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De Novo Review, Attorney-Client Privilege, and Offsets – D. Montana

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  • De Novo Review, Attorney-Client Privilege, and Offsets – D. Montana

    Here’s a new case out of the District of Montana, Dawn Rustad-Link v. Providence Health and Services and Unum Group Corporation (“Unum”). This is a relatively long case and there is quite a bit packed into it. However, the three main points addressed by the court are as follows. The court first determines that, under the terms of the plan, Washington Law governs the plan and in 2009, the State of Washington prohibited discretionary clauses. Thus, the court finds that a de novo review applies.

    While there do not appear to be any Washington state cases addressing the applicability of the Regulation to disability insurance policies effective before 2009, a string of (primarily unpublished) Western District of Washington cases support Rustad-Link's argument that the Regulation applies in such situations. Most important here is Murray v. Anderson Bjornstad Kane Jacobs, Inc., where Judge Lasnik assessed the applicability of the Regulation at the time the plaintiffs cause of action against his insurer accrued. 2011WL617384, *4 (W.D. Wash. Feb. 10, 2011). The court concluded the Regulation applied where the plaintiffs cause of action accrued after the Regulation was enacted. Id. In so holding, the court cited (1) the Revised Code of Washington Annotated (RCWA) 48.18.510 ("Any insurance policy ... which contains any condition or provision not in compliance with the requirements of this code, shall not be rendered invalid thereby, but shall be construed and applied in accordance with such conditions and provisions as would have applied had such policy ... been in full compliance with this code."); (2) the Washington Office of Insurance Commissioner's proposed rule statement for the Regulation, where the Commissioner stated the intended effect of the Regulation was for carriers to administer "current contracts or policies ... as though they did not contain discretionary clauses," Wash. State Register 09-07-030; and (3) Seattle-First Nat'l. Bank v. Wash. Ins. Guar. Ass'n, 94 Wash. App. 744, 753 (Wash. Ct. App. 1999) ("Contracts for insurance must comply with statutes. Non-compliant contract provisions will not invalidate the contract; rather, we construe such provisions to comply with the statutes.").

    At least one other Western District of Washington decision tracks Murray's lead in holding that Regulation applies to BRISA-governed plans in effect before its enactment. In Treves v. Union Security Insurance Company, LLC, 2014 WL 325149 (W.D. Wash., Jan. 29, 2014), the district court considered whether the Regulation applied to a discretionary clause in a disability plan which went into effect in 2002 (seven years before the Regulation). The court agreed with the reasoning of the Murray decision.
    Thus, proceeding forward on a de novo review, the court next turns to the question of whether or not documents stemming from an in-house attorney prior to a denial of benefits fall under the attorney-client privilege. The court concludes that they do not.

    Rustad-Link correctly argues that the fiduciary exception to the attorney-client privilege applies. As in Stephan, that means "it is not until after the final determination-that is, after the final administrative appeal-that the interests of the Plan fiduciary and the beneficiary diverge for purposes of application of the fiduciary exception." 697 F.3d at 933. Of the documents Unum claims are protected by attorney-client privilege, 22 predate Unum's denial of Rustad-Link's appeal, with one more occurring on the same date as the denial, July 14, 2015. (Doc. 16-2 at 2-3.) Those documents are thus subject to the fiduciary exception, and must be produced. The remaining documents post-date Unum's denial of Rustad-Link's appeal, and therefore fall on the end of the spectrum "where a plan fiduciary retains counsel in order to defend [itself] against the plan beneficiar[y]." Mett, 1 78 F .3d at 1064. Those documents do not need to be produced.
    Finally, the court gets to the ultimate question. This matter involves a beneficiary of a disability plan who became disabled due to medical malpractice. Because of the medical malpractice, the plaintiff had to have her leg amputated. She received a medical malpractice settlement for that injury and Unum offset that money. The plaintiff argues that the money paid to her from the medical malpractice claim is not for income replacement. The court agrees with the plaintiff and finds that Unum is not entitled to an offset.

    As stated above, the Plan provides that Unum may deduct third party settlements from its benefits payments when those settlements "are payable as a result of the same disability." "Same disability" is not defined. "Disability," per the Plan, is due either to "sickness or injury." Both the definition of "sickness" and "injury" include that they must begin while the insured is covered. However, neither they nor the definition of "disability" include language stating or implying that disability constitutes a time period. The plain language of the Plan supports Rustad-Link's interpretation, not Unum's. Moreover, even were the definition of "same disability" a close call, "ambiguities must be construed against the insurer." Kunin, 910 F .2d at 539-40.
    The opinion is attached below.
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