Life, Health and Disability Insurance Law Blog

California Assembly Passes Bill Requiring Health Insurance Filing and Disclosures

Barger & Wolen LLP — Mon, 07 May 2012 12:54:55 -0800

On May 3, 2012, the California Assembly passed a bill that would require health insurers that are regulated by the Department of Insurance to submit information to the department when the insurer plans to terminate its contract with a provider group or hospital. The bill also would require insurers to provide insureds with additional disclosures. The 80-member Assembly passed Assembly Bill 2152 with a 46-25 vote.

AB 2152, which is sponsored by the Department of Insurance, has three major elements.

The bill would require a health insurer to notify the Department of Insurance at least 75 days before the insurer terminates its contract with a provider group or hospital to provide services at alternative rates of payment. The department would have the authority to review and approve the written notice that the insurer proposes to send to the insureds affected by the termination.
AB 2152 would require a health insurer to include in its disclosure form a statement clearly describing the basic method of reimbursement made to its contracting providers of health care services, and whether financial bonuses or any other incentives are used.
AB 2152 would require health insurance policies to include additional notices and disclosures.

The bill is now waiting to be assigned to a Senate committee.

Barger & Wolen partner to speak at The International Life Settlements Conference

Barger & Wolen LLP — Wed, 11 Apr 2012 10:37:44 -0800

Randall Doctor, Partner, Barger & Wolen, will participate in a panel discussion at The International Life Settlements Conference to be held in London, May 1-2, 2012.

The panel discussion, "Legislation & Regulation: New Laws and Regulations in 2012" will be moderated by Brian Casey, Partner, Locke Lord, and will include Mr. Doctor; Michael Freedman, Sr. Vice President, Government Affairs, Coventry; and John McCarroll, Vice President-General Counsel, Q Capital Strategies.

Program description:

Forty states and Puerto Rico have passed laws regulating the market. But this is only the first step. Regulations also must be drafted by the states. Market participants discuss what new laws have been recently passed, how older ones have been tweaked, and what regulations are being put into place.

The International Life Settlements Conference is an annual gathering of the most active investors, investment bankers, hedge fund managers, providers, brokers and attorneys involved in the market. This international group of professionals will meet for two-full days of unique educational programming and take part in an abundance of networking opportunities.

For more information, please visit the conference website.

California Workers' Compensation Looms as a Major 2012 Legislative Issue

Barger & Wolen LLP — Wed, 04 Apr 2012 12:00:00 -0800

by Samuel Sorich

On March 28, two California legislative committees met to hear concerns about the California workers’ compensation system. The chairs of the committees declared that the hearing was the Legislature’s first-step in this year’s effort to solve problems that plague the system.

During the joint hearing of the Assembly Insurance Committee and the Senate Labor & Industrial Relations Committee, stakeholders in the California workers’ compensation system identified problems and gave their perspectives on how those problems should be addressed.

Representatives of the California Workers’ Compensation Institute outlined the increase in workers’ compensation costs. In the years immediately after the enactment of the 2003 and 2004 reform laws, the total loss per indemnity claim decreased. However, in recent years, workers’ compensation claim costs have been increasing. The total loss for an indemnity claim is higher today than prior to the enactment of the 2003-2004 reforms. Institute data show that escalating medical costs are driving the increase in claim costs. Increasing costs are affecting insurers. The most current accident year combined loss and expense ratios are at 130.

Insurance Commissioner Dave Jones observed that the high combined ratios will probably result in a rise in workers’ compensation insurance rates. The commissioner expressed concern about the higher premiums that may be charged to employers. In wrestling with workers’’ compensation issues, the Legislature has operated under the theory that a dollar increase in benefits should be accompanied by a dollar in savings in the workers’ compensation system. Commissioner Jones explained that because of the sharp increase in costs, that theory is no longer useful. It appears that it will take more than one dollar in savings to offset a dollar in benefit increase.

Christine Baker, director of the Department of Industrial Relations, testified that her department is seeking comprehensive workers’ compensation reforms that achieve both cost savings and benefit increases. Baker explained that such comprehensive reforms will require both legislative and regulatory changes. The Division of Workers’ Compensation is conducting public forums throughout the state aimed at reaching a consensus on the changes that should be made.

Frank Neuhauser, professor at the University of California at Berkeley argued that the 2003-2004 reforms have reduced compensation paid to injured workers. Neuhauser said the reforms resulted in a 61% decrease in overall compensation. He stated that workers who are not represented by attorneys have been especially affected by the decline in compensation paid.

A representative of the California Federation of Labor accused insurers of undermining the workers’ compensation administrative process and delaying medical treatment for injured workers. The Federation called for the prior approval of workers’ compensation insurance rates and significant adjustments to the permanent disability rating schedule.

A representative of Grimway Farms, which is self-insured for workers’ compensation, challenged the allegation that high costs can be solved by stricter insurance regulation. As a self-insurer, Grimway is facing the same increase in workers’ compensation costs as insurers. The Grimway representative complained that there are too many lawyers in the workers’ compensation system. A representative of public schools urged the adoption of measures to reduce the number of workers’ compensation liens.

A representative of the California Medical Association asserted that further restrictions on fees that may be charged for workers’ compensation medical treatment would lead to a reduction in access to care. A representative of the California Society of Industrial Medicine and Surgery complained about delays in utilization reviews and the administration of medical provider networks.

At the close of the hearing, Senator Ted Lieu, chair of the Senate Labor & Industrial Relations Committee, and Assembly Member Jose Solorio, chair of the Assembly Insurance Committee, said that they are committed to achieving both workers’ compensation savings and workers’ compensation benefit increases. The committee chairs said that they will proceed in an honest, cautious and transparent manner.

Originally published on Barger & Wolen's Insurance Litigation & Regulatory Law blog.

TranscriptPad for iPad Offers Powerful Mobile Transcript Review

John LeBlanc — Thu, 22 Mar 2012 14:40:26 -0800

TranscriptPad is an elegant, fast and powerful transcript review app for the Apple iPad, designed specifically for the legal field, from the same folks who designed TrialPad, their flagship trial presentation and legal file management app. Similar software exists for your PC or Mac, such as the excellent Deposmart (from Clarity Legal), but TranscriptPad is the first dedicated transcript review and annotation app for the iPad.

TranscriptPad accepts transcripts in .txt format, and exhibits in .pdf format. (Make sure you request the transcript in .txt format, as some court reporting agencies have their own proprietary format). The .txt format is a simple and relatively small file format that all court reporters can generate, and usually do so at no extra charge. Importing is a breeze, and can be done via email, Dropbox or even iTunes. I’ve uploaded multiple transcripts simultaneously, quickly and without any problems.

Transcripts are imported into case folders that you create and that are stored on your iPad. Opening a case folder reveals a deponent folder (created automatically upon import, with the deponent’s name and date of the deposition, along with the volume number). Multiple sessions of the same deponent are placed automatically in the deponent’s folder.

You can read a transcript hands-free by pressing the play button at the bottom of the screen, which allows you to adjust the speed. You can also flip back and forth as if you are reading a book (either in landscape or portrait orientation).

Most attorneys like to annotate their transcript when reviewing, and here’s where the software really shows off. You can create your own “issue” codes to any part of the transcript. Issue codes can be assigned any name along with a choice of six colors, and appear in the margins of the transcript. You can also flag a portion of the transcript for later review. Issues codes, flags or any portion of the transcript can be emailed or exported to Dropbox.

TranscriptPad contains a powerful search feature that allows you to search across any transcript or even multiple transcripts. Each hit is highlighted in the text, and you can create issue codes or flags from there, or email the section containing the search result. Detailed or summary reports of your issue codes, flags and searches are easily generated, and can be exported in .pdf or .txt format.

TranscriptPad’s price tag is $49.99, which is pricey for an app, but on the other hand, this is robust and professional software. Similar software for the Mac or PC start at $200, and go much higher. For lawyers, paralegals, experts, in house counsel, and others who review and annotate transcripts, and who place a premium on mobility, TranscriptPad is a must. TranscriptPad can be found here (www.transcriptpad) and purchased in the Apple App store.

Significant Insurance Bills Being Considered by California Legislature

Barger & Wolen LLP — Mon, 19 Mar 2012 14:57:20 -0800

by Samuel J. Sorich

California legislators will consider a variety of insurance-related issues before the 2012 legislative session ends on August 31, 2012.

Hundreds of bills were introduced prior to last month’s deadline for bill introduction. Many of the newly introduced bills would affect insurers doing business in California.

Most bills propose specific statutory changes. However, as is typical at this point in the legislative process, a number of bills merely contain general language. These so-called “spot bills” will be amended to include specific statutory changes later during the legislative session.

Here are seven newly introduced bills that merit insurers’ attention. These bills are not yet scheduled for hearings.

SB 1172 is a spot bill. It is expected that the bill will be amended to include provisions which would give the insurance commissioner the power to order an insurer or agent to pay restitution for Insurance Code violations and would grant the insurance commissioner authority to force the insurer or agent to pay the Department of Insurance’s attorney’s fees and costs related to the restitution order. These provisions were contained in SB 631, which failed to pass last year.

SB 1448 would make numerous changes to California’s insurance holding company statutes. Among other things, SB 1448 would require an insurer that is a member of a holding company to file with the insurance commissioner statements affirming the maintenance of corporate governance and internal control procedures. SB 1448 also would require an insurer’s ultimate controlling person to file an annual enterprise risk report that identifies material risks within the holding company that could pose risk for the insurer.

SB 1449 would enact the Interstate Insurance Product Regulation Compact. Enactment of the Compact would result in California’s membership in the commission that establishes uniform standards for the review and approval of products relating to life insurance, annuities, disability insurance and long-term care insurance.

SB 1460 would enact new statutes relating to the use of replacement crash parts that are not manufactured by the original equipment manufacturer (non-OEM crash parts). The bill would give statutory recognition to certified new non-OEM crash parts.

SB 1528 would allow a plaintiff in a liability lawsuit to recover the reasonable cost of the medical services provided to the plaintiff without regard to the amount that was actually paid for the services. The bill would nullify the California Supreme Court’s 2011 decision in Howell v. Hamilton Meats & Provisions, Inc., which held that a plaintiff’s recovery for medical damages is limited to the amount the medical care provider accepted for medical services. See Barger & Wolen’s recent discussion of the Howell decision here.

AB 1687 would authorize the Workers’ Compensation Appeals Board to award attorney’s fees to a workers’ compensation applicant who is involved in a dispute over the appropriateness of medical treatment.

AB 2160 would require the insurance commissioner to treat a domestic insurer’s indirect investments in Iran as non-admitted assets on the financial statements the insurer files with the commissioner. See Barger & Wolen's recent update here.

Many bills introduced last year are still pending before the Legislature. Two measures are especially noteworthy for insurers.

AB 52 would require health service plans and health insurers to obtain the insurance commissioner’s prior approval of rate changes. AB 52 was passed by the Assembly. The bill is now in the Senate Inactive File.

AB 53 would require each admitted insurer with premiums of $100,000,000 or more to file with the insurance commissioner a report on its minority, women and disabled veteran-owned business procurement efforts. AB 53 was passed by the Assembly. The bill is now pending before the Senate Rules Committee.

Originally posted in Barger & Wolen's Insurance Litigation & Regulatory Law blog.

"Dismemberment by Severance" v. Loss of Use: A Smorgasbord of Interesting Disability Cases

Martin Rosen — Mon, 27 Feb 2012 11:58:37 -0800

Fier v. Unum Life Ins. Co. of America, 629 F.3d 1095 (9th Cir. 2011)

Facts and holding: In 1992, Robert Fier (“Fier”) was shot in the neck and rendered permanently quadriplegic. He filed a claim for benefits with Unum Life Insurance Company of America (“Unum”) under his ERISA-governed Accidental Death and Dismemberment Insurance Policy (“AD&D policy”).

UNUM denied Fier’s claim because the AD&D policy defined loss of hands or feet as “dismemberment by severance at or above the wrist or ankle joint” and, although Fier was a quadriplegic, his limbs were still physically attached to his body.

Fier filed suit in District Court asserting a claim for declaratory relief that he was entitled to benefits under the AD&D policy, among other claims. The District Court held that Fier was ineligible to receive benefits under the AD&D policy because his limbs were not physically severed from his body. Fier appealed to the Ninth Circuit, arguing that although his limbs remained physically attached to his body, he had no functional use of them due to the “severance” of his spinal cord.

As a matter of first impression, the Ninth Circuit construed the policy’s terms in their “ordinary and popular sense” and concluded that the phrase “dismemberment by severance” is unambiguous and required “actual, physical separation.” (The same result was reached by the Second Circuit in Cunninghame v. Equitable Life Assurance Society of the United States, 652 F.2d 306, 307 (2d Cir. 1981).) Accordingly, Unum did not owe Fier benefits under the AD&D policy.

Lessons Learned: Although a reasonable interpretation of the intent of the policy might be to award benefits to an insured who has completely and permanently lost all use of his limbs, courts will not rewrite the terms of a policy if they are clear and unambiguous.

Note that when disability policies provide total disability benefits for presumptive loss of both hands or legs, and the policy does not specifically require severance of the limbs, courts often view the requirement as being satisfied by the functional loss of use of the limbs. See generally Couch on Insurance 3d, Chapter 146:58 (1998).

From A Smorgasbord of Interesting Disability Cases.

Emergency Regulation to Enforce Medical Loss Ratio in Patient Protection and Affordable Care Act of 2009 Made Permanent

John LeBlanc — Fri, 10 Feb 2012 11:11:16 -0800

By John M. LeBlanc and Jason C. Love

On Thursday February 9, 2012, California Insurance Commissioner Dave Jones announced that he had obtained approval from the California Office of Administrative Law to make permanent the emergency regulation issued in 2011 allowing the Department of Insurance (the “Department”) to enforce the medical loss ratio guidelines in the Patient Protection and Affordable Care Act of 2009 (“PPACA”) (which we previously discussed here).

As of January 1, 2011, the PPACA required all health insurers in the individual market to maintain an 80% medical loss ratio.

The Department obtained approval to make permanent its amendment to 10 California Code of Regulations § 2222.12 to reflect this requirement. A copy of the text of the regulation can be viewed here.

This permanent regulation went into effect on February 8, 2012.

The regulation adopted by the Department contains more stringent requirements than PPACA, as it allows the Department to evaluate whether the 80% medical loss ratio will be met at the time a rate is filed with the Department, rather than waiting until the end of the year to determine if this ratio was satisfied.

Life Insurer "Death Master" Investigation Leads to Multi-State Regulatory Settlement

Barger & Wolen LLP — Mon, 06 Feb 2012 11:42:05 -0800

by Michael Rosenfield & Dennis Quinn

Insurance regulators across the nation from time-to-time focus their efforts on pursuing the joint investigation of a legal issue (e.g., brokers’ fees or title insurance matters) that is perceived by the regulators as representing an industry-wide compliance problem that is common to all states.

The latest subject of such a multi-jurisdiction investigation targets life insurance settlements. Regulators are in the midst of an extensive investigation and prosecution of life insurers’ practices with respect to the payment and settlement of life benefits.

The California Department of Insurance has just announced that it has negotiated a $17 million multi-state Regulatory Settlement Agreement with Prudential Insurance Company of America.

The settlement relates to Prudential’s alleged failure to pay benefits “even though they had knowledge of policyholder deaths from the Death Master file.”

The settlement stems from a joint examination of Prudential’s settlement practices that was undertaken by a number of jurisdictions, including California, Florida, Illinois, New Hampshire, New Jersey, North Dakota and Pennsylvania.

State insurance regulators have taken the position that life insurers are required by law to monitor the United States Social Security Administration’s Death Master File and other databases on a regular basis to ensure that beneficiaries receive prompt payment of their contract benefits when the holder of a life insurance policy or annuity dies. It is our understanding that similar settlements are to follow from the Florida Office of Insurance Regulation.

In connection with the settlement, Prudential is required, among other things, to:

Revise its business practices to better utilize the Death Master File.
Return monies promptly to beneficiaries when located through revised search efforts.
Report funds to the Unclaimed Property Bureau of the appropriate state when a beneficiary cannot be located after a thorough search.
Provide quarterly reports to regulators for the next three years.

We are advising a number of life insurers related to their efforts to revise their settlement practices to comply with these developments. That includes responding to regulatory inquiries, developing records review procedures, conducting records reviews and handling benefit settlements and payments strategies.

If you have any questions or require any additional information, please contact Michael Rosenfield at mrosenfield@bargerwolen.com | (213) 614-7321 or Dennis C. Quinn at dquinn@bargerwolen.com | (212) 553-8121.

Signatures May Be Collected for California Health Insurance Initiative

Barger & Wolen LLP — Mon, 09 Jan 2012 10:22:50 -0800

By Sam Sorich and Larry Golub

On January 4, 2012, the California Secretary of State announced that signatures may be collected for a proposed initiative which would bring prior approval of rates for health insurance to California, and also amend the existing regulation of automobile and homeowners insurance.

Jamie Court, the President of Consumer Watchdog, is the proponent of the measure, termed the Insurance Rate Public Justification and Accountability Act. There were actually two virtually identical versions of the initiative submitted to (and allowed to proceed to collect signatures by) the Secretary of State, file numbers 11-0070 and 11-0072, but it is expected that Consumer Watchdog will pursue signature gathering for only the second version of the initiative. (In fact, its website only links to the second version of the initiative.)

In order to qualify for the November 6, 2012, ballot, backers of an initiative must file 504,760 valid signatures in support of the measure. The deadline for submitting signatures for the initiative is June 4, 2012.

Among other things, the initiative would give the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012. The rate approval statutes enacted by Proposition 103 in 1988 for most property and casualty insurance would be made applicable to health insurance. A health insurer’s rate application would have to be accompanied by a sworn statement by insurer’s chief executive officer declaring that the contents of the application are accurate and comply in all respects with California law.

The initiative would require a health insurance company to pay refunds with interest if the insurance commissioner determines that the company’s rates are excessive; this requirement would apply to rates in effect on November 6, 2012 and rates in effect after that date.

Large group health insurance policies would be excluded from the scope of the initiative unless any one of four specified conditions exists; two of the conditions relate to the level of the proposed rate increase.

For health insurance, as well as automobile and homeowners insurance, the initiative would prohibit insurers from using the absence of prior insurance coverage or a person’s credit history as a rating factor or a criterion for determining insurance eligibility.

The initiative specifies that it may be amended only (1) by the Legislature if the legislation furthers the initiative’s purposes and is passed by a two-thirds vote in both the Assembly and the Senate or (2) by another voter ballot initiative.

In its summary of the fiscal effects of the initiative if approved by the voters, the Legislative Analyst’s Office estimates that the measure would increase “state administrative costs in the low tens of millions of dollars annually to regulate health insurance rates, funded with revenues collected from filing fees paid by health insurance companies.”

Originally published on Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

Burden of Proof: The "What Changed?" Argument from "A Smorgasbord of Interesting Disability Cases"

Martin Rosen — Thu, 05 Jan 2012 10:40:12 -0800

Muniz v. Amec Construction Mgmt., 623 F.3d 1290 (9th Cir. 2010)

Facts and holding: Due to his HIV diagnosis, in 1992, Dierro Muniz (“Muniz”) began receiving long term disability benefits under his ERISA-governed long-term disability insurance plan issued by Connecticut General Life Insurance Company (“CGLIC”).

Under the terms of the plan, Muniz was entitled to continue to receive benefits after 24 months if he was “totally disabled,” which was defined by the plan as being “unable to perform all the essential duties of any occupation.”

In April 2005, Muniz’s claim came up for periodic review. During the review process, CGLIC’s nurse case manager determined that Muniz’s current medical records did not support the severity of the symptoms he reported. In addition, CGLIC determined in its vocational assessment that Muniz could perform sedentary work, thus rendering him qualified for clerical positions.

Muniz’s treating physician advised CGLIC that he disagreed with its findings and that it was his opinion that Muniz could not work in any field, sedentary or otherwise. However, he did not provide any objective medical evidence in support of this opinion. As a result, CGLIC requested that Muniz undergo a Functional Capacity Evaluation (“FCE”).

Although Muniz was willing to have an FCE, his treating physician refused to authorize the exam, given Muniz’s fatigue and overall condition. CGLIC then requested updated medical records from Muniz’s treating physician. Upon review of those records, CGLIC terminated Muniz’s benefits. Muniz’s appeals were denied and Muniz filed an ERISA suit.

Applying a de novo standard of review, the District Court ruled that the administrative record was insufficient to determine whether Muniz was totally disabled under the terms of the plan and ordered Muniz to submit to an FCE. Thereafter, the court ruled that the results of the FCE did not support Muniz’s position that he was totally disabled, and Muniz appealed.

The Ninth Circuit affirmed, rejecting Muniz’s argument that the burden of proof should shift to the claim administrator when the claim administrator terminates benefits without providing evidence of how the claimant’s condition changed or improved since the initial benefits award.

The Court held that although the fact that a claimant is initially found disabled under the terms of a plan may be considered as evidence of the claimant’s disability, paying benefits does not “operate forever as an estoppel so that the insurer can never change its mind.”

The Court held that under the applicable de novo standard of review, the burden of proof remained with the claimant. Here, Muniz did not provide sufficient evidence to demonstrate that the district court’s holding was “clearly erroneous.”

The Ninth Circuit also rejected Muniz’s assertion that the district court improperly rejected the medical opinion of his treating physician, holding that courts are not required to give special weight to the opinions of a claimant’s treating physician. (That position has been well-established since the U.S. Supreme Court so ruled in Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834 (2003).)

Finally, the Ninth Circuit rejected Muniz’s argument that the results of the court-ordered 2009 FCE were irrelevant to the issue of whether he was disabled when his benefits were terminated in 2006.

Although the results were not conclusive, they potentially provided insight as to Muniz’s previous condition because Muniz had many of the same symptoms and activity levels in 2009 as he did in 2006. Moreover, the district court did not rely solely on the FCE results; rather, it considered them in combination with the other evidence.

Lessons Learned: This case highlights the “What changed?” argument often advanced by insureds. (“If you found me disabled before, then you should have to show that something changed if you are not going to continue to find me disabled.”)

The Ninth Circuit rejected this argument; just because an insurer commences disability payments to an insured does not render the insured presumptively disabled until the insurer can demonstrate otherwise.

Note, however, that the argument has found favor with certain courts. For example, last year a Florida district court adopted the contrary view. In Kafie v. Northwestern Mutual Life Ins. Co., 2010 U.S. Dist. LEXIS 24184 (S.D. Fla. 2010), the court suggested that once an insurer makes disability payments, it has the burden of proof in demonstrating that the insured is no longer disabled. (The Kafie case was included in last year’s Cornucopia.)

From A Smorgasbord of Interesting Disability Cases.

Health Insurance Rescission Case Upheld by California Appellate Court

John LeBlanc — Wed, 28 Dec 2011 15:11:02 -0800

On Wednesday, December 28, 2011, the First District Court of Appeal affirmed the trial court's granting of summary judgment in Hagan v. California Physicians' Service dba Blue Shield of California, et al, Case No. A130809 (unpublished), a health insurance rescission matter.

The matter was handled by Barger & Wolen Senior Partners John M. LeBlanc and Sandra Weishart, Senior Associates Ophir Johna and Vivian Orlando, and Greg Pimstone of Manatt, Phelps and Phillips.

Background

In 2005, the Hagan family applied for health coverage with Blue Shield of California Life & Health Insurance Company. Beginning in 2001, Lori Hagan -- in her mid-thirties -- began to experience heavy menstrual cramping and bleeding. Over the next four years, she saw at least four physicians who diagnosed her with an enlarged uterus, fibroid tumors, menorrhagia and dysmenorrhea. She underwent exploratory laparoscopic surgery under general anesthesia, which confirmed the fibroid tumors and also revealed uterine adhesions and endometrial tissue. Ms. Hagan also underwent hormone therapy to treat the bleeding and severe pain. She was advised on multiple occasions that she needed to consider a hysterectomy or uterine ablation as treatment options.

In applying for insurance coverage, however, the Hagans failed to disclose any of this information, despite application questions that asked the applicants to disclose any treatment, advice or symptoms concerning the female reproductive system, such as abnormal bleeding or fibroids, questions that inquired about any visits to the hospital, outpatient center, surgeries, and questions that requested disclosure of any other symptoms, conditions or recommended treatment not mentioned elsewhere on the application.

In response to the application question that asked the applicants to disclose their last physician visit, Ms. Hagan failed to disclose that she had seen her physician just three weeks earlier, where he had again diagnosed her with painful symptoms related to her fibroids and where they again discussed hysterectomy as an option.

Blue Shield Life rescinded the policy after it discovered these misrepresentations and omissions.

Though not required, Blue Shield Life paid all of the medical expenses incurred by the Hagans through the date of the rescission. The Hagans obtained replacement coverage within a few days, and Ms. Hagan was not deprived of any medical treatment as a result of the rescission.

Unfortunately, Ms. Hagan later passed away from uterine cancer. John Hagan sued Blue Shield Life alleging breach of contract, breach of the covenant of good faith and fair dealing and punitive damages.

The Court's Decision

In upholding the trial court's decision granting summary judgment, the Court of Appeal first reviewed general principles governing an insurer's right to rescind. It rejected Hagan's argument that the language of Blue Shield Life's policy required it to prove that the Hagans' misrepresentations were intentional.

The Court then reviewed the undisputed evidence in detail, in light of the specific questions on the application, as well as the excuses proffered by Hagan for why Ms. Hagan failed to disclose her long medical history, and concluded that the trial court properly granted summary judgment in Blue Shield Life's favor, in that there were clear misrepresentations and omissions of material facts on the application.

The Court also found that Blue Shield Life did not engage in postclaims underwriting as defined in California Insurance Code section 10384.

The Court held that the case was governed by the legal standards concerning underwriting and rescission set forth in Nieto v. Blue Shield of California Life & Health Insurance Company, 181 Cal. App. 4th 60 (2010) (click here for list of prior posts on Nieto).

According to the Court, Blue Shield Life can only be guilty of postclaims underwriting if the "written information submitted on or with" the Hagans' application gave rise to "reasonable questions" that Blue Shield Life failed to resolve prior to issuing the policy.

Against the background of California law that entitles Blue Shield Life to rely on the accuracy of the information the Hagans provided on their application (i.e., Blue Shield Life was not required to assume any of the Hagans' statements were false), Blue Shield Life properly completed its medical underwriting, and therefore did not violate Insurance Code section 10384.

Bad Faith: A Smorgasbord of Interesting Disability Cases

Martin Rosen — Mon, 19 Dec 2011 13:06:01 -0800

Roth v. Madison National Life Ins. Co., 702 F.Supp.2d 1174 (C.D. Cal 2010)

Facts and holding: Paul Roth (“Roth”) was insured under two life insurance policies issued by Madison National Life Insurance Company (“Madison”). Both policies contained a “Critical Illness Benefit Rider” which provided that 10% of the policies’ death benefits would be advanced in the event the insured underwent an angioplasty procedure and certain conditions were met. One of those conditions was that the insured furnish Madison with evidence of significant electrocardiographic (“EKG”) changes.

In July 2004, Roth received an angioplasty and submitted a claim to Madison for benefits. In evaluating Roth’s claim, Madison obtained Roth’s medical records relating to the angioplasty procedure. Those records revealed that prior to the angioplasty, Roth underwent an EKG, the results of which were normal. As a result, Madison denied Roth’s claim. Thereafter, Roth sued Madison for breach of contract and bad faith.

Madison brought a motion for partial summary judgment on Roth’s bad faith claim, arguing that it could not be liable for bad faith because, in denying Roth’s claim, it had simply complied with the express terms of the riders. Roth conceded that he did not provide Madison with evidence of significant EKG changes, but argued that the terms of the riders were outdated and should be disregarded because his physician concluded that the angioplasty was medically necessary.

The Court ruled that a claim for bad faith fails where the alleged bad faith conduct is specifically permitted by the policy. Put another way, the implied covenant of good faith and fair dealing cannot contradict the express terms of a contract. Since Madison had specifically relied on the terms of the contract as a precondition to paying benefits (in requiring Roth to submit evidence of EKG changes), that insistence could not be considered bad faith conduct.

Lessons Learned: The principle the Roth Court articulated is an offshoot of the more well-known and long-standing principle in California that although there is an implied covenant of good faith and fair dealing in every contract, it will only be recognized to further the contract’s purpose. It naturally follows that the implied covenant cannot serve as a basis for prohibiting a party to do that which is expressly permitted by that contract (the policy).

(The author was counsel for Madison in the above dispute.)

From A Smorgasbord of Interesting Disability Cases.

Appropriate Care: A Smorgasbord of Interesting Disablity Cases

Martin Rosen — Mon, 12 Dec 2011 12:37:49 -0800

Paul Revere Life Ins. Co. v. DiBari, 2010 U.S. Dist. LEXIS 122906 (D. Conn. 2010)

Facts and holding: On April 29, 2008, dentist Michael DiBari (“DiBari”) submitted a claim for total disability benefits under his disability income and business overhead expense coverage (“BOE”) policies with Paul Revere Life Insurance Company (“Paul Revere”) as a result of bilateral carpal tunnel syndrome.

Paul Revere ultimately denied DiBari’s claim because after conservative treatment failed to alleviate his symptoms, DiBari declined to undergo carpal tunnel release surgery. Although DiBari’s treating physician believed there was a risk that the surgery might not be successful, he and DiBari’s neurologist both agreed that DiBari did not have any contraindications to the surgery and that the surgery was not “medically inappropriate.” Additionally, Paul Revere’s in-house board certified orthopedic surgeon and an independent hand surgeon both agreed that by failing to undergo release surgery, DiBari was not seeking and receiving “appropriate care” for his symptoms.

In order to be eligible to receive total disability benefits under the policies DiBari was required to be “receiving Physician’s Care,” among other things. Both policies defined “Physician’s Care” as

the regular and personal care of a Physician which, under prevailing medical standards, is appropriate for the condition causing the disability.” (Emphasis added.)

Paul Revere interpreted this language to mean that DiBari must obtain “appropriate care” for his bilateral carpal tunnel syndrome.

Paul Revere brought a complaint for declaratory relief and moved for summary judgment on the grounds that by refusing the release surgery, DiBari was not receiving “appropriate care” and was thus ineligible to receive disability benefits. DiBari interpreted the same policy language to require only that he receive “regular and personal care,” which he argued did not include surgery.

The Court agreed with Paul Revere’s interpretation of the policy language, holding that the policy obligated DiBari to do more than receive “regular care”; he was required to seek and accept appropriate medical care for his condition. It was undisputed that conservative treatment failed to alleviate DiBari’s symptoms and his treating physicians agreed that release surgery did not pose any risk to DiBari, and was not medically inappropriate. Accordingly, Paul Revere was entitled to summary judgment on its complaint for declaratory relief.

Lessons Learned: In reaching its decision, the Court relied in part on the Northern District of California’s decision in Buck v. Unum Life Ins. Co., 2010 U.S. Dist. LEXIS 22479 (N.D. Cal. 2010), a case which the author included in last year’s Cornucopia presentation. The Buck case also dealt with the issue of an insured’s duty to undergo carpal tunnel surgery under the “appropriate care” provisions of the disability policy at issue. The policy language at issue in Buck was similar to the disputed policy language in the present case, requiring the insured to be “receiving medical care from someone other than himself which is appropriate for the injury or sickness.” The Buck Court held that this language obligated a claimant to receive “appropriate care.” However, the Buck Court declined to grant a summary judgment motion on the issue of whether the insured’s failure to undergo carpal tunnel surgery equated with a failure to receive appropriate care because, in that case, there were conflicting opinions as to whether surgery was appropriate treatment for Buck.

In the present case, there were no conflicting opinions concerning whether surgery would be appropriate for DiBari. The undisputed facts demonstrated that conservative treatment failed to alleviate DiBari’s carpal tunnel symptoms and that DiBari’s physicians believed that the surgery was neither contraindicated nor medically inappropriate. Therefore, while the determination as to what is “appropriate care” is often fact and case-specific, a court should not decline to decide the issue on summary judgment where the facts are undisputed that the care in question is “appropriate.”

From A Smorgasbord of Interesting Disability Cases.

A Smorgasbord of Interesting Disablity Cases: Accidental Bodily Injury

Martin Rosen — Fri, 09 Dec 2011 15:32:17 -0800

Boly v. The Paul Revere Life Ins. Co., 238 Ore. App. 702 (2010)

Facts and holding: In the late 1980s, Jeffrey Boly (“Boly”) was diagnosed with sleep apnea and narcolepsy. With treatment, doctors were able to stabilize Boly’s nighttime sleeping, but Boly’s daytime tiredness persisted and interfered with his ability to perform his job duties. As a result, Boly applied for and received partial disability benefits from his insurer, The Paul Revere Life Insurance Company (“Paul Revere”).

Thereafter, Boly began to experience cognitive impairment. He was evaluated by a neuropsychologist who determined that Boly’s cognitive impairment likely resulted from chronic, nocturnal hypoxia (lack of oxygen to the brain) associated with sleep apnea that occurred prior to the diagnosis and treatment of Boly’s sleep apnea.

In 2006, the year before Boly’s 65th birthday, Boly requested that Paul Revere reclassify his disability as resulting from “injury” rather than from “sickness.” (Under the terms of Boly’s policy, disability benefits were available until age 65 if the disabling condition resulted from “sickness,” but for life if it resulted from “injury.”) The policy defined “injury” as “accidental bodily injury,” but did not define the term “accidental.” During its consideration of Boly’s request, Paul Revere had its doctors examine Boly’s medical records and, like Boly’s physicians, concluded that Boly’s cognitive impairment resulted from sleep apnea and narcolepsy. Based on this finding, Paul Revere denied Boly’s request and discontinued his benefits on his 65th birthday.

Boly brought suit against Paul Revere seeking reinstatement of his disability benefits and a declaration that he was entitled to lifetime benefits. Paul Revere moved for summary judgment on the grounds that Boly’s disability resulted from a sickness — sleep apnea. Boly argued that his brain injury was an accidental injury

because it was an unintended result of an external event – either his failure to breathe during episodes of sleep apnea or his physician’s failure to diagnose his sleep apnea.

The trial court granted Paul Revere’s motion for summary judgment, ruling that Boly’s nocturnal hypoxia was the consequence of his sleep apnea (a sickness). The Court of Appeal affirmed. Since Boly’s policy did not provide a definition for “accidental bodily injury,” the meaning of the term depended on the “understanding of the ordinary purchaser of insurance.” Applying that standard, the Court rejected Boly’s argument that every unintentional result is accidental as long as it is caused by external events or forces. And the Court was right. Otherwise, every heart attack that could be traced to high cholesterol and every case of lung cancer that could be traced to smoking would also be considered “accidental injuries.”

The Court held that Boly’s failure to breathe and his undiagnosed sleep apnea where not “forces” or “events” in the same sense as lightening (as in being struck) or gravity (as in falling). The typical purchaser of insurance would regard Boly’s condition as analogous to organ failure or damage that resulted from disease. Such disabilities do not arise from “accidental bodily injury.” Therefore, Boly’s brain damage was not “accidental.”

Lessons Learned: Boly’s position was that his hypoxia should be considered an “accidental bodily injury” because it was the unintended result of his sleep apnea. While an unintended result is one factor many courts consider in determining whether a disabling condition is an “accident,” the condition must also not be the result of a naturally occurring process, such as cancer, aging, medical disorders, etc. See, e.g., Khatchatrian v. Continental Casualty Co., 332 F.3d 1227 (9th Cir. [Cal] 2003) (death from stroke not “accidental” because death was caused by natural, rather than external causes).

For a related case in which a heart attack at rest was considered not to be accidental, see Evans v. Mutual of Omaha Ins. Co., 2008 Cal. App. Unpub. LEXIS 2572 (2008) (in which the author prevailed).

From A Smorgasbord of Interesting Disability Cases.

A Smorgasbord of Interesting Disablity Cases: Accident v. Sickness

Martin Rosen — Wed, 30 Nov 2011 14:44:35 -0800

Kerns v. The Northwestern Mutual Life Ins. Co., 2010 U.S. Dist. LEXIS 126769 (E.D. Cal. 2010)

Facts and holding: Gary Kerns (“Kerns”) owned two disability policies with The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”). Under the terms of both policies, total disability benefits were payable to Kerns for the duration of his life if he became disabled due to accidental bodily injury, but only until age 65 if he became disabled due to sickness.

On October 3, 2006, Kerns submitted a claim for total disability benefits to Northwestern Mutual. He asserted that he had become disabled from his occupation as an insurance agent in February 2006 due to neck and head pain. Kerns claimed that his disability was due to “accident” from two sporting incidents which occurred in 1987 and 2001.

Northwestern Mutual rejected Kerns’ claim that his disability resulted from the 1987 and 2001 incidents (accidents) and determined that Kerns was totally disabled from degenerative arthritis of the spine (a sickness). Northwestern Mutual approved Kerns’ claim on that basis and paid Kerns monthly disability benefits consistent with the policy’s terms governing disability due to “sickness.”

In reaching its determination that Kerns’ disability was the result of sickness, Northwestern Mutual relied on the opinion of its medical consultant that Kerns had progressive degenerative arthritis, which was asymptomatic until 2006, and that neither the 1987 nor the 2001 incidents accelerated his condition. Northwestern Mutual also relied on Kerns’ medical records, which reflected that following the 2001 incident, Kerns underwent a CT scan and x-ray, the results of both of which were normal. Further, the medical records from 2000 did not reference any complaints of headache or cervical issues.

Kerns disagreed and brought suit against Northwestern Mutual for breach of contract and a declaration that he was entitled to lifetime benefits because his disability was due to “accident,” rather than “sickness.”

In support of his claim, Kerns’ expert witness, an orthopedic surgeon, testified that the traumas Kerns experienced in the 1987 and 2001 incidents were “‘most likely’ a large cause of Kerns’ total disability.” The Court held that this was insufficient to support a reasonable inference that Kerns’ disability was caused by accident because it was based on “assumptions of fact” or “conjectural factors.”

According to the Court, an “accident” is defined by California case law as “a casualty — something out of the usual course of events and which happens suddenly and unexpectedly and without any design of the person injured.” Since Kerns’ symptoms arose in 2006 without any precipitating event, his accidental injury claim was unsupported. Therefore, after a bench trial, the Court gave judgment to Northwestern Mutual.

Lessons learned:Claims of this kind – where the insured asserts that an accident (often not contemporaneously reported to his doctors) is a contributing cause of his later claimed disability – occur with some regularity. These types of claims are difficult to resolve by summary judgment. In this instance, the Court found the insured’s assertion that certain accidents were the cause of his disability to be based on unsupported assumptions and conjecture.

Typically, in this kind of litigation there is significant uncertainty as to what conclusion the fact-finder will reach (accident versus sickness). And the consequences of an adverse determination may be heightened if a bad faith claim is also asserted. Here, by the time the bench trial occurred, there was no bad faith cause of action. Most insurers feel much more comfortable trying such cases if any such bad faith claim has already been eliminated.

For a mini-primer on the standards that might be used in assessing whether a disability claim is an accident or a sickness, those interested may wish to read Alessandro v. Massachusetts Casualty Ins. Co., 232 Cal. App. 2d 203 (1965), McMackin v. Great American Reserve Ins. Co., 22 Cal. App. 3d 428 (1971) and Salas v. Minnesota Mutual Life Ins. Co., 1994 U.S. App. LEXIS 30035 (9th Cir. [Cal.] 1994).

From A Smorgasbord of Interesting Disability Cases.

A Smorgasbord of Interesting Disablity Cases: Abuse of Discretion / Objective Evidence of Disability

Martin Rosen — Wed, 30 Nov 2011 12:08:01 -0800

Hagerty v. American Airlines Long Term Disability Plan, 2010 U.S. Dist. LEXIS 91995 (N.D. Cal. 2010)

Facts and holding: On November 15, 2004, Brian Hagerty (“Hagerty”), a flight attendant, filed a claim for long term disability benefits with his employer’s ERISA-governed long term disability plan (the “Plan”) due to HIV, Hepatitis C, fatigue and various other conditions.

Hagerty’s claim was approved and he received disability benefits under the Plan for three years. On April 14, 2008, the administrator of the Plan terminated Hagerty’s benefits on the grounds that Hagerty did not provide sufficient evidence that he was disabled, in part because he had provided no objective medical evidence of his fatigue claims. Further, the administrator determined that based on the medical information reviewed, Hagerty would be able to work as a sales attendant, appointment clerk or cashier. Following Hagerty’s appeal and the final denial of his claim, Hagerty filed a lawsuit against the Plan. The Plan moved for summary judgment.

Applying an abuse of discretion standard of review, the Court denied the Plan’s motion on the following grounds:

The Plan required Hagerty to provide it with objective medical evidence of fatigue when the Plan itself did not expressly require such proof; this suggested that the Plan abused its discretion;
The Plan failed to inform Hagerty that he had not attached relevant medical information to his claim submission and instead decided his claim based on an incomplete file; this also suggested abuse of discretion;
The Plan never considered whether Hagerty’s HIV status affected his ability to perform any occupation and did not contest the importance of doing so; and
The Plan never obtained Hagerty’s Social Security file and never addressed the fact that although the Plan determined that Hagerty was not disabled, the Social Security Administration determined that Hagerty was disabled.

Therefore, the Court could not conclude as a matter of law that the Plan did not abuse its discretion in denying Hagerty’s claim for continued long term disability benefits. As a result, the Plan’s motion for summary judgment was denied.

Lessons Learned: Although this is a lesson most LTD insurers have at one time or another already learned, the conclusion is perhaps simply that the application of an “abuse of discretion” standard does not mean that courts will “rubber stamp” the insurer’s decision.

The question of whether an insurer can demand “objective” evidence of a disability is one that many cases have addressed. The above opinion was an LTD case that was ERISA-governed. However, certainly in the DI field, the issue provides a trap for the unwary. In the author’s opinion, while DI carriers may consider the lack of objective evidence of impairment or disability in making a claims decision, they cannot insist upon such evidence when the policy does not require it. The trap is set when the DI carrier denies a claim, but is “loose” with its language in the denial letter as to the role that a lack of objective evidence played in the decision. Given how often an insured claims that the insistence by the insurer of objective medical evidence constitutes bad faith, the author has long been an advocate in making the DI insurer’s position clear. As but one example:

We also note that you failed to provide any objective evidence of your impairment. While objective evidence is not required in providing adequate proof of loss, and while we do not require that disability claims be established solely by objective evidence, your claim of [condition or impairment] is one for which we would typically expect to see such evidence. Thus, the lack of such evidence in the circumstances present here was one factor in our assessment.” 1

1. Lawyer’s exculpatory fine print: The author is not suggesting that the above language is appropriate for any particular claims decision, or that use of such language will exculpate a disability insurer from a claim of bad faith or abuse of discretion. It is provided simply to demonstrate that if an insurer is relying upon the lack of objective evidence in support of a claim, it should make clear the distinction between considering the lack of objective evidence (for whatever weight it is worth) and requiring such evidence to establish a valid claim.

A Smorgasbord of Interesting Disability Cases - An Introduction

Martin Rosen — Wed, 30 Nov 2011 12:01:55 -0800

Every year I review and summarize a number of recent disability cases I have found to be interesting and of value to our clients and publish them in one booklet. For the first time, I will be sharing the individual cases here on the Life, Health and Disability Insurance Law blog.

In content, these cases span a couple of dozen issues that typically arise in the handing of disability income claims. For this year’s publication, A Smorgasbord of Interesting Disability Cases, I have limited the review to cases that were issued from 2010 through around mid-2011.

This was not intended to be an exhaustive review of the law over the past one to two years. Instead, it is (hopefully) a helpful review of recent cases for one who wants to obtain a “flavor” of recent disability insurance case law.

I would like to thank my associate, Karen Denvir, for her assistance in the production of this booklet.

If you would like to receive a copy of the full publication, please feel free to email me here. You can click on the following link for our first post: Abuse of Discretion / Objective Evidence of Disability.

Barger & Wolen's Life, Health, Disability Insurance Law Blog Named to The Insurance Law Community's Top Blogs for 2011

Barger & Wolen LLP — Mon, 14 Nov 2011 12:15:52 -0800

Barger & Wolen's Life, Health, Disability Insurance Law and Insurance Litigation & Regulatory Law blogs have been named to LexisNexis' Insurance Law Community's Top Insurance Blogs 2011.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.

We are honored to be included among so many well-written and well-regarded blogs.

A Firm Approach
Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

Life, Health and Disability Insurance Law – Robert Renner, Editor
Insurance Litigation & Regulatory Law – Larry Golub, Editor

For all of their hard work, we would like to congratulate and thank the editors of our blogs, as well as all our attorney contributors.

All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

U.S. News & World Report & Best Lawyers Names Barger & Wolen to Their Best Law Firms List

Barger & Wolen LLP — Tue, 01 Nov 2011 10:39:28 -0800

Barger & Wolen is proud to announce that the firm has received a first-tier ranking in the 2011-2012 U.S. News – Best Lawyers “Best Law Firms” survey for our regional Los Angeles insurance law practice. The firm is also recognized for our national insurance law practice as well.

In addition, partners Kent R. Keller and Royal F. Oakes are listed for their work in Insurance Law.

“Barger & Wolen continues to be honored by our inclusion in US News & World Report and Best Lawyers’ ranking for the second year in a row,” said Steven H. Weinstein, chairman for Barger & Wolen. “Receiving this national recognition for the work our firm is doing validates for us that we truly are providing the quality legal services our clients’ demand, while maintaining the competitive price structure the insurance industry seeks.”

About the Survey

U.S. News & World Report uses data compiled by Best Lawyers to produce their Best Law Firms rankings. Best Lawyers combines hard data with peer reviews, and client assessments to produce their annual reports.

Rankings of 75 national practice areas are included in U.S. News & World Report’s Money issue, available November 15, with the full results available online today here.

Technology and the Courtroom

John LeBlanc — Wed, 12 Oct 2011 12:29:30 -0800

When introducing technology into the courtroom, the trial lawyer needs to be master of that domain. This is not the time to experiment. Trial lawyers not comfortable with technology should seriously consider utilizing litigation-technology support services, who -- for a price -- can provide everything needed to make the presentation look and feel professional, freeing the lawyer up to concentrate on the case.

For those who doubt, Robyn Weisman's recent article in ALM’s Law Technology Review, Wrong Way: Preventing (and Recovering From) Courtroom Snafus, (free subscription) outlines what could happen when technology and people crash during trials, and how to recover from (and prevent) those disasters.

Ms. Weisman’s article provides sound advice for all lawyers utilizing technology in the courtroom. The inability to incorporate technology into your case, or the misuse (or abuse) of PowerPoint, can do more damage than good.

Fredric Lederer, chancellor professor of law and director of the Center for Legal and Court Technology and Legal Skills at William & Mary Law School, says there are three types of trial technology snafus: 1) real or perceived hardware failure, 2) real or perceived software failure, and 3) attorney ineptitude.

Hardware and software failures can be minimized, somewhat, by ensuring that your equipment is up-to-date, with the latest software installed. Back up your software on CD-rom or DVDs. Keep an extra laptop computer handy, preferably one that has a mirror image of your main computer, just in case. Make sure you have the proper cables, extension cords and adapters available. I would never venture into a trial without first paying a visit to the courtroom and getting to know the clerk and scouting out their equipment first, as they often insist that you use their equipment.

Even for those who master technology, or who use professional services, Ms. Weisman wisely points out some of the pitfalls of using technology that have nothing to do with hardware or software failures. Technology can too easily run roughshod over the rules of evidence. An inadvertent keystroke or move of the mouse can display documents not yet admitted into evidence, or your PowerPoint presentation may obstruct, rather than elucidate your point.

But, for those lawyers who take technology as seriously as their arguments, it can make a world of difference in creating winning presentations.