Blog – Johnston Law Office

Baby Steps: Two Recent Court of Appeal Decisions Move Deferential Judicial Analysis for ERISA Cases in the Right Direction

Fri, 29 Aug 2014 17:29:00 GMT

I used to tell clients that, if their case is subject to ERISA’s absurd abuse-of-discretion, insurer-can’t-lose burden of proof (I refuse to call it “standard of review” as many do, ‘cause that’s bogus imo ) they need to win the ball game 10-0; if they only win 9-1 then they lose. That’s because many courts effectively held that no matter how strongly the evidence supported the claimant, if the insurer could point to even one flimsy piece of evidence in its favor, that’s good enough for the insurer to prevail.

Which is, of course, absurd .

Two courts of appeal, however, have now issued opinions which indicate that, maybe just maybe, my clients will only need to win the game 9-1 (or, dare I hope, maybe even 8-2) in order to overcome the abuse-of-discretion burden.

Two courts of appeal, however, have now issued opinions which indicate that, maybe just maybe, my clients will only need to win the game 9-1 (or, dare I hope, maybe even 8-2) in order to overcome the abuse-of-discretion burden.

First, the Ninth Circuit, in Pacific Shores Hospital v. United Behavioral Health et al. , addressed the canard that an insurer’s decision just has to be upheld if it supported by
any reasonable basis, and said that no longer holds water:

First, the Ninth Circuit, in Pacific Shores Hospital v. United Behavioral Health et al. , addressed the canard that an insurer’s decision just has to be upheld if it supported by
any reasonable basis, and said that no longer holds water:

We wrote twenty-three years ago in Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412 (9th Cir. 1991), that we will uphold a plan administrator’s decision if it is grounded in “ any reasonable basis.” Id. at 1417 (internal quotation marks omitted); see also Sznewajs v. U.S. Bancorp Amended & Restated Supplemental Benefits Plan, 572 F.3d 727, 734–35 (9th Cir. 2009). This language in Horan could be read to mean that we should make an “any reasonable basis” determination without looking at all the circumstances of the case. To take a simple example, factors favoring discharge from the hospital might provide reasonable bases if considered in isolation. A patient might be eating well, have proper blood sugar levels, have no infections, and have a supportive family. Those factors, considered in isolation, would support discharge. But if the reason for the patient’s hospitalization is severe congestive heart failure, those factors would not be reasonable bases to support discharge. In the wake of Glenn, we have recognized that this unrealistic reading of the any-reasonable-basis test is not “good law when . . . an administrator operates under a structural conflict of interest.” Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 674 (9th Cir. 2011). It is also not “good law” even when an administrator is not operating under a conflict of interest and we are performing a “straightforward abuse of discretion analysis.” See Abatie, 458 F.3d at 968; cf. Conkright v. Frommert, 559 U.S. 506, 521 (2010) (“Applying a deferential standard of review does not mean that the plan administrator will prevail on the merits. It means only that the plan administrator’s interpretation will not be disturbed if reasonable.” (internal quotation marks omitted)). In all abuse-of-discretion review, whether or not an administrator’s conflict of interest is a factor, a reviewing court should consider “all the circumstances before it,” Abatie, 458 F.3d at 968, in assessing a denial of benefits under an ERISA plan.

That’s better, at least a little bit better.

Then, the Sixth Circuit issued Butler v. United Healthcare , and addressed United’s argument, which we see all the time, that its denial of benefits could not possibly have been an abuse of discretion because it had paid several doctors to opine that the medical care in question wasn’t medically necessary. The court held that even if you can gin up a few pieces of evidence by paying some doctor to say what you want them to say, you might still lose:

United adds that the decision to deny benefits cannot be arbitrary and capricious because five reviewing physicians agreed with it. That reviewing physicians paid by or contracted with the insurer agree with its decision, though, does not prove that the insurer reached a reasoned decision supported by substantial evidence. The physicians’ opinions carry weight only to the extent they provide a fair opinion applying the standard for granting benefits to the facts of the case. Elliott, 473 F.3d at 619. The reviewing physicians did not do that. They misstated or omitted the key fact of Janie’s prior failed outpatient treatment and ignored United’s guideline that allowed residential rehabilitation where outpatient treatment had not worked in the past. This argument, too, proves too much. If a decision to deny benefits could never be arbitrary and capricious when backed by the insurer’s reviewing physicians, court review would be for naught. The insurer would invariably prevail so long as the insurer had physicians on its staff willing to confirm its coverage rulings. That also does not make sense.

Again, baby steps. But they represent a movement from insurer-can’t-lose to
insurer-might-just-possibly-lose-once-in-awhile, and that’s a good thing. Of
course, that still doesn’t explain why an insurer shouldn’t lose if it’s just,
you know, wrong .

Claim denied: the $43,364.27 battery

Sat, 26 Jul 2014 23:39:00 GMT

Paige Riley has a serious medical condition: gastroparesis . The stomach cannot empty itself, causing nausea, vomiting and pain. Fortunately for Paige, her husband’s employer provided a very attractive insurance plan, so the installation of an Enterra – a device implanted under her skin which ameliorated her condition by prompting the stomach to do its job – was covered back in 2005. And when its batteries needed to be replaced in 2007 – which of course also required surgery since the device was under her skin – that was covered too.

Earlier this year, another operation became necessary to replace the fading batteries. As Forbes.com reports, Blue Cross & Blue Shield of Mississippi, the plan administrator for the insurance plan, decided Enterra was experimental and refused to cover the $43,364.27 bill to install new batteries. So Ms. Riley had to proceed to court.

Now guess which law governs her case. That’s right – ERISA. So her chances of prevailing in court and getting the procedure covered are drastically reduced because ERISA makes it exceedingly difficult to overturn an insurance company’s denial of your health insurance claim. And of course if you do manage to get it overturned the remedies you recover are very, very stingy . Indeed these factors do a lot to explain why an insurer will deny coverage to replace batteries in a device which had already been approved .

So Ms. Riley was left with the choice of going ahead with a dead Enterra device implanted under her skin, and living with the symptoms of gastroparesis, or scrambling to come up with $43,364.27 out of her own pocket.

I don’t know what to call that sort of arrangement, but it certainly isn’t “insurance.”

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“Independent” medical exams and “reasonable” grounds for denying your claim

Sat, 26 Jul 2014 23:38:00 GMT

As we’ve seen when an insurance company has managed to grant itself “discretion” it gets the benefit of the most absurd judicial deference known to the law . The courts make no bones about it: a decision to deny benefits, even if the court agrees it is wrong, will nonetheless be upheld so long as the court concludes it was “reasonable” (not reasonable, “reasonable”).

So what does it take for a wrong decision to be “reasonable”? One way is for the insurance company to say hey, it wasn’t our decision, we hired an independent doctor to review all the files and we just abided by this fine fellow’s impartial and fair opinion. And the judge says, well, they did have someone with “M.D.” after his name say the claim was bogus, and who am I, a mere federal district court judge, to disagree with such a learned and considered opinion? (and the champagne and caviar doesn’t affect my decision at all!).

Of course, as in all things ERISA, the books are cooked here. These so-called “independent” medical examiners are very, very frequently beholden to the insurance companies who hire them and pay the freight. These doctors are very handsomely contemplated for their time, and that gravy train stops abruptly if the insurance company sees they are issuing too many opinions which don’t allow the insurer to deny a claim. So to all too many of these “independent” doctors, no one is ever disabled, and no medical treatment ever qualifies as “medically necessary.”

My colleague Michael Quiat, on his excellent disability law blawg , addressed this issue recently. You should read the whole thing , but here’s a taste:

Mike’s post includes a link to a recent article in the Los Angeles Daily Journal about this; it is worth your time to take a look at that too.

The U.S. Supreme Court, in a case called Black & Decker Disability Plan v. Nord , echoed the same concerns:

Not that that ended up meaning anything; the court in Nord decided that the opinions of treating physicians deserved no particular consideration, and it was perfectly OK for an insurance company to credit the views of its paid ~~whores~~ doctors over the views of the claimant’s treating physicians.

So that’s one way judges uphold decisions they know to be wrong , because the decisions are ~~reasonable~~ “reasonable.”

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More ERISA talk on the Nicole Sandler show

Sat, 26 Jul 2014 23:38:00 GMT

My colleague Jeff Metzger appeared on Air America’s Nicole Sandler show last week. Jeff knows his stuff and well explained the problems ERISA causes and how it ruins lives. The audio is here .

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HR 3962 preserves ERISA’s malignant scheme

Sat, 26 Jul 2014 23:37:00 GMT

Mark Hall of the O’Neill Institute posted the other day to comment that the “health reform process is ignoring the hash that Congress and the courts have made of ERISA’s pre-emption of state tort suits against health insurers .” Mr. Hall, of course, is precisely correct about that, as he is when he adds “personal injuries caused by insurance claims denials cannot be adequately redressed either under state tort law or federal law, due to ERISA’s complete pre-emption of the former, and its stingy remedies for personal injury to the latter.” No fooling .

Mr. Hall’s larger point is that the health “reform” bill passed by the House of Representatives over the weekend, HR 3962, does nothing to address ERISA’s malignant effects. Section 251 of the bill expressly provides:

(You can find the full text of the bill here ).

Section 514 of ERISA , in turn, is the provision which preempts state law and leaves insurance company victims to the tender mercies of the federal courts and the ridiculously stingy remedies ERISA itself has been interpreted to provide.

Now Section 251 in general is the part of HR 3962 which discusses how the bill would affect the applicability of other laws. It says:

OK that’s a bunch of legal mumbo jumbo, but it essentially talks about other laws which survive the enactment of HR 3962 (it designates other laws which are not to be “superceded”). And then comes the part about ERISA, which says essentially that, in the case of “employment-based health plans,“ don’t you dare think for one minute that the insurance industry will lose their licence to lie, cheat, steal and kill.

Mr. Hall discusses another part of HR 3962, which says that insurance purchased through the contemplated “Health Insurance Exchange” will not be subject to ERISA, or at least says “individual rights and remedies under State law shall apply.” Insurance purchased through the Exchange, however, won’t include the “employment-based health plans” which will continue to be subject to ERISA and its various malignancies. At section 100 HR 3962 defines “employment-based health plans” by referring the reader to (what else?) ERISA’s definition of “group health plans,” specifically ERISA section 733(a)(1) , where we finally find the actual definition: it’s an “employee welfare benefit plan to the extent that the plan provides medical care.” Elswhere ERISA defines “employee welfare benefit plan” as any “plan, fund or program … established or maintained by an employer…”

Ah the hell with it. I’m a lawyer and I’m paid to wade through this stuff, and I won’t inflict any more of on the reader here. Suffice it to say that Mr. Hall’s concerns are well founded, and that ERISA’s crappy effects will easily survive the enactment of HR 3962 in its present form.

There may yet be time to impact this. The Senate still needs to pass something, and then there has to be reconciliation in a conference committee. So please don’t stop making noise .

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Kudos to Congressman Shadegg and his ERISA-reform efforts

Sat, 26 Jul 2014 23:36:00 GMT

Yesterday Congressman John Shadegg introduced to the press Florence Corcoran, whose baby was killed by an ERISA insurance company . Congressman Shadegg has been on the right side of this issue for a while now and deserves kudos for championing the cause in the halls of Congress. While it is clear his immediate motivation is to raise the issue to oppose current health care reform efforts on the Democratic side, the fact is he’s correct that those efforts will be an exercise in futility if ERISA is left untouched . Here’s some of yesterday’s press conference:

Now of course, the insurance industry will tell you that if you are going to hold them accountable for things like fraud and wrongful death, they just can’t do business on those terms. We’ve heard it before , and now we’ve heard it again. Here’s the response to Congressman Shadegg from ERIC, the ERISA Industry Committee :

So there you have it. As long as we can commit fraud with utterly no consequences , as long as we can kill people with utterly no consequences , as long as we can offer insurance but deliver fake, illusory, empty promises , we’re happy to do business with you. Otherwise, no sale .

Congressman Shadegg, as well as these other members of Congress who appeared at his press conference in support, deserve kudos: Senator Tom Coburn; Representative Jack Kingston; Representative Phil Roe; Representative Lee Terry; Representative Louie Gohmert; Representative Phil Gingrey; Representative Sue Myrick; Representative Steve King; Representative Mark Souder; Representative Todd Akin; Representative Jean Schmidt; Representative Paul Broun; Representative Lynn Westmoreland; and Representative Jim Jordan.

These folks are all Republicans.

I’m a Democrat and on this issue I profoundly disagree with my party leaders and their silence.

I think I’ll sit down and write a few letters .

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The states fight back – a little

Sat, 26 Jul 2014 23:35:00 GMT

As we’ve discussed previously one of the biggest problems with ERISA is that it prevents the states from providing suitable protections for people who have “insurance” through their employers.

The ERISA prohibition of state regulation is not across-the-board, however. ERISA does preserve some state regulatory authority (in fact a lot of us think it was intended to preserve all state authority when it came to insurance companies, but that got mucked up in the judicial interpretation process over the years). One of the recurring battles in ERISAworld is whether some particular state regulation can survive ERISA and actually, you know, regulate insurers.

Now, in the most important area – the consequences an insurance company faces if it defrauds you or kills you – the states remain powerless to improve on ERISA’s ridiculously stingy approach . But the states do retain some ability to regulate the content of insurance policies sold within their borders, and that’s where a lot of these arguments arise.

Yesterday the Ninth Circuit issued Standard Insurance Company v. Morrison , a case about whether Montana could prohibit so-called “discretionary clauses” in insurance policies. These clauses are what insurance companies use to shield themselves from any but the most cursory and deferential judicial scrutiny of their benefits denials, and to pretend they are something they are not , like courts or administrative agencies. Yesterday the Ninth Circuit said Montana could indeed prohibit these provisions.

As we’ve discussed previously “discretionary authority,” which leads to the weak judicial scrutiny the insurers are so fond of, is supposed to come from someone who sets up a trust , and wants the trustee to have such powers. It is not something the trustee just unilaterally confers on itself – except of course in ERISAworld where insurance companies stick this language into the insurance policies for their own benefit , and without so much as checking with the putative “trustor,” i.e. the employer purchasing the policy for its employees.

If you want some corroboration about how pernicious these provisions are, just consider what Montana and some other states have done to try and prohibit them. Montana’s Insurance Commissioner banned them (and the Ninth Circuit said yesterday he had the authority to do so) by invoking his authority to disapprove “any inconsistent, ambiguous or misleading clauses or exceptions and conditions which deceptively affect the risk purported to be assumed in the general coverage of the contract” (you can find that in the trial court decision in the Morrison case, which is at 537 F.Supp.2d 1142 (D.Montana 2008)), a long way of saying he can disapprove language which renders the coverage supposedly provided by the policy a big fat lie.

Montana is not alone. California, for example, has disapproved “grants of administrative discretion in insurance policies and ERISA plan documents” because they “render insurance contracts ‘illusory’ and ‘unsound insurance,’” ( Mitchell v. Aetna Life Ins. Co. , 359 F.Supp.2d 880 (C.D.Cal. 2005)) and so has Michigan, concluding discretionary clauses “unreasonably reduce the risk purported to be assumed in the general coverage of the policy.” ( American Council of Life Insurers v. Watters , 536 F.Supp.2d 811 (W.D.Mich. 2008)). All in all, as of now sixteen states have taken similar actions .

The National Association of Insurance Commissioners, a, um, national association of insurance commissioners of the various states, has also weighed in, issuing the Discretionary Clauses Model Act, which it urges the states to adopt, in 2002. The “NAIC membership believed that discretionary clauses were inconsistent with basic consumer rights ,” (page 9 of the linked brief) and issued the Model Act “to assure that health insurance benefits and disability income protection coverage are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide what benefits are due” (page 11).

The insurance industry, of course, is not willing to give up their little cash cow without a fight. Let’s see what MetLife, a big ERISA insurer, has come up with – if the states can ban discretionary clauses in insurance policies, we’ll just stick them somewhere else :

Wanna bet MetLife won’t volunteer to draft an employer’s SPD? I’ll take that bet.

The upshot of all this is that the states, as of now, do retain some ability to ameliorate the absurd effects of these pernicious “discretionary” provisions. That may not last forever; as we’ve seen the insurance industry will fight tooth and nail not to lose this unfair advantage. If your state has not yet addressed this problem then it’s time to call your legislators and get them on the stick.

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Fraud and corruption as cost control

Sat, 26 Jul 2014 23:35:00 GMT

The folks at the Hastings Center Health Care Cost Monitor provide commentary and opinion on cost control as part of health care reform . Nothing wrong with that, of course; it’s a critically important part of the current debate over health insurance reform.

The other day the Hastings Center site featured a post by Jacqueline R. Fox , a professor at the University of South Carolina School of Law , entitled Will Health Care Reform Increase Litigation Over Denied Claims? Professor Fox conveyed a legitimate concern, if you ask me, about the effect of proposed reforms on health care costs, but when she turns to whether insurance companies should be accountable for wrongfully denying claims she demonstrates the depth of the ERISA problem.

Professor Fox posits that litigation over denied benefits claims could ramp up for two reasons:

Note her concern here is with the “state-regulated private insurance market”; that is to say she is not talking about employment-based policies currently covering the vast majority of us .

It’s where Professor Fox contrasts the situation regarding the “private market” with ERISAworld that she illuminates the Problem :

Well, I do have a few quibbles with what I view as Professor Fox’s euphemisms. Allowing insurance companies “to adopt far more aggressive cost-saving approaches in their decisions than they could possibly risk were they subject to liability” is another way of saying “allowing insurance companies to fraudulently deny claims they don’t want to pay because of concerns over their bottom line.” And saying that insurers, in the absence of “explicit cost-based rationing” language in their insurance policies, resort to “a more amorphous ‘medical necessity’ standard for their decisions” amounts to an observation that insurers commit fraud to save themselves money: they can’t deny the claim for the reason they really want to, so they just make something up and call it a “medical necessity” decision.

Professor Fox certainly has a legitimate concern. We do no one any favors by pricing health care out of reach. But “cost savings” ought not be allowed to divert us from our attention to the Problem . After all, we could certainly help out Detroit if we allowed them to sell a car and then get away with not actually delivering, you know, the car. Same thing applies to ERISA: it’s a false economy to pay less for something when that something isn’t really delivered. ERISA insurers sell insurance but deliver empty and illusory promises . And Professor Fox’s argument makes that very point.

Professor Fox herself observes:

No it is not at all clear. If the insurance industry needs immunity from legal liability for fraud in order to keep costs under control, then it is time for them to go. And then it’ll be time for us to figure out a way to have health care services delivered by an entity that does not need to be able to commit fraud with impunity if it is to stay in business.

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Another “insured” person cheated out of “insurance” by ERISA; UPDATE: Guardian caves in response to public pressure

Sat, 26 Jul 2014 23:34:00 GMT

Ian Pearl, since birth, has suffered from muscular dystrophy. He is now 37 years old, and is confined to a wheelchair and hooked to a breathing tube.

Fortunately for Ian, he had “insurance” through the ERISA plan offered by his father’s company. So while his health was terrible, he at least would have access to adequate care and his family could avoid going bankrupt from medical bills.

Not so fast. His insurance carrier, Guardian Life Insurance Company, decided it was just too expensive to live up to its contractual obligations to cover the care required by Ian and others like him.

So Guardian just pulled the plug. According to the Washington Times :

Legally barred from discriminating against individuals who submit large claims, the New York-based insurer simply canceled lines of coverage altogether in entire states to avoid paying high-cost claims like Mr. Pearl’s.

At least Guardian was compassionate about condemning Ian to a life of inadequate medical care for his debilitating condition. You can just hear them choking back their tears:

In an e-mail to four other Guardian executives entered into evidence in the Pearls’ suit, company Vice President Tim Birely discussed how the company could “eliminate this entire block to get rid of the few dogs.”

Now how on earth is this legal? Simple:

The judge found that the company had not violated the Employee Retirement Income Security Act (ERISA), because it canceled entire policy lines.

Sorry, Ian. To Guardian, you’re just one of the “few dogs” they need to dispense with.

UPDATE:

Daylight,as they say, is the best disinfectant. In response to public pressure and lots of media coverage and widespread outrage, Guardian has caved and reinstated Mr. Pearl’s coverage.

Now about all those people who didn’t make the headlines…

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Labor Department official: “tragedy” to enact health reform and leave ERISA alone

Sat, 26 Jul 2014 23:34:00 GMT

Paul Secunda blogs at Workplace Prof Blog about a talk given by Phyllis Borzi, who heads the Employee Benefit Security Administration . She knows whereof she speaks: she’s in the ERISA enforcement business, and her agency’s mission is to “deter and correct violations of the relevant statutes through strong administrative, civil and criminal enforcement efforts to ensure workers receive promised benefits.”

Phyllis Borzi got it right:

Borzi said it would it a tragedy if Congress passed health care reform legislation without addressing remedies available to plan participants under ERISA.

So did Professor Secunda:

I certainly agree with Sec. Borzi that the current state of ERISA remedies is a tragedy and that health care reform efforts need to consider addressing this remedial issue. I also agree that many employers and management-side attorneys have a knee-jerk reaction to defend that system because of favorable treatment under ERISA’s remedial and preemption provisions.

It is time for Congress to finally provide a meaningful remedy for ERISA violations.

True that .

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ERISA to Insurance Companies: It’s OK to kill someone’s daughter, just don’t flip them off

Sat, 26 Jul 2014 23:33:00 GMT

Cigna Corporation, an ERISA health insurer, killed Nataline Sarkisyan in December 2007 , denying a liver transplant on the pretext it was “experimental” (which is insurance company code for “expensive”; after all paying for the transplant would reduce its profits ).

Nataline’s parents sued Cigna for killing their daughter. Nataline’s mom, Hilda, also appeared at Cigna’s Phildelphia headquarters in 2008, and said “You guys killed my daughter. I want an apology.”

What she got instead is described in an article in today’s Los Angeles Times :

Cigna employees, looking down into the atrium lobby from a balcony above, began heckling her, she said, with one of them giving her “the finger.” Sarkisyan walked out, stunned and hurt.

“They showed me their true colors,” she said. “Shame on them.”

Meanwhile, thanks to ERISA, a Los Angeles judge had to dismiss their wrongful death case against Cigna, because ERISA provides the Cignas of the world immunity from liability for killing people .

Cigna, of course, took this as some sort of endorsement of its decision to let Nataline die:

Cigna said the dismissal of the wrongful-death case in April showed that the court “agreed with our position that the Sarkisyans’ claims regarding Cigna’s decision making were without merit.”

But as the Times correctly observed

In fact, the court did not consider the merits of the family’s wrongful-death claims. Instead, it decided those claims could not be heard.

The insurance companies’ flack, one Robert Zirkelbach, a spokesman for America’s Health Insurance Plans , defended the outcome, saying that to hold insurance companies accountable for killing people will “bankrupt these plans, and employers would no longer be able to offer coverage.”

That makes perfect sense. How can you be expected to offer your services at a reasonable price if the courts are going to nitpick about you killing people?

The Sarkisyans did get one bit of good news, though. They get to sue Cigna over its employees flipping off Ms. Sarkisyan: the court “said the Sarkisyans could pursue damages for any emotional distress caused by the Philadelphia incident.”

So they have that going for them.

Memo to insurance companies in ERISAworld: go ahead and kill people. Just keep your middle finger to yourself.

UPDATE: Film at 11:

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Insurance Companies and Federal Judges Getting Together to Party and Scheme: What Could Go Wrong?

Sat, 26 Jul 2014 23:32:00 GMT

As we have seen there are judges who are becoming fed up with ERISA and its malignant effects on the behavior of insurance companies and the ability of insureds to enforce the promises made in insurance policies.

These judges, of course, do not make up the entirety of the federal judiciary. There are other judges who actually sit down and party and break bread with insurance companies.

Take, for example, the upcoming ERISA Litigation Conference to be presented by the American Conference Institute. This shindig will be raging at the ritzy Helmsley Park Lane Hotel in NYC on October 19 and 20.

What could possibly be wrong with that? Well, consider for one thing that when you have a claim denied and you ask for reconsideration from an insurance company, they are (supposedly) required by law to undertake a “full and fair” review of the claim, and conduct it impartially in accordance with their so-called fiduciary duties. Among these fiduciary duties are that they are required to discharge their duties “solely in the interest of the participants and beneficiaries .”

So what are these insurance companies (and plan sponsors and service providers) and federal judges going to be talking about over their caviar and bubbly? How about this: “Using the claims review process to set up, control and strengthen the defense”? (page 1 of the ACI brochure linked above) Or “Anticipating claims when making the decision and preparing to defend it before the decision is made”? (Page 3 of the linked brochure).

See, guys, when you are undertaking a review of a denied claim, and you are supposed to do that “solely in the interests of the participants and beneficiaries,” you are not supposed to be thinking about scrubbing the claim file so as to “set up, control and strengthen the defense.” You are not supposed to be “anticipating claims” or “preparing to defend it before the decision is made” since, of course, you approach your job with an open and fair mind and you don’t even know you’re going to deny the claim until you have assembled all the facts and applied your impartial, professional expertise to the decision.

Right?

And of course while the insurers are discussing how to use the claims review process to prepare for the defense of a future lawsuit instead of applying it to the “sole interest of participants and beneficiaries,” they’ll be doing so while rubbing elbows with “21 federal judges from district courts located in 8 circuits.” (Page 1 of the linked brochure). This, of course, is like Al Capone and Baby Face Nelson setting up a party at the Waldorf Astoria to discuss “Tommy Gun serial number removal techniques” and “get-away cars: the fastest and most inconspicuous models,” while inviting federal judges to come and enjoy the fete.

It smells, sure. Just remember, next time you ask your insurance company to reconsider its denial of your health insurance claim, all you will really get is a reconsideration by the insurance company as to whether it should continue to pay benefits, and thus reduce its profits . And all the while they’ll be thinking about “using the claims review process to set up, control and strengthen the defense.”

Funny, by the way, that ACI’s own web site has sequestered information about this conference . ~~Guess we’re not supposed to know about it~~ . My bad; looks like I was mistaken about that. I can’t get the page to come up on my computer but I am told others can.

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Confessions of a money-grubbing, lazy, greedy capitalist tool – you know, the type of person who dislikes insurance companies

Sat, 26 Jul 2014 23:31:00 GMT

I was shown a post on another blog the other day ranting about how horrible ERISA attorneys are because they charge for their services when their clients really really need their insurance benefits to survive. This other blog post was inaccurate, ignorant, unduly vituperative, and I did not like it.

So I am not gonna link to it.

So there.

But if one person (erroneously) thinks this way then maybe others do too, so it seems appropriate to mention a few things about the world of ERISA claimant’s attorneys, to which I very proudly belong.

First, it is all too often true that, when an ERISA attorney is able to get a denial or termination of benefits reversed, the attorney fee eats into what should have been your benefits. If you think about how the law drastically limits the possible recovery when you do win , that’s pretty much unavoidable if the attorney is working on a contingency. If the law only allows you to recover what the benefits should have been in the first place, and the attorney is getting a percentage of the recovery as his fee, then yes it has to come out of those benefits.

Do we like that? Of course not. The alternatives, however, are for attorneys to work for free (which happens more often than you may suspect but of course does not make for much of a business plan) or for clients to pay by the hour (an arrangement most clients have no interest in nor ability to sustain).

I think of attorneys like me as being much in the mold of John D. MacDonald’s great beach-bum private dick Travis McGee :

My fellow McGees of ERISAworld and I regain the ill-gotten loot lawfully, if you can use that word to describe a process which brings discredit to the law . And we typically don’t charge as high a rate as Travis did – in fact I’ve never even heard of a contingency fee as high as 50%.

Travis McGee charges what he does because he has to incur some significant risk in working on his clients’ behalf: those people who took the loot in the first place don’t give it up without a fight. My colleagues and I also take on risk, and quite a lot of it, because ERISA doesn’t allow us to recover anything without a fight, never mind making our clients whole. I know for a fact we work very hard, and against some pretty significant odds, all because, to be a bit touchy-feely for a moment, we believe in what we do.

It would be a lot easier to make a hell of a lot better living by just taking cases not subject to ERISA, where we can get a percentage of emotional distress damages, punitive damages, and get in on that lottery that folks like overlawyered.com think is so outrageous. But we choose to specialize in a field which drastically and artificially limits the recoveries our clients can get, and therefore necessarily limits our fees too. We do that because we see injustice and we want to do our small part to square accounts.

Like any other contingency fee practice, the cases we are able to win have to pay not only for themselves but for the ones we lose too. When we get an award of attorney fees (which is not guaranteed in any case) our clients share in that along with us, at least in any arrangement I’ve ever heard of. ERISA claimant’s law is genuinely a calling, if you ask me, and no lawyer in his right mind goes into this field in order to get rich.

Look, I’d love it if the law were such that my clients could always be made whole for the way their insurance company treated them and there was enough left over to keep the doors open at my little law practice. But the law is stingy, and if we can’t make them pay all they should, on behalf of our clients and ourselves, we go forth and try to make them pay as much as the law allows. As Travis McGee’s boon companion Meyer said of him in Darker Than Amber,

And by the way Travis saw ERISA coming. As he said, in 1964 mind you, in The Deep Blue Good-By ,

Anyway, that’s me and my colleagues. Salvage Consultants.

The post Confessions of a money-grubbing, lazy, greedy capitalist tool – you know, the type of person who dislikes insurance companies appeared first on Johnston Law Office .

Pre-existing condition? We don’t need no stinkin’ pre-existing condition…

Sat, 26 Jul 2014 23:30:00 GMT

One of the major points advanced in favor of health insurance reform is that insurance companies abuse the privilege of refusing to cover you if they decide you have a pre-existing condition, or pulling the plug on coverage you already have if they decide you had one you didn’t tell them about when you applied for coverage. That’s a sad state of affairs, without question. As in other areas, of course, ERISA manages to make a bad situation worse. Much worse.

If you get your insurance through your employment, ERISA wipes out any state law protection you might have in this area , and health plans can simply change your “coverage” to exclude a condition you might develop, never mind whether it was pre-existing or not. Consider the sad case of John McGann, who discovered in December 1987 that he was afflicted with AIDS. At least, he thought, he was fortunate to have good insurance from his employer, H&H Music Company, which provided coverage for AIDS treatment up to a $1,000,000 lifetime limit.

John McGann, unfortunately for him, failed to consider what ERISA was about to do to him.

Now, Mr. McGann had an insurance policy through his employment with H&H, already issued, already underwritten, premiums fully paid. There was absolutely no indication his AIDS was a pre-existing condition, and no one ever claimed it was.

But in 1988, when the insurance company, General American Life Insurance Company, got wind of his illness, all of a sudden things changed at H&H:

Now hold on a minute. John McGann had an insurance policy which said treatment for AIDS was covered up to $1,000,000. An insurance policy, which most people think of as a binding contract that the insurer will cover what it says it will. But H&H just canceled the policy and pulled it out from under Mr. McGann, replacing it with a self-insured plan with the aforementioned stingy AIDS benefit.

By the way, in court, H&H and General American proudly admitted:

The United States Fifth Circuit Court of Appeals reviewed ERISA, and concluded:

It wasn’t even that hard, either. ERISA is pretty clear that your employer, if, say, the insurance company threatens to raise premiums in response to an employee coming down with a covered illness , can just cancel that part of the coverage and leave the sick employee, who didn’t think they were in the ranks of the uninsured, high and dry. Indeed, never mind higher premiums, ERISA allows coverage to be precipitously canceled because of, say “some ‘prejudice’ against AIDS or its victims.”

That’s ERISA for you. If we don’t fix ERISA, now, then any “reform” we might achieve will be empty indeed.

The case is McGann v. H&H Music Co. , and the citation is 946 F.2d 401 (5th Cir. 1991).

By the way, John McGann died in June 1991 .

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The Rising Judicial Chorus: Judge Karlton

Sat, 26 Jul 2014 23:30:00 GMT

The Honorable Lawrence K. Karlton is Senior District Judge for the Eastern District of California , which is based in Sacramento. Judge Karlton is a 1979 Carter appointee to the federal bench, and before that he was a Superior Court judge in Sacramento County. Earlier this year, on August 13, Judge Karlton issued a decision in a case called Duvall v. Reliance Standard Life Insurance Company . As is often the case in ERISAworld, the insurance company won after cheating the insured out of insurance benefits. That’s dog bites man stuff anymore. Along the way, though, Judge Karlton let it be known he was unhappy with the way ERISA cases are adjudicated.

Take for example the claim file on which Judge Karlton was obligated to base his decision. Because they like to pretend they are federal courts or administrative agencies , insurance companies never call a claim file a claim file. Instead, they like to call it the “administrative record,” because calling it a claim file makes it sound so insurance-y. Judge Karlton would have none of that:

So, Judge Kartlon saw through the “administrative record” scam. Later, in describing the procedural facts of the case, he mentioned how Reliance Standard had sent Ms. Duvall a letter describing the requirements for her to undertake an “administrative appeal,” another bogus phrase the insurance companies use to make themselves sound like something they’re not. Again Judge Karlton called them on it:

Next Judge Karlton turned to the question of whether Reliance Standard’s denial of benefits should be evaluated under a de novo standard, or “arbitrary and capricious” standard. Remember the de novo standard is the one which is supposed to be the usual one, and the “arbitrary and capricious” standard is to be used only in those exceptional cases where the plan sponsor really wanted the plan administrator to have discretion to use its own judgment in approving or denying claims. Lo and behold Reliance Standard had granted itself “discretion” in its insurance policy, so Judge Karlton had to go with the “arbitrary and capricious” non-standard, commenting courts “have not been stingy in our determinations that discretion is conferred upon plan administrators,” and adding:

Finally, Judge Karlton turned to an examination of Reliance Standard’s approach to Ms. Duvall’s claim. He remarked:

“Applying legal standards to what is clearly a stacked deck” — with these words Judge Karlton has summed up ERISAworld about as well as can be done in ten words. But what’s a little discredit to the legal process as long as it’s efficient ?

The case again is Duvall v. Reliance Standard Life Insurance Company, and the citation is – F.Supp.2d –, 2009 WL 2488179 (E.D.Cal.).

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A basic primer on “de novo” versus “abuse of discretion” judicial analysis

Sat, 26 Jul 2014 23:29:00 GMT

We are exploring the “discretion” scam which infects ERISA law , and how it unduly stacks the deck in favor of insurance companies when you take them to court. I thought an illustration of how big a difference it makes might be useful here, so join me in a review of two recent cases from United States Circuit Courts of Appeal: the Seventh Circuit’s Krolnik v. Prudential Insurance Company of America , which is reported at 570 F.3d 841 (7th Cir. 2009), and the Eleventh Circuit’s Doyle v. Liberty Life Insurance Company of Boston , which is reported at 542 F.3d 1352 (11th Cir. 2008).

One of the big problems with ERISA exemplified by these cases is that the whole concept of a “standard of review,” which is what courts apply to decide whether to overturn the decision of some other body, is a complete mismatch when you’re talking about an insurance company denying your claim. Traditionally the “other body” is one of two things. They are either a lower court or administrative agency, which, say what you want about them, are at least conceptually impartial and have no direct, personal stake in the decision they are rendering. Or they are a trustee vested by a trustor with discretion to bring to bear their own judgment in making decisions about how trust assets are to be distributed. A classic trustee is also impartial, but sometimes trustees have conflicts of interest, which is legal as long as the trustor was OK with it, and which is taken into account by courts. More about that in a later post.

An insurance company, on the other hand, is a party to the insurance contract in question, which is accused of breaching that contract. In a breach of contract case, the court is supposed to decide for itself whether one of the parties is in breach, not have a thumb on the scale in favor of the breaching party as if it were itself a lower court which has already endorsed the decision it made.

Krolnik discusses “de novo” review, where the court does not grant “deference” to the insurance company, and describes the problem with “standards of review” as applied to an insurance company:

So that’s how at least one court thinks a so-called “de novo review” should proceed: it’s not a “review” at all, in the sense that some other impartial body has made a decision; it’s a wholly independent decision by a judge in the first instance.

But of course that’s not how ERISA generally works. For a flavor of that, let’s take a look at Doyle , in which the Eleventh Circuit described how so-called “abuse of discretion review” works. In pertinent part:

OK, so the Eleventh Circuit asks whether the insurance company was wrong to deny benefits. If the insurance company was right, it wins. Fair enough. But does it lose if it was wrong? You would think so, but not necessarily:

Well, at least as long as the insurance company was not “vested with discretion,” then if it is wrong it loses. So far so good. But as we have seen insurance companies almost always vest themselves with discretion when they write their ERISA policies, so we go to the next stage, which is where things get screwy:

Wait … what was that? If the decision was wrong then do what? After paying some lip service to the effect of a conflict on interest on the insurance company’s part (more on that later), the Eleventh Circuit goes on to say a decision which was, you know, wrong is nonetheless to be upheld if it was “reasonable.”

And when we get to a discussion a bit later on of what it takes to be considered ~~reasonable~~ “reasonable,” your head might really explode.

And you may very well have a very difficult time getting your insurance company to pay for the repair work.

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How We Got Here – the “Abuse of Discretion” Scam, Part II

Sat, 26 Jul 2014 23:28:00 GMT

Earlier we started a discussion about the “abuse of discretion” scam . In a nutshell, the so-called “standard of review” a court employs in evaluating an insurance company’s decision to deny your claim is very often, in and of itself, outcome-determinative. Given that a great many insurance company denials are, shall we say, questionable, if the court uses a de novo analysis you’ve got a good chance of winning, and thereby securing the very stingy remedies ERISA allows to aggrieved claimants. But if the court uses a deferential analysis, then it becomes much more difficult – it is no exaggeration to say often impossible – to get that denial turned around by a judge.

Who in their right minds would design a judicial system this way?

To answer that we need to consider a Supreme Court case called Firestone Tire & Rubber Co. v. Bruch . If you’d like to look up the case the citation is 489 U.S. 101 (1989). In Firestone the Court considered what the “standard of review” ought to be for claims under ERISA. Right from the get-go the insurance industry won a big victory there, as talking about a “standard of review” instead of, say, a “burden of proof” implies we are looking at the decision of some sort of impartial administrative agency instead of an insurance company alleged to have breached its contract. We’ll address that problem in a future post.

Anyway, the Firestone Court observed that ERISA is based to a large extent on trust law, which it undeniably is. That’s because when ERISA was enacted its primary focus was on pension plans, not things like health insurance policies, and pension plans do actually, sorta kinda, resemble trusts: the employer sets aside a pile of money to fund retired employees’ pension benefits.

And trust law, as we have seen , does indeed treat the decisions of a trustee with deference if the trust instrument confers discretion on the trustee. So the Firestone Court just went ahead and applied the general rule of trust law: if a trustee is not granted discretion in a trust instrument, then a court considers the decision de novo . If the trust instrument does confer discretion on the trustee, then a court has to find an abuse of discretion before it can rule against the trustee.

Now, the Supreme Court apparently thought it was issuing a decision generally favorable to claimants. Firestone argued that, never mind what the terms of the benefit plan in question might say, denials of benefits under ERISA should always be analyzed under an “abuse of discretion” standard (ERISA defendants are nothing if not brazen in making incredibly self-serving arguments). This the Supreme Court rejected, because “adopting Firestone’s reading of ERISA would require us to impose a standard of review that would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted,” and God knows we don’t want to be doing that . So the Supreme Court said the general rule is de novo analysis, and only in those rare circumstances where the plan sponsor decides it wants the insurance company to have discretionary authority will deferential analysis be used.

Well, once Firestone came out it took about five minutes before insurance companies started putting language in their insurance policies by which they granted discretion to themselves – the employer purchasing the policy had no role in creating this language, and in the vast majority of cases didn’t even know it was there.

And the courts, regrettably, gave effect to this self-conferred “discretion.”

That’s the start of how we got to this state of affairs. More soon about the implications.

They aren’t pretty.

The post How We Got Here – the “Abuse of Discretion” Scam, Part II appeared first on Johnston Law Office .

A Modest Proposal: Make Some Noise!

Sat, 26 Jul 2014 23:27:00 GMT

From the president’s speech last night:

“More and more Americans pay their premiums, only to discover that their insurance company has dropped their coverage when they get sick, or won’t pay the full cost of care. It happens every day.”

“As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it most.”

“Insurance executives don’t do this because they are bad people. They do it because it’s profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill; they are rewarded for it.”

“Now, I have no interest in putting insurance companies out of business. They provide a legitimate service, and employ a lot of our friends and neighbors. I just want to hold them accountable.”

Gee, I have an idea about what law needs to be amended to accomplish that.

This is the time to get the word out and to be heard. The president also said: “If you come to me with a serious set of proposals, I will be there to listen. My door is always open.” Hold him to his promise! Call, write, agitate, contact your Congressional representatives and the White House.

Here are some tips for doing so effectively, shamelessly plagarized from “How to Lobby Your Member of Congress,” Amnesty International, www.amnesty.usa.org; and “How to Lobby Your Member of Congress,” American Civil Liberties Union, www.aclu.org:

Members of Congress rarely hear from their constituents on most issues. Sometimes hearing from a handful of concerned citizens will cause a Senator or Representative to pay attention to a particular issue and encourage him or her to vote the right way.

In general the more personal your lobbying contact is, the more effective it will be. While a personal discussion with a Member of Congress is most effective, a meeting or telephone conversation with one of his or her assistants is almost as good.

You do not need to be an expert on the issue to call or write your Member of Congress’ office. All you need to communicate is that you want the member to support or oppose a particular measure. When you call a Member’s office give your name and address and ask whomever takes your call to let the Member of Congress know that you favor or oppose something.

It is very important that you lobby both Members of Congress who may support your views and those who may not. Lobbying can change votes so it is critically important that you lobby those who disagree with you. Lobbying supporters provides them with evidence of support for their position and allows them to be more active in support of that position.

Remember that all contact is good! Start small, and then increase your activism as you gain experience.

• Write a letter. Letters are an important and effective way to introduce yourself and your purpose. A personal letter is much more effective than a form letter or postcard. Short handwritten letters are best, and always remember to be specific about the action you want your Member of Congress to take. Make sure to include your full address so they know you live in the district. Avoid petitions, as they are not as effective.

• Make a phone call. You can call your U.S. senator or representative by contacting the Capitol Hill switchboard at 1-202-224-3121. Once you are connected to the right office, ask to speak with the staff member who handles labor issues, and/or employee pension and benefits regulation. Clearly have in mind a specific request of your representative. If you are planning a visit, this is also the time to set up a meeting to discuss your request.

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“As any teacher of insurance law knows,” ERISA stinks

Sat, 26 Jul 2014 23:27:00 GMT

We’ve heard so far from me, a frustrated lawyer who’s seen too many clients cheated by insurers and ERISA, and from several frustrated federal judges who’ve grown weary of having to apply this most unjust law. Today academia enters the fray. Professor Tony Sebok of the Benjamin N. Cardozo School of Law blogs today at TortsProf Blog about ERISA and its malignant effects:

We know that the most-discussed proposal to date, HR 3200 , would not only not eliminate ERISA preemption but would expressly continue it , so Professor Sebok would be disappointed about that, as would we all. But HR 3200 is only one bill; there are others and there more to come, so now is the time to write your Congressional representative .

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How We Got Here – the “Abuse of Discretion” Scam

Sat, 26 Jul 2014 23:24:00 GMT

As we have seen one of the many problems with ERISA is that we pretend insurance companies are something other than what they really are. What they are is private corporations seeking to maximize shareholder value by turning a profit. Nothing wrong with that, at all. But along with that perfectly legitimate status usually goes corresponding responsibilities, including having to defend in court against claims of breach of contract, and having to make aggrieved parties whole when a court determines a contract has been breached.

What they are not is a trustee. Trustees are supposed to put the interests of the trust beneficiaries ahead of everything else , including the trustee’s own interest. Trustees are not supposed to allow a profit motive, or a desire to maximize shareholder value, or any other consideration, to affect their judgment in exercising their discretionary powers under a trust instrument.

But, of course, we all too often treat insurance companies as if they were trustees , which renders insurance contracts unduly difficult to enforce in court and malignantly affects the behavior of insurance companies .

So how did we get here?

First we need to consider “standards of review.” That’s a phrase which refers to the amount of scrutiny, or the amount of skepticism, a court will apply when considering the decision of some other entity. It’s generally a critical consideration, and very often is in itself determinative of the outcome of a judicial dispute.

In broad strokes, and as relevant here, there are two “standards of review” in play. First is “de novo” review – that’s when a court essentially makes its own independent decision about a question, and the fact that someone else previously made a decision on the same question doesn’t matter at all – it’s as if that first decision never happened, and the court just goes ahead and decides the question based on its own evaluation of the evidence and its own good judgment.

Then there’s deferential review, usually called either “abuse of discretion” or “arbitrary and capricious” review. In this sort of review that previous decision matters a lot . A court will not make its own independent decision on the question, but instead will look to see if there’s any good reason to overturn the decision that other party already made. If the party contesting the decision can’t come up with a damn good reason to overturn it, then the court will simply default to the previous decision, even if it would have decided the matter differently left to its own devices.

Here’s an example. Say you’ve lost a case before a trial court, and you decide to take it up on appeal. Generally, the court of appeal will apply different standards of review based on what sort of question it is looking at.

If you are saying, for example, that the trial court made mistakes in the way it evaluated the evidence – it believed the testimony of Smith and you think Smith was lying, say – then the court of appeal will apply a deferential standard of review to that question. The trial court, after all, was the one which actually heard the testimony in question and had the opportunity to observe Smith testifying. Indeed a primary function of trial courts is to determine which of two competing versions of the facts is the right one. So a court of appeal is not going to reverse a trial court’s evaluation of the evidence unless it is very clear the trial court committed a gross error, that the trial court’s conclusion was absurd or ridiculous. And that is the case even if the court of appeal would have evaluated the evidence differently given the opportunity. That’s deferential review.

Now let’s say your argument to the court of appeal is that the trial court erroneously interpreted some legal principle which affected the outcome of the case. You’re not haggling over the facts, but you’re saying the trial court applied the law incorrectly. Now the court of appeal is going to apply de novo review: it is going to make its own decision about what the proper legal principles are, and if it disagrees with the trial court, it will reverse the trial court’s decision. The court of appeal’s job is to figure out what the proper legal principles are, and it is doesn’t need to have heard the witnesses testify or make its own factual findings in order to do so. So all it takes for a reversal to happen is that the court of appeal decides the trial court was incorrect – that’s all, just incorrect. And that is the case even if the trial court’‘s legal interpretation, albeit incorrect according to the court of appeal, was perfectly reasonable and understandable.

So here’s the analogy: if you could appeal an umpire’s call in a baseball game, the Court of Baseball Appeals isn’t likely to reverse a decision that a particular pitch was in the strike zone: you aren’t going to get far saying that pitch was a ball, not a strike. That’s because the umpire is the one who actually saw the pitch, and it’s his job to decide whether it was within the strike zone or not. But if the umpire decides that it takes four strikes instead of three to constitute a strikeout, now you are going to get a reversal just by convincing the Court of Baseball Appeals that the umpire got the rules themselves wrong, and the umpire’s own decision gets no weight in that decision.

When we continue we’ll take a look at a couple of things. First, to even think about a “standard of review” when you’re considering whether an insurance company breached its contract is a mismatch from the get-go. Second, to pretend an insurance company is the sort of entity which ought to ever have its claim denials subject to deferential review is crazy. But that’s exactly what we do.

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The Rising Judicial Chorus: Judge Young

Sat, 26 Jul 2014 23:23:00 GMT

William G. Young is a judge for the United States District Court for the District of Massachusetts; he was a 1986 Reagan appointee and served as chief judge from 1999 to 2005.

In 1997 Judge Young issued an opinion in a case called Andrews-Clarke v. Travelers Insurance Company . In a nutshell, Richard Clarke drank too much, and sought treatment for his alcoholism, which was a covered benefit under his ERISA-governed Travelers insurance policy. Travelers and its utilization review contractor, Greenspring, refused to authorize the in-patient stay requested by his doctors, and Mr. Clarke was released ahead of schedule. He tried to commit suicide, was readmitted to a detoxification facility, and was again released ahead of schedule due to Travelers’ and Greenspring’s refusal to authorize the requested length of stay.

Here’s what happened next, as described by Judge Young:

Richard Clarke, age 41, committed suicide on November 12, 1994. His wife, Ms. Andrews-Clarke, sued Travelers for wrongful death, and the case ended up before Judge Young. We’ll let him take it from there (I have omitted footnotes, but you can find them in the original case report; the citation is below):

The case again is Andrews-Clarke v. Travelers Insurance Company , and the citation is 984 F.Supp. 49 (D.Mass. 1997).

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ERISA Wants Your Claim to be Denied – Part III

Sat, 26 Jul 2014 23:22:00 GMT

This week we’ve been considering the theory of “efficient breach,” which holds that it’s a fine thing to do to breach a contract so long as everyone comes out even or ahead . A critical aspect of this theory is that the breaching party has to make the other party whole , and if it can incur that expense and still come out ahead then giddyup.

So a party thinking about breaching a contract has to figure out what that expense is likely to be – how much is it likely to cost to make the other party whole? Only then will the breaching party have a number to compare to the gain he expects to realize from breaching.

Now consider Deny-Em-All Insurance Company (“DIC”) doing this calculus under the influence of ERISA. Let’s see, says DIC, since we have granted ourselves “discretion” in the policy and therefore can only be liable if it can be shown we were “arbitrary and capricious,” there’s a good chance that we won’t be liable at all and the cost of “making the other party whole” will be … zero!

Then there’s this: in the unlikely event we have to pay something to the other party, thanks to ERISA in no event will we have to actually make them whole , as we would if justice and fairness were involved here.

So ERISA says to the DICs of the world, go ahead and breach! The cost of making the other party whole (i.e. the artificially low remedy ERISA allows, discounted further because there is likely to be no liability at all thanks to the “discretion” scam) almost has to be less than the cost of, you know, living up to your contractual obligations.

Therefore, under an “efficient breach” approach, not only do the DICs breach contracts with no fear of any meaningful consequence, they do so with the affirmative blessing of the law .

Meanwhile, real people go without. But providing them (as the insurance contract promises) with medical care, or disability benefits, isn’t “efficient,” according to ERISA.

The post ERISA Wants Your Claim to be Denied – Part III appeared first on Johnston Law Office .

ERISA: 35 years old and still incorrigible

Sat, 26 Jul 2014 23:21:00 GMT

xtremErisa notes that this month marks the 35th anniversary of ERISA’s enactment, and notes some of the good things about ERISA, of which there are a few. The xtremErisa blog is an entertaining read overall, and offers a more balanced view of ERISA’s good and bad points than you will get here (here we are concerned with keeping insurance companies honest, and there the focus is expanded beyond that to pension regulation and such). You’ll also get some amusing pop culture references there (I’d do some of that here too, except once I exhausted the possibilities offered by Jimmy Buffett, Travis McGee and Fernwood Tonight I’d be out of ammo).

Anyway, OK, I’ll say it. ERISA, happy birthday.

Now please go away.

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ERISA Wants Your Claim to be Denied – Part II

Sat, 26 Jul 2014 23:20:00 GMT

The other day we considered the legal theory of “efficient breach” – the idea that breaching a contract is actually a good thing to do provided doing so is “economically efficient.” It is a bit of an oversimplification, but “economically efficient” essentially means that everyone involved comes out at least as well as they would have if the contract had not been breached, and the breach causes assets to be devoted to their most valuable use.

So, if a party can breach a contract, make the other party to the contract whole by paying them damages, and still come out ahead, then “efficient breach” theory wants that party to breach the contract. By recovering damages for the breach, the other party will end up in the same position as if the contract had been performed, and if the breaching party can pay those damages and still come out ahead because of, say, a better deal which comes along, then theoretically at least the asset in question is being devoted to a more valuable use.

Let’s take a closer look at the calculation to be undertaken by the party thinking about breaching a contract. There are two numbers that party has to compare to each other: the amount of damages it is likely to have to pay the other party, against the gain it stands to realize, by virtue of the breach. According to “efficient breach” theory, if the former is smaller than the latter then the party should breach the contract.

It follows, therefore, that if you make the former number (the cost of breaching) smaller, or the latter number (the benefit derived from breaching) larger, then you are going to see more breaches of contracts.

Tomorrow we’ll close the loop by examining how ERISA affects this calculation. Here’s a hint: it makes that first number – the cost of breaching – artificially low , and therefore it causes more contracts to be breached (i.e. more valid insurance claims to be denied). And this from a law that was supposed to “protect … the interests of participants in employee benefit plans .”

The post ERISA Wants Your Claim to be Denied – Part II appeared first on Johnston Law Office .

ERISA Wants Your Claim to be Denied – Part I

Sat, 26 Jul 2014 23:19:00 GMT

Breaching a contract seems to most people like a bad thing to do – after all, when you get right down to it a contract involves mutual promises: you pay me this much money, and I’ll do something for you in return. Breaching the contract, then, means breaking a promise. So breaching a contract is wrong, isn’t it?

Well as far as the law is concerned, the answer to that is “it depends.” There’s a theory, known among other things as the theory of “efficient breach,” which holds that not only is it not always wrong to breach a contract but that sometimes it’s the right thing to do; the law ought to encourage breaches of contracts where it is appropriate to do so; and on analysis it does.

The theory goes something like this. One: the law will not (and ought not) “punish” you for breaching a contract, it will only make sure that you fully compensate the other party if you do. Two: if it turns out that it would be more profitable for you to breach the contract and make the other party whole, then it is more economically efficient, and therefore a good thing, for you to go ahead and breach the contract.

A leading proponent of this theory is Judge Richard A. Posner of the Seventh Circuit Court of Appeals. In his book “Economic Analysis of Law,” Judge Posner gives the following example:

I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A, for use in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and offers me $.15 apiece for 25,000 widgets. I sell him the widgets and as a result do not complete timely delivery to A, who sustains $1000 in damages from my breach. Having obtained an additional profit of $1250 on the sale to B, I am better off even after reimbursing A for his loss. Society is also better off. Since B was willing to pay me $.15 per widget, it must mean that each widget was worth at least $.15 to him. But it was worth only $.14 to A – $.10, what he paid, plus $.04 ($1000 divided by 25,000), his expected profit. Thus the breach resulted in a transfer of the 25,000 widgets from a lower valued to a higher valued use.

OK, so here Judge Poser breached his contract with A, and everyone involved came out at least as well as if Judge Posner had performed. A still realized his expected $1000 profit, because Judge Posner had to compensate him in that amount as damages for his breach of contract. B is better off because he ended up with the widgets, and based on the price he was willing to pay for them he needed them more than A did –they were more valuable to him than they were to A. And Judge Posner came out $250 ahead (his $1250 profit on the deal with B less the $1000 he had to pay to A) because of B’s willingness to pay a higher price. And finally, according to economic theory, society is better off whenever an asset is dedicated to a more valuable use, which is the case here as measured by B’s willingness to pay more than A was.

Later this week we will explore how these concepts are turned on their head when it comes to a breach of an insurance contract by an ERISA insurer. For now remember the essence of an “efficient breach”: the breaching party makes a rational decision to breach a contract because even accounting for the liability it will incur by virtue of the breach, including the obligation to make the other party whole, the breaching party still comes out ahead.

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The Rising Judicial Chorus: Judge Pickering

Sat, 26 Jul 2014 23:18:00 GMT

Charles W. Pickering served as Chairman of the Mississippi Republican Party from 1976 to 1978. In 1990 Bush the Elder appointed him United States District Court Judge for the Southern District of Mississippi. In 2001, Bush the Younger nominated him for a spot on the Fifth Circuit Court of Appeals, but the nomination was blocked by the Senate Judiciary Committee. Undaunted, President Bush reappointed him in 2003, and the Democrats filibustered the nomination. President Bush responded to that with a recess appointment in 2004, but Judge Pickering ultimately withdrew from consideration and retired in December 2004.

Clearly, Judge Pickering is no anti-corporate liberal loon. What does he think of ERISA? Here’s what he had to say in 1994:

There has not been a single case that has been filed before this Court by an employee coming into federal court saying, “I want to protect my pension or my benefits under the broad terms of ERISA.” Every single case brought before this Court has involved insurance companies using ERISA as a shield to prevent employees from having the legal redress and remedies they would have had under long-standing state laws existing before the adoption of ERISA. It is indeed an anomaly that an act passed for the security of the employees should be used almost exclusively to defeat their security and leave them without remedies for fraud and overreaching conduct.

The case was Suggs v. Pan American Life Ins. Co. , and the citation is 847 F.Supp. 1324 (S.D.Miss. 1994).

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Thanks to Nicole Sandler and Air America for Taking On the Problem

Sat, 26 Jul 2014 23:17:00 GMT

[Edited to include a link to the audio…]

I ventured forth into the talk radio world last night, appearing on Nicole Sandler ’s Air America talk show to discuss the Problem . Nicole conducted a polite debate between me and ERISA defense attorney Jeff Knapp of the Seattle office of Lane Powell , and I am hoping we were all able to shed some light on the subject from our respective points of reference. Jeff Knapp in particular deserves some props here, since he had to know he would be outnumbered (Nicole is definitively on our side on this one). Afterwards my colleague Jeff Metzger had a word with Nicole and reminded us that, for the time being at least, the Republicans are the ones who are on top of the ERISA issue . Jeff Metzger also appeared on Nicole’s show last week to address the issue. Thanks to Nicole and to all who took part. The audio of the show is available here .

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How They Hide the Ball: A story of compounding judicial error and the squelching of pre-trial discovery

Sat, 26 Jul 2014 23:16:00 GMT

Discovery, the pretrial measures whereby the parties obtain information from each other, is a critical part of the litigation process. Each party gets documents from the other; each gets to take depositions of the other’s witnesses; each can compel the other to answer written questions under oath. As Ninth Circuit Judge Carlos Bea said in a case called Rivera v. NIBCO, Inc. , “the broad right of discovery is based on the general principle that litigants have a right to every man’s evidence, and that wide access to relevant facts serves the integrity and fairness of the judicial process by prompting the search for truth” (the citation for that is 5 F.3d 1289 (9th Cir. 1993)).

Now, with concepts such as “integrity,” “fairness” and “truth” involved, as you may expect this doesn’t apply very much in an ERISA case. Instead, insurance companies argue, and judges often agree, that the only evidence a court may consider is the claim file assembled by the insurance company , and discovery into other evidence is not allowed, or is to be very severely restricted.

How did this come to pass? Back in the early 70’s, when Congress was debating the law which was to become ERISA, they considered for a time an adjudicatory process, for disputed pension claims, which would bypass the courts entirely. What they had in mind was a streamlined administrative proceeding run by the Department of Labor. A House Report (No. 93-533, if you want to look it up) referred to that contemplated process as providing “an opportunity to resolve any controversy over … retirement benefits under qualified plans in an inexpensive and expeditious manner.” Ultimately, that process was never enacted, and Congress decided that disputes should be resolved in the courts (where you get to, you know, conduct discovery) after all. But remember that phrase from the House Report: “inexpensive and expeditious.”

Fast forward to Perry v. Simplicity Engineering , which you can find at 900 F.2d 963 (6th Cir. 1990). The insurance company in that case argued that no evidence other than the claim file should be considered, because ERISA cases were supposed to be “inexpensive and expeditious,” conveniently failing to mention that the administrative process that goal referred to was never enacted. The Sixth Circuit fell for it, and stated “A primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously,” and that “permitting or requiring district courts to consider evidence from both parties that was not before the plan administrator would seriously impair the achievement of that goal.” The court went on to say, in a breathtaking non sequitur, “If district courts heard evidence not presented to plan administrators, employees and their beneficiaries would receive less protection than Congress intended.” (!)

Even though it was demonstrably incorrect about what “Congress intended,” other courts soon began taking Perry’s statement at face value, and uncritically stating as if it were beyond dispute that a “primary goal” of ERISA was this “inexpensive and expeditious” business, and that this was somehow more important than minor concerns like justice and accurate adjudications.

By 1997, the court in a case called Palmer v. University Medical Group (the citation is 973 F.Supp. 1179 (D.Oregon 1997)) was saying, in disallowing pretrial discovery, “The sums expended on attorney fees to conduct extensive discovery, litigate discovery disputes, and try the action could easily exceed the amount in dispute [as if in cases where that was true the parties themselves would not limit their own activities accordingly]. This vision of the future of ERISA litigation belies the Ninth Circuit’s admonition that a ‘primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously.’”

Funny thing about that “primary goal” – you can’t find it anywhere in the statute. The statute says the primary goal of ERISA is to “to protect … the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.” That’s right there in section 1001 of Title 29 of the United States Code.

But, by quoting from a House Report about a proposed provision that was never enacted, the insurance industry convinced the courts that the “primary goal” was to always do things on the cheap, never mind justice, and to shield the conduct of insurance companies from the light of day.

And so it goes.

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Timothy P. Carney in the Washington DC Examiner: health insurance reform omits ERISA reform

Sat, 26 Jul 2014 23:14:00 GMT

The Washington DC Examiner’s Lobbying Editor, Timothy P. Carney, points out that current proposals for health insurance reform not only fail to reform ERISA, but explicitly preserve its perverse effect .

And you might think Democrats would tend to be on the side of the angels here and Republicans would tend to be in the insurance companies’ thrall. Not necessarily. As Mr. Carney notes, Republican representative John Shadegg of Arizona has spoken up about this problem in the context of the pending reform efforts, so far to deaf ears adorning the heads of both parties.

Here’s Representative Shadegg in action:

So: call, write, sound off, and support Representative Shadegg’s efforts here!

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No surrender!

Sat, 26 Jul 2014 23:12:00 GMT

If you’ve spent any time on this blawg, and you’ve experienced a denied insurance claim subject to ERISA, you may have developed a sense of hopelessness, not to mention frustration and outrage. All, in my opinion, very appropriate reactions. There’s no use soft-peddling the malignant effects of ERISA – it is very arguably the most unjust law on the books.

But the understandable reactions described above ought not lead to paralysis or inaction. To become passive and to simply yield to insurance company abuse only makes a bad situation worse, for yourself and for others in your unfortunate position.

The calculus ERISA presents to an insurance company goes something like this: we deny 100 claims which probably ought to be approved. Perhaps 20 of those people will even realize we have done something wrong, because we can write bogus denial letters that make it sound like the denial is proper even though we know it probably isn’t. Out of the 20 people who realize they’ve been screwed, perhaps 10 will contact a lawyer, and perhaps five will end up actually taking us to court. And once in court, since we get the benefit of the most absurd stacking of the legal deck known to the law, we can probably count on winning three of those cases, even assuming the claimant is right and we are wrong. So by denying 100 claims wrongfully, thanks to ERISA, we can probably reap the financial benefit of not having to pay 98 of them, and the two we might lose in court, even if we are ordered to pay attorney fees for the other side, won’t come close to canceling out that benefit (remember in no case can consequential or punitive damages be awarded, so we never have to worry about one big loss wiping out the benefit we derive from ripping off those original 100 people).

The only way to upset that calculus even a little bit is for people to stand up for their rights, take the insurers to court in appropriate cases, and make them explain themselves to a judge. The law provides meager rights indeed, but there are lawyers (I am one of them) who can and do go to court and enforce those rights at least. Given the state of the law, it is very, very unlikely we can make you whole, but we can often recover something, and in the process make the insurance companies explain their bad behavior. Gradually, gradually, their fraud and abuse is thereby exposed to the light of day.

So: if you think you’ve been ripped off by your ERISA insurance company, there is every likelihood that you have. Find a lawyer specializing in ERISA claims (this is pretty important because ERISA is arcane and a law unto itself; a generalist is swimming upstream in trying to deal with all the absurd and counterintuitive rules), and see if the lawyer can find a way to enforce what rights the law provides. Take a stand and make them explain themselves!

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The Rising Judicial Chorus: Judge Becker

Sat, 26 Jul 2014 23:11:00 GMT

It’s not just lawyers like myself, and ripped-off claimants, who are frustrated with ERISA’s patent unfairness. Many of the federal judges who are called upon to apply this unjust law have expressed their own frustration. Indeed, this outcry has been referred to more than once as the “rising judicial chorus” against ERISA and its malignant consequences.

Today we hear from the Honorable Edward Roy Becker of the Third Circuit Court of Appeals, who passed away in 2006. In 2003, Judge Becker issued a heartfelt concurrence in an ERISA case in which he made the following comments.

“Congress enacted ERISA in 1974 ‘to promote the interest of employees and their beneficiaries in employee benefit plans.’ … However, with the rise of managed care and the Supreme Court’s series of decisions holding preempted any action for damages against HMOs, ERISA has evolved into a shield that insulates HMOs from liability for even the most egregious acts of dereliction committed against plan beneficiaries, a state of affairs that I view as directly contrary to the intent of Congress. Indeed, existing ERISA jurisprudence creates a monetary incentive for HMOs to mistreat those beneficiaries, who are often in the throes of medical crises and entirely unable to assert what meager rights they possess.

“ERISA generally, and § 514(a) particularly, have become virtually impenetrable shields that insulate plan sponsors from any meaningful liability for negligent or malfeasant acts committed against plan beneficiaries in all too many cases. This has unfolded in a line of Supreme Court cases that have created a ‘regulatory vacuum’ in which virtually all state law remedies are preempted but very few federal substitutes are provided.

“…at the same time as ERISA makes it inordinately difficult to bring an injunction to enforce a participant’s rights, it creates strong incentives for HMOs to deny claims in bad faith or otherwise ‘stiff’ participants. ERISA preempts the state tort of bad-faith claim denial, … so that if an HMO wrongly denies a participant’s claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all. Not only is there an incentive for an HMO to deny any particular claim, but to the extent that this practice becomes widespread, it creates a ‘race to the bottom’ in which, all else being equal, the most profitable HMOs will be those that deny claims most frequently.”

The case is DiFelice v. Aetna U.S. Healthcare, et al., and the citation is 346 F.3d 442 (3rd Cir. 2003).

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Discretion and Its Many Abuses – Part III

Mon, 21 Jul 2014 23:25:00 GMT

Yesterday we took a look at some of the factors which help keep trustees, with all their discretionary powers, in line. First, a classic trustee has no personal interest in his decisions. Second, he is held to the “highest duty known to law” – a fiduciary duty. Third, he cannot unilaterally assume his discretionary powers; they must be conferred on him by the trustor.

Now, under ERISA we very often pretend insurance companies are trustees, and we give their decisions to approve or deny claims the same sort of deference we give to decisions by trustees. Does that make any sense?

Well, no. There are very material differences between trustees and insurance companies.

First, insurance companies have an obvious and profound conflict of interest when they decide whether to approve an insurance claim. The money involved is not in some trust, but in the insurance company’s own bank account. That’s a big conflict of interest, and I’ll do a post soon about how that is handled.

Second, insurers are supposedly subject to fiduciary duties under the ERISA statute. But, remember they get to be Goofus while we all have to be Gallant . And indeed, although the label “fiduciary” is applied to ERISA insurers, the conduct ERISA allows is way, way short of anything a real fiduciary would even think about trying to do.

Finally, insurance companies routinely confer discretion on themselves by just putting a couple of lines of boilerplate into the insurance policies they peddle. The employer who buys the policy for its employees is supposed to be the trustor here, and yet the insurance company, the supposed “trustee,” is the source of the language giving it all that power to ruin lives.

As we continue we’ll have more occasion to explore the manners in which these supposed “fiduciaries,” these supposed “trustees,” act for their own benefit above all else, which is the antithesis of a fiduciary’s job. As the Eleventh Circuit Court of Appeals has observed, “it is difficult to understand why any plan would give discretionary authority to an insurance company from whom had been purchased a fixed-premium policy. … The basis for the deferential standard of review in the first place was the trust nature of most ERISA plans. … The insurance company here could hardly be regarded as a trustee for the insured.” The case is Moon v. American Home Assur. Co. , and the citation is 888 F.2d 86 (11th Cir. 1989). You can look it up.

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Discretion and Its Many Abuses – Part II

Mon, 21 Jul 2014 23:24:00 GMT

Yesterday I discussed some basics about how trusts and trustees operate. Trustees have a lot of power when the trust instrument gives them discretion to apply their own judgment about what’s the best thing to do with trust property, so much power that a judge will defer to the trustee’s judgment unless an “abuse of discretion” can be proven.

Think about that – a judge in a courtroom, whose job it is to, well, judge things, will defer to the judgment of someone else. If he disagrees with the trustee’s judgment, the judge is to actually disregard his own judgment about what is best under the circumstances in favor of the trustee’s – again, unless the judge can be persuaded the trustee’s decision was so crazy that an abuse of discretion has occurred.

Now with all that power the trust instruments can give them, you might think there should be some built-in safeguards so that trustees behave themselves. And, indeed, there are.

First, in a classic trust situation, the trustee does not stand to personally benefit from his decisions. He’s managing money that isn’t his, for the benefit of someone else, and he gets the same fee for his services regardless of what his decisions are. In that way, the trustee is able to bring to bear his own unfettered judgment about what the best thing to do is, and not be influenced by any concerns about personal gain.

Second, the law imposes upon trustees what has been called the highest duty known to the law – a fiduciary duty. That has varying definitions in varying situations, but basically it means the trustee has to put someone’s else’s interests first, ahead of his own or anyone else’s. If you hire a lawyer, for example, the lawyer has a fiduciary duty to you regarding the representation: your interests come first, including at the expense of your lawyer’s own interests. The same thing applies to a trustee: the trust beneficiary’s best interests is all that is supposed to matter, and the trustee is supposed to disregard anything other than that in making his discretionary judgments.

Third, the trustee only has all this power in the first place because someone else – the trustor or settlor of the trust – wanted him to. The trustor is the person who originally created the trust, contributed some money or other property to the trust, and authored or approved the terms of the trust instrument, including the terms giving the trustee all that power. In other words, when your rich-and-dead parents funded a trust fund for you , they were the ones who decided to confer all that discretionary power in the trustee – the trustee didn’t just unilaterally assume that power.

Now, under ERISA your health insurance company is all too often treated as if it is a trustee, and the insurance company’s decisions are all too often given the same sort of deference. But as you might gather from the foregoing, there are some very significant differences between an insurance company and a classic trustee. Next we’ll take a look at whether it makes any sense to overlook those differences and pretend an insurance company is a trustee. Here’s some foreshadowing: it doesn’t.

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Discretion and Its Many Abuses – Part I

Mon, 21 Jul 2014 23:23:00 GMT

Here’s a pleasant thought experiment: imagine you are a trust-fund baby. Very rich (and dearly departed) parents have provided for you with a generous trust fund. You are set for life!

The trust fund, however, is not just a pile of money you can play with at your whim. In fact, the whole point of a trust fund is that your parents didn’t give you the money at all, they gave it to a trustee whom they have directed to manage and distribute the funds for your benefit. The trustee’s directions are set forth in a document – the trust instrument – which tells the trustee how to go about his job.

The trust instrument might, for example, instruct the trustee to never touch the principal and to apply interest income to your educational and medical expenses, and that’s all. So, if you want some of the money to buy a fancy new car, the answer will be no, because the trustee has his marching orders, and he can’t write you that check.

Many trust instruments, though, give the trustee discretion: they direct the trustee to use his own good judgment to manage the funds for your benefit. Now, if you want that new car, the trustee will decide whether you get it based on his own judgment about what’s best, not on any explicit terms in the trust instrument. That’s the way your rich-and-dead parents wanted it to be.

Let’s say the trustee says no, and you decide to sue – you want the damn money for that car! You are going to have a difficult time winning that one.

That’s because rich-and-dead made the decision (back when they were rich-and-alive) to leave it up to the trustee – that’s the point of giving the trustee discretion in the first place. So a judge would say, I personally might not have made the same decision, but rich-and-dead wanted the trustee’s judgment, not mine, to be the one that counted.

Therefore getting a judge to merely disagree with the trustee’s decision won’t get you that car – you have to show the trustee was not just incorrect but that he somehow went beyond the bounds of reason in making his decision, so that even though he is the one with the discretion his decision can’t be upheld. In other words, sure rich-and-dead conferred upon him discretion, but here his decision was so out-of-bounds, so crazy, that we can say he abused that discretion. That’s what you have to prove to get that car.

I’ll post further on this later this week, but for now just know this: under ERISA, insurance companies are very, very often treated like trustees, not like insurance companies. As I’ll discuss further, that is what’s crazy.

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Goofus Wins

Mon, 21 Jul 2014 23:22:00 GMT

If you are around my age you probably remember cooling your heels in the pediatrician’s waiting room (this was before ERISA so we had real insurance in those days), passing the time reading Highlights magazine. Highlights featured Goofus and Gallant , two characters depicting basic moral dichotomies. Goofus broke the rules; Gallant obeyed. But they never told us who came out on top.

Now we know, at least in ERISAworld. Goofus in a landslide.

ERISA imposes rules on both claimants and insurers. Claimants, for example, in response to a denied claim, generally have to appeal the denial back to the insurer within 180 days (often called an “administrative appeal”). Insurers, on the other hand, are required by statute and regulation to, among other things: either approve or deny a claim within a fixed time period; either approve or deny an administrative appeal within another fixed time period; and, when they deny either a claim or an appeal, tell you all the reasons and all the policy provisions the denial is based on.

If you don’t follow the “administrative appeal” procedure you probably can’t even get in the door at court; your case is over before it begins. And “don’t follow the procedure” doesn’t just include not doing it at all, it includes doing it even one day late. If you get your appeal in on day number 181, chances are you are out of luck from the get-go. You’d better be Gallant.

The insurers, on the other hand, get to blow deadlines and violate the rules with virtually no consequence. If they blow their deadlines, they just deny the claim or appeal late, and it usually doesn’t make the slightest difference. They can deny your claim for one reason, and then in court when it turns out that reason is bogus, they can just make up another one that they never mentioned before (nowhere does it approach actual fairness, but this does vary somewhat depending on what part of the country – what federal Circuit – you happen to live in, as the way the rules are applied varies some from Circuit to Circuit). They get to be Goofus.

And what Highlights magazine never told us is that it pays to be Goofus.

At least in ERISAworld.

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News from Inside the Beltway

Mon, 21 Jul 2014 23:22:00 GMT

The Washington Examiner gets it:

“Most shocking to the conscience, however, might be the special protection big government provides for insurers covering patients through employer-sponsored plans: even if an insurance company’s negligent denial of coverage causes harm or death, federal law protects insurers from legal liability.”

[Updated 8/20/2009 to include quote from article].

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There’s No Remedy if your Insurance Company Kills You

Mon, 21 Jul 2014 23:21:00 GMT

In December 1990, Rhonda Bast was diagnosed with cancer. At least she was not among the uninsured: she had health insurance, provided by her employer. When her doctor requested approval for a procedure which might save her life, Prudential Insurance Company said no. After Ms. Bast got lawyered up, Prudential changed its mind a few weeks later, but by then it was too late – Rhonda Bast died in January 1993.

So her family sued Prudential, claiming that if Prudential had not improperly delayed its approval for her therapy she would still be alive. The Northwest Women’s Law Center submitted a brief in the case, explaining “if insurance companies are not forced to disgorge the unjust enrichment that they gain by such bad faith denials, they will have no incentive to honor legitimate requests from their beneficiaries,” and that instead, insurance companies would “deny expensive treatments hoping that the beneficiary would not sue, or if she or her estate did, they would be left without a remedy.”

Thanks to ERISA, the Basts were indeed left without a remedy: the Ninth Circuit Court of Appeals said “Although moved by the tragic circumstances of this case and the seemingly needless loss of life that resulted, we conclude the law gives us no choice”; the “Basts’ state law claims are preempted by ERISA, and ERISA provides no remedy. Unfortunately, without action by Congress, there is nothing we can do to help the Basts and others who may find themselves in this same unfortunate situation.”

That was in 1998. We are still waiting for action by Congress.

The case is Bast v. Prudential Insurance Company of America , and the citation is 150 F.3d 1003 (9th Cir. 1998). You can look it up.

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Nine out of Ten!

Mon, 21 Jul 2014 23:20:00 GMT

The Wall Street Journal makes the point that “ nine out of 10 people under 65 are covered by their employers .” Ninety percent of the under-65 population thinks they have insurance, except they don’t .

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We have met the enemy and it isn’t us

Mon, 21 Jul 2014 23:19:00 GMT

It is them . Write your congressman! There’s still time to have an impact and maybe get some consideration of tweaking ERISA into a health care bill. As long as the insurance industry (appropriately) is wearing the black hat now is the time to move.

Especially if the public option is defeated, then we’ll need another way to “keep the insurance companies honest.” So let’s gear up for an attack on their absurd immunity from liability for bad faith and fraud.

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Your New Car

Mon, 21 Jul 2014 23:18:00 GMT

Earlier I described some of the effects ERISA has on your ability to take your insurance company to court if it wrongfully denies your claim. That may not seem like such a big deal; after all, no one plans on going (or wants to go) to court at all, and it seems way, way down the road when you’re looking at your shiny new health insurance policy from your employer. But it matters, a lot.

Imagine you’re buying a car. You’ve picked out a make and model, and you’re happy with the price. It’s time to close the deal.

DEALER: OK, here’s the sales contract; there a just a few stipulations and the car is yours.

YOU: OK.

DEALER: First we have to talk about what happens if you ever take us to court. Of course we know you’ll never have to, because you can trust us to do the right thing. But just in case…

First, we require that you agree you’ll have no right to a jury.

And you’ll have to give up all that silly pre-trial discovery, so we won’t be wasting our time with you asking a bunch of questions about what happened if, say, your brakes fail. But don’t worry, we’ll assemble some information on our own and give it to you, and the court can look at that.

And we’d like you to agree that we still win in court if, say, you prove our brakes were defective and it was our fault. But we are willing to say you can win if you prove the brakes were not only defective but that we screwed up really really badly, like we had the technicians drunk or asleep on the job or something like that. Of course, you’d have to find that evidence in the information we assemble ourselves, like we just talked about, ’cause we aren’t going to do any pre-trial discovery, remember?

YOU: But if I can prove the brakes you made were defective it seems to me that ought to be enough to…

DEALER: Hang on. Not done yet. Now, the other thing is that if you do take us to court and win, our liability would be limited to the cost of replacing the brakes.

YOU: But what if your defective brakes kill or maim somebody? What about wrongful death, or medical bills, or lost earning capacity…

DEALER: That would be unfortunate. But if you can beat us in court we are willing to pay for replacement brakes. That’s not bad! We might even throw a little something your way to help you pay your lawyer (but only if the judge makes us).

YOU: I’m not sure about this. I mean replacement brakes wouldn’t mean much if someone has been killed or maimed or …

DEALER: One more thing. We can only do this deal if you agree that you can’t sue us for, you know, fraud.

You still want to buy that car?

That nice insurance policy your employer bought for you almost certainly has the same exciting features. Now don’t you feel all safe and snuggly?

And here’s a thought experiment: if the car dealer knows its sales contracts have these sorts of terms, how careful do think he’ll be when he manufactures his brakes (or is tempted to commit fraud)? And how motivated is your health insurance company to do the right thing when it knows these types of rules apply?

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The Problem

Mon, 21 Jul 2014 23:16:00 GMT

First post — welcome!

ERISA is the Employee Retirement Income Security Act, and it is codified in Title 29 of the United States Code, starting with section 1001. It’s federal law, enacted in 1974, and it was supposed to protect employees’ rights in connection with their pension plans and benefit plans (health, disability, life insurance, that sort of thing). But it doesn’t. Quite the contrary.

This blog is dedicated to the ERISA problem.

What is that problem? It mainly concerns those benefit plans, as it is actually not a bad law with respect to pension plans. And pension plans is what they had in mind when they enacted it — benefit plans were an afterthought.

And it shows. If your insurance company wrongfully denies your claim, you might figure you can always take them to court. You can do that (usually), but when you get there you’ll find things don’t make any sense. We’ll go into the particulars soon, but for now:

ERISA preempts state law (meaning it cancels it out, eradicates it, takes its place), and its preemptive reach is so expansive that it has been judicially described as “virtually unique.” But, having gutted state law relating to insurance disputes, it fails to provide any reasonable substitute. The remedies it provides (i.e. what you get if you win a lawsuit) are very, very stingy. And ERISA severely compromises the ability of insureds to secure even the scant remedies it does provide.

1. Remedies. ERISA limits the recovery you might get to the benefits which should have been provided in the first place, and an award on account of attorney fees in the court’s discretion. Example: you have your disability benefits wrongfully denied. As a result, you have no income, your credit rating is trashed, you lose your home and you are driven into bankruptcy. You file your ERISA suit and against the odds, you win. What do you get? The benefits they should have been paying you back when it might have done you some good. That’s all (you might — might — get something on account of your attorney fees too).

The trashed credit, the lost home, the bankruptcy, the ruined life? Bupkis. ERISA does not allow for any recovery on account of these sorts of consequential damages — none. And this applies even if the insurance company committed outright fraud when it denied your claim. Incidentally, I find it quite difficult to understand why the insurance industry, uniquely among all industries in America, needs to have immunity from liability for fraud if it is to offer its services at a reasonable price. Anyway, this concern goes beyond making people whole; it also directly impacts the behavior of insurance companies.

As of now we have a situation where the law tells insurers they face no meaningful consequences if they deny care improperly or even commit outright fraud. Meanwhile, they are not charities, but corporations; their boards are subject to a fiduciary duty to maximize shareholder value. If it is possible to accomplish this by mistreating insureds, then it follows insurers will do precisely that (and believe me, they do).

And by the way, punitive damages for really bad fraud? Forget it. Not allowed.

2. Procedure. In ERISA litigation, courts have determined among other things that there is no right to a jury; that discovery (the pre-trial process where you obtain the other side’s documents, take depositions and such) is to be significantly abridged; that the evidence which may be introduced at trial is limited to that which the insurer deigned to assemble during its claims evaluation process; and that, when the policy contains language vesting “discretion” in the insurer, if you prove the insurance company was wrong — you lose. In order to win, you must prove the denial was “arbitrary and capricious” — that is to say, ridiculous, absurd, unintelligible, crazy. And lo and behold, the insurance companies grant themselves “discretion” when they write their policies. In this way we treat insurance companies as if they were federal judges. But Learned Hand they are not.

These days we’re all debating health care reform and what to do about the uninsured. ERISA matters a lot here, because if you get your insurance through your employment, then consider yourself to be in that group. If by “insurance” you mean something like an enforceable promise by an insurance company that it will pay for your medical care or provide disability benefits, what you have doesn’t qualify. What you have is a piece of paper saying some company will pay your claim if it feels like it. You don’t have insurance at all — you only think you do.

ERISA is indeed the problem.

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Baby Steps: Two Recent Court of Appeal Decisions Move Deferential Judicial Analysis for ERISA Cases in the Right Direction

Two courts of appeal, however, have now issued opinions which indicate that, maybe just maybe, my clients will only need to win the game 9-1 (or, dare I hope, maybe even 8-2) in order to overcome the abuse-of-discretion burden.

First, the Ninth Circuit, in Pacific Shores Hospital v. United Behavioral Health et al. , addressed the canard that an insurer’s decision just has to be upheld if it supported by any reasonable basis, and said that no longer holds water:

Claim denied: the $43,364.27 battery

“Independent” medical exams and “reasonable” grounds for denying your claim

More ERISA talk on the Nicole Sandler show

HR 3962 preserves ERISA’s malignant scheme

Kudos to Congressman Shadegg and his ERISA-reform efforts

The states fight back – a little

Fraud and corruption as cost control

Another “insured” person cheated out of “insurance” by ERISA; UPDATE: Guardian caves in response to public pressure

Labor Department official: “tragedy” to enact health reform and leave ERISA alone

ERISA to Insurance Companies: It’s OK to kill someone’s daughter, just don’t flip them off

Insurance Companies and Federal Judges Getting Together to Party and Scheme: What Could Go Wrong?

Confessions of a money-grubbing, lazy, greedy capitalist tool – you know, the type of person who dislikes insurance companies

Pre-existing condition? We don’t need no stinkin’ pre-existing condition…

The Rising Judicial Chorus: Judge Karlton

A basic primer on “de novo” versus “abuse of discretion” judicial analysis

How We Got Here – the “Abuse of Discretion” Scam, Part II

A Modest Proposal: Make Some Noise!

“As any teacher of insurance law knows,” ERISA stinks

How We Got Here – the “Abuse of Discretion” Scam

The Rising Judicial Chorus: Judge Young

ERISA Wants Your Claim to be Denied – Part III

ERISA: 35 years old and still incorrigible

ERISA Wants Your Claim to be Denied – Part II

ERISA Wants Your Claim to be Denied – Part I

The Rising Judicial Chorus: Judge Pickering

Thanks to Nicole Sandler and Air America for Taking On the Problem

How They Hide the Ball: A story of compounding judicial error and the squelching of pre-trial discovery

Timothy P. Carney in the Washington DC Examiner: health insurance reform omits ERISA reform

No surrender!

The Rising Judicial Chorus: Judge Becker

Discretion and Its Many Abuses – Part III

Discretion and Its Many Abuses – Part II

Discretion and Its Many Abuses – Part I

Goofus Wins

News from Inside the Beltway

There’s No Remedy if your Insurance Company Kills You

Nine out of Ten!

We have met the enemy and it isn’t us

Your New Car

The Problem

First, the Ninth Circuit, in Pacific Shores Hospital v. United Behavioral Health et al. , addressed the canard that an insurer’s decision just has to be upheld if it supported by
any reasonable basis, and said that no longer holds water: