Under California law, a disabled dentist who is receiving disability benefits may be required to undergo curative surgery in order to remain eligible for disability benefits.

This was held in Provident Life and Accident Ins. Co. v. Van Gemert.  In Van Gemert, a disability insurance company, Provident Life, brought an action against a disabled oral surgeon after the oral surgeon refused to undergo curative surgery.  The surgery would supposedly fix the vision problems that had prevented the disabled oral surgeon from practicing.

Provident Life argued that the disability insurance policy required the oral surgeon to undergo corrective eye surgery. It relied upon the “appropriate care” provision in the policy which stated that the disability claimant must “receiv[e] care by a physician which is appropriate for the condition causing disability” in order to continue receiving disability benefits.  Because Provident Life’s doctors determined that surgery would correct the oral surgeon’s vision problems thereby enabling him to work again, it demanded that he undergo surgery or risk being denied his disability benefits.  When the oral surgeon did not submit to corrective surgery, Provident Life filed a declaratory action seeking intervention from a district court in California.

The California court interpreted the “appropriate care” provision of the disability insurance policy to require the disabled oral surgeon to undergo surgery, but “only if such care reflected the only treatment option a reasonably prudent person would choose.”  Because Provident Life had not established whether curative surgery was the only available treatment option, the oral surgeon could not be required to undergo the surgery.  However, if it could demonstrate that curative surgery was the only available treatment option that was reasonable, then the oral surgeon would need to submit to surgery.  These questions, the California court concluded, would need to be answered by a jury at trial.

Considering the risks associated with many surgeries, we think it is a rare case when corrective surgery can be considered the only treatment option available to a reasonably prudent person.  If your disability insurance company is demanding you undergo surgery to continue receiving disability benefits, contact a disability insurance lawyer.

In California, “[t]he key to a bad faith claim is whether or not the insurer’s denial of coverage was reasonable,” which ordinarily is question of fact for the jury.  Guebara v. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001).  However, if it is undisputed or indisputable that the basis for a disability insurer’s claim denial was reasonable, then a court may dismiss a bad faith claim as a matter of law.  See Lunsford v. Am. Guar. & Liab. Ins. Co., 18 F.3d 653, 656 (9th Cir. 1994) (“a court may conclude as a matter of law that an insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer’s liability”).  Many disability insurance companies thus attempt to escape bad faith liability by showing a genuine issue exists as to their liability for denying disability benefits.  This defense strategy is often employed in disability insurance bad faith cases that involve interpretations of ambiguous language in disability insurance policies.

For example, in Buck v. Unum Life Ins. Co. of America, a California district court dismissed a disability insurance bad faith claim against Unum after concluding as a matter of law that Unum’s basis for denying a dentist’s disability claim was not unreasonable.  The dispute in Buck arose after Unum ceased paying disability benefits to a disabled dentist, whose suffering of bilateral post traumatic carpal tunnel syndrome rendered him incapable of practicing dentistry.  Unum terminated disability benefits because the dentist did not comply with its demands to undergo “carpal tunnel release” surgery, which Unum claimed would enable him to practice dentistry again and for which Unum claimed he was an excellent candidate.

After Unum terminated his disability benefits, the disabled dentist sued claiming breach of contract and disability insurance bad faith.  Unum argued that termination was justified because, in its view, the contractual provisions conditioned the dentist’s eligibility for benefits on his undergoing of available surgery.  Unum further argued that even if Unum had incorrectly terminated disability benefits by misinterpreting the contract, the claim of bad faith should be dismissed as a matter of law “because there exists a genuine dispute as to coverage under both policies.”

After deciphering contractual ambiguities in favor of the disabled dentist, the California court determined that Unum was not justified in terminating disability benefits under the contractual provisions upon which it relied.  However, the court dismissed the disabled dentist’s claim of disability insurance bad faith. It reasoned that a genuine issue as to Unum’s bad faith liability existed because (1) “at the time of the termination of benefits, there existed no California state court decision interpreting such policy language or similar language”; therefore, it could not be unreasonable for Unum to interpret the provisions differently than what the court held; and (2) Unum relied on three different consulting physicians who each opined that carpal tunnel release surgery would be effective.

This California case incentivizes disability insurers to include ambiguous language in disability insurance policies.  Although courts generally resolve ambiguities in favor of insureds, they may form a basis for a disability insurance company to escape bad faith liability, as Buck demonstrates.  For this reason, it is important to consult with a disability insurance lawyer who is familiar with the laws of your state to help you understand your rights under the policy.  An experienced disability insurance lawyer can ensure your disability claim is handled appropriately and will hold a disability insurer accountable for any bad faith conduct.

Under California law, a disabled dentist’s return to work does not necessarily preclude recovery on his disability insurance benefits.  This was held in Zambito v. Northwestern Mut. Life Ins. Co.

In Zambito, a dentist suffering from mental illness filed suit against his disability insurance company, Northwestern Mutual, after it denied his claim for disability benefits.  The disabled dentist first started showing symptoms of bipolar disorder in 1989, which gradually began to interfere with his ability to practice dentistry.  Despite his deteriorating mental condition, the dentist continued working until 1991 when his doctor finally convinced him to stop practicing.  The disabled dentist then filed for disability benefits with Northwestern Mutual, asserting that in 1989 he became totally disabled, as defined by the California law.  Despite the evidence the disabled dentist presented, which demonstrated that the mental disorder substantially interfered with his ability to practice competently and effectively from 1989 onward, Northwestern Mutual denied the dentist’s disability claim.  The dentist sued to recover benefits.

The California district court below held that, because the dentist continued working and earned money after his alleged disability, he could not be “disabled” as defined by Northwestern Mutual’s disability insurance policy.  Therefore, it concluded that Northwestern Mutual did not wrongfully withhold disability benefits.

The decision was overruled on appeal, however.  The Ninth Circuit held that a disabled dentist is not automatically barred from recovery on his disability insurance plan in California simply because he returned to work despite his disability.  According to the court, the disabled dentist presented sufficient evidence of mental illness symptoms, starting in 1989, for the issue of total disability to go to a jury.  Therefore, because there was a genuine issue of material fact regarding whether or not the dentist could practice dentistry in the customary way because of his mental illness, the case was remanded for trial.

Disability insurance companies, like Northwestern Mutual, sometimes attempt to deny disability benefits by ascribing an inappropriate definition of total disability to your policy.  They do so despite state prohibitions. Here, for example, Northwestern Mutual tried to say that the dentist was not totally disabled because he continued working after he became ill.  But as the case demonstrates, total disability “does not signify an absolute state of helplessness but means such a disability as renders the insured unable to perform the substantial and material acts necessary to the . . . occupation in the usual or customary way.”  Erreca v. Western States Life Ins. Co., 121 P.2d 689, 695 (1942).  Therefore, contrary to Northwestern Mutual’s assertions, it is quite possible for someone with a deteriorating condition to continue working albeit errantly and less effectively after becoming totally disabled under California Law.

Even so, some courts still struggle to get the law right in disability insurance litigation.  For this reason it is important to have an experienced disability insurance lawyer who knows the law and who can ensure the courts apply it correctly to your claim.

In our last blog post, we discussed when, under Arizona law, punitive damages may be assessed against a disability insurance company that is guilty of insurance bad faith.  In this blog post, we examine how the same issue is analyzed under California law.

Under California law, a disability insurer may be found guilty of insurance bad faith, but still escape an assessment of punitive damages.  Punitive damages are only recoverable against a disability insurance company for bad faith conduct when it is demonstrated “by clear and convincing evidence that the [disability insurer] has been guilty of oppression, fraud, or malice” throughout the disability claims process.  Cal.Civ.Code § 3294(a).  Because the clear and convincing standard is a higher standard of proof than the standard required to prove ordinary insurance bad faith, “[a] marginally sufficient case of bad faith is not likely to prove malice or oppression by clear and convincing evidence.”  Shade Foods, Inc. v. Innovative Products Sales & Mktg., Inc., 78 Cal. App. 4th 847, 910 (2000).  Therefore, in order to recover punitive damages, a disability insurance lawyer must not only prove that the disability insurer violated its duty of good faith and fair dealing to the insured, but also that either “oppression, fraud, or malice” is clearly manifested by this bad faith conduct.  Id.

For disability insurance bad faith cases in California, “punitive damages can be most plausibly justified by a finding of oppression or malice.”  Harbison v. Am. Motorists Ins. Co., 636 F. Supp. 2d 1030, 1044 (E.D. Cal. 2009).  Malice is defined as either acting with an intent to injure or “despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.”  § 3294(a)(1); Gaylord v. Nationwide Mut. Ins. Co., 776 F.Supp.2d 1101, 1127 (E.D. Cal. 2011).  Oppression, on the other hand, “means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.”  § 3294(a)(2).  Both malice and oppression, therefore, “involv[e] intentional, willful or conscious wrongdoing of a despicable or injurious nature.”  Cal. Prac. Guide Ins. Lit. Ch. 13-C (internal quotations omitted).

When reviewing a punitive damages award, California courts consider a number of factors based on the totality of circumstances to determine whether “the jury’s award of punitive damages was consistent with California law”—that is, whether the disability insurer’s bad faith conduct involved an intentional, willful or conscious wrongdoing of a despicable or injurious nature to such an extent that a trial judge could rationally conclude that an award of punitive damages is appropriate.  See Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1013 (9th Cir. 2004).

In Hangarter, for example, a California court upheld a $5 million punitive damages award against a disability insurance company, based upon four important findings of bad faith.  This case arose out of a dispute between a disabled chiropractor and Provident Life, her disability insurer, after it wrongfully terminated her disability benefits.  At trial, the district court found that Provident Life was guilty of insurance bad faith and punitive damages were assessed.   The Ninth Circuit upheld this assessment, reasoning that the district judge did not error in upholding the jury’s conclusion that Provident Life consciously disregarded the insured’s rights because there was evidence (1) that the disability insurer wrongfully supplanted California’s definition of total disability with its own, (2) that the disability insurer’s “independent” medical examination (IME) doctor was biased, (3) that the disability insurance company misinformed the claimant regarding her potential benefits and (4) that the disability insurance company employed practices to achieve net termination ratios.  Id. at 1014.

Although the disability insurance attorneys were successful obtaining punitive damages in Hangarter, punitive damages awards for insurance bad faith are the exception, not the rule in California.  Even when a disability insurer is obviously guilty of insurance bad faith, “an award of punitive damages is not automatic.”  Phelps v. Provident Life & Acc. Ins. Co., 60 F. Supp. 2d 1014, 1026 (C.D. Cal. 1999).

At Comitz | Beethe, our disability insurance lawyers are not afraid of a challenge.  We believe punitive damages awards are an effective legal tool to keep disability insurance companies in check by holding them accountable for their egregious misconduct.  Punitive damage awards diminish profit-motives behind corporate wrongdoings and may help reshape industry standards.  Accordingly, in each insurance bad faith case we strive to demonstrate with clear and convincing evidence the despicable nature of disability insurers’ bad faith conduct.

In some disability insurance cases, punitive damages are assessed against the disability insurer when it violates the covenant of good faith and fair dealing with the insured.  In Arizona, a court may award punitive damages as punishment against a wrongdoer when ordinary compensation is deemed inadequate to satisfy the wrongs committed.  See Gila Water Co. v. Gila Land and Cattle Co., 30 Ariz. 569, 249 P. 751 (1926).  The purpose of punitive damages is not to compensate the disabled claimant for actual harm committed, but to deter other disability insurance companies from engaging in similar unfair practices.  To obtain a punitive damages award, a disability insurance attorney must be prove that the disability insurer’s “evil hand was guided by an evil mind.”  Rawlings v. Apodaca, 151 Ariz. 149, 162 (1986).  An “evil mind” can be proven by showing either (1) that the disability insurance company intended to injure the insured or (2) that the disability insurance company consciously pursued a course of conduct all the while knowing its conduct created a substantial and unjustifiable risk of harm to the insured.  Id.

An insurance company does not always need to breach an express covenant in the contract to be guilty of insurance bad faith, and subject to an assessment of punitive damages.  Id.  In Rawlings v. Apodaca, for example, the Arizona Supreme Court found that an insurance company breached its implied covenant of good faith and fair dealing by failing to provide copies of fire investigation reports—the basis for its claim decision—to its insureds after their house caught fire.  The insurance company intentionally withheld these reports because it learned during the investigation that it also provided insurance to those who were liable for setting the fire.  It feared that the insureds would use the fire report information to file a lawsuit against the fire setters, for whom the insurance company would also be required to provide coverage.  The court found that by failing to furnish these reports the insurance company had “breached its duty to play fairly with its insureds” because, for its own financial benefit, the insurer had injured the insureds by wrongfully impeding them from bringing a claim against those who started the fire.  Id. at 157.  This misconduct was sufficient to establish bad faith, despite the fact that the insurance company had complied with its express contractual obligations by paying benefits to the insureds.

The bad faith conduct constituted an “evil hand” for punitive damages purposes in this case.  However, the Rawlings court determined that insufficient findings were made to support the conclusion that the insurance company’s “evil hand was guided by an evil mind.”  Id. at 162.  Therefore, the case was remanded to make this determination.  The Rawlings court instructed, however, that when an insurer’s “motives are shown to be so improper, or its conduct so oppressive, outrageous or intolerable that such an ‘evil mind’ may be inferred, punitive damages may be awarded.”  Id. at 162-63.

This Rawlings standard for punitive damages is still in force today.  Courts using the standard have assessed punitive damages against insurance companies even when they have abided by the express provisions of a contract.  See e.g., Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 509 (1992) (reaffirming Rawlings holding that “breach of an express covenant is not a necessary prerequisite to an action for bad faith”).  Despite this, many disability insurance companies continue to find ways to wrongfully deny or terminate disability benefits.  In some instances, not only does the disability insurer’s misconduct constitute bad faith, but its “evil hand is guided by an evil mind.”

An experienced disability insurance lawyer will be able to identify these unfair practices and hold the disability insurance company accountable for misconduct.  If you are filing for disability benefits, be sure to contact a disability insurance lawyer to ensure your disability claim receives the consideration it deserves.

A disability advocacy group, Easter Seals, issued a press release earlier today applauding the U.S. Supreme Court’s decision regarding the Affordable Care Act (ACA).  Easter Seals is a nonprofit organization that provides services for people with developmental disabilities, autism, special needs and physical disabilities.

The Senior Vice President at Easter Seals believes the ACA will have a positive impact on people with disabilities and their families:

People with disabilities and their families have their lives dictated by the status of their health insurance. If a family with a child with a disability has insurance, that family typically will not change jobs for fear of losing coverage. . . .  The Supreme Court’s ruling today tells these families they can make decisions about what is best for them as a family, and not be controlled by fear of losing health insurance coverage.

You can read the full press release by clicking here.

In our last few blog posts, Insurance Bad Faith: Cherry-Picking Your Medical Records and Disability Insurers Misuse Independent Medical Examinations, we have examined the prohibitions from the 2005 Order that coincided with the California Regulatory Settlement Agreement with Unum.  In this post, we look at another one of these enumerated proscriptions.

The twentieth prohibition from the California Insurance Commissioner’s Order bans Unum from misleading claimants that they must file for Social Security Disability Income (SSDI) in order to receive the full monetary amount on their private disability claim.  First, let us be clear: If your disability insurance policy does not say you must apply for SSDI in order to receive an unreduced benefit, then you need not apply in order to receive an unreduced benefit from your insurer—you are entitled to the full amount.  Furthermore, the disability insurance company cannot demand that you apply in later correspondence if you did not agree to this initially.

If you are already receiving SSDI, however, then it is important to take another look at the policy provisions in your disability insurance plan.  Some, but not all disability insurance policies now include provisions which allow the company to offset the amount due by the amount you receive from the state.  For example, if your disability insurance plan pays a maximum of $5,000/month and you currently receive $1,000/month in SSDI, then, depending on your plan’s policy provisions, the disability insurance company may only be required to pay $4,000/month as long as you continue receiving $1,000/month in SSDI.

When the state of California conducted an investigation on Unum’s business practices, it found that Unum illegitimately offset disability benefits payments by estimating the SSDI amount a claimant could receive (even though the disability claimant was not actually receiving social security) and reducing monthly payments by that amount.  Unum would then demand the claimant apply for SSDI benefits in order to get the difference.  Because it made these demands without express contractual authorization, the California Insurance Commissioner found that Unum’s behavior constituted an unfair business practice under California law.

Too often, disability insurance companies take advantage of claimants who do not understand their policy provisions.  They often use ambiguous language in their policy provisions to confuse claimants.  Before filing a disability claim with your insurance company, consult with an experienced disability insurance attorney.

In a previous blog post we discussed how disability insurers use independent medical examinations (IMEs) to their own advantage, despite explicit state prohibitions.  In this post, we will look at another similar ban that is also part of the California Regulatory Settlement Agreement with Unum.  The fourth ban in the California Order prohibits Unum from selectively using portions of medical records and IME findings to its exclusive benefit.

Disability insurance companies require claimants to send in medical records when filing for disability benefits.  In addition, disability insurers may also require claimants to undergo an IME and send in the results of the IME.  When these medical records come in, the disability insurer sends them over to its in-house medical team for evaluation.  In-house evaluations are problematic for disability claimants: Since the in-house people are employed by the disability insurer, they often look at the medical records and IME results with an eye toward what is best for the insurer, not the claimant.

Some in-house medical teams may even “cherry pick” medical records or portions of records to say that a claimant is not disabled.  An extreme example of this would be if an insured told his doctor that he was feeling better on a particular day, even though his overall condition was still quite poor and continued interfering with his daily activities.  An in-house medical team could “cherry pick” the medical records by highlighting the insured’s positive statement—that he was feeling better that day—and then using the statement to conclude that the disabled insured is well enough to go back to work.  The in-house team would ignore the portion of the record that indicates the insured’s overall condition is still very poor.  Another example of “cherry picking” would be if an insured met with one doctor who reported that he was not disabled, and then the insured got a second opinion from another doctor who said he was disabled, the in-house medical team would only rely on the first doctor’s report and ignore the second.

Even though they are prohibited from doing so, disability insurance companies continue engaging in these unfair business practices.  The California Order is an attempt to limit disability insurance bad faith; it can be used to hold disability insurers accountable for their unfair practices.  But, because these activities persist, before you file a disability claim you should find a disability insurance lawyer who can make sure the disability insurance company handles your claim appropriately.

In 2005, the California Insurance Commissioner fined Unum $8 million and ordered it to stop engaging in unfair business practices.  The California Order specifically prohibits Unum from engaging in 28 activities.  In the next few blog posts, we will take a closer look at some of the more important prohibitions from this list.

The third prohibition in the California Order forbids Unum from selectively using independent medical examination (IME) information to its exclusive benefit.  The purpose of an IME is for an independent doctor to examine a disability claimant to see whether or not he is actually disabled.  Supposedly, the IME doctor performs the IME objectively, without bias.  Unfortunately, though, several factors indicate that these evaluations are not being conducted fairly.

Here are a few reasons why: First, the disability insurer chooses and pays the IME doctor; the claimant almost never gets any input on which doctor to see.  This enables the disability insurer to seek and hire IME doctors who will write favorable reports, i.e., stating the disabled claimant can go back to work.  Typically, once the disability insurer finds an IME doctor who writes favorable reports, the disability insurer will continue using this physician over and over again to ensure satisfactory outcomes.  The disability insurance company also controls what information the IME doctor reviews before the doctor examines the claimant.  This allows the disability insurer to selectively present information that supports its position, and only its position, that the claimant is not disabled.  Even an unbiased physician might have difficulty performing a fair IME if the data he is looking at is distorted or inaccurate.

Despite the California prohibition, Unum and other disability insurance companies continue misusing information gathered during IMEs to deny disability claims.  The good news is these biased IMEs can be detected today.  With help from an experienced disability insurance lawyer, you can ensure that the insurer gives you proper consideration for disability benefits.

Prudential Group Insurance has set up a Return to Work service which provides employers with assistance in setting up their own Return to Work programs for disabled employees.  According to a press release in the Wall Street Journal, these employer-sponsored disability programs reduce company costs and boost productivity.  The Return to Work service offers a guide to employers on how to set up a Return to Work program, lists supposed benefits to employers for implementation and attempts to respond to employer and employee concerns.  According to the press release, many companies disagree with Prudential’s program evaluation; they worry that the Return to Work program will not be a cost-effective system and that it could incite negative reactions among employees.

Even though the Return to Work service offers few (if any) benefits to the employer, the financial incentive for the disability insurer is substantial.  If Prudential can get people who are disabled to go back to work, it will not have to pay disability benefits any more—that’s money back in the insurer’s pocket.

Doctors seem to agree that returning to work can boost a disabled person’s morale.  However, not every disabled professional will be fortunate enough to work again, and those who are in a position to return should not feel pressured by their employer, but should proceed with caution.  Disability insurance companies, like Prudential, have financial incentives that often are not in alignment with your best interests.  Unfortunately, Prudential’s Return to Work service may be just another example of how an insurance company puts its own financial considerations ahead of the needs of disabled persons.  For more information about the financial incentives  that disability insurance companies have to deny disability claims, check out our previous blog post.