January 30, 2012

LINA (Cigna) Life Insurance Denial: The Discretionary Clause Strikes Again

by Kantor & Kantor LLP

A recent Wall Street Journal article tells the story of our client Celina Whinery, who is suing Life Insurance Company of North America (LINA), a unit of Cigna, after the insurer refused to pay benefits the policy promised upon her husband’s death because he died in a one-car accident while legally intoxicated.

LINA argues that an insured who is legally intoxicated at the time of death is not entitled to benefits -- even though the policy does not exclude intoxication. Even though the policy language does not support LINA's argument, the insurer is forcing beneficiaries around the country to sue for benefits, and then appealing the cases it loses, which is most of them.

LINA knows how to exclude drunk driving from a claim for accidental death. It has a policy form that does exactly that. Those policies are less expensive however, since benefits are further limited. Instead, LINA sold a policy to CitiGroup (Mr. Whinery’s employer) in which it charged CitiGroup more money for a policy that did not exclude drunk driving. When Ms. Whinery made a claim on the policy (asking LINA to make good on their promise to pay), LINA denied the claim saying death due to drunk driving is not an accident and thus not covered. So, LINA makes more money by charging CitiGroup for the more expensive policy, but administers and denies claims as though they are dealing with the less expensive policies that expressly contain the exclusion.

LINA told Ms. Whinery that the policy defined accident. It didn’t. Moreover, the definition of accident LINA says was in the policy is not the definition of accident that the Appellate Court ruled applies in this type of case.

To make matters worse, LINA has an internal “authoritative” claims manual instructing that in cases of drunk driving, if there is no “intoxication exclusion” that claim must be paid.

So why is LINA forcing Ms. Whinery to sue for benefits? Mainly because federal law gives carriers of employer-based insurance the “discretion” to decide which claims they will – or will not – pay, as long as the decision is not "arbitrary or capricious."

Thankfully, California, enacted a law this year that now bans the enforcement of so-called "discretionary clauses" in insurance contracts (Insurance Code section 10110.6). Going forward, insurers will have to persuade the courts that their denials are supported by credible evidence. The law might not help Ms. Whinery, who told the Wall Street Journal, “Emotionally, you are going through a lot of things, and then to add this [unfair denial] on top, it makes it even worse.”