Quiat on Claims : New York Disability Insurance Lawyer & Attorney : Michael Quiat : Uscher Quiat Uscher & Russo Law Firm : ERISA, Denied Claims

The U.S. Supreme court took a big chunk out of the “discretionary” fortress erected by ERISA disability income carriers when it reversed a 4th Circuit Court opinion in Hardt v Reliance Insurance, 2010 WL 2025127 (5/24/10).  In Hardt, the court decided that claimants do not have to be a “prevailing party” to win attorney fees.

The discretionary fortress is built on the discretion ERISA gives plan administrators to determine whether a given plan covers a claim. Since many times the plan administrator is also the insurance carrier which would have to pay the claim, you don’t have to be a genius to figure out which way such discretion leans.

The Hardt decision, in effect, turns the tables on insurers which have been using their ERISA-granted “discretion” for decades to hamstring claimants without fear of penalty to themselves. Now, misuse of their “discretion” can very well lead to insurers paying the claimant’s legal fees, since Hardt holds that the award of fees in such cases is solely in the “discretion” of the trial court.

In the Hardt case, the District Court awarded legal fees to the claimant because she provided compelling evidence that she was totally disabled. Although the District Court did not decide the issue of claimant’s entitlement to benefits, it awarded her a remand order which sent the matter back to the insurance company for a new review. Upon looking at the matter on remand, Reliance reversed its prior denial of benefits and awarded benefits to Hardt.

However, Reliance balked at paying Hardt’s attorney fees, saying that under the American Rule (each litigant pays his or her own attorney), she was not entitled to be paid the fees it cost her to prove her case because she had not “prevailed” in the matter because all she had actually “won” was a remand back to Reliance. The 4th Circuit Court of Appeals agreed and overruled the trial court on the award of legal fees, since, according to the Circuit Court, she had not “prevailed”.

The Supreme Court ruled that the language of 29 U.S.C.1132(g), the ERISA statute which authorizes an exception to the American Rule, gives the trial court discretion to award fees so long as the plaintiff has achieved “some degree of success on the merits”. In this case, the Supreme Court held that by winning a remand at the District Court level, plaintiff had met the “degree of success on the merits” requirement.

Now, hopefully, there will be fewer American Rule free rides for insurance companies who are in the habit of saying “No” to just about every claim they conjure up the flimsiest doubt about, since they think they have nothing to lose. Carriers will have to consider the cost to them if the claimant succeeds in obtaining a removal, even though there is no final judgment by the court.

This ruling by the nation’s top court will give insurers pause before they force claimants to battle through the courts when the insurer well knows that the ERISA policyholder has a good case. All too often this tactic is used by the insurance company in the hope that the claimant will run out of money for lawyers or will just be discouraged by the roadblocks of litigation and go away.

Now that they know they are more likely to be held accountable for the claimant’s attorney fees when their conduct fails to comply with the law, insurers may reconsider this tactic and afford more policyholders the relief they are supposed to get.

The Hardt ruling will help insurance companies understand that “discretion” in ERISA means a measured judgment based upon a full and fair consideration of all of the facts, not a reflex denial just because it saves the company money.

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Why should disability income insurers be allowed to ignore the decisions of Social Security judges, yet take their share of the claimant’s money and run?

This vexing question was raised in Austin v. Life Insurance Company of North America, (2010 LEXIS 38294 (C.D.Cal. 2010), with the court coming down hard on the insurer for its cavalier attitude toward a Social Security decision. In that case the insurance company didn’t have the “couth” to even mention the SSDI decision favoring its policyholder in denying the disability benefits claim.

In the court’s words the failure of the insurer to mention the SSDI decision indicates “…complete disregard for a contrary conclusion without so much as an explanation and raises questions about whether an adverse benefits determination was the product of a principled and deliberative reasoning process.”

It has become common practice for group disability insurance companies to require their insureds to make a claim for benefits to the Social Security Administration if they want to keep on receiving their long term disability income benefits. In fact, this tactic is so important to insurers that they will many times supply free of charge professional assistance to claimants to pursue these SSDI claims.

Why this considerate conduct by insurance companies, you might ask? Because, if the insured claimant is successful in receiving disability benefits from Social Security, the insurer is fully reimbursed from the first SSDI monies received for prior payments it has already made to claimant and, is an offset against future benefits.

What is so unfair about these disability policy “claw back” provisions is that the insurer usually disregards the SSDI judgment in defending its denial of policy benefits to its own insured without considering in any way the SSDI decision. This is a common practice and should be dealt with as sternly as the California District Court did in Austin.

As those who practice in the SSDI world know, a claimant has no walk in the park when pressing a claim for benefits. SSDI judges require convincing proof of disability before they make long term awards. And, once such an award is made, it should be carefully considered by a private insurer in determining a claimant’s case for long term benefits under the terms of its policy.

An SSDI ruling is not res judicata in an ERISA matter. The policy language, procedural matters and a truly different determination by the insurer’s medical experts may affect the decision. But, what must be required by all judges in support of the insurer’s decision, is a reasoned denial, citing the basis for differentiating between the SSDI ruling and the private insurer denial.

Simply ignoring the SSDI decision should be anathema to any judge considering an ERISA appeal. Disability carriers should not be allowed to disregard contrary SSDI judgments without explanation. This is particularly so because insurance companies recoup benefits paid to the insured from the proceeds of the insured’s SSDI award.

Further, Federal District Courts should always keep in mind that SSDI judges have no conflict of interest. Both sets of judges are sworn to uphold the law of the United States.

Insurance companies, on the other hand, have a definite conflict of interest. Why should such a conflicted party have the ability to ignore an unconflicted judge’s finding without having its feet held to the fire?

It makes no sense.

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A box of candy, a pound of cookies, a smiling “Please” or “Thank you”, may be of more help in pursuing a disability income insurance claim than you might think. But, not to the insurance company (though it never hurts to be polite and civil despite the way your claim is treated).

Kathleen, our gal Friday on disability claims, remarked to us the other day that she sometimes notices that our clients who bring a box of candy or some cookies for their doctor’s office staff once in a while, seem to get quicker attention paid to their forms and other insurance claim requests, than those claimants who go empty-handed.

When you think about it, it makes sense. People tend to reciprocate for kindness. Doctors and hospitals and their office staffs are people (even though sometimes their attitude makes one start to doubt it). And, many times these people are inundated by requests from patients and their insurance companies to complete an endless stream of repetitive forms on treatments, diagnosis and costs.

And, as is usually the case, these unglamorous office jobs get little attention from patients because they think they are relatively unimportant. And, they are when it comes to diagnosis and treatment, which is the reason you go to a doctor or hospital in the first place.

But, when your illness or injury becomes a claim for disability, the picture changes. The people who do the billing and the transcribing of reports and the filling out of the endless flow of forms, become the primary focus of your needs because you can bet the insurance company will demand reams of reams of papers from your doctors, before giving your claim serious consideration.

Couple this fact with the usually overworked doctor or hospital business staff, being
hard-pressed with overwhelming demand for information, and it’s easy to see how things can get jammed up.

So, just as in the everyday business world, a kind word or a small gift of appreciation goes a long way toward name recognition and a desire to reciprocate for kindness. In an overwhelmed office, if you are not one of the crowd and you have been pleasant to deal with, your file may just be moved to the head of the list of things to be done.

As in everything else, it never hurts to show appreciation.

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 We finally have the behemoth of the New York State Department of Insurance moving and, in the right direction.

But, don’t start the celebration too early. Once before, we had the New York Department ‘gung ho’ to “level the playing field” only to have it fall asleep while trying to come up with an actual regulation to protect disabled claimants against the hated ‘discretionary clause’ which unfairly sinks so many disability claimants.

The New York Department has proposed a new regulation No. 184 to try to level the playing field between ERISA disability income claimants and their insurance companies. Presently insurance companies decide whether ERISA disability income claims are compensable, then have to pay the claims if they are. So, take a guess at which way the insurers lean in deciding a claim.

In 2005, the New Jersey Law Journal published an op-ed piece by this writer that called on the State of New Jersey to do something about the discretionary clause in policies written in that state. That piece ultimately resulted in regulations NJAC 11:4-58-1-4 that were approved and became the law of New Jersey on January 1, 2008. From that point on, New Jersey citizens received the evenhanded ERISA claim protection they deserved.

About 20 of the 50 states have already banned the use of the discretionary clause as of this date.

In 2006, the New York Department of Insurance also decried the unfairness of the discretionary clause in ERISA disability income insurance policies (Circular Letter 8) and vowed to do something about it. The New York Department, although requesting comments and proposing a regulation (Circular Letter 14), unexpectedly withdrew the proposal without comment in 2006. From that time on, there hasn’t been a peep from the Department about such a regulation until this latest proposal.

Not that there were not calls during this period for a discretionary ban to be enacted. We take great pride in being somewhat of a catalyst in this discretionary clause regulation battle in both states. See my 2009 op-ed in the New York Law Journal.

There was no satisfactory response from the Insurance Department until the proposed latest regulation which, if approved, will become law in the state. Should it become law, no longer will New York residents be at the mercy of insurance company’s holding all of the cards when deciding whether or not to pay a disability income claim.

Without an approved regulation, we had always felt no court could legally recognize the state’s declared antipathy to the discretionary clause, no matter how vehemently the clause was denounced.

And, wouldn’t you know, it happened in one of our cases, Barnes v. American International, 681 F. Supp. 2d (S.D.N.Y. 2010). See excerpt. Fortunately, there were other factors in the case which overcame the disadvantages of the discretionary clause and our client prevailed and received her benefits.

However, if the facts weren’t overwhelmingly in our client’s favor in that case, another New Yorker would have been deprived of equal rights because of the discretionary clause..

We applaud the New York State Department of Insurance for finally getting around to proposing a pertinent regulation which will protect its citizens and do away with the advantage ERISA law gives disability income insurers.

But, based upon recent history, we are going to hold our breath until New York actually formally approves the regulation for its citizens and makes it law.

For too long New York State has been just “talking the talk” on banning the discretionary clause.  It’s high time for New York State to “walk the walk”.

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The few crumbs the U.S. Supreme Court let fall off the table for ERISA disability claimants in Metropolitan v. Glenn, 128 S. Ct. 1117, it more than took away with its recent decision in Conkright v. Frommer, 2010 WL 1558979 (U.S.).

The Court used the words “honest mistake” (which we think is an oxymoron when used to describe insurance company conduct when fighting a claim) to justify ordering courts to give ERISA plan administrators a second “deferential” bite at the apple in a dispute.

Although the Conkright case was a pension plan case, the Supreme Court did not limit its “honest mistake” decision to pension cases, so it applies to all ERISA contests, including disability income claims.

The Supreme Court took the handcuffs off Federal judges only to encase them in a straitjacket. This decision gives insurance companies the ability to make “honest” mistakes while keeping a destitute claimant who can’t work away from benefits for as long as it takes to obtain the claimant’s surrender. It’s a win-win windfall for insurance companies.

Many disability claims take years and years to reach a final decision because of the ERISA requirement favoring the “judgment” of insurance administrators. Now they have an even more potent tool – the “honest” mistake! With the blessings of the Supreme Court, insurance administrators can make “honest” mistakes almost as a matter of course and still get deference in their next “honest” opinions.

The one thing the majority in Conkright omitted to tell us is how many “honest” mistakes the administrator can make before the deference doctrine is not required to be adhered to by the court hearing the matter.

Taking into account the checkered history of insurance company shenanigans:

• The 49-state probe and settlement of Unum disability insurance tactics;
• So-called medical exams without doctors seeing the patient;
• Stables of doctors, bought and paid for by insurers which (witch?) doctors rarely find disability;
• Ignoring SSDI disability decisions after insisting the claimant apply for it so the insurer can be reimbursed for benefits already paid;

one wonders why the Supreme Court came down on the side of the insurers.

Despite this history, it seems to us that many courts have an attitude that claimants, as a class, have a tendency to fake disabilities while they feel that insurance companies are paragons of virtue. They seem to feel this, despite the continuing parade of cases in which it has been shown that insurers engage in outrageous conduct while dealing with disabled employees at a seemingly hopeless stage in their lives.

We understand there are disability claimants who are not entirely truthful in describing their condition and who are not entitled to benefits. Insurance companies have many ways to defend against these claims. They do not need the added weapon of “discretion” when they have already abused the concept once, even if it really is an honest mistake.

If the mistake was really honest, it indicates a lack of expertise which should not then be afforded the armor of discretion the second time around. Why should a claimant have to surmount the “arbitrary and capricious” mountain after the administrator has clearly indicated a lack of expertise the first time around.

Many disability income cases take a long time to be resolved as a matter of course. If there is the slightest doubt about the case, you can bet the administrator is going to refuse to pay until the doubt is resolved. The administrative process can take months and months, if not years, for a decision of the administrator.

If court action is required by the claimant, this may take another year or two to resolve. If the “arbitrary and capricious” standard is an issue, an appeal may follow. Again, a year or two or more may go by.

Repeated court remands back to the plan administrator add to the pressure on disabled claimants who are not receiving benefits. Delays, no matter what the cause, always favor the insurance carrier.

And during all of this time, the disability claimant can’t work and can’t pay bills without help from family and friends, if they are available and willing to help. Do you doubt that an insurance company will keep this process going until the claimant takes a lot less than warranted or gives up altogether?

We know of several ERISA disability income cases decided in favor of the claimant in which courts found outrageous conduct by the insurance company and which took 10 years or more to be finally decided. So, it sticks in our craw as disability income insurance attorneys, who see our clients live with this burden day in and day out, to see the Supreme Court give the insurance people, who love to hold on to their money as long as they can, a second bite at the apple after they bit their tongue the first time.

The benefit of “honest” mistakes are for people who are absolutely neutral and have no interest in the outcome. That hardly fits the description or the history of the ERISA disability income insurance industry.

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