California Disability Claims Accrue When Disability Ends Under ERISA

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A recent decision by a federal district court sitting in Los Angeles is a major victory for insureds in California who submit a late claim after the onset of disability, and are denied benefits on that ground.  This adds to another recent decision upholding a California statute, Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, allowing for courts to conduct de novo review of ERISA disability claim denials. The combined effect is creating a uniquely favorable legal landscape in California for challenging denials of disability insurance benefits under ERISA.

On May 1, 2017, in Gray v. United of Omaha Life Ins. Co. (C.D.Cal. 2017) a California federal district court judge sitting in Los Angeles held that the time make a disability claim under ERISA begins to run, not “at the onset of the disability,” but rather when the “period of covered disability” ends.  (Id. at *1.)  In doing so, the court upheld the validity of California Insurance Code section 10350.7, as to when a claim accrues under ERISA.

In Gray, the insured employee worked for a Southern California television station, and was badly injured and disabled in May 2011 car accident.  (Id. at *1.)  Through deception and “stonewalling” by plaintiff’s former employer, plaintiff was unable to file a disability claim until August 2015.  (Id. at *1-2.)  The insurer denied the claim on the ground it was “not timely filed,” based on limitation provision in the insurance plan which was tied to “the day disability commences.”  (Id. at 2-4.)  California Insurance Code section 10350.7, however, provides that a proof of loss is not due, and therefore, the limitation period does not commence, until “after the termination of the period for which the insurer is liable.”  Under California law, insurers can use different language in an insurance plan provided it is “not less favorable in any respect to the insured or the beneficiary.”  (California Insurance Code section 10350.)

Gray held that the phrase the “period for which the insurer is liable” in section 10350.7 “refers to the entire period of disability, and proof of loss is not required until that period ends.”  (Id. at *9 (emphasis added).)  Therefore, Gray held that the insurance policy’s language requiring proof of loss “from the date of the disability’s onset” was less favorable, and thus in violated section 10350.  (Id. at *9.)

Pursuant to Gray, in California, the proof of loss requirement, and related time to submit a claim, is dependent on when the disability ends, not when it starts.  This is a critical ruling which significantly extends the time an insured in California can submit a claim for disability benefits under an ERISA policy.  Combined with other recent decisions, Gray demonstrates that the insured-friendly California laws, and the federal courts decision to uphold and enforce them, is creating a uniquely favorable legal environment in California for challenging insurance company denials of ERISA disability claims.