opposed to the claimant's particular job. A claimant should be aware that insurance companies may use overly generalized or inaccurate job descriptions in evaluating the physical and mental demands of their particular occupations. Thus, care should be taken in the claim process to ensure that the insurance company utilizes correct occupational descriptions to evaluate your disability
B. Any occupation
After a specified period of time (such as 24 months), most group policies require a claimant to be disabled from "any occupation" to be entitled to further disability benefits. Most policies define "any occupation" as one that the insured could reasonably engage in view of his or her "education, training, or experience." In making this determination, the insurance company may utilize a "vocational analysis" to determine the transferable skills that you may use in a different occupation. When this occurs, we often arrange to participate in a vocational assessment completed by a vocational rehabilitation counselor of our choosing.
C. Education, Training and Experience
Most policies and California common law specify that in determining whether one is disabled from "any occupation" the insured must take into consideration the insured's education, training and experience. If the benefit claim is denied on the basis that the insurer may engage in an alternative occupation, one should evaluate whether the designated occupation is truly comparable in view of the insured's "station in life."
(1) Comparable earnings. In many instances, the insurance company may identify an alternative occupation that pays substantially less than the insured's former occupation. If this occurs, the insured may have grounds for asserting that the identified alternative occupation is not suitable in view of his education, training and experience.
(2) Age Limitations. This is an important issue to be considered under the "any occupation" tier. In those cases where a claimant is over 50, the issue of whether he or she can actually perform a certain job based upon their age should always be considered. This is a fact based analysis and can be accomplished by conducting a local market review.
D. Other limitations
Most policies also contain other benefit limitations or exclusions that pertain to particular disabilities. Some of these provisions, such as a pre-existing condition exclusion are grounds for denial of the claim. Other provisions, such as the mental/nervous limitation do not operate as a total bar to benefits, but substantially limit the period of time in which an insured may receive benefits under the policy. As might be expected, insurance companies may incorrectly classify a disability so as to limit their liability for an otherwise legitimate claim.
(1) Pre-existing Conditions.
Under most policies if, during a specified period of time just prior to coverage, a claimant received medical treatment or consultation either for or related to their disability, then the disability will be excluded from coverage. Frequently, policies go even further to include situations where a claimant did not actually seek treatment or consultation with a medical provider, but, rather, just experienced symptoms that would have caused "a reasonable person to have sought medical treatment or advice."
(2) Self-Reported Injuries.
Many policies, especially the more recent ones, also contain a provision limiting coverage for any disability due to a sickness or injury which is based on "self-reported symptoms." These disabilities are those that cannot be quantified or documented by objective medical testing such as x-rays, MRI's, blood tests, etc. If this limitation is being applied to you, the important issue is to determine whether their disabling condition can be independently verified either by testing or by some other means. This question should be directed to your treating physician(s), and if their answer is in the affirmative, you need to ensure completion of the verification technique identified, and then submission of the verification to the insurance company. You should also be aware that certain courts have found that the disabling conditions of Fibromyalgia and Chronic Fatigue Syndrome may not be subject to this provision.
(3) Mental/Nervous Condition.
Similarly, policies frequently limit coverage for a limited period of time for any disability caused by or related to a mental/nervous condition. The two main issues involving this limitation relate to what is properly deemed a mental/nervous condition and whether the policy contains a definition for "mental/nervous condition."
(a) What is Properly Deemed a Mental/Nervous Condition. How is the provision set forth in the policy? If the language is limiting, such as "disability due solely to a mental/nervous condition," then it can only be invoked when your disabling condition is due solely to the mental/nervous condition. If however, the policy states that the limitation will be applied if the condition is "caused by or resulting from" or "caused or contributed by," the mental/nervous condition then the limitation may be applied in situations where "mental/nervous" conditions are appropriately defined.
(b) The Policy Definition of a Mental/Nervous Condition. If the policy limits coverage for disabilities "caused or contributed by" mental/nervous conditions, it should also contain an appropriate definition of the term "mental/nervous condition." A proper definition should indicate whether one is to look at the cause of the disability, its symptoms, the form of treatment or all of these factors combined.
(4) Residual (partial disability) benefits.
Many policies contain a provision allowing for the receipt of benefits when a claimant is disabled but continues to work. This provision is referred to as a residual disability benefit. It always requires that the claimant suffer an actual reduction in monthly income (usually at least 20%) due to the disability. It may also require that the claimant experience a reduction in the amount of hours he or she can work. If you make such a claim and qualify for residual benefits, you will need to review the policy to determine the proper amount of benefits. Frequently, the calculation of benefits under a residual disability provision is performed differently then that for total disability benefits.
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Many LTD policies, especially those sponsored by larger companies, provide for a continuation of other employee benefits while a claimant is disabled. Thus, if you are either applying for or receiving LTD benefits, it is important that you contact your employer to determine whether, in fact, there is a continuation of any of these other benefit programs during the disability period. Other benefits that may continue during the disability period may include health insurance, life and/or accidental death insurance, and pension benefits.
A. Health Insurance
If your employer provides LTD benefits, it almost always also provides health insurance. Coverage can include medical, dental and/or vision benefits. Depending upon the specific employer's employment policies, an employee's health insurance may continue in one of two ways, either under the regular insurance program or under COBRA.
(1) Private Continuation Coverage. Many times, although a claimant has left employment due to disability, the employer will not terminate their employment status. In these instances, the employer may have a policy whereby it continues the claimant's health insurance under its regular coverage. If the employer has such a program, coverage is usually dependent upon either the claimant receiving LTD benefits under the employer's benefit Plan or under Social Security. Frequently, coverage under these circumstances is continued by the employer for only a specified period of months beyond the employee's initial date of disability.
(2) COBRA. Under COBRA,8 upon the occurrence of a "qualifying event" (usually a termination of employment or entitlement to Medicare), the claimant may elect to continue medical coverage for an additional 18 months. However, premiums must be paid by the claimant at the rate charged the employer, plus a nominal administrative fee.
If the claimant is found to be disabled by the Social Security Administration within 60 days from the date the COBRA coverage commenced and the claimant notifies the employer within the 18 month period of COBRA coverage that the claimant has been awarded Social Security Disability, then the claimant is entitled to an additional 11 months of COBRA coverage.
B. Life Insurance
Similarly, many employer sponsored life insurance programs allow for a continuation of coverage during the time period the claimant remains disabled under a LTD program. Unlike medical continuation, life insurance programs usually provide for a waiver of premiums during the entire time the claimant is found disabled. It should be noted that continuation of this benefit is usually contingent upon a determination that the claimant is disabled under a LTD policy.
C. Pension Programs
Often, larger employers will provide a continuation of work credits to an employee for each month they are found to be disabled under either the company's LTD program or the Social Security Administration. These work credits can amount to a substantial increase in your future pension benefits. It is important for you to find out whether your employer offers such programs, and, if so, whether you qualifiy for the program.
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Claims submission procedures are set forth in the insurance Plan documents such as the Summary Plan Description and/or the insurance policy. The claimant should consult these documents for the specific claims submission procedure adopted by the employer. If the insured was not supplied with or has lost the Plan documents, duplicates may be obtained from the employer.
Submission procedures will vary slightly from employer to employer. However, usually the employee begins by contacting the employer or its insurer to advise that he or she needs to submit a disability claim. The claimant will then be provided a number of forms to complete and sign in relation to the claim.
A. Completion of Required Claims Forms
It is important that the claimant complete all forms required by the Claims Administrator for commencing a disability claim. Failure to do so will most likely result in the claim being denied for "failure of proof." Typically, these forms include the following:
- Disability Claim Form to be completed by the claimant stating the reasons he or she is disabled and requiring identification of the claimant's treating physicians.
- An Attending Physician Statement to be completed by the claimant's treating physician stating the restrictions and limitations which prevent the claimant from performing the material duties of his or her occupation, and the expected duration of the condition.
- An Employer's Statement to be completed by the claimant's employer stating the employee's rate of pay and job duties as of the time the employee ceased active employment.
- An Authorization For Release of Medical Information allowing the Claims Administrator to obtain the claimant's medical records.
The claimant will be asked to complete or arrange for completion of these forms, and to return them to the Claims Administrator. Often, the Administrator will submit the Employer's Statement and/or the Attending Physician Statement directly to the employer or treating physician for completion.
B. Additional Information That May be Submitted
In addition to returning the forms requested by the Claims Administrator, it is advisable for the claimant to submit with their initial claim package, or as soon thereafter as possible, additional documentation that may support the claim. For example, such documents could include:
- Medical records from the claimant's treating or examining physicians which support the claimed diagnosis and disability.
- Evidence of having been approved for Social Security disability benefits including a Notice of Favorable Decision from the Social Security Administration or the decision of a Social Security Administrative Law Judge.
- A detailed job description which describes the duties of the claimant's work, including the physical and mental demands of the position and the working hours required by the employer. If the employer has not provided a written job description to the claimant, the claimant may draft his or her own description.
- A letter from the claimant which details the symptoms of the condition(s) upon which disability is being claimed and the impact of these symptoms on the claimant's functional capacity as applied to the claimant's job duties and if applicable, to the claimant's daily activities of living.
- Letters from the claimant's family, co-workers, or friends describing their personal observations of the symptoms experienced by the claimant and how those symptoms have adversely affected the claimant's functional capacity at work and/or home.
Given prescribed time limitations on claim submissions (see below), it is not advisable to delay submission while an extensive record supporting the claim is prepared. Rather, if the additional evidence is not readily available, it is preferable to submit the initial claim forms and then supplement the claim as the additional evidence is obtained.
C. Communications with the Claim Administrator
To the extent possible, all communications between the claimant and the Claims Administrator should be in writing. If telephonic contact occurs, the claimant should confirm the substance of the discussion in a subsequent writing. Similarly, if the claimant receives "confirming" correspondence from the insurer that misstates the substance of telephonic communication, the claimant should correct such mistakes in writing. All correspondence sent by the claimant to the Claims Administrator should be sent certified, mail, return receipt requested. In addition, the claimant should specifically list in the correspondence, by name and date, all documents being sent to the Administrator to create a clear record. The claimant should further ensure that all correspondence is dated and references the claim number assigned to the claim.
D. Time Requirements
Most insurance policies require the claimant to submit proof of disability within a specified period of time after the onset of disability. The U.S. Supreme Court has recently clarified that California's "notice/prejudice rule" governing late claims in individual insurance policies also applies to ERISA Plans. Thus, an insurer may not reject an untimely claim unless it can demonstrate that it suffered actual prejudice as a consequence of the late submission. Nonetheless, it is prudent to make every effort to comply with the time deadlines specified in the particular policy.
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Claims Administrators utilize a variety of techniques to investigate claims. Nearly all Claims Administrators will commence the claim investigation by requesting the claimant's medical records from the treating physicians the claimant has identified on his or her initial claim form. In addition to obtaining the medical records, the Claim Administrator may also conduct background checks, medical examinations, sub-rosa surveillance and other methods of claims investigation during the claim process:
A. Background Checks
This type of investigation may include any of the following:
- Interview of the claimant's neighbors.
- Procurement of the claimant's employment records.
- Procurement of any records relevant to a Social Security claim or Workers' Compensation claim filed by the claimant.
As a practical matter, there is little the claimant can do in regard to intrusive investigative techniques since more often than not, the claimant is unaware that he or she is even the subject of such inquiry. Moreover, the claimant does generally maintain an obligation under the Plan document to cooperate in regard to the Claims Administrator's investigation of the claim. However, limits do exist with regard to the scope of investigation, and the Claims Administrator is not empowered to unduly harass or invade the claimant's privacy.
B. Medical Examinations
As noted earlier, an independent medical examination is generally not truly "independent" since the retained doctor is paid by the Claims Administrator and probably derives a substantial portion of his income from these types of examinations. Most policies expressly reserve the right of the insurer to conduct such an examination. The claimant should check the language in his or her Plan prior to agreeing to submit to examination.
If the Plan does require the claimant's cooperation in this regard, the claimant should advise the Claims Administrator, in writing, that he or she intends to audio record the examination to ensure an accurate record of his or her discussion with the doctor. The claimant should also request that the Claims Administrator so advise its retained doctor so that these arrangements are confirmed prior to commencement of the examination. If the Claims Administrator and/or its retained examiner decline to allow a recording, the claimant should confirm this in writing to the Claims Administrator, appear for the examination and confirm the substance of the discussion with the doctor in a subsequent writing to the Claims Administrator.
Sub-rosa surveillance techniques adopted by the Claims Administrator are subject to limitation and must not unduly invade a claimant's privacy. Thus, while it may be permissible to videotape a claimant while he or she is out in public or even in his or her own front yard, surreptitious observation of the claimant inside his or her home would likely constitute an actionable invasion of privacy.10 Disability claimants should be made aware that surveillance may be utilized at any time by a Claims Administrator including during the initial claims administration and even after benefits are approved.
D. Medical, employment and financial records
The Claims Administrator will often request the claimant's execution of an Authorization for Release of Confidential Information. While such requests are made ostensibly to allow the Claims Administrator to obtain information relevant to the claim, such as medical records, a detailed review of the proposed release will often reveal that its scope extends well beyond procurement of records reasonably related to the claim process. The claimant is encouraged to review any release he or she is requested to sign with a discerning eye and to question any release that provides for the disclosure of their school or employment records or confidential financial information, unless the Claims Administrator can identify how such information is relevant to the claim.
E. Telephonic or in-person interview
The Claims Administrator may request that the claimant submit to a telephonic or in-person interview. The claimant always has the right to record the proceeding either by audio or video tape. If the Claims Administrator declines to agree to a recording of the interview, the claimant should confirm the refusal in writing and offer to submit to a written interview whereby the claimant will respond in writing to any written questions submitted by the Claims Administrator.
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To be eligible for Long Term Disability benefits, a claimant must be both covered under the terms of the Plan and meet the definition of total disability.
(1) Enrollment Period.
Plans usually specify a minimum term of employment that must be fulfilled prior to eligibility for coverage, e.g., 30 days. The employee should be aware that his coverage rights may be compromised if his or her employer did not properly submit enrollment information and/or premiums. In such circumstances, the employee may have a separate claim against his or her employer.
(2) "Active at Work" Requirement.
Some Plans require that the claimant be "actively at work" (usually with a stated hourly minimum, e.g. 30 hours per week) prior to the claimed disability. Thus, if you reduce your hours due to injury or sickness and do not make a claim during this period of time, such a reduction may compromise any subsequent disability claim.
B. Satisfying the Definition of Total Disability
Once the Administrator determines that a claimant is entitled to coverage, it then evaluates the merits of the claim. In our experience, adverse disability determinations are often based upon the following reasons:
(1) No Objective Findings.
An Administrator may deny a disability claim on grounds that although a claimant may experience disabling pain, there are "no objective findings" substantiating the disability. Such objective findings may include X-rays, MRI results, or other tests documenting physical restrictions and limitations. Some disability policies specifically require objective findings to support a disability. In our experience, many policies do not include this specific requirement, but the insurer nevertheless asserts the absence of objective findings as a basis for denying benefits. The Courts are divided on whether an Administrator may legitimately require objective findings as a prerequisite for benefits when it is not specified in the policy.
(2) Disability is related to specific job as opposed to own occupation.
When evaluating a claimant's ability to perform his or her occupation, the Administrator typically looks at how the job is performed in the national economy as opposed to the specific requirements of the claimant's particular job. Thus, the insurer may deny the claim on grounds that although the claimant's job may have particular strenuous or stressful requirements, the occupation itself does not have such requirements and, therefore, the claimant is not disabled. Often, the insurer may utilize generalized or inaccurate job descriptions that do not accurately match the claimant's occupation when making this determination.
(3) Pre-Existing Condition Exclusion.
Most LTD Plans exclude or limit coverage for pre-existing conditions. A pre-existing condition is usually specifically defined in the policy as those medical conditions for which the claimant was actually treated within a specific number of months before coverage began or for which a "reasonably prudent person would have sought medical care or treatment." The "pre-existing condition" limitation usually expires after a specified period of continuous employment. A Plan may also impose a requirement that the claimant be "treatment free" for a certain period.
(4) Failure to fulfill the Elimination Period.
Most Plans have a requirement that a claimant be continuously disabled during an "elimination period." The elimination period is frequently the same time period covered by a short term benefit plan, i.e, six months. Thus, although a claimant may be totally disabled at the commencement of his disability, if he or she does not remain totally disabled throughout the entire time covered by the elimination period, he or she will not be entitled to benefits.
(5) Not Under the Care of a Physician.
Most Plans require a claimant to be under the "regular care" of a physician. "Regular care" is frequently not defined and may be the subject of dispute. In addition, some Plans may contain requirements that the medical care be rendered by a medical doctor as opposed to alternative care providers.
(6) Not Receiving Appropriate Treatment.
Many Plans pre-condition an award of benefits on the claimant receiving "appropriate medical treatment." This has raised a number of issues in benefit litigation for it often results in an insurance carrier attempting to direct the medical care provided to the claimant. For example, an insurer may insist on medical care that is at odds with that recommended by the treating physician as a pre-condition to benefits. Most Courts addressing the issue have looked at such practices with disfavor.
(7) Self-Reported Symptoms.
Some Plans contain exclusions or limitations on disabling conditions that are based only on "self-reported symptoms." Such conditions may include headaches, dizziness, or chronic fatigue, which cannot be documented by objective findings. Many times, however, an insurer may deny or attempt to limit liability on the basis of "self-reported symptoms" when the Plan does not contain a specific exclusion or limitation pertaining to such disabilities. In such circumstances, we will argue that the insurer is attempting to "re-write" the Plan with exclusions or limitations that are not contained in the policy.
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A. Non-ERISA Claims
If the Plan is not governed by ERISA, a claimant may ordinarily bring a civil action after the denial of benefits and is not obligated to complete an appeal process. In all cases, the language of the policy or the Summary Plan Description should be consulted to ensure that the claimant completes all steps in the claim process. For example, some Plans may include arbitration or further review prior to commencement of a civil action.
B. ERISA Claims
Under ERISA, the claim procedure is actually a two-step process. The claimant must submit his or her claim within the time period specified in the Plan. If the claim is denied, the claimant must either accept that decision as final or appeal the decision in accordance with the procedures specified in the Plan. If the claimant does not timely appeal the initial denial decision, he or she will lose valuable rights.
Under the Department of Labor Regulations, a claimant has a minimum of 180 days to appeal an adverse benefit decision. However, a particular Plan may specify a longer period of time and usually specifies the time period as a maximum time in which to file an appeal. Thus, if the claimant does not appeal within the time period specified in the Plan, he or she may lose not only all appeal rights, but may also lose all rights to bring a civil court action to contest the benefit decision (see discussion on "Exhaustion of Administrative Remedies" below.) The purpose of the appeal process is two-fold. First, it gives the claimant an opportunity to rebut the initial findings of the Administrator. Second, in most instances, it is the final opportunity for a claimant to include favorable evidence in the Administrative Record which will then be reviewed in a subsequent civil action. As noted earlier, it is likely that the only evidence that will be considered by the Court in a subsequent civil action will be that which is contained in the Administrative Record. Thus, it is very important that all evidence substantiating disability be included in the Record during the claim and appeal process.
(1) Your Rights During an ERISA Appeal
(a) Information that must be provided to the claimant at the time of the initial denial. If a claim is denied, the Administrator must advise the claimant of the specific reason for the adverse determination, reference the specific Plan provision on which the determination is made and describe what additional material or information is necessary to perfect the claim.
The Administrator is also required to describe the Plan's review procedure and to advise the claimant of his or right to bring a subsequent civil action under ERISA. Finally, the Administrator is required to either provide or offer to provide any internal rules, guidelines or criteria that were relied upon in making the benefit decision.
If this information is not provided to a claimant at the time the claim is denied at the initial stage, a Court may determine that the denial was insufficient to trigger the appeal period and that the claimant may continue with the appeal process.
(b) Information that must be considered upon appeal. As stated earlier, it is extremely important to include all information that substantiates the claimant's disability in the Administrative Record. The appeal process provides the claimant with the opportunity to rebut the insurer's findings. This may be accomplished with accurate job descriptions, employer's statements, medical records or information correcting an Administrator's inaccurate assumptions, listing documents by name and date in correspondence to the insurer to create a clear record of what was provided.
(c) Exhaustion of Administrative Remedies. It is extremely important that a claimant complete the appeal process in a timely manner. Although not specifically mandated by ERISA, most Courts have adopted the rule that administrative remedies provided by a Plan (such as the appeal process) must be exhausted prior to filing a civil suit. Most Courts will dismiss a case that has been filed where there has been no exhaustion of remedies. By then, it is too late to further pursue the appeal of the claim denial and the claimant will be left without benefits.
(d) Full and fair review. The Department of Labor Regulations require an Administrator to conduct a "full and fair review" of all comments, documents and records submitted by the claimant. The review must not afford deference to the initial benefit determination and be conducted by an individual who did not make the initial decision.
(e) Time limits on a decision. The Regulations also provide that an Administrator must provide a written decision to a claimant within 45 days after the appeal of the initial benefit decision. In "special circumstances", the Administrator may extend this period an additional 45 days if it gives advance notice in writing to the claimant of the extension.
(f) Duty to Advise Insured of Reasons Supporting Denial. The Regulations require the Administrator to advise the insured of the specific reasons supporting its decision and the Plan provision on which the decision is based. If it is subsequently determined that adequate notice was not given, a Court may hold that an insurer did not properly complete the claim process and may remand the claim back to the insurer for further consideration.
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The remedies for a wrongful denial of benefits under an ERISA Plan are substantially different than a Plan which is not governed by ERISA. In a non-ERISA Plan, the claimant may not have to exhaust the appeal process and may bring a traditional bad faith suit in State Court against the insurance carrier. However, if the Plan is governed by ERISA, the remedies are considerably different and enforcement of the claimant's right is governed strictly by Federal Law and procedure.
A. Where to file suit
(1) Non-ERISA claims.
An action for improper denial of benefits may be brought in State Court against the insurance carrier. However, if the insurer is incorporated and/or has its principal place of business in a state other than California, there is a strong likelihood that the insurer will remove the case to Federal Court if the amount in controversy exceeds $100,000.00. A prayer for extra-contractual damages has been deemed sufficient to establish an amount in controversy in excess of $100,000.00.
(2) ERISA claims.
ERISA provides that the Federal Courts will have exclusive jurisdiction of all actions brought under ERISA, with the exception of benefit claims under 29 U.S.C. Section 1132(a)(1)(B). Federal and State Courts have been granted concurrent jurisdiction to resolve benefit disputes. However, the State Courts are bound to follow Federal Law in such actions.
In practice, ERISA benefit claims are almost always litigated in Federal Court. There is no jurisdictional requirements such as diversity or minimum amount in controversy; rather ERISA confers jurisdiction on the Federal Courts to hear all matters arising under ERISA. Therefore, even if one were to file an ERISA benefits action in State Court, the prevailing practice of the insurers is to immediately remove the action to Federal Court.
B. Whom to sue
(1) Non-ERISA Plans.
In a traditional bad faith suit, the plaintiff can bring an action against the insurer and any other entities or individuals who may have contributed to the wrong (e.g., brokers, agents etc.)
(2) ERISA Plans.
In an action governed by ERISA, the 9th Circuit has held that an action for benefits may only properly be brought against the Plan. This poses numerous problems in litigation in that in most cases, the claim has been processed and decided by the insurer-administrator and not the ERISA Plan itself.
Thus, the more prudent procedure is to file the action against the Plan and the insurer administrator. In such instances, the defendants can decide amongst themselves who will defend the case and respond to any judgment that is rendered. In most instances, this will be the insurance carrier.
C. Court Procedures
(1) Filing the Complaint.
In State Court, the assignment of judges is dependent upon the local rules of the different Superior Courts. In Federal Court, a judge is assigned at the commencement of the action and will be the judge for all purposes (with the possible exception of discovery disputes and settlement conferences.)
(2) Service of Process.
The Complaint must be timely served upon all defendants. In State Court, the plaintiff has 60 days to serve the Complaint. In Federal Court, the Complaint must be served upon all defendants within 120 days. In ERISA actions, a difficulty may arise in serving the Complaint upon the Plan. Under ERISA, proper service on the Plan is made to the Plan Administrator, who must be identified in Plan documents (usually the Summary Plan Description.) This is another reason to request all Plan documents during the appeal stage. Such documents will provide you with the correct name and address of the Plan Administrator so that you can properly serve the action.
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If you have an individual policy, it will almost always be regulated under State Law. In this situation, if the insurance company has breached its contract with you, then you may have a claim for breach of insurance contract, bad faith, misrepresentation, negligence and other State Law causes of action.
A. Bad Faith Litigation
Bad faith claims may arise where the insurer has unreasonably withheld benefits by either refusing them in their entirety, paying less than was due or unreasonably delaying payment. The ultimate test here is whether the insurer has acted unreasonably in denying benefits. Unreasonable has been further defined as being "without proper cause." Sloppy claims investigation does not normally equate to bad faith. However, where the insurer is negligent in both the investigation and review of claim information, bad faith can be established.
B. Discovery - Witnesses - Jury or Bench Trial
An insured is entitled to conduct discovery, present witnesses at trial and has a right to a jury trial upon demand. Relevant discovery may include discovery relating to claims handling and any other issues relevant to your case. The identification of witnesses from the defendants can likewise be obtained via discovery. (However, if you file in Federal Court, or you file in State Court, and the Defendant removes the action to Federal Court, it is essential that you make a timely demand for a jury trial. Missing the deadline by even a day can result in the waiver of a right to a jury trial.
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The standard of review to be employed by the reviewing court is often the most hotly litigated and crucial issue in an ERISA case. In the 9th Circuit, there are two potential standards of review; the highly deferential "arbitrary and capricious standard" (also known as the "abuse of discretion" standard) and the non-deferential or de novo standard of review. In litigating a case for ERISA benefits, a Claims Administrator's benefit decision is automatically reviewed de novo "unless the benefit Plan gives the Administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the Plan." Where discretionary authority has been expressly given to the Claims Administrator, then the abuse of discretion standard is applied. In practical terms, insurance carriers are well aware of the litigation advantage they retain if they have been granted discretion to interpret the Plan and decide benefit eligibility. More recently issued policies have been written to expressly grant full discretion to the insurer.
A. Grant of Discretion
Since the Supreme Court's decision in Firestone in 1989, the issue of what language is sufficient for application of the arbitrary and capricious standard has been exhaustively litigated. The 9th Circuit clarified the rule in its seminal en banc decision, Kearney v. Standard Ins. Co., 175 F.3d 1084 (9th Cir. 1999) cert. denied, 120 S. Ct. 398 (1999). The rule in this Circuit is that unless Plan documents unambiguously say in sum or substance that the Plan Administrator or fiduciary has authority, power, or discretion to determine eligibility or to construe the terms of the Plan, the standard of review will be de novo. Thus, since the Kearney decision, it is no longer sufficient to have an ambiguous grant of discretion since case law has now firmly established that any grant of discretion must be plain, clear and unambiguous.
B. Exercise of Discretion
Not only must there be a valid grant of discretion, but it must also be exercised by the party expressly granted it under the applicable Plan documents. Thus, if the party exercising discretion is not the entity to whom discretion was granted under one of the Plan documents, then you may have an argument for application of the de novo standard of review. This may occur when the Plan grants discretion to an employee benefit committee to make a final determination of benefits, yet an insurance company administers the Plan.
C. The Conflicted Administrator (Conversion of Arbitrary and Capricious Standard of Review to De Novo)
In the 9th Circuit, the arbitrary and capricious standard of review may be converted to a de novo standard where there is a conflicted Administrator and the claimant produces "material probative evidence demonstrating that the inherent conflict actually affected the Administrator's decision." Thus, where the insurance company both underwrites the LTD program and makes claim determinations, an argument can be advanced that the standard of review should be de novo by demonstrating that the inherent conflict actually affected the claims decision. What constitutes material, probative evidence of a Claim Administrator's actual conflict of interest is a factual inquiry which is determined on a case by case basis. However, existing case law has identified a number of circumstances in which it was found that there was sufficient evidence of an actual conflict to change the standard of review. These circumstances include:
- An Administrator's statement of inconsistent reasons for denying benefits, or other inconsistent behavior in dealing with the beneficiary.
- An Administrator's change in position without receipt of any new evidence.
- An Administrator's reliance on an improper definition of disability under the Plan.
- An Administrator's determination of a material fact for which it has provided no supporting evidence.
- An Administrator's failure to provide reasons for its denial of benefits.
- An Administrator's failure to provide sufficient notice of the denial of the claim.
- Whether the record, taken as a whole, reflects that the Administrator acted "as an adversary 'bent on denying the beneficiary's claim' and 'oblivious to her fiduciary obligations as Administrator of the LTD Plan.' "
D. Discovery - Witnesses - Jury or Bench Trial Trial or a final adjudication of an ERISA case is substantially different than a claim under an individual policy. First, there is no right to a jury trial. The matter is determined by the Court on summary judgment motions if the standard of review is "abuse of discretion," or by Bench trial if the standard of review is de novo. There is generally no right to discovery in ERISA matters on the substantive merits of the claim. The evidence is limited to the Administrative Record, which is comprised of the Plan and claim file documents relied upon by the claim Administrator in making its decision. However, in the 9th Circuit, a claimant may take discovery and introduce evidence outside of the Administrative Record on the issue of whether an Administrator acted under an actual conflict of interest in administering the claim.
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Without a doubt, the most important distinction between LTD claims governed by ERISA, and those subject to California Common Law, are the remedies available to litigants. Unfortunately, it is also a primary source of client confusion and disappointment. Since the Supreme Court's decision in Pilot Life v. Dedeaux, remedies available to claimants in ERISA litigation are strictly limited to the remedies afforded by the statute, which does not include consequential or punitive damages. It is essential that a client understand from the outset of the case what remedies are both potentially available, and those which are reasonably likely to occur. What are the remedies under California Common Law? Typically, complaints for denial of long term disability benefits under California Law state two cause of action: Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing.
A. Breach of Contact
The standard of proof for a breach of contract action is a preponderance of the evidence. If the plaintiff prevails on his breach of contract claim, the remedy available for that cause of action is an award of the contractual benefits owed up until the date judgment is entered, plus interest, and reinstatement of the plaintiff's benefits. You need to understand that prevailing on a claim for breach of contract does NOT automatically afford an entitlement to attorneys' fees, emotional distress damages, or punitive damages. In order to have a claim necessary to recover these types of damages, the plaintiff must first demonstrate that the insurance company breached the implied covenant of good faith and fair dealing.
B. Breach of the Implied Covenant of Good Faith and Fair Dealing
In short, if the insured proves at trial that the insurance company not only wrongly denied the claim, but did so "unreasonably", the trier of fact, be it judge or jury, MAY award consequential damages. These include:
(1) Attorney's Fees.
Pursuant to Brandt v. Superior Court, the insured may recover the attorneys' fees incurred in obtaining the contractual benefit. To date, no California Court has determined whether the attorneys' fees are paid on a per hour worked or on a contingent basis. However, the argument is typically advanced that attorneys' fees are a percentage of the contractual benefits recovered.
(2) Emotional Distress Damages.
In Fletcher v. Western National Life Ins. Co., the Court discussed the covenant of good faith and fair dealing in the context of a disability policy: "Among the considerations in purchasing insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss. These considerations are particularly cogent in disability insurance. The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, is particularly vulnerable to oppressive tactics on the part of an economically powerful entity."
(3) Future Benefits.
In Pistorious v. Superior Court, the Court ruled that an unreasonable denial of disability benefits may be remedied by the insurance company making a current payment of the present value of the future benefits.
(4) Punitive Damages.
Punitive damages are NOT intended to provide a remedy to insureds for damages resulting from the wrongful denial of their claim. Rather, they are intended to punish the insurer, and deter it from future conduct of a similar nature. In order to obtain punitive damages, the insured must demonstrate by clear and convincing evidence that the insurer acted with fraud, oppression, or malice in denying the claim. As a result of the high standard for recovery of punitive damages, it is the rare case which results in the imposition of such a penalty. Moreover, you need to understand that insurance carriers almost never pay what they would consider to be punitive damages in a pre-trial settlement. They are only paid after trial, and often only after they have unsuccessfully appealed the judgment. While many clients may insist at the onset of their case that "they are entitled to punitive damages," it is the very rare client who will actually be successful in recovering them.
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Under 29 U.S.C. Section 1132 (a)(1)(B), a civil action may be brought by a participant or beneficiary of a disability Plan to:
Recover benefits due him under the terms of his Plan; to enforce his rights under the terms of the Plan, or to clarify his right to benefits under the terms of the Plan. Similarly, under 29 U.S.C. Section 1132(g)(1) additional remedies may include an award of reasonable Attorney's Fees and costs to either party. The United States Supreme Court has consistently held that in pursuing an action to recover long term disability benefits under an ERISA Plan, the above are the only remedies available. In short, the claimant may recover the benefits which have become due, plus discretionary attorneys fees. Issues which may arise concerning available remedies include:
A. What benefits have become due?
Some Courts have held that benefits due as of the date of the Court's judgment are recoverable, while others have limited recovery to the benefits as of the date the claim was denied.
B. May retroactive offsets be applied?
While the insurer will always seek to apply benefit offsets retroactively, there have been circumstances wherein the Courts will not permit the retroactive application of offsets. This issue must be addressed on a case by case basis, and is typically not resolved in the insured's favor.
C. Is interest paid on past due benefits?
Typically, yes. But the rate of interest is also determined on a case by case basis. The more egregious the conduct of the insurer or Claim Administrator, the more likely the Court will impose an interest rate favorable to the insured.
D. May the Court award future benefits?
Not under current law. Because the right to future benefits is uncertain, future benefits may not be awarded. However, the Court may determine clarify the "right to future benefits."
E. What does it mean to clarify the right to future benefits?
The best way to explain this is through an example. A situation may arise wherein a claimant is receiving benefits because of disability which the insurance company has determined to be subject to a coverage limitation for a mental/nervous condition. Based thereon, the insurer may advise the insured that his claim will be paid for a maximum of two years. If the insured contends that his disability is physiological in origin, and therefore not subject to the mental/ nervous limitation, the insured can litigate that issue presently, and need not wait until the insurer terminates benefits.
F. When will the Court exercise its discretion and award fees to the claimant?
In the 9th Circuit, if a plaintiff prevails, in all likelihood the Court will award reasonable Attorney's Fees. However, the issue of "when the plaintiff has prevailed" remains an open question. Some Courts have been willing to award fees if the plaintiff prevails on any major issue, while others require a final judgment and an actual monetary award to the Plaintiff.
G. What are "reasonable" fees ?
It is the reasonable number of hours incurred by the attorney in successfully pursing the plaintiff's claim, multiplied by a reasonable hourly rate charged by attorneys with similar experience and qualifications. The Court may not award contingent fees in an ERISA case. However, there are circumstances where the fees awarded exceed the benefit received by the plaintiff.
H. Are fees awarded to the insurance company if the Plaintiff loses?
Ordinarily no. But if the Court determines the plaintiff's suit was brought in bad faith, the Court has the discretion to award fees to the insurance company or the Plan.
I. Are there any situations where tort remedies are recoverable in an ERISA case?
In Dishman v. UNUM, the Court held that where the conduct of the insurer or its agent is actionable outside the claims process, tort remedies may be recoverable. For example, if an investigator hired by the insurance company to observe you trespasses on your property and takes video through a bedroom window, an action may be brought for trespass and invasion of privacy. However, circumstances where the conduct is outside of the claims process are both rare and extremely difficult to prove.
J. How are ERISA disability cases usually settled?
In our experience, insurance companies prefer resolving litigated claims through a buy-out of the plaintiff's claim and a release of any future right to coverage under the group policy. The amount of settlement is fact specific and dependent upon many factors including the strength of the Plaintiff's case, the present value of the future benefits, the plaintiff's life expectancy, the likelihood of plaintiff's recovery and return to work, whether the Plan affords discretion to the insurance company to decide benefit claims, and even the tendencies of the Federal District Court Judge assigned to the case.
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Our clients commonly ask, "Will my Workers' Compensation case affect my LTD claim?" Although it is tempting to respond, "No", the answer is less straightforward. In practice, the Workers' Compensation claim and award can profoundly impact the LTD Plan benefit.
We have found that one of the frequently misunderstood concepts in LTD Plans is the fact that most group Plans offset any LTD benefits with other disability benefits, or even retirement benefits that are received by the claimant. Most Plans also give the insurer the right to offset "estimated benefits" to which the claimant would be entitled if his or her claim is ultimately approved. Thus, the LTD Plan has an incentive to assist claimants to obtain Workers' Compensation and Social Security benefits because the insurer's liability is reduced by any other benefits received by the claimant. In some instances, we see insurers advocating disability for purposes of Social Security benefits, yet denying LTD benefits on the basis that the claimant is not totally disabled.
B. Social Security Claims
Often the LTD Plan will arrange for a third-party firm to handle the Social Security claim on behalf of the disabled claimant. There may be no attorney-client relationship with the third-party and any information divulged in the representation may ultimately be forwarded to the LTD Plan. Unfortunately, the medical proof of disability may not be forwarded to the Plan. In this way, the Plan retains the benefit of the Social Security offsets, usually in a substantial lump sum repayment, but may then later terminate or deny the LTD claim as lacking medical proof of disability.
C. Workers' Compensation Settlements One of the most important aspects of the inter-relationship between Workers' Compensation and LTD claims occurs in the execution of a Release pertaining to a Workers' Compensation claim. A claimant's LTD benefits eligibility can be eliminated by a Workers' Compensation settlement that inadvertently releases the employer from all unknown claims under California case law if the employer can successfully assert they were not formally notified of the intended LTD claim at the time of the settlement. Moreover, the apportionment of the settlement can affect the right of the insurer to offset the full amount of the Workers' Compensation settlement against long term disability benefits. Every LTD Plan is a separate insurance policy and contains different terms regarding the types of benefits that may be offset. Often a policy will offset only the portion of a Workers' Compensation award or settlement that is allocated to loss of income. Under those policies, it is important to structure a Workers' Compensation settlement to maximize the LTD benefits available. The policy itself must be examined to determine the impact of a Workers' Compensation award on the amount of benefits. Because of the severe time constraints you have in your representation of claimants, and the inability of most injured persons to understand the different requirements of Workers' Compensation, Social Security, and LTD benefits, we believe it is important to get an LTD claims attorney involved early on in the process to ensure the preservation of the claimant's eligibility and to assist in maximizing the amount of LTD benefits available.
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If you pay premiums on your policy, and the premiums are paid for with after-tax dollars, then the benefits will not be taxable. However, if the policy is a group policy, and your and your employer split the cost of the premium, then you can only reduce your tax liability by the percentage of premiums paid. If, however, you pay no premiums on the group policy, or pay premiums with before-tax dollars, the benefits are fully taxable as income.
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