The issue of which insurer is responsible for paying a claimant’s disability benefits was the subject of Mitchell v. CB Richard Ellis Long Term Disability Plan, 2010 U.S.App.LEXIS 15252 (9th Cir. July 26, 2010). InMitchell, the plaintiff, Michael Mitchell, worked as a commercial real estate broker for CB Richard Ellis for several years until he became disabled in 2004 when the combined effect of several sleep-related disorders, chronic fatigue syndrome, and hemochromatosis caused his commissions to plummet dramatically even while he continued to attempt to work on a full-time basis. Prior to Jan. 1, 2004, Unum was the underwriter of the CB Richard Ellis group disability program; MetLife took over in 2004. Which insurer was liable for paying the claim became significant because, when Mitchell applied for disability benefits in April 2004, he indicated on the claim form that his disability commenced in October 2003. MetLife denied the claim, though, not on the ground that the disability arose before coverage commenced, but on the ground that Mitchell failed to meet the definition of disability and was “still working.” Mitchell appealed; and MetLife upheld its initial conclusion that the claimant’s impairments did not establish he was unable to perform the material and substantial duties of his regular occupation. In neither the initial denial nor in the final denial, though, did MetLife indicate that it was not the insurer as of the date of the alleged onset of disability in October 2003. The issue was first raised in MetLife’s answer to the complaint filed after the claim appeals were exhausted, which triggered Mitchell filing a separate claim with Unum. However, Unum also rejected the claim, finding Mitchell failed to meet its policy definition of disability. Mitchell appealed unsuccessfully; and upon the issuance of Unum’s final denial, Mitchell amended his complaint to name Unum as an additional defendant. Unum then filed a cross-claim against MetLife seeking a declaratory judgment that if either insurer were held liable, it should be MetLife. MetLife did not file a cross-claim against Unum, though.

Following a bench trial, the court issued detailed Findings of Fact and Conclusions of Law ruling that MetLife abused its discretion in denying benefits. The court determined the plan documents contained different definitions of “disability” and MetLife abused its discretion by applying the most restrictive definition. The court also found an abuse of discretion in MetLife’s imposition of a requirement that Mitchell supply objective medical evidence of disability when the policy contained no such requirement. The court further held that MetLife could not disavow liability since it failed to raise a claim that Unum was the responsible insurer during the claim process. Thus, the court granted Unum’s request for declaratory judgment placing the liability for paying the claim upon MetLife. The court of appeals affirmed.

The 9th Circuit found that at the time Mitchell submitted his claim, he met the policy definition of disability because he was receiving appropriate treatment and was unable to earn 80 percent of his pre-disability earnings despite working full-time hours. The court also upheld the finding that MetLife abused its discretion by imposing an objective evidence requirement that was not contained in the policy. The court deemed MetLife’s conflict of interest was also a factor based on “inconsistent bases of denial, culminating in its latest coverage defense based on Mitchell’s claimed date of onset.” The court also rejected MetLife’s claim that the disability commenced prior to the effective date of coverage, finding MetLife’s argument was not only waived but lacked factual support “given that Mitchell was covered by MetLife’s policy under at least one of its three definitions of disability and its ‘Rules for When Insurance Takes Effect.'” The court added the evidence showed Mitchell was “actively at work” when the MetLife coverage took effect. The policy defined “actively at work” as: “You are performing all of the usual and customary duties of Your job on a Full-Time basis,” i.e., at least 30 hours a week. Since Mitchell was not on leave and had not stopped working prior to Jan. 1, 2004, he was found to have met that definition. His disability was the result of his reduced capacity to generate sales, which led to a marked diminution of his commissions. What really sank MetLife, though, was that since Mitchell alleged on his claim form that the date of onset of his disability was October 2003, “MetLife had ample opportunity to assert this coverage defense, had it believed it was meritorious.” The court cited to policy provisions requiring that all reasons for the benefit denial be communicated; hence, MetLife’s failure to raise the defense in either its initial denial or in the denial of the claim appeal was fatal to its assertion of such a defense in litigation. The court also faulted MetLife for its failure to file a cross-claim against Unum as Unum had done against MetLife, finding such a claim was compulsory under Fed.R.Civ.P. 13(a). The court of appeals also noted that MetLife had also failed to appeal the declaratory judgment entered in Unum’s favor, thus waiving any right it was asserting.

Summing up, the court reiterated, “MetLife was the responsible insurer under the terms of its policy. MetLife’s policy contained no exclusion or preclusion of coverage where the date of onset of disability occurred before the effective date of the plan.” The court also restated that MetLife’s failure to raise a compulsory counterclaim barred its efforts to determine the respective rights and responsibilities as between MetLife and Unum.

When an employer switches from one insurer to another, it often creates significant problems for individuals who suffer from chronic illnesses. Most often, problems arise when employees commence a leave of absence before the new policy takes effect and the issue turns on the “active at work” provisions in the policy, but this case presented an interesting twist since Mitchell continued to try to work on a full-time basis. Nonetheless, there is little doubt that Mitchell could have claimed he was disabled under the Unum policy since his earnings declined substantially in 2003. He had earned $179,678 in 2001 and $243,857 in 2002, but only $29,329 in 2003 and $12,585 in 2004. The Unum policy would have deemed him disabled because he was limited and suffered at least a 20 percent drop in income during 2003. However, because he continued to work in 2004, he also qualified for benefits under the MetLife policy. The court sensibly resolved the matter by focusing on MetLife’s conflict, but also by carefully parsing the policy language and finding that Mitchell was not precluded from making a claim under the MetLife policy because the language of that policy did not exclude a disability that began before the policy took effect.

This article was initially published in the Chicago Daily Law Bulletin.

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