Jul 18, 2018
And insurers wonder why people so often think badly of them.
The U.S. Court of Appeals for the Tenth Circuit issued an opinion yesterday, Kellogg v. Metropolitan Life Ins. Co., reversing a denial of an accidental death claim. The decision contains a number of important points. You can find the case here in the website library.
Taking off from a stop sign in Merced, California, Brad Kellogg traveled down the street for approximately half a block and then crossed the opposite lane of traffic and plowed into a tree. Although he wasn’t going particularly fast, his head hit the car frame with enough force to cause a skull fracture and hemorrhage. The medical examiner determined that these injuries caused his death. A witness to the accident said that he appeared to be having a seizure shortly before he left the road and hit the tree. A blood test by the medical examiner revealed a large number of prescription drugs in his system, one of which, bupropion, had been noted to have the side effect of seizures.
Brad’s widow, Cherilyn, submitted a claim for accidental death and dismemberment insurance benefits. MetLife, the insurer, gathered some information relating to the claim and then denied the claim asserting that an exclusion in the policy did not allow payment of a claim where death was the result of a physical illness. MetLife said that a seizure caused the accident and death of Kellogg. Cherilyn then appealed this denial, indicating that Brad had no history of seizures and that MetLife had no factual or legal basis to deny the claim. Her letter went on to ask MetLife to send a number of different documents including a copy of the plan document, Summary Plan Description and claim file for the matter. MetLife ignored the letter. About four months later, Cherilyn’s counsel wrote again and reiterated his request for the documents. MetLife ignored the request. So Cherilyn sued.
The trial court ruled that MetLife was entitled to a deferential standard of review and that it was not unreasonable for MetLife to deny the claim. Cherilyn appealed to the Tenth Circuit.
The court first dealt with whether MetLife was entitled to an arbitrary and capricious standard of review. Cherilyn argued that because MetLife had never ruled on her appeal, there was no exercise of discretion by MetLife for a court to defer to. She asserted that, under the circumstances, the proper standard of review was de novo. MetLife argued that Cherilyn had never appealed the case but had just indicated an intent to appeal. The court rejected that argument stating that the language in Cherilyn’s letter clearly was an appeal. In addition, MetLife’s stonewalling of Cherilyn violated both the letter and the spirit of ERISA’s claims procedure regulations. "To conclude otherwise would provide plan administrators with an incentive to violate the provisions of ERISA by ignoring requests by plan participants and beneficiaries for plan documentation and other relevant information." Slip opinion, p. 18. The failure of MetLife to respond to Cherilyn’s appeal within the time frame required by ERISA and its claims procedure regulations meant that the standard of review was de novo.
Next, the court considered whether MetLife was precluded from asserting for the first time in litigation new reasons to deny the claim. The only basis for denial presented by MetLife in its denial letter was that Kellogg died as a result of a physical illness. Yet in litigation MetLife argued that Kellogg’s claim must fail because Cherilyn had failed to prove that Kellogg died as a result of an accident. Cherilyn objected to this tactic, arguing that it was improper to allow MetLife to raise this basis for denial for the first time in litigation. Relying on Tenth Circuit precedent, the court agreed and required that MetLife’s denial stand or fall on the question of whether Brad Kellogg died as a result of the purported seizure.
The court concluded that the crash, rather than any seizure that may have occurred, caused Brad Kellogg's death. What follows is a thorough and interesting discussion about what constitutes an accident and what language an insurer must use in its policy if it wants to clearly provide for an exclusion applied to Kellogg’s circumstances. The court notes that MetLife could have drafted its policy to exclude coverage for accidents caused by injury or illness. But that is not what the language of the policy stated. The court reversed the trial court’s ruling and entered judgment in favor of Cherilyn on the AD&D claim.
This is a gratifying win for a lot of reasons but being able to help out Cherilyn and her kids made it really worthwhile.
Here's an interesting story from last week's New York Times that suggests we're closer to fundamental national reforms in how we deliver and pay for medical care that many believe. America's Health Insurance Plans (AHIP) and the Blue Cross and Blue Shield Association, the two largest trade groups/lobbyists representing self funded medical plans and health insurers, each released statements that they favor a proposal requiring them to provide health coverage to all applicants, regardless of medical history, so long as every individual is required to obtain coverage. The idea is pretty simple: insurers and employers can afford to provide benefits to people who are sick only if if those who are healthy are also paying premiums. It's the healthcare insurance version of "there ain't no free lunch."
The willingness of AHIP and the Blues to accept all comers regardless of health history so long as every person is required to pay for coverage is significant. The opposition of insurers and self funded plans were a big reason that the Clinton Administration's efforts to pass comprehensive healthcare reform failed in the '90s. If they are on board, the sea change in healthcare may come sooner than we think.
Of course, the big unanswered question is "how much will it cost?" Nobody is talking too much about that yet. But they will have to sooner rather than later.
A couple of weeks ago the U.S. District Court for the Northern District of California issued a noteworthy order in Walker v. Metropolitan Life Ins. Co., ___ F.Supp. ___, 2008 U.S. Dist. LEXIS 93463 (N.D. Cal., 11/10/08). I've placed a copy of Walker in the website library here. The court ordered MetLife to produce information that would allow the Judge to evaluate the degree to which the "independent" medical reviewers MetLife retains are truly independent or, conversely, are designed primarily to provide MetLife with a basis to support the insurer’s claim denials.
David Walker was a local area network administrator for Kaiser Permanente. He suffered from increasingly severe diabetes, cardiac problems, glaucoma, and macular degeneration. He applied for disability benefits from MetLife and his doctors submitted reports agreeing that he could not continue to work in his own occupation. MetLife relied on in-house medical experts to deny the disability claim. When Walker appealed, MetLife sent the claim out to National Medical Review ("NMR") for its evaluation of the file. NMR receives several thousand referrals from MetLife and other insurers each year for review. NMR did not examine Walker. It referred his file to a internist/cardiologist and an ophthalmologist for their opinions about whether he could work. They concluded Walker could return to his own occupation.
After Walker brought suit to challenge the denial, both parties moved for summary judgment. Walker also requested additional information from MetLife about its relationship to NMR to determine whether NMR’s file reviews were objective in light of NMR’s close relationship to MetLife.
Much of the court’s decision is an analysis of MetLife v. Glenn, 128 S.Ct. 2343 (2008) and its effect on pre-existing Ninth Circuit precedent dealing with conflict of interest, Abatie v. Alta Life & Health Ins. Co., 458 F.3d 955 (9th Cir. 2006) (en banc). The decision does not find any inconsistency between Glenn and Abatie. Both cases require trial courts to evaluate the circumstances that could create conflicted decision-making on a case by case basis to determine the degree to which a court must temper deference that would otherwise be accorded an insurer based on a grant of discretion in the plan documents. Both Glenn and Abatie state that trial courts may need to consider evidence about an insurer’s "history of biased claims administration" (Glenn) or "parsimonious claims granting history" (Abatie) to fully evaluate that question.
The relationship between NMR and MetLife is close. The court notes that NMR received over $11 million from MetLife in the five year period between 2002 and 2007 and that ". . . [i]t follows that MetLife knows NMR has an incentive to provide it with reports upon which MetLife may rely in justifying its decision to deny benefits in order to increase the chances that MetLife will return to NMR in the future." Slip op., p. 11. Walker requested information about how many claims MetLife had referred to NMR and the number of times MetLife had denied benefits based, in whole or in part, on NMR reviews. MetLife was willing to provide information on the former question for 2007, 2006 and 2005 (3593, 3159 and 2304) but stated that it had not calculated the number of claims it had denied in reliance on NMR reviews. MetLife asserted that going through the process of compiling that information would be unduly burdensome and expensive. The court rejected the argument.
The decision states that without this information the court could not evaluate MetLife’s conflict of interest in the way Glenn and Abatie require. Second, Glenn and Abatie ensure that the demand for precisely this type of information will only grow. The court did not question MetLife’s assertion that gathering the information requested by Walker would be time consuming. But since it would be necessary in cases to follow, over time MetLife would realize savings arising out of shortened discovery disputes and, if no conflict was shown, reduced litigation about conflicts of interest. The upshot? The court ordered MetLife to produce within 30 days the number of claims it had accepted or rejected after a review involving an NMR physician from 2005 to 2007. "Absent such an answer, this Court will infer that MetLife has not granted a single claim in which NMR reviews were obtained." Slip op., p. 13.
Along with other commentators, I predicted that we would see these types of court orders requiring additional discovery in ERISA benefit denial cases. That is starting to come to pass.
UnumProvident is, by quite a bit, the largest disability insurer in the country. It has had more than its share of negative press over the last few years arising out of allegations that is has wrongfully denied claims. Ray Bourhis and Alice Wolfson, two excellent trial lawyers out of San Francisco, have been as aggressive as just about any attorneys in bringing Unum's misdeeds to light. Unum's sins are many but Ray and Alice have succeeded in obtaining a number of jury verdicts against UNUM for not only improperly denied benefits but for consequential and punitive damages as well.
Yesterday Ray and Alice filed a class action lawsuit against Unum alleging that consumers were victims of a bait and switch tactic. Individuals purchased insurance to cover them when they were disabled from their own occupations. Then, according to the suit, after the claim was submitted, Unum evaluated the claimant's ability to work against duties that were substantially different and easier to perform than those of the person's own occupation.
Until recently Unum offered employees it deemed worthy a "hungry vulture" award. Nothing like knowing that your financial interests are in the hands of folks who are looking after you!
Unfortunately, the circumstances under which you have the ability to recover either consequential or punitive damages against any health, life or disability insurer are very limited due to ERISA's remedial structure. That statute governs most medical, life and disability claims in the country. But that is a topic for another day.
HIPAA’s privacy protections have changed the way healthcare providers communicate about medical information relating to specific patients. To facilitate medical and reimbursement practices, the Department of Health and Human Services enacted a regulation to allow providers and payors to disclose protected health information ("PHI") for "routine uses" (characterized as uses and disclosures of PHI for "treatment, payment, and health care operations") without jumping through the hoops of HIPAA’s consent requirements. A federal appeals court rejected challenges to this HHS regulation this week.
The challenge came in the form of Citizens for Health v. Leavitt. The plaintiffs, a coalition of organizations and individuals, argued that the "routine uses" regulation was invalid for a number of reasons but primarily because it violated the privacy rights of the Fifth Amendment and the free speech rights of the First Amendment. The Third Circuit rejected these arguments. The guarantees of the First and Fifth Amendments restrict government rather than private actions. Because the providers and payors disclosing the PHI under the regulation act in a private rather than governmental capacity, the permitted disclosures do not implicate Constitutional guarantees. Obviously, this is good news for healthcare providers concerned about HIPAA compliance.
The court also noted that HIPAA provides minimum privacy protections and that providers and payors may be subject to more stringent state law privacy protections. Consequently, the regulation is not the final word on provider’s privacy obligations.
Jeffrey Toobin's article on Justice Stephen Breyer in the October 31, 2005, issue of The New Yorker begins with an interesting story. In the weeks following the Court's Bush v. Gore decision, Justice Breyer felt the need to keep his clerks from being discouraged about ending up on the losing side of one of the most critical decisions in recent history. Some were bitter or cynical. Others questioned the integrity of the Court. Breyer chose other roads. "I told them, 'This, too, will pass.'" Then, in what Toobin says is a reflection of the Justice's "fundamentally optimistic nature," Breyer states:
You have to assume good faith, even on the part of people with whom you disagree. If you don't assume good faith, it makes matters personal, and . . . in my experience, it normally isn't even true. People do act in good faith. The best clue to what a person thinks is what he says.
Litigators have to keep this in mind. For anyone who does trial work or litigation with any frequency, there will be losses, some heartbreaking. I've had cases into which I've sunk hundreds of hours of time and tens of thousands of dollars in costs only to come up at the end of the process with nothing. I've gotten rulings where I couldn't believe the Judge came to the conclusion he or she did. However, attributing hard-to-swallow decisions to anything other than good faith intentions and efforts on the part of a judge or jury is almost always corrosive.
Practicing law is challenging and at times discouraging. But it would not be worth doing if it was also a cynical or hopeless experience.
Pharmacy benefit managers ("PBMs") are significant players in the healthcare field. They act as intermediaries between sellers of prescription drugs, the drug manufacturers and pharmacies, and the bulk purchasers of those drugs, health insurers, HMOs, self-funded employer sponsored medical plans and government health benefit programs. The size of PBMs gives them leverage when buying drugs from sellers which, in turn, can lead to significant cost savings for purchasers. However, their negotiations and contract terms with sellers are, generally speaking, private matters and are not subject to disclosure or regulation. This has led some to worry that PBMs may enter into purchasing contracts with sellers that line the pockets of the sellers and the PBMs at the expense of the purchasers.
In response to concerns about the lack of regulation of PBMs, Maine passed the Unfair Prescription Drug Practices Act in 2003. The statute requires PBMs to, among other things, act as fiduciaries to their clients, disclose conflicts of interest, disgorge profits from self-dealing and disclose to purchasers some aspects of their financial dealings with sellers of the drugs. A coalition of PBMs brought suit to have the statute struck down as violating ERISA’s preemption clause.
Last week, in Pharmaceutical Care Management Association v. Rowe, the First Circuit rejected this challenge and held that ERISA does not preempt the Maine statute. The court ruled that PBMs are not fiduciaries under ERISA and, thus, not subject to ERISA preemption. It is an interesting ruling because although PBMs are expressly designated as fiduciaries under the Maine statute, they are fiduciaries for state law purposes only. Their activities do not fall within ERISA’s separate definition of "fiduciary."
Bottom line: at least in the First Circuit, states may regulate PBMs if they take care to craft their statutes to follow the Maine model.
A few days ago a court dismissed a case brought to obtain payment of a denied medical claim. That is not really very unusual. The deck is stacked against health care providers and patients who want to sue for denied medical benefits, especially when those claims involve ERISA. But as I read the Judge’s opinion today, I was really quite amazed at the poor legal representation on behalf of the plaintiffs.
First, the case was brought by two hospitals operated by a large, reputable healthcare system. They have the sophistication to recognize that they need to hire experienced, knowledgable legal counsel. Second, the denied claims were no small matter; they totaled several hundred thousand dollars, a powerful incentive to hire competent legal counsel. Despite these facts, the Judge's opinion made clear that the hospitals' attorney was clearly out of his element. As a result of several significant blunders in how the case was presented and the failure to lay the proper foundation before litigation even started, the case was dismissed; the hospital received nothing.
But here’s the kicker: I looked up the website of the attorney representing the hospital and found that he claimed to specialize in litigating denied medical claims! A quick search of cases in his jurisdiction, however, revealed no other reported cases involving denied medical claims in which he was involved.
I won’t disclose the hospital’s or attorney’s name. But no healthcare provider or patient should let this happen to them. Evaluating, appealing and litigating denied health insurance, managed care or disability claims is as challenging an area of law as any. It is many steps beyond collections work. The confluence of medical, insurance and legal issues is something that few people really understand.
When you need the resources to handle an important claim in this area, don’t mess around with someone who can’t demonstrate that they know what they are doing and have done it before. Trusting this type of work to a neophyte or amateur increases the likelihood that you are simply throwing your money away.
The common idea behind all disability insurance policies is that you'll get benefits if you can't work. You pay a premium to the insurer in exchange for the expectation that if you become disabled the insurer will replace your lost income.
However, the variety among disability policies is great. Some pay benefits for your entire working career if, for any reason, you can't work in the specific occupation in which you've been trained. These "own occupation" policies are great things to have if you can get them. But they will almost always be more expensive than policies that only pay disability benefits if you are disabled from any occupation that exists for someone of your education, training and experience. For these "any occupation" policies, you have to show that you can't work in any job rather than just the one for which you've been trained. For example, the concert pianist who loses the pinky and ring fingers of her non-dominant hand isn't going to collect a dime from an "any occupation" policy. But she should get benefits from her "own occupation" policy without too much trouble.
There are many other ways in which an insurance policy defines when and how much they pay out. Generally speaking, insurance companies can structure their policies to be as generous or as stingy as they want. The premium charged should (but doesn't always) reflect those differences in coverage. The distinction between own occupation and any occupation coverage is one of the most common ways insurers distinguish between types of coverage and the risks they will insure. There are a lot of other methods they use. But keep the title of this post in mind when you're shopping for a policy or need to make a claim.
UnitedHealth Group, parent of UnitedHealthcare, is the largest health insurer in the country. William W. McGuire, its CEO, is well compensated. Last year he made $124,774,000. Yes, that’s right. You can look it up here.
That’s a pretty big number. To get a better idea of what this really means as a practical matter, this amounts to $341,846.58 per day. It is $14,243.61 per hour. This is a guy who, even assuming Superman’s sleep requirement of 5 hours a night, earned $71,218.05 for last night's snooze.
But last year? That’s really nothing. The five year compensation total for Mr. McGuire was even more inconceivable: $342,284,000.
Now I don’t begrudge people making a lot of money. But I think there ought to be a fair ratio between one’s contribution to the business and what he's paid. You don’t have to be a genius to say that relationship doesn’t exist here.
Compensation like this causes otherwise reasonable people to call for caps on what folks can take home from their business activities. As the old saying goes, pigs get fat and hogs get slaughtered. Mr. McGuire is well into hog territory.
My question is, why aren’t UHC shareholders speaking up about this abuse?
ERISA does a terrible job of protecting the individuals it was designed to protect. Today's Wall Street Journal has an article written by Ellen E. Schultz about the efforts of former NFL player Victor Washington to get disability benefits from the league's disability plan. The story is behind a subscriber wall. But it states that ERISA has ended up "tilting the playing field in favor of employers and serving as a legal shield for them." Too true. It references the Supreme Court's 1987 ruling in Pilot Life v. Dedeaux that no punitive damages may be awarded in ERISA cases and states that, as a consequence, " . . . there's little downside to delaying or resisting approval of a claim, since the worst that can happen is that the employer will later be ordered to pay. For employees, however, the lack of punitive damages means it is often difficult to afford--or even find--legal representation."
It's actually worse than the article describes. Not only is an ERISA claimant prohibited from getting punitive damages (damages to punish the insurer), he has no right to "consequential" damages. These are damages routinely awarded by courts to compensate a person for loss arising out of another person's wrongful act. For example, under ERISA if you lose your home or car because an insurer has wrongfully denied your health or disability claim, you get no compensation for that loss if a court later decides the insurer was wrong.
Back in 1989, two years after Pilot Life, Justice O'Connor wrote in Firestone Tire and Rubber v. Bruch, another ERISA case, that courts should not interpret the statute in a way that would "afford less protection to employees and their benefitciaries than they enjoyed before ERISA was enacted." But that is exactly where we are. And, ironically, it is in large part because of Pilot Life, a decision written by . . . Justice O'Connor.
ERISA allows for recovery of attorney fees and costs to any litigant based on the court's discretion. So how does a court exercise that discretion?
The federal Circuit courts of appeals, the level just below the U.S. Supreme Court, have almost uniformly adopted a five factor test for evaluating whether attorney fees should be awarded in ERISA cases. You can see the factors listed on pp. 12-13 in the Toman decision in the library section of this website. However, the factors do not necessarily favor an award of fees to prevailing plaintiffs. In fact, in Toman, the court declined to award fees to the prevailing plaintiff even though it concluded that the insurer was not only wrong in denying a claim but was downright unreasonable: arbitrary and capricious in ERISA language.
But the Ninth Circuit has in place, in addition to the five factors, a presumption that prevailing plaintiffs in ERISA cases are entitled to an award of attorney fees. See, e.g., Canseco v. Construction Laborers Pension Trust for Southern California, 93 F.3d 600, 609-10 (9th Cir. 1996). The Ninth Circuit is not alone on this issue, but it is in the minority. Most Circuits simply apply the five factors without any presumption. But if you're representing plaintiffs, it's a very helpful thing to be able to know that if you win you'll probably be getting an award of attorney fees and costs too.
My lovely spouse told me that she saw at the store today a woman who lived up the street from us in our old neighborhood. It brought back a memory. This woman was a school teacher but during the summers she worked for insurance companies doing surveillance on workers comp and disability claimants. She would wait outside their homes in a van or car and videotape them as they went about their activities I remember her telling me, "I’ve never yet seen a legitimate claim."
Now I don’t have any question that there are people who file fraudulent disability claims. And I don’t have any beef with insurers doing reasonable surveillance to try to ferret out those folks. But I do have a huge problem with people who are so jaded, suspicious or just plain dumb that they don’t believe that anyone is disabled.
Strictly speaking, no one is ever completely disabled. Even a comatose person can "work" testing ventilators with a little help from people around him. Yet no sane person would ever consider that someone in a coma is not disabled.
The fact is that disability insurers sell their product by making sure we understand there is a real risk that something could happen to prevent us from carrying on at least our own occupation, and perhaps any meaningful occupation. If an insurer sells to a surgeon a disability policy to pay her a monthly benefit if she can’t perform her specialty, she certainly shouldn’t feel guilty about making a claim on the policy if, after purchasing it, she develops a hand tremor. It may not keep her from doing 99% of the activities of daily living. But it prevents her from being a surgeon. I know I don’t want her as my surgeon. These types of "own occupation" disability policies, especially for highly compensated or highly skilled individuals, are quite common. It is not unusual for a person to be entitled to these types of disability benefits without appearing to be disabled to any degree at all. So next time you see someone walking around looking perfectly fine from your perspective, yet you know they are "on disability," don’t assume they are a malingerer or disability fraudster.
Under ERISA, fiduciaries have no ability to sue participants for breach of the terms of a plan. To illustrate this point, here’s a health insurance scenario that crops up regularly. Mabel Cautious is insured under the Conglomerate Inc. Medical Benefits Plan ("the Plan"). Mabel is driving through an intersection one day and Johnny Hotrod blows a red light, hits Mabel and injures her. She has medical bills of $10,000 which the Plan pays. Later, Mabel sues Johnny for her injuries and his auto insurer pays her $25,000, Johnny’s policy limits, a portion of which is to pay for Mabel’s medical expenses. The document governing the Plan has a provision in it that calls on Mabel to reimburse the Plan for any medical expenses it has paid Mabel if Mabel later recovers those expenses from a negligent third party, such as Johnny. These contract terms, usually referred to as subrogation provisions, are common in insurance policies.
So what if Mabel refuses to reimburse the Plan for the medical expenses she recovers from Johnny? ERISA is very clear: neither the Plan, its corporate sponsor nor the administrators of the Plan can sue Mabel for breach of contract. 29 U.S.C. §1132(a)(1)(B). ERISA does have a provision, 29 U.S.C. §1132(a)(3), that allows a fiduciary to obtain "appropriate equitable relief" for violations of the terms of the Plan. However, in Great-West v. Knudson, 534 U.S. 204 (2002), the Supreme Court decided that "appropriate equitable relief" does not include recovering money for breach of contract.
But the folks administering ERISA plans, called "fiduciaries" under the statute, were not deterred from pursuing subrogation claims. There are equitable theories that allow for recovery of money under certain circumstances. One of these theories is equitable restitution. Some federal Circuit Courts of Appeals interpret Great-West as allowing ERISA fiduciaries to recover funds from Mabel under this theory. Other Circuits have interpreted Great-West as prohibiting fiduciaries from pursuing subrogation claims at all. So the federal Circuits are split on this issue.
Last month the Supreme Court agreed to review a case, Mid Atlantic Medical Services, LLC v. Sereboff, 407 F.3d 212 (4th Cir. 2005), to resolve the question. In Sereboff the Fourth Circuit allowed an ERISA plan to recover a portion of its medical expenses based on equitable restitution. Usually, whether an insurer is entitled to be reimbursed when a person receives money from a personal injury claim calls on a court to analyze whether that person has been "made whole" by the personal injury money she receives. Only if she has been fully compensated for her injuries is the insurer in a position to insist on getting its money back. This analysis, known as "equitable subrogation," looks beyond the terms of the insurance policy. However, in Sereboff, the Fourth Circuit was having none of that. It simply looked at the terms of the Plan, identified language in the Plan that called on the Sereboffs to repay the Plan regardless of whether they had been made whole, and awarded the Plan the money, less the Plan’s proportionate share of the Sereboffs' attorney fees.
In other words, the court allowed the ERISA fiduciary to enforce the terms of the Plan to recover money for breach of contract through §1132(a)(3), effectively enabling an end-run around the limits of §1132(a)(1)(B). We’ll now see if the Supreme Court lets the fiduciary get away with that.
Take a look at Krodel v. Bayer Corp., 2005 U.S. Dist. LEXIS 26833 (D. Mass. 2005). It involved a claim by a physician for payment of a replacement of his prosthetic leg. Boiled down to its essence, the doctor wanted a technologically advanced, relatively expensive prosthesis that provided him the maximum utility. Bayer, the sponsor of the ERISA plan, wanted to provide him with a more basic, less functional and relatively inexpensive replacement prosthetic leg.
The court ruled in favor of the doctor. The crux of the opinion is on pp. 12-17. Bayer’s plan document stated that a medical supply was covered if it is "of proven value and not redundant with other procedures." However, Bayer interpreted this language to also require that the doctor prove "there are no other reasonable alternatives which would achieve a comparable therapeutic benefit for the patient, in terms of enabling the patient to perform activities of daily living." The court rejected Bayer’s attempt to impose what the court felt was an added restriction to the coverage language of the plan document.
Bayer complained that the court’s ruling would require it to supply Cadillacs rather than Fords to plan beneficiaries. The court responded by saying that, in this situation, the plan document language required Bayer to provide a Cadillac. If Bayer wanted, it could change the language of the plan document. But until then, the plan beneficiaries were entitled to the benefits promised to them.
Krodel illustrates that quite often a person’s entitlement to benefits turns on a very small pivot. Specific plan language, specific facts; these make the difference between winning and losing in many ERISA cases.
I've put some thoughts about this here in the News section of the website.
I’ve posted here and here about ERISA’s limited remedies. But the situation Don and Cindy DeCastro, former clients of mine, faced several years ago really brings home the problems ERISA’s lousy remedies create for people.
Don and Cindy were a young couple with children. Don worked for a large company that had a self-funded medical benefits plan. Cindy, his wife, was diagnosed with ovarian cancer. Her doctors said her best chance to survive was to get a bone marrow transplant. The problem was that Don’s employer terminated Cindy’s coverage for no good reason shortly after she was diagnosed. Because she had no coverage, and the DeCastros couldn’t pay for the transplant out of their own resources, Cindy had to go without it.
Don came to me asking for help in getting Cindy’s coverage reinstated. We were successful in doing that but it took a few months. When I finally called Don to tell him the good news about Cindy being reinstated he said, "well that’s great but Cindy’s health has now deteriorated to the point that the doctors tell us that she is no longer a candidate for the transplant."
A few months later Cindy died. Don called and said, "I understand that even if Cindy had received the transplant, she might not have made it. But that was her best shot at living. My employer terminated Cindy’s coverage in error. I want to sue the company to recover something for the fact that they are responsible for Cindy losing her best chance to live." He had a reason to feel the way he did. He should have had the chance to hold his ERISA plan administrators accountable for the loss associated with their wrongful act. But Don had no remedy for that loss of opportunity to save Cindy’s life.
ERISA only allows you to recover lost benefits you are entitled to under an ERISA plan. You can’t recover damages you suffer as a direct consequence of an error an ERISA insurer makes in denying a claim. You can lose your car, your house, your wife, your life. But you have no ability to recover anything for those losses no matter how directly they flow from the wrongful denial of the claim and no matter how indifferent, callous or even malicious the insurer’s denial was.
It would be bad enough if the Don DeCastros of the world simply were left without compensation for their losses. But there is reason to believe that the restrictions on the ability to hold insurers accountable under ERISA makes them more likely to cut corners. Read the next blog entry, "ERISA Encourages Bad Insurer Behavior."
Most attorneys who regularly represent individuals with denied ERISA benefits believe that insurers are much more likely to abuse their ERISA claimants than when those same insurers handle non-ERISA claims and are subject to the possibility of consequential or punitive damages as a result of bad faith denials of claims. But supposition aside, is there any concrete evidence that insurers treat ERISA claimants differently than they treat non-ERISA claimants?
One of the best pieces of information is an internal memorandum generated within Provident Insurance back in 1995. At the time Provident was one of the largest disability insurers in the country. Since then Provident merged with UNUM. But the memorandum, which has circulated for quite awhile among disability lawyers, makes it pretty clear that the presence of ERISA makes a big difference in how insurers deal with their insureds.
For example, the internal memorandum references the need for Provident to "initiate active measures to get new and existing policies covered by ERISA." It then goes on to list the "enormous" advantages to Provident of having litigation governed by ERISA: no jury trials, no compensatory or punitive damages, remedies being limited to the benefits in question, and courts deferring to the insurance company's decision. The author calculates that for 12 cases Provident was dealing with at the time, the savings in handling the cases if ERISA had applied would have been over $7,000,000.
It's pretty simple. In a competitive marketplace, if you take away the negative consequences for bad behavior, you're going to get more bad behavior.