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

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

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

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

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

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

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

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

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

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

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

From A Smorgasbord of Interesting Disability Cases.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

According to LexisNexis,

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

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

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

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

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

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

About the Survey

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

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

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