Although we’re not lawyers or a law firm, paying attention to recent court cases and rulings helps us keep up with the constantly changing rules and regulations of disability insurance claims. In the recent past, we’ve seen two cases taken up by the U.S. Supreme Court as well as a few other cases that affect the way the disability insurance companies treat insureds and their claims and the options to be considered by claimants. These court rulings set precedents and rules for many future claims and help form the disability claims process almost as much as claims examiners or company policies. Today’s blog post is going to explore a few of the more relevant cases and their effects on disability claims.
Heimeshoff v. Hartford Life & Accident Insurance Company: This is a case the Supreme Court has decided to hear involving the statute of limitations regarding a filing a lawsuit after the termination or denial of benefits subject to ERISA. The 2nd Circuit Court of Appeals issued an opinion in September 2012 affirming the insurance company’s decision to deny a claim for benefits based upon the expiration of the 3-year period in the policy contract. There are a couple of aspects to this story that may affect many disability claims.
In December 2005, the plaintiff, diagnosed with Fibromyalgia, was denied LTD benefits by Hartford due to not providing enough proof of disability. He went through the appeals process, as required under ERISA, which went on for two years, ending in November 2007 with the claimant receiving a final denial letter from Hartford. After this denial, the claimant obtained legal representation and filed a lawsuit to challenge the denial in November 2010. The Second Circuit Federal court dismissed the lawsuit on the grounds that it was barred by the 3-year limitation period on litigation contained in the LTD policy. The question at hand is: Can the clock on the limitation period for litigation begin before the claimant is even eligible to file litigation?
The claimant was not eligible to file a lawsuit until the denial of his final appeal, which left less than one year to file a lawsuit, according to Hartford’s interpretation of the policy. The Federal district court and court of appeals affirmed this decision and found that ERISA doesn’t prohibit these contractual limitations from beginning before the claimant is even able to file a lawsuit. In their exact words: “the policy language is unambiguous and it does not offend [ERISA] to have the limitations period begin to run before the claim accrues.” The claimant argued that this decision contradicts the ERISA requirement that all administrative resources be exhausted before be able to file a lawsuit.
This case stands to have a significant impact on the way claimants have to treat deadlines in their ERISA claims. If the Supreme Court affirms the 2nd Circuit’s opinion, that means deadlines will start to count down from the time “proof of loss” is required by the insurance company. So even though claimants can’t file lawsuits until after the final ERISA required appeal has been denied, the time to prepare and file a lawsuit has been dwindling the entire time. If the Supreme Court chooses to reverse the decision, the time period to prepare and file litigation for LTD benefits will be expanded significantly. This is just another good reason to be prepared for any outcomes when preparing and filing your claim for LTD benefits. You don’t want to be caught unprepared if you find yourself in a scenario such as this.
U.S. Airways, Inc. v. McCutchen: This is another ERISA case on which the Supreme Court just released its ruling. In short, without a policy provision stating otherwise, the amount an ERISA plan can recover from a third-party lawsuit must be proportionately reduced by the attorneys’ fees and expenses incurred by the participant in the lawsuit. This specific case involves a claimant who was injured in a car accident, received benefits from their ERISA health insurance plan, and later sued the other driver and their insurance company and won a judgement. After the attorneys’ fees were paid from the judgement, the claimant didn’t even have enough left to reimburse the entire amount paid by the health insurer. The insurer continued to demand payment in full, so the case was taken to court.
Although a lower district court ruled the full amount was due the insurer regardless of attorneys’ fees, the Supreme Court reversed this decision and ruled the insurance company was only due reimbursement after their proportional share of the attorneys’ fees. The justification in the opinion was well stated: “Without cost sharing, the insurer free rides on its beneficiary’s efforts – taking the fruits while contributing nothing to the labor.” This proportional cost sharing will be used unless the policy has specific provisions saying otherwise. This can affect claimants who are able to collect for damages or other proceeds and are told by the insurance company that they owe more than part of their award. This ruling clarifies the process by which these decisions should be made.
Lukas v. United Behavioral Health: This Ninth Circuit Court of Appeals case involves two main issues: how much dialogue is necessary on behalf of the insurance company when explaining the reasons behind benefit denial and how the inherent conflict of interest is handled when the insurance company is acting as both the payor and evaluator of claims. The case involves a claimant whose stay at a residential treatment facility for an eating disorder was denied for benefits because the insurer didn’t think the stay was a medical necessity and that the claimant hadn’t provided adequate documentation to demonstrate a need for treatment. The claimant had provided a letter from the treatment facility expressing the reasons the treatment was necessary but that was deemed insufficient by the claims examiner.
On appeal, the Ninth Circuit ruled against the insurer. The basis for the ruling was that at no point during the appeals process did the insurer explain why the letter was insufficient nor was any more documentation requested. In addition, because the insurance company is both the payor and the claim evaluator, there’s a conflict of interest that weighed heavily in this case due to a number of procedural errors. In the words of the ruling: Reliance upon a lack of documentation was unreasonable because it was not supported by the record and because [the insurance company] numerous procedural violations deprived [the claimant] of the opportunity to provide additional relevant records.
This ruling reinforces several protections claimants are provided by ERISA. First, a single declarative statement denying the benefits does not constitute “a complete dialogue on the reasons behind denial.” Not fully explaining all of the reasons for a denial or committing a number of procedural errors may lead to issues involving conflicts of interest and leave the insurer liable for the benefits under ERISA. This decision clearly helps claimants and reinforces several good, common sense rules for claims examiners.
There are other court cases that may affect different aspects of disability claims, but these three cases are extremely relevant to ERISA and disability claims. Court cases are a great barometer of where the disability insurance world is heading in terms of the rules and regulations that govern all aspects of a claim. This is the one part of the claims process where the insurer can be called out and made to change their practices. In addition, cases such as these can set precedents that insurance companies will adapt to in the future, because their attorneys and executives know how such claims will end up if the claimant chooses to pursue litigation.
If you have any questions about your chances in litigation or other legal questions, please talk to an experienced ERISA disability attorney. If you would like more information on our firm and how we can help you get the disability benefits you deserve, please visit our website and sign up for a free consultation or call us toll free at (855) 828-4100.