Representing Policyholders in Long Term Disability Insurance Litigation: A Primer

Long term disability insurance litigation is a complex blend of contract law, insurance law, medicine, vocational expertise and, quite often, the labyrinthine federal statutory and regulatory scheme of ERISA.  Before agreeing to represent a policyholder against an insurance company in litigating one of these cases, a practitioner must be aware that numerous substantive and procedural nuances exist requiring important decisions to be made, both before agreeing to represent the client and during the conduct of the litigation.  Below is a primer outlining some of the basic considerations a practitioner needs to evaluate when determining whether to accept a case and determining how to litigate one of these cases.

I. Initial Contact & Choosing to Represent the Client

When evaluating whether to represent an insured in a long term disability litigation, counsel must take a number of important steps to gauge whether counsel wants to and should represent the insured.  To do this, counsel first must obtain as much documentary information with regard to the case as possible.  Thus, counsel must obtain from the client the insurance policy or policies relevant to the claim, any claim forms, claims correspondence, medical information and financial information, in order to make a global assessment of both the merits of the claim and the value of the claim. 

Besides evaluating the likelihood of success on the merits - - an evaluation that must be made in every case - - there are two critical determinations a lawyer must make when deciding whether to accept one of these cases and on what terms: (1) whether the case is going to be governed by ERISA, and (2) the value of the past and future benefits to which the client is entitled.

If ERISA applies to the benefits in dispute, the litigation landscape and prelitigation landscape is going to change dramatically from that of a typical, private policy, contract dispute.  Without going into all the details of ERISA applicability, ERISA typically applies when the policy or benefit issued has been set up through an employer, regardless of whether the employer pays for any portion of the premium.  While there are a number of recognized exceptions to the applicability of ERISA, the existence of some kind of group benefit obtained through an employer should be the first red flag regarding the likelihood that ERISA is going to apply to the case you have before you.

If ERISA applies, a number of things change.  First, clients have an obligation prior to commencing a lawsuit to exhaust their administrative remedies, which ordinarily requires filing an appeal with the insurance company who denied your client’s benefits.  The appeal ordinarily needs to be submitted within 180 days of the original decision by the insurance company or employer to deny the benefits. 

In addition, in a litigation, which will almost always be in Federal court, the claimant is not entitled to a jury trial, the court may only overturn the decision of the plan administrator or the insurance company if the decision was arbitrary and capricious or contrary to law, in certain circumstances, and you may not get any discovery or may only get very limited discovery.  While there are many other potential issues that can be discussed if ERISA applies, suffice it to say that ERISA adds a significant level of complexity to both legal and factual issues.

Next, the value of the claim is critical because lawyers must evaluate their willingness to accept the case on some contingency fee basis and, if not, whether it is worth it for the client to litigate the case on an hourly basis, assuming the client is able to afford it.  Obtaining the financial information from the client and understanding the client’s financial circumstances is very important, also, to determining whether to accept the case on an hourly basis, because the lawyer needs to know in advance whether the client will be able to pay the attorney’s bills. 

If the case does not have a sufficiently high dollar value and the merits are not particularly strong, the fact that you can get retained does not necessarily mean that you should accept the case.  Beware of diminishing returns and what I like to call a recipe for resentment.  This means the lawyer is now getting blamed for the cost of litigating and the lack of success, resulting in unpaid fees and potential grievances or complaints to bar associations.  Accordingly, determining whether to accept an insured’s case and under what terms and conditions is one of the most critical decisions the lawyer can make.

In addition to having all of the documentation necessary to make a thorough evaluation, the attorney should meet in person with the client, if possible, to evaluate the client’s credibility.  This is especially critical when the client has a disabling condition that may be difficult to objectify or prove, or there are allegations of fraud or misrepresentation, whether on the application, during the claims process, as a result of surveillance, or otherwise. 

Also, if the policy under which benefits is being paid is governed by ERISA, success on the merits entitles the client to apply for an attorney fee award under the statute.  That fee award is, however, a simple lode star, or hours for dollars award.  Thus, the lawyer would have to determine whether it is worth while to litigate on contingency to simply be paid on an hourly basis at the end of the case.  Note that the U.S. Supreme Court has ruled that these types of fee awards are not subject to a contingency fee enhancement, and I am not aware of a fee multiplier ever being applied to a fee award in an ERISA-governed long term disability benefits litigation. 

If after a thorough and proper investigation upon initial contact, the attorney wishes to accept the case and the client wishes to retain the attorney to litigate, make sure that the retainer agreement clearly spells out the attorney’s entitlement to fees and, if the fee arrangement is contingent or partially contingent, clearly spell out in writing what a recovery will be under the agreement and what amounts will be offset from a recovery, for purposes of calculating the attorneys’ fee.  For example, clearly spell out whether or not the attorney will be entitled to a percentage of past benefits, and future benefits, and for how long.  Clearly spell out whether the policy subjects the insured to offset for certain types of other benefits, like social security disability income, and whether those offsets will reduce the amounts of attorney fee recovery.  The attorney also needs to ensure that rights exist to collect the attorneys’ fee from the insurance company, in the event fees are unpaid, and the attorney should have evergreen provisions in hourly agreements, even if the attorney chooses not to exercise them religiously.  By “evergreen”, I mean that the amount of the retainer needs to be replenished before the attorney runs out of money to bill against.

Finally, make sure the scope of the retainer is clear as to the representation, including whether the attorney is obligated to perfect an appeal from a judgment. Also, I recommend determining whether the client has other disability policies or other types of policies, like life insurance policies, that provide for a waiver of premium or some other benefit in the event of disability and whether the representation includes representation in connection with all of those other benefits and policies.

II. Investigation Prior to Filing Complaint

Choices to be made here will be largely governed by the jurisdiction in which the case is going to be litigated.  When representing the insured, the attorney must evaluate both contractual causes of action and extracontractual causes of action.  Generally in New York, extracontractual remedies do not, in essence, exist as a matter of law.

When it comes to contract based causes of action, the most obvious cause of action is for a breach of contract.  The next cause of action which exists in most states, including New York, is for a declaratory judgment.  The declaratory judgment action ordinarily brings into play all past benefits and all benefits which accrue during the course of the litigation up to and until the conclusion of the trial.  Some jurisdictions, like New York, may view the declaratory judgment action and the contract action as duplicative.  Generally speaking, I recommend the declaratory judgment action, rather than a breach of contract action, because some jurisdictions, like New York, will limit a breach of contract claim to the amount of damages alleged at the time of the breach, which could affect the insured’s rights down the line or affect the attorney’s ability to obtain or present evidence  concerning the client’s ongoing disability during the course of the litigation or trial. 

In addition, another critical concern is whether to plead total disability and partial/residual disability in the alternative.  I have litigated many cases where the client may have difficulty proving total disability at the trial for the entire time period of disability, but was partially or residually disabled during some time frame, such that the client was entitled to the full monthly benefit during that time frame in any event, or at least a large portion of the monthly benefit.  The lawyer must carefully evaluate the client’s activities and income earned for those activities during all relevant time frames, to determine whether a partial or residual disability provision could have an impact on the merits and should be pleaded. 

Concerning extracontractual remedies, the lawyer needs to know what extracontractual remedies exist in the jurisdiction in which the case will be litigated, and must evaluate what facts exist at the time of filing that would justify obtaining that extracontractual relief.  If the lawyer has powerful evidence of bad faith practices such that the lawyer can plead bad faith in good faith, the lawyer should do so and put those factual allegations in the complaint.  Attorneys representing insureds need to know that pleading an extracontractual remedy simply because the extracontractual remedy exists under certain circumstances may not necessarily be the wisest move.  A good defense lawyer will move to dismiss any extracontractual claim that does not exist as a matter of law, or is subjected to a heightened pleading standard, or where the law in not sufficiently developed such that the lawyer for the insured would need an excellent set of facts to survive a motion.  Making bogus or poorly pleaded extracontractual claims will cause unnecessary expense, unnecessary delay, and may effect counsel’s credibility in the eyes of the court. 

Next, determining whether to file the action in Federal or State court will vary widely based on the jurisdiction in which the case is to be litigated.  Which court will move the case faster to resolution?  In which courthouse will you have a better jury pool?  Are you looking for broad discovery and are you more likely to get it in the State court, rather than the Federal court? Which court will entitle you to see video surveillance materials prior to deposition?  How is the State law interpreted in the Federal courts, versus the State court in which you are litigating?  Is the case removable to Federal court, and if so, is the defendant going to remove it to Federal court anyway?  All of these questions and more must be factored into the equation of which court to chose, and the factors to be considered are too varied and complex in every jurisdiction to lend themselves to any easy answer.  Do a careful evaluation and make a determination.

In New York, for example, understanding your client’s case before selecting a venue in which to litigate is very important.  For example, while a jury in Brooklyn may be sympathetic to a client who has significant disabling injuries, cannot work in any job, and is receiving Social Security Disability benefits, that same jury may have difficulty understanding how a doctor who can no longer perform surgery is making as much if not more money as a hospital administrator.  One must also be aware of the possibility of the defendant moving the case from State court to Federal court, if you have filed to case in State court, and whether the jury pool will change based on the removal. 

There are certain discovery advantages and disadvantages as well in New York.  For example, if your case involves video surveillance, you can obtain video surveillance prior to deposition in a New York State court, but will not get the video surveillance materials until after deposition in Federal court.  Also, the State courts seem more willing to give a greater amount of discovery to policyholders than Federal courts.  Another critical issue is costs.  Expert disclosure and expert depositions are going to be required in Federal court during the discovery process, whereas in State court, one need only serve a Rule 3101(d) expert disclosure shortly before commencement of the trial.  Thus, the costs of litigating in Federal court will likely be greater than litigating in State court.  On the other hand, a case filed in Federal court in Manhattan, for example, will likely move faster, and discovery in Federal court is resolved ordinarily through an exchange of 3-page letters by counsel to the court, and a ruling is going to be prompt.  Thus, if you believe the case is likely to settle after depositions, long before the parties need to engage in any expert discovery, Federal court may be a better bet for your client.

Finally, make sure that your complaint includes a demand for trial by jury, if in Federal court, and that a jury is properly demanded if in State court based on the rules in the state in which the case will be litigated.  If the insurer has commenced the action against your client, make sure that the answer, if in Federal court, includes a demand for trial by jury or that the State court rules for demanding a jury are otherwise followed.

III. Witnesses

The insured’s counsel should first identify all persons who may have knowledge of the facts in the case.  These should be separated into two categories.  First, those persons who are known to the claimant, work with the claimant, are related to the claimant, have treated the claimant or live near the claimant.  Second, the persons who work for the insurer with whom the claimant has had any contact, including all those in the claim department, any field investigators, and independent medical examiners.

Claimant’s counsel should begin as soon as possible in-person interviews with all of the persons in the first category.  This may involve visiting those persons in their home or in their offices.  It is best if claimant’s counsel, or one of the members of the firm of claimant’s counsel, conduct in-person interviews with each of those witnesses.  The in-person interview helps to establish rapport, learn all the facts on a face-to-face basis, and begin to evaluate each person as a potential witness to testify at trial.  There is no substitute for an in-person interview for this type of evaluation. 

With respect to the persons at the insurance company, it will be difficult, and may even be both impossible and unethical, to attempt to interview them without formally noticing their deposition.  But, it is still valuable to develop as soon as possible a list of the names and locations of all persons who have any knowledge of the case and who may be connected with the insurance company.  It is possible that one or more may be former employees and may be willing to discuss the case.  It is also possible, although very unlikely, that a third party vendor, such as an independent medical examiner, will be willing to informally discuss the case.  At the very least, begin to develop the list of those persons to consider for depositions.

IV. Discovery

Discovery for the claimant can be categorized into two areas.  First, the steps which the insurer took to evaluate the claim leading up to the decision to deny the claim and second, the steps which the insurer has taken since the initial denial of the claim to review any supplemental submissions made by the claimant.

The tools of discovery are, of course, interrogatories, requests for production, requests for admissions, subpoenas duces tecum and depositions.  It is best to begin with simple interrogatories and requests for production.  The interrogatories are best directed to learning basic information, such as the identity and location of all persons who had any contact with the claim, all persons outside of the insurance company whom the insurer consulted regarding the claim, all persons involved in the decision to deny the claim, and all experts whom the insurer has consulted to that point in litigation. 

Another use of the interrogatories is to determine the facts which support any of the affirmative defenses which the insurer has raised in its Answer.  These can be done with simple “contention” interrogatories.

Regarding requests for production of documents, it is indispensable to request a copy of both the claim file and a copy of any other files pertaining to the policies at issue, such as the policy underwriting file containing the application for the policy.  If these files are kept separately, it will be necessary to request the production of each document separately.

Additionally, it is important to discover any written claims memoranda regarding procedures for claims investigating, processing, and claims decisions, as well as the appeals of claim denials.

Requests for admissions are helpful to determine those facts which are not in dispute.  As an example, if there is the possibility that the contestable period will be raised as a defense, although it has not yet been raised at that point in the lawsuit, submit a request for admission that the contestable period is not an issue in the action.  With each request for admission served should be an accompanying interrogatory asking the insurer to explain the basis for a denial of any request for admission.

One goal of the preliminary round of discovery is to identify all persons whose deposition you may wish to take.  The next step in evaluating whom to depose is prioritizing those persons, assuming that you will not be taking the deposition of every person. 

Additionally, if litigating in Federal Court, it is helpful to evaluate the potential for depositions under Rule 30(b)(6) for the person(s) with knowledge on given issues in the case.  The advantage to a Rule 30(b)(6) deposition is that the claimant need not identify specific persons whom the claimant wants to depose, but need only identify those areas, such as the facts leading up to the decision to deny the claim, on which the claimant requests a knowledgeable person.  The disadvantage to the claimant and advantage to the insurer of this procedure is that the insurer gets to pick who are the best witnesses to address these issues.  The claimant should consider taking both depositions of individuals who had contact with the claim and individuals identified by the insurer pursuant to the Rule 30(b)(6) deposition procedure.

The next issue for the claimant is the location of depositions.  State law varies on whether the claimant can compel the out of state insurer to produce witnesses in the jurisdiction where the claimant has filed the action.  Generally, such witnesses are limited to the officers and directors of the insurer.  I recommend that the claimant seriously consider the potential expense of making a trip to the insurer’s location for the depositions which the claimant wishes to take, including individually named depositions and those depositions pursuant to Rule 30(b)(6), if in Federal Court. 

An additional consideration will be whether to take the deposition of former employees who are no longer located in the jurisdiction where the insurer’s home office is located and are not located in the jurisdiction where the action is filed.  As an example, someone who was once the employee of an Illinois insurer has relocated to Florida.  If the action is filed in New York, the claimant must make the decision whether to take the deposition of the person in Florida.  I recommend the consideration be given to incurring that expense, if it is determined that the former employee located in Florida can add a substantial amount to the factual knowledge of the claimant’s attorney in preparation for trial.  Additionally, the deposition of such a witness would be potentially admissible at a trial in New York as the deponent would be unavailable for the trial in New York and would be beyond the subpoena power of a New York court.

The next consideration for a potential deposition is the independent medical examiner.  If that examiner has concluded after an examination of the claimant that the claimant was not disabled, it is indispensable to prepare well for that deposition and to conduct it well before the conclusion of the discovery cutoff.  The reason for such a scheduling of the deposition is to permit follow up depositions of others, such as diagnostic technicians who have performed MRI’s of the claimant and whose role you may learn during the deposition of the independent medical examiner.

The preparation for the deposition of the independent medical examiner should involve thorough research of the area involved in the claim. If the claim involves, for example, multiple chemical sensitivity disorder, fibromyalgia or chronic fatigue syndrome, or mild traumatic brain injury, counsel must become expert in all of the issues involving the diagnosis and treatment of that condition, its disabling impact on the claimant, and the position taken by the independent medical examiner.  It is best to prepare with a physician of a similar discipline.  This may well be the claimant’s treating physician.  If the treating doctor is willing to make themselves available to consult with you, you would be well advised to obtain their advice, particularly as they most likely will and should be your trial expert.  In the event that the treating physician is not going to be the claimant’s trial expert, then I recommend consulting with the claimant’s trial expert physician prior to taking the deposition of the independent medical examiner.  It is likely that the independent medical examiner will be the trial expert for the insurer. 

V. Experts

Claimant will most likely need a medical expert to establish the disabling condition, such as a neurologist, if the disabling condition is a neurological condition of the cervical spine. The claimant may also need an expert in the claimant’s occupation.  The best medical expert is often the attending physician.  This assumes that the attending physician is willing to testify, makes a good witness, has experience testifying as an expert and has the time and inclination to do so.   If the attending physician is not sufficiently motivated and interested in testifying, if the attending physician has no experience withstanding a deposition and cross-examination and, particularly, if the attending physician is not board certified in the specialty at issue, I strongly recommend exploring an additional medical expert. However, the claimant will need the supportive testimony from the attending physician to show diagnosis and treatment.

Concerning the claimant’s occupation, the claimant, of course, will be the best source of the facts as to what the claimant did in his occupation, such as practicing dentistry, and the claimant would also be a very good source of what he/she was unable to do in that occupation as a result of the disabling condition.  For the best possible presentation of the evidence on the issue of the impact of the disabling condition on the claimant’s occupation, however, I recommend that the claimant present testimony from someone else in that occupation, such as another dentist.  The other dental expert’s occupational testimony would confirm the claimant’s description of the demands of the occupation and the impact on those demands, as well as confirm the regular duties of the occupation.

VI. Motions for Summary Judgment

While the motion for summary judgment, or motion for partial summary judgment, is a tool more frequently used by the defendant insurer, the claimant should consider a motion for partial summary judgment to establish certain issues so that they do not have to be tried or to force the defendant to show its proof.  An example would be if the insurer failed to respond to a settlement demand within a statutorily required period of time, failed to establish the insurance policy lapsed, or cannot show questions of fact exist on a rescission claim based on fraud.

VII. Trial Strategies

 There are two basic questions.

1. What is the best story? That is, what is the best and most persuasive presentation of the facts?

2. Who is the best person to tell it? That is, who is the most persuasive witness or who are the most persuasive witnesses  to present that story?

The best story for the claimant is frequently that the claimant would much rather be practicing his/her occupation, did so with considerable success and financial reward, but is prevented from doing so only by the disabling condition.

The best persons to present those facts for the claimant are generally the claimant himself/herself, possibly another family member or colleague, and the attending physician.

It is also important to remember that insurance companies ordinarily operate through poorly educated and poorly trained employees.  If you are the plaintiff and can control the trial agenda, it more often than not makes sense to subpoena the defendant’s fact witnesses and call them as witnesses on your direct case.  The opportunity to cross examine the insurance company witnesses on your direct case will ordinarily yield positive results.  In addition, it allows you to control the agenda, control the manner in which the evidence is presented to the trier as fact and may shorten the trial, if the court requires that those witnesses appear only one time.

VIII. Conclusion

That concludes my basic primer on litigating long term disability insurance claims on behalf of policyholders.  I have covered just that -- the basics.  The basics should provide a good analytical foundation for anyone who is evaluating the potential merits of litigating a long term disability insurance case.  Although litigating one of these cases can be complex, understanding the procedural and substantive issues up front should help the practitioner to structure the course of the litigation and achieve a successful result.

EVAN S. SCHWARTZ is a Partner at Quadrino Schwartz in Garden City, New York. Under his leadership, Quadrino Schwartz has grown to become a nationally recognized leader in insurance coverage disputes, with a particular focus on long-term disability insurance litigation. The Firm spearheaded a claims practice class action against the nation's largest disability insurance company and continues to make law in this area in federal and stat courts across the country.

This article originally appeared in Bill of Particulars, published by the New York State Trial Lawyers Institute, and is being reprinted with permission.