“Super Voucher” Controversy Distorts the Real Issue

This blog post was coauthored by Adam Ballard, Community Organizer and Housing Advocate at Access Living, and Kate Walz, Director of Housing Justice at the Shriver Center.

You’ve probably seen the flurry of news coverage about low-income families living in $3,000 to $4,000 a month luxury apartments in downtown Chicago via a federal housing program.  Sounds like just another story of people taking advantage of a government program, right?  Really, what could make a better news story? Perhaps one grounded in the real details and the facts behind the program being attacked. 

This controversy began with an amendment proposed by Rep. Aaron Schock (R–Peoria) to the United States Department of Housing and Urban Development’s annual appropriations bill.  That amendment would prohibit public housing agencies from offering fair market rents in excess of 120%, otherwise known as “exception rents,” to landlords who participate in the tenant-based Housing Choice Voucher program. Schock’s stated rationale for the amendment is that the Chicago Housing Authority has paid rents in excess of 300% of the fair market rents, allowing voucher holders to live in tony apartments near the lakefront.

The Housing Choice Voucher program is one of the government’s main federal housing assistance programs, helping more than two million very low-income households, including families, senior citizens, and persons with disabilities, afford their housing by giving them vouchers to cover a portion of their rent in the private market. Vouchers are one of the best means of relocating families to higher opportunity and less violent neighborhoods and reducing homelessness and poverty rates for participants. The Housing Choice Voucher program also enables more than one million persons with disabilities, including veterans relying upon the veteran-specific VASH voucher program, to live independently in a community of their choice. 

Schock’s amendment and the news coverage that followed missed the mark entirely. Less than 2% of the Chicago Housing Authority’s 38,000 vouchers have exception rents, and only a fraction of those vouchers have rents in excess of 200%. For all of 2013, there were only three vouchers with rents at the 300% cap.

None of the news coverage asked the question why such high rents were even needed. Here are a couple of questions that should have been asked: Is there a person in the household who is disabled and requires a hard-to-find accessible unit that can only be found in higher-rent neighborhoods? Is the housing close to a good elementary school for the family's children? Finally, is the housing in proximity to employment that may help the family lift themselves out of poverty?

The much larger issue is that the vast majority of voucher holders in Chicago live in high poverty, racially segregated neighborhoods and struggle to find units that are accessible. Indeed, only $1 out of every $10 spent on rents through the voucher program went to neighborhoods with lower rates of poverty and more opportunity.  

Vouchers are also a lifeline for the disability community. Due to a pervasively high unemployment rate independent of recessionary cycles, the majority of people with disabilities rely on fixed-income benefits like Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). These programs are not adequate to pay rent and still have money left for the other necessities of life. Once a person with a disability receives a voucher, the challenge is to find accessible housing, especially for those with significant mobility impairments. In Chicago and many older cities, antiquated housing stock built without physical access for this population makes the search very difficult. Agencies that provide housing search assistance for people with disabilities in Chicago and elsewhere are overwhelmed by demand that is impossible to fully meet—one such agency receives over 200 unique requests every month. The answer often lies in newer buildings in higher-rent and/or gentrifying communities. In order to make these opportunities possible, exception rents (often around 200%, but in rare cases as high as 300% or more) come into play as a “reasonable accommodation” under federal fair housing and civil rights law.

The Chicago Housing Authority’s effort to improve where voucher holders live by offering them a real and sometimes first chance to live in better neighborhoods and out of institutional settings (which are still more costly to the taxpayer than an exception rent voucher), is also what civil rights laws require. Without the ability to offer higher-than-market rents to landlords, the hard reality is that voucher holders struggle to find landlords willing to rent to them. Though voucher discrimination has been outlawed in Chicago and Cook County and other parts of the country, landlords still openly discriminate against voucher holders, particularly in higher opportunity neighborhoods. This refusal to rent to voucher holders is often pretextual, where the landlord’s actual reason for refusing to rent is discrimination on the basis of race, familial status, or disability. 

When efforts were made to protect voucher holders from discrimination in Illinois, Aaron Schock, then a state legislator, opposed extending that protection. If Rep. Schock actually wants to work to improve the voucher program, let’s begin with the full set of facts, cut out the rhetoric and splashy news pieces, and support every effort to permit voucher holders to live in communities of their choice.

Protecting the Housing of Survivors of Violence Should Be a Top Priority for HUD Secretary Castro

In early July, the Senate voted to confirm San Antonio Mayor Julian Castro as Secretary of Housing and Urban Development (HUD), putting this rising political star at the helm of the nation’s federal housing programs. One can only imagine the fever pitch of requests competing for Secretary Castro’s attention. Many important issues deserve focus, including the lack of affordable housing across the nation in spite of increasing need, the slow and sometimes stymied recovery of the housing market, increasing recognition of the detrimental effects of residential racial segregation, and the failure of or outright resistance by many local governments to affirmatively further fair housing. Secretary Castro should steer his agency to develop laws and policies proactively that can address these issues for long term.

But here’s something Secretary Castro and HUD should act on immediately. In 2005, Congress’ reauthorization of the Violence Against Women Act (VAWA) included for the first time critical housing protections for victims of domestic violence, dating violence, and stalking who lived in or were applicants to certain federal affordable housing programs. The new housing provisions were groundbreaking in that they prevented certain housing providers from evicting or denying admission to individuals for being crime victims. It is a grim reality that, before VAWA 2005 was in place, many housing providers did evict victims. And it took years of education and slow roll out of HUD rules and policy to get to the point where most housing providers covered by VAWA 2005 understood the law. 

In March 2013, President Obama signed the 2013 reauthorization of VAWA. The housing provisions in VAWA 2013 are just as groundbreaking as those in VAWA 2005. Among other things, VAWA 2013 added nine more federal housing programs to the mandate not to harm, evict, or deny admission to victims of violence, which potentially cover an additional 1.4 million households. The new law also now covers sexual assault survivors, LGBT survivors, and immigrant survivors. These  protections are long overdue. Finally, the new law permits survivors to move into other federal affordable housing in order to escape violence—a critical new tool so that survivors do not have to choose between their safety and their affordable housing. But other than a HUD notice issued in August 2013 seeking guidance on the new provisions and a brief guide to public housing authorities from the United States Interagency Council on Homelessness, HUD has failed to issue new policy or instructions, including basic updates to housing providers, tenants, and applicants, such as leases that spell out the new protections for sexual assault survivors. This delay puts survivors and housing providers in confusing and potentially dangerous territory, where the lack of instruction could result in evictions of crime victims at their most vulnerable time. Because more than 85% of victims of domestic violence and sexual assault are women, this delay also presents a serious impediment to fair housing for women.   

Secretary Castro and HUD should act immediately to issue these long overdue policy and instructions on VAWA 2013. Because survivors of violence can’t wait for HUD to do its job.  

 

Reliance Standard abused its discretion when failing to conduct in-person exam for psychiatric disability

When reviewing a claim for disability benefits a plan administrator is not required to do an in-person exam of the claimant. However, in certain circumstances courts have found that an administrator’s failure to do so is arbitrary and capricious.

Such is the case in Connelly v. Reliance Standard where a court reviewed the decision made by Reliance Standard Life Insurance Company to deny benefits to Ms. Connelly. Connelly, who worked for Fulton Financial Corporation as a scanning and indexing specialist was hospitalized in November 2011 and diagnosed with depression, panic disorder, and agoraphobia.

Reliance approved and paid Connelly’s claim for disability benefits in June 2012 based on a review of her medical records by in-house medical personnel. After paying her claim for 5 months a registered nurse reviewed Connelly’s medical records on Reliance’s behalf and determined Connelly no longer suffered from a psychiatric impairment. In forming her opinion, the nurse relied solely on medical records and did not physically examine Connelly.

Reliance terminated Connelly’s claim in November 2012 and Connelly appealed the denial to no avail. Reliance employed a board certified psychiatrist who also merely performed a paper review. Connelly was forced to file a lawsuit against Reliance in federal court.

In reviewing Reliance’s decision, the Pennsylvania District Court noted that the policy reserved to Reliance the right to have a claimant interviewed and/or examined psychologically or psychiatrically to determine the existence of disability which is the basis of the claim. Reliance had declined to exercise this right while evaluating Connelly’s claim.

The court also pointed out that the mere fact that the claim involved an alleged mental impairment did not, in and of itself, require Reliance to employ a physician to conduct an in-person exam though it had a right to do so.

Although Reliance was not required to exercise its right under the policy, an in-person exam would certainly have helped Reliance better evaluate the severity of Connelly’s symptoms particularly since Connelly suffered from depression and anxiety, which as the court explained, “presents mainly through subjective symptoms, i.e. Connelly’s thoughts and feelings.”

Courts have acknowledged that when a psychiatrist evaluates a patient’s mental condition, his opinion and diagnosis depend greatly on interviewing and spending time with the patient. Since a psychiatrist typically treats a patient’s subjective symptoms, some courts have discounted the opinions of psychiatrists who have never seen the patient. Furthermore, the inadequacy of relying solely upon a record review when determining benefits for someone claiming a mental disability has been highlighted by various courts.

Since neither the nurse nor the psychiatrist on whom Reliance based its decision performed an in-person exam of Ms. Connelly it brought into question the adequacy of Reliance’s claim review.

Ultimately the court concluded that Reliance’s decision was arbitrary and capricious due Reliance’s failure to conduct such an exam, coupled with:

  • their reliance upon the opinion of a non-treating physician;
  • their reliance upon favorable parts while arbitrarily ignoring unfavorable parts of the notes and letters from Connelly’s treating physician and therapist;
  • their change in position regarding Connelly’s disability without any corresponding change in her medical condition; and
  • the fact that Connelly suffered from depression and anxiety, which presents mainly through subjective conditions.

It is important to remember that the court’s decision was not based solely on Reliance’s failure to conduct an in person review. Even where the policy involved grants the administrator the right to examine the claimant the administrator is not always required to do so.

Admissibility of Design Changes in Product Liability Cases

Most people have heard the old adage, “If it ain’t broke, don’t fix it.” But, is the opposite true? If something was fixed, does that suggest it was broken in the first place. In many cases, evidence that a product’s design was changed can be compelling evidence that the original product was defective. Many states have evidence rules which prohibit introduction of subsequent remedial measures. For example, in California the evidence code states: When, after the occurrence of an event, remedial or precautionary measures are taken, which, if taken previously, would have tended to make the event less likely to occur, evidence of such subsequent measures is inadmissible to prove negligence or culpable conduct in connection with the event.

The policy of encouraging safety measures is the primary reason for the rule. Many states have similar rules. However, there is an important exception recognized by California and 14 other states. The evidentiary rule in California is limited to negligence cases. In strict liability products cases, the subsequent remedial measures are admissible. California courts addressing this issue have held that excluding evidence of remedial measures in the strict liability context would be contrary to the public policy of encouraging distributors of mass-produced goods to market safer products. Schelbauer v. Butler Manufacturing Co. (1984) 35 Cal 3d 442.

Evidentiary rules on this issue vary from state to state. If you have a subrogation case that involves a product, it is worth checking into the evidentiary rule in your state on this issue. The following states allow admission of subsequent remedial measures in strict liability product defect cases: Alaska, California, Colorado, Connecticut, Georgia, Hawaii, Iowa, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, South Carolina, Wisconsin and Wyoming.

Ryan’s “Path to Prosperity” Means More Poverty and Less Opportunity–Unless You’re Wealthy

It took only five hearings on the “Progress of the War on Poverty,” as well as multiple requests by the anti-poverty group Witnesses to Hunger, but House Budget Committee Chairman Paul Ryan has finally invited a person with direct experience to testify. Tianna Gaines-Turner, a mother of three who makes $10.20 an hour, knows what it is to experience poverty. At the hearing on July 9, Gaines-Turner explained to Chairman Ryan that between her low wages and those of her husband, who makes $8.50 an hour, as well as the cost of caring for her children’s health problems (two suffer from epilepsy and all three suffer from asthma), her family struggles to make ends meet. As a result, Gaines-Turner and her family have been homeless in the past and have had to make tough decisions like choosing to skip meals for themselves to provide food for their children. Gaines-Turner’s story, however, is unlikely to affect Ryan’s understanding of poverty. Despite recent efforts to position himself as the right’s anti-poverty crusader, including embarking on a “listening tour,” Ryan repeatedly has demonstrated, in the form of budget documents, hearings, reports, and speeches, that his real priority is to further advantage the already-rich. The most recent and revealing example of this distorted agenda is Ryan’s budget resolution for FY 2015.

Ryan’s budget plan is called the “Path to Prosperity,” but don’t be fooled—it reads more like a “path to adversity.” Behind the rhetoric is more of the same—an austere plan that heavily favors the already-rich.  A majority (69%) of Ryan’s proposed budget cuts are in programs for low-income people. And yet Ryan still finds room in the budget to carve out major tax cuts for the wealthiest 2% and major corporations. As the Center on Budget and Policy Priorities’ President Robert Greenstein has said, the budget is “an exercise in hypocrisy—claiming to boost opportunity and reduce poverty while flagrantly doing the reverse.”

Ryan says he is all about creating opportunity. And yet, he proposes gutting the very programs that create opportunities for people to escape poverty, including Pell Grants and job training. The irony isn’t lost on us—nor is the disproportionate impact this budget will have on low- and middle-income Americans. Here are some of the reasons we shouldn’t take Ryan’s words at face value and instead let the numbers speak for themselves:

1. The Ryan budget plan shreds the safety net. Some of the most important and effective safety net programs, including SNAP (food stamps) and Medicaid, are on the chopping block in the Ryan plan. For example, Ryan proposes resurrecting draconian cuts to the SNAP program that the House passed in September and combining them with further steep cuts that would cut $137 billion, or 18% of the program, in total, over the next decade. The plan also block-grants the program starting in 2019, meaning states would receive a fixed sum each year. This is troubling for two reasons. First, SNAP works so well because of the cyclical nature of its spending, which increases to meet demand during times of recession and widespread economic hardship, and falls to pre-recession levels once economic conditions improve. The recovery from the last economic downturn is a testament to this; already, SNAP spending as a share of the economy has begun declining. By capping the program at a fixed amount that would be unable to rise to the level of increased need in a recession, the Ryan plan would undermine what makes the program so effective: its responsiveness to economic conditions. Second, the dramatic cuts in the Ryan plan would force states to choose whose benefits to cut even further—will it be working parents, poor children, senior citizens, people with disabilities, veterans, or other people struggling to make ends meet? SNAP benefits provide just $1.40 per meal—how much more does Chairman Ryan think he can cut?

Going hungry isn’t the only thing struggling families would have to worry about under the Ryan plan—another basic need, health care, would also be jeopardized. The Ryan budget saves nearly $2.7 trillion by slashing access to health care for low- and moderate-income people. It achieves these savings by repealing the parts of the Affordable Care Act that provide coverage for low- and moderate-income people and by converting Medicaid and the Children’s Health Insurance Program into block grants with significantly reduced funding. Under this plan, over 40 million low- and middle-income Americans, or 1 in 8 Americans, would become uninsured by 2024. Ryan’s plan fails to include any meaningful health insurance alternatives for the millions that will be left uninsured.

2. The Ryan budget plan cuts programs that create opportunities to escape poverty. For all Chairman Ryan talks about the importance of creating opportunity, his decision to cut Pell Grants by more than $125 billion over the next decade proves otherwise. Historically, Pell Grants, which enable low- and moderate-income students to afford college, have been instrumental in fostering opportunities to escape poverty through higher education. At a time when college tuition is skyrocketing to unprecedented levels, Ryan’s budget would freeze the maximum grant for 10 years, and would eliminate Pell Grants entirely for moderate-income students (who can currently receive modest assistance). As is, the maximum Pell Grant covers less than one-third of college expenses; at one time, it covered more than half of all college costs. Ryan’s budget thus makes it harder for low- and moderate-income students to attend college and break the cycle of poverty.

The plan also cuts funding for education and job training far below current levels.

3. The Ryan budget plan makes indiscriminate cuts to domestic programs. Ryan’s budget calls for at least $500 billion in cuts to mandatory programs other than Social Security, Medicare, Medicaid, SNAP, Pell Grants, farm programs, civil service programs, and veterans’ benefits. A substantial share of spending in this category is for low-income programs, including the Earned Income Tax Credit, the low-income component of the Child Tax Credit, school lunch and other child nutrition programs, and Supplemental Security Income, which helps extremely poor people who are elderly or have serious disabilities.

4.  It’s a “balanced” budget that only helps the rich. Ryan calls his budget a pathway to prosperity. What’s hiding behind the misleading rhetoric, however, is more of the same: top-down policies that fail our economy and disproportionately burden our nation’s low- and middle-income working families. In particular, Ryan wants to cut the top individual tax rate and the top corporate income tax rate to 25% and eliminate the Alternative Minimum Tax, on top of repealing the Affordable Care Act’s revenue-raising provisions. Together, these tax cuts for the wealthy would cost about $5.7 trillion over 10 years, while cuts to crucial programs for low- and moderate-income people would total $5.2 trillion. And yet, the budget assumes a revenue-neutral outcome—even though the plan fails to specify a single tax loophole to narrow or close in order to make up the difference in revenue losses.

The greatest problem with the Ryan budget is that it sprints to get the budget balanced in an extremely short amount of time (just 10 years), and does it by making massive cuts that disproportionately affect low-income people. Rather than looking for new ways to raise revenues, Ryan has chosen the easy way out. This strategy largely ignores any short- and long-term economic consequences. Moreover, it ignores the fact that the proposed cuts will result in large increases in poverty and in the number of people that are uninsured. As a result, Ryan’s plan provides prosperity only for the wealthy.

Chairman Ryan can talk a good game about poverty and the lack of upward mobility. In fact, Ryan is scheduled to speak about poverty (and likely elaborate on his proposed policy reforms) this Thursday, July 24, at the American Enterprise Institute. But we do not take him seriously because of what he is actually proposing to do. Numbers, such as those in his recently-passed budget resolution for FY 2015, make it harder to obscure the truth: that poverty and those suffering from it are not Ryan’s real priority.                                

The author thanks Kali Grant, Economic Justice and Opportunity VISTA, for her extensive work on this blog.

 

Controversial “Fake Bad Scale” used by Disability Insurers to deny claims

A test designed to expose less than legitimate personal injury suits is being used more often by disability insurance companies. The test, known as the “fake bad scale” (“FBS”), is being used as a tool to discredit disability claimants insurance benefits.

Various courts have barred the introduction of the FBS into evidence finding the test to be invalid. Even some psychologists say the test is labeling as liars too many people who have genuine symptoms. The disagreement among legal and relevant scientific community, however, has not deterred disability insurers from using the test as another weapon to fight off legitimate disability claims. Specifically in the ERISA context courts have allowed insurers to rely on the test in denying claims.

In Menge v. AT&T Mr. Menge made a number of arguments in an attempt to convince the court that his disability claim had been improperly denied. During the course of the claim, Mr. Menge underwent testing by his physician, which incorporated the FBS validity scale. Apparently, the FBS suggested that Mr. Menge may be exaggerating his symptoms.

Mr. Menge argued that the test is notoriously unreliable and very controversial in the psychological world and that, therefore, the plan abused its discretion by relying upon the results. Although the court acknowledged that the test is controversial it found that it was not an abuse of discretion for the plan to rely, in part, on the results to deny the claim.

This case teaches us that disability claimants and their doctors should be aware of critical literature and controversy surrounding any test that is used in diagnosing a claimant’s illness or disability as well as any controversy surrounding any validity measures employed.

Effectively Connecting With A Jury In A Subrogation Trial

Consider this hypothetical:

It is 2 a.m. on a Monday morning. John and Jill Smith are fast asleep in the master bedroom while their kids are asleep down the hall. John awakes to the noisy smoke detector and the smell of smoke coming from their master bathroom. John goes to the bathroom to see what is happening. He opens the bathroom door and sees flames raging from the ceiling fan. John yells to his wife to gather the kids and run to safety while he helplessly tries extinguishing the fire with a fire extinguisher. The fire grows beyond John’s control. John gives up the fight then joins his family in the front yard. John and his family watch their home burn and watch as countless family heirlooms and memories are taken down by the flames.

Anne Amazing from Anyday Insurance arrives at the scene after the fire. Anne ensures the Smiths that they will have a warm place to stay while their home is rebuilt. While the sentimental value of the items cannot be replaced, Anne Amazing provides compensation to the Smiths so that they can begin rebuilding their life. While the wounds still exist, the Smiths can begin to live again.

Forensic investigation determines that the fire was started by a defective Fireprone Fan. Fireprone refuses to take responsibility for their actions and chooses to drag the Smiths and Anyday through contentious litigation. The cause of the loss is clear. The scope of the damages is clear. Regardless, Fireprone has taken Anyday to the eve of trial. Anyday Insurance contacts their subrogation counsel to discuss trial authority. The subrogation specialist Rachel Recovery is nervous. She informs counsel that her superiors are afraid of the jury bias against insurance companies. Even though Anyday has a very strong case, Rachel’s supervisor advised her to accept Fireprone Fans offer for 50% of the claim. Believing in her case but needing reassurance, Rachel asks the following question to subrogation counsel: Should I take the money or can you win this trial?

Many studies show that jurors tend to be biased against insurance companies. In fact, everyday experience confirms that this bias exists. However, juror bias should not prevent you from receiving a good result at trial. In fact, you can counteract juror bias if you conduct an effective voire dire. During voir dire, you must not only ask the right questions, but you must listen to every answer carefully. Even subtle answers that are unrelated to the topic of insurance can show that a juror would be biased against your client’s cause.

For example, an effective question that one can ask a juror to assess their potential bias is:

Q:  Do you think just because someone is wealthy that they do not deserve compensation if they have been wronged?

Depending on their answer, you may want to think about eliminating them from your jury.

Next, you must persuasively present your case. This is easier than you think. Many defense attorneys, will take complicated and emotional issues such as the insured’s lost belongings and reduce those items to mere numbers. This effectively takes the emotional factor out of the equation and strictly focuses on the logistics. Plaintiff’s counsel in a subrogation case cannot allow the case to be reduced to a matter of dollars and cents. Instead, I recommend focusing on what your insureds lost and the actions that your clients took to compensate them for their loss. I challenge you to remember your first fire inspection. Remember the devastation that family felt when they lost their home and all of their things. That is what your case is about.

Consider the hypothetical above. If that case went to trial, I would focus on: (1) how helpless John and Jill Smith felt watching their home burn; and (2) how much better they felt after Anyday compensated them for their loss and helped them begin to rebuild their future. When the Smith’s watched their home burn down and felt like they had nothing left, Anyday came in and provided them with just compensation.

Ask the jurors, where would the Smith’s be if it were not for Anyday? The Smith’s life was devastated by a defective fan that was supposed to cool and clear steam from their bathroom, not burn their house down. Destructive testing conducted after the Smith’s home burned down showed that the defective wiring in the fan turned it into a dangerous weapon. When Fireprone’s product burned down the Smith home, Anyday Insurance was there to rebuild while Fireprone was there to litigate. Without Anyday, the Smiths would have never had the opportunity to start again and rebuild their lives. The Smith’s would have been without a home and they would have never received compensation for their lost belongings.

Without Anyday, the Smiths would have been left to seek help from Fireprone. Without insurance companies, the public would be left to fend for themselves against these dangerous products and the companies who manufacture them.

When setting up your case for the jury, make it clear that you are trying to recover from the responsible party for the harm they or their product caused. In the hypothetical, Anyday compensated the Smith’s for their loss and now seeks to make Fireprone answers for their mistakes. This is why potential bias should not be enough to scare a subrogation carrier out of taking a case to trial. Subrogation carriers are fixers. They fix what has been broken and then make the breakers take responsibility for their actions. Subrogation investigations have discovered product defects that were harming the public. A product defect gone unnoticed is another building about to burn and another injury waiting to happen. Avoid the bias by telling the jury what your client really wants: To make those responsible take responsibility for their actions. Make sure that each juror is open to listening to your client’s story. Further, make sure that you tell the actual story. I reiterate, embrace the emotional! Do not let your client’s case be diminished to dollars and cents. You should never be afraid of taking your case to trial if you use these methods.

Esquenazi decision interprets the Foreign Corrupt Practices Act

By David McMahon and Robert G. Levy

Companies doing business internationally no doubt have heard about the rise in claims brought by government agencies against companies and individuals under the Foreign Corrupt Practices Act (FCPA). Our last article focused on ways expenses in defending against such claims — often substantially greater than the amount for which the claims are ultimately resolved — can be contained.

A new decision, U.S. v. Esquenazi, was issued by the 11th Circuit on May 16, 2014, that carefully examines the tests required to determine whether in a given situation the FCPA has, or has not, been violated. The decision, a rare one despite the burgeoning number of prosecutions under the FCPA, clarifies but yet does not simplify what the applicable criteria for prosecution and conviction are. Pertinent to the role of corporate counsel overseeing the defense of such investigations and prosecutions, the decision in fact demonstrates just how wide ranging and fact intensive such an investigation and prosecution might become.

READ MORE

Originally published by InsideCounsel, July 15, 2014

Bruce Rauner’s Tax Plan

Bruce Rauner, the Republican candidate for Governor of Illinois, recently released his Jobs and Growth blueprint, which includes his tax plan. Here is a look at his major tax proposals and current stance on the minimum wage.

Income Tax. Rauner would reduce Illinois's current 5% income tax rate to its previous level of 3% over four years. This would cost the state $8 billion in annual revenue. Were Rauner to follow through on this pledge, he would have to find a corresponding amount in spending savings. Rauner provides no information about what programs he would cut or by how much.

Eight billion dollars is a lot of money. It’s more than the state’s general funds spending on health care ($7 billion), K-12 education ($6.7 billion), human services ($3.2 billion), higher education ($2.5 billion), public safety including prisons ($1.6 billion), or seniors ($1 billion). But Rauner does not say anything either about specific cuts or about priorities for cuts that would be needed to achieve this magnitude of savings.

Sales Tax. Rauner proposes to raise $600 million by increasing the number of services that would be subject to the sales tax. This $600 million would make up less than 10% of the $8 billion revenue loss from his income tax proposal. Thus Rauner’s overall plan is a massive cut to revenue that will trigger unspecified massive spending cuts.

As to the merits of Rauner’s proposal, we agree that Illinois should tax more services, and we support this part of his plan. Rauner would exempt “day-to-day” services such as day care centers, laundromats, barber shops, and animal care. Services he would tax include attorneys, printing, and travel agents. We may have some differences with Rauner as to which categories of services should be taxed or exempted, but we do strongly agree in principle with him that consumer services generally should be subject to the sales tax. We also credit Rauner for the specificity of this part of his plan, which details which services would be taxed and which would be exempt.

Property Tax Freeze. We agree with Rauner that Illinois has become far too dependent on local property taxes. Our biggest concern is the inequity in school funding that has resulted. However, we oppose a complete freeze on property taxes as Rauner has proposed because it generally hinders localities’ abilities to raise needed funds and forces localities to turn to regressive sources of income like sales taxes and fees. Freezing property taxes also can create severe distortions in housing markets. 

Minimum Wage. Rauner got himself into trouble during the primary campaign when, while playing to conservative audiences, he announced his support for reducing Illinois’s minimum wage from $8.25 to the federal minimum wage of $7.25. This proved to be a highly unpopular position, especially coming from a billionaire.

In his new plan, Rauner says he supports raising the minimum wage “gradually.” He does not say how much he would he raise it, or how gradually.

Rauner also makes his support for an increase in the minimum wage contingent on the adoption of business-friendly reforms of workers compensation and tort claims. This conditional support for raising the minimum wage increases the difficulty of passing it.  There are difficult political problems with each of the reforms he champions that, in addition to the political issues around the minimum wage, multiply the obstacles to any of it actually happening.

The bottom line, then, is that the Rauner tax plan would produce welcome changes to the sales tax, but as a whole would result in a massive cut in state revenue that would require an equally massive cut in spending on education, health care, human services, and public safety. Rauner offers no specifics on what programs he would cut.  And he offers support for an unspecified increase in the minimum wage contingent on controversial business reforms.   

Kentucky District Court concludes that Kentucky’s five year statute of limitations applies to ERISA actions

In Hester v. Life Insurance Company of North America, a recent case out of the Eastern District of Kentucky, the widow of a deceased employee of CSX attempted to bring an ERISA action, alleging that LINA wrongfully denied her claim for death benefits nearly eleven years earlier. Finding plaintiff’s civil action to be untimely, the Kentucky court entered judgment in favor of LINA.

Plaintiff’s husband, Mr. Hester, was an employee of CSX and during his employment with the company obtained a $200,000 Accidental death benefit on his life under the company’s group AD&D Policy.
On July 16, 2002 Mr. Hester died of a self-inflicted gunshot wound to the chest in the garage of the family home. Accordingly, the State of Kentucky Certificate of Death listed the manner of death as “Suicide.” On August 7, 2002, Ms. Hester filed a claim for benefits with LINA.

LINA informed Ms. Hester that suicide was an exclusion under the policy and after giving Ms. Hester additional time to submit additional information that would indicate Mr. Hester’s death was an accident which Ms. Hester failed to do, LINA denied the claim.

The policy under which Ms. Hester was claiming benefits provided that no legal action to get policy benefits could be brought “more than 3 years after written proof has been furnished as required by the policy.”

Undoubtedly stricken by grief, Ms. Hester failed to respond to LINA’s denial and failed to institute a civil action until nearly eleven years later, well beyond the policy’s 3 year limitation. In an attempt to maintain the action Ms. Hester urged the court to apply KRS 413.090(2)’s fifteen year limitations period upon a recognizance, bond or written contract, contending that the policy’s three year window is unreasonable.

Ms. Hester’s argument was unsuccessful. Instead, the court, citing previous case law, concluded that the applicable statute of limitations is five years under KRS 413.120.

Which statute of limitations applies in ERISA actions is a commonly litigated issue in Kentucky. The court deferred to the 6th Circuit’s decision in Redmon v. Sud-Chemie Inc. in concluding the five year statute of limitations applies. To avoid digging further into the differences between previous case law in which Kentucky courts have found the five year limitation to apply and the case under review, the court went on to explain that even if Ms. Hester’s claim was not time barred the court finds that LINA’S decision was correct based on the administrative record since the weight of the evidence supports the finding that Mr. Hester’s death resulted from an “intentionally self-inflicted” injury, benefits for which are specifically excluded by the policy.