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

Lawyers sometimes have a habit of using more words than necessary. Many times this just bores the audience. Sometimes, it really, really hurts.

A case in point is the rule banning the use of the discretionary clause in health insurance policies in New Jersey. Discretionary clauses have been used by courts since the 1980s to require ERISA claimants to show that disability income claim denials by employers and insurance companies are “arbitrary and capricious” before the merits of the claim can be considered. This sea change in ERISA jurisprudence was based upon the Supreme Court decision in Firestone v. Bruch, 489 U.S. 101 (1989).

In 2006, the New Jersey Department of Banking and Insurance responded to our request to do something about this unfair burden on plaintiffs in a relatively prompt manner for a state agency. (As an aside, it has taken the State of New York years longer to respond).

But, in drafting the regulation, the New Jersey Department of Banking and Insurance felt it necessary to insert the unnecessary word “sole” before the word “discretion”, and to add language about review which accomplishes nothing as the law now stands. So, now the regulation (N.J.A.C. 11:4-58.3) reads as follows:

“ No individual or group health insurance policy or contract, individual or group life insurance policy or contract, individual or group long-term care insurance policy or contract, or annuity contract, delivered or issued for delivery in this State may contain a provision purporting to reserve sole discretion to the carrier to interpret the terms of the policy or contract, or to provide standards of interpretation or review that are inconsistent with the laws of this State. A carrier may include a provision stating that the carrier has the discretion to make an initial interpretation as to the terms of the policy or contract, but that such interpretation can be reversed by an internal utilization review organization, a court of law, arbitrator or administrative agency having jurisdiction.”

Why is it worded this way? Who knows? The word “sole” adds nothing and opens wide the door to confusion.

When we first saw the proposed regulation, we thought that the word “sole” was unnecessary and was very likely to cause a problem in the courts. We wrote to the Department of Banking and Insurance and objected to this language – to no avail. So, the word “sole” remained in the regulation, lying in wait for some poor claimant to fall prey to its tendency to confuse.

Lo and behold – it happened.

In the case of Evans v. Employee Benefit Plan, et als, 2009 WL 418628 (3rd Cir. 2009), which was decided on other grounds, the Court posited that the New Jersey ban on giving deference in insurance policy language only applied to policies which gave “sole” discretion to the administrator. Since the policy language used only the word “discretion” and did not use the word “sole”, the Court reasoned that the regulation would not apply, even though the policy gave no discretion to make decisions to any other person or entity!

What is “discretion” but the authority to decide an issue? If you are the only one with authority to decide an issue, what can the word “sole” add to your power of discretion? If more than one person has discretion to decide an issue, then none of them, alone, has discretion without the other(s).

As we had previously pointed out to the NJ Banking and Insurance Commission when N.J.A.C. 11:4-58.3 was proposed, amendment to N.J.A.C. 11:4-58.3 is required forthwith. The NJ Department made it clear in 2006 that giving deference to the administrator is against public policy. N.J.A.C. 11:4-58.3 was undoubtedly intended to ban the discretionary language from disability income insurance policies in the State. Why let the unnecessary word “sole” cause any confusion so as to threaten the policy rights of New Jersey citizens when they become disabled?

We intend to pursue the issue of amendment with the State until it goes into effect. Otherwise, there will be cases in which New Jersey disability income claimants are deprived of what is due them, because of an unnecessary extra word in the regulation.

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Texas has now joined New York in trying to level the playing field for their ERISA disability income insurance claimants. Both states have proposed new regulations designed to negate the deference courts give to insurance companies in deciding disability income cases under ERISA.

If the regulations are finalized and become law, New York and Texas will join more than 20 other states in giving their citizens an even chance to prove their right to disability benefits.

These problems started with the case of Firestone v Bruch, 489 U.S, 101, when the U.S. Supreme Court found that, under the court’s interpretation of trust law, ERISA plans could be written so that discretion is given to claims administrator’s in deciding claims, and courts would then be obliged to give deference to the administrator’s findings.

This led to the concept of “arbitrary and capricious” review in ERISA disability cases. Under Bruch, the administrator’s denial of a claim would be upheld unless the claimant could show that the denial was “arbitrary and capricious”, a term of art in the law. This rule raised a mountain in the path of the claimant. If there was any reasonable basis for the denial, it would be upheld, no matter how compelling the claimant’s contrary evidence might be.

The major problem with giving deference is that the administrator is many times the insurer who pays the claim. So, if the administrator approves the claim, it also has to pay the claim out of its own funds. This deference power in a conflict of interest situation would try the moral fiber of an angel. So, you can imagine what it does to insurance companies which are far from angels!

There have been many examples of how this conflict works against disabled employees, including the most infamous one – the Unum 49-state investigation of its claims handling practices, which led to a large settlement with Unum and the reopening for review of more than 220,000 Unum case disability income denials.

What makes this deference requirement of Bruch even more problematic for claimants is the principle of preemption which makes federal law completely controlling over state law in ERISA matters. Courts have held that states have very little to say in these cases, with one big exception – states have the right to determine the language of insurance policies in their jurisdiction. In policy language, state word is law.

As a result, many states which object to insurance companies getting the upper hand over their citizens because of Bruch, have banned the use of discretionary language which favors insurers, in approving the policy forms used in their state.

One would think that every state would look out for its people in this way, especially when it takes so little effort.

What is surprising is that about half of the states haven’t done it yet, leaving the insurers with the upper hand against their own people.

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Sometimes it’s a claim for millions of disability dollars and sometimes it’s a claim for $20,000. But, it’s all part of our ongoing, never-ending battle with disability insurance carriers to get people what they paid for and are entitled to – contractual policy benefits, especially when the coverage is governed by ERISA.

A while back, our firm was asked to assist Vermont counsel, Anderson & Eaton, P.C., Rutland, VT, appeal a Federal District Court’s summary judgment decision upholding Vermont Blue Cross & Blue Shield’s (BCBS) refusal to pay for a “standing component” for their client’s motorized wheelchair. The burden we had to overcome was the tough “arbitrary and capricious” standard because the plan, under ERISA, gave BCBS of Vermont discretionary power to determine eligibility for benefits.

There was no argument about the claimant’s disability – he was paralyzed and needed the wheelchair. However, when he asked for a “standing component” which would lift him up and hold him in a standing position, BCBS refused, purportedly on two grounds:

* There was no proof that the “standing component” was medically necessary because no peer reviewed clinically controlled studies showed improved net health outcomes, and
* There was no evidence that such a feature would help or restore the claimant’s health. Instead, BCBS argued, the standup component would be simply a “convenience” for the claimant without any real therapeutic value.

On appeal, the United States Court of Appeals for the 2nd Circuit rejected the first argument because it found no requirement in the ERISA plan contract supporting the lack of peer reviewed clinically controlled studies. Rather it found that the actual plan documents outlined a lower standard as a requirement.

As to the second ground, the court found it to be factually inaccurate. Claimant offered 10 medical journal articles which supported the use of a “standing component”, citing various medical benefits of the component for patients with claimant’s condition.

In overturning the summary judgment, the 2nd Circuit remanded the case to the Vermont Federal District Court for further proceedings.

But, we are happy to report, BCBS of Vermont saw the handwriting on the wall and has agreed to settle the matter equitably thereby ending the need for further litigation.

To read the opinion, click here.
 

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