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Recently, we participated in a mediation with a large national insurer who is showing up more and more in our litigation files. Our client is a thirty-year employee who suffered from a terrible spinal condition and failed back surgery. Three medical treating physicians and an independent medical examiner found her totally disabled. One opined she was incapable of ever working again. She drained her 401(k) to pay her living expenses. She has applied for Social Security and is awaiting a decision.

The insurer denied the claim and has paid nothing for two and a half years while this financial wreckage has ensued.

The insurer’s claim denial was based upon a file review performed by a single East Coast doctor who never examined the insured and was contracted through a national vendor. The national vendor has a contractual relationship with the insurer.

The file reviewer’s report lists the medical evidence she claimed to have reviewed which includes MRIs (both actual images and reports). The file reviewer then opines that the restrictions could not be “substantiated” because there were “no MRI reports” in the file. This is not a misprint – the insurance company doctor lists the MRIs in the reviewed materials portion of the report and then somehow writes that those images do not exist.

Obviously, the denial is made in bad faith and is particularly sloppy.

At mediation, the insurer who has paid nothing now argues that the insured should get a mere stipend of because her “estimated” disability income is really the responsibility of the Social Security Administration, and the insurer merely provides a secondary benefit. We told the insurer to take a hike, and we will fight to get the decision and try to set precedent.

Unfortunately, this is the typical scenario in an ERISA group long-term disability case today.

More and more, private disability insurers who collect hundreds of millions in premiums are basically turning over the financial responsibility to the federal government to re-insure these private insurance contracts. Disability insurance companies argue this other income “offsetting” is keeping insurance rates low, but what they omit mention of is that this same “low-rate insurance” is not really insurance at all. All the insured has purchased is the right to apply for Social Security and maybe get a small stipend from the insurer.

The insurers have figured this out. The long-term disability contracts require an application to Social Security to get benefits flowing from the federal government, regardless of whether the insured even qualifies. Long-term disability contracts typically contain a 180-day waiting period (the same as Social Security). These same long-term disability contracts contain a “minimum” benefit usually of $100 per month.

Why do the insurance companies pay a $100 per month? Disability insurers know that an employee earning $40,000.00 a year with one or more dependents is really is never going to collect much private disability insurance, and if they don’t pay just a little something to the insured, the contract will fail for want of consideration. In other words, the contract will fail because the insured is getting nothing in return.

So, you have a long-term disability insurance contract, but do you really have any insurance coverage?

The typical scenario in a benefits claim works something like this:  An employee becomes ill or injured.  An employee takes a medical leave of absence.  If the employer has sponsored a disability program, a claim for benefits is filed.  If there is a short-term disability plan, that benefit program may or may not be ERISA-qualified.  If the condition continues past the short-term period, then a claim would normally be expected to transition into a long-term disability claim. Often, the short-term disability claims administrator is also the administrator (and perhaps the insurer) for the long-term program.

In practice however, the rules and regulations applicable to disability claims tend to complicate matters.   If, for example, the short-term disability claim is denied or prematurely terminated, an appeal period is triggered. The appeal period runs 180 days, which can overlap with the commencement of the long-term disability coverage.

This is where trouble can start.

Sometimes a plan is written so there is a seamless transition from short-term to long-term disability.  The long-term disability benefit period will not start until the short-term benefit claim has been exhausted or paid out in full.   In other words, the filing of the short-term application will preserve an employee’s right to long-term disability benefits.  Sometimes, an application must be filed, regardless.

That is what the disability claimant in Kennedy v. Life Ins. Co. of North America, 718 Fed. Appx. 409, 410 (6th Cir. 2018) found out, the hard way, in a recent Sixth Circuit Court of Appeals decision.  In Kennedy, the claimant was receiving short-term disability benefits but had yet to file a claim for long-term disability benefits.  According to the Court, the “the first time” long-term disability was ever mentioned was in a demand letter, not an application. As a consequence, in a terse opinion, the Court affirmed the claim’s dismissal.  Writing for the majority, Judge Thapar wrote:

The district court was right: Kennedy never applied for long-term benefits. The first time he even mentioned long-term benefits was in his attorney’s letters—both of which came long after any such claim was due under the plan’s terms. Kennedy therefore failed to exhaust LINA’s administrative process.”  Id. (citing Garst v. Wal-Mart Stores, Inc., 30 Fed. Appx. 585, 593 (6th Cir. 2002)).

Bottom line: always file the long-term disability application or secure a written confirmation from the plan that the long-term disability claim is preserved while the short-term claim is being evaluated or appealed.

J.J. Conway has been named a 2018 SuperLawyer by Thomson Reuters.  J.J. has been listed as SuperLawyer or SuperLawyer Rising Star on eleven occasions. SuperLawyers is a “rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer-recognition and professional achievement.” The selection process “includes independent research, peer nominations, and peer evaluations.” www.superlawyers.com.

For more information and to view J.J.’s Superlawyer profile, please visit:
J.J. Conway’s SuperLawyer Profile.

J.J. Conway Law is an employee benefits law firm representing clients in the matters involving ERISA, pension, long-term disability insurance, healthcare, life insurance, as well as other benefit matters. Based on Royal Oak, Michigan, the firm represents clients throughout the United States in ERISA and employee benefits matters, including complex benefit class action cases.

The Tort Trial & Insurance Practice Section of the American Bar Association has published an article authored by J.J. Conway, Esq. discussing the history and usage of Social Security Disability Insurance awards in long-term disability insurance cases.  The article, published in the Health and Disability Law Committee Newsletter, discusses the interplay between Social Security Disability Insurance Benefits and ERISA long-term disability benefits from both a financial and evidentiary standpoint. The article is entitled, “Tracing the Evidentiary Path of Social Security ‘Other Income’ Offsets in Disability Cases Through Statutes, Case Law, and Regulations.” (Winter 2017). The article is available here, Tracing the Evidentiary Path of Social Security Other Income Offsets in Disability Cases

The Litigation Section of State Bar of Michigan has published an article authored by J.J. Conway, Esq. discussing the importance of developing a theory of the case early in the litigation process.  The article, published in the The Litigation Journal, discusses ways that litigators should formulate a theory of the case early in the pretrial process in order to litigate more effectively. The article is entitled, “A Strong Theory of the Case: The Faster It Is Developed, The Better The Results” (Fall 2017). The article is available here, The Litigation Journal (Fall 2017) – A Strong Theory of the Case

On December 6, 2017, U.S. News & World Report published “What to Wear to Work,” a discussion of workplace rules and dress codes.  The article explored the legal permissibility of dress codes and instances where neutral dress code and appearance policies can run afoul of state and federal law.  The article featured J.J. Conway, Esq.  as a legal analyst for the national publication. The online version article may be found here,  https://money.usnews.com/money/careers/company-culture/articles/what-to-wear-to-work.

No one should ever be subject to sexual harassment in the workplace. That is both state and federal law.  It is also a matter of basic morality.

With the explosion of sexual harassment revelations that have occurred during the past year – what some are now calling “Hurricane Harvey” – employers and employees are, again, confronting one of the most challenging problems in the workplace.

Sexual harassment usually stems from a bizarre psychology.  The complaints that have become public are not only offensive, but many of the allegations are strange.  The allegations against Harvey Weinstein, for example, make one wonder if, had he not been a powerful executive at a major production company, would he have been a playground flasher or peeping tom?  These are the actions of disordered persons.  The only difference is one seeks out victims in public places.  Weinstein, by contrast, apparently performed his stunts in a $5,000 a night hotel room at the Peninsula Hotel in Beverly Hills.

Similarly, Bill O’Reilly must have confronted real, hard evidence (not mere allegations) that would have proven he did something unspeakable or so damaging to his brand that it was better to pay $32 million to secure a confidentiality agreement than to have the evidence made public.  Previously, O’Reilly had been tape recorded using graphic and vulgar language during phone calls. No one pays $32 million to settle a “frivolous” lawsuit.  Plenty of lawyers would be willing to “vigorously” contest the allegations for fees of 1/100th that amount.

In the sexual harassment cases our firm has handled, it has been remarkable how many times the case was resolved when we moved to have the harasser examined by a forensic psychologist. Sexual harassment is not always what it seems. Clearly, there are cases where persons in management or coworkers use the workplace to try to secure dates or romantic adventures, but in many cases there is no actual sexual attraction to the victim. It is often about bullying a person whose vulnerability is somehow revealed in the workplace. The victims tend to have certain identifiable vulnerabilities that bring out the inner bully in certain management types or coworkers.

For example, the workplace harassment is visited upon a single mother who is trying to date again, or an employee is struggling with weight and body image issues, or, perhaps most unsettlingly, a person who has been subject to bullying and putdowns all their life.

The cruelty of bullies doesn’t disappear when a person gets a promotion or makes a lot of money.

It is one of the reasons that the number of complaints against a harasser is important.  Again, to be clear, all sexual harassment, even a single situation, is unlawful. The reason that the number of complaints matter is that it is evidence of a pattern and practice.  It is also suggestive of evidence proving the occurrence of the conduct is more likely than not to have occurred.

The women who have come forward against Weinstein, O’Reilly, and recently Matt Lauer have rightly been called “courageous” and “brave” because most employees understand that human resources departments are totally useless in sexual harassment cases.  Generally, H.R. doesn’t like problems, and a complaint of sexual harassment certainly qualifies as one. Given H.R.’s ineffectiveness, this also highlights why the large number of complaints is revealing.   First, if H.R. were on the ball, this likely would not have happened (think of the now dead Roger Ailes at Fox, where he was the H.R. department).

The large number of complaints is also reflective of basic human nature. Human nature suggests that repeat patterns of behavior are associated with desired results. For all the complainants who have come forward there are likely many, many more who fell victim, submitted to the advances, and carry with them feelings of guilt and shame.  This fact has remained largely unspoken during these public cases, but it is safe to assume that if ten complaints are made public, there are likely many more which no one will ever know about.

Charlie Rose likely didn’t invite women to his house in the evening and put a robe on in one solitary occasion. Based on the allegations, we know that Harvey Weinstein didn’t conduct a meeting in a hotel room with a robe on and a shower running just one time.  Bill O’Reilly didn’t book hotel rooms where company events were being held on just one occasion.  Matt Lauer went so far as to have a button installed on his desk to lock his office door remotely when women were present.  It is unlikely that Lauer pushed that button only one time.  Likely, these acts were part of a pattern that had worked before, and these men thought it would work again.

What is truly troubling, beyond all the numbers of victims, is just how premediated it all seems.  Perhaps, this has been the greatest revelation of all.  Harassers think through the harassment.  It also seems that many employers knew about the premediated harassment and did little to stop it. This is now the new challenge in the workplace.  Employers must not simply work to make the workplace free of sexual harassment, but seek to identify and break down the patterns which enable it in the first place.

Insurance companies administering ERISA long-term disability claims may be facing new rules.  In 2012 the U.S. Department of Labor’s ERISA Advisory Council undertook a study on issues relating to managing disability claims in the ERISA administrative review context. The Advisory Council recommended that the USDOL review the current claims regulation and recommend specific updates and modifications.

After taking comments, the final rule was published on December 19, 2016, and is set to take effect January 1, 2018.[1]  One of the main aims of the final rule is to “alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.”[2]

The main “Claims Regulation” under which ERISA disability claims have been administered and adjudicated since 2002 – 29 C.F.R. § 2560.503-1 – will be revised and updated to include the following:

1. Conflicts of Interest are to be Avoided.

Claims and appeals are to be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the benefit determination. Decisions regarding hiring, compensation, termination, promotion, or other similar matters are not be based upon the likelihood that the individual will support the denial of benefits.

2. The Disclosure Requirements are Expanded.

Under the final rule, benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision.  This includes the basis for disagreeing with the views of the claimant’s health care professionals, vocational professionals or with disability determinations made by the Social Security Administration.

Plans can no longer disagree with a treating health care professional “merely by stating that the plan or a reviewing physician disagrees with the treating physician….”[3]  The final rule requires that the adverse benefit determination include a discussion of the basis for disagreeing with the health care professional’s views.

The same standard also applies to a denial which disagrees with a Social Security Administration finding of disability. Disagreement with the determination must be accompanied by “more detailed justification….”[4]  The final rule also requires an administrator to notify a claimant of an alleged deficiency in the record and provide an opportunity to supplement the record, particularly if the administrator is not in possession of an applicable Social Security Administration ruling.

3. Timely Disclosure of New Evidence and Rationale Supporting a Denial Must Be Produced

Under the final rule, claimants must be given timely notice of their right to access their entire claim file, as well as other relevant documents, and be guaranteed the right to present evidence and testimony in support of their claim during the review process.  The Department took the position that claimants

have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal and to fully and fairly present their case at the administrative appeal level, as opposed to merely having a right to review such information on request only after the claim has already been denied on appeal.[5]

Any evidence or rationale provided must be turned over as soon as possible, and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided, to allow the claimant a reasonable opportunity to respond to the new evidence.  Rather than viewing this as a ‘new’ requirement, the DOL took the position that it simply hones the prior requirements under 29 C.F.R. § 2560.503-1 to clarify exactly what, and when, information should be provided to claimants.

4. Deemed Exhaustion of Claims and Appeals Processes

Under the final rule, plans cannot prohibit a claimant from seeking judicial review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements.  A “minor error” is the only exception to this new provision, although the DOL noted that this standard is “stricter than a mere ‘substantial compliance’ requirement.”[6]

5. Amending the Definition of “Adverse Benefit Determination”

Under the final rule, certain rescissions of coverage are to be treated as “adverse benefit determinations” triggering the plan’s appeals procedures. For plans providing disability benefits, a rescission of coverage that has a retroactive effect now constitutes an adverse benefit determination.  Under the USDOL’s analysis, if a plan provides for the payment of disability benefits for a pre-determined, fixed period, the termination of benefits at the end of the specified period would not constitute an adverse benefit determination under the regulation, but rather a new claim.

6. The Applicable Statute of Limitations Must Be Disclosed

Under the final rule, the USDOL specified that it:

does not believe that a claims procedure would satisfy the statutory requirement if the plan included a contractual limitations period that expired before the review was concluded… A limitations period that expires before the conclusion of the plan’s internal appeals process on its face violates ERISA section 503’s requirement of a full and fair review process.  A process that effectively requires the claimant to forego the right to judicial review and thereby insulates the administrator from impartial judicial review falls far short of the statutory fairness standard and undermines the claims administrator’s incentives to decide claims correctly.[7]

The USDOL seems to suggest that any limitation time-period shorter than a year after the final claims decision does not allow a reasonable period after the conclusion of the appeal in which to bring a lawsuit and is accordingly unenforceable.  Additionally, “in addition to such traditional remedies, plans that offer appeals or dispute resolution beyond what is contemplated in the claims procedure regulations must agree to toll the limitations provision during that time.”[8]

 

[1] See Claims Procedure for Plans Providing Disability Benefits, 81 Fed. Reg. 92316 (December 19, 2016).

[2] Id. at 92317.

[3] Id. at 92321.

[4] Id. at 92322.

[5] Id. at 92324.

[6] Failure to comply constitutes a “minor error” if the violation was (1) de minimis, (2) non-prejudicial, (3) attributable to good cause or matters beyond the plan’s control, (4) in the context of an ongoing good-faith exchange of information, or (5) not reflective of a pattern or practice of non-compliance.  Id. at 92327.

[7] Id. at 92330.

[8] Id. at 92331.

J.J. Conway was a featured speaker at the State Bar of Michigan’s Annual Meeting and NEXT lawyer development conference held in the Cobo Convention Center in Detroit, Michigan on Friday, September 29, 2017. Conway made presentation to new attorneys and those interested in self-employment in a presentation entitled, Hanging Out Your Shingle in 2017.  Conway has presented similar lectures to the State Bar Annual Meeting’s attendees in Grand Rapids, Lansing, and Detroit at prior annual meetings. He has also written on the topic for various legal publications.

The Michigan Court of Appeals has held that, for the purposes of a claim under the Court of Claims Act, the statute of limitations may begin to run prior to any actual deprivation of financial benefit.

In Bauserman v. Unemployment Insurance Agency, No. 333181 (Mich. Ct. App. Jul. 18, 2017), the Michigan Unemployment Insurance Agency (defendant) appealed a trial court’s decision denying the defendant’s motion for summary disposition.  The Court of Appeals held that a violation of the Court of Claims Act did exist, reversing the trial court’s decision.

The dispute centered on the defendant’s use of an automated decision-making system to both “detect and adjudicate suspected instances of employment benefit fraud.”  Id. at 1.  Once the system ‘detected’ an instance of benefit fraud, it would issue a notice and questionnaire in regards, either to the employee’s home address or an online unemployment portal which was rarely, if ever, accessed by employees.  Following the notice, defendant would routinely “intercept” tax refunds, garnish wages and initiate collection activity through a court of law.  Id. at 2.

Plaintiffs alleged that the Unemployment Insurance Agency’s use of “an automated decision-making system for the detection and determination of fraud cases, whereby the computer code in the automated decision-making process contains the rules that are used to determine a claimant’s guilt, and those rules change the substantive standard for guilt or are otherwise inconsistent with the requirements of due process.”  Id. at 8.

The Court of Claims Act, MCL 600.6431(1), provides, in relevant part, that “[n]o claim may be maintained against the state unless the claimant, within 1 year after such claim has accrued, files in the office of the clerk of the court of claims either a written claim or a written notice of intention to file a claim against the state or any of its departments….”  In actions for property damage or personal injuries, the claimant only has “6 months following the happening of the event giving rise to the cause of action” to file a written claim.  MCL 600.6431(3).

The court identified the determinative question as “what event gave rise to [the plaintiffs’] cause of action.”  Bauserman at 5.  The triggering event was either when the defendant issued notices informing the plaintiffs they were disqualified from receiving unemployment benefits or when the defendant actually seized the plaintiffs’ property.  Id.

In McCahan v. Brennan, the court held that MCL 600.6431 is to be “understood as a cohesive whole.  Subsection (1) sets forth the general rule, for which subsection (2) sets forth additional requirements and which subsection (3) modifies for particular classes of cases that would otherwise fall under the provisions of subsection (1).”  492 Mich. 730, 742 (2012).  Thus, while subsection (1) of MCL 600.6431 may provide a longer time frame to file a notice with the Court of Claims, subsection (3) shortens the time period for applicable claims to six months after the plaintiff’s cause of action accrues, or “when the wrong on which they base their claims was done.”  Bauserman at 7.

The Bauserman plaintiffs alleged a violation of the Michigan Constitution, Article 1, § 17, which provides that “[n]o person shall be… deprived of life, liberty or property, without due process of law….”  Specifically, the plaintiffs alleged that the defendant failed to “follow the minimum due process standards required under federal law with respect to the collection of unemployment debts, including overpayment and penalties.”  Id. at 8.

The court held that while the plaintiffs claimed “the wrong on which their claims are based took place when defendant intercepted federal and state tax refunds, garnished their wages and forced repayment of unemployment benefits[,]” the alleged wrong actually took place “when defendant issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct, and they were not given the requisite notice and opportunity to be heard.”  Id. at 9.  Therefore, the “economic deprivation” encountered by the plaintiffs was a secondary result of the original deprivation of due process, and not the proper point to adjudge the applicable statute of limitations.  Id.  Therefore, it was the notification of the deprivation of unemployment benefits, not the actual seizure of said benefits, which constituted the statutory point of claim accrual.

The Bauserman court cited Frank v. Linkner, a 2017 Sixth Circuit decision, which held in part that a plaintiff’s claims could accrue prior to a plaintiff incurring “calculable financial injury….”  894 NW2d 574 (2017) (Docket No. 151888), slip op at 14.

Following this decision, it is clear that a plaintiff’s pre-suit inquiry into the possible statute of limitations for claims arising against the State of Michigan must not be limited simply to the date the actual harm accrued, but should also account for any conduct preceding the harm which may have actually triggered the statutory cause of action.