The Shame of Disability Insurance

One of the oldest human worries is what a person will do if he or she becomes too sick to work.  In another time, in a different place, the social community supported those who were injured or ill.  In our time and place, many people must instead rely on a more formal arrangement — disability insurance.

Many of the large insurance companies sell disability insurance, which should provide basic financial security for people who become unable to work.  The benefit paid under such policies is not great – typically 60% of what a person made before becoming disabled, and that money is often subject to income tax.  (That alone disproves the myth that people “choose” the “easy” path of seeking disability benefits – that and the fact that most people want to work and derive a great deal of their sense of self from doing so.)

Disability insurance is a fine and honorable undertaking.  A group of people each contribute a little something to a collective pot of money, and if any one member of that group becomes too ill or injured to work, he or she receives a regular and reliable (if modest) benefit.  The role of insurance companies is to administer this system, pay disability benefits to those who need them, and retain enough of the premiums to pay their own employees.

Sadly, many of the large disability insurers have failed to uphold their part of this arrangement.  Although the law requires these companies to act as “fiduciaries” – to act in the utmost good faith toward their insureds – they ignore that obligation.  They act in their own interest, rather than in the interest of the people who agreed to the social contract of disability insurance.  Every claim denied is more profit.

To enhance the bottom line of their ledgers by paying as few claims as possible, insurance companies often purchase a “peer review,” performed by a purportedly independent doctor, who reads the medical records and then issues a report.  But these “independent” doctors are managed and paid by companies whose interests are aligned with the disability insurers they serve.  If one looks closely at the vendors that provide peer reviews to the large disability insurers, one sees that many of their officers and owners came out of top positions with . . . disability insurance companies.

Rather than being independent, neutral assessments of a person’s medical condition, peer reviews far too often are biased position pieces, written with one purpose – to provide the disability insurer a plausible basis to deny claims.

The world of private disability insurance has become a world of broken promises.  The original idea – the simple promise that if you become too sick to work, you will have a small but reliable income to keep the wolf from the door – is regularly broken, as insurance companies violate their fiduciary duty and put their own interest in sky-high profit above the interests of their insureds.  There is a word to describe that: shameful.  The same word applies to doctors who violate their most fundamental duty – the duty to do no harm – and willingly help insurers by providing biased and sham peer reviews.

Insurance Company Surveillance Proves . . . Nothing

What Does Insurance Company Surveillance Prove About Disability? 

Nothing – that is what Liberty Life Assurance Company of Boston (“LLACOB” or “Liberty Life”) has again been told.  In Bigham v. Liberty Life Assurance Co. of Boston, — F.Supp.3d –, LLACOB secretly filmed the claimant over several days, and then terminated her benefits.  When Ms. Bigham sued, LLACOB insisted that its surveillance video “proved” she was not disabled.  In an Order issued on December 11, 2015, the United States District Court disagreed:

After reviewing the surveillance footage and the rest of the record, the Court disagrees with Liberty Life’s analysis and conclusions. The surveillance footage neither proves nor disproves that Ms. Bigham’s documented chronic intractable pain, fibromyalgia, seronegative spondyloarthropathy, cervical and lumbar degenerative disc disease, and related conditions prevent her from doing her job. Ms. Bigham has never claimed that she cannot walk or lift a small dog. Indeed, Liberty Life acknowledges that “Plaintiff’s doctors reviewed the surveillance and each submitted a declaration that nothing in the video was inconsistent with plaintiff’s self-reports.” Just because Ms. Bigham did not grimace or limp in this limited window of surveillance does not mean that she is not experiencing significant pain at the time, or more importantly, at other times, and frequently. The surveillance footage does not show Ms. Bigham in a workplace setting, or performing any of the complex tasks associated with her prior position at Amazon. Nor does it catch Ms. Bigham in a lie, as implied by Liberty Life in their briefing . . .

Bigham v. Liberty Life Assurance Co. of Boston, — F.Supp.3d –, 2015 WL 8489417, at *7 (W.D. Wash. Dec. 11, 2015).

Five months earlier, LLACOB was given the same message in Anderson v. Liberty Mut. Long Term Disability Plan.  As in Bigham, LLACOB denied disability benefits and, when sued, trotted out video surveillance it had surreptitiously obtained of the claimant.  The Court stated:

Defendants argue that the surveillance evidence brings into question whether Ms. Anderson “actually experiences the severe dizziness, fatigue and nausea which she claims prevent her from performing her occupation.” To the contrary, the surveillance evidence neither proves nor disproves Ms. Anderson’s claims of intermittent vertigo, fatigue, nausea, disequilibrium, and related issues which prevent her from doing her job.

Anderson v. Liberty Mut. Long Term Disability Plan, — F.Supp.3d –, 2015 WL 4523452, at *8 (W.D. Wash. July 27, 2015).  The Court further observed that “LLACOB obtained surveillance of Ms. Anderson after she submitted her final appeal for LTD benefits and relied upon that surveillance as a basis for denying her appeal, when Ms. Anderson had no opportunity to review and respond to that surveillance.  This was a procedural violation contravening the purpose of ERISA.”  Id., — F.Supp.3d. –, 2015 WL 4523452, at *10 n 5.  In making that observation, the Court cited an earlier case involving LLACOB, Prado v. Allied Domecq Spirits & Wine Grp. Disability Income Policy, 800 F. Supp. 2d 1077 (N.D. Cal. 2011).   In Prado, Liberty Life used the same ruse – it waited until the claimant had exhausted all of his appeals before undertaking surveillance, thereby depriving him of the opportunity to review and respond to the surveillance.  The United States District Court strongly disapproved of that tactic:

Yet another factor is Liberty’s reliance, at the eleventh hour, on the surveillance footage. “[A]n administrator that adds, in its final decision, a new reason for denial, a maneuver that has the effect of insulating the rationale from review, contravenes the purpose of ERISA.” Abatie, 458 F.3d at 974. “This procedural violation must be weighed … in deciding whether [the administrator] abused its discretion.” Id.  While Liberty’s initial denial was premised on a lack of evidence of physical impairment, its final decision hinged on the Plaintiff’s lack of credibility in light of the surveillance footage. Furthermore, Liberty’s last-minute reliance on the surveillance footage did not give Plaintiff an opportunity to respond to this basis for denial.

Prado v. Allied Domecq Spirits & Wine Grp. Disability Income Policy, 800 F. Supp. 2d 1077, 1097-98 (N.D. Cal. 2011).

LLACOB may want to re-read the Ninth Circuit opinion in Montour v. Hartford Life & Acc. Ins. Co., 588 F.3d 623, 633 (9th Cir. 2009) – where the Court found that Hartford Insurance Company “overstates and over-relies on surveillance” of the claimant.  If insurers have been slow to catch on to the failings of surveillance, the federal district courts have not.  “The Ninth Circuit has admonished district courts not to overly rely on surveillance video, particularly where the restrictions are consistent with the video surveillance.”  Bertelsen v. Hartford Life Ins. Co.:1 F. Supp. 3d 1060, 1073 (E.D. Cal. 2014) (citing Montour, 588 F.3d at 633).

Surveillance of disability insurance beneficiaries generally proves nothing.  That is particularly true when the person is beset with a condition that has ups and downs, causing good days and bad days.  The kind of skepticism, distrust and suspicion that prompts use of surveillance may have suited the Stasi, but it almost always falls short when used by insurers fulfilling fiduciary duties to their insureds.


Choice of law provisions will not defeat state regulations prohibiting discretionary clauses

Washington is among the many states that adopted a model regulation drafted by the National Association of Insurance Commissioners (MDL-42), which prohibits insurers from selling disability insurance policies containing “discretionary clauses.” Insurers have routinely included such clauses in their policies, giving themselves discretion to interpret their own policies and to determine whether their own actions are reasonable, since the 1989 U.S. Supreme Court decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). There, the Supreme Court held that judges reviewing ERISA benefit cases should do so using the “de novo” standard of review, which allows the court to inspect and analyze the facts of the case and make its own independent determination as to whether a person is entitled to the benefits at issue – unless the insurance policy (or “benefit plan”) has a clause granting discretion to the plan administrator. If a policy contains such a discretionary clause, then the judge may only reverse the insurer’s benefit denial if it was an “abuse of discretion.” That standard can be difficult for a claimant to meet, as it requires an insurer’s decision to be reversed only if it lacked any reasonable basis. If the insurer simply paid a physician consultant to opine the claimant was not disabled, that was often enough to successfully demonstrate a “reasonable basis” – after all, a doctor had said the person was not disabled, so how could that be unreasonable?

The Washington regulation prohibiting discretionary clauses, WAC 284-50-321, provides as follows:

(1) No disability insurance policy may contain a discretionary clause. “Discretionary clause” means a provision that purports to reserve discretion to an insurer, its agents, officers, employees, or designees in interpreting the terms of a policy or deciding eligibility for benefits, or requires deference to such interpretations or decisions, including a provision that provides for any of the following results:
(a) That the insurer’s interpretation of the terms of the policy is binding;
(b) That the insurer’s decision regarding eligibility or continued receipt of benefits is binding;
(c) That the insurer’s decision to deny, modify, reduce or terminate payment, coverage, authorization, or provision of health care service or benefits, is binding;
(d) That there is no appeal or judicial remedy from a denial of a claim;
(e) That deference must be given to the insurer’s interpretation of the contract or claim decision; and
(f) That the standard of review of an insurer’s interpretation of the policy or claim decision is other than a de novo review.

As a result of this regulation, most judicial review of insurer’s claim denials is under the de novo standard. Because the “abuse of discretion” standard of review tipped the playing field so heavily in favor of insurers, the regulation has brought more fairness to ERISA disability litigation.

Disability insurers have been trying to find ways around the laws prohibiting discretionary clauses. In one recent effort, the insurer claimed that California’s Insurance Code prohibiting discretionary clauses should not apply because the insurance policy at issue stated that it was governed by the law of Maryland. The federal district court rejected that argument, stating that “allowing a choice of law provision to trump California Insurance Code Section 10110.6 on the narrow issue of the applicable standard of review for a denial of benefits would subvert the right to a ‘fair review of claims denials’ that was granted by the California legislature to all California residents.” Hirschkron v. Principal Life Ins. Co., — F.Supp.3d –, No. 15-CV-00664-JD, 2015 WL 6651146 (N.D. Cal. Oct. 29, 2015).

That is sound reasoning.

A season for Aetna disability benefit denials . . .

For everything there is a season . . . including, it turns out, a season for Aetna Life Insurance Company to deny Boeing workers’ disability claims.

Boeing formerly used Aetna to manage its short-term disability claims. It quit doing so earlier this year when it retained Aon Hewitt Absence Management for that purpose. Short-term disability claims that Aetna already had in its hopper – at least those I have seen in the past months – follow a similar pattern. It goes like this: a long-term Boeing employee becomes too ill to work and applies for disability benefits. Aetna denies the application, and, as ERISA requires, advises the employee that he or she can appeal the denial. The employee submits an appeal, including unequivocal statements and records from treating doctors demonstrating disability. Aetna assigns an “Appeal Specialist” to the claim.

The “Appeal Specialist” sends a letter to the employee, opening with the cheerful words “Good News!” The letter states that Aetna received the appeal (hence the “good news” – apparently institutional joy that a piece of certified mail has arrived), and that a decision will be made in 45 days. Just before that 45-day period ends, the “Appeal Specialist” sends another letter, stating that Aetna can’t manage to complete its processing of the appeal, and will require another 45 days.

In fact, the federal regulation that allows an ERISA insurer like Aetna an additional 45 days to determine an appeal requires the insurer to describe the “special circumstances” that require such an extension. Aetna’s letters typically state only that its need to perform a “medical review” requires an extra 45 days. That hardly sounds like special circumstances –any sensible assessment of a person’s disability status will require some medical review . . .

Aetna then orders up a “peer review” – a review of selected papers from its claim file by a purportedly “independent” consultant.  The consultant then writes a report concluding the Boeing employee “has no functional limitations,” and the “Appeal Specialist” writes the employee a letter denying the appeal.

Those letters conclude with the bold type statement, “We’re here to help you.

I’m not so sure about that one.