Facts and holding: In 1992, Robert Fier (“Fier”) was shot in the neck and rendered permanently quadriplegic. He filed a claim for benefits with Unum Life Insurance Company of America (“Unum”) under his ERISA-governed Accidental Death and Dismemberment Insurance Policy (“AD&D policy”).

UNUM denied Fier’s claim because the AD&D policy defined loss of hands or feet as “dismemberment by severance at or above the wrist or ankle joint” and, although Fier was a quadriplegic, his limbs were still physically attached to his body.

Fier filed suit in District Court asserting a claim for declaratory relief that he was entitled to benefits under the AD&D policy, among other claims. The District Court held that Fier was ineligible to receive benefits under the AD&D policy because his limbs were not physically severed from his body. Fier appealed to the Ninth Circuit, arguing that although his limbs remained physically attached to his body, he had no functional use of them due to the “severance” of his spinal cord.

As a matter of first impression, the Ninth Circuit construed the policy’s terms in their “ordinary and popular sense” and concluded that the phrase “dismemberment by severance” is unambiguous and required “actual, physical separation.” (The same result was reached by the Second Circuit in Cunninghame v. Equitable Life Assurance Society of the United States, 652 F.2d 306, 307 (2d Cir. 1981).) Accordingly, Unum did not owe Fier benefits under the AD&D policy.

Lessons Learned: Although a reasonable interpretation of the intent of the policy might be to award benefits to an insured who has completely and permanently lost all use of his limbs, courts will not rewrite the terms of a policy if they are clear and unambiguous.

Note that when disability policies provide total disability benefits for presumptive loss of both hands or legs, and the policy does not specifically require severance of the limbs, courts often view the requirement as being satisfied by the functional loss of use of the limbs. See generally Couch on Insurance 3d, Chapter 146:58 (1998).

From A Smorgasbord of Interesting Disability Cases.

Facts and holding: Due to his HIV diagnosis, in 1992, Dierro Muniz (“Muniz”) began receiving long term disability benefits under his ERISA-governed long-term disability insurance plan issued by Connecticut General Life Insurance Company (“CGLIC”).

Under the terms of the plan, Muniz was entitled to continue to receive benefits after 24 months if he was “totally disabled,” which was defined by the plan as being “unable to perform all the essential duties of any occupation.”

In April 2005, Muniz’s claim came up for periodic review. During the review process, CGLIC’s nurse case manager determined that Muniz’s current medical records did not support the severity of the symptoms he reported. In addition, CGLIC determined in its vocational assessment that Muniz could perform sedentary work, thus rendering him qualified for clerical positions.

Muniz’s treating physician advised CGLIC that he disagreed with its findings and that it was his opinion that Muniz could not work in any field, sedentary or otherwise. However, he did not provide any objective medical evidence in support of this opinion. As a result, CGLIC requested that Muniz undergo a Functional Capacity Evaluation (“FCE”).

Although Muniz was willing to have an FCE, his treating physician refused to authorize the exam, given Muniz’s fatigue and overall condition. CGLIC then requested updated medical records from Muniz’s treating physician. Upon review of those records, CGLIC terminated Muniz’s benefits. Muniz’s appeals were denied and Muniz filed an ERISA suit.

Applying a de novo standard of review, the District Court ruled that the administrative record was insufficient to determine whether Muniz was totally disabled under the terms of the plan and ordered Muniz to submit to an FCE. Thereafter, the court ruled that the results of the FCE did not support Muniz’s position that he was totally disabled, and Muniz appealed.

The Ninth Circuit affirmed, rejecting Muniz’s argument that the burden of proof should shift to the claim administrator when the claim administrator terminates benefits without providing evidence of how the claimant’s condition changed or improved since the initial benefits award.

The Court held that although the fact that a claimant is initially found disabled under the terms of a plan may be considered as evidence of the claimant’s disability, paying benefits does not “operate forever as an estoppel so that the insurer can never change its mind.”

The Court held that under the applicable de novo standard of review, the burden of proof remained with the claimant. Here, Muniz did not provide sufficient evidence to demonstrate that the district court’s holding was “clearly erroneous.”

The Ninth Circuit also rejected Muniz’s assertion that the district court improperly rejected the medical opinion of his treating physician, holding that courts are not required to give special weight to the opinions of a claimant’s treating physician. (That position has been well-established since the U.S. Supreme Court so ruled in Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834 (2003).) 

Finally, the Ninth Circuit rejected Muniz’s argument that the results of the court-ordered 2009 FCE were irrelevant to the issue of whether he was disabled when his benefits were terminated in 2006.

Although the results were not conclusive, they potentially provided insight as to Muniz’s previous condition because Muniz had many of the same symptoms and activity levels in 2009 as he did in 2006. Moreover, the district court did not rely solely on the FCE results; rather, it considered them in combination with the other evidence.

Lessons Learned: This case highlights the “What changed?” argument often advanced by insureds. (“If you found me disabled before, then you should have to show that something changed if you are not going to continue to find me disabled.”)

The Ninth Circuit rejected this argument; just because an insurer commences disability payments to an insured does not render the insured presumptively disabled until the insurer can demonstrate otherwise.

Note, however, that the argument has found favor with certain courts. For example, last year a Florida district court adopted the contrary view. In Kafie v. Northwestern Mutual Life Ins. Co., 2010 U.S. Dist. LEXIS 24184 (S.D. Fla. 2010), the court suggested that once an insurer makes disability payments, it has the burden of proof in demonstrating that the insured is no longer disabled. (The Kafie case was included in last year’s Cornucopia.)

From A Smorgasbord of Interesting Disability Cases.

Facts and holding: Paul 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 Learned: The 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.

Facts and holding: On April 29, 2008, dentist Michael DiBari (“DiBari”) submitted a claim for total disability benefits under his disability income and business overhead expense coverage (“BOE”) policies with Paul Revere Life Insurance Company (“Paul Revere”) as a result of bilateral carpal tunnel syndrome.

Paul Revere ultimately denied DiBari’s claim because after conservative treatment failed to alleviate his symptoms, DiBari declined to undergo carpal tunnel release surgery. Although DiBari’s treating physician believed there was a risk that the surgery might not be successful, he and DiBari’s neurologist both agreed that DiBari did not have any contraindications to the surgery and that the surgery was not “medically inappropriate.” Additionally, Paul Revere’s in-house board certified orthopedic surgeon and an independent hand surgeon both agreed that by failing to undergo release surgery, DiBari was not seeking and receiving “appropriate care” for his symptoms. 

In order to be eligible to receive total disability benefits under the policies DiBari was required to be “receiving Physician’s Care,” among other things. Both policies defined “Physician’s Care” as

the regular and personal care of a Physician which, under prevailing medical standards, is appropriate for the condition causing the disability.” (Emphasis added.)

Paul Revere interpreted this language to mean that DiBari must obtain “appropriate care” for his bilateral carpal tunnel syndrome.

Paul Revere brought a complaint for declaratory relief and moved for summary judgment on the grounds that by refusing the release surgery, DiBari was not receiving “appropriate care” and was thus ineligible to receive disability benefits. DiBari interpreted the same policy language to require only that he receive “regular and personal care,” which he argued did not include surgery.

The Court agreed with Paul Revere’s interpretation of the policy language, holding that the policy obligated DiBari to do more than receive “regular care”; he was required to seek and accept appropriate medical care for his condition. It was undisputed that conservative treatment failed to alleviate DiBari’s symptoms and his treating physicians agreed that release surgery did not pose any risk to DiBari, and was not medically inappropriate. Accordingly, Paul Revere was entitled to summary judgment on its complaint for declaratory relief.

Lessons Learned: In reaching its decision, the Court relied in part on the Northern District of California’s decision in Buck v. Unum Life Ins. Co., 2010 U.S. Dist. LEXIS 22479 (N.D. Cal. 2010), a case which the author included in last year’s Cornucopia presentation. The Buck case also dealt with the issue of an insured’s duty to undergo carpal tunnel surgery under the “appropriate care” provisions of the disability policy at issue. The policy language at issue in Buck was similar to the disputed policy language in the present case, requiring the insured to be “receiving medical care from someone other than himself which is appropriate for the injury or sickness.” The Buck Court held that this language obligated a claimant to receive “appropriate care.” However, the Buck Court declined to grant a summary judgment motion on the issue of whether the insured’s failure to undergo carpal tunnel surgery equated with a failure to receive appropriate care because, in that case, there were conflicting opinions as to whether surgery was appropriate treatment for Buck. 

In the present case, there were no conflicting opinions concerning whether surgery would be appropriate for DiBari. The undisputed facts demonstrated that conservative treatment failed to alleviate DiBari’s carpal tunnel symptoms and that DiBari’s physicians believed that the surgery was neither contraindicated nor medically inappropriate. Therefore, while the determination as to what is “appropriate care” is often fact and case-specific, a court should not decline to decide the issue on summary judgment where the facts are undisputed that the care in question is “appropriate.”

From A Smorgasbord of Interesting Disability Cases.

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.

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.

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.

In late 2005, Do Sung Uhm and Eun Sook Uhm (the “Uhms”), Medicare beneficiaries, applied for the prescription drug benefit plan offered by Humana (the “Plan”). In accordance with the Uhms’ election to receive benefits under Part D, the Social Security Administration withheld monthly premiums from their social security benefits.

Pursuant to the Plan, the Uhms’ benefits were to begin on January 1, 2006; however, as of February 6, 2006, the Uhms had not received any information from Humana regarding how to obtain their benefits. As a result, the Uhms had to pay out-of-pocket for their prescription medications.

The United States Court of Appeals for the Ninth Circuit initially affirmed the district court’s conclusion that the Medicare Act’s express preemption clause barred each of the Uhms’ claims. See Uhm v. Humana, 540 F.3d 980 (9th Cir. 2008). However, the Ninth Circuit later withdrew its opinion and issued an order on July 22, 2009, requesting the opinion of the United States as to whether the claims were preempted by the Medicare Act. As demonstrated by the amicus brief filed by the United States on October 29, 2009, in support of Humana, the United States’ position is that all of the claims asserted by the Uhms are either expressly or impliedly preempted by the Medicare Act.

First, the United States argues that the Uhms’ statutory consumer protection claim is preempted under the Medicare Act’s express preemption provision pertaining to state statutes or regulations which endeavor to govern the same subject matter regulated by, in this case, Part D standards. Specifically, the Uhms’ state consumer protection claim is premised upon the allegation that Humana’s marketing materials contained fraudulent misrepresentations. However, under the Act, CMS is charged with reviewing and determining whether the marketing materials produced by the sponsors are inaccurate or misleading.

Second, although the Uhms’ fraud claim is not barred by the Act’s express preemption provision because the statute preempts only state laws and regulations, the United States contends it is impliedly preempted because it actually conflicts with federal law. That is, like their consumer protection claim, the Uhms’ fraud claim is premised upon the assertion that the sponsor made fraudulent representations in its marketing materials. As stated above, CMS is charged with reviewing and determining whether the marketing materials produced by the sponsors are inaccurate or misleading. Therefore, according to the United States, whether the marketing materials determined by CMS to be truthful under federal law were also determined to be misleading under state law creates a conflict between federal and state law resulting in the preemption of the Uhms’ fraud claim.

Third, the United States asserts that the Uhms’ breach of contract and unjust enrichment claims are also precluded, either because they are preempted, or because the Uhms lack standing to assert such claims. That is, if the Uhms’ claims are based upon Humana’s alleged failure to confer benefits notwithstanding the Uhms’ enrollment in its Plan, then they are preempted by Medicare’s review structure for benefits and coverage disputes. Under the Act, if coverage is denied, the sponsor must first provide the beneficiary with a written explanation detailing the reasons for the denial, as well as the available appeal procedures. Next, the plan participant may request that the sponsor reconsider its denial. If the sponsor again denies the claim, the participant may appeal the decision to an independent review entity contracted by CMS. After that point, further review is limited. The Uhms did not engage in this dispute process to try to obtain benefits before filing suit.

If, on the other hand, the Uhms’ claims are based upon Humana’s alleged failure to enroll the Uhms in the Plan, the Uhms arguably lack standing to bring such a claim since they were retroactively enrolled in the Plan. As a result, their damages would have been limited to their out-of-pocket costs incurred during the pendency of their application, for which they could have sought reimbursement under Medicare’s benefits and coverage dispute review process outlined above.

The Ninth Circuit is expected to issue a new decision shortly taking into account the United States’ position as discussed above.