This article was initially published in the Chicago Daily Law Bulletin on January 4, 2017.
By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari, PC P.C. 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 firstname.lastname@example.org.
Claims for employee benefits governed by the Employee Retirement Income Security Act are extremely complex. Congress directed the U.S. Labor Department to issue regulations to streamline the claim process and the department has striven to fulfill that mandate to make the process "full and fair" as required by statute (29 U.S.C. Section 1133).
The regulations were last updated in 2000, but due to the fact that the majority of disputed claims involve disability benefits, the Labor Department recently issued final regulations relating specifically to disability benefits — Claims Procedure for Plans Providing Disability Benefits, 81 FR 92316 (Dec. 19, 2016). The regulations apply to claims submitted after Jan. 1, 2018.
Proposed regulations were initially published for comment in late 2015 (80 Fed.Reg. 72014 (Nov. 18, 2015) and after considering more than 100 comments, the Labor Department finalized a set of regulations to "promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans."
One of the key provisions intended to promote fairness and accuracy in claim reviews are new rules designed to require "that decisions regarding hiring, compensation, termination, promotion or similar matters with respect to any individual must not be made based upon the likelihood that the individual will support the denial of disability benefits."
To achieve that end, the regulations specify that bonuses may not be offered to claim personnel for increased denials. Moreover, plans are forbidden to hire medical or vocational experts based on their reputation for denying claims. Because many plans utilize third-party vendors to supply expert consultation, the rules apply to the service providers as well.
The regulations also respond to the Supreme Court’s ruling in Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003), which held that ERISA plan administrators are not required to defer to opinions offered by treating doctors. Although the Labor Department found no need to issue a regulation requiring such deference as exists in Social Security disability claims so long as certain stipulations are met (20 C.F.R. Section 404.1527 (deference is due when the treating doctor is a specialist, has had a lengthy treatment relationship with the patient and offers opinions consistent with the objective medical evidence and the claim record as a whole)), the regulations now mandate that when there is a disagreement with one of the claimant’s experts, it is not enough to express disagreement; the regulations now require inclusion of "a discussion of the basis for disagreeing with the health care professional’s views" as well as any vocational expert’s views.
In addition, the regulations require benefit plans to disclose opinions from all experts who have been consulted regardless of whether the expert’s opinion was relied upon to avoid situations where the plan receives several opinions, but only follows those that support a benefit denial while ignoring contrary findings. The Labor Department described its mandate as consistent with the "fiduciary accountability" required by ERISA.
Besides requiring an explanation for disagreement with treating doctor opinions, the regulations speak to situations where the Social Security Administration issues an award of disability benefits while the benefit plan reaches a contrary determination.
Although no deference to a favorable Social Security determination is required, the regulations obligate benefit plans to provide "a more detailed justification [for reaching a different conclusion] … in a case where the SSA definitions were functionally equivalent to those under the plan."
Despite business opposition, the Labor Department also directed "that internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making an adverse benefit determination must be provided with the adverse benefit determination."
The department rejected past practices of withholding such documentation on grounds of confidentiality or claims that such information is proprietary.
The most important provision in the regulations, however, is that it is now clearly spelled out that claimants are entitled to respond to adverse information developed during the claim appeal process prior to the issuance of a final decision.
The Labor Department responded to criticism that such a directive would lead to a never-ending claim process by maintaining: "It was and continues to be the view of the department that claimants are deprived of a full and fair review, as required by [Section] 503 of ERISA, when they are prevented from responding, at the administrative stage level, to all evidence and rationales."
It was also made clear in the regulations that the claim and appeal process is informal and that claimants are entitled to submit material in support of claims regardless of whether such evidence meets "courtroom evidentiary standards."
Although the Labor Department recognized that its requirement might push back the deadline for issuing a final claim decision, the regulations provide that benefit plans provide the claimant with adverse information as soon as such evidence is received so that the claimant has sufficient time and opportunity to meaningfully address the information.
Noncompliance with regulatory requirements trigger a "deemed exhaustion" that permits claimants to immediately file suit on their benefit claim. A deemed exhaustion will not occur, though, if the violation is de minimus, nonprejudicial or not attributable to the plan’s conduct. But if a deemed exhaustion occurs, the regulations provide that regardless of whether a court might otherwise utilize a deferential standard of judicial review, the court must apply the de novo standard of judicial review "because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim."
When the proposed regulations were published in 2015, the Labor Department invited comments on whether the regulations should encompass any provisions relating to limitations periods within which to file suit. Many commentators offered views on this issue, and the regulations took the comments into consideration.
On account of the Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S.Ct. 604, 611 (2013), there has been confusion regarding contractual limitations requirements and whether it is possible that the limitations period would expire prior to the completion of all required claim appeals.
Accordingly, the regulations now require that limitations cannot expire before claim appeals are completed. The regulations also provide that denial notices must now also specify a date within which suit must be filed.
Finally, the regulations require that notices be written in a culturally and linguistically appropriate manner.
I commented on the proposed regulations — www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB39.