COVID-19 Update: Impact on Long Term Disability/ERISA Claims

Articles Posted in Recent Court Decisions of Interest

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The U.S. Supreme Court recently determined that a plan may contract to a particular limitations period even one that starts to run before the cause of action accrues as long as the period is “reasonable”. The Hartford plan provided that its three-year limitations period ran from the time that proof of loss was due under the plan.

Heimeshoff , an employee of Walmart, filed a claim for disability benefits with Hartford who provided the long term disability policy for Walmart employees. Hartford denied the claim and Heimeshoff appealed within the 180 day deadline. The denial was upheld several times. The plan provided that litigation must be filed within three years of the proof of claim. Heimeshoff filed her claim in federal court within three years of the final denial, but more than three years after proof of loss was due.

Taken literally, the claim had to be filed before the internal appeals period was exhausted. The general rule was that statute of limitations commence upon accrual of the cause of action.

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The Supreme Court is hearing oral arguments on the Patient Protection and Affordable Care Act (commonly known as “Obamacare”) this week, and one of the tenets of the act contains new standards governing the application of pre-existing condition exclusions in insurance policies (see See Report of Congressional Research Service). Against the backdrop of the current legal debate in Washington, the Middle District of Pennsylvania in Lafferty v. Unum Life Ins. Co. of Am. recently addressed the meaning of a pre-existing condition in an insurance contract, and the extent to which an insurance company could apply such a limitation against its insured.

Mr. Lafferty became disabled due to congestive heart failure. He applied for disability benefits to Unum, who denied the claim on the basis that Mr. Lafferty had a pre-existing condition for which he had treatment during the three month look back period in the policy. Mr. Lafferty had a long-standing heart condition and was taking medication (aspirin) as a preventative measure against further cardiac events.

The pre-existing provision in the policy excluded medical conditions for which the insured “received medical treatment, consultation, care or services including diagnostic measures, or took prescribed drugs or medicines” three months before the policy’s effective date. Unum argued that, since hypertension, hypercholesterolemia, and coronary artery disease could lead to congestive heart failure and the need for a pacemaker, Lafferty’s congestive heart failure was a pre-existing condition.

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Medical providers often serve as intermediaries between their patients and insurance carriers in order to secure payment for their services. This spares the patient the burden of negotiating the waters of insurer red-tape. The recent District of New Jersey case of Cohen v. Independence Blue Cross makes clear that, in the case of an out-of- network provider, the language in an insurance policy can make all the difference in determining the efficacy of this intermediary role.

In Cohen, the insured underwent spinal surgery by an out-of-network physician, and then issued the surgeon an assignment of benefits under his health insurance plan. The defendants (the insurer, the plan and the plan administrator) paid a fraction of the doctor’s bill directly to the insured, but refused to pay the rest of the doctor’s bill, which was $143,626.00. This fractional amount represented a substantially higher patient obligation for out-of-network services. The defendants grounded their non-payment on an anti-assignment clause in the insured’s policy, which read, in pertinent part, “The right of a Covered Person to receive benefit payments under this coverage is personal to the Covered Person and is not assignable in whole or in part to any person, Hospital, or other entity nor may benefits of this coverage be transferred.”

The Court found that the clause was not preempted by ERISA, and distinguished Neuner v. Horizon Blue Cross Blue Shield of New Jersey, 301 B.R. 662 (Bankr D.N.J. 2003) (providers have standing to demand payment in the absence of an anti-assignment clause), and Ambulatory Surgical Center of New Jersey v. Horizon Healthcare Services, 2008 U.S. Dist. LEXIS 13370 (D.N.J. Feb. 21, 2008) (finding that providers could be valid assignees, without addressing whether ERISA permits anti-assignment clauses in insurance contracts). Additionally, the defendants had not waived their right to enforce the anti-assignment clause by corresponding with the doctor directly during the claim process, because Pennsylvania State law, which governed that issue, required a “clear, unequivocal and decisive act” of waiver, which the defendants had not shown.

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Unum Group Corp. and its subsidiary, Paul Revere has once again been held liable for bad faith refusal to continue to pay disability benefits to its insured.

Paul Revere issued the own occupation benefits to this dental hygienist in 1988 and promised to pay her disability benefits if she became unable to perform her specialty occupation. In 1996, Kieffer, a dental hygienist, developed several disabling medical conditions, including carpal tunnel syndrome and severe cervical pain, which by 1999 forced her to stop working entirely. After paying benefits for some time, in March 2008, Unum terminated the plaintiff’s benefits despite Kieffer’s treating physician’s opinion that she refrain from working as a dental hygienist.

The verdict included compensatory and punitive damages.

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It is common for employers to include mandatory arbitration clauses in employment contracts offered to new employees. Sitting in the room with your new boss, it is difficult to resist signing the contract as presented. How can one reasonably “make waves” even before being hired? Of course employees feel they have no choice but to sign the contract as a take it or leave it.

This past October, the U.S. Court of Appeals for the Third Circuit decided a case that will revurberate for a long time in many types of cases. The district court had held that a an employment contract containing a mandatory arbitration clause was valid, and simply severed the predispute employment arbitration agreement. However, the Third Circuit held that the employer-friendly provisions were so strong as to invalidate the entire agreement.

In this case, an employee was presented with a standard employment contract, which contained a “grievance and arbitration procedure” stating that it constituted the “sole final, binding and exclusive remedy for any and all employment-related disputes.”

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New Jersey joins Pennsylvania as a state in the Third Circuit and benefits when a PA case is successful before the Third Circuit. A case in point is Kosiba v. Merck & Co. which found that Unum acted arbitrarily and capriciously in denying benefits to a claimant suffering from fibromyalgia and sarcoidosis. Kosiba v. Merck & Co., 2011 U.S. Dist. LEXIS 23247 (D.N.J. Mar. 7, 2011).

Kosiba addressed the Third Circuit’s stance on issues such as scope of review, structural conflict, procedural conflict, selective consideration of medical history, financial conflict of interest, and remedy.

Following our Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn, the Court gave significant weight to Defendants’ “reversal of position”, “failure to address one or more of the diagnosis(es) and Defendants’ failure to consider the claimant’s objective functional capabilities.

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In a recent case in the Third Circuit, the District Court determined that Prudential’s decision to accept the opinions and conclusions of its experts without explanation was arbitrary and capricious. Ricca v. Prudential Ins. Co. of America, 2010 U.S. Dist. LEXIS 106148 (E.D.Pa. September 30, 2010) The Eastern District of Pa Court found fault with Prudential’s decision to rely entirely on reviews performed by clinicians who had not examined the claimant and selectively consider and credit medical opinions without articulating its thought processes for doing so.

This is particularly applicable where, as here, the evidence it claims to rely on favors its employer and consists of non-treating and nonexamining experts and there is substantial evidence to the contrary. See also Elms v. Prudential Ins. Co. of Am., No. 06-5127, 2008 U.S. Dist. LEXIS 76917, at *18-20 (E.D. Pa. Oct. 2, 2008) (rejecting as a self-serving, selective use of physicians’ reports, Prudential’s almost exclusive reliance on file reviews performed by non-examining physicians as weighed against evidence from doctors who had treated or examined and had concluded the patient was impaired by significant disabilities).

What was interesting about this case is that the District Court focused on Prudential’s failure to discuss, specifically, in its three declination letters, why or how the medical data failed to support an injury or sickness within the Policy’s definition of disability. They noted that the disparity between the voluminous administrative record and the conclusory evaluations of plaintiff’s condition by Prudential’s health experts, made it impossible to review Prudential’s decision because it is unclear whether the evidence of her medical difficulties was credited in whole or in part or not at all — or instead, was simply not considered. Based on this opinion, it appears as if courts are looking for insurance companies to better explain their rationales, and how they weigh the evidence, and not just fall back on “medical records fail to support a disability” argument.

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The recent Good Morning America November 11, 2009 expose on Hartford’s abusive use of video surveillance of its disabled policyholders is just a sample of the rampant use of video as a way to trap insureds and deny claims. Chris Cuomo reported that Jack Whitten, who suffers from a broken neck from a fall, pain and memory loss was captured on videotape reading a magazine, getting into a car and eating taco chips, which formed the basis of Hartford Insurance Company terminating his disability benefits. His doctors assured Hartford that Whitten has severe headaches, short term memory problems and cannot work at his prior job with Walmart. Hartford denied benefits anyway. Fortunately for Mr. Whitten, once the GMA story ran, his benefits were reinstated.

Other disabled people who are surveilled are not so fortunate. Some examples of Hartford’s misuse of Video surveillance include Montour v. Hartford Life &Accident Ins. Co., 2009 WL 2914516 (9th Cir.)The 9th Circuit found that Hartford relied on surveillance which did not represent Montour’s ability to engage in full time work.

Recently, in Finley v. Hartford, 2009 U.S. Dist. LEXIS 105516 (N.D.Cal. Oct. 26, 2009), Hartford was again admonished for shoddy surveillance. Hartford relied on three doctors who only reviewed medical records and did not examine Mr. Finley The court noted that the activity shown on the video did not prove that Finley can work full time.

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In the third of recent decisions in New Jersey District Court regarding Long Term Disability claims, “Dunn v. Reed Group, Inc and Johnson & Johnson” 2009 U.S.Dist. LEXIS 78857 (D.N.J. Sept. 2, 2009), the Court noted that deference should be given in the “lions share” of ERISA claims and that a conflict of interest should be simply one factor for the courts’ consideration.

Here, Dunn pointed out that since Johnson & Johnson stopped all benefits such as medical and life insurance when they denied her disability claim, they benefited financially from their own decision. But the court noted that Johnson & Johnson did not pay for such benefits since the insurance benefits are funded through a trust. Further, the court held the Johnson & Johnson Pension Committee, the claims administrator is walled off from any conflict of interest since a trust funds the LTD program.

The court next considered whether a procedural irregularity, bias or unfairness in the processing of the claim exists. The court found that requesting an IME when all evidence in the record supported disability was a procedural irregularity. Deciding that Dunn could perform a sedentary job without a discussion of her skills or capacity and how these skills transferable to sedentary job was also not based upon substantial evidence. The court reasoned “Defendant has failed to connect the medical evidence to Dunn’s actual physical capacity.” The court remanded the case for further review by Johnson & Johnson.

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The second case, Kao v. Aetna and Towers Perrin Forster & Crosby, Inc. 2009 U.S.Dist LEXIS 75181 (D.N.J.August 25, 2009) involves a 59 year old woman disabled by the after affects of breast cancer. Her disability involved her cognitive problems which are caused by the chemotherapy, fatigue and arthralgias related to her disease process and treatment regimen, including medication. Her doctors viewed her as a credible historian and not malingering.

Aetna’s peer reviewers denounced the disability without ever evaluating her, basing their opinions, in part, on Kao’s ability to perform home chores such as laundry and her ADL’s. The medical reviewers challenged Kao’s claims of her cognitive impairment, claiming that there were no valid tests of her cognitive ability. The court upheld the denial on many bases.

The court rejected Kao’s assertion that only in the final denial did Aetna disclose what type of clinical evidence Kao should have collected to refute the denial. Although Kao proved that Aetna’s doctors had not reviewed a crucial medical form completed by her doctor, the Court found that to be inconsequential. The court rejected Kao’s expert vocational analysis since it was based on the “platform of subjective data that Aetna rejected as untenable.” The court rejected Kao’s claim that she was entitled to review the medical reviews before the final decision was made so that she could rebut the evidence since there was no new evidence relied upon, only medical reviews conducted of the evidence in existence.

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