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.

Last October, the California Court of Appeals issued its opinion in Hecht v. Paul Revere Life Ins. Co., 168 Cal. App. 4th 30 (2008). Mr. Hecht was insured by Paul Revere Life under an "own occupation" disability income policy as the owner and president of a successful retail clothing business. Mr. Hecht claimed to be "totally disabled" under the terms of the policy, even though he continued to work full time in his occupation. He still claimed total disability, because he was limited to his physical activities and he "[could] not perform each and every physical task that he did prior to the accident." The author of this submission moved for summary judgment in the L.A. Superior Court on behalf of Paul Revere, and the trial court granted the motion.

The Court of Appeal upheld the trial court's grant of summary judgment. It based its decision in part on the fact that Hecht was able to perform a substantial portion of his pre-disability work, and that the second part of the Erreca definition should not be ignored: "We believe that all portions of the Erreca rule are apposite." (Emphasis added.) Hecht is the first California Court of Appeal case to devote substantial attention to this issue in almost 25 years. It should be helpful to practitioners and carriers who face claims of total disability from insureds who are still working, but who assert that they cannot perform each of their occupational duties precisely as they did before.

Judicial Opinion Available Here:

Abuse of Discretion to Rely on Employer's Accommodation that Materially Altered Participant's Job Duties

Garrison v. Aetna Life Ins. Co., 558 F. Supp. 2d 995 (C.D. Cal. 2008)

This case addressed the issue of an employer’s accommodation of an employee’s disability, and how the claim administrator considered that factor when assessing disability. Here, a Boeing employee submitted a claim for benefits under the “own occupation” definition of disability. At the time of her disability, her position was described as “light,” requiring 12-hour shifts and a great deal of travel. In response to the onset of the employee’s disability, Boeing attempted to make accommodations by eliminating the travel requirement and reducing the number of hours worked. Based on the accommodations, the claim administrator reclassified the participant’s occupation from “light” to “sedentary,” and finding that she was capable of sedentary work, denied her claim.

When justifying their decision in front of the District Court, the claim administrator relied on Ross v. Indiana State Teacher's Association Insurance Trust, in which the Seventh Circuit found no abuse of discretion when the administrator’s accounted for the employer’s accommodations in the claim decision. However, the district court rejected this argument, distinguishing Ross by noting that the accommodations in that case were relatively minor, while here, travel was a major component of the participant’s job. Further, the Court ruled that when accommodations are offered in direct response to the Plaintiff's disability symptoms, absent Plan language stating otherwise, an administrator should not be able to reclassify or redefine a claimant’s occupation based on her capabilities while suffering from the condition that led to her disability leave. The Court also noted that the Aetna, without justification, assumed the Plaintiff could perform her job in an eight-hour work day, when she was previously working 12-14 hours a day.

Based on these findings, the District Court found that the claim administrator abused its discretion by relying on the employer’s accommodation when terminating LTD benefits and awarded benefits though the 30-month own occupation period.