California Disability Claims Accrue When Disability Ends Under ERISA

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.

Ninth Circuit Affirms De Novo Review In California Of ERISA Disability Insurance Denials

On May 11, 2017, in Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan (C.D. Cal. 2017) — 2017 DJDAR 4376 –, the Ninth Circuit Court of Appeals delivered an important victory to insureds in California who have been denied disability benefits under an insurance plan governed by the Employee Retirement Security Act (ERISA).

Orzechowski upholds the enforceability, under federal law, of California Insurance Code § 10110.6, a California statute that provides for de novo review of a denial of benefits under an ERISA plan.  Most states enforce ERISA policy provisions granting the insurer discretion to determine eligibility to benefits and, therefore, review denials under an abuse of discretion standard rather than a de novo standard.  This is an important distinction because the de novo standard of review provides a far more favorable standard, and a much better chance of prevailing in court when challenging an insurance company’s denial. Section 10110.6 invalidates insurance plan provisions providing for discretionary review, and thus requires courts in California to review an insurance company’s denial of ERISA benefits under a de novo standard.

Previous California cases had noted that “the Ninth Circuit ha[d] yet to rule on the applicability of § 10110.6 in ERISA cases.”  (Murphy v. California Physicians Service (N.D. Cal. 2016) 213 F.Supp.3d 1238, 1248.) The decision by the Ninth Circuit in Orzechowski upholding section 10110.6 cements the validity of the law.  It provides a tremendous advantage to California residents seeking to challenge an insurer’s denial of benefits under an ERISA.

The lawsuit in Orzechowski arose from the insurer’s termination of disability benefits under an employee plan governed by ERISA.  The plan included a “broad grant of discretionary authority” to determine eligibility for benefits.  The insured employee developed fibromyalgia and chronic fatigue syndrome, and made a disability claim under the plan.  The insurer initially recognized the disability, and paid benefits, before changing its determination and terminating benefits.  The insurer’s doctor concluded the employee’s “symptoms must be psychiatric in origin.”  The employee appealed the termination with the insurance company, as required prior to filing legal action, but the insurer denied the appeal.  In the subsequent legal action, the trial court “applied an abuse of discretion standard of review . . . rather than a de novo standard,” and affirmed the insurance company’s denial.

In the Ninth Circuit, the insurer argued that the trial court decision should be affirmed because section 10110.6(a), a state law, is preempted by ERISA, a federal law.  The Ninth Circuit in Orzechowski rejected this argument.  It noted that ERISA has a savings clause, saving from federal preemption “any law of any State which regulates insurance.”  The Ninth Circuit in Orzechowski concluded that section 10110.6(a) was within ERISA’s savings clause, and not preempted. The Ninth Circuit also rejected the insurer’s argument that section 10110.6(a) did not apply because the plan was in effect before the law was enacted.  Orzechowski held that because the plan was renewed annually, it came within the ambit of section 10110.6(a).

Orzechowski’s decision upholding section 10110.6(a)’s validity under federal law is a significant win for Californians insured under a plan covered by ERISA.  It means that denials of ERISA benefits to persons insured in California are reviewed de novo by the courts.

General Damages In A Wrongful Death Case Under California Law

Claims for damages in a wrongful death case in California can include economic and non-economic damages.  Non-economic damages are often referred to as general damages.  They represent the intangible losses to the plaintiff as a result of the loss of the relationship with the decedent.

In California, general damages in a wrongful death case do not include the pain and suffering or emotional distress of the decedent, nor do they encompass the plaintiff’s grief or sorrow associated with the death.  Damages to a heir in a wrongful death action is “for personal injury to the heir.”  (Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1264.)  Thus, in a wrongful death action, general damages are awarded to the plaintiff for the “value of the decedent’s society and companionship.”  (Id. at 1263.)  This includes, among other things, the loss of “love, companionship, comfort, care, assistance, protection, affection, society, moral support.”  (California Civil Jury Instructions (CACI), 3291.)  Where evidence of significant general damages is presented in a wrongful death case, but the “general damages awarded are small,” California courts can grant a new trial for failure to award adequate damages.  (Adams v. Hildebrand (1942) 51 Cal.App.2d 117, 118-199.)

The elements of general damages in a wrongful death are some of the most profound and valuable things in life.  “Love” is something that, throughout the ages, has been one of the great human motivators, and the love of a spouse or a child is among the most meaningful things a person can have in life. Companionship, caring, assistance, affection, and protection from a close family member are critical human needs.  Moral support and guidance, depending on a person, all have enormous value to a person’s life.  These elements of damages are deep and raise questions about what is most important in life.

Providing evidence of the value of the elements of wrongful death damages requires, thought, planning, and skill.  It is important early on to identify witnesses who knew the decedent and plaintiff, and can testify as to the relationship between them and the effect decedent’s death had on the plaintiff.   Friends, family members, teachers, co-workers can all provide invaluable testimony about traits of the decedent that enriched the relationship with the plaintiff.  Details and stories or anecdotes which demonstrate the love, support, and companionship, that the decedent provided to the plaintiff are important.  Specific examples of how the death effected the plaintiff, including things the plaintiff used to do with decedent that he or she now does alone, can be powerful. Getting witnesses to remember and tell you about those emotionally rich memories often can only been done by spending significant time speaking with different family and friends, getting them to talk about the decedent, and drawing the stories out.  Cards, letters, photos, video and other such materials that demonstrate one of the traits at issue also help paint a compelling picture of the relationship.

The goal is to present evidence that paints an accurate picture of the fullness and depth of relationship between the plaintiff and the decedent.  This requires significant preparation and marshalling of evidence.  If done correctly, however, in the right wrongful death case, general damages can be enormous.

Going After The Insurance When A Defendant Goes Bankrupt

Insurance and Bankruptcy Los Angeles

The automatic stay associated with a bankruptcy filing is a powerful tool for defendants and will bring any litigation to a screeching halt.  But while the automatic stay presents an obstacle for continuing litigation in almost any case, there is strong grounds to obtain relief from the stay where a plaintiff’s claim is covered by defendant’s insurance.

United States Bankruptcy Code section 362 automatically imposes a stay on all actions against a debtor who files for bankruptcy.  This means that any and all lawsuits against the person or entity filing, even those that are unrelated to the bankruptcy, are put on hold.  The stay is immediately effective whether or not a creditor, such as a plaintiff in a personal injury case, receives notice of the stay and regardless of whether the court makes an order entering it.

However, Bankruptcy Code Section 362 also provides a means to escape the automatic stay.  Section 362(d)(1) provides that on the request of a party and after notice and a hearing, the court shall grant relief from the stay for “cause, including the lack of adequate protection of an interest in property of such party in interest.”  Although the grounds for relief from a bankruptcy stay for cause includes lack of adequate protection of an interest in property, relief from a stay  is not limited to that reason.

Indeed, “cause” for relief from a bankruptcy litigation stay is not defined in the Bankruptcy Code and is handled on a case by case basis.  (In re Fernstrom Storage and Van Co. (7th Cir. 1991) 938 F.2d 731, 735 (C.A 7 1991).)  The moving party is only required to make an initial showing that he is entitled to relief from the stay, the burden then moves to the debtor to overcome that showing.  (In re Sonnax Industries, Inc. (2nd Cir. 1990) 907 F.2d 1280, 1285.)

When determining if cause exists for relief from a bankruptcy stay, courts look at a number of factors:

  1. Whether relief would result in partial or complete resolution of the issues;
  2. The lack of any connection with or interference with the bankruptcy case;
  3. Whether other proceeding involved the Debtor as a fiduciary;
  4. Whether the Debtor has applicable insurance coverage and said insurer has assumed full responsibility for defending it;
  5. Whether the action primarily involves third parties;
  6. Whether litigation in another forum would prejudice the interests of other creditors;
  7. Whether the Movant’s success in the other proceeding would result in a judicial lien available by the Debtor;
  8. The interests of judicial economy and the expeditious and economical resolution of the litigation;
  9. Whether the parties are ready for trial in the other proceeding;
  10. Th impact of the stay on the parties and the balance of harm.

(In re New York Medical Group, P.C. (S.D.N.Y. 2001) 265 B.R. 408, 413.)

However, in weighing these factors, courts only consider those that are relevant to the circumstances of the case at hand and factors are not weighed evenly.   (In re Mezzeo (2nd Cir. 1999) 167 F.3d 139, 143.)  Thus, a moving party need not show a majority of these factors, nor even a majority relevant factors favor lifting the stay.

When the automatic stay is applied to litigation in which debtor has insurance covering the claim, several of these factors weigh strongly in favor of granting the movant relief from the stay, most obviously that the debtor has insurance and the insurer has assumed full coverage. However, other factors associated with the existence of insurance are also likely to weigh in favor of lifting the stay, such as the interests of judicial economy, the lack of prejudice to creditors due to the potential recovery being paid by insurance, and the lack of connection to or interference with the bankruptcy.

Indeed, the core policy behind a bankruptcy stay was to prevent prejudicial dissipation of the debtor’s assets.  When a judgment is or would be entirely covered by insurance from an insurance carrier, there is no possibility of prejudicial dissipation of debtor assets.  (See In re Bock Laundry Mach. Co. (N.D. OH 1984) 37 B.R. 557, 566 (“where…the pending action is neither connected with nor interfering with the bankruptcy proceeding, the automatic stay in no way fosters Code policy”).)

Where a defendant goes bankrupt during litigation, but insurance exists covering the plaintiff’s claims, there is a strong basis to obtain relief from the bankruptcy stay, and continue the litigation for the insurance proceeds.

When Someone Dies With A Life Insurance Application Pending In California

Life Insurance Lawyer Los Angeles

It sometimes occurs that a person applies for life insurance, but dies before a policy is issued or the application is approved by the insurance company.  In those situations, questions arise regarding whether the insurance company is obligated to pay the death benefit.  California has both case law and a statute which provide avenues for recovery when an insured has applied for a life insurance policy, but dies prior to its issuance.

The case law addressing this issue goes back many decades.  In 1954, the California Supreme Court, in Ransom v. Penn Mutual Life Ins. Co. (1954) 43 Cal.2d 420, addressed a case where an insured applied for life insurance, made his first premium payment, but had not yet submitted to a second medical examination requested by the insurance company, when he was killed in a car accident.  (Id. at 422.)  Ransom stated that the “understanding of an ordinary person” upon completion of a life insurance application and advance payment of the premium, is that “he would secure the benefit of immediate coverage.”  (Id. at 425)  Ransom held that, although coverage had not yet been approved by the insurer, “it would be unconscionable” to allow the insurer to avoid coverage when the premium was paid at the time of application.  (Id.Ransom held that “a contract of insurance arose upon defendant’s receipt of the completed application and the first premium payment.”  (Id. at 425.)

Case law has since stated that Ransom established “the basic rule . . . that temporary insurance protection arises when an insurance company receives and accepts an insurance premium with a policy application.”  (Hodgson v. Banner Life Ins. Co. (2004) 124 Cal.App.4th 1358, 1368.)  Temporary insurance can be terminated only by rejection of the application and notice to the applicant before the applicant’s death and refund of any premium.  (Smith v. Westland Life Ins. Co. (1975) 15 Cal.3d 111, 123-124.)

In addition to this case law regarding temporary life insurance, California Insurance Code §10115 also addresses payment of life insurance benefits when an insured dies before issuance of the policy.  It provides that when a first premium payment is made at the time an application is signed, and the insurer provides receipt for or actually receives the payment, and thereafter approves the application, but the insured dies before the policy is actually issued, “the insurer shall pay” as if the policy has been issued.  (California Insurance Code §10115.)  Unlike temporary insurance, section 10115 requires coverage when coverage conditions have been met, “but the formalities of issuance and deliverance have not occurred.”  (Hodgson, supra, 124 Cal.App.4th at 1372-1373.)  Once the conditions for coverage have been met under section 10115, returning the premium check does not avoid liability under the policy.  (Id. at 1373.)

Where an insured has applied for life insurance, made a premium payment, but dies prior to issuance of the policy, California law provides legal avenues and theories for potential recovery.  If an insurance company fails to pay policy benefits on the grounds it was not in effect at the time of death, the beneficiaries of the life insurance policy in question should scrutinize the circumstances surrounding the application and payment of premiums.  There may be a basis to obtain recovery under California law.