Roadway Recklessness: “If You Live Each Day as It Was Your Last, Someday You’ll Most Certainly Be Right.”
It comes as no surprise—especially to loyal readers of this article—that engaging in criminal behavior can foster deadly outcomes. Indeed, the correlation is so widely recognized that life insurers often exclude coverage for accidental deaths that occur during the commission of a crime. But what conduct qualifies as a crime? Last year we discussed the Eighth Circuit’s decision in Boyer v. Schneider Electric Holdings, Inc., which held that the insurer properly applied a crime exclusion to preclude accidental death benefits when the insured died while speeding and improperly passing. More recently, the Sixth Circuit decided Fulkerson v. Unum Life Insurance Co. of America, which followed Boyer’s reasoning and shed added light on the meaning of “crime” and whether traffic violations can trigger a crime exclusion. Specifically, the issue posed to the Fulkerson court was whether a policy’s crime exclusion barred coverage when an insured’s death was caused by his own reckless driving.
The insured in Fulkerson died in a single-car accident attempting to pass multiple vehicles while driving between 80 and 100 mph—well above the 60 mph speed limit. In the midst of his risky traffic maneuvering, a gap closed between a car in the right lane and a box truck in the left lane. Veering to the right to try to avoid a collision, the insured drove his vehicle off the road, causing it to roll it down an embankment, strike multiple trees, and flip over several times before it rested at the bottom of a hill where he died. The plaintiff sought the policy’s $100,000 accidental death benefit, but the insurer denied coverage citing the crime exclusion. The plaintiff then sued under ERISA, successfully overturning the insurer’s decision in the district court.
On appeal, the Sixth Circuit considered whether reckless driving was a “crime” for purposes of the policy’s crime exclusion. The relevant provision excluded “accidental losses caused by, contributed to by, or resulting from . . . an attempt to commit or [the] commission of a crime.” Finding a crime is “an illegal act for which someone can be punished by the government,” the court reversed the lower court’s decision and held the crime exclusion precluded coverage for the insured’s death. In so holding, it noted that reckless driving is widely recognized as a crime throughout the country and invoked various examples of individuals being charged with criminal reckless driving to demonstrate that reckless driving is an illegal act punishable by law. Having found the insured’s reckless driving barred accidental death coverage, the court declined to address whether speeding also would trigger the policy’s crime exclusion. The tragic facts of this case make it easy to see why every state criminalizes reckless driving to some degree.
Assessing another roadway tragedy, the Ninth Circuit considered whether death resulting from drunk driving is “accidental” for purposes of accidental death insurance in Wolf v. Life Insurance Co. of North America. In the 2021 edition of this article, we first introduced readers to Scott Wolf, Jr., an insured who died in a single-car collision while “driving at approximately 70 to 80 miles per hour with his hazard lights on, going the wrong way down a one-way causeway with a posted speed limit of 10 miles per hour” at 4 a.m. The insured’s blood alcohol level was reportedly 0.2% when he hit a speed bump and lost control of his car, which flipped and landed upside down in a body of water adjoining the road, causing his death. The insured’s beneficiary sued the insurer after it denied accidental death benefits related to the insured’s death. The federal district court found the insured’s death was not “substantially certain” to result from his conduct and granted summary judgment to the plaintiff beneficiary.
On appeal, the Ninth Circuit considered whether the insured’s death resulted from an “accident” under the policy, applying the Padfield test, which is a modified version the framework set forth in Wickman. Padfield differs from Wickman in the objective portion of the inquiry. Where Wickman asks whether a reasonable person similarly situated to the insured would view the resulting injury as “highly likely” to occur, Padfield asks whether it was “substantially certain” or “substantially likely” to occur. The Ninth Circuit has held repeatedly that the “substantially certain” test is the most appropriate standard because it best allows the objective inquiry to “serve as a good proxy for actual expectation.”
The insurer argued that, because the policy defined “accident” as “a sudden, unforeseeable, external event,” the district court should have asked whether the insured’s death was “reasonably foreseeable,” rather than “substantially certain.” Since the insurer failed to raise this issue in its denial letter or before the district court, the Ninth Circuit declined to consider it.
The Ninth Circuit remarked on the complexity of the issue before it, explaining that “[t]he question of whether drunk-driving deaths or injuries are ‘accidental’ for purposes of accidental death insurance has perplexed the judiciary for some time” and noting that it had “not previously had the occasion to weigh in and apply the Padfield test to a death or injury involving drunk driving.” Recognizing the challenge of drunk driving cases in the accidental death context, the court stated:
Events that can cause death span a vast continuum that range from intentionally driving off a cliff into the ocean below (a clear suicide) to driving off a bridge that has suddenly collapsed due to a structural failure (an undisputed accident). All jurists would agree that an accidental-death policy, such as the one involved here, would exclude coverage for driving off the cliff but allow coverage for driving off the bridge. The facts of this case, as in most cases involving drunk driving, fall somewhere in between.
Applying the Padfield analysis, the Ninth Circuit agreed with the district court that there was insufficient evidence in the administrative record to determine the insured’s actual state of mind at the time of his death. It then proceeded to the objective inquiry and affirmed the lower court’s finding that a reasonable person with a background and characteristics similar to the insured’s would not have viewed death as “substantially certain” to occur. In so holding, it found the insured’s death was not substantially certain to result from driving at 65 miles per hour in the wrong direction in a 10 mph zone with a 0.2% blood alcohol content early in the morning. Commenting that the record contained no data regarding drunk driving fatalities, the Ninth Circuit found that deaths caused by drunk driving are “a statistical rarity” even if drunk driving is “ill-advised, dangerous, and easily avoidable.” To successfully argue death from drunk driving is not covered under an accidental death policy in the Ninth Circuit, insurers would be well advised to either include an alcohol exclusion in their policies or ensure the records on which their claim denials are based contain convincing statistics to support the determination that a death was not accidental.
Drug Overdoses: “It Is Easier to Stay Out Than Get Out.”
This past survey period also saw decisions in cases involving drug overdose. In Richmond v. Life Insurance Co. of North America, the Northern District of Iowa examined whether the insured’s drug overdose was actually a suicide, and therefore not an accident. The insured, a registered nurse specializing in pain management, died due to mixed drug toxicity involving morphine, hydromorphone, meperidine, and fentanyl. At the scene of the insured’s death, the deputy sheriff found an open Vacutainer Blood Collection Kit, with a syringe containing red liquid appearing to be blood, a tourniquet, and a bottle of hydrochloride with a broken seal. The insured had no prescriptions for any of these medications. A medical examiner determined the manner of death was accidental, finding that, although the doses of the substances taken were all independently within the reported “therapeutic range,” collectively they could be lethal.
The insured’s policy defined a “Covered Accident” as a “sudden, unforeseeable, external event” that, inter alia, “is not otherwise excluded . . . .” The policy also excluded deaths resulting from “voluntary ingestion of any narcotic, drug . . . unless prescribed or taken under the direction of a Physician and taken in accordance with the prescribed dosage.” The insurer denied the plaintiff’s claim for accidental death benefits on grounds that the insured’s death was not a Covered Accident. According to the insurer, a reasonable person with the insured’s background and characteristics would have viewed death as highly likely to occur. It further found that coverage for the insured’s death was excluded by the voluntary ingestion exclusion. Although the policy did not define “ingestion,” the insurer interpreted it to mean “the process of absorbing a substance.”
The plaintiff argued the insured’s interpretation of ingestion was unreasonable and did not include the injection of drugs. Applying the abuse of discretion standard, the court disagreed, finding that the insurer
(1) reasonably interpreted ingestion to mean the process of absorbing a substance; and (2) its interpretation did not render any policy language meaningless or internally inconsistent. The court also explained that under “the plain language of the policy exclusion, an average and reasonable plan participant would understand that the policy does not provide benefits for an individual who dies from voluntarily taking unprescribed narcotics, whether orally, by injection, by inhalation or by other means.” Because the insurer properly applied the voluntary ingestion exclusion, the court held that the insurer appropriately denied the plaintiff’s claim.
While unnecessary, the court also considered whether the death was a Covered Accident. In addressing this issue, it applied the Wickman analysis. The court agreed with the insurer that the insured’s subjective expectations could not be determined. Moving on to the objective viewpoint test, the court found the insurer properly denied coverage because a reasonable person with the insured’s background and characteristics would have considered death to be a probable consequence that was highly likely to occur. Specifically, the insured’s eighteen years of experience as a pain management nurse, which included administering therapeutic doses of the subject medications to patients, gave rise to the inference that the insured understood that these drugs could cause respiratory depression and accentuation. The court accordingly held the insurer did not abuse its discretion in finding the death was not a Covered Accident.
A beneficiary sought accidental death benefits under an ERISA plan after her husband died from a heroin overdose in Yates v. Symetra Life Insurance Co. In December 2016, the insured’s parents discovered him dead in his bedroom, lying face-down on the floor on top of a hypodermic needle with a needle plunger cap, needle cap, and bottle cap with a dried light brown substance nearby. The insured was a reported heroin user and had bruising at presumed injection sites on his forearms and lower abdomen when he died. The report of the investigation into the insured’s death concluded that he accidentally overdosed when he injected heroin while preparing for bed. The insured’s blood also tested positive for codeine, morphine, and heroin.
The policy at issue provided coverage for “accidental bodily injury which is a sudden and unforeseen event, definite as to time and place,” but the policy did not define “unforeseen” or “accidental.” The policy also excluded “any loss caused wholly or partly, directly or indirectly, by . . . intentionally self-inflicted injury [while] sane,” although it did not define “intentionally.”
The insurer denied the plaintiff’s claim for accidental death benefits, reasoning that the insured’s death was not an accident under the policy “when it is reasonable that the insured would have foreseen that using an illegal drug and being under the influence of Heroin could result in death or serious bodily harm, the cause of death is not accidental.” The insurer also pointed to the intentionally self-inflicted injury exclusion and remarked that, “in view of the fact that the cause of death was due to the insured’s intentional act of using heroin, this event cannot be considered “unintentional.”
In the litigation in the Eastern District of Missouri that followed, the insurer moved for summary judgment. The court noted that the insurer’s denial letter failed to clarify whether it denied coverage because the insured’s death was not an accident, or because the death fell within the intentionally self-inflicted injury exclusion, or both. As to whether the death was accidental, the court identified inconsistencies between the language of the denial letter and the policy, which caused confusion as to the meaning of “accidental death,” and it rejected the insurer’s reliance on the test set forth in Holsinger v. New England Mutual Life Insurance Co. in favor of the tried-and-true Wickman test as the appropriate framework for the accident determination.
Under Wickman, an event is an accident if the insured did not subjectively expect to suffer an injury similar in type or kind to that suffered, and the presumptions underlying the insured’s expectation were reasonable. Determining what expectations are reasonable is assessed from the insured’s perspective, allowing the insured a great deal of latitude and accounting for their personal characteristics and experiences. If the insured’s subjective expectation cannot be determined, the question becomes whether a reasonable person, with a background and characteristics similar to the insured’s, would have viewed the injury as highly likely to occur as a result of the insured’s intentional conduct.
The court found insurer’s denial letter did not reflect an attempt to ascertain the insured’s subjective expectations or evaluate whether a reasonable person in his position would have viewed death from injecting heroin as highly likely to occur. It also concluded the administrative record lacked sufficient evidence to determine the insured’s subjective expectations when he injected the heroin.
Turning to the objective prong of the Wickman analysis, the court found the insurer’s attempt to limit “injury” to “unforeseen events” was unreasonable because, if unforeseen events were the only ones that qualified as “injuries,” the policy would exclude all reasonably foreseeable injuries—like the insured’s—from coverage. The court concluded the insured’s death was, more likely than not, an accident under Wickman because a reasonable person with a background and characteristics similar to the insured’s would not have expected to die or viewed death as highly likely to occur.
The insurer fared no better on the intentionally self-inflicted injury exclusion. The court discussed other Eighth Circuit decisions which found that similar exclusions were not triggered by overdoses brought on by the intentional use of drugs. Ultimately, the court entered judgment for the plaintiff, holding that, without evidence that the insured “intended his death to occur or that he should have known death was highly likely to occur as a result of injecting heroin,” the insurer did not meet its burden to establish that the intentionally self-inflicted injury exclusion applied. This decision was appealed to the Eighth Circuit, so we may have an update on this tragically timely issue in the next survey period.
In Santos v. Minnesota Life Insurance Co., the Northern District of California examined whether a “drug exclusion” barred accidental death benefits under an ERISA plan. The insured was found dead in his home with blood having flowed from his head and dried vomit near his face. The autopsy report described the manner of death as “accidental” and listed the cause of death as blunt force head trauma with subdural hematoma consistent with an injury to the back of the head from a fall, and “methamphetamine present” as a contributing factor. Methamphetamine, amphetamine, and Temazepam were present in the insured’s blood and urine, and the insured had a long history of methamphetamine abuse, with past rehabilitation attempts and psychotherapy. The insured’s psychotherapist confirmed his long-standing methamphetamine addiction, chronic suicidal ideation, and depression, although no suicide note was discovered at the insured’s residence. Additionally, the insured’s physician certified that he never prescribed methamphetamine or the FDA-approved version, Desoxyn, to the insured.
Following the insured’s death, the plaintiff, the administrator of his estate, submitted a claim for accidental death benefits. The policy covered deaths “as a result of a covered accidental injury” and defined “accidental death or dismemberment by accidental injury” to mean “that an insured’s death or dismemberment results, directly and independently of all other causes, from an accidental injury which is unintended, unexpected, and unforeseen.” It also contained a “drug exclusion” that prevented recovery for any accidental death that “results from or is caused directly or indirectly by . . . being under the influence of any prescription drug, narcotic, or hallucinogen, unless such prescription drug, narcotic, or hallucinogen was prescribed by a physician and taken in accordance with the prescribed dosage.”
The insurer denied the claim after its associate medical director opined that the insured’s methamphetamine level at his death was 70.6 times higher than the “usual and customary dose,” in the “fatal” range, and suggested the death resulted from an overdose. After the insured administratively appealed, the insurer obtained a second opinion from another associate medical director who reiterated that the insured’s methamphetamine level was in the fatal range and contributed to his fall and death. The insurer then upheld its decision to deny accidental death benefits.
Under de novo review, the court evaluated whether the plan administrator correctly denied accidental death benefits based on the administrative record. It first determined whether the death was an accident, applying the test set established in Padfield v. AIG Life Insurance Co. Similar to Wickman, the Padfield test first asks whether the insured subjectively expected death or injury. Because the record offered no evidence of the insured’s subjective expectations, the objective inquiry ultimately guided the court’s assessment. Would a reasonable person with the insured’s background and characteristics have viewed the insured’s death as a substantially certain result of ingesting methamphetamines? The court didn’t think so, explaining that while the insurer presented evidence that the insured’s methamphetamine level at death was in the fatal range, the insured did not die from an overdose—he died from a subdural hematoma. While the insured had a history of methamphetamine use, nothing in the record showed he had previously fallen or required urgent medical attention. There was no evidence to suggest that the insured expected or foresaw falling in his apartment, and, therefore, there was no evidence to suggest the insured’s death was substantially certain to result from his methamphetamine use.
As to the drug exclusion, if methamphetamines could be characterized as a prescription drug, a narcotic, or hallucinogen in “an ordinary and popular sense,” then the drug exclusion would apply. Despite the insurer’s attempts to fit methamphetamines into these categories, the court was not convinced that “a person of average intelligence and experience” would understand methamphetamines to be a prescription drug, a narcotic, or a hallucinogen. Therefore, the court concluded the drug exclusion did not apply and the plaintiff was entitled to the accidental death benefits.
Disability
Sufficient Evidence in Disability Actions: “Take Nothing on Its Looks; Take Everything on Evidence. There’s No Better Rule.”
In two federal district court decisions involving mental health-based disability claims made under ERISA plans—Kopicko v. Anthem Life Insurance Co. and Rogala v. Hartford Life & Accident Insurance Co.—courts applied the de novo standard of review in proceedings under Federal Rule of Civil Procedure 52 to decide which party was entitled to judgment. These cases serve as a reminder of the fact-intensive nature of disability claims, as well as the need for insurers to carefully review the relevant medical records and opinions of any independent medical reviewers before rendering claim decisions.
In Kopicko, the Southern District of California considered whether the plaintiff plan participant was disabled between May 8, 2018, and March 24, 2019. The participant claimed psychological abuse from his spouse resulted in “major depression and anxiety, and that he was unable to leave his house unless absolutely necessary for medical reasons.” Since the participant filed his claim within twelve months of the coverage effective date, the insurer investigated for any pre-existing conditions during the three-month period of March 1, 2017, through May 3, 2017 (the “lookback period”). The insurer initially denied the participant’s long-term disability claim because it did not receive the requested medical records for the lookback period, and the plan participant appealed.
On administrative appeal, during which the insurer received the outstanding medical records, the participant’s counsel advised that the disability claim was based on “‘Major Depressive Disorder or Agoraphobia’” and claimed the medical records submitted from the insured’s physician, Dr. Kornberg, showed the participant was not treated for those conditions during the lookback period. The plan participant’s counsel also submitted a March 25, 2019, independent medical examination report from Dr. Dupée, who “opined that ‘Major Depressive Disorder and Agoraphobia are new psychiatric diagnoses that have caused Plaintiff to be severely disabled to the point where he cannot leave the house or function at his previous job as a biostatistician.’”
During the first administrative appeal, one of the insurer’s independent medical reviewers, Dr. Schroeder, reviewed Dr. Kornberg’s medical records and Dr. Dupée’s independent medical report and concluded that Dr. Kornberg did not treat the plan participant for the same medical conditions during the lookback period that the plan participant had allegedly suffered after the lookback period. Shifting to the disability determination, Dr. Schroeder then explained that from November 19, 2017, through May 7, 2018, and after March 25, 2019, “the claimant was experiencing psychiatric impairment . . . [that] would be expected to preclude the claimant from performing even simple, routine, and repetitive work duties reliably and consistently. . . .” Dr. Schroeder also determined that the records from May 8, 2018, to March 24, 2019, “‘did not describe severe mental status abnormalities, psychiatric functional impairment of the claimant’s daily activities, or participation in intensive mental health treatment” as “[t]he treating provider stated that the claimant was more focused on obtaining disability benefits rather than on treatment for his psychiatric condition.’” Based on Dr. Schroeder’s review, the insurer reversed its claim denial for November 9, 2017, through May 7, 2018, but determined the participant was not disabled between May 8, 2018, and March 24, 2019. It also concluded that, although the participant was disabled after March 25, 2019, he was not covered then because he was not “‘Actively at Work’” as defined by the ERISA plan.
The participant submitted a second appeal focused on the May 8, 2018, to March 24, 2019, time-frame, and presented a supplemental report from Dr. Dupée, in which Dr. Dupée “opined that Plaintiff was disabled from September 8, 2017, through the date of her supplemental report, January 10, 2020.” Dr. Dupée noted, in part: “It is not logical that Mr. Kopicko’s disability would suddenly start and stop given his extensive psychiatric history documented in the medical records and from my evaluation.” The insurer obtained an independent medical record review from Dr. Gratzer, a psychiatrist, who “opined there was ‘a lack of medical evidence to support impairment during [May 8, 2018, through March 24, 2019].’”
In its decision, the court detailed the May 8, 2018, through March 24, 2019, medical records and, stopping short of deciding whether Dr. Schroeder had “cherry-picked information,” concluded the medical records showed the participant had “a continuing psychiatric impairment that precluded him from performing full-time work.” It also rejected Dr. Gratzer’s opinion that an absence of “‘objective psychological testing’” suggested the participant was not disabled from May 8, 2018, through March 24, 2019, noting that “‘[p]sychiatric impairments are not as amenable to substantiation by objective laboratory testing as are physical impairments.’” The court awarded the participant benefits for May 8, 2018, through March 24, 2019, and requested supplemental briefing on the remaining issues, including benefits beyond that time-frame.
In another ERISA action where the parties asked the court to adjudicate their dispute under Federal Rule of Civil Procedure 52, the District of Oregon in Rogala v. Hartford Life & Accident Insurance Co., concluded that the plaintiff plan participant’s evidence was insufficient to prove he was disabled under the plan. Although the facts were more straightforward than those in Kopicko, the Rogala decision highlights the importance of insurers’ comprehensive reviews of medical records in assessing disability claims. In Rogala, the plan participant was arrested on April 10, 2017, and was in jail from then until May 7, 2017. His employer terminated his employment for “‘job abandonment’” on May 18, 2017, because the participant could not be at work while in prison. The participant filed a claim for California Voluntary Disability Insurance (CAVDI) benefits administered by the insurer, claiming severe major depressive disorder beginning May 8, 2017. When the insurer inquired about the period between April 10, 2017, the plan participant’s last day worked, and May 8, 2017, his purported date of disability, the participant told the insurer he was on vacation during that time frame. The insurer approved CAVDI benefits from May 8, 2017, to May 13, 2018. The participant then moved to Oregon, and, on June 5, 2018, submitted a claim for long-term disability benefits under the plan. The insurer denied the participant’s claim when it ultimately learned, in late 2019, that he was not on vacation or an “approved and documented leave of absence from April 11, 2017, to May 7, 2017.” The insurer found both that the participant was ineligible for long-term disability coverage under the plan and that he did not support his purported disability from “May 8, 2017 through May 17, 2017 (or from November 28, 2017 onward).”
The court addressed two main issues: “Was plaintiff an ‘active’ employee at Oracle before his termination such that he qualified for Plan benefits?” and, if so, “[D]id he establish that his disability lasted throughout the 90-day elimination period and two-year mental illness limitation?” It ultimately found the plan participant was not an “‘Active Employee’ or ‘Actively at Work’ during the period of his incarceration from April 11 to May 7, 2017.” Although noting that it did not need to reach the second issue, the court agreed with the insurer that the participant did not prove he was disabled through the plan’s 90-day elimination period in any event. Specifically, it explained the participant could not meet his burden of proof “by providing subjective or conclusory opinions about his work functionality during the 90-day elimination period.” The court also found the medical records did not establish the plan participant was continuously disabled throughout the 90-day elimination period, as the medical records from one of his treaters showed “a significant improvement in [the plan participant’s] mental health conditions between November 27, 2017 and February 16, 2018.”
Summary Judgment, Evidence, and Bad-Faith Claims: “Facts Are Stubborn Things; and Whatever May Be Our Wishes, Our Inclinations, or the Dictates of Our Passion, They Cannot Alter the State of Facts and Evidence.”
The defendant insurer in Barnett v. Sun Life Assurance Co. initially determined the plaintiff was disabled due to injuries he sustained after being shot in the line of duty as a patrol officer, arthritis in his spine, disc herniation in two vertebrae, disc space loss with a synovial cyst in another vertebrae, and rotator cuff and astroscopic knee surgeries. The insurer later concluded the plaintiff was not totally disabled and therefore was not eligible for ongoing long-term disability benefits. The Northern District of Alabama concluded there was a genuine issue of fact as to whether the plaintiff was disabled but not with respect to the plaintiff’s actions for breach of contract and bad faith for the termination of the plaintiff’s long-term disability benefits.
Concerning the disability claim, the court considered the independent medical reviews the insurer obtained in support of the claim denial and noted that the attending physician statements from the plaintiff’s treating physicians did not agree on whether the plaintiff was disabled. “One physician opined that [the insured] could work, while the other found he is permanently disabled.” The court explained, under the summary judgment standard, it cannot “weigh the evidence; it can only determine whether there is a genuine dispute of material fact.”
The plaintiff’s bad-faith claim was another story, however. The court granted summary judgment for the insurer “because the underlying breach of contract claim [was] not sufficiently strong” under Alabama law. The court observed that, in Alabama, bad-faith claims are limited to situations where a breach of contract claim is so strong the plaintiff should be granted a directed verdict. It explained that where, as in the case before it, “there is a genuine dispute of material fact on the breach of contract claim, the bad faith claim must fail.” The court also found the insurer had an arguable reason for denying the claim because the evidence demonstrated the insurer thoroughly investigated the claim and relied on multiple expert opinions, which “creates a reasonably legitimate or arguable reason for the denial.”
In Pak v. Guardian Life Insurance Co. of America, the Northern District of California reached a similar decision on summary judgment when the plaintiff insured sued for breach of contract and breach of the covenant of good faith and fair dealing after the insurer denied his claim for total disability benefits. The insured was a general and pediatric anesthesiologist who alleged the insurer breached both the policy and the covenant of good faith and fair dealing in denying his total disability benefit claim and awarding him residual disability benefits instead.
The court denied the insurer’s request for summary judgment on the breach of contract claim, but granted the insurer summary judgment on the breach of the covenant of good faith and fair dealing claim. Like the Alabama law at issue in Barnett, under California law:
the general rule is that “an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract.” A legitimate dispute over whether facts trigger the insurance coverage is one example of such a dispute.
The court emphasized that “the genuine dispute rule is not absolute,” however, and “‘does not relieve an insurer from its obligation to thoroughly and fairly investigate, process, and evaluate the insured’s claim,’” as “‘[a] genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.’”
The court agreed with the insurer that there was a legitimate dispute over whether the facts showed the insured was totally, rather than residually, disabled. In so holding, it rejected the insured’s claim that the insurer acted unreasonably as it ignored his treating physicians’ and employers’ opinions, mispresented his treater’s opinions, concentrated on flawed America Society of Anesthesiologists (ASA) and Current Procedural Terminology (CPT) codes, and delayed its claim decision. The court explained that the insured tried to create genuine issues of material fact about the alleged insufficiency of the insurer’s investigation where there were none. In granting the insurer summary judgment on the good faith and fair dealing claim, the court found “[t]here is no genuine dispute of material fact here; the evidence presented—including that by Pak—shows that Guardian’s investigation was reasonable, fair, and thorough.” It then entered judgment for the insurer on the insured’s punitive damages claim for similar reasons.
An insurer’s success on a dispositive motion related to bad-faith claims is by no means guaranteed, but evidence of a reasonable, thorough investigation and legitimate dispute regarding the claim goes a long way towards assuring success.
ERISA
Mixed Results for Litigants Bringing Equitable Actions to Obtain Monetary Relief Under 29 U.S.C. § 1132(a)(3): “Cash Rules Everything Around Me.”
This survey period saw important developments for those seeking reimbursement, restitution, or other monetary remedies in connection with the equitable actions that 29 U.S.C. § 1132(a)(3) authorizes. The Sixth Circuit’s decision in Messing v. Provident Life & Accident Insurance Co., for example, increased the burden for plans seeking to recover overpayments via an equitable lien for restitution under § 1132(a)(3). The plaintiff insured was an attorney who became disabled due to depression. The plan initially approved his claim in 1999 but terminated benefits after several months. The insured’s subsequent lawsuit settled in 2000 and resulted in the resumption of benefit payments. Those payments continued through 2018, when the plan determined the insured could work as an attorney and terminated benefits again.
After unsuccessfully challenging the termination of his benefits and exhausting administrative remedies, the insured filed suit. During the litigation, the insurer discovered that the insured represented himself in his divorce and handled thirteen other legal matters while receiving disability benefits, including conducting research, drafting pleadings, handling client interviews, settlement and plea negotiations, witness examinations, and a bench trial. These activities were inconsistent with the annual representations the insured made beginning in 2010 about his inability to perform any duties of a lawyer. The discovery of the insured’s moonlighting prompted the insurer to file a counterclaim under § 1132(a)(3) seeking an equitable lien for restitution or by agreement to recover allegedly overpaid benefits. The district court affirmed the insurer’s decision to terminate benefits, but granted summary judgment to the insured on the counterclaim, finding the insurer failed to prove the insured’s representations induced it to make payments that it otherwise would not have made.
On appeal, the insurer argued the district court erred because inducement was not an element of a claim for equitable lien for restitution. The Sixth Circuit observed the issue was one of first impression in the circuit. It acknowledged equitable relief is available under ERISA, particularly when fiduciaries seek to recover “ill-gotten plan assets or profits,” “ill-gotten gains,” or to “punish the wrongdoer,” but ultimately agreed with the district court that inducement must be shown when an ERISA fiduciary seeks an equitable remedy for overpayment of benefits.
The insurer next argued it was entitled to relief under its equitable lien by agreement theory. The disability forms the insured regularly completed, which contained his representations that he could not perform the duties of a lawyer, created an agreement to repay wrongfully provided benefits, according to the insurer. The Sixth Circuit rejected that argument as well, observing that “[a]n equitable lien by agreement is a type of lien created by an agreement to convey a particular fund to another party.” Moreover, Supreme Court and Sixth Circuit precedent, as well as other circuit-level authority, suggested claims for equitable lien by agreement under § 1132(a)(3) could only be sustained if the ERISA plan itself contained the promise to repay benefits.” Put another way, if language creating an equitable lien by agreement is not in a plan’s governing documents, there can be no equitable lien by agreement under § 1132(a)(3).
The Eleventh Circuit in Gimeno v. NCHMD, Inc., considered whether “Section 1132(a)(3) create[s] a cause of action for an ERISA beneficiary to recover monetary benefits lost due to a fiduciary’s breach of fiduciary duty in the plan enrollment process?” The court concluded it did.
The plaintiff was the spouse and life insurance beneficiary of a participant in the defendant employer’s ERISA plan. The employer paid for $150,000 in life insurance coverage, and the participant elected to pay for $350,000 in supplemental insurance on his life. Supplemental coverage, however, was only available for those who submitted an “evidence of insurability form.” The participant never received the form, and the plan never advised him it was necessary or missing, so it was never submitted. Notably, the plan did provide the participant with a benefits summary advising that he had $500,000 in life insurance coverage and that he had paid premiums for three years in an amount corresponding to such coverage.
Following the participant’s death, his spouse (the plaintiff) submitted a claim for the plan’s life insurance benefits. The plan refused to pay the supplemental life insurance benefits because it never received the evidence of insurability form. The plaintiff sued defendants for breaching their fiduciary duties and sought the supplemental benefits under 29 U.S.C. § 1132(a)(1)(B). When defendants moved to dismiss, the plaintiff conceded that § 1132(a)(1)(B) did not provide a remedy for the conduct alleged, but requested leave to amend to assert claims under § 1132(a)(3). The district court dismissed the plaintiff’s § 1132(a)(1)(B) claim and denied his request for leave to amend as futile “because compensatory relief, such as an award of lost insurance benefits, is not equitable and is thus unavailable under Section 1132(a)(3).”
The Eleventh Circuit recognized that “appropriate equitable relief” under § 1132(a)(3) referred to “those categories of relief that were typically available in equity before the fusion of courts of equity and courts of law,” and therefore § 1132(a)(3) usually did not permit a plaintiff to recover money damages. It also recognized, however, that certain types of monetary relief were available in equity and, thus, also might be available under § 1132(a)(3), including “equitable surcharge—an order that a trustee compensate a trust beneficiary for a loss due to breach of fiduciary duty.” In a step that it characterized as consistent with relevant Supreme Court dicta and decisions in every other circuit court, the Eleventh Circuit found a plan beneficiary can assert a § 1132(a)(3) claim against a fiduciary for monetary benefits lost due to the fiduciary’s breach of its duties. Because the district court erred in concluding the plaintiff could not state a § 1132(a)(3)
claim, the court reversed and remanded to permit the plaintiff to amend his complaint.
When Benefits Under an ERISA Welfare Benefit Plan Become Vested: “There’s Nothing So Passionate as a Vested Interest Disguised as an Intellectual Conviction.”
When ERISA benefits “vest,” it means they are “nonforfeitable,” or as one circuit court put it, “[t]o vest benefits is to render them forever unalterable.” Unlike the benefits provided under an ERISA pension benefit plan, the benefits provided under an ERISA welfare benefit plan rarely vest. This survey period, as stated by the Fourth Circuit in Bellon v. PPG Employee Life & Other Benefits Plan, made it slightly easier for welfare benefit plan participants and beneficiaries to argue their benefits are vested.
The plaintiffs in Bellon, and the class they represented, were either retired employees of PPG Industries, Inc. or their surviving spouses. They argued that their rights to receive life insurance coverage in retirement vested prior to September 1, 1984, and that the employer was obligated to continue paying for that coverage after its successor declared the coverage terminated in 2015.
The plaintiffs traced their vesting claim to 1969, when the employer’s benefits committee removed a clause from the Plan that reserved the right to “modify, amend, or change” the retiree life insurance benefit. The removal of that provision, the plaintiffs argued, reflected the Plan’s intent that the benefits would vest. In 1984, the benefits committee added a Plan provision unambiguously reserving the right to modify or amend the employees’ right to receive life insurance coverage in retirement. The plaintiffs argued that “the removal of the prior reservation of rights clause in 1969 vested the retiree life insurance coverage for Plan participants working between 1969 and 1984,” but, after 1984, “the new reservation of rights clause allowed PPG to modify or terminate the retiree life insurance coverage for only those Plan participants hired after the clause’s adoption.” The issue before the court was whether the removal of the reservation of rights in 1969 converted the promise to retiree life insurance coverage into a vested benefit or whether the Plan had to expressly create such a right.
A split panel decided in favor of the Plan, reversing the district court which “apparently believed that the adoption of the reservation of rights clause in 1984 allowed PPG to terminate retiree life insurance coverage for all present and future Plan participants, even if such coverage had previously been vested for participants like the plaintiffs (and their spouses) who worked between 1969 and 1984.” In fact, if the plaintiffs were correct, and their rights to the retiree benefits vested prior to 1984, “the new reservation of rights clause allowed PPG to modify or terminate the [benefits] for only those Plan participants hired after the clause’s adoption in 1984.” Pointing to the Plan’s terms before and after ERISA’s enactment, and to extrinsic evidence the plaintiffs argued showed the Plan’s intentions, the majority found a question of fact existed as to whether the plaintiffs’ rights vested prior to 1984.
The dissent disagreed, finding whether the plaintiffs’ rights vested prior to 1984 could be determined from the Plan language. Because the Plan was not ambiguous, the dissent argued, extrinsic evidence may not be consulted to determine the parties’ intentions. And because courts “cannot presume lifetime vesting from silence,” the “absence of any contractual provision even arguably creating a vested right” means “none exists.”
The court in Krysztofiak v. Boston Mutual Life Insurance Co. considered whether an interest in disability benefits that have not been awarded vest upon a “triggering event.” The plaintiff claimed she was entitled to disability benefits under her plan due to fibromyalgia. Prior litigation established her fibromyalgia prevented her from performing the duties of her “regular occupation,” but the insurer denied her claim for benefits under the “any occupation” standard. On appeal, the insurer discovered that the employer’s group policy included a Special Conditions Limitation Rider limiting benefits for disabilities caused by fibromyalgia to twenty-four months. The Rider, however, was inadvertently omitted from the policy documents the employer received and was not added until after the plaintiff received twenty-four months of benefits due to fibromyalgia. The plaintiff argued the Rider’s limitation on benefits (which was treated as a plan amendment) did not apply to her because her right to disability benefits vested years earlier when she first became disabled.
The court explained ERISA welfare benefit plans generally could be amended, provided the benefits at issue were not vested. Vesting could occur when plan terms create such a right or when a “triggering event” occurs. Life and medical insurance benefits, for example, vest at the time a covered loss occurs. At that point, the event that unalterably gives rise to coverage has occurred and the plan’s performance of its obligations becomes due and cannot be amended retroactively. But disability benefits that are claimed, but not yet awarded, are different. Since they are paid out periodically, they “are not contingent upon a singular event, but upon the continued existence of a disability.” Because a disabling condition is alterable, the plan’s performance also is alterable and, therefore, the right to disability benefits does not vest. As to the plaintiff’s claim, the court concluded that remand was appropriate to ensure she was provided a full and fair review of the plan’s finding that she exhausted the benefits available to her due to fibromyalgia.
Matters Beyond the Administrative Record: “I’m on the Outside of the Record Hop, I Wanna Be on the Inside.”
The Fourth Circuit in Shupe v. Hartford Life & Accident Insurance Co. affirmed a district court’s ruling striking materials from outside the administrative record that plaintiff attempted to introduce with his summary judgment motion. After receiving disability benefits for approximately eleven and a half years, the plaintiff participated in a functional capacity evaluation (FCE) which found the plaintiff capable of performing the duties of a sedentary job. The plan asked the plaintiff’s treater to comment on the FCE results, and she confirmed without elaboration that she agreed with the FCE conclusions. Based on the FCE, the treater’s agreement, and an employability analysis that identified potential occupations for the plaintiff, the plan determined he was no longer disabled and terminated his benefits.
On appeal, the plaintiff submitted a vocational evaluation (VE), the results of the FCE, and an Independent Medical Evaluation. A peer reviewer that the plan retained reviewed those materials and reportedly attempted without success to discuss the findings with the plaintiff’s treater. Based on the peer reviewer’s conclusions and the record, the decision to terminate the plaintiff’s benefits was upheld. About six months later, the plaintiff submitted additional medical records and a letter from his treater. The treater explained that, notwithstanding her stated agreement with the original FCE findings, she agreed with the FCE and VE the plaintiff submitted on appeal. The plan declined to review the extra-record documents because the plaintiff had exhausted his administrative remedies.
When the plaintiff attached those extra-record documents to his summary judgment motion, the plan moved to strike them, and the district court agreed. The Fourth Circuit agreed it was appropriate to strike the documents because the plaintiff did not demonstrate that “exceptional circumstances” warranted consideration of materials not presented to the plan during administrative review. Specifically with respect to the treater’s letter, the Fourth Circuit explained it was appropriate to exclude it because there was no reason the plaintiff could not have presented it during administrative review since the FCE and VE were completed five months before the plan’s decision to uphold the termination of benefits. Moreover, the plan’s original explanation for its decision to terminate benefits advised it was based in part on the treater’s agreement with the earlier FCE. The plaintiff knew the plan considered his treater’s agreement with those findings important support for its decision and knew he needed to address that issue in his appeal.
The disability plan in Noga v. Fulton Financial Corp. Employee Benefit Plan gave its insurer discretion to determine participants’ eligibility for benefits. The Third Circuit explained that, as a result, the so-called “ERISA records rule” limited review of an adverse benefits decision to materials appearing in the administrative record. The court’s discussion arose from the plan’s attempt to include an affidavit from one of its analysts as part of its summary judgment motion. The affidavit attempted to “contextualize and augment information in” the record concerning the plan’s requests for outside medical reviews of the plaintiff’s continuing disability, which the Third Circuit characterized as “irregular in their timing and prompting.” Citing the ERISA records rule, the Third Circuit held the district court properly refused to consider the affidavit. And echoing the rationale behind the Fourth Circuit’s refusal to consider extra-record evidence in Shupe, it commented that the plan could have explained its position on the outside reviews in the administrative record but, for reasons that are not explained, did not do so. Because the affidavit was not part of the record, the Third Circuit found the district court properly refused to consider it when evaluating whether it was arbitrary and capricious to deny the plaintiff’s benefit claim.
Plans Get the First Word When Determining What Evidence Goes into the Administrative Record, but Participants’ Right to a Full and Fair Review Means They Get the Last Word: “If You Ain’t First, You’re Last.”
ERISA plan participants and beneficiaries have the right to a “full and fair review” of their benefit claims. Under ERISA’s regulations, claimants may request, and plans must provide, copies of all documents and other information relied on to decide a claimant’s claim. Plans also must provide claimants an opportunity to submit relevant documents and information for consideration in connection with their benefit claims. The issue the First Circuit addressed in Jette v. United of Omaha Life Insurance Co., was when the documents and information a plan collected during an appeal had to be provided to the claimant.
Karen Jette appealed the termination of her disability benefits and, at the same time, asked her plan to promptly disclose any new medical opinions generated during the appeals process and provide her thirty days to respond before upholding any adverse benefit determination. The plan declined to provide the requested documents and information, explaining that it was not required to provide those materials prior to rendering its decision on Jette’s appeal. According to the plan, ERISA regulations required only that the plan provide the requested information after rendering its decision on appeal. It also argued the requirement to provide materials upon a claimant’s request applied only to those relied on for an initial benefit determination and did not apply to materials relied on to decide an appeal.
The First Circuit rejected the plan’s construction of ERISA’s full-and-fair-review requirements. It found there was no basis for concluding the requirement to provide documents “relevant to the claimant’s claim for benefits” was limited to the initial claims decision. Moreover, the plan’s construction of the regulations would frustrate the purposes of the full-and-fair-review requirement, which are “to provide claimants with enough information to prepare adequately for further administrative review or an appeal to the federal courts” and “to engage in meaningful dialogue regarding the denial of benefits.” Because the plan deprived Jette of an opportunity to respond to medical opinions generated during the appeal process, Jette was deprived of a full and fair review of her claim. And because that procedural violation prejudiced Jette, the First Circuit vacated the judgment in favor of the plan and remanded the matter to the district court with instructions to remand Jette’s claim to the plan for appropriate review.
Health Insurance
Developments Under the Affordable Care Act
Back-and-Forth Disputes over the Contraceptive Mandate Show No Signs of Abating: “Round and Round It Goes; Where It Stops Nobody Knows.”
The Affordable Care Act (ACA) requires most private insurance contracts to cover all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity. That requirement is generally known as the Contraceptive Mandate. The Mandate was the subject of several decisions this survey period, all of which build on or discuss disputes we reported on in prior articles. To provide context for developments this survey period, we briefly recap the relevant prior decisions.
In 2018, the Trump administration promulgated two regulatory exemptions to the Contraceptive Mandate: the Moral Exemption Rule and the Religious Exemption Rule. The Rules represented the government’s sixth attempt over two presidential administrations to accommodate religious objections to the Contraceptive Mandate. The Commonwealth of Pennsylvania filed suit in the Eastern District of Pennsylvania seeking declaratory and injunctive relief from the Rules, arguing they were procedurally and substantively invalid under the Administrative Procedures Act. A Pennsylvania district court entered a nationwide preliminary injunction against enforcement of the Rules, and, as a result, the rules in place prior to 2018 remained in effect.
That prompted the plaintiffs in DeOtte v. State of Nevada to file a class action lawsuit in 2018 in the Northern District of Texas. According to the plaintiffs, the Religious Freedom Restoration Act (RFRA) required accommodation of their objections to the Contraceptive Mandate. The DeOtte court enjoined federal officials from enforcing the Contraceptive Mandate against members of the class unless it was enforced pursuant to guidelines that essentially mirrored the Moral Exemption Rule and the Religious Exemption Rule.
This survey period, the Fifth Circuit vacated the injunction in DeOtte, finding the Supreme Court’s 2020 decision in Little Sisters of the Poor Saints Peter & Paul Home v. Pennsylvania mooted the plaintiffs’ claims. The Court in Little Sisters of the Poor confirmed the Moral Exemption Rule and the Religious Exemption Rule were procedurally valid and vacated the nationwide injunction entered by the Pennsylvania district court. According to the Fifth Circuit, Little Sisters of the Poor provided the DeOtte plaintiffs the relief they sought when they sued, so they no longer had a cognizable injury and no Article III case or controversy existed. As discussed below in connection with Leal v. Becerra, the Fifth Circuit’s decision to vacate the judgment in DeOtte was significant because it “clear[ed] the path for future relitigation of the issues between the parties and eliminate[d] a judgment.”
The uncertainty surrounding the Moral Exemption Rule and the Religious Exemption Rule gave rise to two lawsuits in 2020, both of which attacked the Contraceptive Mandate, as well as other ACA coverage mandates. As we reported last survey period, the plaintiffs in Leal v. Azar (later renamed Leal v. Becerra) argued the Contraceptive Mandate injured them by impairing their ability to purchase health insurance that excluded coverage for contraception. According to them, “the Contraceptive Mandate makes it financially unappealing for insurers to offer contraceptive-free policies, thus, reducing, if not eliminating, contraceptive-free health-
insurance policies available on the market.” The district court dismissed the claims of two Leal plaintiffs on res judicata grounds, finding those plaintiffs were members of the DeOtte class and could have brought their claims in that lawsuit. The Fifth Circuit reversed. Vacating the judgment in DeOtte, it explained, meant there was no longer a final judgment on the merits. Consequently, the plaintiffs’ claims were no longer barred by res judicata. The Fifth Circuit remanded the claims to ensure that the district court had an opportunity “to take the new status quo into account.”
In the second lawsuit attacking the ACA’s coverage mandates, the plaintiffs in Braidwood Management Inc. v. Becerra complained that guidelines and recommendations made by three agencies affiliated with Department of Health and Human Services (HHS) violated one or more of the following: (1) the Appointments Clause of the United States Constitution; (2) the Nondelegation Doctrine; and (3) the Religious Freedom Restoration Act. The ACA requires that most private health insurance contracts cover four categories of “preventive care.” Responsibility for determining what falls within each of the four preventive-care categories is divided among three agencies affiliated with HHS. Those agencies are empowered to issue guidelines and make recommendations that become coverage mandates for most private health insurance contracts.
The Braidwood plaintiffs complained about (1) a recommendation by the U.S. Preventive Services Task Force (PSTF) that pre-exposure prophylaxis (PrEP) drugs be covered to prevent HIV infection; (2) a recommendation by the Advisory Committee on Immunization Practices (ACIP) that the HPV vaccine be covered to prevent new HPV infections and HPV-associated diseases, including some cancers; (3) guidelines issued by the Health Resources and Services Administration (HRSA) calling for coverage of counseling for alcohol abuse, screening, and behavioral health counseling for sexually transmitted infections, screening and behavior interventions for obesity, and counseling for tobacco use; and (4) other HRSA guidelines that required nonexempt employers to cover “[a]ll Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity.” The last set of HRSA guidelines became known as the Contraceptive Mandate.
For reasons that go beyond the scope of this article, the Braidwood court agreed the PrEP mandate (which was prompted by the PSTF’s recommendations) violated Braidwood’s rights under the RFRA. It also concluded that (1) the process by which PSTF members were appointed violated the Appointments Clause (but it would entertain additional briefing before selecting a remedy for that violation); (2) the Secretary of HHS effectively ratified the actions of ACIP and HRSA, meaning their recommendations and guidelines did not violate the Appointments Clause; (3) Congress’s assignment of authority to the PSTF did not violate the Vesting Clause; and (4) none of the three agencies’ actions violated the nondelegation doctrine.
Finally, it bears noting that there was additional activity during this survey period in the remanded Little Sisters of the Poor. In its 2020 decision, the Court remanded the dispute to the district court to address whether the Moral Exemption Rule and Religious Exemption Rule were arbitrary and capricious. Before that issue could be litigated, however, Joseph R. Biden won the 2020 General Election and a new presidential administration began in January 2021. Within two months of President Biden’s swearing in, the federal defendants requested that the case be stayed while the new administration evaluated the issues in the case. Beginning in May 2021, the district court granted a series of thirty-day stays until, on January 3, 2022, it entered an Order confirming the “matter shall remain STAYED and . . . the Clerk of the Court shall place it into SUSPENSE.” The parties were further directed to file a status report at the end of January 2022 and every ninety days thereafter. In the last report of this survey period, the federal defendants advised they had submitted draft proposed regulations to the Office of Management and Budget for review by its Office of Information and Regulatory Affairs and intended to publish a Notice of Proposed Rulemaking in the Federal Register once that review was complete.
Whatever new regulations are promulgated to accommodate the Contraceptive Mandate, they are bound to be challenged, and we look forward to reporting on those disputes.
“We Are Family, I Got All My Sisters with Me.” For an Individual with ACA Family Coverage, the Family Plan’s Out-of-Pocket Limits Must Be Satisfied Before the Individual Will Be Entitled to Reimbursement of Her Out-of-Pocket Expenditures.
The ACA imposes cost-sharing requirements on individuals who receive health insurance coverage under an ACA health plan. The Act has always limited an individual’s cost-sharing obligations to certain out-of-pocket expenditures. In 2014, a health plan’s annual deductible could not exceed “(I) $1,000 for self-coverage only, and (II) twice the dollar amount in subclause (I) for family coverage,” and “the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits [could] not exceed
(I) $5,000 for self-only coverage, and (II) twice the dollar amount in subclause (I) for family coverage.”
In 2014, Jacqueline Fisher obtained health insurance coverage under a family plan provided by her husband’s employer. She incurred expenses related to her purchases of brand-name prescription drug medication and complained that the insurer improperly refused to reimburse her after she satisfied the ACA’s out-of-pocket limit for individuals. The Second Circuit rejected Fisher’s arguments. It found that the ACA “is silent on the question of which limit—individual or family—applies to an individual covered under a family policy.” And although regulations promulgated in 2015 supported Fisher’s position, the regulations applied prospectively only. In light of the ACA’s silence and the lack of any other regulatory guidance on the issue, the Second Circuit concluded the terms of Fisher’s policy established her out-of-pocket limit. It also concluded that a “straightforward reading of the 2014 [p]olicy indicates that the family out-of-pocket limit applies to an individual [covered under] a family plan.” The insurer, therefore, properly determined the family out-of-pocket limits of Fisher’s policy had to be satisfied before she would be entitled to reimbursement for her prescription medication expenditures.
“On the Basis of Sex . . . .” Title IX’s Broad Prohibition on Sex Discrimination Sets the Standard for Stating an ACA Discrimination Claim.
The ACA expressly adopts the anti-discrimination standard in Title IX of the Education Amendments of 1972 to prohibit discrimination “on the basis of sex.” It provides that “[a]n individual shall not,” on the basis of sex, “be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance.” The breadth of that anti-discrimination standard was the focus of the decision in Scott v. St. Louis University Hospital, denying the defendant’s motion to dismiss.
Angela Scott, an employee of St. Louis University Hospital, received health insurance benefits under the Hospital’s privately funded health plan. Her son and beneficiary is transgender and was diagnosed with gender dysphoria. Scott sought treatment for her son’s gender dysphoria, including gender confirming health care. The plan denied her claims, citing a categorical exclusion for all care related to gender dysphoria and gender reassignment. Scott claimed “out-of-pocket damages” due to the denial of her claim and sued asserting the exclusion violated the ACA’s anti-discrimination provision and Title VII of the Civil Rights Act.
A plaintiff asserting a discrimination claim under the ACA must allege: (1) the defendant is a health program that receives federal financial assistance; (2) the plaintiff was excluded from participation in or the benefits of the program; and (3) the exclusion was on a ground prohibited by Title IX, i.e., it was on the basis of sex. The Hospital first argued Scott failed to allege she was denied participation in or the benefits of the plan. Her claims, according to the Hospital, were that her son was denied participation in or the benefits of the plan. The court rejected that argument, as Scott alleged she suffered “out-of-pocket damages” and therefore “adequately alleged that she was denied a benefit of the Plan.”
The Hospital next argued the plan did not discriminate against Scott on the basis of her sex and, therefore, she did not “fall[] within the class of plaintiffs whom Congress has authorized to sue” under the ACA’s anti-discrimination provision. This argument mirrored one the court relied on to dismiss Scott’s Title VII discrimination claim. Title VII prohibits discrimination by an employer against an individual “with respect to his compensation, terms, conditions, or privileges of employment because of such individual’s race, color, religion, sex or national origin . . . .” Because Scott could not allege she was discriminated against on the basis of her own sex, she could not state a Title VII claim. The argument failed in the ACA context, however, because the ACA’s prohibition on discrimination is “much broader” than Title VII’s.
The court analogized Scott’s ACA claim to a Title IX claim brought by a public school’s girls’ basketball team coach. The coach complained about disparate funding for the team, subsequently received negative work evaluations, and ultimately was removed from his coaching position. The Supreme Court found “that when a funding recipient retaliates against a person because he complains of sex discrimination,” the retaliation “constitutes intentional discrimination ‘on the basis of sex’ in violation of Title IX.” Scott’s claim was similar, the court concluded; she alleged the plan provided less comprehensive coverage to her son because he is transgender, and, as a result, she suffered out-of-pocket expenses and other damages. In Title IX terms, Scott alleged the plan discriminated against her on the basis of her son’s sex. Because the plan, allegedly discriminated “on the basis of sex,” Scott stated a claim against the Hospital for violation of ACA’s anti-discrimination provision.
“Things Which Are Equal to the Same Thing Are Also Equal to Each Other.” If Facial Feminization Surgery to Treat Gender Dysphoria Is Equivalent to Facial Surgeries to Treat Physical Medical Conditions, a Plan’s Restrictions on Facial Feminization Surgery Must Be No More Restrictive Than Surgeries to Treat Physical Medical Conditions.
The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) requires ERISA health plans that provide both medical/surgical and mental health/substance use disorder benefits to treat each category of benefits the same. Plans, for instance, may not apply treatment limitations to a classification of mental health benefits that are more restrictive than the treatment limitations applied to similarly classified medical/surgical benefits.
The plaintiff in Duncan v. Jack Henry & Associates, Inc. was a transgender woman who was diagnosed with and receiving treatment for gender dysphoria. Her providers concluded full facial reconstruction surgery was medically necessary to treat the severe distress, anxiety, and depression she experienced, which was caused by the incongruence between her female gender identity and her masculine-facial and skull features. The plaintiff’s surgeon requested precertification of coverage for that treatment, which the plan denied as, inter alia, an excluded cosmetic treatment. The plaintiff sued, alleging the plan, on its face, violated the Parity Act. Specifically, she claimed the plan improperly excluded coverage for surgical treatment to address mental health conditions but at the same time covered surgical treatments to address medical or physical conditions. The defendants moved to dismiss.
Under the plan, medical and/or surgical procedures “primarily used to improve, alter, or enhance appearance,” regardless of whether such surgeries were “for psychological or emotional reasons,” constituted “Cosmetic Treatment” and were excluded from the plan’s coverage. On the other hand, the plan covered Reconstructive Surgery, which it defined as “[s]urgery to restore a bodily function that has been impaired by a congenital Illness or anomaly, or by an Accident, or from an infection or other disease of the part involved.” Standards the plan used to make coverage determinations explained that “[t]he fact that physical appearance may change or improve as a result of Reconstructive Surgery does not classify [such] surgery as Cosmetic Treatment,” so long as “a physical impairment exists and the surgery restores or improves function.” In sum, the plan excluded coverage for surgeries “that [were] primarily used to improve, alter, or enhance appearance,” even when they were for psychological or emotional reasons, but did not exclude such surgeries when “a physical impairment exists and the surgery restore[d] or improve[d] function.” The court concluded the plaintiff plausibly pleaded a facial Parity-Act claim and denied the defendants’ motion to dismiss.
Life Insurance
Some life insurance decisions discussed this survey period examined issues such as lapse and the non-payment of premiums and, thus, impact whether insurers should have to pay a claim on a life insurance policy. Other decisions discussed in this Section analyze revocation-on-divorce statutes and Section 1335 interpleaders and, thus, impact whether the insurer should pay the claimant or interplead the funds. Finally, we round out this Section with a discussion of the Delaware Supreme Court’s recent ruling setting forth the test for determining whether an insurer must return premium paid on a life insurance policy where an insurable interest is lacking.
Life Insurance and Divorce: “You Never Really Know a Man Until You Have Divorced Him.”
Issues associated with insureds’ divorcing continue to impact life insurers. Whether revocation-on-divorce statutes are retroactive remains a hot-button issue in this area, as courts take a position on the issue in various states. The death of an insured while a divorce is pending, and its impact on life insurance, resulted in litigation this survey-period as well.
In American Family Life Assurance Co. of Columbus v. Parker, the Supreme Judicial Court of Massachusetts held that Massachusetts’ revocation on divorce statute is to be applied retroactively. When the insured purchased his $100,000 life insurance policy in 2010, he named his then-wife the primary beneficiary and his mother the sole alternative beneficiary. Despite divorcing his wife in 2016, the insured did not change the policy’s beneficiary before his death in 2018. The separation agreement governing the divorce did not specifically address the insured’s policy, though it confirmed the couple divided their property and felt that division was fair. After the divorce, the ex-wife paid the premiums on the insured’s policy, which included both spouse and child riders. Upon the insured’s death, both his ex-wife and mother asserted claims to the policy proceeds, and the insurer ultimately brought an interpleader action due to these conflicting claims. After the insurer deposited the funds with the court and was discharged from the case, the parties filed cross motions for summary judgment. The motion judge held that Section 2-804 revoked the ex-wife’s beneficiary designation and granted summary judgment to the insured’s mother.
On appeal, Massachusetts’ Supreme Judicial Court rejected the ex-wife’s argument that Section 2-804 does not pertain to life insurance policies or beneficiary designations, relying on the express language of the statute. It then turned to the ex-wife’s argument that Section 2-804 did not apply retroactively, which argument relied heavily on the dissent from the U.S. Supreme Court’s decision in Sveen v. Melin. In Sveen, the Court applied Minnesota’s revocation-on-divorce statute retroactively, finding that doing so did not violate the United States Constitution’s contracts clause. Noting that Section 2-804 “tracks” the language of Minnesota’s revocation-on-divorce statute, Massachusetts’s Supreme Judicial Court found that retroactive application of Section 2-804 would be constitutional. It then determined that the legislature intended Section 2-804 to apply retroactively, citing two provisions of the relevant act. The first provision plainly and unambiguously stated that the act “shall apply to pre-existing governing instruments,” unless irrevocable prior to the act’s effective date, and the second provision stated that “any rule of construction or presumption provided in this act applies to governing instruments executed before the effective date unless there is a clear indication of contrary intent.” Massachusetts’s Supreme Judicial Court next found that none of the statute’s exceptions applied and held that the ex-wife’s beneficiary designation was revoked upon her divorce from the insured. The Court also observed its holding was consistent with the rationale stated by the Uniform Probate Code drafters when they drafted the model revocation-on-divorce provision: “[W]hen spouses are sufficiently unhappy with each other that they obtain a divorce, neither is likely to want to transfer his or her property to the survivor on death.”
The South Carolina Court of Appeals also held this survey period, as an issue of first impression, that South Carolina’s revocation-on-divorce statute applied retroactively. As in Parker, the insured in Meier v. Burnsed did not remove his ex-spouse as the primary beneficiary of his life insurance policy following their divorce. After the insured died, the contingent beneficiary and representative of the insured’s estate sued the insured’s ex-wife and the insurer, claiming the ex-wife’s designation was revoked by Section 62-2-507(c) and so a justiciable controversy existed over the identity of the policy’s beneficiary. The insurer ultimately deposited the $250,000 policy proceeds with the circuit court and was dismissed from the case. The circuit court took up the remaining parties’ summary judgment motions and agreed with the ex-wife that Section 62-2-507(c) was not intended to apply retroactively to revoke beneficiary designations based on divorces finalized before its effective date.
The South Carolina Court of Appeals disagreed. Like Massachusetts’s revocation-on-divorce statute, South Carolina’s statute expressly provided that it applied to agreements executed before the statute’s effective date, unless there was a clear indication of a contrary intent. The court found that a majority of the decisions addressing the retroactivity of revocation statues like the one at issue, including Sveen, conclude that the statutes apply retroactively. The court then held that South Carolina’s statute applied retroactively as well. It explained the insured’s ex-wife had no vested interest in the policy when the insured died and Section 62-2-507 operated to revoke the designation even though the divorce occurred before the statute was amended to include life insurance policies and beneficiary designations.
Automatic temporary injunctions during divorce proceedings also led to litigation in the life insurance context this survey period. In Ghoussoub v. Yammine, the insured died before his divorce was final—he died after the trial court granted the parties’ divorce but before final judgment had been entered. During the divorce, the insured learned he was terminally ill, which led him to remove his wife as primary beneficiary of the subject $2 million life insurance policy without court approval. The insured then slipped into a coma and his counsel filed an emergency petition for divorce, attempting to prevent the insured’s wife from inheriting the insured’s estate; the court granted the divorce order over objection, but reserved final judgment on property and debt issues. While the insured was in a coma, the now ex-wife appealed and argued the insured violated the automatic temporary injunction mandated by Oklahoma Statutes Annotated title 43, § 110, when he removed her as primary beneficiary of the $2 million policy. The trial court agreed, enjoining the insured’s removal of his ex-wife as the policy’s beneficiary and ordering the policy’s original beneficiaries to be restored. The insured then died, with the ex-wife named primary beneficiary of the policy and his brother named contingent beneficiary. The insured’s brother subsequently filed a declaratory judgment action against the ex-wife and the insurer, arguing that Oklahoma’s revocation-on-divorce statute removed the ex-wife as beneficiary. The trial court agreed, finding the insured’s brother was entitled to the policy proceeds because the order granting divorce was final prior to the insured’s death.
On appeal, the ex-wife argued that Section 178 did not apply under the circumstances because to apply it to include a divorce order that “reserves final judgment on all issues deprives the divorce court of its opportunity to sit in equity and divests its retained jurisdiction.” The insured’s brother contended that Section 178, by its plain language, makes no distinction between a divorce decree on all issues and one that has bifurcated certain issues. The appellate court concluded that Section 178 must be construed along with Section 110. Section 110 restrains parties to a dissolution proceeding from disposing of property via an automatic temporary injunction (ATI), and Section 110(C) provides that the ATI terminates when final judgment is rendered on all issues, except attorney fees and costs, or when the action is dismissed. The appellate court found Section 110(C)’s specific language controls over Section 178, and “the later enactment of § 110(C) effectively limits § 178(A)’s ‘after being divorced’ language to a divorce where final judgment on all issues is rendered,” because “[t]o find otherwise creates an absurd result wherein one’s designation as a life insurance beneficiary, while protected by § 110(C) in a bifurcated proceeding where final judgment has yet to be rendered, is concurrently revoked by § 178(A).” The appellate court ultimately held that Oklahoma’s revocation on divorce statute requires a final judgment on all issues to apply and reversed the trial court’s decision. The lesson for life insurers is that, when an insured dies or attempts to change beneficiaries while amidst a divorce, insurers must carefully consider whether to pay the claim or interplead the proceeds.
Section 1335 Interpleader: “Be All In or Get All Out. There Is No Halfway.”
Interpleader actions can arise from various situations involving life insurance, such as an insured’s divorce—as discussed above—or competing claims resulting from beneficiary changes prior to the insured’s death. Theoretically, interpleaders are supposed to be simple, convenient devices that allow insurers to submit the contested funds and the dispute to a court to decide. But they are not always as simple as practitioners in this area would like. American General Life Insurance Co. v. Shamberger is an example of one of those situations.
The insurer received a change of beneficiary form related to the $400,000 life insurance policy at issue in Shamberger about a month before the insured’s death, seeking to change the primary beneficiary from the insured’s uncle to her husband. The change form was missing the signature page, however, so the beneficiary change was not made. Upon the insured’s death, the husband submitted a claim under the policy, arguing that he was entitled to the entire policy benefit because the insured either successfully made him the policy’s beneficiary or substantially complied in changing the policy’s beneficiary to him. The insured’s uncle asserted a claim to the policy proceeds as well. The insurer partially adjudicated the claim, sending the insured’s husband what it deemed to be his community property share of the policy’s death benefit, approximately $167,000. It then filed a complaint for interpleader under 28 U.S.C. § 1335 against the insured’s husband, uncle, and mother (the original contingent beneficiary) with respect to the remaining policy proceeds.
After the insurer moved to deposit the remaining policy proceeds with the federal district court, the insured’s uncle moved to dismiss the complaint for interpleader, claiming that the court did not have jurisdiction because the insurer failed to interplead the full amount of the policy. Section 1335, which provides federal district courts with original jurisdiction over civil actions for interpleader in circumstances where the claimed entitlement to the funds arises by virtue of a policy or other instrument, requires the insurer to deposit “the amount due under such obligation into the registry of the court.” Because the insurer did not seek to deposit the full $400,000 due per the policy, the district court found it did not have subject matter jurisdiction. Notably, it determined that the insurer “usurped the court’s role in statutory interpleader cases” by finding that Texas law applied to the policy and deciding that the insured’s husband was entitled to a portion of the policy’s proceeds despite the uncle’s competing claim. The district court then refused the insurer’s request to deposit the full $400,000 policy proceeds with the court to resolve the issue, finding it would be inequitable since the insurer had arguably “financially support[ed]” the husband’s litigation expenses and concluding that “the court’s lack of jurisdiction cannot be remedied” in this manner. It then dismissed the interpleader complaint, explaining that after paying a portion of the policy proceeds to one of the claimants “it was too late for [the insurer] to file an interpleader action.”
Premium Payment Issues: “Live as If You Were to Die Tomorrow.”
When issues regarding the timeliness or non-payment of life insurance premiums occur around the time the insured dies, litigation often follows. In Levy v. West Coast Life Insurance Co., the Seventh Circuit reviewed the district court’s decision to dismiss the plaintiffs’ breach of contract and declaratory judgment claims against the insurer defendant after their claim for the proceeds of a $3 million life insurance policy was denied because the policy lapsed. The insured died about five months after missing a premium payment for the $3 million policy, despite being sent a timely notice of premium due from the insurer. Plaintiffs claimed the notice did not comply with the applicable Illinois statute (215 ILCS § 5/234) and, accordingly, the insurer could not declare the policy lapsed within six months after the missed payment.
The Seventh Circuit agreed with the district court’s determination that the notice complied with Section 234. It first rejected the plaintiffs’ contention that the required statutory warning—that without timely payment of premium the policy would “become forfeited and void”—had to be on the front of the notice. The court explained that the insurer’s inclusion of a “highly conspicuous disclaimer” on the notice’s front side that directed the reader, in bold font, to the “reverse side for important notices” was clearly sufficient. The Seventh Circuit further disagreed with plaintiffs’ claim that multiple explanations in the notice regarding the payment due date rendered the notice ambiguous, finding the notice “adequately alert[ed] policyholders to the consequences of nonpayment.” It also rejected the argument that Section 234 required insurers to provide an agent to which payment can be made, relying on the statute’s plain text. The Seventh Circuit affirmed the district court’s judgment in the insurer’s favor.
Mere hours passed between a life insurance applicant signing paperwork related to a life insurance policy and the applicant’s death in Principal National Life Insurance Co. v. Rothenberg. The applicant, who the insurer had approved for a $250,000 life insurance policy, executed certain forms related to that policy, including an electronic funds transfer (EFT) form permitting the insurer to withdraw the initial premium. After the applicant left the life insurance broker’s office, the broker noticed that the EFT form the applicant signed did not include the bank information needed to withdraw premiums (and no voided check was provided). The broker called the applicant to advise of the deficiency, but the applicant stated he was on a bike ride and would come by the next day. Later that day, the applicant died of a heart attack.
The applicant’s wife made a claim under the policy, which the insurer denied on the grounds that the policy was not in effect when the insured died because the premium had not been paid. The insurer filed a declaratory judgment action in federal district court requesting a declaration that the policy never went into effect because a condition precedent—payment of the premium—was not satisfied. The applicant’s wife argued that “the signing of the EFT Form equated to payment of the premium,” or at a minimum that act was substantial performance of the payment requirement which was enough to put the policy in force. The court agreed with the insurer that signing an EFT form that did not contain key bank account information did not constitute payment. It further rejected the wife’s argument that it was sufficient for her to provide the missing bank account information after the applicant’s death. That approach, the court explained, did not fulfill the policy’s unambiguous requirement that premium must be paid for it to be effective. The court thus agreed with the insurer that the applicant did not satisfy all conditions precedent to coverage and, thus, the policy never became effective.
Return of Premium for an Illegal Insurance Policy: “Money Is a Great Servant but a Bad Master.”
When a court concludes that a life insurance policy is an illegal contract and thus void ab initio, disputes often arise regarding whether the insurer is required to return the premiums paid. The Delaware Supreme Court recently set forth the framework for answering this question under Delaware law.
In Geronta Funding v. Brighthouse Life Insurance Co., Delaware’s Supreme Court tackled whether an insurer was required to return premiums paid on a life insurance policy issued on the life of a fictitious person and focused, as a matter of first impression, on whether a party seeking the premiums must prove an entitlement to restitution or whether the return of premiums is automatic when a policy is declared void ab initio for lack of insurable interest. A life insurance trust applied for a $5 million policy on Mansour Seck, a fictious man. The policy was issued after the predecessor to the plaintiff insurer received assurances that the owner trust did not intend to sell the policy. After the policy’s two-year contestability period expired, the trust sold the policy to a life settlement company which attempted to, but could not, locate the insured. The settlement company sold the policy to the defendant, Geronta Funding, in 2015. The following year, Geronta Funding attempted to locate the insured, ultimately hiring a private investigator who determined that the insured was fictitious. Geronta Funding contacted the insurer to share its suspicions but continued to pay premiums on the policy. Ultimately, it demanded the insurer return all premiums paid on the policy.
For its part, the insurer’s predecessor became aware in 2011 that an individual named Pape Seck entered into several plea agreements with the New Jersey Attorney General’s office in which he admitted to having submitted false applications for life insurance policies on the life of Manour Seck. In fact, the insurer’s predecessor assisted the New Jersey Attorney General’s office with its investigation. Those efforts culminated with the plaintiff insurer seeking a judicial declaration that the policy was void ab initio due to lack of an insurable interest.
Geronta Funding agreed the policy was void ab initio, but argued it was entitled to rescission of the policy and disgorgement/reimbursement of the premiums paid, except those paid by the original owner of the policy. The insurer argued the Superior Court should leave the parties where it found them. Applying Restatement section 198, the Superior Court found that Geronto Funding could only prevail if it was excusably ignorant or not in pari delicto with the insurer.
After a bench trial, the Superior Court found that Geronto Funding’s failure to investigate the insured prior to its purchase of the policy meant it was not excusably ignorant of the fact that the policy was issued to a fictitious person, and it found that Geronto Funding failed to show it was not in pari delicto with the insurer. The court held that Geronto Funding was entitled to restitution but only for the premiums paid after it informed the insurer of its suspicions that Mansour Seck was a fictitious person.
The Supreme Court of Delaware analyzed the principal cases to have considered the return-of-premium issue where there is a lack of an insurable interest, and it “adopt[ed] a fault-based analysis, framed under the Restatement, that considers questions specific to insurance policies declared void ab initio as against public policy for lack of an insurable interest as the correct test to determine whether premiums should be returned.” It explained that its approach was in line with the majority of jurisdictions to consider the issue and was consistent with public policy. In particular, the Delaware Supreme Court noted “the automatic return of premiums encourages investors to continue purchasing life insurance policies without investigation into whether those policies are unenforceable policies due to lack of an insurable interest,” whereas a fault-based analysis will encourage those investors to investigate all policies to avoid losing their premiums and ideally will uncover policies that are void ab initio. The court provided the following directions to Delaware courts:
[W]hen analyzing a viable legal theory that seeks as a remedy the return of premiums paid on insurance policies declared void ab initio for lack of an insurable interest, Delaware courts shall analyze the exceptions outlined in Sections 197, 198, and 199 of the Restatement and determine whether any of those exceptions permit the return of the premiums. A court would need to determine whether: (1) there would be a disproportionate forfeiture if the premiums are not returned; (2) the claimant is excusably ignorant; (3) the parties are not equally at fault; (4) the party seeking restitution did not engage in serious misconduct and withdrew before the invalid nature of the policy becomes effective; or (5) the party seeking restitution did not engage in serious misconduct, and restitution would put an end to the situation that is contrary to the public interest.
A court analyzing the exceptions outlined in Section 198 should consider the following questions: whether the party knew the policy was void at purchase or later learned the policy was void; whether the party had knowledge of facts tending to suggest that the policy is void; whether the party procured the illegal policy; whether the party failed to notice red flags; and whether the investor’s expertise in the industry should have caused him to know or suspect that there was a substantial risk that the policy it purchased was void.
With respect to the specific case before it, the Delaware Supreme Court remanded to allow the Superior Court to reconsider its factual findings in light of the newly announced framework, and to identify additional facts bearing on whether either party was on inquiry notice that the policy may be void.
Conclusion
As in years past, we will continue to follow developments in the life, health, and disability arena over the next survey period. Although the ACA will have its thirteen-year anniversary during the next survey period, we fully expect litigation related to that statute to continue and will follow those developments closely. There undoubtedly also will be significant decisions in the accidental death, disability, and life insurance arenas between now and the next survey period, and we will keep watch for and be prepared to report on those rulings in next year’s article.
