Prying Open An Insurer's Black Box
Insurers have conflicted loyalties in many ways. For example, in 29 U.S.C. Sec. 1104(a)(1), ERISA requires that when they are the funding mechanism for health or disability benefits offered by employers, insurers must exercise the loyalty of a fiduciary toward their insureds. This means they must act solely in the interest of the ERISA plan participants and beneficiaries, and for the exclusive purpose of providing them benefits. At the same time, from a business perspective they must protect their own economic interests as they seek to provide a return to investors and compete with other insurers. Doing both simultaneously can be a challenge.
A recent case out of the U.S. Court for the Southern District of New York, Levy v. INA Life Ins. Co., 2006 U.S. Dist. LEXIS 83060 (S.D.N.Y. 2006), written by Judge Gerard E. Lynch, illustrates a specific facet of the conflict rather nicely. After INA denied Levy’s disability claim, he asked for a copy of the insurer’s claims handling manual. This internal document was, the insurer claimed, proprietary and could not be disclosed except with the court ordered requirement that Levy not share it with anyone else. Without such a protective order, the insurer argued that secret information developed for its own use would eventually end up in the hands of its competitors and damage it.
Levy countered that ERISA’s regulations expressly allow claimants to evaluate whether the insurer’s handling of the particular claim in question conformed with the insurer’s own internal guidelines and whether it is consistent with how the insurer has treated other claimants with similar issues. Moreover, Levy argued, other claimants had already received the same guidelines without being required to keep them confidential.
The court ordered production of relevant portions of the claims handling manual without any restrictions on their use. Not only did the court accept Levy’s “cat is out of the bag” argument, it noted that the largest disability insurer, UNUM/Provident, already made its claims procedure manual available to anyone who asked for it without any restrictions at all. The court also pointed out that INA had failed to specify how the information it sought to keep under wraps would harm its ability to compete in the market. Kudos to my friend, Scott Riemer, for his great work as Levy’s counsel.
Levy is a disability case but its principles are the same whether the insurer is providing life, health or disability benefits under ERISA. Specifically, an insurer's obligation to provide open access to relevant information about how a person’s claim was evaluated, whether that processing conformed with the insurer’s internal guidelines and how the insurer has treated other similarly situated claimants trumps an insurer’s argument that it must keep its processes secret to allow it to more effectively compete with other insurers. Levy and other cases are good to keep in mind when dealing with insurers who stonewall when you ask for directly relevant information–an occurrence that is more common than not in my experience.
I’ll see if I can’t get a public copy of the case and post it to the website library in the next day or two. UPDATE: here you are!