May 21, 2019
Earlier this year the Maryland legislature passed a statute aimed at requiring Wal-Mart to provide more generous health benefits to its employees. The statute, called the “Fair Share” legislation, requires that employers over a certain size doing business in Maryland must spend a certain percentage of their compensation for employees on health benefits. The only employer who met the size criterion and fell below the threshold in Maryland was Wal-Mart. The bill’s backers acknowledged that business was the target of the legislation.
All employee benefits provided by Wal-Mart are governed by ERISA. The first argument challenging the Fair Share Act was that the federal ERISA statute preempts all state regulations that “relate to” ERISA plans. The effect of preemption is that all state laws are wiped out and have no effect if those laws relate to an ERISA plan.
Two days ago, in a decision you can read here
, a federal judge agreed that the Maryland statute is superceded by ERISA. One of the odd things about the decision is that there is no discussion by the court of a significant carve out to ERISA’s preemptive scope: state laws regulating insurance. In all likelihood the court did not discuss this because Wal-Mart provides employee benefits through a self-funded, rather than fully insured, ERISA plan.
In any event, the case will undoubtedly go up to the Fourth Circuit on appeal. Don’t count on the decision being reversed.
Answer: usually not until the plan satisfies ERISA's claims procedure requirements.
One of the fundamental safeguards ERISA was designed to provide relates to notice and disclosure of information. ERISA plans must provide notice to participants of all material terms of the plan including benefits, exclusions, limitations and conditions under which benefits may be lost. In the absence of notice, restrictions on benefits may not be enforced.
After a claim for benefits has been submitted, plan administrators are bound by another set of notice and disclosure requirements to ensure that plan participants get a full and fair review of a denied claim. However, in the absence of meaningful remedies when these notice and disclosure requirements are violated by plan administrators, they are really pretty meaningless. A right without a remedy is just a suggestion.
Which leads us to Chuck v. Hewlett Packard Co,
a Ninth Circuit decision from the day before yesterday. In Chuck a plan participant argued that he had been shorted pension benefits promised him by his employer. He raised the issue in 1981, at the time he retired and didn’t get a satisfactory answer to his concerns. Several years passed and he raised the matter with the plan administrator, HP, again in correspondence. HP maintained its denial of Chuck’s claim. Again, several years passed before Chuck retained an attorney and finally sued in 2003.
HP asked that the case be dismissed arguing that the limitation of actions for Chuck’s filing of the case had expired. Chuck responded that HP should not be allowed to raise this defense because HP had not given Chuck the information required by ERISA as part of the process of providing a full and fair review of Chuck’s claim.
The Ninth Circuit ruled in favor of HP but used some interesting language that will be of help in future cases in the Western states that are part of the Ninth Circuit. It stated, “we hold that a plan’s material violation of . . . [ERISA’s “full and fair review” requirements for a denied claim] is a factor that militates strongly against a finding that the statute of limitations has begun to run against a claimant . . ..” In a nutshell, in most circumstances, plan administrators may not shut the door on the ability of plan participants to sue for denied benefits unless and until they have substantially complied with ERISA’s claims procedure requirements to provide to a plan participant all the information the statute requires.
I’ve read hundreds of ERISA cases in the past 15 years. Most are quite pedestrian but some are remarkable for either their goodness or badness. I’m going to occasionally highlight the cases I’ve found most noteworthy for being either righteous or terrible: the hits and the misses. I’ll also place copies of them in the Library section of the website to allow ready access.
Let’s start out with a hit: Herzberger v. Standard Insurance Co.,
205 F.3d 327 (7th Cir. 2000). Herzberger
is noteworthy for its straightforward statement of the need for ERISA plan administrators and insurers to write their plan documents and insurance polices in clear, unambiguous language that gives notice to employees and their dependents of the benefits they are entitled to and the limitations on those benefits.
In Firestone Tire & Rubber v. Bruch,
489 U.S. 101 (1989), the Supreme Court held that federal courts will defer to an ERISA plan administrator’s or insurer’s determination of eligibility for benefits or interpretation of the language of an ERISA plan only if the plan grants discretion to the plan administrator or insurer. In the absence of such language, the court will review a plan administrator’s decision under a de novo
standard, for whether it is right or wrong. But if discretionary language is in the plan documents, the court will be much more deferential to the plan administrator and will reverse that decision only if it is clearly unreasonable.
The question about the proper standard of review may make the difference between whether a claimant wins or loses in court. Consequently, what language is sufficient to grant discretion is a big deal. I discussed this somewhat in earlier postings here
The specific issue in Herzberger
was whether language requiring that a claimant present to a disability insurer “proof” or “satisfactory proof” of her disability was sufficient to trigger a deferential review by the trial court. Judge Richard Posner rejects the insurer’s argument in his typically accessible writing style. First he notes that health, disability and life insurance benefits are becoming increasingly important components of compensation for employees and their families. As a result, it is critical for them to know what it is that they are getting: “the broader the discretion [granted to the insurer], the less solid an entitlement the employee has and the more important it may be to him, therefore, to supplement his ERISA plan with other forms of insurance. In these circumstances, the employer should have to make clear whether a plan confers solid rights or merely the ‘right’ to appeal to the discretion of the plan’s administrator.”
The critical issue, according to Judge Posner, is whether the plan documents give fair notice to the employee of limitations on benefits: “an employer should not be allowed to get credit with its employees for having an ERISA plan that confers solid rights on them and later, when an employee seeks to enforce the right, pull a discretionary judicial review rabbit out of his hat. The employees are entitled to know what they are getting into, and so if the employer is going to reserve a broad unchanneled discretion to deny claims, the employees should be told about this, and told clearly.”
Since being issued Herzberger
has generally been followed by other courts. The federal Circuits are still split on the issue–a couple still hold that the language at issue in Herzberger
is sufficient to grant discretion to ERISA plan administrators–but generally the tide is with Judge Posner on this issue. And that is a very good thing for consumers in our country. Decisions emphasizing the need for insurers to fully disclose their coverage limits and exclusions in plain language are critical if employees and their family members are going to be able to get the benefit of their insurance premiums.
When an employee loses their job, the administrator of a group health benefits plan has the burden of proving that it sent notice of the right to elect COBRA coverage to the employee. What does the administrator have to present to a court to prove it sent the notice?
The U.S. Court of Appeals for the Eighth Circuit
issued a decision yesterday involving just this issue in Crotty v. Dakotacare Administrative Services
. The law does not require that an administrator prove the COBRA notification was received by the employee. But it must prove that it has sent the notice by means reasonably calculated to reach the recipient. In Crotty
, the administrator presented an “audit report” that demonstrated a computerized system had generated a notice letter to Ms. Crotty around the time of her termination. It also provided testimony from an employee about the administrator’s practice to mail out these computer generated letters.
However, no person recalled seeing or mailing the notification letters. The Eighth Circuit held that this was not sufficient for the administrator to discharge its burden of proof. It contrasted Dakotacare’s evidence with that presented in other cases where the administrator had provided, for example, a copy of the envelope addressed to the employee, evidence of the postage paid for the COBRA notification letter and an affidavit from an employee who recalled mailing the letter. While Dakotacare presented proof that it had a system for sending the notice, there was insufficient evidence that the letter went through the system: “we hold that the administrator must provide something that indicates that its mailing system was reliable and that the system was followed . . ..”
I've always felt that being described as "creative" is a good thing except in one context: a judge characterizing your argument. I've had a judge or two use that word to describe a particular argument I was making in a case and I've yet to do well in that situation.
Similarly, in a case issued today, Silver v. Executive Care Leasing Long-Term Disability Plan, found here
on the website for the U.S Court of Appeals for the Ninth Circuit
, the court describes UNUM's position as "incredible." This may generally be a word you want to describe your performance. But it was not used in a positive sense for UNUM.
The case involved Marc Silver, a man with chronic heart, pulmonary and circulatory conditions. He had an angioplasty on December 14, 2000, and his treating physicians, employer and disability insurer, UNUM, agreed that as of that date he was disabled. However, under the UNUM insurance policy he was not eligible for disability benefits until he had completed a 90 day "elimination period" being totally disabled. Only then would he be entitled to benefits. UNUM argued that at the end of that 90 days, which expired in mid-March, 2001, Silver could go back to work.
The problem was that Silver's doctors disagreed and, more important, his medical treatment shortly thereafter showed that his condition had not improved to any meaningful degree. In May, 2001, he went in for another angioplasty. The court stated in unequivocal terms that UNUM's denial was wrong and ordered payment of disability benefits to the plaintiff.
I posted a comment
about the Eckelberry
case some weeks ago in which Judge Goodwin
of the federal district court for the Southern District of West Virginia
referenced the mythical serbonian bog
first described by Greek and Roman travelers as an analogy to sloppy or falacious legal reasoning.
Hard on the heels of Judge Goodwin comes Chief Judge Mark W. Bennett’s
decision in Van Natta v. Sara Lee Corp.,
2006 U.S. Dist. LEXIS 44606 (N.D. Iowa 2006) in which there is yet another allusion to a legal serbonian bog and the need to avoid it.
The problem frustrating Judge Bennett is the same one many who are familiar with ERISA have described: the gutting of meaningful remedies for plan participants due to preemption of state law. David Van Natta went to work at Sara Lee on September 20, 2004. He signed up for health benefits provided by his employer. He was told by Sara Lee representatives that his common law wife, Jean, was also eligible for health benefits and Sara Lee deducted the costs of coverage for the family out of David’s paychecks. About a month and a half later, Jean was injured in an accident and submitted bills to the ERISA plan sponsored by Sara Lee. The plan denied the claims because Jean did not meet the definition of “spouse” or “dependent” under the plan.
The Van Nattas sued in Iowa state court alleging they had relied on Sara Lee's representations of coverage for Jean and that Sara Lee should be prevented from going back on its promise. Sara Lee removed the case to federal court alleging ERISA governed the rights and obligations between the parties. It then moved to dismiss the Van Nattas case arguing ERISA preempted the state law claims the Van Nattas asserted based on bad faith breach of contract and violations of insurance trade practices.
The judge ruefully granted the motion but not before spending a great deal of energy to make clear that ERISA simply does not provide adequate remedies to the people it was enacted to protect when they are damaged by the wrongful acts of employers and insurers. Judge Bennett refers to ERISA’s remedies, which I blogged about here
, as being “meager, and often inadequate . . . compensation” where “virtually all state law remedies are preempted but very few federal substitutes are provided.” The court joins the “rising judicial chorus urging that Congress and the Supreme Court revisit what is an unjust and increasingly entangled ERISA regime.”
Both chambers of Congress recently passed the final, agreed upon version of the Pension Protection Act that amends ERISA
. When it came out of the House of Representatives last year the sponsor inserted in the dead of night an overreaching provision that gave a significant leg up to insurers and employers seeking to recover their subrogation interests and be reimbursed money they had previously paid out in health benefits to ERISA plan participants and beneficiaries. I blogged about the issue a lot at the time.
When Sereboff v. MAMSI
, 126 S.Ct. 1869 (2006), came down in May it reduced the desire of the business and insurance lobbyists to have this special interest legislation included in the final bill because the Supreme Court
gave employers and insurers much of what they were seeking in the proposed legislation.
The good news is that the obnoxious stealth clause allowing insurers and employers to be reimbursed all their payments from a plan participants personal injury recovery, regardless of the degree to which the person is made whole, was deleted during the last stages of negotiating the final version of the Pension Protection Act. Unfortunately, we still have to live with Sereboff
The Pension Protection Act of 2006
that recently passed both the House and the Senate deals primarily with pension benefits. But there are some aspects of it that deal with medical benefit plans. CCA Strategies
provides a very helpful guide
to these lesser known aspects of the Pension Protection Act.
The U.S. Court of Appeals for the Ninth Circuit
today issued an important decision in Abatie v. Alta Health & Life Ins. Co. You can read the decision here
. It is noteworthy because it takes up a recurring problem for courts in ERISA cases: how to adjust an arbitrary and capricious standard of review when the decision-maker has a conflict of interest. It is also an important decision because it was decided by an en banc
panel of the court. In this case fifteen judges decided the case rather than the usual panel of three judges. That gives it more precedential heft.
In Firestone Tire & Rubber v. Bruch
, the Supreme Court established that where the documents governing an ERISA plan give discretion to a person or entity to interpret the terms of the plan and determine eligibility for benefits, that decision will not be disturbed unless the decision-maker is shown to have abused their discretion. In other words, even if the trial court reviewing the decision feels it would have decided differently, it may not reverse the decision unless it is not just wrong but unreasonable or arbitrary and capricious. That is a tough thing for the person who loses before the ERISA decision-maker to prove.
But what about when the decision-maker has a conflict of interest? In Bruch
, the Supreme Court emphasized that ERISA decision-makers are fiduciaries to the participants and beneficiaries of ERISA plans. This means, under the language of ERISA, that they must act solely in the interest of participants and beneficiaries and for the exclusive purpose of providing them benefits. This “duty of loyalty” has been described by many judges as imposing the highest obligation known to the law on the decision-maker. Fiduciaries must act without any divided interests or loyalties.
Where does that leave us when, as with most life, disability and medical benefits, a for profit insurance company is the decision-maker? Bruch
tells us that courts must take any conflict into account in deciding how much deference an ERISA fiduciary is owed by a court but gave no guidance on how to do so. Since Bruch
, all the Circuits across the county have wrestled with this issue. This isn’t the place to provide a survey of the dozens of cases that have considered the issue but it suffices to say that most courts acknowledge the inherent conflict of interest an insurer faces when it acts both as a for profit entity and as an ERISA fiduciary. These courts take a harder look at the insurer’s decision and the process by which it was made than when a truly impartial decision-maker is evaluating whether life, disability or health benefits are owed.
Today’s decision more clearly recognizes the structural conflict insurers face than earlier Ninth Circuit cases. And it instructs trial courts within the Ninth Circuit to take a harder look at an insurer's decision because of that conflict than it would if the fiduciary were not torn. But it really doesn’t, in my opinion, produce a template for evaluating that conflict and adjusting deference that is any more clear or workable than its sister Circuits.
Perhaps the thing that sets Abatie
apart from other decisions discussing how to deal with a conflicted ERISA fiduciary is its explicit recognition that plaintiffs are entitled to gather information through the discovery process about the specifics on whether, and the degree to which, the ERISA fiduciary is conflicted. This opens up the components of the process by which the insurers make their decisions as much as anywhere in the country. And sunlight is always a good disinfectant.
I don't handle pension cases very often in my ERISA practice. Consequently, I don't blog about them much. But the Seventh Circuit
decision in Cooper v. IBM Personal Pension Plan
, 2006 U.S. App. LEXIS 20128, from last week is important as the first Circuit court to weigh in on whether cash balance pension plans violate ERISA's age discrimination standards. The court sustained the manner in which IBM structured its pension plan, ruling against the plaintiffs' assertions that the cash balance design illegally favors younger workers.
The cash balance pension idea is relatively new, complex and almost certain to face review by the Supreme Court sooner or later. There's a lot of money at stake.
President Bush signed an executive order today
that requires the Department of Health and Human Services, the Department of Defense, the Department of Veteran Affairs and the Office of Personnel Management to gather information about the quality and price of health care and share that information with each other and the public. The idea is that in this age of increasing consumer directed health care, information must be made available to allow for intelligent choices in spending dollars for health care by you and me.
I don't have a problem with that. But as I've said before
, insurers need to feel more pressure to write their policies in ways that clearly and unequivocally disclose in plain language what benefits and limitations consumers are getting. Right now, with discretionary language clauses being enforced by courts, insurers have an incentive to fill their policies with ambiguous language and then, when claims arise, interpret those policies to exclude coverage and favor their own financial interests, all the while being immune from judicial oversight.
Last week the U.S. Court of Appeals for the Fifth Circuit
issued a significant case involving a Louisiana statute requiring health insurers to honor assignments of health benefits from patients to their health care providers. First a little background on the dynamics at work with healthcare assignments.
Healthcare providers require patients to transfer to them, assign, the patient’s right to insurance benefits so the provider can receive payment from the insurer directly rather than have the insurer send the payment to the patient and hope the patient then pays the provider. These assignment clauses are invariably part of the paperwork patients sign before they ever get medical care.
However, payers like to have the ability to prohibit these assignments. Doing so puts pressure on the provider to negotiate a preferred provider contract directly with the payer. If it can ignore the assignment, a payer has more leverage over the provider to obtain discounts off the billed charges for medical services.
The State of Louisiana, like many states, has in place a statute requiring payers to honor assignments from patients and prohibiting payer’s attempts to put language disallowing them in their insurance policies. The Blue Cross affiliate for Louisiana brought suit alleging that ERISA preempted the Louisiana statute. The federal district court rejected this challenge and ruled that the state statute was not preempted by ERISA.
The Fifth Circuit affirmed the trial court’s ruling in Louisiana Health Service & Indemnity v. Rapides Healthcare System, 2006 U.S. App. LEXIS 21032.
The court’s preemption analysis is thorough. Blue Cross argued that the state statute conflicted with the remedies Congress intended be in place for ERISA participants and beneficiaries, thus, requiring that the court strike it down. However, the Fifth Circuit rejected this argument because the patient’s assignment of rights under the ERISA plan to his or her healthcare provider doesn’t create any new rights or remedies. In addition, Blue Cross argued that ERISA expressly preempts the state statute because it “relates to” an ERISA plan. However, the lead opinion by Judge Higginbotham, in which Judge DeMoss joined, held that the state statute regulates an area traditionally subject to state interests and concerns, did not single out ERISA plans for disparate treatment and did not have a connection with those plans that was close enough to even get into the ERISA preemption arena.
In a concurring opinion, Judge Owen wrote that even if the statute did “relate to” an ERISA plans, it was left standing under ERISA’s insurance savings clause which directs that state laws regulating insurance are not preempted.
Bottom line: fully insured ERISA plans in the state of Louisiana may not prevent healthcare providers from asserting claims assigned to them by their patients.
, a plaintiff’s ERISA lawyer out of the San Francisco Bay area, raised the following scenario in an e-mail the other day. Patient has a serious vascular disorder of the cervical spine. He has health insurance through an HMO. Benefits are provided exclusively through in-network doctors unless care is available only from out of network providers. The patient’s in-network doc recommends treatment from renowned out of network specialist. The HMO denies the request. Patient appeals the denial and eventually it is overturned. In the meantime, patient’s conditions has worsened and he’s now paralyzed. What compensation is available under this situation?
If the patient’s health insurance is provided through an ERISA plan, the patient has no ability to get any compensation beyond medical expenses actually incurred in this situation. It is similar to the case I had several years ago involving Don and Cindy DeCastro and blogged about here
This injustice results from the broad application of ERISA’s preemption doctrine from federal courts over the last two decades. One of the best discussions of how this doctrine has developed and the problems it causes is in DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442 (3rd Cir. 2003)
which you can also find in the library of this website here
. Judge Edward Becker
, a legendary jurist who passed away recently, spends several pages, beginning on page 19, outlining the history of how ERISA acts to preempt many state law remedies when an insurer’s or other payer’s wrongful acts cause injury to their insureds.
As Judge Becker points out, the result of ERISA’s “unjust and increasingly tangled” remedial scheme is to insulate insurers, HMOs and other ERISA fiduciaries from any meaningful consequences for behavior that favors their own economic interests at the expense of the consumer. Judge Ambro
adds his voice to Judge Becker, both judges pleading that Congress or the Supreme Court do more to protect ERISA plan participants and beneficiaries.
Many have heard of “battered spouse syndrome”
or "battered person syndrome."
That’s when a person in a relationship is abused by their partner but never quite develops the backbone to do what is necessary to put a stop to the abuse. Sometimes the battered person blames herself for the abuse. Other times the person excuses the partner’s abuse by blaming circumstances supposedly beyond the abuser’s control. But the primary characteristic of the disorder is that, despite the fact that any rational person would walk away from the relationship or demand change in the abuser’s behavior, the abusee ends up submitting to continued abuse. It’s a cycle that repeats itself over and over. Sometimes the battered spouse ends up dead. But even if that extreme is never reached, this cycle of behavior is never a characteristic of a healthy relationship. It degrades both individuals involved.
The counterpart to these concepts that I regularly see in the healthcare industry involving healthcare providers and commercial payers, usually insurers, is what I call “battered provider syndrome.” In the relationship between healthcare provider and payer for those services, the payer calls the shots. Often payers deal fairly and honestly with providers and their relationships are healthy. But payers commonly take advantage of the leverage they perceive they have over a provider to delay payment, provide bogus denial reasons, fail to communicate, ignore appeals of denied claims, cut procedural corners in handling appeals, demand that discounts be given by providers for no good reason, etc. The list of ways in which payers abuse providers goes on and on. It happens in the context of managed care contracts as well as in indemnity insurance policies.
More amazing to me than the regular abuse I see payers giving out to providers is how often I see providers simply take the abuse without responding in a way that clearly indicates the payer's behavior is unacceptable. Time after time providers simply take what reimbursement they are offered by payers and walk away. Their willingness to accept just about any justification payers present for why something less than the amount due under an insurance policy or managed care contract should be paid constantly surprises me.
So long as providers are unwilling to hold payers accountable for their abusive reimbursement practices, the provider guarantees those practices will continue. Every time a provider agrees to accept less than the amount both parties know full well should be paid, that provider teaches the payer an important lesson: you can cheat me out of money I’m owed and there will be no negative consequences. That is the essence of battered provider syndrome.
Had a great time with three of my four brothers, a daughter, nieces, a nephew and friends hiking down from the top of the Subway in Zion National Park
. Fun people, amazing things to see, wonderful food.
One of the great things about living in Salt Lake is the natural beauty of the area. Living here my whole life, I've spent a lot of time in Arches, Zion, Bryce Canyon, Canyonlands, Capitol Reef, the Grand Canyon, Yellowstone, Grand Teton and many other national parks and monuments as well as a lot of camping in the mountains and deserts of the area. Going down the Subway again this weekend reminded me what an embarrassment of riches this area has for natural beauty and recreational opportunities.
Got out of the whole thing with only a large blister on my foot and a blackened big toenail which I'll undoubtedly lose in a few weeks. And I'm still pretty sore today. But it's a small price to pay for that experience.
I’ve mentioned before the excessive piggishness of UnitedHealth Group’s CEO, William McGuire, here
. McGuire’s gluttonous sins include not only taking exorbitant amounts of stock options in addition to his already generous executive compensation, but the backdating of those options to give the greatest assurance possible that the options would have the maximum value. Aside from the unbridled greed of the thing, did McGuire’s actions damage the value of UnitedHealth Group?
Yes, according to a study reported on in yesterday’s New York Times.
Researchers at the University of Michigan reviewed the performance of 48 companies that acknowledged they were under investigation for backdating stock options. The loss in stock value tied to the announcement of the investigation averaged 8%, translating to an average of $500 million per company. And that doesn’t take into account losses the companies may have to pay out to settle class action lawsuits. Those tempted to engage in similar rapaciousness, take note!
I’ve blogged before
about a healthcare provider's rights when payers give faulty information during the insurance verification process. Judge J. Thomas Greene
issued an opinion earlier this week in one of my cases confirming that ERISA doesn’t prevent healthcare providers from bringing state law claims against insurers who misquote the scope of coverage when providers ask about it. You can find Judge Greene’s opinion in the library of this website by clicking here
The case arises out of this common fact situation. Patient needs medical services and tells the provider he has insurance through a group plan from his employer. Healthcare provider gets the insurance information from the patient and calls the insurer to verify coverage exists. If the provider confirms that benefits are available, the treatment proceeds and all is well. If the payer states that no coverage is available, the patient must either go somewhere else to get the medical services or make satisfactory arrangements to pay using his own or other resources. In short, the provider is relying on the payer to give accurate information during this insurance verification process.
However, sometimes the insurer misquotes the benefits or neglects to disclose a material limitation or exclusion to coverage. That is what happened in the Northern Utah Healthcare case. We brought suit arguing that the party misquoting the benefits should be prevented from going back on its word and that it is obligated to pay for the services. BC Life & Health, the company that misquoted the benefits, removed the case to federal court and argued that ERISA preempted our state court claims. If it was correct, the hospital had no remedy. Just another way in which ERISA provides terrible remedies as I’ve blogged about before
. We argued that ERISA did not preempt the claims and the case needed to be sent back to state court to allow the provider to present its theory to a jury. Judge Greene ruled in our favor in an opinion that has an interesting discussion of some details of ERISA preemption.
The takeaway is that when healthcare providers have erroneous information given to them during the insurance verification process, they will probably have the ability to to pursue a meaningful remedy in state court unfettered by ERISA’s remedial straitjacket.
Cases across the federal judiciary dealing with conflicted ERISA fiduciaries and how to treat them are, well, conflicted. Specifically, as I’ve blogged before
, an insurer of an ERISA plan is a fiduciary with the obligation under 29 U.S.C. §1104(a)(1) to act solely in the interest of ERISA participants and beneficiaries and for the exclusive purpose of providing them benefits. At the same time, insurers operate for profit in a competitive market. Their officers and directors owe a fiduciary duty to the companies’ shareholders to maximize the bottom line. It doesn’t take a genius to recognize that these are competing considerations to some degree.
Most Circuit courts across the country agree that insurers have a significant conflict. See, for a recent example, the Ninth Circuit treatment of the issue in Abatie v. Alta Health & Life Ins. Co.
But not all. As an example, two cases within the same circuit show the range of thinking on this matter. They are Fought v. UNUM Life Ins. Co
., 379 F.3d 997 (10th Cir. 2004), cert. den. 544 U.S. 1026 (2005) and Adamson v. UNUM Life Ins. Co
., 455 F.3d 1209 (10th Cir. 2006). I’ve placed a copy of each case in the "hits" and "misses" sections of the website library here
contains an extensive discussion of the inherent conflict of interest insurers have when they choose to act as ERISA fiduciaries. As a result, the Tenth Circuit holds that when an insurer attempts to grant itself discretionary authority and bootstrap itself into obtaining an arbitrary and capricious standard of review from a court, the court will largely refuse to defer to the insurer but will instead take a hard look at its decision and the process by which the insurer made that decision. Fought
is built on a number of cases acknowledging an insurer’s conflict of interest where it acts both as payer of claims and ERISA fiduciary from both within the Circuit and from other District and Circuit courts across the country. The Fought
panel modified its original opinion somewhat after UNUM’s petition for rehearing and the Supreme Court thereafter refused UNUM’s petition for writ of certiorari. In short, Fought
was decided, reconsidered and modified and then the Supreme Court refused to reconsider it. You would think the matter of insurers’ inherent conflicts of interest would be settled, at least in the Tenth Circuit. However, the schizophrenic nature of the federal judiciary on this insurer conflict of interest issue can be seen in how the same Circuit treated it in Adamson
, decided last month.
As with Fought
dealt with an insurer’s decision to deny benefits to an ERISA claimant. However, Adamson
attempts to cast doubt on the fundamental concept of insurer conflict of interest. For example, in Adamson
the court states that the “observations” in Fought
regarding conflict of interest “were never meant to be an ipso facto
conclusive presumption to be applied without regard to the facts of the case. . ..” Slip opinion at p. 7. Actually, the extended discussion of an insurer’s inherent conflict of interest was at the heart of the holding in Fought
and left no question that establishing a presumption of a conflict of interest was precisely what the Tenth Circuit was after where an insurer acts as both a profit making entity and an ERISA fiduciary deciding claims under ERISA’s fiduciary duty of loyalty. Fought
, slip opinion, pp. 16-24. Nevertheless, at least some of the Judges in the Tenth Circuit have heartburn with this concept.
goes on to question the entire concept of a for-profit insurer ever having economic interests that are at odds with its insureds. The court states: “it might be just as easily observed that an insurer has an incentive to pay claims and to get it right so as to avoid dissatisfaction (from plans as customers) and lawsuits.” Adamson
slip opinion, p. 7. This is worthy of a loud guffaw. It lends support to the idea that some federal judges simply live in ivory towers, safely insulated from the economic realities of the world.
Look, I love insurance companies. They put my children through college. I have purchased for my own protection every type of insurance, health, life, disability, that I commonly litigate for others and a lot of other types as well. I don’t view insurers as having horns on their figurative heads. In my experience insurers do not routinely deny claims that clearly should be paid. But they also do not routinely pay claims where they have a plausible basis to deny them. Many insurance claims are not black and white. They deal with ambiguities in facts, policy language and the intersection of the two. And when it comes to those claims, you can bet that insurers are more likely than not to deny them. Paying such a claim in a competitive insurance market is simply foolish. The federal judiciary needs to be an effective cop on the beat to police insurance companies.
I don’t expect that insurers will act other than in an economically self interested manner to one degree or another. The idea presented in Adamson
that insurers are just as likely to treat a “gray area” claim with an eye toward looking out for the economic interests of the insured, and go ahead and pay that claim, as they are likely to look out for their own economic interests and deny that claim, is simply absurd. It is a panglossian
, rose-tinted attitude about the realities of the world that does much more harm than good. Believing that all is for the best in this, the best of possible worlds, does not make it so.
Effective legal remedies that make insureds whole for the loss insurers cause their insureds when they wrongfully deny claims is a critical necessity in this world of ours. Unfortunately, as I’ve written about before
, such remedies do not exist under ERISA. That is one reason it is so self-evidently not
true, regardless of what Adamson
suggests, that insurers tremble at the thought of being sued for denying an ERISA claim. When the only thing an insurer is exposed to pay is the benefits themselves, without any consequential damages, there isn’t a lot for the insurer to worry about in terms of lost revenue from unhappy insureds who sue you.
definitive analysis of the conflict issue is binding on later panels in the Tenth Circuit. Indeed, the court in Adamson
acknowledges the same thing when it refers to Fought
as being precedential in the Tenth Circuit. But the decisions in Fought
point out that federal courts across the country continue to have some diversity in thinking about the degree to which insurers are inherently and significantly conflicted when they act as payers of claims at the same time they are ERISA fiduciaries.
Following up on the last post
, I expressed doubt about the wisdom of the Tenth Circuit’s comment in Adamson v. UNUM Life Ins. Co.
that it is just as likely insurers will pay gray area claims because they don’t want to have angry or disappointed policyholders as they are to deny those claims to enhance their bottom line. However, this unrealistic view of how insurers operate is not the most detached from reality analysis I’ve seen from a federal court in an ERISA case. That honor goes to the Seventh Circuit.
You find the problem in a series of case beginning with Perlman v. Swiss Bank Corp, 195 F.3d 975 (7th Cir. 1999)
continuing to, most recently, Semien v. Life Ins. Co. Of North America, 436 F.3d 805 (7th Cir. 2006).
The analytical deficiency in these cases is the court's view that the conflict of interest an insurer experiences in deciding whether to pay or deny claims is no different than the conflict of interest a federal judge experiences in deciding tax cases. Semien
slip opinion, p. 16. There is some financial effect on the decision maker in each case. But it is equally remote and unlikely to have any real impact on the attitude or bias of the decision-maker.
So the Seventh Circuit believes that a federal judge has the same objectivity in deciding cases as a claims adjuster at an insurance company. I assume this is simply a lack of understanding of how the real world works as opposed to self-loathing. Either way, this line of thinking from the Seventh Circuit is way out there.
has other significant problems in analysis. I blogged about it when it was issued earlier this year. It easily qualifies to be included in the “misses” section of this website library.
I've added some good blogs and website resources over on the sidebar. If you look under "resources" you'll find a number of new links.
I've been impressed with the content of all of them but if I could single out a couple that are simply first rate on content, take a look at Robin Fisk's comments about managed care contracting
as well as Roy Harmon's comments about health plan law
. Not to mention the two law professors' blogs and CCA Strategies. Check them out yourself; you could spend a lot of productive time keeping up with these folks.
Congrats are in order to John Wood
for his inclusion in the list of top twelve male ERISA hotties
in the U.S. of A! Sadly, he did not take home the title. But John, a fellow plaintiff's ERISA lawyer, as well as first rate blawger, is nevertheless an object of envy from his male peers and veneration from those of the opposite sex.
A personal aside. A couple of weeks ago when word of the contest first broke among the legions of fevered ERISA practitioners across the country, I dropped subtle hints to my paralegal that I would be flattered to be nominated. She feigned lack of knowledge of the contest and/or understanding of my drift. When I finally asked her straight up to submit my name and picture she claimed not to have a digital camera and that her employer's paltry wage left her at the brink of impecuniosity. Riiiiight. The record should reflect that my paralegal's self-serving allegation of insufficient financial resources was accompanied by a distinct lack of enthusiasm and commitment to assisting my selfless efforts to market the law firm (thus providing additional assurance of her continued employment). Bartleby's "I would prefer not to" comes to mind.
Note to self: condition payment of Linda's Christmas bonus on her purchase of digital camera by Thanksgiving.
Here’s another in our continuing series of ERISA hits: Dishman v. UNUM Life Ins. Co., 269 F.3d 974 (9th Cir. 2001). Dishman
involves the difficult, complex area of ERISA’s preemption of state law claims. ERISA preemption of state law is like a nuclear weapon on the legal landscape: if a state law runs afoul of ERISA preemption, it's like it never existed at all. The reason I file Dishman
in the “hit” category is because it uses common sense to provide a bit of remedial protection to consumers dealing with overreaching insurers.
John Dishman was the executive director of a law firm when debilitating migraines caused him to have to stop working. He filed a disability claim with the firm’s insurer. However, Dishman had a large monthly benefit and UNUM was concerned about the cost of Dishman’s claim over his lifetime. Let’s just say UNUM dedicated significant resources to making sure Dishman had a meritorious claim.
Frankie Puthoff, a member of UNUM’s Complex Claim Unit, retained several private investigators to monitor his activities and investigate his background. Hiring surveillance on disability claims is not at all uncommon for insurers. But in this case Dishman asserted that the investigators went a little beyond the usual tactics. Dishman alleged the gumshoes gained confidential information about him by falsely claiming to be bank loan officers, impersonated him on the telephone to gather information, falsely claimed that he had volunteered to coach a basketball team, and repeatedly called his home phone and hung up when he answered, among other transgressions. Thereafter, without having any physician examine Dishman or even review his records, UNUM suspended Dishman’s monthly benefit.
Dishman sued UNUM in federal court to have the monthly benefit reinstated. In addition, he included a non-ERISA, state law claim for invasion of privacy based on the bad acts of the detectives. UNUM immediately moved to dismiss the invasion of privacy claim and the district court granted the motion. Dishman appealed to the U.S. Court of Appeals for the Ninth Circuit.
The decision, included in the library, is an excellent primer on ERISA preemption. The line between state law claims that ERISA does and does not preempt is often difficult to define. But the approach the Ninth Circuit takes is sound and recognizes how the real world works.
Not all state law claims that may, strictly speaking, “relate to” an ERISA plan can be preempted. Congress certainly did not intend to prevent states from passing and enforcing all laws that even tangentially affect ERISA plans. Dishman was not attempting to get plan benefits when he brought his invasion of privacy claim. That cause of action did not depend on the benefit claim in any meaningful way. The court analogized: “[w]hat if one of UNUM’s investigators had accidently rear-ended Dishman’s car while surveiling him? Would the fact that the surveillance was intended to shed light on his claim shield UNUM and the investigator from liability? . . . To ask the question is to answer it.”
The Ninth Circuit reversed the trial court’s dismissal of the invasion of privacy claim. In so doing it made sure that a least some state law remedies are kept in place to police insurer’s from completely abusing their insureds.
This week Lisa Girion at the Los Angeles Times
wrote a series of articles on the practices of health insurers in California generally, and Blue Cross of California
specifically, in rescinding health insurance policies on individuals who submit large claims shortly after the policies go into effect.
The most in depth article was Sunday the 17th which you can find here
. It tells several separate stories of insureds whose coverage was revoked after they submitted large claims. It doesn’t take a lot of imagination to recognize what kind of economic distress insurers cause when they pull the insurance rug out from under folks who have five or six figure medical bills.
One of the conflict points is the insurers’ contention that any misstatement by an individual applying for coverage provides the basis for retroactive cancellation. They cite a 1973 California Supreme Court case to support them. Consumers counter that a specific California statute passed in 1993 prohibits rescission unless the insurer can show “willful misrepresentation” and that this trumps the older case. Hurting the public relations aspect of the issue for health insurers are the tremendous profits they have seen in the last few years.
On Wednesday the 20th Ms. Girion follows up with an article
about Blue Cross’ announcement that it plans to change its process for evaluating cancellations of policies. It will create a consumer ombudsman and revise its appeal procedures, all the while claiming it has done nothing wrong. Bryan Liang, executive director of the Health Law Institute at California Western School of Law
calls the change underwhelming. Bill Shernoff
, who worked to bring this practice to light through a series of suits he filed against Blue Cross earlier this year,
is only slightly more impressed. I agree with Jerry Flanagan, a patient advocate at the Foundation for Taxpayer and Consumer Rights
who says it is hard to believe an internal Blue Cross patient advocate will be very zealous in representing consumer interests.
Finally, today’s story
reports that California’s Department of Managed Health Care
has fined Blue Cross $200,000 for wrongful rescission of an individual policy. Cindy Ehnes, director of the DMHC, states that it will continue to investigate other insurers for the same practice. She identifies two particular problems with Blue Cross’ practices. First, the insurer did not competently examine the insured’s application when it was initially presented. Second, the insurer made no effort to show that any misstatements in the application were made with knowledge of their falsity. Interestingly, the article notes that Ahnold
applauds the fine. WellPoint, Inc
., parent of Blue Cross of California, critcizes the fine as excessive; consumer advocates complain it is nothing but a slap on the wrist and ask for more thorough audits from the DMHC and California’s Department of Insurance.
I’ve noted on several occasions
my positive feeling for challenging insurers when they rescind insurance policies. Insurers’ rescissions are not always unjustified. But they often are out on a limb when they retroactively cancel coverage. And every rescission I’ve seen is done only after a big claim is submitted. In short, large claims are the things that trigger retrospective underwriting that should have been thoroughly performed by the insurer when the application was initially submitted. But from the insurer’s perspective, it is easier to write a lot of policies, collect premiums and then look for a way out if and when a large claim comes in. Finally, in my experience it is entirely true that insurers make no effort to determine whether misstatements are innocently or knowingly made, regardless of whether the law requires such an inquiry.
The BNA Pension & Benefits Reporter
is a great little publication maintained by a large number of very knowledgeable folks who do a pretty amazing job of staying on top of legislative and case law developments in the field. I have been a subscriber for many years. I was happy to see the advisory board started up blog a couple of weeks ago. You can take a look here
Nice to see my friend Jeff Clayton
, one of the area's best ERISA lawyers and a genuinely decent human being, chiming in. Keep it up Jeff!
It’s not exactly at the heart of my usual blogging subjects on this site, but I was intrigued by Wal-Mart’s recent announcement that it would cut costs by capping wages and increasing the number of its part-time employees. The New York Times has an article about it
from two days ago and an editorial about it yesterday
. Ezra Klein comments on both here
In a way you have to admire the company. They got to where they are by directly, efficiently, coldly, cutting costs at every opportunity so as to ensure that they delivered the lowest possible prices to the consumer. And those low prices do make a difference for a lot of people on tight budgets. Wal-Mart is a great example of a pure capitalist venture, with all the good and bad that comes with it. But Wal-Mart also strikes me as an excellent model of problems that arise when you consistently choose to have the ends justify the means in making every business decision. This latest news strikes me as a maneuver akin to a parent eating its young: the company becomes more aggressive about cannibalizing its own labor force. Well, I guess the rest of us can look forward to continued low prices, right?