ERISA Trumps Common Sense

When an ERISA plan gives the administrator broad discretion to interpret the plan, the administrator has the ability to interpret claims to the point where common sense doesn’t count for beans.

The unlucky husband of an unlucky woman working for Lowe’s Companies found that out when he sued Lowe’s and its insurance company to collect ERISA life insurance benefits after his wife was killed in a car crash.

The story in a nutshell:

* Elizabeth Porter was a manager at a Lowe’s store.
* She was on her way home from work when she received a call that the store alarm had been actuated.
* Mrs. Porter turned around to head back to the store to take care of the alarm when she was blasted by another car, killing her and her unborn child.

The ERISA life insurance policy specifically did not cover an injury sustained during travel to and from work. The question here: Was Mrs. Porter’s turnaround to head back to the store travel to and from work? This fact makes the meaning of the words travel to and from work ambiguous.

In his ruling, the administrator found that Mrs. Porter was traveling to work to perform her regular job duties (ignoring the fact that she had to turn around from her trip home to go back to the store). Her Workman’s Comp claim was approved even though Comp, too, doesn’t pay for claims arising from travel to and from work. Mr. Porter sued.

In ruling in his favor, the District Court applied a common sense interpretation to the administrator’s decision, and held that the phrase applied only to her ordinary daily commute and that her turnaround to return to the store was outside of her ordinary commute.

The District Court rejected as an abuse of discretion the administrator’s finding that Mrs. Porter’s turnaround and return was “traveling to work to perform her regular job duties”. The Court therefore ordered the insurance company to pay the life insurance benefits to Mr. Porter. The insurance company appealed.

The Circuit Court of Appeals for the 5th Circuit reversed and entered judgment for the defendants, holding that when a plan gives the administrator broad power to interpret its terms, the administrator has that power even if there are ambiguities in the wording of the insurance policy. So long as there is any reasonable basis upon which the administrator’s ruling may be upheld, it is not arbitrary and capricious and must be upheld, the Appeals Court said.

This ruling means that ERISA gives a properly authorized administrator the right to resolve policy ambiguities in favor of the insurer even in the face of a very long line of insurance cases which holds just the opposite: Ambiguities in an insurance policy are interpreted in favor of an insured.

An interesting sidelight here is the Appeals Court found no conflict of interest as the administrator was not the insurance company insuring the plan. An online search, however, showed that the administrator was closely affiliated with the insurance company and probably received the financial benefits of administering many of the insurer’s ERISA plans. Wouldn’t such facts lead to a possible conflict of interest which the Court should have considered?

ERISA was billed as the “workingman’s friend” when it became law in 1974.

Sometimes it turns out to be her worst enemy.





The Cold Comfort Of Insurance

In the normal course of our lives, most of us learn to give people the benefit of the doubt, at least sometimes. Insurance companies never do. The reason – money.

Why this is so devastating to many people is that they learn this fact after they have been stricken with a disease or disability which seriously affects their lives. For all of their existence they have been told that insurance is meant to protect them and make them feel more comfortable should a disaster strike. Then disaster strikes and they learn the awful truth – the insurer won’t pay!

It really is simple arithmetic – every dollar the insurer keeps in unpaid claims is a dollar that goes to insurer profits. And, PROFIT, only PROFIT is the name of the of business today.
Owning an insurance policy used to give a policyholder some sense of comfort knowing that if the worst happened, an insurance company would be standing at their side and lending a hand according to the terms of their policy. Not so in today’s totally profit-centered world.

A perfect case in point is that of John Bray who had the gross misfortune to develop a brain tumor while employed as a division head for a travel company. As happens in many such cases, he didn’t consciously know there was anything wrong with him, but his conduct and behavior began to change on the job, leading to his ultimate dismissal.
Being unaware of his tumor, Mr. Bray tried to work as a consultant, but his behavior continued to deteriorate.

When he was finally diagnosed with a large malignant tumor in the brain, he had been dismissed from his employment for about 8 months. The overwhelming medical evidence was that he had suffered from the tumor which affected his behavior for a long period prior to the time he was dismissed.

Mr. Bray then filed for long term disability benefits under the group LTD policy which covered him as an employee f the travel company. But the insurer denied Mr. Bray’s claim, saying he was no longer covered by the policy once his employment terminated.

Did the insurer offer any medical evidence to refute the claimant’s medical findings? Of course, not. The insurer knew the truth of the matter so it didn’t even ask for a medical exam. Did that stop the insurance company from continuing to deny John Bray’s claim? Of course, not.

The insurer continued to insist that Mr. Bray had left his employment before becoming disabled, despite a clear showing by all examining experts in the field that he was stricken with his ultimately fatal illness before he left his covered employment and therefore was entitled to benefits.

The evidence was that John Bray was an outstanding employee prior to the time he was stricken with the brain tumor which enlarged relatively quickly. The tumor caused his employment behavior to change radically and, as a result, his employment was terminated.

Clinging to the fact that Mr. Bray’s brain tumor was not discovered for several months after he left his employment, the insurance company said he was no longer an employee and therefore not entitled to coverage. Not only that, Mr. Bray’s employer had also afforded him a life insurance policy as part of his employee package of benefits and the company refused to pay on the life policy because it claimed he had left his employment before he died.

The court, on the basis of the clear evidence before it, ordered the company to pay Bray’s estate the disability income benefits and the life insurance benefit.

Two things you can glean from the policyholder’s trials and tribulations in this case:

* If you become afflicted with a disabling disease which stays hidden until after you have terminated your employment, you probably face a long uphill fight with your insurer.
* If you should happen to be so unlucky, don’t give up. Fight for your rights.

“Wimping” out is not an option for you or your family.

Life's Not A Bowl Of Cherries

It comes as no surprise to those whose law practice entails getting money for clients from life insurance companies, that with insurers, there is no such thing as a “slam dunk” claim.

Before we started working as adversaries to insurance companies, we always thought a life insurance policy would be the exception to the usual ”let’s find a way around paying rule”, i.e., the policyholder has died, so let’s pay the policy. Boy, were we mistaken.

One would think there is no more definitive condition than death. In that regard you would be right. But, when it comes to an insurance policy, you are overlooking the credo of the insurance industry: Maybe we can find a way around it. And, they are very creative in trying to find ways to avoid paying.

A major reason for a turndown when it comes to paying life benefits is what the insurers call a “material misrepresentation” on the policy application. Because of the inadequate vetting system insurers choose to use when underwriting a life insurance application, many policies are issued which are based upon applications in which the policyholder had a spate of selective and “forgetful” memory.

Being in a hurry to grab premium dollars, many insurance companies rush their applicant screening (if any) and only take screening seriously when a policyholder dies and it comes time to pay the death benefit. Suddenly, a complete and thorough investigation is in order, including dotting every “i” and crossing every “t”. We call this “post-claim underwriting” and it is rampant in the life insurance industry.

Why leave a policyholder feeling secure for years only to deny a death benefit for a purported misrepresentation which the insurer concocted after payment is due? The insurer will tell you it is to maintain the integrity of its risk assessment system so as to be fair about the degree of risk and not to pay illegitimate claims.

But, why can’t the companies assess the risk before issuing the policy? They have access to and can review all medical records of the insured and can decline to issue a policy if there is reason to do so. That would leave them in the position of not issuing a policy they would later find they should not have issued and leave the purchaser free to seek protection elsewhere. However, that would mean no premium dollars to the insurer.

It used to be that all life insurance policies had a 2-year incontestability period, after which the insurer could not deny a claim based upon misrepresentation in the policy application. But, now nearly all states allow an exception for “fraudulent misrepresentation” in policy incontestability clauses, making the 2-year period completely illusory.

With an exception for “fraudulent misrepresentations, there is no time limit to restrict the carrier from contesting payment, even many, many years after the policy was issued. All the insurer has to do is allege “fraudulent misrepresentation” and the death benefit is off to the races on a very muddy track. So much for the peace of mind a life policy is supposed to bring.

Life insurance is a highly competitive business in which companies are willing to take risks for premiums. If you turn down an applicant, your competitor may very well say yes, leaving you out in the cold.

From the company’s point of view, it is better to zip through the vetting of the application, knowing that you can always try to reject the claim after the person dies. This procedure also is less costly to the insurer which does not have to spend serious money taking care to look at the application, before a policy is issued.

Zipping through the app procedure gets the premium dollars rolling in faster. Never mind that the later rejection of the claim may cause the beneficiary a disastrous hardship at the worst possible moment in their life.

This procedure, entrenched at most life companies, is a win-win for them.

And, that’s just the way insurance companies like it.