Spring approaches, one thing that is as certain as “April showers bring May flowers” and kids playing in the park, for you, the disabled physician, claiming benefits under your group long term disability policy is the same as “hope springs eternal”. Almost every disabled physician looking to his or her group policy as part of a financial safety net to maintain your hard-earned quality of life will unfortunately be in for a rude awakening trying to maintain their claim, or even get paid in the first place. Instead, often-times the reality of successfully bringing a claim under your group LTD policy is such a distortion of reality, it’s more like Alice’s trip through “Wonderland”.
In our previous articles, we tried to give you a concise guideline to consider when claiming benefits under LTD policies. We also provided you with some of the more common issues and defenses that will be employed against you or otherwise raised in your claim. We pointed out, at that time, the real probability that State bad faith law remedies would ultimately be preempted by ERISA, and therefore unavailable as both a tactic and additional form of recovery in these cases. We further advised you that the Federal Courts had ruled in concert that State bad faith remedies were preempted, thereby realizing our greatest fears, effectively condoning any claims practices by the disability insurance companies. In furtherance of Barber v. UNUM Life Insurance Company of America (2004) and Aetna Health v. Davilla (2004), the Federal Courts have consistently dismissed attempts to recover State bad faith remedies under ERISA governed cases.
Just when it seemed to be the reoccurrence of the “dark ages”, and all hope for a level playing field was gone, a “Knight in Shining Armor” appeared from the far West to begin saving the day. Since the ERISA Statute and flurry of Court decisions interpreting the Statute had become more and more “company friendly”, and further, since the legislature had failed to rectify the “iron claw” grip on disabled insureds as a result, in 2004 Insurance Commissioners of several states, led by the Insurance Commissioner of California, took it upon themselves as the last hope of the disabled to take direct and definitive steps to impose balance and fairness to vulnerability and inequity. The California Insurance Commissioner and Insurance Commissioners from other States began to attack the use of “discretionary clauses” in long term disability policies.
In 1989, the Supreme Court ruled in the case of Firestone v. Bruch that if an LTD policy contains language referred to as “discretionary clauses” conferring “discretionary authority” on the plan administrator, when making benefit decisions, that the Federal Courts are limited to review the administrators’ adverse decisions on the basis of whether the decision was “arbitrary and capricious” and therefore an abuse of discretion.
With some limited exceptions to that rule, depending on the Federal Circuit and circumstances, following the Firestone mandate it then became most likely that if the plan or claims administrator could show a “reasonable basis” upon which was relied upon in concluding an adverse decision, the adverse decision could not be overturned in Federal Court since the administrator had not acted “arbitrarily and capriciously.” This precedent was, and has become, a huge weapon in the company’s arsenal that will be employed against you and other disabled physicians. Often times, the only way to get a fair shake in these cases, in the event of an adverse decision, is for the Court to review the plan or claims administrator’s decision on the basis of something less than an “arbitrary and capricious” burden, or most preferably, a “de novo standard of review”.
Now back to the “Knight in Shining Armor.” With the fight begun in California, and other States, the National Association of Insurance Commissioners adopted the “Discretionary Clause Prohibition Act” banning discretionary language from insurance contracts. The intention was, in effect, to mandate the employment of the “de novo standard of review” in all LTD claims. This, in effect, allows the Federal Courts to consider your LTD claim on its own merits as opposed to whether or not your plan administrator abused their discretion.
In 2004, the California Department of Insurance provided written notice to LTD carriers, writing contracts in the State of California, that it would no longer approve the use of discretionary clauses in any disability policy. Since then, other States, including Michigan, Illinois, Hawaii, Nevada, Oregon, New York and New Jersey have taken similar steps. Currently, the Pennsylvania Insurance Commissioner is considering this issue.
Unfortunately, as consistent with the long trail of ERISA woe, the insurance industry did not want the playing field to be leveled and certainly does not want to lose one of its most potent weapons in attacking your claim. In response, Hartford Insurance Company, essentially on behalf of the Disability Insurance Companies, filed a lawsuit in California challenging the Insurance Commissioner’s right and ability to mandate and employ such a prohibition. Just recently, and fortunately, the California Superior Court sided with the Insurance Commissioner and allowed the ban on these clauses. This Court determination may have ramifications on your ability to collect benefits under your group LTD policy.
It’s Springtime, the flowers are blooming, “hope springs eternal,” and the kids are playing in the park. Wait a minute, that’s not the kids playing, it’s the “Knight in Shining Armor” who has just joined the tug of war fight against the Disability Insurance Companies which they have been trying to win since 1989. Will we finally do it this time? Or is this just another one of Alice’s “pipe dreams?”
ERISA LTD Claims: Tug of War Continues was published in Physicians News Digest in May 2007. Mark F. Seltzer, Esquire is the Founder and Principal Attorney of Mark F. Seltzer & Associates, P.C., assisting Physicians, Healthcare Practitioners and Professionals in disability insurance claims and cases nationwide. The firm is located in Philadelphia, Pa.