CT Blue

This is a good thing…

California Insurance Commissioner Dave Jones and state insurance regulators from four other states have reached a settlement of up to $2.3 million with Cigna over handling practices for long-term disability insurance.

The settlement is the result of claims handling reviews by insurance departments in California, Connecticut, Maine, Massachusetts and Pennsylvania.

Insurance officials found the insurer did not give due consideration to the medical findings of independent physicians, discounted information provided by Social Security disability decisions and failed to give appropriate consideration to workers’ compensation records.

(via Sacramento Business Journal)

…but not a necessary thing.

It’s an outgrowth of yet another federal law that encourages corporate crime. This time, perhaps, the result was unintended, but no one, to my knowledge, has made any effort to make the simple legislative fix that would stop this sort of behavior.

If a tree falls and hits your home, and your insurance company denies your claim, you can sue the company and a judge decides if you’re covered and how much you should get paid. The insurance company’s initial decision denying coverage is entitled to zero deference. In fact, in the case of any ambiguity, you get the benefit of the doubt. After all, you’ve been paying premiums, and if they meant to exclude something, they should have made that fact very clear.

Not so if you have been paying premiums through your salary or wages for a disability plan provided by your employer. In that case your health and disability insurance plans are covered by the Employees Retirement Income Security Act (ERISA). The insurance company “manages” the plan on behalf of your employer, and by virtue of that fact is considered a “fiduciary”. Fiduciaries can only be successfully sued if you can prove that they have done something that is “arbitrary and capricious”. That’s a very difficult burden. But the situation is really even worse than that. A worker without income is in no position to pay a lawyer, so any lawyer taking the case has to be willing to accept that difficult burden on a contingent basis. The potential payoff on a percentage basis can be small, considering the amount of work involved. You can recover attorney’s fees from the company if you win, but simply proving that they acted arbitrarily and capriciously isn’t enough. To get attorneys fees you have to prove they were even worse than that. So you are unlikely to take a case unless it’s clear that the decision the company made was not just arbitrary and capricious, but bordering on bat-shit crazy. The result, of course, is that very few cases are filed, and only a small percentage of them are winners. I’ve handled several, and I’ve concluded that the only way to win is to get a lawyer involved at the very beginning of the process, long before most people think to do so. When it’s time to sue the case is already lost, because, guess what, you don’t get a trial. All the judge can do is decide if the company’s decision was arbitrary and capricious based on the evidence the company had before it, and if the worker didn’t provide sufficient evidence of the right quality, then whose problem is that?

Knowing they can almost never be successfully sued, might, don’t you think, encourage companies to deny coverage? If the rules were changed to make the worker’s burden of proof the same as in other insurance situations, a nice little cottage industry of lawyers would rise up and keep the insurance companies honest. You wouldn’t grow rich on such cases, but you’d make a living, and it wouldn’t be necessary for the attorneys general to come in and nick CIGNA for pocket change and some institutional changes they’ll ignore as soon as the heat is off.