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Boly v. The Paul Revere Life Ins. Co., 238 Ore. App. 702 (2010)

Facts and holding: In the late 1980s, Jeffrey Boly (“Boly”) was diagnosed with sleep apnea and narcolepsy. With treatment, doctors were able to stabilize Boly’s nighttime sleeping, but Boly’s daytime tiredness persisted and interfered with his ability to perform his job duties. As a result, Boly applied for and received partial disability benefits from his insurer, The Paul Revere Life Insurance Company (“Paul Revere”). 

Thereafter, Boly began to experience cognitive impairment. He was evaluated by a neuropsychologist who determined that Boly’s cognitive impairment likely resulted from chronic, nocturnal hypoxia (lack of oxygen to the brain) associated with sleep apnea that occurred prior to the diagnosis and treatment of Boly’s sleep apnea.

In 2006, the year before Boly’s 65th birthday, Boly requested that Paul Revere reclassify his disability as resulting from “injury” rather than from “sickness.” (Under the terms of Boly’s policy, disability benefits were available until age 65 if the disabling condition resulted from “sickness,” but for life if it resulted from “injury.”) The policy defined “injury” as “accidental bodily injury,” but did not define the term “accidental.” During its consideration of Boly’s request, Paul Revere had its doctors examine Boly’s medical records and, like Boly’s physicians, concluded that Boly’s cognitive impairment resulted from sleep apnea and narcolepsy. Based on this finding, Paul Revere denied Boly’s request and discontinued his benefits on his 65th birthday.

Boly brought suit against Paul Revere seeking reinstatement of his disability benefits and a declaration that he was entitled to lifetime benefits. Paul Revere moved for summary judgment on the grounds that Boly’s disability resulted from a sickness — sleep apnea. Boly argued that his brain injury was an accidental injury

because it was an unintended result of an external event – either his failure to breathe during episodes of sleep apnea or his physician’s failure to diagnose his sleep apnea.

The trial court granted Paul Revere’s motion for summary judgment, ruling that Boly’s nocturnal hypoxia was the consequence of his sleep apnea (a sickness). The Court of Appeal affirmed. Since Boly’s policy did not provide a definition for “accidental bodily injury,” the meaning of the term depended on the “understanding of the ordinary purchaser of insurance.” Applying that standard, the Court rejected Boly’s argument that every unintentional result is accidental as long as it is caused by external events or forces. And the Court was right. Otherwise, every heart attack that could be traced to high cholesterol and every case of lung cancer that could be traced to smoking would also be considered “accidental injuries.”

The Court held that Boly’s failure to breathe and his undiagnosed sleep apnea where not “forces” or “events” in the same sense as lightening (as in being struck) or gravity (as in falling). The typical purchaser of insurance would regard Boly’s condition as analogous to organ failure or damage that resulted from disease. Such disabilities do not arise from “accidental bodily injury.” Therefore, Boly’s brain damage was not “accidental.” 

Lessons Learned: Boly’s position was that his hypoxia should be considered an “accidental bodily injury” because it was the unintended result of his sleep apnea. While an unintended result is one factor many courts consider in determining whether a disabling condition is an “accident,” the condition must also not be the result of a naturally occurring process, such as cancer, aging, medical disorders, etc. See, e.g., Khatchatrian v. Continental Casualty Co., 332 F.3d 1227 (9th Cir. [Cal] 2003) (death from stroke not “accidental” because death was caused by natural, rather than external causes).

For a related case in which a heart attack at rest was considered not to be accidental, see Evans v. Mutual of Omaha Ins. Co., 2008 Cal. App. Unpub. LEXIS 2572 (2008) (in which the author prevailed).

From A Smorgasbord of Interesting Disability Cases.

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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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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.

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The California Assembly’s Insurance Committee is scheduled to conduct its first hearing today on AB 1868, a bill outlawing clauses in insurance policies and other related documents that purport to vest the insurer with discretionary power to determine eligibility for benefits or to interpret the terms of the policy.

Under the proposed legislation introduced by Assemblyman Dave Jones (D-Sacramento), any provision in an insurance policy, contract, certificate or agreement providing or funding life insurance or disability insurance coverage that purports to reserve discretionary authority with the insurer would be void and unenforceable. The bill would also require that the Insurance Commissioner disapprove of any disability policy containing such a provision.

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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.

Ed Oster and Jenny Wang are counsel for Unum Life in this matter.
 

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Allison Bell of the National Underwriter reported on September 11, 2009 that approved disability claims rose more quickly in 2008 at the Social Security Disability Insurance program than at private disability insurers. She explained that the Council for Disability Awareness in Portland, Maine reported that findings in a summary of results from an analysis of SSDI program data and a survey of the 15 CDA member disability insurance companies were as follows:

SSDI applications rose 5.9% in 2008, to 2.3 million, and the number of workers approved for SSDI benefits increased 8.7%, to 895,000, the CDA reports.

The percentage of workers covered by the SSDI program who are receiving SSDI benefits increased to 4.8% in 2008, from 3.5% in 1998.

At CDA member companies, the number of individuals receiving long-term disability benefits payments increased 1.5% in 2008, to 573,500, and 30% of the member companies’ LTD claimants do not qualify for SSDI benefits, the CDA says.

Because of the aging of the U.S. workforce, the percentage of claims filed by workers under age 50 has been declining, and the number filed by workers over that age has been increasing.

But 27% of the survey participants said the overall claims rate has stayed about the same, and 64% said the incidence rate has been falling.

Only one of the participating companies said the recession has had any noticeable effect on disability claims.
 

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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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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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