A Medley of Interesting Disability Cases: Reviewing 2013 Cases

Another year has passed, and what better way to celebrate than by taking a look at the various interesting disability cases that have been issued during that time. This year they are collected in the Medley.

In this booklet I have summarized a couple of dozen individual and group disability opinions that were issued by both state and federal courts primarily over the 2013 calendar year. As is the case with each of my yearly collections, the cases included are meant to be illustrative of how judges resolve various issues, but those cases are not necessarily the only recent cases pertinent to each issue discussed. I have included both DI and LTD cases, with a focus on substantive over procedural issues (though both are included).

The format of this year’s Medley is the same as that of past collections: I have summarized the pertinent facts of each case and set forth how the court ruled on certain of the issues raised. At the conclusion of each case summary, I have provided my personal thoughts in a “Lessons Learned” section.

For those keeping track, this sixth booklet is the latest in a series that includes: (1) the Potpourri (2008 cases); (2) the Cornucopia (2009 cases); (3) the Smorgasbord (2010 cases); (4) the Cavalcade (2011 cases); and (5) the Ensemble (2012 cases). I am hopeful that collectively they provide a gestalt-ish “feel” for how courts seem to be resolving the issues that we all face. I am also hopeful that these summaries provide helpful guidance to those in the industry, whether they be making the initial decisions (the examiners and others working for disability carriers and third party administrators), giving legal advice about those decisions (in house counsel), defending those decisions (outside counsel), or performing other functions. We can all learn from the experience of the litigants whose disputes were resolved in these cases.

I would like to thank very much Natalie Ferrall, who gave significant time and great insight in assisting me with this publication.

If you would like a copy of this year's publication, or any prior year, please email me here.


Could Medpay Be The Latest Target In California Bad Faith Claims?

Marina Karvelas was quoted in a July 18, 2013, article published by Claims Journal, Could Medpay Be The Latest Target In California Bad Faith Claims, about a recent appeals court decision in California dealing with bad faith claims related to medical payments coverage.

The case, Justin Barnes v. Western Heritage Insurance Company, involved a plaintiff who was injured at 11 years old when a table fell on his back during a recreational program. A superior court found that the plaintiff could not sue the recreational program provider's insurance for bad faith for denying him coverage in part because the plaintiff had already settled a suit against the program provider. The appeals court reversed the trial court's decision.

Karvelas told the Claims Journal that she thought the decision could increase bad faith claims relating to medical payments coverage if the decision survives scrutiny by the California Supreme Court.

The Barnes decision muddies the waters on the collateral source rule which up until this decision was fairly clear in California,” she said. “An insurance policy taken out and maintained by the alleged wrongdoer, including its medpay provisions, is not wholly independent of him/her and thus cannot be considered to be a collateral source.

“Stated simply, the injured plaintiff cannot recover against the tortfeasor under the liability provisions of the tortfeasor’s insurance policy and then sue the insurance company under the medpay provision of that same policy. The Barnes court concluded differently. The medpay provision in a tortfeasor’s liability policy can be construed as a collateral source. As a third party beneficiary of the medpay provisions, all the injured plaintiff has to do is allege the insurance company committed a wrongful act against him/her when handling the medpay claim. In Barnes, Western Heritage allegedly failed to notify the injured plaintiff of the one-year time limit to present medpay claims. The alleged failure violated California’s regulations governing the fair settlement of claims,” Karvelas said. “The Barnes decision is problematic for insurers not only with respect to the collateral source rule but reflects an ever increasing effort by California’s plaintiff’s bar to create private rights of action for violation of the fair claims settlement regulations.”

Karvelas also told the publication that policy changes to medical payments coverage may be looming.

“It may behoove insurers to add provisions to their liability policies that the Barnes court found were missing in the policy at issue. These would include provisions that reflect an intent that payment under the liability provisions of the policy extinguishes the insurer’s obligation under the medpay provisions of that same policy,” Karvelas said.


Bad Faith: A Smorgasbord of Interesting Disability Cases

Roth v. Madison National Life Ins. Co., 702 F.Supp.2d 1174 (C.D. Cal 2010)

Facts and holdingPaul Roth (“Roth”) was insured under two life insurance policies issued by Madison National Life Insurance Company (“Madison”). Both policies contained a “Critical Illness Benefit Rider” which provided that 10% of the policies’ death benefits would be advanced in the event the insured underwent an angioplasty procedure and certain conditions were met. One of those conditions was that the insured furnish Madison with evidence of significant electrocardiographic (“EKG”) changes.

In July 2004, Roth received an angioplasty and submitted a claim to Madison for benefits. In evaluating Roth’s claim, Madison obtained Roth’s medical records relating to the angioplasty procedure. Those records revealed that prior to the angioplasty, Roth underwent an EKG, the results of which were normal. As a result, Madison denied Roth’s claim. Thereafter, Roth sued Madison for breach of contract and bad faith.

Madison brought a motion for partial summary judgment on Roth’s bad faith claim, arguing that it could not be liable for bad faith because, in denying Roth’s claim, it had simply complied with the express terms of the riders. Roth conceded that he did not provide Madison with evidence of significant EKG changes, but argued that the terms of the riders were outdated and should be disregarded because his physician concluded that the angioplasty was medically necessary.

The Court ruled that a claim for bad faith fails where the alleged bad faith conduct is specifically permitted by the policy. Put another way, the implied covenant of good faith and fair dealing cannot contradict the express terms of a contract. Since Madison had specifically relied on the terms of the contract as a precondition to paying benefits (in requiring Roth to submit evidence of EKG changes), that insistence could not be considered bad faith conduct.

Lessons LearnedThe principle the Roth Court articulated is an offshoot of the more well-known and long-standing principle in California that although there is an implied covenant of good faith and fair dealing in every contract, it will only be recognized to further the contract’s purpose. It naturally follows that the implied covenant cannot serve as a basis for prohibiting a party to do that which is expressly permitted by that contract (the policy).

(The author was counsel for Madison in the above dispute.)


From A Smorgasbord of Interesting Disability Cases.

Don't Miss the Barger & Wolen Presentations at the 2010 Western Claim Conference

Barger & Wolen partners Martin E. Rosen and Robert E. Hess will each present at the 2010 Western Claim Conference (June 27-29, 2010 | Indian Wells, CA).

Disability Legal Update by Martin E. Rosen (Session 2 | Monday, June 28)

  • Keep up to date! What topics have disability insurers and their insured’s been battling about in the courts over the past year? And with what results? Come hear an outside counsel seasoned in litigating disability bad faith disputes discuss some of the issues that judges from around the country have written about in their published legal decisions.

"Help! They want to take my deposition!" by Robert E. Hess (Session 3 | Monday, June 28)

  • This presentation is designed to help personnel across the insurance industry prepare for and give a quality deposition.

We look forward to seeing you at the WCC. If you cannot attend, but would like a copy of the materials, please contact Mr. Rosen or Mr. Hess directly.


Court Finds Triable Issue of Fact as to Rescission of Health Insurance, but Upholds Dismissal of Bad Faith and Punitive Damage Claims

Following the Hailey and Nieto decisions, issues exist whether a Health Care Service Plan completed sufficient medical underwriting prior to rescission

In Nazaretyan v. California Physicians’ Service, the California Court of Appeal reversed the trial court’s grant of summary judgment in favor of California Physicians’ Service dba Blue Shield of California (“Blue Shield”), a health care service plan, following its rescission of Gevork Nazaretyan and Narine Ghazaryan’s (the “Plaintiffs”) health care coverage. In a fact-driven decision, the Court of Appeal held that Blue Shield failed to establish, as matter of law, that its investigation prior to issuing Plaintiffs’ coverage was sufficient to demonstrate that it completed medical underwriting, as required under Health & Safety Code § 1389.3, to rescind for non-willful, material misrepresentations in the application for coverage.

The Court of Appeal also concluded that, as a matter of law, it could not hold that the Plaintiffs, who are husband and wife, willfully misrepresented material information in their application to Blue Shield. However, the Court of Appeal affirmed summary adjudication in Blue Shield’s favor on the Plaintiffs’ bad faith and punitive damage claims.

In August 2004, the Plaintiffs applied for health care coverage with Blue Shield with the assistance of their long-time insurance broker Ahman Yusop. On September 10, 2004, Blue Shield sent Yusop a form requesting information that was missing from the initial application. On September 21, 2004, the missing-information form was returned to Blue Shield with the questions answered, and on October 12, 2004, the Plaintiffs resubmitted their application to Blue Shield. Based on the information in the applications, Blue Shield approved coverage at its most favorable rate on November 1, 2004.

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The Words "Accidental Bodily Injury" in a Disability Insurance Policy Connote an Injury Produced by a Sudden Event

Bilezikjian v. Unum Life Ins. Co. of America, __ F. Supp. 2d __ (C.D. Cal. Jan. 25, 2010).

Without a sudden event, an insured’s injury does not constitute an “accidental bodily injury” within the meaning of a disability insurance policy that distinguishes between accident versus sickness. Where it was undisputed that the insured’s disabling condition -- carpal tunnel syndrome (or “CTS”) -- was caused by repetitive and forceful activities in which the insured had engaged for years in connection with his occupation as an orthopedic surgeon, the insured’s disability was not due to an “accidental bodily injury” as a matter of law. This was the common-sense approach taken by the U.S. District Court for the Central District of California in Bilezikjian v. Unum Life Insurance Co. of America.

Bilezikjian was insured under several disability income policies issued to him by Unum Life. The insurance policies provided that benefits were payable up to age 65 for disability due to “sickness.” The policies also provided that lifetime benefits were payable for disabilities due to “accidental bodily injury,” terms that were not further defined.

Bilezikjian collected total disability benefits for his CTS under the sickness provision of his policies for years until he reached age 65. However, as Bilezikjian neared age 65, he sought ongoing benefits under the policies’ “accidental bodily injury” provision, asserting that his CTS should be considered accidental because he never intended to render himself totally disabled. Unum Life determined that Bilezikjian’s CTS was not due to an accidental bodily injury. Bilezikjian then filed suit for breach of contract, bad faith and punitive damages.

Unum Life moved for summary judgment on all claims, primarily on the basis that in accordance with Gin v. Pennsylvania Life Insurance Co., 134 Cal. App. 4th 939 (2005), “the culmination of repetitive stresses caused by normal, everyday activities is not the result of an accidental bodily injury.” Bilezikjian pursued a cross motion for partial summary judgment on his contract claim.

In granting Unum Life’s motion and denying Bilezikjian’s cross motion, the District Court held that the terms “accidental bodily injury” were unambiguous and that Unum Life did not breach its insurance contracts with Bilezikjian when it concluded that his CTS was not covered under the policies’ “accidental bodily injury” provision.

Jenny Wang is counsel for Unum Life in this matter.

California Court of Appeal Upholds Rescission of Health Insurance Policy

Concludes that Health Insurer Does Not Have to Physically Attach the Application to the Policy to Rely on Misrepresentations in Application to Support Rescission

In Nieto v. Blue Shield of California Life & Health Insurance Company, ___ Cal.Rptr.3d. ___, 2010 WL 162027 (2010), the Court of Appeal considered whether Blue Shield Life – an California insurance company subject to the California Insurance Code – could rescind plaintiff Julie Nieto’s (“Nieto”) individual health insurance policy based on misrepresentations concerning her medical history contained in the application she submitted to Blue Shield Life.

The Court of Appeal affirmed the trial court’s grant of summary judgment in Blue Shield Life’s favor, concluding that Blue Shield Life had no statutory duty to physically attach Nieto’s application to the insurance policy, nor to conduct further inquiries beyond the application during the underwriting process to ascertain the truthfulness of Nieto’s representations in the application before it issued the policy.

In reaching this conclusion, the Court discussed its holding in light of the recent decisions in Ticconi v. Blue Shield of California Life & Health Ins. Co., 160 Cal.App.4th 528 (2008) and Hailey v. California Physicians' Service, 158 Cal.App.4th 452 (2007).

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Insurer's Reasonable Denial of Coverage Cannot be Rendered Retroactively Unreasonable Based on Subsequent Change in Law

In Griffin Dewatering Corporation v. Northern Insurance Company of New York, __ Cal. App. 4th __, 2009 WL 2344762 (July 31, 2009), the Court of Appeal in the Fourth Appellate District issued a lengthy opinion explaining that an insurer’s incorrect, but objectively reasonable, claim denial decision cannot be retroactively rendered unreasonable as a result of a post-denial judicial decision. In other words, there can be no bad faith if there is substantial case law in favor of the insurer’s position at the time it makes its decision, even if that case law is later overturned.

Northern Insurance Company of New York (“Northern”) issued a comprehensive general liability policy to Griffin Dewatering Corporation (“Griffin”), a company that was involved in certain sewer bypass projects. The policy contained a “total pollution exclusion,” which Northern contended excluded sewage release from coverage. Northern relied on this provision in denying coverage and defense to Griffin.

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Court of Appeal Complicates the Analysis of Mental and Nervous Disability Claims

In Bosetti v. The United States Life Ins. Co., 175 Cal.App. 4th 1208 (2009), the California Court of Appeal addressed whether a standard, two-year benefits limitation on disabilities due to “mental, nervous or emotional disorder[s]” could serve to limit benefits payable to an insured disabled from depression and anxiety who also complained of interrelated physical impairments. The Bosetti court held that the limitation was ambiguous and was not applicable if the claimant’s physical problems contributed to her disabling depression or were a cause or symptom of that depression. The Bosetti court further concluded that the insurer’s denial of benefits based upon that two-year limitation was not in bad faith under the genuine issue doctrine.

Bosetti worked as an assistant director of adult education for a school district and first sought treatment after learning that her position would be terminated. Based upon the report of her treating physician and her complaints of depression and anxiety, she was put on temporary disability under her group policy. She thereafter applied for permanent disability benefits complaining of depression and fibromyalgia pain in her muscles, though her treating physician reported that her disabling impairment was solely mental or nervous in nature. After paying Bosetti’s benefits for two years, United States Life determined that she did not qualify for any additional benefits and could work in “any occupation”, which was the governing disability standard after two years. That determination was based primarily upon the two-year benefits limitation for mental or nervous disorders, the results of a functional capacity examination, and an independent physician consultation.

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Emotional Distress Damages in a Bad Faith Action Must Result from Economic Loss

Major v. Western Home Ins. Co., 169 Cal. App. 4th 1197 (2009).

Emotional distress damages in an insurance bad faith action must be “tied” to economic loss in order to be recoverable. Specifically, emotional distress damages are not recoverable without economic loss, and emotional distress damages must relate to the amount of economic loss suffered.

The Majors sued their home insurer, Western, for losses arising out of a fire that destroyed their home and all personal belongings. The Majors obtained a jury verdict in their favor consisting of, among other things, approximately $31,000 in economic damages and $450,000 in noneconomic damages. The factual findings included a determination that Western unreasonably handled the Majors’ claim and that the Majors were financially vulnerable. Western asserted on appeal that the noneconomic, or emotional distress, damages awarded were excessive as a matter of law.

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Jury Instructions in an Insurance Bad Faith Case Need Not Include One on the "Genuine Dispute" Doctrine

In McCoy v. Progressive West Ins. Co., 2009 WL 251127, __ Cal. App. 3d __ (Decided Feb. 4, 2009), the Second District Court of Appeal upheld the trial court’s refusal to give special instructions to the jury in an insurance bad faith action on the “genuine dispute” doctrine. The court reasoned that the case law in California establishing and applying the “genuine dispute” doctrine did not involve jury trials, and thus, did not constitute authority for a jury instruction on the genuine dispute doctrine where the parties stipulated to CACI jury instructions on the reasonableness of an insurer’s conduct. Accordingly, it was held that trial court did not err in failing to specifically instruct the jury on the genuine dispute doctrine. 

See Judicial Opinion Here

Erreca, Moore, Austero, and now. . . Hecht

Hecht v. Paul Revere Life Ins. Co., 168 Cal. App. 4th 30 (2008)

Practitioners in the field of bad faith disability law are all familiar with the "grandaddy" of DI cases, Erreca v. Western States Life Ins. Co., 19 Cal. 2d 388 (1942), as well as its children, Moore v American United Life Ins. Co., 150 Cal. App. 3d 610 (1984) and Austero v. Nat. Casualty Co., 84 Cal. App. 3d 1 (1978), overruled on other grounds in Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d (1979). For years these cases have explained how the concept of "total disability" is to be interpreted in California. In citing these cases, plaintiffs lawyers -- and often the courts -- would usually only cite to the first part of the famous Erreca definition: "[T]he term 'total disability' . . . means such a disability as renders the insured unable to perform the substantial and material acts necessary to the prosecution of a business or occupation in the usual or customary way." The courts seemed reluctant to qualify the definition with the second part of Erreca's teachings: "Conversely, the insured is not totally disabled if he is physically and mentally capable of performing a substantial portion of the work connected with his employment." Now Erreca has spawned a "grandchild" that confirms that the second part of the definition is equally important.

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When Compensatory Damages Are "Substantial," Third Circuit Adopts a 1:1 Punitive Damages Ratio

Jurinko v. The Medical Protective Company, 2008 U.S. App. Lexis 26263 (3d Cir. December 24, 2008)

The Third Circuit, in a non-precedential (but citable under FRAP 32-1) opinion, recently reduced a punitive damages award in an insurance bad faith case from a compensatory damages to punitive damages ratio of 3:1 to a 1:1 ratio. 


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