Life, Health and Disability Insurance Law Blog

Cigna Agrees to Re-evaluate and to Compensate Disability Insureds in the Amount of $77 million

Barger & Wolen LLP — Thu, 23 May 2013 11:02:29 -0800

In a wide ranging re-evaluation of disability claims covering its insureds in California, Connecticut, Maine, Massachusetts and Pennsylvania, Cigna Corporation may pay up to $77 million in past disability income insurance claims. According to a statement by Cigna yesterday, "We are voluntarily agreeing to review an isolated subset of past long-term disability claims files from 2009 and 2010 (also from 2008 in California only) under updated standards," (Law360, subs. req.).

In 2009, a market conduct action was initiated alleging certain Cigna companies may have violated federal and state insurance trade practices laws. Cigna came up with a plan to resolve any disputes, and the parties -- which included the insurance departments of all five states listed above -- agreed to settle the market conduct action. As part of its statement yesterday, Cigna clarified that the "regulatory settlement agreement grew out of a normal cycle of review by state regulators."

As part of the remediation plan, Cigna agreed to:

Establish an internal disability claim quality assessment team;
Report on the reassessed claims involved in the remediation plan to all five insurance departments for a period of two years;
Compensate the five states for costs incurred in the monitoring process;
Revise its policies to ensure compliance with Social Security Disability Income benefits laws, the selection of evaluation personnel, and the gathering of medical information; and
Pay certain fines and administrative fees to the departments.

Barger & Wolen works with clients along all insurance lines on market-conduct exams and reviews before the California Department of Insurance. For more information click here.

Attorneys' Fees Reduce ERISA Plan's Recovery From Common Fund

James Hazlehurst — Tue, 16 Apr 2013 16:28:07 -0800

By Robert Renner and James Hazlehurst

The United States Supreme Court ruled today that absent an express provision to the contrary, the amount an ERISA plan can recover from a plan participant’s lawsuit against a third-party tortfeasor must be reduced proportionately by the amount of attorneys’ fees the participant incurred to obtain the recovery.

In US Airways, Inc. v. McCutchen, an ERISA health plan paid $66,866 for James McCutchen’s medical expenses for injuries sustained in an automobile accident. McCutchen later hired counsel and recovered $110,000 from the other automobile driver and from his own automobile insurer. After paying his attorneys their 40% contingency fee, McCutchen was left with a net recovery of $66,000. Given McCutchen’s total recovery of $110,000 and based upon a reimbursement provision if McCutchen recovered money from a third party, the ERISA plan sought recovery of the $66,866 it paid on his behalf.

The district court granted summary judgment in favor of the ERISA plan, holding that it could recover from McCutchen the full amount it paid. The Third Circuit vacated the district court’s judgment, noting that McCutchen would be left with less then full payment for his medical bills and the result would give a windfall to the plan. The Supreme Court reversed, holding that while the ERISA plan could recover the medical expenses paid, any recovery had to be reduced proportionately - pursuant to the common-fund doctrine - by the amount of attorneys’ fees incurred in the lawsuit against the third-party tortfeasor.

In a 5-4 decision, the Supreme Court reasoned that the ERISA plan’s governing documents did not explicitly provide that the plan had first priority to reimbursement from third-party recoveries.

Justice Elena Kagan wrote the majority opinion, noting that full reimbursement from McCutchen produced the odd outcome whereby McCutchen was in a worse position by pursuing and obtaining a third-party recovery:

Without cost sharing, the insurer free rides on its beneficiary’s efforts – taking the fruits while contributing nothing to the labor.”

Instead of permitting the ERISA plan to recover up to the amount of McCutchen’s net recovery (i.e., $66,000), the Court held that where the plan does not specify rules for allocating a third-party recovery between the plan and the participant, the common-fund doctrine provides the default allocation rules. McCutchen was therefore entitled to retain 40% of his net recovery as his “attorney fee” for recovering a common fund for the benefit of another.

The Court unanimously agreed that equitable principles cannot override the plain terms of an ERISA plan. However, the dissent, which was authored by Justice Antonin Scalia, would not have applied the common-fund doctrine because it disagreed that the plan’s terms were ambiguous. Justice Scalia stated that the Court granted certiorari based on an understanding that the plan’s terms unambiguously allowed for full reimbursement from third-party recoveries without any reduction for attorneys’ fees and costs.

Supreme Court Considers Accrual of Statute of Limitations in ERISA LTD Plan

Misty Murray — Tue, 16 Apr 2013 13:19:53 -0800

On April 15, 2013, the United States Supreme Court agreed to review a case involving the question of when the statute of limitations accrues for judicial review of an adverse benefits determination under an ERISA long-term disability plan.

On November 18, 2010, Julie Heimeshoff (“Heimeshoff”) filed suit against Hartford Life & Accident Insurance Company (“Hartford”) and her former employer, Walmart Inc., after Hartford denied her claim for benefits under a long-term disability plan established by Walmart (the “Plan”). See Heimeshoff v. Hartford Life & Accid. Ins. Co, et al., 2012 U.S. Dist. LEXIS 6882 (D. Conn. 2012).

Hartford filed a motion to dismiss on the ground that Heimeshoff’s claim was barred by the three-year contractual limitations period in the Plan, which provided as follows: “Legal action cannot be taken against The Hartford . . . 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.” As to proof of loss, the Plan required that “[w]ritten proof of loss must be sent to The Hartford within 90 days after the start of the period for which The Hartford owes payment.”

The district court granted Hartford’s motion to dismiss because Heimeshoff filed her complaint more than three years after proof of loss was required to be furnished under the Plan. In doing so, the district court rejected Heimeshoff’s argument that the Plan provision was ambiguous and that the limitations period did not begin to run until the final denial latter. The Court also rejected her argument that Hartford could not rely on the limitations period because it failed to advise Heimeshoff of the limitations period in the denial letter.

The Court of Appeal for the Second Circuit affirmed, holding that, under Connecticut law, parties to an insurance contract may shorten the limitations period and that the “policy language is unambiguous and it does not offend the statute to have the limitations period begin to run before the claim accrues.”

Heimeshoff filed a petition for writ of certiorari, which the Supreme Court granted on April 15, 2012, as to the following question: “When should a statute of limitations accrue for judicial review of an ERISA disability adverse benefit determination?” Heimeshoff v. Hartford Life & Accid. Ins. Co, et al., Case No. 12-729.

The Supreme Court’s decision will be important because ERISA does not provide a limitations period for actions for plan benefits under 29 U.S.C. § 1132. As a result, federal courts apply the applicable state statute of limitations period that is most analogous or, if permitted, federal courts will apply the contractual limitations period, which may be shorter than the state statute. Thus, the Court’s decision will provide uniformity on the accrual of benefit claims under contractual limitations periods in ERISA group policies.

Supreme Court Directs Trial Courts To Look At The Merits In Determining Whether To Certify A Class

Barger & Wolen LLP — Mon, 01 Apr 2013 14:25:56 -0800

By Michael A.S. Newman

Comcast v Behrend is the latest in a series of United States Supreme Court cases in recent years that have restricted the ability of plaintiffs to certify federal class actions. In so doing, it has expanded the scope of the Court's landmark 2011 decision, Walmart v. Dukes (click here for our analysis of that decision).

In Comcast, plaintiffs were subscribers to Comcast's cable-television services. Plaintiffs alleged that Comcast engaged in a practice called "clustering," a strategy of concentrating operations within a particular region, and that this practice violated antitrust law. In particular, plaintiffs alleged that the clustering scheme harmed subscribers in the Philadelphia area by eliminating competition and elevating prices.

Plaintiffs sought to certify the class under Federal Rules of Civil Procedure, Rule 23(b)(3), which permits certification only if:

the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members."

The district court held that to meet this predominance requirement, plaintiffs needed show:

that the existence of individual injury "was capable of proof at trial through evidence that [was] common to the class rather than individual members" and
that the damages resulting from the injury were measurable "on a class-wide basis" through the use of a "common methodology."

Plaintiffs proposed four theories of antitrust impact. Of these four theories, the district court concluded that only one was capable of class-wide proof, and rejected the rest.

In establishing that damages could be calculated on a class-wide basis, plaintiffs introduced the testimony of an expert, who introduced a model that calculated damages of over $875 million for the entire class. However, despite the fact that the district court had rejected three, and allowed only one, theory of antitrust impact, the model introduced by the expert did not isolate damages resulting from any one theory of antitrust impact.

The District Court approved the certification of the class, and Third Circuit Court of Appeal affirmed. The Supreme Court, in a 5-4 decision authored by Justice Antonin Scalia, overturned these rulings, holding that the class action was improperly certified.

As Justice Scalia explained,

a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)."

The Court rejected the reasoning of the Third Circuit that such inquiry would involve consideration into the "merits," which, the Third Circuit believed, has "no place in the class certification inquiry." To the contrary, Justice Scalia explained, "our cases requir[e] a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim."

Comcast is part of a recent trend in Supreme Court jurisprudence allowing, and indeed even requiring, district courts to examine the merits of the claim in determining the suitability of class certification.

This principle was announced in Walmart v. Dukes, and it is no accident that the Court begins the analysis section of Comcast with an invocation from that 2011 ruling. Moreover, Comcast extends the ruling of Walmart v. Dukes, which considered only Rule 23(a) (the requirement that plaintiffs establish commonality), to the predominance requirement of Rule 23(b)(3).

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

Supreme Court Closes CAFA Loophole

Barger & Wolen LLP — Wed, 20 Mar 2013 10:18:26 -0800

By Larry Golub

A unanimous decision by the United States Supreme Court has restored the integrity of the Class Action Fairness Act, or CAFA. At issue in Standard Fire Insurance Co. v. Knowles was the transparent attempt by a named plaintiff to ouster federal court jurisdiction by “stipulating” that the damages sought through a class action complaint would not exceed the $5,000,000 minimum jurisdictional limit of CAFA.

In a brief and direct decision, Justice Stephen Breyer disallowed the use of such a pre-certification stipulation, concluding that prior to the issuance of any certification order, a named plaintiff does not have the ability to bind absent class members and to concede the value of those class members’ claims.

Knowles was the named plaintiff in an action filed in Arkansas state court against Standard Fire concerning an alleged practice of failing to include general contractor fees in homeowner’s insurance loss payments. The complaint filed by Knowles, as well as an attachment to the complaint, contained a stipulation that Knowles and the Class would not seek to recover damages “in excess of $5,000,000 in the aggregate.”

Accordingly, after Standard Fire removed the action to federal court under CAFA jurisdiction, Knowles moved to remand the action back to state court based on the stipulation that Knowles claimed made the “amount in controversy” fall beneath the $5,000,000 CAFA threshold and therefore defeated jurisdiction under CAFA. While the federal district court agreed with Knowles, other cases reached the opposite view, and thus the issue ended up at the Supreme Court.

In Knowles, the district court had found that the amount at issue would have exceeded the $5,000,000 minimum limit, but for the stipulation. As such, the Supreme Court had little difficulty concluding that the stipulation was ineffective to bind absent class members because, at the precertification stage, the proposed class members are not yet – and potentially never will be – parties to the action, and thus the named plaintiff cannot bind those non-parties. At the pre-certification stage, the named plaintiff cannot bind “anyone but himself.”

In enacting CAFA, Congress sought to relax the jurisdictional threshold of class actions and ensure “Federal court consideration of interstate cases of national importance.” The unilateral “stipulation” attempted in Knowles and in other cases not only frustrated the intent of Congress but also prejudiced the claims of absent class members. The Supreme Court correctly restored the balance in CAFA.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

SCOTUS Declines Review in Case Allowing Health Care Provider to Pursue State Law Misrepresentation Claims Against ERISA Health Plan

James Hazlehurst — Fri, 01 Mar 2013 09:00:00 -0800

The United States Supreme Court recently denied certiorari in a Fifth Circuit case, United Healthcare Insurance Co. v. Access Mediquip LLC, that allowed a health care provider to pursue state law misrepresentation claims against an ERISA-governed health insurance plan.

The provider, a medical device company, alleged that it supplied devices to patients based on representations from the ERISA plan that it would reimburse reasonable charges for the devices and related services.

The District Court ruled that ERISA preempted the state law misrepresentation claims. The Fifth Circuit reversed, holding that the state law claims could go forward because the alleged misrepresentations were based on promises of reimbursement, rather than the terms of the ERISA plan. That ruling drew a distinction between plan beneficiaries and healthcare providers with respect to reimbursement representations – ERISA preempted the former but not the latter.

Update: Approval Slated for $73 Million Settlement of Life Insurance Class Action Alleging Unlawful Rate Increase

James Hazlehurst — Thu, 28 Feb 2013 14:02:44 -0800

United States District Judge Howard Matz of the Central District of California indicated yesterday that he would preliminarily approve a proposed $73 million settlement of a class action lawsuit against Conseco Life Insurance Company.

The case was filed in 2011 after the named plaintiff, Celedonia Yue, obtained a judgment in a separate action declaring that premium rate hikes and cost-of-insurance increases (monthly charges based on the insured’s age) violated her policy’s provision for determining cost-of-insurance rates.

The class action, which includes more than 45,000 California policyholders, consists of both policyholders with in-force policies and former policyholders whose policies lapsed or were terminated in connection with the increases. The proposed settlement, among other things, will reduce the premium and cost-of-insurance increases and allow for reinstatement of terminated or lapsed policies. Former policyholders who do not wish to reinstate their policies are eligible for a cash payment.

A further hearing is set for March 7, 2013. Barger & Wolen will continue to follow this case.

UPDATE: On March 6, 2013, District Judge Howard Matz issued findings and an order for preliminary approval of the proposed settlement and directing notice of the settlement to the class members. Judge Matz found that the proposed settlement, which was reached after the parties had engaged in discovery, was the result of arm's length negotiations and was sufficiently fair and reasonable to warrant sending notice of the settlement to the class members.

The court will rule on final approval of the settlement at a fairness hearing scheduled for June 10, 2013.

Recovery From Dissolved Corporation's Liability Insurer Barred By Foreign Survival Statute

James Hazlehurst — Tue, 26 Feb 2013 11:21:46 -0800

The recent case of Greb v. Diamond International Corp. highlights the need for dissolved corporations and their insurers to consider the survival statute of their state of incorporation when defending against actions brought in California.

In Greb, the California Supreme Court held that California law does not preclude the application of a foreign jurisdiction’s survival statute. The defendant, a Delaware corporation, argued that Delaware’s three-year survival statute barred the action. Plaintiffs contended that California corporate law – which places no time limit on suits against dissolved corporations – governed their suit.

The trial court agreed with the defendant and sustained its demurrer with prejudice on the grounds that Delaware’s survival statute barred the action which was filed more than three years after defendant dissolved. The court of appeal affirmed.

The Supreme Court unanimously affirmed the appellate court’s judgment. The opinion, authored by Chief Justice Cantil-Sakauye, rejected plaintiffs’ arguments that foreign corporations that qualified to do business in California were thereby organized under the laws of California.

The court found “no evidence” that the legislature intended to accomplish that “dramatic result.” Furthermore, “such a scheme would require foreign corporations to ‘follow a litany of requirements regarding various corporate activities that their home state already regulates.’”

For more information on this matter, please contact the article authors: James Hazlehurst, Ed Oster or Robert Renner.

Representations Of Future Tax Treatment To Induce Creation Of Pension Plan Are Not Actionable As A Matter Of Law

Edwin Oster — Fri, 15 Feb 2013 11:01:05 -0800

The California Fourth District Court of Appeal adopted the principle that:

it is inherently unreasonable for any person to rely on a prediction of future IRS enactment, enforcement, or non-enforcement of the law by someone unaffiliated with the federal government. As such, the reasonable reliance element of any fraud claim based on these predictions fails as a matter of law,” citing Berry v. Indianapolis Life Insurance Co.

In Brakke v. Economic Concepts, Inc., the trustee of a defined benefit plan and the principals of the company that established it brought suit against American General Life Insurance Company, Economic Concepts, Inc. and others for alleged fraud. The plaintiffs alleged they were induced to establish the pension plan by false representations that contributions to the plan were tax deductible under the Internal Revenue Code. Years after the plan was established, the Internal Revenue Service made an adverse ruling that the pension plan did not qualify for favorable tax treatment and required plaintiffs to pay back taxes and penalties.

The dispositive issues were whether defendants’ statements were actionable misrepresentations and if so, whether plaintiffs could establish reasonable reliance. The trial court sustained a demurrer without leave to amend.

On a purely factual basis, the appellate court noted inconsistencies between allegations in the complaint and exhibits to the complaint concerning the representations. More importantly, the representations were made and the plan was established in 2002-2003, whereas the IRS did not rule until 2006. This led the court to conclude that plaintiffs failed to allege the statements by defendants were false when made.

Equally fatal to plaintiffs’ position was the court’s reference to and reliance upon the Berry decision quoted above, albeit non-controlling, and analogous case law in California such as Holder v. Home Sav. & Loan Assn. (1968) (“statements with regard to future assessments or levies of taxes … made by a private person ... may not justifiably be relied on.”). The rationale in Holder was that:

“[t]he fixing of assessed values of property and of tax rates is solely within the power of public officials, whose decisions are not and should not be subject to control by a property owner.”

As a result, the Fourth District affirmed dismissal of the entire case.

Potential plaintiffs in comparable circumstances will need to find a more creative way around the court’s straightforward directive:

[I]t simply was not reasonable for plaintiffs to rely on representations concerning how the IRS would treat their pension plan in the future.”

Trial Court Abuses Its Discretion by Forcing Insurer to Bear the Cost of Giving Notice to Putative Class Members

Barger & Wolen LLP — Wed, 23 Jan 2013 08:54:48 -0800

By David McMahon

In In re Insurance Installment Fee Cases, 2012 DJDAR 16696 (2012), the California Court of Appeal for the Fourth Appellate District decided an important class action cost recovery issue. The case arose in the insurance context.

A class action was filed against State Farm (“State Farm”) by a class representative. The representative pursued discovery seeking access to the class members’ personal and payment information, designed to identify which insureds might be eligible as plaintiffs in the class. State Farm objected to the discovery requests. The plaintiff filed motions to compel the requested documents and the parties agreed to refer the dispute to a discovery referee. The discovery referee overruled State Farm’s objections. State Farm filed written objections to the referee’s recommendation which were subsequently overruled by the trial judge. The trial court also ordered State Farm to pay for and to mail out the notices regarding the discovery propounded by the plaintiffs. The merits of the litigation were subsequently decided in favor of State Farm.

State Farm filed a memorandum of costs after prevailing at the trial court level. In the cost memorandum State Farm sought to recover the $713,463 it incurred in sending out the notices to putative class members. The plaintiffs filed a motion to tax those costs. The trial court granted the motion to tax costs in its entirety.

The court of appeal reversed the trial court’s decision in part, and concluded the trial judge abused his discretion in taxing the costs relating to the mailing of the notices to putative class members.

The court of appeal noted that certain cost items may be awarded in the trial court’s discretion if they are “reasonably necessary to the conduct of the litigation.” CCP § 1033.5(c)(2) and Seever v. Copley Press, 141 Cal. App. 4th 1550, 1558 (2006).

However, when a party demands discovery involving significant “special attendant costs” beyond those typically involved in responding to routine discovery, the demanding party should bear those costs if the party is not successful in prevailing in the litigation.

In reversing the trial court’s decision, the court of appeal reasoned that the costs State Farm incurred in providing the notice were “special attendant” costs beyond those involved in responding to routine discovery.

Originally posted to Barger & Wolen's Litigation Management & Attorney Fee Analysis blog.

Program for Definitive Disability Conference Set!

Barger & Wolen LLP — Fri, 18 Jan 2013 10:36:47 -0800

If you are serious about either DI or LTD litigation or claims operations, the inaugural Definitive Disability Conference is for you!

The conference's agenda, program and speakers are all set. The full program and agenda can be found here, but our speakers include:

David A. Barron, Associate General Counsel, Mutual of Omaha Insurance Company
Bryan D. Bolton, Founding Member, Funk & Bolton, P.A.
Andrew J. Cohen, Secretary & General Counsel, Disability Management Services, Inc.
J. Christopher Collins, Senior Vice President & General Counsel, Unum US
William Demlong, Shareholder, Kunz, Plitt, Hyland & Demlong PC
Anne J. Farina, AVP & Senior Counsel, Sun Life Financial
Robert E. Hess, Partner, Barger & Wolen LLP
Annie Hong, Senior Operations Representative, Life Insurance Company of North America
Jeffrey Krivis, Mediator, First Mediation Corporation
John M. Lucas, Vice President & Associate General Counsel, Disability Income & Claims, Ameritas Life Insurance Corp.
Jacqueline Mallon, Assistant Vice President of Complex Operations Risk Management, Metropolitan Life Insurance Company
John E. Meagher, Partner, Shutts & Bowen LLP
Misty A. Murray, Of Counsel, Barger & Wolen LLP
Mark K. Ostrowski, Partner, Shipman & Goodwin LLP
Cheryl D. Provost, Director, Disability Claims, Business Process Services, CSC Financial Services Group
Stephen J. Prunier, Second Vice President & Counsel, Berkshire Life Insurance Company of America
Martin E. Rosen, Partner, Barger & Wolen LLP
Mark E. Schmidtke, Shareholder, Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Ernest Patrick Smith, Partner, Nawrocki Smith LLP
Ronda S. Tranter, Assistant Vice President & Senior Counsel, Colonial Life Insurance Company

Early Bird Registration for Definitive Disability Conference Expire on 1/31/2013

Barger & Wolen LLP — Fri, 11 Jan 2013 10:26:15 -0800

Early bird registration discounts for the inaugural Definitive Disability Conference are set to expire on January 31, 2013. Fax or e-mail your registration form in today to lock in your discounted rates.

About the Definitive Disability Conference (DDC)

On May 16-17, 2013, Barger & Wolen will host the inaugural Definitive Disability Conference in Boston, an industry conference designed for in-house counsel and experienced claim personnel. The conference will be chaired by Martin Rosen, who heads Barger & Wolen’s Disability, Life and Health practice group.

The primary objectives for the Definitive Disability Conference are: (1) to create a conference focused solely on disability insurance issues; (2) to design the conference with the experienced disability insurance professional in mind; (3) to limit the conference to industry-related personnel and their counsel; and (4) to ensure that the conference provides great value for the price.

To accomplish these goals, Marty has secured speakers from the following companies, law firms and other entities:

Ameritas
Berkshire Life Insurance Company of America
Cigna
Colonial Life Insurance Company
CSC Financial Services Group
Disability Management Services, Inc.
First Mediation Corporation
Funk & Bolton, P.A.
Kunz, Plitt, Hyland & Demlong PC
Metropolitan Life Insurance Company
Mutual of Omaha Insurance Company
Nawrocki Smith LLP
Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Shipman & Goodwin LLP
Shutts & Bowen LLP
Sun Life Financial
Unum Group

We are very excited about the inaugural conference and look forward to seeing you in Boston next spring.

For more information, please click on the following hyperlinks:

Definitive Disability Conference

Conference Program and Agenda

Speakers

Sponsorship Opportunities

Legal Challenges to ACA Not Quite Finished

John LeBlanc — Mon, 26 Nov 2012 09:50:18 -0800

If you thought that the legal battle over the constitutionality of the Patient Protection and Affordable Care Act ("ACA") was put to rest in NFIB v. Sebelius, you may want to pay attention to Liberty University v. Geithner.

Today, the United States Supreme Court granted certiorari and then returned the case to the U.S. Court of Appeals for the Fourth Circuit to consider new challenges to the ACA.

In its lawsuit, among other things, Liberty University contended that the ACA violates its First Amendment religious freedoms through the funding of abortions and other practices that it maintains are at odds with the core beliefs of the school. Liberty University also challenged the so-called "employer mandate" that requires all employers employing 50 or more people to provide health coverage to those employees, or face a penalty.

The Fourth Circuit had previously held that the mandates were "taxes," but dismissed the case for lack of jurisdiction on the grounds that the federal Anti-Injunction Act did not permit the federal courts to consider the legality of the tax until it went into effect. Because it dismissed the case on jurisdictional grounds, it did not rule on the merits of the religious freedom and employer mandate arguments. Liberty University sought review in the Supreme Court, which was denied.

In NFIB v. Sebelius, the Supreme Court unanimously held that the Anti-Injunction Act did not preclude the federal courts from deciding the constitutionality of a "tax" only after it goes into effect. Liberty University therefore filed a motion for rehearing, and the Supreme Court ordered the Department of Justice to file a response. In a somewhat surprising move, the DOJ did not oppose Liberty University's motion for pre-hearing, paving the way for today's ruling from the Supreme Court.

On remand, the Fourth Circuit will now have to consider Liberty University's arguments on their merits, and its rulings could conceivably make their way back to the Supreme Court.

Barger & Wolen Launches Disability Insurance Industry Conference

Barger & Wolen LLP — Tue, 23 Oct 2012 09:32:45 -0800

We at Barger & Wolen have exciting news to share with you.

On May 16-17, 2013, we will host the inaugural Definitive Disability Conference in Boston, an industry conference designed for in-house counsel and experienced claim personnel. The conference will be chaired by Martin Rosen, who heads Barger & Wolen’s Disability, Life and Health practice group.

To accomplish these goals, Marty has secured speakers from the following companies, law firms and other entities:

Ameritas
Berkshire Life Insurance Company of America
Cigna
Colonial Life Insurance Company
CSC Financial Services Group
Disability Management Services, Inc.
First Mediation Corporation
Funk & Bolton, P.A.
Kunz, Plitt, Hyland & Demlong PC
Metropolitan Life Insurance Company
Mutual of Omaha Insurance Company
Nawrocki Smith LLP
Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Shipman & Goodwin LLP
Shutts & Bowen LLP
Sun Life Financial
Unum Group

We are very excited about the inaugural conference and look forward to seeing you in Boston next spring.

For more information, please click on the following hyperlinks:

Definitive Disability Conference

Conference Program and Agenda

Speakers

Sponsorship Opportunities

More than 20 new insurance-related bills signed into law by Governor Brown

Barger & Wolen LLP — Tue, 02 Oct 2012 10:55:33 -0800

By Sam Sorich

September 30, 2012, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2012 regular legislative session.

Here are summaries of noteworthy insurance-related bills that were signed into law. All of these new laws will go into effect on January 1, 2013.

Senate Bills

SB 863 increases workers’ compensation permanent disability benefits by an estimated $750 million per year, phased in over a two-year period. The new law changes several aspects of the workers’ compensation system. Among other things, SB 863 creates an independent medical review process for resolving medical care disputes, establishes an independent bill review process for resolving medical billing disagreements, adopts a statute of limitations for workers’ compensation liens, and restricts the reasons that can be used to avoid obtaining treatment within a medical provider network.

SB 1216 conforms California law to the revisions made to the NAIC Credit for Reinsurance Model Law (adopted in 2011). Among other things, SB 1216 establishes criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers qualifies as an asset or credit against the liabilities of a ceding insurer.

SB 1234 and SB 923 create the California Secure Choice Retirement Savings Investment Board which is charged with conducting a market analysis to determine if the necessary conditions for implementation can be met and then report to the Legislature as to whether a statewide retirement savings plan for private employees, who do not participate in any other type of employer-sponsored retirement savings plan, should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.

SB 1298 establishes conditions for the operation of autonomous vehicles on public roadways for testing purposes. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 conforms California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act (adopted in 2010). Among other things, SB 1448 requires the board of directors of an insurer, which is part of a holding company system, to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls. In addition, SB 1448 authorizes the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company.

SB 1449 permits the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 expands the investment options available to the State Compensation Insurance Fund.

Assembly Bills

AB 53 requires each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report is due July 1, 2013. An insurer is required to update its report biennially. AB 53 includes a January 1, 2019 sunset date.

AB 999 revises the standards used by the insurance commissioner to approve the rates for long-term care insurance. AB 999 prohibits an insurer from using asset investment yield changes to justify a rate increase for long-term care policies unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies; or the insurance commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in California. AB 999 requires all of the experience on all similar long-term care policy forms issued by an insurer and its affiliates and retained within the affiliated group to be pooled together and used as the basis for determining whether a rate increase is reasonable.

AB 1631 removes the January 1, 2013, repeal date for the existing law which permits a person admitted to the bar of another state to represent a party in a California arbitration proceeding.

AB 1708 authorizes auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format is allowed to be presented to a peace officer.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium.

AB 1875 limits the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit.

AB 1888 allows a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle. Attendance at the school prevents the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school does not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 establishes new permitted types of blanket insurance policies and expands the list of eligible policyholders who can purchase blanket insurance.

AB 2138 gives the insurance commissioner the authority to require every admitted disability insurer, and every other entity liable for any loss due to health insurance fraud, to pay an annual maximum fee of 20 cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is 10 cents. AB 2138 allows an insurer to recoup the fee through a surcharge on premiums or by including the fee in the insurer’s rates.

AB 2160 requires the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here.

AB 2219 removes the January 1, 2013, repeal date for the existing law which requires a contractor with a C-39 roofing classification to obtain and maintain workers’ compensation insurance even if he or she has no employees. AB 2219 also removes the January 1, 2013, repeal date for the existing law which requires an insurer that issues a workers’ compensation insurance policy to a roofing contractor, who holds a C-39 license, to perform an annual payroll audit for the contractor. AB 2219 adds the requirement that the insurer’s audit must include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate.

AB 2298 prohibits an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2301 modifies the definition of “covered claims” in the Insurance Code article relating to the California Insurance Guarantee Association (CIGA) to make clear that a covered claim is one which is presented to the liquidator in the state of domicile of the insolvent insurer or to CIGA.

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 abolishes the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also repeals the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 revises the licensing requirements for travel insurance agents.

AB 2406 requires the Department of Insurance to publish on the Department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

Podcast: Impact of Recent California Legislation

Barger & Wolen LLP — Wed, 19 Sep 2012 13:26:46 -0800

Sam Sorich recently participated on an A.M. Best podcast where he addressed recent legislation passed by the State of California, and the potential impact of these bills on insureds and the upcoming election.

You can listen to the podcast here.

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

Administrative Law Judge Invalidates Fair Claims Settlement Practices Regulations by California Department of Insurance

Barger & Wolen LLP — Wed, 12 Sep 2012 08:28:00 -0800

By Robert Hogeboom

Insurance companies could soon be off the hook for stiff penalties and fines imposed by the California Department of Insurance’s (“CDI”) for violations of the Fair Claims Settlement Practices Regulations (“FCPR”). This is according to California Administrative Law Judge Stephen J. Smith, who recently issued a 51-page ruling finding the CDI’s Fair Claims Settlement Practices Regulations might not be brought as unfair claims acts.

This ruling affects how the CDI has imposed penalties against insurers for claims since the inception of the FCPR in 1992. Since that time, only two cases have gone to adjudication challenging the procedure, and fines, as most insurance companies have chosen to settle. In both cases, the insurance companies -- an auto insurer and a life and health insurer -- retained Robert Hogeboom, senior insurance regulatory attorney with Barger & Wolen, to represent them.

In the most recent decision, Judge Smith’s ruling was based on the CDI’s Order to Show Cause (“OSC”) action alleging 697 violations against the five Torchmark groups of life and health insurers.

According to Hogeboom,

This ruling is an extraordinary indictment of the FCPR because for the past 20 years the CDI has required insurers to follow the FCPR under threat of an OSC proceeding and large fines."

This may also result in changes to Market Conduct Examinations if they are to serve as the basis for an OSC proceeding.

The decision will impact all lines of insurance regulated by the DOI.

Full Analysis of the Decision

On August 25, 2012, California Administrative Law Judge Stephen J. Smith, issued a 51-page ruling that found the California Department of Insurance’s (“CDI”) Fair Claims Settlement Practices Regulations (“FCPR”) may not be asserted as unfair claims acts. The ruling affects how the CDI has asserted penalties since the inception of the FCPR in 1992 in Order to Show Cause proceedings based on Market Conduct Examinations. Robert Hogeboom of Barger & Wolen represented the successful insurer, the Torchmark group of five life and health insurers, in the proceeding.

Judge Smith’s ruling was issued in the form of an Order pursuant to the CDI’s Order to Show Cause (“OSC”) action alleging 697 violations against the five Torchmark group of life and health insurers. The violations were based primarily on violations of the FCPR contained in § 2695.1 et seq. of Title X, California Administrative Code. The OSC was issued following the CDI’s Market Conduct Claims Examination which examined Torchmark’s life and health claims settlement practices principally through application of the FCPR.

On behalf of Torchmark, Barger & Wolen filed a denial of the allegations in the OSC followed by a Motion to Strike the FCPR allegations. The motion relied on California Government Code § 11506 to challenge the FCPR as improper to seek monetary penalties and a cease and desist order. A four-hour legal argument on the Motion occurred on May 25, 2012, before Judge Smith. In the court’s extensive ruling, which contained 150 separate findings, the court ruled that:

None of the standards prescribed in the FCPR appear anywhere in California Insurance Code § 790.03 (pursuant to which statute the CDI adopted the FCPR); these are additional standards added exclusively by regulatory action of the CDI.
The FCPR as applied are unenforceable pursuant to California Government Code §§ 11152 and 11342.2, which establish the test for determining the validity of regulations. Specifically, the court held that § 2695.1 of the FCPR improperly creates new unfair standards and duties within the meaning of Insurance Code § 790.03(h), which subjects insurers to the penalty provisions of Insurance Code § 790.035 for failure to meet those standards.
The FCPR through CCR § 2695.1(a) dramatically and impermissibly expands the scope, nature and reach of the 16 unfair claims settlement practices set forth in Insurance Code § 790.03(h)(1)-(16). The court held that new unfair acts may only be promulgated by the legislature or through the process set forth in Insurance Code § 790.06.
The CDI’s language in CCR § 2695.1 impermissibly amends Insurance Code § 790.03(h) such that a violation can be proved by means of a single knowing act or by proof of a general business practice, which amendment lowers the burden of proof and quality of evidence necessary for the CDI to prove a violation of § 790.03(h). In order to assert a violation of § 790.03(h), proof must be shown that the violation was both knowingly committed and performed with such frequency as to reflect a general business practice.
An OSC drawn from the conclusions or statements in a Market Conduct Examination is improper to support a valid pleading. Such examinations lack specificity about each act. OSC pleadings must assert violations under Insurance Code § 790.03(h)(1)-(16) and pleadings must set forth the charges and allegations in ordinary and concise language, such that the acts or omissions of which the respondent is charged may be reasonably ascertained.

Hogeboom’s observations on the ruling are the following:

The ruling is an extraordinary indictment of the FCPR and how for the last 20 years the CDI has required insurers to follow the FCPR under threat of an OSC proceeding and large fines.
The ruling will require the CDI to plead OSCs using pertinent facts relating to each specific transaction.
The ruling may result in changes made to Market Conduct Examinations if they are to serve as the basis for an OSC proceeding.
The ruling requires the CDI to show a general business practice as a condition for a violation of claims settlement practices specified in § 790.03(h)(1-16).
The ruling also covers all Insurance Code § 790.03 unfair practices. Accordingly, this brings into question the validity of the § 790.03 penalty provisions in the recent regulation containing the standards for homeowners’ estimates of replacement value contained in CCR § 2695.183 and the long-standing broker fee regulations in CCR § 2189.5.

Because of the impact of this decision on the claims regulations and market conduct examinations, Mr. Hogeboom will hold a seminar on the background of the FCPR, the court’s decision and Market Conduct Examinations in the near future. Mr. Hogeboom is also available to meet with specific insurers at their home offices upon request.

For more information or for a copy of the ruling, please contact Robert Hogeboom at (213) 614-7304 or via e-mail; or Mr. Hogeboom’s assistant, Veronica Montero-Kossak, at (213) 680-2800 ext. 7204 or via e-mail.

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

Update: California Health Insurance Initiative Will Be on the Ballot in November 2014

Barger & Wolen LLP — Fri, 24 Aug 2012 15:14:37 -0800

by Larry Golub

On June 28, we reported that a proposed initiative that would bring prior approval of rates for health insurance to California had failed to qualify for the November 2012 California ballot.

An earlier blog addressed in more detail that the the initiative would have:

given the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012;
required health insurers’ rate applications to be accompanied by a sworn statement by the insurer’s chief executive officer declaring that the contents of the application were accurate and complied in all respects with California law; and
required health insurers to pay refunds with interest if the Commissioner determined that the company’s rates were excessive.

While the initiative failed to qualify for the November 2012 ballot, we observed that the backers of the initiative were seeking to obtain the requisite number of valid signatures to place the initiative on the next general election ballot in November 2014.

According to the Secretary of State, on August 23, 2012, the initiative qualified for the general election to occur on November 4, 2014.

This will ensure plenty of time for both sides to present to the California electorate their arguments in favor of and against the as-of-yet un-numbered proposition. We will continue to update developments on this ballot initiative.

Supreme Court Upholds Affordable Care Act, But Just Barely

Barger & Wolen LLP — Mon, 20 Aug 2012 09:14:45 -0800

Barger & Wolen partner John LeBlanc and summer associate Natalie Ferrall wrote an article published in the Westlaw Journal – Insurance Coverage on Aug. 10, 2012, about the Supreme Court's closely watched ruling on healthcare reform and how the court found its controversial individual mandate to be constitutional.

In their article, LeBlanc and Ferrall note that the court focused on two key provisions of the Patient Protection and Affordable Care Act: the individual mandate, requiring most Americans to have insurance coverage; and the Medicaid expansion requirement which, had the court not struck it down, would have required states to meet certain federal requirements to receive funding. The article provided legal context and background on the Affordable Care Act and discussed how the court came to the conclusion that the law was “mostly constitutional.”

“In doing so, the court emphasized that its role was not to address the soundness of federal policy, but rather to interpret the law and enforce limits on federal power,” LeBlanc and Ferrall wrote.

Please click on the link to download the PDF: Supreme Court Upholds Affordable Care Act, But Just Barely.

Abandoned Property: Complying with California's Unclaimed Property Laws

Barger & Wolen LLP — Thu, 16 Aug 2012 14:37:21 -0800

Robert Hess will be a presenter at the Western Claim Conference in Indian Wells on Aug. 21, 2012, on a hot topic in the life insurance industry: Abandoned Property.

The presentation will discuss recent legislation and settlements reached in the industry between large life insurers and various state enforcement agencies and will provide a roadmap for complying with the states' new unclaimed property laws.