Disability insurer taken to task for delayed action on disability claim

This article was initially published in the Chicago Daily Law Bulletin on June 21, 2016.

By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari, PC. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at mdebofsky@debofsky.com.

Claims for employee benefits brought under the Employee Retirement Income Security Act are subject to very strict rules regarding time limits for deciding claims. However, neither the ERISA statute, nor the claim regulations found at 29 C.F.R. Section 2560.503-1 prescribe specific penalties for violating the rules.

A recent ruling issued by a federal court in California, Tash v. Metropolitan Life Insurance Co., 2016 WL 2944074 (C.D. Calif., May 19, 2016), imposed a harsh penalty on an insurance company for disregarding its obligation to issue a timely benefit determination.

The action was brought by dentist Raymond Tash, who ceased practicing dentistry in 2010 and began receiving disability benefits in 2011. However, benefits were abruptly terminated without explanation in 2012.

Eventually, MetLife notified Tash that it had subjected his claim to the neuromuscular and soft tissue injury limitation in his policy, which capped his benefits at 12 months. After exhausting claim appeals, Tash sued MetLife, which ultimately settled the lawsuit with the proviso that MetLife would assess the claimant's eligibility to receive benefits under the "any occupation" definition of disability commencing after the first 24 months of benefit payments in accordance with the time frames enumerated in the claim regulations promulgated by the U.S. Department of Labor.

In August 2014, Tash submitted his claim for any occupation benefits. Under the time limits contained in the ERISA regulations, MetLife had until Sept. 24, 2014, to render a claim decision. MetLife acknowledged the claim and advised that a physician would review the medical evidence; however, when no decision was forthcoming, on Nov. 11, 2014, Tash's counsel wrote to MetLife advising that its determination was tardy. When MetLife failed to respond, on Dec. 3, 2014, Tash filed a new lawsuit.

After the litigation commenced, MetLife provided Tash's counsel with a Dec. 23, 2014, report from consultant Dr. Jon Glass. Tash objected to that report as well as to a subsequent report from Glass dated March 25, 2015. The claim was not denied, though, until Feb. 24, 2016.

At that time, MetLife also provided Tash's counsel with additional documents that he had not previously received - an objection was made to that documentation as well. In response to the denial, Tash submitted an updated medical report to which MetLife provided a rebuttal from a new doctor - Tash objected to that report, too.

The court determined the "administrative record" was closed when the lawsuit was filed. Thus, the court refused to consider any documentation provided by either party subsequent to that date. Based on the record compiled through the date litigation was commenced, the court concluded that MetLife's failure to issue a timely denial violated ERISA, prejudiced Tash and entitled him to an award of benefits.

The court explained that the ERISA claim process is set up to give the claimant an opportunity to review and comment on adverse evidence, but that MetLife "undermined" the process by not issuing a timely claim determination.

The court explained further that MetLife's failure to issue a timely denial letter violated ERISA and that Tash was prejudiced since he was not made aware of the basis for the denial of the claim and was thus deprived of the opportunity to submit evidence challenging the basis for the claim denial prior to commencing litigation.

Based on the ERISA violations committed by MetLife and the resulting prejudice to Tash, the court asserted its authority under Pannebecker v. Liberty Life Assurance Company of Boston, 542 F.3d 1213 (9th Cir. 2008), to require MetLife to pay benefits due through the date of the court's order and to pay interest based on the applicable U.S. Treasury bill rate on Feb. 11, 2013. The court further ordered benefits to continue until such time as MetLife issued an ERISA-compliant decision.

There is no way to tell from this ruling what excuse MetLife may have had for its flagrant disregard of the ERISA regulations. However, the court imposed a punishment it deemed suitable to fit the crime - and sent a strong message to MetLife and to other insurers as well that the ERISA regulations are not advisory; they are mandatory. Non-compliance has consequences.

The case cited by the court was a perfect illustration. In Pannebecker, even though the court ultimately upheld the insurer's decision to discontinue benefits, the court held:

"[Nancy] Pannebecker was already receiving benefits, and, but for Liberty's arbitrary and capricious conduct - i.e., its failure to apply the terms of the plan properly - she would have continued receiving them. While Liberty was given a second opportunity to determine whether Pannebecker was 'disabled' under the plan, that second chance should not have left Pannebecker empty-handed during the time that it took Liberty to comply with the plan's requirements. The district court should have awarded Pannebecker benefits from the time of Liberty's improper denial in 2000 until the company's decision of May 3, 2005, to decline to alter its benefits determination." 542 F.3d at 1221-22.

Another case involving a similar circumstance that reached the same conclusion as Pannebecker was Schneider v. Sentry Group Long Term Disability Plan, 422 F.3d 621, 630 (7th Cir. 2005), which held:

"In this case, prior to the termination of her benefits by improper procedures, the status quo was that Ms. [Janet] Schneider was receiving long-term disability benefits from the plan. The appropriate remedy is an order vacating the termination of her benefits and directing Sentry to reinstate retroactively the benefits. We point out that the decision to terminate Ms. Schneider's long-term disability benefits was not accompanied by the proper procedural protections, but it was not necessarily wrong. Sentry is free to revisit Ms. Schneider's eligibility for benefits."

One issue with the ruling in Tash, though, that distinguishes the case from Pannebecker and Schneider is that Tash was not receiving benefits - he had to apply to receive any occupation benefits. However, the ERISA violation was so flagrant, the sanction imposed on MetLife of having to approve the application and continue payments seems a small price to pay to ensure that similar misconduct will never occur again.