May 21, 2019
Last year I wrote a bit about the ruling of the U.S. Court of Appeals for the First Circuit in Denmark v. Liberty Life, 481 F.3d 16 (1st Cir. 2007). The panel in that case fractured over the exact issue the Supreme Court recently addressed in Met Life v. Glenn: how an insurer's inherent conflict of interest should be factored into a court's review of a denial of ERISA benefits. Jonathan Feigenbaum, Ms. Denmark's counsel, petitioned the court to either re-hear the case or grant en banc review of the matter. The First Circuit held that request in anticipation of the Supreme Court's ruling in Glenn. In light of the recent ruling in that case, earlier this month the First Circuit withdrew its earlier decision in Denmark, granted the motion for panel re-hearing and set up a briefing schedule.
Denmark may be the First Circuit's first swing at the post-Glenn conflict analysis pinata. It should be interesting. One question (among many) in the wake of Glenn that Denmark tees up nicely is the degree to which discovery on the conflict of interest will be allowed in litigation. The facts and procedural background of the case point in the direction of allowing claimants to obtain in litigation information about the financial impact of denials on an insurer's bottom line.
Ezra Klein, one of the sharp young observers of healthcare reform, has a perceptive post the other day on his blog at The American Prospect about what needs to come together for our efforts to make over the way we deliver and finance healthcare work. I like some of his ideas about what he calls "smart cost sharing."
We have to do a better job of providing reliable information to consumers of healthcare. At the same time, we have to put in place mechanisms that fairly allow people to get access to the healthcare they want while at the same time requiring them to bear a larger share of costs for treatment that, relatively speaking, hasn’t been shown to be efficacious. People can still get the care they really want or believe in. But it may cost them more than care that has a more clearly proven track record.
There’s no way to avoid the reality that a big part of future healthcare reforms will have to tackle the fact that healthcare costs have been increasing at a much faster rate than the general rate of inflation. That can't go on.
Many of you may have seen this before, but it's still pretty funny.
Nice that insurers provide plenty of ammunition to compete with lawyer jokes.
Yesterday the Kansas City Star carried the story of a large punitive damages verdict against Allstate that was upheld on appeal by the Missouri Court of Appeals. That story also reveals that Allstate settled on undisclosed terms the $25,000 daily fine assessed against it by a trial court in a separate case for Allstate's failure to disclose the McKinsey & Co. documents. More about that here.
Allstate's had a tough go of it on the PR front recently. Karma.
Yesterday NPR had a story about whether Switzerland is a good role model for reforming the U.S. healthcare system. Everyone is obligated to have health insurance that provides a basic level of coverage. For those below a certain income level, the premiums are subsidized. If you want coverage for care above and beyond the basic level, you have to pay for it. The insurance is provided through a variety of private companies who compete with one another but the insurers have no ability to turn anyone away from the basic coverage level.
The story suggests it works quite well. But the Swiss, like us, are concerned about rising healthcare costs over the last several years. One good thing about being the last industrialized nation to provide universal coverage? There are a lot of other countries whose experiences we can evaluate.
Last week the U.S. District Court for the Southern District of New York issued a ruling in Hogan-Cross v. Metropolitan Life Ins. Co., 2008 U.S. Dist. LEXIS 58027 that is comprehensively summarized by Roy Harmon over at Health Plan Law. Go over and read it, I’ll wait.
I agree with Roy that this is an important case. It interprets Met Life v. Glenn, 128 S.Ct. 2343 (2008), in a way that alters the discovery playing field in the way I anticipated in this blog post. Glenn clearly anticipates discovery on the conflict of interest issues. As the court in Hogan-Cross states inits last penultimate paragraph, "[b]lunderbuss attempts to cut off discovery on the ground that it never or rarely should be permitted in these cases, whatever their merits before Glenn, no longer have merit." The question that I find intriguing is the degree to which Glenn plows new ground with for ERISA discovery.
Judge Kaplan in Hogan-Cross makes clear that he doesn’t believe Glenn altered all that much in terms of expanding the scope of discovery, at least in the Second Circuit. I can’t say much about that, not being particularly up to speed on Second Circuit law on discovery in ERISA cases. But Judge Kaplan does make clear that, regardless of the state of ERISA law pre-Glenn, it’s now evident that discovery is pretty much the same for ERISA as for non-ERISA cases, at least on the issue of conflict of interest.
That last phrase is important. I question whether there is a strong basis in Glenn for the idea that ERISA discovery is wide open for all purposes. I agree with Hogan-Cross that the effect of Glenn is to expand discovery as to conflict of interest in ERISA cases. But I think there will be a split between various cases about that. Many federal judges are reluctant, for a variety of reasons, to allow any discovery at all in ERISA benefit denial cases. I'm not sure that, the explicit language of Glenn notwithstanding, judges who are not disposed to allow discovery in these cases will change their tune. Old habits die hard.
From a couple of days ago, the New York Times discusses a study about the benefits of litigants settling their differences rather than pressing forward to present the case to a judge or jury for decision. A couple of things struck me about this.
First, this is a study of civil lawsuits. So why is a criminal defense lawyer quoted on the first page of the article about the study? Second, I don’t understand this sentence: "[c]ritics of the profession have long argued that lawyers have an incentive to try to collect fees that are contingent on winning in court or simply to bill for all the hours required to prepare and go to trial." What does this mean? I can understand the idea that if you bill by the hour you may have a financial incentive to drag out litigation longer than the interests of the client or the merits of the litigation dictate. But what about the first part of the sentence?
I handle the great majority of my cases on a contingent fee basis. But payment of my fees in those cases never requires that I go to trial to get paid. I can’t imagine that any contingent fee attorney would require payment only if and when the case is success at trial, as opposed to incliude being paid a percentage of any recovery obtained in settlement before trial. And it is unusual for me to take a case on an hourly basis for pre-litigation work and on a contingent fee basis if the case goes into litigation. It happens, but not very often. So what does the author mean when he uses the phrase "winning in court?"
Contingency fee agreements generally do a very effective job of aligning the financial interests of client and attorney. They create in client and attorney the same interest in both maximizing recovery while at the same time correctly assessing risk. So it’s frustrating to see this language claiming that contingent fee and hourly billing arrangements each contribute to the problem of a discrepancy between the interests of client and attorney. It is self-evident that they do not have the same problems with creating divergent financial incentives. If the authors of the study or the writer of the article believe they do, they ought to provide us with an explanation for why they think that. In the context of the article, the sentence reflects poor understanding of the subject, poor writing or both.
Earlier this month the U.S. Court of Appeals for the Third Circuit issued an important ERISA decision dealing with estoppel and the scope of equitable remedies under ERISA. I’ve complained at times in the past that too many federal Circuit and District courts view ERISA’s equitable remedies as a one way street. Plan fiduciaries chasing subrogation or overpayment claims have free rein to recover money from plan participants under the guise of "appropriate equitable relief." Yet those some courts often deny the participants any monetary recovery for violations of ERISA because recovery of money supposedly falls outside the scope of "appropriate equitable relief. The double standard is mind boggling. However, in Pell v. E.I. DuPont, __ F.3d __, 2008 U.S. App. LEXIS 16854, (3rd Cir. 2008), the Third Circuit sees through the charade and gets some justice done.
Melvyn Pell worked for several years for a company that was later acquired by DuPont. At the time of the acquisition DuPont told him he would get full pension benefits dating back to the time he started work for the purchased company. For a number of years he continued to work for his original employer, now a DuPont subsidiary. But then DuPont proposed that he transfer over to DuPont and work for it. Pell was concerned about whether all his years of service would transfer over completely. He was informed in a letter from a manager at DuPont that they would. So he decided to make the move. In addition, on a number of occasions he requested and received documentation from DuPont confirming that his years of service and his retirement benefits related back to his hire date with the first company.
Many years passed. In 2000, as Pell began to consider retiring, questions arose about his years of service and the amount of his pension benefits. First, DuPont told him start date was about 18 months later than Pell believed it was and that the earlier correspondence from DuPont was wrong. In addition, DuPont told Pell that, contrary to earlier conversations and letters, he would be getting a smaller amount of pension benefit.
Pell sued under the theory of equitable estoppel. Under that doctrine an ERISA claimant must show a material misrepresentation was made, that he reasonably, and to his detriment, relied on the misrepresentation and, finally, "extraordinary circumstances." The district court agreed that Pell had established a case for estoppel on the question of the amount of his retirement benefits but ruled in DuPont’s favor in not pushing back Pell’s date of initial service to the time he was hired. Both parties appealed.
The Third Circuit affirmed the ruling in Pell’s favor on the amount of his benefits but reversed the district court’s decision against Pell on the date from which his eligibility began. The court held that Pell had clearly established DuPont made a material misrepresentation to Pell about the amount and timing of his retirement. Relying on Third Circuit precedent, the court determined that the erroneous communications to Pell were significant.
As for reasonable, detrimental reliance, the court broke the issue down into its two separate components. First, the fact that the erroneous information given to Pell came from the company’s Director of Employee Compensation and Benefits was sufficient to cause Pell to reasonably believe the information was accurate and worthy of being relied on. This individual had apparent authority to speak on behalf of, and bind, DuPont. As for detrimental reliance, the letter was given to Pell immediately before he made his decision to transfer his employment to DuPont. He testified, without contradiction, that the letter was an important part of his reason for agreeing to the transfer.
As for the final component of the estoppel claim, extraordinary circumstances, the court reviewed other Third Circuit cases and found that the facts of Pell’s case qualified as extraordinary. While not all factors outlined in the case law and that could have existed to constitute "extraordinary circumstances" were present for Pell, the fact that the misstatements from DuPont had been repeated over a long period of time and dealt with an important matter involving a significant amount of money was sufficient to establish his claim.
The last portion of the court’s decision relates to remedies. The court rejected the argument presented by DuPont that Pell had no ability to collect money from the company. Relying on Great West v. Knudson, 534 U.S. 204 (2002), Sereboff v. MAMSI, 547 U.S. 356 (2006) and Third Circuit precedent, the court ruled that it was entirely proper for Pell to assert a claim for recovery of money so long as Pell went after a constructive trust against particular property in DuPont’s possession rather than imposing personal liability against the company or its officers. 29 U.S.C. §1003 requires that all assets of an ERISA plan shall be held in trust for the benefit of plan participants and beneficiaries. This section of the statute makes clear that Pell had the ability to identify specific funds traceable to DuPont’s plan that, in good conscience, belonged to him. In short, the Third Circuit gave Pell all the benefits to which he claimed he was entitled.
Pell is important for several reasons. First, successful equitable estoppel claims in ERISA cases are hard to come by. This decision makes clear that when the facts are right, this legal theory has legs. But perhaps more important is that 29 U.S.C. §1132(a)(3)’s "appropriate equitable relief" language allows for recovery of money by participants from ERISA plans to no less a degree than it allows fiduciaries to chase participants and beneficiaries for money arising from subrogation or overpayments.
In light of the Supreme Court’s refusal to grant certiorari in Amschwand v. Spherion, 505 F.3d 342 (5th Cir. 2007), it’s up to the Circuits to make clear that "appropriate equitable relief" is nothing less than a two way street. Pell shows the way it can be done.
Recently the U.S. Court of Appeals for the Fourth Circuit issued an opinion that discusses what language in an ERISA plan document is sufficient to confer discretionary authority on a plan fiduciary and trigger an abuse of discretion standard of review.
Woods v. Prudential Ins. Co. of America, 528 F.3d 320 (4th Cir. 2008), is a typical disability insurance case. Patricia Woods was involved in an auto accident and thereafter filed a claim for benefits under her policy. The insurer denied the claim and Woods filed suit. The trial court ruled that the language in the plan document was sufficient to trigger an abuse of discretion, a highly deferential, standard of review. After the trial court ruled in Prudential’s favor, Woods appealed.
The Fourth Circuit decision spends most of its energy evaluating whether the language Prudential relies on is sufficient to trigger an abuse of discretion standard of review. The language Prudential argued conferred that authority simply said that "when Prudential determines" that Woods was eligible for benefits she would receive them and that Woods’ disability would be "determined by Prudential." The court ruled this language was not sufficient to trigger an abuse of discretion standard of review.
One of the primary reasons for its ruling is that the court felt that the language Prudential relied on is insufficient to give any reasonable person the heads up that if the dispute went to court, a judge would be deferring to Prudential rather than determining, using a blank slate, whether the insurer’s denial of benefits was correct. The ruling relies on one of the best cases discussing the importance of insurers placing language in their insurance policies that clearly tells people about the abuse of discretion standard of review: Herzberger v. Standard Ins. Co., 205 F.3d 327 (7th Cir. 2000). In Herzberger, Judge Posner states that if an insurer wants a deferential standard of review in court, it must include language in its plan document that unambiguously tells the insured about the authority the insurer retains and the effect of that authority if the matter goes to court. Doing so will then help the person shopping for insurance to realize that they don’t have the financial protection they might otherwise think they have. Without such clear notice, Judge Posner ruled that insurers are not entitled to a deferential standard of review in court. In Woods, the Fourth Circuit agreed.
Today’s New York Times has an excellent story about the inclusion of the federal mental health parity law in the Wall Street rescue bill passed last week by Congress. Robert Pear, the Times’ veteran healthcare reporter, does a first rate job of recounting the history of efforts to pass a beefed up federal mental health parity statute, the dynamics behind its enactment and the impact of the new law.
My experience dealing with many mental health cases over the last 15+ years makes me believe that meaningful state and federal mental health parity statutes are tremendous steps forward in increasing the economic productivity of our society. And the positive aspects of better mental health coverage for business are the tip of the iceberg. The benefits to the quality of family, work and other relationships are inestimable. Not to mention the benefits to the individuals who currently have significant limits on their mental healthcare coverage. There’s no two ways about it: this bill will save many lives and significantly enhance the quality of our society. A heartfelt thank you is in order to many who have worked for so long to get this legislation passed.
The Tenth Circuit issued a great case recently, Weber v. GE Group Life Ass. Co., 541 F.3d. 1002 (2008). Shelley Weber’s employer offered life insurance to its employees. Shelley signed up for the insurance in March of 2003 and listed her husband as the beneficiary of the policy. The policy required that Shelley be "actively at work" on May 1, 2003, in order to qualify for coverage. Shelley had been working at the job for several months but her last day was May 16, 2003. She passed away in September, 2003, and her husband, Larry, submitted a claim on the policy.
The insurer investigated the claim because it was concerned that Shelley had not satisfied the "actively at work" requirement. Shelley’s work records showed that she had worked less than 30 hours a week from May 1st to the 16th. The insurer denied the claim and Larry Weber brought suit in federal district court.
The district court ruled in Weber’s favor, determined that Shelley was actively at work as in the two week period after May 1st and before her last day at work. The trial court also ruled that the insurer could have made the language in its policy more clear about the need to work as a full time employee after May 1, 2003, if that had been the intent of the insurer. But the language of the policy wasn’t that clear. The insurer appealed and the Tenth Circuit affirmed the trial court ruling.
There are a number of aspects to the decision worth looking at. The opinion makes clear that the Tenth Circuit doesn’t view the standard of review analysis of MetLife v. Glenn, 128 S.Ct. 2343 (2008), as modifying in a significant way the sliding scale analysis that pre-existed Glenn in the Tenth Circuit. The court uses a four factor analysis to evaluate whether the insurer’s denial was arbitrary and capricious. It reviews whether the decision, 1) was the result of a reasoned and principled process, 2) is consistent with any prior interpretations by the plan administrator, 3) is reasonable in light of any external standards, and 4) is consistent with the purposes of the plan.
First, the Tenth Circuit determined that Shelley had regularly worked a 40 hour work week before May 1st. Her employer’s time records made that clear. And the court felt that was the critical time frame to focus on rather than the lower number of hours Shelley worked after May 1st. The payroll records also made clear that from May 1st to the 16th Shelley was an active, full-time employee despite her sick leave and reduced hours worked. The insurer’s refusal to give effect to the language of the insurance policy was arbitrary and capricious.
Like the trial court, the Tenth Circuit faulted the insurer for not drafting its policy to more specifically and clearly convey the meaning the insurer urged the court to adopt. The decision reiterates the need for ERISA plan administrators and insurers to draft their plan documents and policies in a way that alerts employees to significant limitations in their insurance policies.
Another aspect of the decision that is interesting is the Court’s discussion of when remand to the district court, as opposed to simply awarding benefits, is appropriate where the appeal court reverses a denial of benefits. Quoting Flinders v. Workforce Stabilization Plan of Phillips Petroleum Co., 491 F.3d 1180, 1194 (10th Cir. 2007), the decision states the "where the ‘administrator failed to make adequate factual findings or failed to adequately explain the grounds for the decision, then the proper remedy is to remand the case . . . In contrast, if the evidence in the record clearly shows that the claimant is entitled to benefits, an order awarding such benefits is appropriate.’" Given its ruling about the policy language, the court held that Weber was clearly entitled to benefits.
A final aspect of the ruling that is noteworthy is its discussion about prejudgment interest. The trial court ordered prejudgment interest at the rate of 15% based on Oklahoma statute. The insurer argued that such a high award was improperly punitive and couldn’t be sustained. However, the court notes that the amount of prejudgment interest is left to the sound discretion of the trial court. In this case, the 15% interest rate was specifically provided for by the Oklahoma insurance code. Citing cases from other jurisdictions providing prejudgment interest at rates from 12% to 18%, the court affirmed the application of the 15% prejudgment interest award as not being an abuse of the trial court's discretion.
An unpublished case from the U.S. Court of Appeals for the Fourth Circuit, Gorski v. ITT LTD Plan for Salaried Employees, ___ Fed. Appx. ____, 2008 U.S. App. LEXIS 22904, caught my attention. It nicely illustrates some of the friction points on issues that can make or break disability and medical benefit cases.
Janet Gorski had back problems that caused her to apply for disability insurance benefits from MetLife, her employer’s long term disability insurance carrier. She’d had back surgery for a herniated disc but it resulted in little pain relief. Although her job was sedentary in its physical requirements, she could not sit for more than four hours at a time and during that period had to take frequent breaks. Her doctors attributed her continuing pain, in part, to the fact that x-rays showed her fusion hardware had become displaced. But they felt she was a poor candidate for additional surgery. Janet reported to MetLife that she was limited in many aspects of her activities of daily living due to back and leg pain, weakness in walking, irritable bowel syndrome and urinary incontinence. However, MetLife had video surveillance taken of Janet that showed her driving to the grocery store, doing some shopping, tending plants in her front yard and bending at the knees to pour water from gallon jugs. MetLife terminated her benefits.
Janet asked the insurer to reconsider, submitting additional medical records and comments from her physicians. MetLife sent the file for review to an outside physician. He felt that Janet’s subjective complaints were out of proportion to any objective findings. He made no mention of the dislodged surgical hardware her treating physicians identified as the cause of her continuing pain. Relying on his report, MetLife maintained its denial.
Gorski sued MetLife and the parties each filed motions for summary judgment. The trial court ruled in MetLife’s favor stating that while her physicians pinpointed the hardware problems as causing Gorski’s pain, the degree of her disability depended on Janet’s subjective complaints and that, considering all the evidence, MetLife’s denial was not unreasonable. Since the proper standard of review was modified abuse of discretion (taking into account MetLife’s inherent conflict of interest), the trial court gave MetLife the benefit of the doubt.
Gorski appealed and the Fourth Circuit reversed and reinstated her benefits. The court was troubled by the failure of MetLife’s final reviewer to consider and discuss the objective evidence noted by a number of Gorski’s treating physicians: the malfunctioning hardware. Those doctors were unequivocal in stating that this was the cause of Janet’s continuing pain. With no analysis of this aspect of her physical condition, the Fourth Circuit felt that MetLife’s physician reviewer improperly cast doubt on Gorski’s veracity when she reported limits on her ability to work. "Without such a discussion, . . . [MetLife’s medical reviewer’s] report is simply an unreasoned and unexplained rejection of the objective evidence in the record . . . MetLife was not justified in rejecting the opinions of [Gorski’s treating physicians] . . . on the basis of such a flawed report." The court went on to state that while an insurer does not abuse its discretion solely because it resolves conflicting medical evidence in its financial favor, insurers may not arbitrarily refuse to credit the claimant’s reliable evidence. To do so falls short of the "deliberate, principled reasoning process" that ERISA requires.
While MetLife argued that the evidence in the pre-litigation appeal record provided substantial evidence to support its decision, the Fourth Circuit makes this cogent observation: "[i]mportantly, the defect in MetLife’s final decision was not that the evidence before it was insufficient to support a hypothetical decision to deny benefits, but rather, that the actual decision that MetLife issued was not reasoned and principled" (emphasis in original). In short, the court was not going to let MetLife construct for the first time in litigation a rationale for denying Gorski’s claim that was not clearly supported by facts and clearly articulated in the all important pre-litigation appeal process.
The final important aspect of the case was the decision to reinstate benefits rather than simply remand the matter to the insurer for additional consideration. This was justified because the majority opinion felt that the record clearly reflected Gorski was entitled to continued benefits. Judge Traxler dissented on this aspect of the decision, stating that he felt remand was proper to allow MetLife to evaluate the claim without considering the outside reviewer’s opinion.
The American Association for Justice issued a white paper this week about the insurance industry titled "Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse." You can find it on the AAJ website here.
I have represented individuals against insurance companies involving denied health, life, disability, personal injury and workers compensation claims on a regular basis for almost 20 years now. In my experience, most of the time insurers adjudicate claims promptly and fairly. But I believe that the last few years the pressure on insurers to cut corners and deal unfairly with their insureds has grown. As a result, I don't think we've seen so many examples of insurance company illegality, bad faith and over-reaching in a long time. Part of the problem is market competition, the fact that unscrupulous practices by some insurers do, or are perceived, as giving them a competitive leg up against their more high minded brothers. Part of the problem is that our political and regulatory environment has, for many years, provided more latitude and less accountabilty when it comes to bad insurance practices. Part of the problem is a relatively passive approach to investigating insurer misbehavior by the media. Part of it is complacency by the public in responding to insurance wrongdoing when it comes to light. I'm sure there are additional reasons for the uptick we've seen in abusive insurer practices. But, I sense the pendulum is about to swing back toward greater oversight and accountability for insurance companies. I'll be glad to see it. We can only stand so many AIGs, Allstates and UnitedHealthcares.
Simon Lazarus and Ian Millhiser have a great article in The Guardian last week about ERISA's inadequate job of protecting employees and their dependents. The link they provide in their article for the "smoking gun" that is Provident's internal memo about the lack of remedies for violations of ERISA comes from this website's library! In commenting on the article, Chris Nichols at the North Carolina Trial Law Blog provides an apt description of ERISA: it is a "horrible and judicially mutilated zombie."
Meet Todisco v. Verizon Communications Inc., ___ F.3d ___, 2007 U.S. App. LEXIS 18621 (1st Cir. 2007). It nicely illustrates what lousy remedies exist in a lousy statute. Richard Todisco had life insurance through a goup insurance policy provided through his employer, Verizon. He wanted to know if he could obtain additional insurance. He called the Verizon employee benefits hotline and was told that he could get the additional insurance he sought if he requested it and paid the extra premium. The person on the telephone never told him that he had to submit to the insurer information about his health history and that insurer would evaluate that and had the right to turn down his request for extra insurance if it didn't like what it saw. Todisco requested the additional coverage and acknowledged that he was willing to have the extra premium taken out of his paychecks. The problem was that the Verizon hotline person provided bad information to Todisco. The policy gave the insurer the right to obtain information about Todisco's medical history and turn down the request for additional coverage. But Todisco relied on the bad information. Although he applied for the extra coverage, he never submitted any health history information. Shortly thereafter, he died. His wife, Diane, submitted a claim and the insurer denied it. She sued and asked the court to use its equitable power to order the insurer to pay the claim. Using the doctrine of equitable estoppel, she requested that the court deny the insurer the ability to rely on the policy language stating that the insurer could evaluate Richard's health history and refuse to provide him with the additional coverage he requested. In light of what Richard was told by the Verizon benefit people on the telephone and his reasonable relience on that information, Ms. Todisco argued that it wouldn't be fair to allow the insurer to deny the claim. The trial court dismissed Ms. Todisco's claim. It stated that ERISA did not allow her to use the language in ERISA's remedies section referring to a court's ability to provide "appropriate equitable relief" to recover any money. The U.S. Court of Appeals for the First Circuit affirmed. The appeals court was not totally unsympathetic. It acknowledged that the result was unfair. But it went on to say that it felt its hands were tied by Supreme Court precedent. It stated that the solution to Ms. Todisco's problem was to get Congress to amend ERISA to provide more complete remedies.