Recent California Case Addresses The Mental Health Limitation In ERISA Policies

Many disability policies have a limitation on the amount of time, usually two years, that they will pay policy benefits for a disability caused by mental illness.  Issues regarding the scope and applicability of the mental illness exclusion can arise where a physical injury or illness also results in mental incapacity which contributes to the inability to work.  Common examples of mental health issues associated with a physical injury or illness are depression and anxiety.

On March 27, 2017, a California federal court in Los Angeles ruled that, under an ERISA policy, where mental issues are caused by a physical injury or illness, the 24-month mental illness limitation is inapplicable.  In Doe v. Prudential Ins. Co. of America (2017) WL 1156725, the federal district court addressed a disability policy which limited benefits to 24 months when the disability is caused “in whole or part [by] mental illness.”  (Id. at *1.)  The insured submitted a disability claim for “HIV infection, pain, fatigue, osteoporosis, and severe depression.”.  (Id. at *4.)  Prudential, the disability insurer, approved the claim, but stated that the insured’s disability was caused by his depression and anxiety, not the physical ailments.  (Id. at *5.)  The insured had a history of depression since 1997.  (Id.)  Upon reaching the 24 months, Prudential terminated the insureds benefits.  (Id. at *7.)

The court in Doe v. Prudential Ins. overturned the denial, holding that the insured suffered “disabling cognitive impairments that have a physical etiology.”  (Id. at *14.)  The court stated that the mental illness must be the “but-for” cause of the insureds disability to trigger the mental illness limitation.  (Id. at *12.)  The court emphasized that the insured’s cognitive impairments had a physiological etiology.  (Id. at *14.)  The Court noted that “if Plaintiff’s mental health issues were suddenly resolved, he would still” be disabled.   (Id. at *15.)  The court held that the mental illness limitation did not apply because the insured’s HIV diagnosis, a physical condition, was the but-for cause of his disability.

Along with other courts, Doe v. Prudential adopts a but-for analysis regarding whether a mental illness “in whole or in part” causes a disability, and thus falls under a mental illness limitation.  Insureds who have been subjected to a mental illness limitation in connection with a disability claim may be able to use Doe v. Prudential, and its analysis, to challenge a mental illness limitation.

Potential Impact of Concussion Biomarker on Litigation

In cases involving a concussion injury, issues of proof can often arise regarding the existence or severity of a concussion.  A recent study appears to have made a large leap in creating a reliable test to establish whether someone has a concussion (aka: a mild traumatic brain injury), making the link between wrongful conduct and injury more sustainable.

As the lead author, Nina Kraus, states in the study, for concussions, historically “the gold standard for diagnosis remains clinical determination by a physician who must weigh a constellation of symptoms across multiple organ systems.” [citation: https://www.nature.com/articles/srep39009].  The study, published in Scientific Reports (a part of the journal, Nature), is part of an effort to create a “reliable, objective, portable, user-friendly, readily available and affordable platform to diagnose [a] concussion.”  [citation: Inside View, Scientists Discover Concussion Biomarker, Centre for Neuro Skills, Issue 26.2, Spring 2017 (quoting lead author Nina Kraus)].

Using auditory stimuli, the researchers appear to have discovered a biological marker that indicates a concussion.  When exposed to particular speech frequencies, children with diagnosed concussions showed impaired neural responses.  However, the same group had similar responses to harmonic stimuli as non-concussed children.  [citation: https://www.nature.com/articles/srep39009].  Moreover, the concussed group not only showed improved responses as their concussion symptoms abated, but the severity of the concussion corresponded to the severity of the impairment.  [citation: https://www.nature.com/articles/srep39009].  Thus, impairment of this particular speech frequency signifies a concussion. The study identified a concussion with 90% accuracy and identified a non-concussed person with 95% accuracy.  [citation: https://www.nature.com/articles/srep39009].  Such accuracy provides a reliable test for evidentiary purposes.

This study has implications in cases where causation is an issue.  For example, in Lionel v. Lionel (2013) *2, WL 3981517 the appellant contested that respondent suffered a concussion (as a result of his conduct) because she did not exhibit “‘typical’ concussion symptoms.”  While the court ultimately found appellant’s arguments unpersuasive, the weight of a 90% accurate test may have prevented such a case to be appealed or to possibly be resolved before trial.

This study is possibly more significant regarding damages.  For example,  Ona v. Reachi (1951) 105 Cal.App.2d 758 was an appeal of an excessive damages award resulting from injuries, including a concussion, sustained in a car accident.  Each party presented conflicting expert testimony as to the extent of plaintiff’s injury, specifically its permanence, the primary issue being there was “no objective evidence of the concussion or its consequences.”  (emphasis added).  Armed with the reliable and purely objective test championed in the study, the plaintiff likely would have been able to definitively prove their damages.

Lead author Nina Kraus’ new biomarker concussion test will not only help those with sports-related concussions, as it was intended, but may also assist plaintiffs in proving their concussion injuries.

A Defendant Cannot Compel Vocational Examinations of An Injured Plaintiff in California

Where a personal injury case involves permanent injury or loss of earning capacity, vocational rehabilitation experts are often retained by each side to opine about the Plaintiff’s ability to work and earn a living.  A recent California Court of Appeal decision, Haniff v. Sup. Ct. (Hohman) (2017) 214 Cal.Rptr.3d 844, holds that a defendant in a personal injury case cannot compel an injured plaintiff to undergo an examination by the defense vocational rehabilitation expert. This is so even where the plaintiff has retained his or her own vocational expert to testify regarding the plaintiff’s incapacity to return to employment.

In Haniff, the plaintiff was employed as a package delivery truck driver.  (Haniff, supra, 214 Cal.Rptr.3d at 846.)  He was injured when a parked car rolled downhill and struck him while he was unloading his truck. (Id. at 846.)   As a result, the injured employee filed a personal injury lawsuit seeking various damages, including wage loss and loss of earning capacity.  (Id. at 847.)

As part of their discovery, defendants demanded, and the trial court granted a motion compelling the plaintiff to attend a vocational rehabilitation examination, to be conducted by defendants’ chosen vocational rehabilitation expert.  (Haniff, supra, 214 Cal.Rptr.3d at 847.)  The plaintiff appealed the order, arguing that a defense vocational rehabilitation examination is not one of the methods of civil discovery authorized by the Discovery Act.  (Id. at 848.)

The Court of Appeal agreed, overturning the trial court’s order compelling the defense vocational rehabilitation examination.  (Haniff, supra, 214 Cal.Rptr.3d at 857.)  The Haniff decision noted that courts lack the power to order discovery beyond that permitted by statute.  It also stated that defendants’ contention that a defense vocational rehabilitation examination should be an available discovery method as a matter of fairness was an issue for the Legislature.  (Id. at 849 citing Cruz v. Sup. Ct. (1986) 121 Cal.App.4th 646, 650.)

The Haniff Court rejected defendants’ argument that Lee v. Sup. Ct., (2009) 177 Cal.App.4th 1108, stands for the proposition that Code of Civil Procedure section 2019.010 is not an exhaustive list of civil discovery methods.  (Id. at 854.)  Haniff distinguished Lee on the basis that it specifically dealt with a district attorney’s discovery authority under California’s Welfare and Institutions Code — not the Code of Civil Procedure.  (Id.) Thus, it was inapplicable in the Haniff case.

The Court of Appeal also rejected defendants’ contention that a vocational rehabilitation examination was authorized by Code of Civil Procedure section 2017.010.  (Haniff, supra, 214 Cal.Rptr.3d at 855.)  The Court held that Code of Civil Procedure section 2017.010 is a catchall provision authorizing discovery of all relevant evidence that is not privileged.  (Id.)  However, Code of Civil Procedure section 2017.010 applies to the scope of discovery, whereas Code of Civil Procedure section 2019.010 specially addresses the methods.  (Id.)  Thus, Code of Civil Procedure section 2017.010 cannot be construed as authorizing a vocational rehabilitation examination.

In sum, the Haniff decision stands for the proposition that civil discovery cannot be expanded beyond the statutory limits, and the proper methods of discovery, as enumerated in Section 2019.010, do not include examination of a plaintiff by a vocational rehabilitation counselor.  Under Haniff, an injured plaintiff cannot be compelled to submit to a defense vocational rehabilitation examination.

Homeowners Insurance Coverage For Wrongful Death Under California Law

In a wrongful death action, the availability of insurance coverage under a homeowners policy is a critical but often complicated question.  Difficult coverage issues can arise where the death was the result of an intentional or criminal act, or the manner of death otherwise implicates a policy exclusion.

Generally speaking, where a death results from negligence there should be coverage under the liability portions of a homeowners insurance policy.  The California Supreme Court has held that “reasonable insureds expect their homeowners policy to protect them against liability for accidental injury or death occurring in their home.”  (Safeco Ins. Co. of America v. Robert S. (2001) 26 Cal.4th 758, 851.)

Complications arise, however, because many events resulting in death have an element of intentional or even criminal conduct involved.  Homeowner liability policies frequently have an intentional acts exclusion, which precludes coverage for injuries that are “expected or intended” by the insured.  There are also exclusion for criminal acts, which are often combined with or part of the intentional acts exclusions. (20th Century Ins. Co. v. Stewart (1998) 63 Cal.App.4th 1333, 1336.)  In addition, California Insurance Code §533, precludes insurance coverage for losses that are “caused by the willful act of the insured.”

Often insureds who are not accused of intentional conduct are sued along with the insureds who committed the intentional act, frequently on a failure to supervise theory.  In Castro v. Allstate (S.D.Cal. 1994) 855 F.Supp 1152, a son committed a murder, his mother was sued for “negligence in supervising” the son, and a claim was made under a homeowners policy.  (Id. at 1152.)  These are sometimes referred to as mixed coverage cases, because they involve allegations of intentional conduct mixed with negligent conduct against different insureds.  Whether there is coverage for the so-called “innocent insureds” in these mixed actions often boils down to whether the exclusion’s language states it applies to “any” insured (collective exclusion), or “the” insured (individual exclusion).  (Id. at 1155.)

However, even where a policy uses the broader, collective language regarding application of an intentional acts exclusion, if the policy contains a “separate insurance” clause the exclusion still may only apply individually.  In Minkler v. Safeco Ins. Co. (2010) 49 Cal.4th 315, the California Supreme Court addressed an intentional acts exclusion in the context of child molestation, and a claim of negligent supervision against the mother of the accused molester.  Minkler held that even though the intentional act exclusion contained collective language excluding coverage for intentional conduct by “an” insured, because it also contained a clause stating that policy “applies separately to each insured,” it did not exclude coverage for the mother accused of negligence.

Another difficult area is if an automobile was involved in an accidental death and coverage is claimed under a homeowners insurance policy.  Under California’s concurrent causation doctrine, where an accident is caused by both covered and noncovered events, coverage usually exists.  (State Farm Mut. Auto Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 102.)  However, recent precedent has narrowly interpreted that doctrine.  In Farmers Insurance Exchange v. Superior Court (2013) 220 Cal.App.4th 1199, a child was struck and killed by a truck driven by the child’s grandfather in his home’s driveway.  The policy contained a motor vehicle exclusion.  The plaintiff, however, claimed the grandmother was negligent in supervising the children, and that such negligent supervision was covered despite the motor vehicle exclusion.  The California Court of Appeal found that the accident was “dependent” on use of the car, and therefore the motor vehicle exclusion was applicable.  (Id. at 1208-09.)

Wrongful death cases often involve mixed claims of intentional and negligent conduct.  Such cases raise important and complicated insurance coverage questions.  Persons faced with wrongful death claims under these circumstances should closely scrutinize potential theories and their impact on coverage, in order to maximize the odds of obtaining a recovery.

Rescission Of Life Insurance After Death Under California Law

When a person whose life is insured under a life insurance policy dies, insurance company’s sometimes seek to deny the insurance claim by rescinding the policy based on misstatements in the insurance application. A denial based on rescission of a life insurance policy poses evidentiary challenges, as the rescission is usually based on alleged misstatements by the person who passed away and is not available defend him or herself or answer questions. Although a successful rescission voids the policy but, an unreasonable attempt to rescind the policy supports a bad faith claim. Rescission is an all or nothing strategy by the insurance company.

An insurance company can only rescind a life insurance policy during the “contestable” period of the policy, which is two years after issuance or reinstatement. (California Insurance Code §10113.5.) Once the contestable period passes, an insurer cannot deny a claim based on the insurance application even if there was “gross fraud in procuring the policy.” (John Hancock Mutual Life Ins. Co. v. Greer (1998) 60 Cal.App.4th 877, 881.) Because reinstatement of a policy allows for a new two-year contestable period, insurers often require a reinstatement application whenever possible following a lapse in coverage.

Assuming the policy is in the two-year contestability period when a person whose life was insured dies, an insurance company can seek to rescind the policy in California based on misstatements in the application. To effectuate a rescission, the insurance company must give notice and refund all premium payments. (California Civil Code §1691.) Notice of rescission must be “prompt.” (Citicorp Real Estate, Inc. v. Smith (9th Cir. 1998) 155 F.3d 1097, 1103.) An insurance company’s delay in providing notice of rescission can be grounds for losing the right to rescind where the insured or beneficiary was substantially prejudiced by the delay. (California Civil Code §1693.) In refunding policy premiums, an insurance company must refund “any premiums . . . which they may have received.” (Imperial Casualty & Indemnity Co. v. Sogomonian (1998) 198 Cal.App.3d 169, 184.) A failure to provide adequate notice or refund premiums is grounds for denial of a right to rescind.

Efforts to rescind a life insurance policy following the death of an insured, if unreasonable, can give rise to bad faith liability. (See e.g., Hailey v. California Physicians Services (2007) 158 Cal.App.4th 452, 473.) Indeed, it is akin to “post-claim underwriting,” which is classic bad faith. (Hailey, supra, at 465-66.)

Where an insurance company seeks to rescind a life insurance policy following a death and a claim being made, it must comply with California’s procedural requirements and have a valid basis to seek rescission. Unreasonable efforts to rescind are actionable under California’s bad faith law, just as any unreasonable denial of insurance benefits would be. Efforts by an insurer to rescind a life insurance policy following death should be scrutinized.