Self-Funded Plans In California Can Retain Discretionary Clauses

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A case out of the 9th Circuit holds that ERISA LTD plans can still contain discretionary clauses. This is a complicated, but important issue, and I’ll try to distill it down into as simple of a discussion as I can.

When an insurer denies your LTD benefits, and you want a court to review and overturn the denial, the insurance company is held to a standard.

First, you need to determine if your case falls under ERISA. If you receive LTD insurance from your employer, it’s safe to assume you have an ERISA plan.

Abuse of Discretion Standard in Long Term Disability Cases

Under Federal law, ERISA plans can “reserve” discretion for themselves. Meaning, when a court reviews their decision to deny your request for benefits, the court must find the insurance company “abused” their discretion. The court will give deference to the administrator’s decision, and will only overturn if there is clear abuse. This is a hard standard to overcome. It makes it tougher for you to win.

De Novo Standard

California banned these discretionary clauses. That means, when a court goes to review your case, they don’t give any deference to the plan administrator. It’s essentially 50/50 between you and the insurance company.

The problem is, and this is where it gets really complicated, California can only regulate ERISA plans under very narrow circumstances. I won’t get into the how and the why, just be aware that if a plan is self-funded, then California’s ban on discretionary clauses will not apply.

A plan is self funded when the company itself puts it’s money up to fund the plan. As you can tell, only big companies with a lot of cash can do this. In this case, it’s Boeing.

So it’s important to find out whether your plan is self-funded or not.

Self-Funded Plans Can Have Discretionary Clauses in California


Failure to consider SSDI award, and subjective complaints, is an abuse of discretion

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The 9th Circuit of Appeals (the federal appeals circuit which covers California) has determined that a long term disability insurer abused its discretion when it failed to consider two things:

  1. A Social Security Disability Insurance (SSDI) award
  2. Subjective complaints by the disabled worker.

Social Security Disability Insurance Awards Must Be Considered

If you receive SSDI, the determination by the Social Security Administration (SSA) that you are disabled, is not binding on the insurer. However, they must consider, and “grapple” with it. In the 9th Circuit, LTD insurers must meaningfully review any Social Security Administration conclusions. And if they end up disagreeing with the SSA’s finding of disability, they must give their reasons for doing so.

Not distinguishing the SSA’s finding of disability, is evidence that the meaningful review did not take place.

So if you receive SSI or SSDI, that means the SSA determined you are disabled. If your long term disability insurance company (whether covered by ERISA or not) then denies your application for disability benefits, they must state why they came to a different conclusion than the SSA.

Subjective Complaints By The Disabled Worker Must Be Considered In LTD Cases

The worker in this case suffered from Chronic Pain Syndrome. Chronic pain syndrome is one of those medical conditions that cannot be verified by objective testing (such as X-Rays, MRIs, or other imaging) and must rely on subjective complaints by the sufferer.

In cases where the medical condition cannot be verified by objective medical evidence, the insurance company cannot deny the claim based on lack of objective medical evidence. In this case, the “Independent Medical Examiner” (who isn’t really independent as they are hired by the insurance company) observed the claimant exhibiting pain symptoms during his medical exam. The doctor also noted the long history of chronic pain.

Many medical conditions depend for their diagnosis on patient reports of pain or other symptoms, and some cannot be objectively established,” but “a disability insurer [cannot] condition coverage on proof by objective indicators … where the condition is recognized yet no such proof is possible.” Id. Pain is an inherently subjective condition, and it is unclear what objective evidence the Plan was looking for in order to establish that Cruz-Baca’s pain prevented her from working. Neither the Plan nor Dr. Srinivasan offered any explanation as to why Cruz-Baca’s history of pain and pain-related treatment were insufficient to support a finding of disability. Under such circumstances, to disregard Cruz-Baca’s subjective complaints of continuing and pervasive pain was arbitrary and capricious.

The court also found this as an abuse of discretion by the Edison International Long Term Disability Plan, an ERISA plan.

While I did not handle this case, and this is just a summary of a disability case, if Edison or any other company denied or terminated your benefits, call us right now at (858) 999-2870, or Toll-Free at (888) 320-2058. Or just fill out our contact form on this page and we will respond promptly.

Failure to Review SSDI Abuse of Discretion in ERISA LTD Case

Court finds prior finding of disability, and functional capacity exam, as factors in LTD ERISA Cases

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A federal US district court (Northern District of California, San Jose) in an ERISA Long Term Disability case decided a prior finding of disability by the insurance company is an important factor. The Court also decided that a Functional Capacity Exam (FCE) is a factor in determining the case, despite Prudential’s attempt to discount the exam’s findings.

Prior finding of disability is a factor in favor of the plaintiff when an insurer terminates LTD benefits

The court’s ruling holds that a prior finding of disability by the insurer is a significant factor that weighs in favor of the plaintiff. Since Prudential first decided the Plaintiff, a Drug Safety Operations Manager at Jazz Pharmaceuticals (“Jazz”) in Palo Alto, California, was disabled, and even paid short and long term disability benefits for 5 months, that is must show some significant medical change to terminate her benefits.

The Court then presumes Prudential relied on a significant change in the circumstances of her condition in order to recant its previous approvals and expects Prudential to provide some evidence of Gallegos’ medical progression at the time of its termination of LTD benefits. See Bledsoe v. Metropolitan Life Ins., 90 F. Supp. 3d 901, 910 (2015). However, a review of the record reveals no such significant change. See Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 871 (9th Cir. 2008) (noting that the defendant failed to “explain why further degeneration is necessary to sustain a finding that [claimant] is disabled” after defendant had been paying the claimant long-term disability benefits for a year”); Schramm v. CNA Fin. Corp. Insured Grp. Ben. Program, 718 F. Supp. 2d 1151, 1164 (N.D. Cal. 2010) (“Although Defendant did not need to prove a material improvement in Plaintiff’s condition to defeat her entitlement to benefits, her lack of consistent, marked progress is probative of her continuing disability.”). Accordingly, Prudential’s prior finding of disability weighs in favor of finding disability.

Functional Capacity Exams Are Factors When Determining Disability in LTD cases

The plaintiff underwent a functional capacity exam. The exam consisted of the plaintiff reporting subjective complaints, but also observations and test by the examiner. Prudential argued the Court should ignore the results of this exam because it was entirely based on self-reported  complaints of pain. The Court did not find this to be true. There were observations by the examiner, pinch and grip tests. The examiner noted the plaintiff was giving full physical effort.

In addition, the court noted it rejects attempts to ignore self-reported symptoms. Thus, even self-reported complaints of pain and symptoms must be considered.

In addition, courts have rejected attempts to ignore self-reported symptoms such as that of Prudential’s here. See, e.g., Gilmore v. Liberty Life Assurance Co. of Boston, 2014 WL 1652048, at *6 (N.D. Cal. Apr. 24, 2014) (overturning denial where administrator’s doctors noted “plaintiff’s reports of pain” but “disregarded those self-reports”); Stout v. Hartford Life and Acc. Ins. Co., 58 F. Supp. 3d 1020, 1030 (N.D. Cal. 2013) (overturning denial where administrator’s doctors ignored “cumulative effect” of side-effects including musculoskeletal pain); Moody v. Liberty Life Assur. Co. of Boston, 595 F. Supp. 2d 1090, 1099 (N.D. Cal. 2009) (overturning denial where administrator’s doctors ignored “severe neck, arm, and back pain” that had been consistent “over a long period of time”). Accordingly, the opinions of Gallegos’ treating doctors and the functional capacity evaluations support that Gallegos was “more likely than not” disabled under the terms of the Jazz Pharmaceuticals Long- Term Disability Plan.

The sporadic nature of Lupus flares prevents consistent work capacity

The court held the sporadic nature of lupus flare ups can prevent a person from being able to work consistently. A claimant may be stable at any given time, but a flare up can knock that person out, sometimes for a few weeks. A full time employer just can’t have that sort of unpredictability and inconsistent attendance.

While I did not handle this case, and this is just a summary of the case, if your benefits were denied or terminated, give us a call immediately. Once your benefits are denied or terminated, and they send you a letter, the clock starts ticking and you only have a few months to file an appeal. If you don’t file the appeal on time, your rights may be lost forever.

This case is called Gallegos vs Prudential and is linked below.

Gallegos v. Prudential Northern District of California

Anti-discretionary decision in California

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The 9th Circuit Court of Appeals, which covers California, delivered a great opinion for disabled workers wrongfully denied long term disability benefits from their insurer.

This case involves Boeing, and Aetna Life Insurance Company. A few years ago, all of the LTD insurers reserved “discretionary” authority for themselves. Discretion in LTD policies, in my opinion, amounts to highway robbery. The insurance company sells you a long term disability policy, supposedly to protect you should you become disabled and can no longer work.

Aetna reserves discretion in ERISA Long Term Disability Policies

So they sell you this policy, but in the language they reserve for themselves “discretion.” Meaning, they get to decide whether you are disabled or not. And courts respected this discretion. The insurance company would only lose if they abused this discretion.

I won’t get into how an insurer can abuse their discretion, as it’s a lengthy, unclear and complex topic. Just know, that in California, discretion for LTD policies is effectively dead. California passed a law in 2012, stating any discretion clause in a policy, contract, certificate, or agreement offered, issued, delivered, or renewed after that date, will be void.

Aetna argues California law prohibiting discretion doesn’t apply to them

The insurer argued this new law didn’t apply to their policy, because the language in the agreement existed before 2012, and was not renewed or modified since. The Court disagreed, and stated under California law, a policy is “renewed” if it continues to be in force beyond it’s anniversary date. In essence, all policies renew every year in its existence.

As we have quoted above, § 10110.6 voids any “provision that reserves discretionary authority to the insurer, or an agent of the insurer.” Cal. Ins. Code § 10110.6(a). The statute applies to any “policy, contract, certificate, or agreement offered, issued, delivered, or renewed.” Id. “‘[R]enewed’ means continued in force on or after the policy’s anniversary date.” Id. § 10110.6(b). Thus, for § 10110.6 to void the discretionary clauses in question, “a policy, contract, certificate, or agreement” must have been “offered, issued, delivered, or renewed” after the statute’s effective date of January 1, 2012. See Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 927 (9th Cir. 2012) (“The law in effect at the time of renewal of a policy governs the policy . . . .”).

Boeing argues, and the district court agreed, that § 10110.6 did not apply to Orzechowski’s claim because its Master Plan was dated January 1, 2011.3 There is no dispute that Boeing’s Policy—which is different from its Plan—had an anniversary date of January 1, 2012, and renewed accordingly. We think this is sufficient to invoke the statute. The statute makes clear that it applies when the “policy” renews. When the definition of “renewed” found in § 10110.6(b) is inserted into section (a), the statute reads:

If a policy, contract, certificate, or agreement
offered, issued, delivered, or [continued in
force on or after the policy’s anniversary
date], . . . contains a provision that reserves
discretionary authority to the insurer . . . that
provision is void and unenforceable.

Cal. Ins. Code § 10110.6(a). A document (not just a policy, but also the contract, certificate, or agreement) is “renewed” if it “continue[s] in force on or after the policy’s anniversary date.” Id. § 10110.6(b). Boeing’s Policy here “renewed” when it continued in force beyond its anniversary date of January 1, 2012 and, accordingly, the Master Plan similarly “renewed” when it continued in force beyond the Policy’s anniversary date.

Boeing argues that § 10110.6(b) must refer only to insurance policies and not other plan documents. Thus, claims Boeing, the discretionary clause in the Master Plan survives and applies to Orzechowski’s claim. This is a variation on the prior argument that ERISA’s saving clause applies only to insurance companies, and not to insurance provided or funded by other companies. The argument fares no better the second time. By its terms, § 10110.6 covers not only “policies” that provide or fund disability insurance coverage but also “contracts, certificates, or agreements” that “fund” disability insurance coverage. “An ERISA plan is a contract,” Harlick v. Blue Shield of Ca., 686 F.3d 699, 708 (9th Cir. 2012), and thus the Master Plan falls under § 10110.6.

This is a great decision for disabled workers living in California. Discretion is unfair, morally and ethically wrong. And California did the right thing protecting its residents.

San Diego Long Term Disability Attorney, Joseph Dang

While I did not handle this case, and this is just a summary of a disability case, if Unum or any other company denied or terminated your benefits, call us right now, or complete the contact form on my website.

Anti-discretionary case in California ERISA LTD decision

Court finds LTD insurance company’s evidence not credible

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A Federal Court in an ERISA Long Term Disability denial case doesn’t believe an alleged phone call between a doctor hired by the LTD insurance company, and the treating doctor actually happened in the way their doctor claims it did.

The disabled worker, claimant Nancy Hart, was receiving disability benefits for 8 years, before it was terminated by Unum. Unum then terminated her benefits claiming she no longer met the definition of disability. The court disagreed, and decided she was disabled, that Unum improperly terminated her long term disability benefits, and that they owed her past benefits and future.

Prior finding of disability is significant for ERISA LTD cases

Courts consider past findings of disability or past payments of disability benefits to weigh against the insurer unless something new and significant changes their decision.

What this means is, if you were previously found disabled, and/or were receiving benefits for the disability, your insurer needs to provide something new and significant in order to justify terminating your benefits.

This significant change can’t just merely be a stabilization of your condition. In other words, let’s say your spine/back was degenerative, and you were found to be disabled. New tests and exams reveal the degeneration halted, but it did not improve. This is not significant enough to justify a termination of your benefits.

Report of alleged phone call between LTD insurance doctor and treating doctor was not credible

The doctor hired by the LTD insurance company alleged he called the claimant’s doctor, and in that phone call he asked the claimant’s treating doctor if she “felt Ms. Hart was medically precluded from engaging in full time primarily seated work activities.”

The insurance company’s doctor then alleged the treating doctor said ““she did not know and had no opinion.” The insurance company’s doctor further alleged the treating doctor then recommended an independent medical exam, and without that, she would no opinion on the claimant’s disability and ability to work.

The court found this report lacked credibility. The report of her statements contradicted years of her treatment reports, notes and findings.

Insurance company hires doctor to perform medical exam that didn’t sufficiently weigh prior MRI studies

Insurance companies regularly hire their own doctors to examine their claimants. Then they perform what is called an “Independent Medical Exam” which is anything independent. Their doctors will regularly spin any evidence and findings, as well ignoring compelling medical evidence to support the insurance company’s position.

In this case, their doctor noted limitations in what the claimant Hart could endure. More significantly, the doctor seemed to ignore or insufficiently consider prior MRI’s which support the claimant’s disability.

The doctor also ignored claimant’s subjective reports of pain

The 9th Circuit, which covers California, states your subjective complaints of pain must be considered and not ignored. The court was not convinced a 25 minute examination by an insurance company doctor can negate years of reports of pain by the claimant.

Greater weight is given to doctors who examine the LTD claimant vs those who just review files

The insurance company hired several doctors to work for them. Two of them only reviewed files, and never examined the claimant. Their opinions are accorded less weight because of this.

San Diego ERISA Long Term Disability Lawyer

While I did not handle this case, and this is just a summary of a disability case, if Unum or any other company denied or terminated your benefits, call us right now, or complete the contact form on my website.

Hart v. Unum