Cherri Walker v. Life Insurance Company of North America
56 F.4th 1121 (11th Cir. 2023) (2023)
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Rule of Law:
Under Alabama law, an insurer's reliance on conflicting medical opinions constitutes an 'arguable reason' that defeats a bad-faith claim, and mental anguish damages are not recoverable for a breach of a long-term disability policy. In the Eleventh Circuit, parties may contract around the federal post-judgment interest rate set by 28 U.S.C. § 1961 only with 'clear, unambiguous and unequivocal' language that boilerplate terms like 'until it is finally settled and adjudicated' do not satisfy.
Facts:
- Cherri Walker was employed by The Healthcare Authority of Athens Limestone Hospital as a respiratory therapist and director.
- Through her employer, Walker was covered by a long-term disability insurance policy issued by Life Insurance Company of North America (LINA).
- The policy provided for a stricter definition of 'disabled' after 24 months of benefits and stated LINA would pay 1.5% per month on overdue claims.
- On October 12, 2012, Walker stopped working due to fibromyalgia, rheumatoid arthritis, and chronic pain.
- LINA initially approved Walker's claim and paid disability benefits for the first 24 months.
- On April 8, 2014, the Social Security Administration (SSA) independently determined that Walker was disabled as of October 12, 2012.
- In June 2014, LINA informed Walker that she would no longer qualify for benefits after the initial 24-month period ended in November 2014, based on reports from its own retained medical experts who concluded she could perform sedentary work.
- After Walker appealed internally, LINA retained another independent rheumatologist who concurred with its prior experts, and LINA affirmed its decision to terminate benefits.
Procedural Posture:
- Cherri Walker sued Life Insurance Company of North America (LINA) in the U.S. District Court for the Northern District of Alabama for breach of contract and bad-faith failure to provide insurance benefits.
- The district court granted LINA's motion for summary judgment on the bad-faith claim, finding LINA had an 'arguable reason' for its denial.
- Prior to trial, the district court granted LINA's motion in limine to exclude evidence of mental anguish damages for the breach of contract claim.
- The jury returned a verdict for Walker on her breach of contract claim related to the disability policy, awarding her $160,342.00 in unpaid benefits.
- Following the verdict, the district court ruled that the policy provided for simple pre-judgment interest at 1.5% and that the default federal statute governed post-judgment interest, setting it at 0.08%.
- Walker, as appellant, appealed the district court's adverse rulings on bad faith, mental anguish damages, and the interest calculations to the U.S. Court of Appeals for the Eleventh Circuit.
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Issue:
Does an insurance policy's provision for interest on an overdue claim 'until it is finally settled and adjudicated' constitute clear, unambiguous, and unequivocal language sufficient to contract around the default federal post-judgment interest rate set by 28 U.S.C. § 1961?
Opinions:
Majority - Lagoa, J.
No. The policy's provision for interest 'until it is finally settled and adjudicated' does not satisfy the 'clear, unambiguous and unequivocal' standard required to override the default federal post-judgment interest rate. First, the court held that an insurer has an arguable reason to deny benefits, defeating a bad-faith claim under Alabama law, when its decision is supported by expert medical opinions, even if those opinions conflict with the claimant's treating physicians and the Social Security Administration's findings. Second, the court affirmed that under Alabama precedent, specifically Sanford v. Western Life Ins. Co., mental anguish damages are not recoverable for a breach of a standard long-term disability insurance contract, as such contracts do not fall within the narrow exception for duties 'so coupled with matters of mental concern.' Third, the court held that the policy's language providing for 'one and one-half percent per month on the amount of any claim' unambiguously calls for simple, not compound, interest on the principal benefits owed. Finally, joining its sister circuits, the court held for the first time that parties may contract around the federal post-judgment interest rate in 28 U.S.C. § 1961, but only if they do so with 'clear, unambiguous and unequivocal' language. Because a contract claim merges into the final judgment, general language such as 'until it is finally settled and adjudicated' is insufficient to demonstrate an unequivocal intent to apply the contractual rate post-judgment.
Analysis:
This decision establishes binding precedent in the Eleventh Circuit by formally adopting the majority rule that parties can contract around the federal post-judgment interest statute, 28 U.S.C. § 1961. However, by also adopting the stringent 'clear, unambiguous and unequivocal' standard, the court sets a high bar for doing so. This holding serves as a clear directive to contract drafters that generic language regarding interest accrual 'until payment' is insufficient; to be enforceable, a clause must explicitly state that the contractual rate applies 'post-judgment.' The opinion also reinforces the formidable challenge plaintiffs face in proving insurer bad faith under Alabama law when the insurer can produce any expert opinion to support its denial, and it solidifies the rule that mental anguish damages are unavailable for breaches of standard disability insurance contracts in the state.
