Trying to Sue Your Health Insurer: David vs. Goliath

Back in February, 1999 I published a guest editorial in the Herald News. With the current debate over health insurance reform, and an article I read in the Herald News today (10/26/09) claiming that health insurers’ profits are relatively weak, it brought the editorial to my mind and I thought I should post it in my blog. It is as timely today as it was over ten years ago, because nothing has changed: it is still practically impossible to sue one’s health insurer over their refusal to pay a claim, due to the anti-consumer, pre-exemption provisions of ERISA and the anti-consumer, restrictive Federal court opinions interpreting ERISA, such as Pilot Life v. Dedeaux.  As discussed in the editorial, health insurers spare no expense to defeat these cases, and remove them to the lofty confines of the Federal District Court.  The ERISA statute must be changed to allow challenges in state court, or even through a statewide arbitration service (as is done in automobile PIP claim disputes, with referral of thousands of cases each year to the National Arbitration Forum).  Punitive damages and liberal attorney fees must be allowed where the consumer is successful, or the consumer will not be able to find an attorney to take on the case (particularly where the denied claim is for a medical bill or service that is for “only” a few thousand dollars). 

Of further interest, is the fact that the fate of the health insurer, Mutual Benefit Life, which spectacularly imploded shortly after the case was finished, brings to mind other recent cases of large insurance company fiscal mismanagement and lack of oversight by government regulators, such as AIG.  It seems Mutual Benefit Life was a harbinger of our recent financial meltdown.

Here is the editorial:

As a trial lawyer, I feel compelled to speak out regarding HMO reform and ERISA, by way of the true story of my David vs. Goliath battle against one large health insurer back in 1990-1991. I agreed to represent a lovely, charming woman in her early sixties who was dying of cancer, in an attempt to force her health insurer, Mutual Benefit Life, to pay a $9,000 medical bill for visiting nurses, home health aides and private duty nursing, which should have been covered items under the terms of the health insurance policy.  I filed suit against the insurer in the Superior Court of Bergen County. The insurer hired a large law firm to defend against the suit. Citing the federal ERISA statute, the defense attorneys promptly sought to have the matter removed to the federal court, that is, the New Jersey District Court in Newark. I objected strenuously but the motion to remove was granted. The defense firm then proceeded to bombard me with discovery requests, motions and legal maneuvers over the next eighteen months. Because of ERISA, as interpreted by the Supreme Court in the case of Pilot Life vs. Dedeaux, my client was deprived of the right to a jury trial, punitive damages, common law causes of action, and even, quite possibly, the right to attorney fees even if successful!  Incredibly, the health insurance company ultimately spent over $100,000 to defeat a $9,000 claim (that we would have settled for even less!).  At long last, the matter was tried–not in front of a jury, but in front of an obviously unsympathetic federal magistrate. My client could not afford the $5,000 required to bring in crucial medical experts to testify, and without the possibility of punitive damages, without a guarantee of reasonable attorney fees, and facing an unsympathetic judge, my firm was unwilling to lay this money out for her.  Her personal physician testified for her as a favor, while the defense brought in expensive “hired gun” physicians as experts, who falsely testified that my client–who died from her cancer three months after the trial–was little more than a hypochondriac.  After the closing arguments, the federal magistrate wasted little time finding in favor of the insurance company.

When I asked the leader of the defense team why his client would spend over $100,000 to defeat a valid $9,000 claim, he candidly admitted that the health insurers have a “scorched earth,” no settlement policy, and would spare no expense to dissuade individuals from daring to challenge the insurers’ claims decisions. They wanted to send the message to attorneys, that taking on these cases would be a losing proposition no matter what. The strategy certainly worked in this case: I spent hundreds of hours, and thousands of dollars, on the case, and vowed never again to accept another health insurance case, until the ERISA pre-emption is removed, allowing state court jury trials, and punitive damages where the insurer is shown to have denied the claims in bad faith.  The threat of numerous large monetary awards, is truly the best, and perhaps the only, means of compelling health insurers to act humanely and in good faith.  Allowing full recourse in state courts, is the only real way to protect consumers and deter callous, capricious and miserly behavior by HMOs and health insurers.

Incidentally, there is an interesting epilogue to this case: shortly after the case was closed and only days after my client had passed away, the defendant, Mutual Benefit Life, suddenly went bankrupt due to shoddy investments and mismanagement, amidst allegations of fraud against its CEO, Hank Kates.  I had actually managed to meet personally with Mr. Kates and he was coldly unwilling to intervene or even inquire into my client’s plight. Now it came to light that he had arrogantly mismanaged the company and dissipated its once considerable assets, investing in speculative artworks and real estate deals, all while drawing an extremely generous salary and living an extravagant lifestyle. Although the State of New Jersey’s insurance guarantee fund took over the insolvent insurer, thousands of innocent consumers lost  pensions, cash values, and health insurance coverage.  Mr. Kates fled the State of New Jersey, and Mutual Benefit Life was totally liquidated, including its flagship building in Newark (which was sold to IDT).

Perhaps most interesting of all, however, is that ironic fact that shortly after winning the case, the lead defense attorney (and “name partner”), a man in his early fifties whose “dirty trick” tactics, take-no-prisoners approach and cold-blooded demeanor prevailed in this case, was himself diagnosed with cancer and died, and his law firm was disbanded. I guess what goes around, comes around.

About Larry Pollack

Larry Pollack is a personal injury and workers' compensation attorney with offices in Clifton, NJ. Larry serves New Jersey clients located in Bergen, Essex, Sussex, Hudson, Passaic, Morris and Union counties. He holds an undergraduate degree from Yale University and a JD from the University of Michigan School of Law. He has been practicing in New Jersey for 25 years. Google

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