November 20th, 2014

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The Agent’s Commission is Their Motivation

The replacement of existing life insurance policies with new policies (referred to as twisting) is a practice that has been abused by insurance agents for decades.  Because the agent’s commission is heavily weighted toward the first year’s premiums (commissions equaling as much as 120% of first year’s premiums) their financial incentive is to convince clients to buy policies, not to service old policies.

The agent makes larger commissions when their client rolls over the cash value of their existing policy into a new policy because the cash value (often tens of thousands of dollars) becomes part of the first year’s premiums and the basis of the agent’s commission.

The replacement of an existing life insurance policy is almost never to the insured’s advantage because of the following:

  • Premiums on new policies are generally higher because you are older than when you purchased your existing policy and your health may be worse.
  • New policies may have high costs the first few years to cover the expense of selling and issuing the policy.
  • You may lose cash value built up in your existing policy because of surrender charges.
  • A new policy will contain a contestability clause that allows the insurance company to rescind the policy within the first two years.

Twisting Policies May Result in No Policy

This last point became of special interest to me when a widow came to my office after her husband’s life insurance company refused to pay her the benefits under his life insurance policy.  The insurer rescinded (retroactively cancelled) the policy because her husband had failed to check off the box on his application that would have informed the insurer that he had high blood pressure (an insurer can only rescind a policy within the first 2 years after issuance of the policy).  Unfortunately, his agent had talked him into turning in all his old policies (that would have paid the widow’s claim) for this new policy that paid the widow nothing.  This resulted in my firm suing the insurance company and the agent on behalf of the widow.  Though we prevailed on behalf of our client, no one should have to go into litigation to receive the benefits of an insurance policy.

Because of these problems with replacing existing life insurance policies with new policies it is often said that “your best life insurance policy is the one you already have.”

An insurance agent has a fiduciary duty to its client to fully inform them of not only the advantages, but the disadvantages of replacing an existing policy.  It is unlawful for an agent or insurer to recommend the replacement of an existing policy by use of an inaccurate presentation or comparison of an existing policy with a proposed new policy.  (Cal. Insurance Code 10519.8(a)).

There is nothing wrong with adding additional insurance to your existing coverage.  However be very wary of an agent who suggests that you surrender an existing policy in favor of a new policy with shiny bells and whistles.  Ask the agent how much his commission will be and whether there is any cash volume in your existing policies.

May 29th, 2014

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Most people associate Parkinson Disease as a disorder characterized by resting tremor.  Often the resting tremor is not noticeable because it is controlled by medication.  However, a major aspect of the disease effects cognition which cannot be controlled by medication and which may be the most disabling symptom of Parkinson.

The cognitive impairments associated with Parkinson include visuospatial ability, memory, and executive functions.   If the requirements of a job include quick decision making, supervision of employees, working with the general public, writing detailed reports, and other types of executive functions, the cognitive impairments resulting from a Parkinson diagnosis would disable an individual from such employment.

Statistically Parkinson patients first diagnosed at an older age will suffer with cognitive impairments more frequently than younger patients.

There are numerous other symptoms associated with Parkinson disease.  For example in approximately 50 % of the diagnosed Parkinson cases depression will occur with symptoms of sleep disturbances, loss of self-esteem, anxiety and suicidal thoughts.

It is not uncommon for older executives in high pressure jobs diagnosed with Parkinson to become disabled due to the impairment of their cognitive abilities.   However, their claim for disability benefits may be rejected, in large part because of a lack of understanding of the non-obvious cognitive effects of the disease.  Insurers focus more on the obvious physical symptoms commonly associated with Parkinson which are often not as disabling as the cognitive aspects of the disease.

May 20th, 2014

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Typically insurance companies hire Medical Services Companies to have one of their physicians review a disability claimant’s medical records to confirm that the claimant can work. 

MLS, MES, PDA, PRN, UDC, BMI, PsyBar are some of the Medical Service Companies frequently used by insurance companies to perform a “record review” to bolster a denial of benefits.  These third party vendors claim to be independent but in truth are anything but.  In fact, many of these vendors have been formed by prior employees of insurance companies.  To try to support their claim of independence they produce Websites that claim their impartiality and fairness.  Sometimes this can be used to the claimant’s advantage.

To secure disability benefits for a client who had a history of rheumatoid arthritis and was now disabled by fibromyalgia, we used information off the MLS website to support the claim. (Even though MLS doctors reported that our client was not disabled.)

The MLS website not only confirmed fibromyalgia syndrome as a potentially disabling diagnosis but also defined the symptoms and possible causes.  According to the MLS website:

Fibromyalgia syndrome is a widespread musculoskeletal pain and fatigue disorder for which the cause is still unknown.  The term fibromyalgia means pain in the muscles, ligaments, and tendons – the fibrous tissues in the body. 

          The symptoms of fibromyalgia include:

  •  Pain – The pain of fibromyalgia has no boundaries.  People describe the pain as deep muscle aching, burning, throbbing, shooting and stabbing…
  •  Fatigue – This symptom can be mild in some patients and yet incapacitating in others.  The fatigue has been described as ‘brain fatigue” in which patients feel totally drained of energy.  Many patients depict this situation by saying that they feel as though their arms and legs are tied to concrete blocks, and they have difficulty concentrating.
  •  Other common symptoms – Include chest pain, morning stiffness, cognitive or memory impairment, numbness and tingling sensations, …..dizziness, and impaired coordination.

The website further defined one of the possible causes to be rheumatoid arthritis which “may awaken an underlying physiological abnormality that’s already present in the form of genetic predisposition”.

 Our client was in a mentally challenging career which was adversely impacted by the symptoms described in the MLS website and which caused him to be disabled from his occupation.   Using the information contained in the website of the medical services reviewing agency hired by Prudential, we were able to impeach MLS’s own physicians and secure his disability benefits.

November 19th, 2013

Our client’s husband died after falling and hitting his head on their back patio.  The trauma caused a subdural hematoma which became mortal in less than four hours.  The death certificate classified the death as “accidental.”  The “immediate cause” of death was listed as “subdural hemorrhaging from blunt force injury to head” and a “contributing condition” was listed as “thrombocytopenia.”

Client submitted a claim to UNUM Insurance Company for benefits under an accidental death policy.  UNUM denied the claim based on a limitation in the policy that excludes coverage for accidental losses “caused by, contributed to by,  or resulting from diseases of the body.”  The disease cited by UNUM was thrombocytopenia, which was most likely a consequence of decedent’s recent bone marrow transplant performed as treatment for his carcinoma.   Thrombocytopenia is a condition that results in excessive bleeding, which UNUM asserted substantially contributed to the subdural bleeding resulting in death.

Stennett & Casino obtained a statement from the medical examiner’s office that supported their client’s position.  In effect, the medical examiner stated that though decedent’s condition of thrombocytopenia may have contributed to the bleeding there was no evidence with which one could say that decedent would have survived the fall in the absence of the thrombocytopenia.  Despite this evidence UNUM continued its denials.  Stennett & Casino filed suit on behalf of their client which resulted in a settlement of the claim.

October 9th, 2013

The 9th Circuit Federal Court of Appeals, in the case of Stephan v. Unum Life Insurance Company, 697 F.3d 917 (9th Cir. 2012) overturned a trial court’s finding that the public record did not demonstrate that UNUM had a history of “biased claims administration.”  The Stephen Court specifically stated

“Numerous courts, including ours, have commented on Unum’s history “’of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.’”  Indeed, in Saffon, we attributed the trend of state prohibitions on discretionary provisions in insurance contracts to ‘the cupidity of one particular insurer, Unum-Provident Corp., which boosted its profits by repeatedly denying benefits claims it knew to be valid.  Unum-Provident’s internal memos revealed that the company’s senior officers relied on ERISA’s deferential standard of review to avoid detection and liability.’”

The Stephan court also cited Professor Langbein’s article entitled, “Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA” 101 Nw. U. L. Rev. 1315, 1317-21 (2007) and the CSA (California Settlement Agreement) with UNUM in which the State of California found UNUM violating California’s Fair Claims Practices Act.

The importance of this finding that UNUM has a history of biased claims handling is that under ERISA, courts dealing with claims for benefits under an employee benefit plan (where the insurer is granted discretionary authority) must consider an insurer’s conflict of interest when weighing the evidence.  One of the elements reflective of one’s conflict of interest is an insurer’s history of biased claims administration.  (MetLife v. Glenn, 554 U.S. 105, 117 (2008)).  It is very difficult to establish that an insurer has a history of biased claims administration.  Claimant’s counsels spend an enormous amount of time and effort in trying to do so; however, their efforts are resisted not only by the insurance companies by also by the courts in their limiting of the availability of formal discovery in ERISA cases.

Claimants with lawsuits against UNUM now have the benefit of the Ninth Circuit declaring that the public record does indeed support a finding that UNUM has a history of biased claims administration.  This should require the courts to place a greater importance on UNUM’S inherent conflict of interest that exists because UNUM, as the insurer and claims administrator, makes the decision on who receives benefits under the Plan and pays those benefits out of their own pockets.

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