California Insurance Litigation Blog

FAQs: Who May Sue or Be Sued for Insurance Bad Faith?

Reid Winthrop — Tue, 15 May 2012 17:46:04 -0800

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deals with frequently asked questions in the insurance bad faith and ERISA area of the law. This is another such article in that series.

Generally, in order to sue for insurance bad faith there necessarily must be an insurance policy at issue that establishes a concept known as “privity of contract” between an insured and an insurer. This means that an insured under an insurance policy typically may sue for bad faith if the insured is entitled to benefits under a policy and if those benefits are wrongfully withheld or payment was wrongfully delayed. This includes the contracting parties (persons named as insureds) as well as others entitled to benefits as “additional insureds” or as express beneficiaries under the policy. In insurance parlance, this means that the “named insured” and any “additional insureds” may sue. For example, an auto liability insurance policy covering a vehicle may extend coverage to permissive users as additional insureds.

Furthermore, a designated beneficiary of an insurance contract has standing to sue for both the policy benefits and extra-contractual damages if the benefits are wrongfully withheld. An express beneficiary need not be specifically named. An insured may have standing to sue if a member of a class for whose benefit the contract was made. Someone not a party to the contract has no standing to sue. Thus, in the disability insurance context, even though a spouse may have suffered emotional distress, if she is not an insured, she cannot sue the insurer for bad faith. However, if an insurer breaches an independent duty it owes to a spouse, it is possible for that spouse to sue for damages (e.g., intentional infliction of emotional distress). In the life insurance context, a beneficiary of the policy would have standing to sue for insurance bad faith.

In addition, an insurance bad faith claim can be assigned. In the context of a third party claim, it is possible to assign a bad faith claim under certain circumstances. This is most typically done in connection with a failure by an insurer to defend and indemnify an insured for third party liability. However, because purely personal tort claims are not assignable, the insured's claims for emotional distress damages and punitive damages are not assignable. Essex Ins. Co. v. Five Star Dye House, Inc., 38 Cal. 4th 1252, 1263 (2006). An assignment allows the third-party to obtain more than the policy limits from the insurer. Without the assignment, a third-party can only sue the insurer for the amount of the judgment as third party beneficiary of those liability policies. Ins. Code § 11580(a).

The same “privity of contract” requirement applies in determining who may be sued. Generally, only the insurer(s) on the risk as the party to the contract can be sued. This includes “primary,” “excess” and “umbrella” insurers. Moreover, it is possible to sue an insurer's alter ego or joint-venturer, typically a parent company. It is also possible under certain circumstances to sue a “managing general agent” who is appointed by the insurer to manage all or part of its insurance business. An insurance agent can be sued for professional negligence, but not for insurance bad faith. See Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp., 12 Cal. App. 4th 1249, 1257 (1992) (“At a minimum, an insurance agent has a duty to use reasonable care, diligence, and judgment in procuring the insurance requested by its client. An agent may assume additional duties by an agreement or by holding himself or herself out as having specific expertise.”); Williams v. Hilb, Rogal & Hobbs Ins. Services of Calif., Inc., 177 Cal. App. 4th 624, 635–636 (2009) (holding that a special duty will arise when an agent holds himself out as having specific expertise.)

Insurance bad faith claims can be potent weapons for insureds or beneficiaries who have been mistreated by insurance companies in the handling of their insurance claims. Knowing who can sue and be sued is therefore important to understand if you are considering an insurance bad faith lawsuit.

Ninth Circuit Confirms That Plan Language Controls In The Absence of Detrimental Reliance on SPD Language

Scott Calvert — Mon, 09 Apr 2012 14:57:09 -0800

In Skinner v. Northrop Grumman Retirement Plan B, 2012 U.S. Dist. LEXIS (9th Cir. March 16, 2012) the Ninth Circuit applied the Supreme Court’s ruling in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) wherein the high court ruled that ERISA "summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of § 502(a)(1)(B)." (The holding in CIGNA Corp. v. Amara was discussed in our blog here -- http://www.californiainsurancelitigation.com/article/boon-or-bust-for-employee-rights-under-erisa-plans/) While the Ninth Circuit adopted the Supreme Court’s logic and ruling, it left open the possibility that language contained only in the Summary Plan Description (“SPD”) could be enforced if a claimant relied on that language.

In Skinner, two retirees sued for additional retirement benefits under an ERISA-governed pension plan. The retirees alleged that their pension benefits should be calculated using the formula set forth in the SPD, rather than the plan documents. The Plan moved for, and was granted summary judgment by the trial court on the grounds that the retirees had not raised a genuine issue of material fact with respect to the proper amount of pension benefits they were entitled to receive.

At the district court level, all parties agreed that the plaintiffs were strictly limited “to obtain other appropriate equitable relief” under ERISA. On appeal, the Ninth Circuit explained that “the Amara Court stated that, under appropriate circumstances, § 502(a)(3) may authorize three possible equitable remedies: estoppel, reformation, and surcharge.” The retirees only sought reformation and surcharge. The Ninth Circuit rejected the reformation claim because there was no evidence that the plan documents “fail[ed] to reflect that drafter's true intent” or “that Northrop Plan B contains terms that were induced by fraud, duress, or undue influence.” Similarly, the Ninth Circuit ruled that the ERISA claimants were not entitled to a surcharge remedy because it found that “by failing to enforce the terms of the 2003 SPD instead of the terms of the plan master document” there was “no evidence that the committee gained a benefit by failing to ensure that participants received an accurate SPD” did not constitute a breach of fiduciary duty.

While the Ninth Circuit ruled against the retirees, it noted that they did not make an estoppel argument because “they presented no evidence of reliance on the inaccurate SPD.” Thus, while the Ninth Circuit found that, in this particular instance, the language of the plan documents would be enforced over the language in the SPD, the Court acknowledged that if a claimant could demonstrate reliance on the SPD, the language in the SPD might well control.

Such a ruling is consistent with the recent ruling in the District Court of Puerto Rico where the court reject the defendant’s argument that Amara found that equitable estoppel is not an appropriate avenue for relief under ERISA. Indeed, the court noted that “equitable estoppel forms a very essential element in . . . fair dealing, and rebuke of all fraudulent misrepresentation, which it is the boast of courts of equity constantly to promote.” See Guerra-Delgado v. Popular, Inc., 2012 U.S. Dist. LEXIS 44432 (D. P.R. March 29, 2012) (internal quotations removed).

Court Refuses to Enforce Health Net Arbitration Provision Because It Was Insufficiently Prominent

Robert McKennon — Thu, 08 Mar 2012 14:18:12 -0800

In the unpublished case of Probst v. Superior Court (Health Net of California, Inc., et al), No. A133742 (March 6, 2012), Division Five of the First Appellate District refused to enforce an arbitration provision in an enrollment form. Brian Probst (who filed a putative class action alleging that Health Net of California, Inc. and Health Net, Inc (“Health Net”) failed to adequately protect private personal and medical information from unauthorized disclosure to third-parties) sought writ relief from an order compelling him to arbitrate his claims against Health Net. The Court granted the requested relief because the health plan enrollment form signed by Probst failed to comply with the disclosure requirements of the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act, Health & Saf. Code, § 1363.1, subdivision (b)), rendering the arbitration agreement unenforceable.

The Knox-Keene Act, Health & Saf. Code section 1363.1 provides:

“Any health care service plan that includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial shall include, in clear and understandable language, a disclosure that meets all of the following conditions: [¶] . . . [¶] (b) The disclosure . . . shall be prominently displayed on the enrollment form signed by each subscriber or enrollee.”

The Court relied heavily on Zembsch v. Superior Court (2006) 146 Cal. App. 4th 153, 160-161, where another arbitration agreement was held unenforceable. The Court ruled that the disclosure provided by Health Net “does not command attention to its existence.” The provision was contained in a comparatively small and dense section of text. The Court explained that the arbitration disclosure is “essentially buried on the lower one-third of the second page” of the enrollment form. It appeared within a crowded group of other provisions beneath an “Acceptance of Coverage” heading. In explaining why the arbitration provision did not satisfy the “prominently displayed” requirement, the Court stated:

Relative to the bulk of the provisions contained in the enrollment form, the arbitration provision is contained in a comparatively small and dense section of text that does not capture the reader’s attention. As previously described, the first page and the first two-thirds of the second page of the enrollment form contain various provisions which stand out and are readily noticeable, including the sections governing personal, employee and family information, disclosure of other health care coverage, declination of coverage, and selected coverage. Those sections are preceded by headings appearing in white typeface in dark gray boxes stretching seven inches across the page. They also include boxes that are required to be checked, and generous spacing between individual questions and provisions.

In contrast, the arbitration disclosure is essentially buried on the lower one-third of the second page of the enrollment form. The arbitration disclosure appears within a crowded group of provisions appearing beneath the “ACCEPTANCE OF COVERAGE” heading. The small, narrow font used in this section is surrounded by narrow spacing, giving an overall compressed appearance and making it more difficult to read. While the font used in the arbitration disclosure appears to be somewhat larger and perhaps slightly darker than the other provisions in this section, and the line spacing somewhat greater, this is so by only the most minimal degree. The arbitration provision is not written in a significantly larger or bolder font, it is not italicized, underlined, or in all caps, and the spacing around the provision is not sufficiently large so as to highlight the provision and make it readily noticeable.

Furthermore, the arbitration disclosure is divided between two columns, unlike the other provisions appearing beneath the “ACCEPTANCE OF COVERAGE” heading. The breaking up of the disclosure between two columns hinders its readability, and serves to make the disclosure even less noticeable than the other provisions in this section.

The Court concluded:

In enacting section 1363.1, subdivision (b), the Legislature plainly intended that arbitration disclosures in health care service plans be readily observable by the reader. While health plans have flexibility in selecting elements to give prominence to arbitration disclosures (Burks, supra, 160 Cal.App.4th at p. 1028), defendants did not achieve the required prominence in the enrollment form signed by plaintiff. It is apparent from reviewing other, nonarbitration related provisions of plaintiff’s enrollment form that defendants possessed the ability to make the arbitration disclosure prominent. (See Zembsch, supra, 146 Cal.App.4th at p. 165 [when measured against other portions of the form, “Health Net clearly could have made the text of the disclosure more prominent had it chosen to do so”].) However, it cannot reasonably be said in this case that the arbitration disclosure stands out, or is readily noticeable, conspicuous, or striking. (Imbler, supra, 103 Cal.App.4th at p. 579; Burks, supra, 160 Cal.App.4th at p. 1026.)

Consequently, the superior court erred in compelling plaintiff to arbitrate his claims against defendants. (Zembsch, supra, 146 Cal.App.4th at p. 168 [violation of section 1363.1 renders any arbitration agreement unenforceable].)

This case is the latest case from the Court of Appeals to invalidate arbitration provisions by health service plans governed by the Knox-Keene Act.

MetLife Cannot Require an IME After Failing to Comply with ERISA Deadlines Following a Remand of Disability Claim

Scott Calvert — Tue, 06 Mar 2012 16:43:50 -0800

In Kroll v. Kaiser Foundation Health Plan Long Term Disability Plan, 2012 U.S. Dist. LEXIS 25063 (N.D. Cal. February 10, 2012), the Court refused to require that the plaintiff appear for an independent medical examination (“IME”) because Metropolitan Life Insurance Company (“MetLife”) failed to request the IME within 45 days, as required by 29 C.F.R. § 2560.503-1. With the ruling, the District Court confirmed that the time limits set forth in the Department of Labor regulation apply to claims that are remanded to an ERISA administrator following litigation.

On May 13, 2011, the Court ruled that MetLife abused its discretion and improperly denied plaintiff’s claim for long-term disability (“LTD”) benefits made under an ERISA-governed employee welfare benefit plan. With the ruling, the Court ordered that MetLife pay all benefits due under the policy’s “own occupation” definition of disability, and remanded the claim back to MetLife for a determination under the “any occupation” definition.

In connection with the remand, plaintiff’s counsel wrote to MetLife’s counsel requesting the forms needed to pursue the remanded LTD claim. On May 16, 2011, he was informed that MetLife would let him know what documents and information would be required. Unwilling to wait for MetLife to act, in June 2011, plaintiff sent MetLife just under 1,000 pages of medical records in connection with her claim. Five months later, in October 2011, MetLife finally provided plaintiff with claim forms and requested information to review the claim. MetLife also ordered the plaintiff to appear for an IME, but her counsel objected that the request was untimely pursuant to 29 C.F.R. § 2560.503-1(f)(3). With the plaintiff refusing to appear for the IME, MetLife filed a motion to compel the examination.

While MetLife argued that 29 C.F.R. § 2560.503-1 did not apply to its actions because the disability claim was remanded to MetLife following litigation, the District Court noted that MetLife failed to provide any authority to support that position. The Court ultimately rejected MetLife’s argument, explaining that the plain language of the regulation, which “sets forth minimum requirements for employee benefit plan procedures pertaining to claims for benefits by participants and beneficiaries," applies to the remand of the LTD claim.

In denying MetLife’s motion, the District Court explained that:

Pursuant to 29 C.F.R. § 2560.503-1(f)(3), Defendants had until June 27, 2011, to either make a determination on Plaintiff's claim, or make a determination that more time was needed to resolve Plaintiff's claim and notify Plaintiff. Defendants did neither. After hearing nothing from Defendants, Plaintiff, on her own initiative, sent over her medical records to Defendants. The first time Defendants indicated that they needed more information was in October 2011, five months after the Court remanded the claim for consideration.

Given MetLife’s failure to act within the time limits set by 29 C.F.R. § 2560.503-1, the District Court held that “it is too late for [MetLife] to further delay by seeking an IME.” Finally, the District Court ruled that “[p]ursuant to 29 C.F.R. § 2560.503-1(l), Plaintiff's claim for long term disability benefits under the ‘any occupation’ standard is deemed exhausted,” and the plaintiff could therefore initiate further litigation regarding MetLife’s failure to pay benefits under the “any occupation” definition.

This case highlights a claimant’s remedies when a claims administrator/insurer does not follow the applicable ERISA deadlines. It is nice to see the courts protecting claimants when insurers such as MetLife blatantly violate the applicable ERISA and Department of Labor deadlines.

Court Approval is Not Needed to Assert a Punitive Damages Claim Against a Health Care Service Plan

Scott Calvert — Mon, 27 Feb 2012 17:18:15 -0800

In a victory for health insurance policy holders over health insurers/health care service plans, in Kaiser Foundation Health Plan, Inc, v. Superior Court (Rahm, et al, Real Parties), 2012 Cal. App. LEXIS 138 (Cal. App. 2d Dist. Feb. 15, 2012), the Court of Appeals ruled that a plaintiff does not need to obtain approval from the trial court before asserting a claim for punitive damages against a health care service plan. Specifically, the Court ruled that California Civil Procedure section 425.13 applies only to health care providers (such as doctors), but does not apply to health care service plans such as Kaiser Foundation Health Plan or Anthem/Blue Cross.

The Rahm family filed a lawsuit against Kaiser Foundation Health Plan and two Kaiser health care providers. The Rahms claimed that Kaiser improperly delayed before ordering an MRI for their daughter Anna, resulting in the eventual loss of Anna’s right leg and portions of her pelvis and spine. Specifically, despite numerous requests by Anna’s parents that Kaiser authorize an MRI for Anna, Kaiser refused. As a result, there was a considerable delay in discovering that Anna was suffering from a “high grade” osteosarcoma, one of the fastest growing types of osteosarcoma. The delay significantly contributed to Anna’s poor prognosis and the need for the amputations.

After the Rahms filed their lawsuit, the defendants filed a motion to strike the punitive damages allegations. The defendants asserted that the Rahms failed to comply with California Civil Procedure section 425.13, which requires a plaintiff to obtain a trial court order before a claim for punitive damages can be asserted against a health care provider for damages arising out of professional negligence. The Rahms eventually dismissed their punitive damages claims against the two Kaiser health care providers. Accordingly, the Court only reviewed whether California Civil Procedure section 425.13 applied to claims against health care service plans.

The Court of Appeals indicated that “the text of the statute is unclear as to whether section 425.13 is intended to apply only to claims against health care providers, or whether it is intended to apply to claims against any type of defendant—including claims against health care service plans,” and thus turned to the legislative history. After reviewing the legislative history, as well as Central Pathology Service Medical Clinic, Inc. v. Superior Court, 3 Cal. 4th 181 (1992) in which the California Supreme Court considered the scope of claims subject to section 425.13, the Court held that section 425.13 does not apply to claims against health care service plans. Specifically, the Court noted that:

Defendants' argument that section 425.13 may be applied to claims against health care service plans, rather than health care providers, is also in conflict with other sections of California code. Civil Code section 3428, subdivision (c) states that “[h]ealth care service plans … are not health care providers under any provision of law, including, but not limited to … Section[] … 425.13 … of the Code of Civil Procedure.” Likewise, Health and Safety Code section 1367.01, subdivision (m) clarifies that a health care service plan's role in determining the medical necessity of a requested procedure “shall [not] cause a health care service plan to be defined as a health care provider for purposes of any provision of law, including … Section[] … 425.13 … of the Code of Civil Procedure.” The language of these statutes demonstrates a clear intent to exclude health care service plans from the procedures required under section 425.13.

Defendants have not cited a single decision that has applied section 425.13 to claims pleaded against a health care service plan or any other type of entity that was not a medical care provider.

In conclusion, the Court ruled that:

The legislative history of section 425.13 and various provisions in California code demonstrate that the procedural requirements described in the statute do not apply to claims against health care service plans. Because defendants admit that Kaiser Health Plan is a health care service plan, rather than a health care provider, the trial court did not err in refusing to strike the punitive damages allegations asserted against the Health Plan.

Based on this ruling, plaintiffs can assert punitive damage claims against health care service plan without first obtaining court approval and will therefore have an easier time holding entities such as Kaiser Foundation Health Plan or Anthem/Blue Cross liable for their actions.

California Court of Appeal Affirms Ruling That a Mental Disorder Accompanied by Physical Symptoms is Not Subject to a Policy's Two-Year Limitation for Mental Claims

Scott Calvert — Thu, 16 Feb 2012 10:46:37 -0800

In 2009, the California Court of Appeal in Bosetti v. The United States Life Ins. Co., 175 Cal. App. 4th 1208 (2009) addressed whether a two-year benefits limitation on disability insurance payments for “mental, nervous or emotional disorder[s]” could properly serve to limit benefits payable to an insured who was disabled from depression and anxiety, but who also complained of interrelated physical impairments. The California Insurance Litigation Blog summarized that holding here, but basically, the Court ruled that the policy’s two-year mental limitation was ambiguous and an insured would reasonably expect that disabling depression arising from a physical condition, would not be subject to the limitation. (The Court also ruled that there was a genuine dispute regarding whether U.S. Life’s claim decision violated the covenant of good faith and fair dealing.)

The 2009 ruling reversed the summary judgment issued in favor of The United States Life Insurance Company in the City of New York (“U.S. Life”) and the matter was remanded for trial. After a presentation of the evidence, a jury ruled in Bosetti’s favor. However, U.S. Life filed two motions – for a judgment notwithstanding the verdict and for a new trial. While U.S. Life conceded that Bosetti demonstrated that her disability had a physical component, the insurer argued that she failed to prove that her physical symptoms had caused her disability prior to March 3, 2003 (the date she was terminated from her job). The trial judge granted both motions, and Bosetti filed another appeal.

In an unpublished opinion, the Court of Appeal considered the trial court’s ruling on both of the post-verdict motions. First, after reviewing the available record, the Court determined that the verdict in Bosetti’s favor was supported by substantial evidence, including specifically that her depression caused the disabling physical symptom of an increase in her fibromyalgia pain. Based on these facts, the Court reversed the trial court’s ruling on the motion for judgment notwithstanding the verdict. In reaching this conclusion, the Court of Appeal affirmed its earlier ruling that a limitation on coverage for “mental, nervous or emotional disorders of any type” does not apply if the insured‘s disability was caused, in any part, by her physical symptoms.

However, with respect to U.S. Life’s motion for a new trial, the Court of Appeal explained that the trial judge is afforded great deference and “an order granting a new trial `must be sustained on appeal unless the opposing party demonstrates that no reasonable finder of fact could have found for the movant on [the trial court's] theory,’” Applying this standard, the appellate court affirmed the order granting a new trial after finding that there was also substantial evidence that would have supported a verdict in U.S. Life’s favor.

While the case was remanded to the trial court for a second trial, the Court of Appeal did not overturn its 2009 ruling, and thus Bosetti I and its position regarding mental disabilities with physical symptoms should still be considered good law.

McKennon Law Group Founding Partner Robert McKennon Featured in January 2012 Issue of Forbes Magazine

Reid Winthrop — Thu, 09 Feb 2012 14:01:28 -0800

Los Angeles – Noted Southern California insurance and business litigator Robert J. McKennon was featured in the “Southern California Legal Profiles” section of the January 2012 issue of Forbes Magazine in an article highlighting his experience as a top Southern California insurance and business litigation attorney.

Mr. McKennon and his firm are highlighted as the only insurance and business litigation attorney/firm in Forbes’ special focus on the Southern California attorneys. Mr. McKennon is lauded as a “widely recognized [] expert on life, health and disability insurance law” who has “extensively written and lectured nationally in the insurance field." The article continues:

"After representing Fortune 500 insurers for 25 years at a large California law firm, McKennon realized he was destined to take that expertise to the policyholders when he consistently won evaluative mock trial verdicts against his insurer clients, the last four of which resulted in $17 million, $33 million, $250 million and $500 million verdicts from the jurors. All of them included punitive damages."

"We mount aggressive litigation against even the most powerful adversaries. And we are not afraid to go to trial against them," Mr. McKennon says about why he and his firm are successful.

The Forbes magazine story is the latest recognition for Mr. McKennon, who was also recently named as a 2012 Southern California super lawyer, an honor given to fewer than 5% of Southern California lawyers.

To view this article please click here.

Robert J. McKennon Recognized as 2012 "Super Lawyer"

Reid Winthrop — Fri, 27 Jan 2012 13:28:19 -0800

McKennon Law Group PC is proud to announce that its founding partner Robert J. McKennon has been recognized as one of Southern California’s "Super Lawyers" and he will appear in the upcoming 2012 edition of Southern California Super Lawyers magazine, as well as the upcoming edition of Orange Coast Magazine.

Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 13 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.

Insurance Commissioner Jones Highlights 2011 Important Achievements

Robert McKennon — Fri, 27 Jan 2012 13:18:55 -0800

Insurance Commissioner Dave Jones marked his first full year in office this week by looking back on the California Department of Insurance’s (CDI) major accomplishments during 2011. Some of these achievements were very important for insurance consumers. Here’s what his press release said:

“A little over a year ago, I took my oath as Insurance Commissioner and pledged to make my Administration one of action,” Commissioner Jones said. “I can confidently and proudly say that the Department has fully lived up to that pledge. We have achieved a number of critical successes on behalf of California’s consumers consistent with our vision to be the most effective consumer protection agency in the nation.”

Major Accomplishments of 2011:

Implementing Health Care Reform

The Patient Protection and Affordable Care Act (PPACA) signaled a new day for health care in America. Commissioner Jones has made it a priority of his Administration to implement health care reform.

Literally minutes after being sworn in, Commissioner Jones issued new regulations that require health insurers in the individual market to use a larger percentage of the premiums they collect from Californians to deliver actual medical care, instead of overhead and profit. Then Commissioner Jones successfully sponsored Senate Bill 51 (Alquist), holding health insurers selling to small and large businesses to a similar standard.

Commissioner Jones also issued regulations requiring health insurers to cover children with pre-existing conditions. These regulations will help thousands of California children get the care they deserve without sending their families into financial ruin.

Jones issued regulations preventing “medical rescissions” and establishing a notice and hearing process for consumers. He also oversaw CDI’s review of health insurance policies for conformance with health care reforms such as the elimination of lifetime limits on benefits and eliminating co-payments and co-insurance requirements for preventative services.

Fighting Excessive Health Insurance Premium Increases

The battle to prevent excessive health insurance rates escalated early in 2011 when health insurers proposed new rates that would have saddled consumers with annual cumulative premium increases of up to 87 percent. Although the Insurance Commissioner does not have the authority to reject excessive rate increases, Commissioner Jones was able to reduce health insurance premiums by $107 million this year by using existing, though limited, review authority.

Commissioner Jones continued the fight to obtain legal authority to protect consumers from excessive health insurance rate increases. He sponsored AB 52 (Feuer) which would give the Insurance Commissioner real authority to reject excessive health insurance rate increases. This authority currently exists for other lines of insurance including auto, homeowners, property, and casualty, and it is imperative to secure the same authority over health insurance. The bill cleared the Assembly and has made it through all Senate committees and is now eligible for a vote on the Senate floor in January.

Protecting seniors

Seniors, among the most vulnerable members of communities, often fall victim to predatory scams. Commissioner Jones succeeded in establishing some new protections for them. The Governor signed two important CDI-sponsored consumer protection bills that became law in January. AB 793 (Eng) is designed to stop insurance agents and brokers from exploiting those seniors who recently acquired a reverse mortgage, by inappropriately inducing them to tie up those same funds in unsuitable annuities or other products.

The second law, AB 689 (Blumenfield), more broadly protects seniors and others from the sale of unsuitable annuities.

Premium Rate Savings for Consumers

CDI received more than 7,000 rate, rule, and form filings for property and casualty lines of insurance through December 31, 2011. CDI rejected $50 million in rate increases sought by property and casualty insurers and on top of this obtained close to $398 million in rate decreases using the authority of Proposition 103, for a total annual savings going forward of $448 million for California ratepayers.

New Workers’ Compensation Pure Premium Benchmark

Recognizing the importance of providing timely and meaningful information to employers about workers’ compensation insurance cost trends, Commissioner Jones directed a revamping of the “pure premium” benchmark process. Pure premium is the portion of the workers’ compensation premium needed to cover the cost of claims. While the Commissioner does not set workers’ compensation insurance rates, each year the Commissioner is asked to recommend a pure premium benchmark which helps employers and insurers better understand cost trends in the market. Thanks to the new process established by Commissioner Jones, a pure premium benchmark was approved for the first time in three years, one which is tied to what is actually happening in the market.

Protecting Homeowners from Underinsurance

With natural disasters like wildfires an unfortunate fact of life in California, Commissioner Jones issued new regulations to protect homeowners from being underinsured. The regulations include setting appropriate disclosure standards for agents and brokers who sell homeowners’ insurance and estimate replacement costs.

Rooting Out Fraud

From January through December 2011, CDI’s Enforcement Branch racked up more than 784 arrests for crimes that included auto insurance fraud, fiduciary theft, embezzlement and workers’ compensation fraud. As a result, the courts ordered $13.2 million in restitution due to the investigative actions we took against brokers, agents and producers.

CDI also filed lawsuits against pharmaceutical company Bristol-Myers Squibb for showering doctors with illegal kickbacks to get them to write more prescriptions and against Sutter Hospitals for bogus anesthesia billings. Both of these proceedings show CDI’s deep commitment to go after fraud that causes undue financial strain on California’s health care delivery system.

Making Sure Life Insurance Benefits Are Paid to Beneficiaries

Commissioner Jones held a joint investigative hearing with Controller John Chiang into life insurer death benefit payment practices. The hearing revealed that life insurers with access to the Social Security Administration’s “Death Master File” are not using information about deaths to trigger payments to life insurance beneficiaries. Jones has opened, with other insurance regulators, an investigation of the 10 largest life insurance companies to determine whether they engaged in unfair practices in the payment of death benefits under life insurance policies and annuities.

Other Notable Achievements

•    Nine CDI-sponsored consumer protection bills were enacted, including bills to protect consumers from being unwittingly enrolled in life insurance “retained asset accounts” and to protect California businesses from being dragged at their cost to other states to resolve disputes with insurers;

•    The Commissioner approved a 12 percent average decrease in residential earthquake insurance rates; and a new component of earthquake insurance that allows homeowners to insure their personal property up to $2,500 without having to first meet the larger deductible requirements of the structure itself;

•    Jones initiated an enforcement action against Blue Shield of California for failing to comply with the California Mental Health Parity Act, and supported legislation, signed by the Governor, to require health insurers and HMOs to cover a proven form of treatment for Autism;

•    CDI issued guidance requiring health insurers to provide all financial documentation related to health insurance rate increases for review by CDI;

•    Commissioner Jones initiated review of medical malpractice rates paid by doctors, nurses, hospitals and clinics;

•    The Commissioner hosted two consumer summit meetings to solicit input from leading consumer organizations;

•    CDI initiated a pilot project in cooperation with the California Department of Child Services, encouraging California insurers to help make a significant difference in the lives of children by voluntarily agreeing to offset insurance benefit payments against delinquent child support payments;

•    The Commissioner initiated actions that can make progress on improving the environment by approving an auto insurer’s application for Pay-As-You-Drive auto insurance; conducting a Green Insurance Summit; and leading efforts at the National Association of Insurance Commissioners (NAIC) to measure the extent to which insurance companies are responding to climate change and global warming;

•    Commissioner Jones also sponsored legislation signed into law to extend the sunset date on the California Organized Investment Network’s (COIN) Tax Credit Program to January 1, 2015. This program encourages investment in underserved communities;

•    CDI successfully took over a troubled workers’ compensation company (Majestic Insurance), developed a rehabilitation plan, and transferred the financially troubled company and its business to a healthy insurance company, with no interruptions in coverage for policyholders.

“We have made significant progress for consumers this year,” Jones said. “I look forward to another successful year in protecting consumers and making sure that we have healthy insurance markets.”

In an ERISA Case, What Actions Will Reduce the Level of Discretion Afforded the Claims Administrator/Insurer?

Scott Calvert — Tue, 24 Jan 2012 13:14:31 -0800

This article continues our series of articles answering basic questions about insurance law and the Employee Retirement Income Security Act of 1974 (commonly referred to as “ERISA”). This one addresses: In a lawsuit governed by ERISA, what actions taken by the claims administrator (usually an insurance company such as Blue Cross/Blue Shield or CIGNA) will reduce the level of discretion the court gives the insurance company’s decision when reviewing the decision for an abuse of discretion?

Under ERISA, the court does not necessarily review the claims decision by simply attempting to determine whether the insurance company made the “correct” decision. Instead, the court first looks to see whether the plan documents unambiguously confer discretion for determining eligibility on the claim administrator. If discretionary language is present, the abuse of discretion standard of review applies, and the court is required to give some level of deference to the claim administrator’s decision. However, even if such discretionary language is present, the discretion given the claim administrator’s decision is not absolute. Specifically, courts have ruled that the following acts will reduce the level of discretion give to the claims administrator’s decision:

Rendering a decision without explanation, construing a plan provision in a way that conflicts with the plain language of the plan or relying on clearly erroneous findings of fact.
“Hiding the ball” by failing to advise claimants of documents needed to obtain approval of claim and an explanation of why such material or information is necessary, and failing to submit forms to claimant or his doctors that would have elicited the information needed.
Overstatement of and excessive reliance upon claimant’s activities in the surveillance videos and conducting a paper review rather than an “in-person medical evaluation.”
Encouraging participant to file for Social Security Disability Insurance and, when benefits are awarded by Social Security Administration, failing to deal with and distinguish the contrary disability decision.
Failing to obtain a physician's recommendation and relying on medical reports that are not credible.
“Tainting” medical file reviewer in the medical review process by giving the reviewer inaccurate negative information regarding the claimant.
Failing to consult with a health care professional who has appropriate training and experience in the applicable field of medicine.
Emphasizing a report that favored a denial of benefits while deemphasizing other reports suggesting a contrary conclusion, and failing to provide its independent experts with all of the relevant evidence.
Failing to provide all bases for its denial and suggesting alternate reasons for denial after the fact, thereby precluding the claimant from responding to that rationale for denial at the administrative level.
Adding new terms to the Plan, particularly when those terms are both imprecise and impose a higher evidentiary burden on a claimant, such as requiring that disability be proved by “compelling objective” evidence.

These are just a select few of the acts that courts have ruled require that the insurer’s decision not be afforded full discretion. Numerous other actions will also cause a court to review a claim decision with something less than full discretion. For additional information on this and other insurance matters you can visit the FAQ section of our website: www.mslawllp.com.

If you need to consult with an attorney about a possible ERISA or insurance bad faith matter, please contact our office.