By David Evans
Sunday, March 6, 2011; G03
Jane Pierce spent nine years struggling alongside her husband, Todd, as he fought cancer in his sinus cavity. The treatments were working. Then in July 2009, Todd died in a fiery car crash. He was 46. That was the beginning of a whole new battle for Jane, this time with Todd's life insurance company, MetLife.
A state medical examiner and a sheriff in Rosebud County, Mont., concluded that Todd's death was an accident, caused when he lost control of his silver GMC pickup after passing a car on a two-lane road.
Their findings meant Jane was eligible to collect $224,000 on the accidental death insurance policy that Todd had through his employer, power producer PPL. MetLife, however, refused to pay. The nation's largest life insurer told Pierce on Dec. 8, 2009, that her husband had killed himself. The policy didn't cover suicide, the insurer said.
"How dare they suggest such a thing,'' says Pierce, 44, a physician assistant in Colstrip, a Montana mining and power production city of 2,346 people.
She says she's insulted that the man who courageously battled his disease for a decade was accused of abandoning his wife and two sons - one a Marine, the other a National Guardsman - and giving up on his fight to live.
Pierce argued with MetLife for months. She supplied the insurer with the autopsy report, medical records and a letter from the medical examiner saying the death was accidental. MetLife still said no. In May 2010, she sued.
In July, a year after Todd's death, MetLife settled and paid Pierce the full $224,000 due on the policy. The New York-based insurer, as part of the agreement, denied wrongdoing. It paid Pierce no interest or penalties for the year during which it withheld the payment.
Life insurers have found myriad ways to delay and deny paying death benefits to families, civil court cases across the United States show. Since 2008, federal judges have concluded that some insurers cheated survivors by twisting facts, fabricating excuses and ignoring autopsy findings to withhold death benefits.
Insurers can make erroneous arguments with near impunity when it comes to the 112.8 million life and accidental death policies provided by companies and associations to employees and members. That's because of loopholes in a federal law intended to protect worker benefits.'Law backfired'
Under that law - the Employee Retirement Income Security Act, or ERISA - insurers can win even when they lose in court because they can keep and invest survivors' money while cases are pending.
Congress enacted ERISA in 1974, after bankruptcies and union scandals caused thousands of workers to lose benefits. The law requires employers to disclose insurance and pension plan finances, and it holds company and union officials accountable for funding plans sufficiently.
In order to achieve ERISA's goals, federal courts have ruled that employees must surrender their rights to jury trials and compensatory and punitive damages if they sue an insurer for wrongfully denying coverage. Judges have reasoned that companies and insurers should have these protections to encourage them to continue providing benefits.
ERISA puts these issues under federal jurisdiction, so state regulators sometimes say they can't help consumers.
"The most important federal insurance regulation of the past generation is ERISA,'' says Tom Baker, deputy dean of the University of Pennsylvania Law School. "If ever a law backfired for the public, ERISA is the perfect example.''
Life insurers do pay most claims in full - more than 99 percent of the time, according to data from the American Council of Life Insurers, a Washington-based trade group. Nobody tracks how often companies delay making payments or how often they use spurious reasons.
As of 2009, the latest year for which figures are available, U.S. insurers were disputing $1.3 billion in claims, the ACLI reports. Included in that amount was $396 million in death benefits rejected in 2009. In the same year, insurers paid out $59 billion, the ACLI reports.
What those numbers don't measure is the trauma to survivors like Jane Pierce when claims are wrongfully denied, says Aaron Doyle, a sociology professor at Carleton University in Ottawa.Most don't sue
Most survivors don't have the stamina and knowledge to file a lawsuit, says Doyle, who has spent a decade interviewing life insurance customers, employees and regulators. Often, survivors are dissuaded by insurers from taking grievances to state regulators or to court, he says.
"The company tells the customer, 'Oh, no, that's not an unusual practice, so you don't really have a complaint,' " he says.
Insurers have an obligation to policyholders and shareholders to challenge death claims they consider fraudulent, says John Langbein, a Yale Law School professor who co-wrote "Pension and Employee Benefit Law." Insurers maintain a reserve of money to cover benefits.
"It's their job to protect the insurance pool by blocking undeserved payouts,'' Langbein says.
That doesn't give them the right to wrongly deny claims, he adds. "There's a profound structural conflict of interest,'' he says. "The insurer benefits if it rejects the claim. Insurers like to take in premiums. They don't like to pay out claims.''
MetLife and Prudential Financial declined to answer all questions on cases cited in this story, as well as queries about ERISA and accidental death policies.
"We pride ourselves on delivering on our promises, paying claims in accordance with the terms of the policy and applicable law,'' says Joseph Madden, a MetLife spokesman.
"Our insurance businesses' primary focus is on paying claims,'' says Simon Locke, a Prudential spokesman. "Contested claims represent a small fraction of the overall number of claims that are paid. Prudential's claims professionals are trained to conduct an appropriate review and follow applicable laws, regulations and the terms of the policy.''$7.7 trillion
Company-provided life insurance is a big business. Employers can offer either accidental death policies - which cover fatalities an insurer deems to be an accident - or term life insurance, or both. Group policies have a face value of $7.7 trillion, or 40 percent of all life insurance in the nation, according to ACLI data.
ERISA contracts bring the industry about $25 billion in annual revenue. MetLife says it has 20 percent of the ERISA market.
So eager are the largest insurers to get these ERISA contracts that they sometimes cross a line, according to prosecutors in California and New York.
MetLife and Prudential have made improper undisclosed payments to brokers to win business, according to settlements. Each company paid $19 million to settle accusations by the New York Attorney General's Office in 2006 that they had illegally paid brokers to get new corporate clients. In a similar case, MetLife paid $500,000 and Prudential spent $350,000 to settle with three California counties in 2008. The insurers didn't admit wrongdoing in those cases.
On April 15, 2010, in a San Diego case, MetLife admitted that it broke the law by paying a dealmaker to win insurance contracts, and it agreed to pay $13.5 million to avoid criminal prosecution.
"MetLife made illegal payments that should have been fully disclosed,'' says Karen Hewitt, who was then the U.S. attorney in San Diego and is now a partner at Jones Day. "Because they were not, the transactions were criminal.''
MetLife's Madden says the company improved its broker compensation reporting starting in 2004. Prudential says it cooperated with investigators and enhanced disclosure.A wife's battle
Jane Pierce's battle with MetLife began two months after her husband died. Todd Pierce, a power plant mechanic for PPL, was diagnosed in 1999 with a skin cancer, squamous cell carcinoma, in his nasal cavity. The treatment of the disease itself was a success. Within two years, he was cancer-free.
In the next eight years, Todd had more than 40 surgeries to rebuild his jaw and palate following his medical therapies.
"He was a fighter,'' Jane says.
On July 5, 2009, Todd was at a family reunion in Bismarck, N.D. While there, he made plans to go pheasant hunting three months later with his father, Donald, and elk hunting with an old friend after that.
"He had a lot planned,'' his wife says.
It was a hot, sunny day as Todd drove home. He had been on the road for more than four hours when, at 5:25 p.m., 18 miles north of Colstrip, he lost control of his pickup, according to state police. The vehicle rolled down an embankment and burst into flames. He died of smoke inhalation, according to the autopsy.
No one else was hurt.
A month later, MetLife sent Jane Pierce a "checkbook'' for her to tap the $224,000 from Todd's term life insurance policy. She didn't receive any form of payment on Todd's accidental death policy. Instead, for four months, MetLife officials flooded Jane with letters and phone calls.
They asked her to send them the state's accident report, the death certificate, toxicology reports, medical records from 20 doctors and Todd's drug prescription files.
Jane, who lives in a three-bedroom ranch house filled with framed photos of Todd and her sons, says she did everything MetLife asked. She didn't know what the company was after and says she felt the insurer was trying to wear her down.
"I was just so frustrated,'' she says. "MetLife was taking and misconstruing information to see if I would give up.''
At one point, a MetLife employee told her that Todd's medical files showed he had toxic levels of Tramadol, a pain reliever, in his body when he died. Jane told him that a doctor had prescribed the drug.
At Jane's request, Thomas Bennett, Montana's associate medical examiner, explained the high readings of the pain medicine to MetLife. "This Tramadol elevation is an artifact of the severe damage Mr. Pierce's body received following the crash and is not a result of taking sky-high levels of the drug,'' Bennett wrote. He said the drug wasn't the cause of death.
Jane recounts the ordeal as she sits at her kitchen table with Debra Terrett, a family friend. Laid out before them are stacks of neatly organized health and insurance file folders.
"She not only lost Todd,'' Terrett says. "Every time she had to go through the paperwork, she had to walk through losing him again.''The denial
The toughest day turned out to be Dec. 8, 2009. That's when MetLife sent her an unsigned letter containing this sentence: "We will not pay benefits for any loss caused or contributed to by intentionally self-inflicted injury.'' MetLife concluded that Todd had killed himself by taking an overdose of Tramadol.
Jane says she was dumbfounded. She cried for days. "It's bogus,'' she recalls thinking. "How can a responsible company possibly lie in such a terrifying way?''
Not only was Todd an upbeat man who had defeated a dreadful disease, he also opposed suicide as a matter of faith, Jane says. Todd and Jane attended St. Margaret Mary Catholic Church every Sunday, and they were members of a Bible study group.
"After a suicide in our town, Todd and I used to talk about it,'' Jane says. "As Catholics, we agreed that was no way to heaven.''
A co-worker referred Jane to a lawyer, Don Harris, in Billings. Under ERISA, Harris had to first file an appeal with MetLife, which the insurer ignored, Harris says. Pierce sued the company in federal court for breach of contract in 2010.
The insurer hired a local Montana lawyer, who rebuffed Jane again.
Harris says he had a rational telephone call with the lawyer about the facts. "Very quickly, he realized that they didn't have a leg to stand on,'' Harris says. MetLife agreed to pay the full policy amount. The case never went to trial.
Because ERISA prevents compensatory and punitive damages, Pierce wasn't entitled to receive anything more. Harris - who was paid a fee of $4,500 for his work over seven months - estimates that a jury not bound by ERISA would have awarded punitive damages of more than $1 million.
"They accused her husband of committing suicide, which is outrageous,'' he says. "They had no facts to support it. They just literally made it up.'''Nothing we can do'
Pierce never requested help from Montana's insurance department. If she had, she would have been turned away, says Amanda Roccabruna Eby, a spokeswoman. She says the agency can't assist because of ERISA's federal preemption.
"There's nothing we can do,'' she says. "We don't have any authority.'' The department doesn't track ERISA complaints.
Prudential used the ERISA shield when it denied payment to the widower of a middle school teacher in Rochester, N.Y. Lois Brondon died of a heart attack at age 49 while refereeing a soccer game.
The company refused to pay her husband, Christian, the $50,000 death benefit, saying the educator had failed to disclose her "heart trouble'' when she applied for insurance. Christian sued Prudential in U.S. district court.
"Mrs. Brondon had absolutely no symptoms referable to cardiac disease or heart trouble,'' Judge Michael Telesca ruled Nov. 9, 2010. He said her records showed common and mild thickening of the aorta that required no medical treatment and didn't limit her activities in any way.
The judge said she'd been truthful on her application for insurance and ordered Prudential to pay the full $50,000.
The judge said Prudential's reasoning created false grounds the company could use to wrongfully deny death benefits. "Indeed, under such a scenario, only Prudential would be allowed to define what constitutes 'heart trouble,' '' he wrote.Invoking unrelated law
Three weeks later, a judge in Kentucky ruled on a case that shows how inventive insurers can be in their denials - even to the point of invoking drunken driving laws when the person who died wasn't in a car.
U.S. District Court Judge Joseph Hood ruled that Prudential had wrongly denied a $300,000 accidental death benefit to the family of Ernest Loan.
Loan, a medical sales representative for Bayer, fell down a staircase in his house after drinking three glasses of wine on June 29, 2006, according to court records. Prudential told his wife, Mimi, in a 2006 letter that 53-year-old Ernest was drunk by state driving intoxication standards.
The Loan family sued Prudential in January 2008. Hood initially dismissed the case, saying Prudential's argument was sufficient under ERISA guidelines. The judge was reversed by the Sixth Circuit Court of Appeals, which said drunken driving law doesn't outlaw conducting chores around the house.
"A legal definition specifically intended to apply to someone who is driving a motor vehicle is not rational as applied to someone who is in his home and is not operating machinery,'' the court wrote.
On Nov. 30, 2010, Hood ordered Prudential to pay the family $300,000.No documentation
The threshold for what judges will accept as evidence in an ERISA case can be so low that an insurer can use Internet searches and not interview witnesses.
Brad Kellogg, an employee of Pfizer, died in September 2004 when he drove his Dodge Caravan into a tree in Merced, Calif. MetLife paid his wife, Cherilyn, $443,184 under Kellogg's term life policy.
The insurer then received a letter from Stephen Morris, Merced County's deputy coroner. "Mr. Kellogg died as a result of traumatic injuries sustained in a motor vehicle accident,'' Morris wrote. "His death is considered to be accidental.''
MetLife refused in November 2005 to cover his $438,000 accidental death policy, saying Kellogg's death was caused by a seizure while driving. The insurer referred to a police report citing a witness to the crash.
"It appears that Mr. Kellogg may have possibly had a seizure,'' police wrote.
Cherilyn wrote to MetLife, disputing its conclusion. MetLife again refused to pay.
She sued in U.S. District Court in Salt Lake City for breach of contract. MetLife didn't provide medical evidence and didn't specify what kind of seizure, court records show.
Judge Dale Kimball found that MetLife's medical research was limited to Internet searches. The company failed to interview witnesses, the coroner, the police or responding paramedics and didn't obtain Kellogg's medical records, the judge wrote.
Even with those findings, Kimball dismissed the case. He said the insurer met the standard of proof under ERISA.
"The court need only assure that the administrator's decision falls somewhere on the continuum of reasonableness - even if on the low end,'' the judge wrote.
The U.S. Court of Appeals for the 10th Circuit reversed that decision in 2008.
"MetLife wholly ignored Kellogg's counsel's request for documentation,'' the court wrote. "The car crash - not the seizure - caused the loss at issue, i.e. Brad Kellogg's death.''
Kimball then ordered the insurer to pay the full face value of the accidental death policy, as well as $75,377 in legal fees and 10 percent interest.
A version of this article appears in the April issue of Bloomberg Markets Magazine.