The Employee Benefits Security Administration of the U.S. Department of Labor has issued final regulations published in the Federal Register on December 19, 2016 (81 Fed. Reg. 92316) relating to disability benefit claims governed by ERISA. Proposed regulations were initially published for comment on November 18, 2015 at 80 Fed.Reg. 72014; and after considering over 100 comments, the proposed regulations were modified into a final form in order to "promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied."
The Federal Register notice summarized the changes reflected in the final regulations as follows:
(1) Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination; (2) benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision, including the basis for disagreeing with the views of health care professionals, vocational professionals, or with disability benefit determinations by the Social Security Administration (SSA); (3) claimants must be given timely notice of their right to access to their entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of their claim during the review process; (4) claimants must be given notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales; (5) plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements unless the violation was the result of a minor error; (6) certain rescissions of coverage are to be treated as adverse benefit determinations triggering the plan's appeals procedures; and (7) required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.
As to the first point, the DOL pointed out that the regulations are 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." Hence, bonuses may not be offered for increased denials, and medical experts may bot be selected based on a reputation for denying claims. The regulations also clarify that the selection of vocational experts must also be insulated from bias and conflicts of interest. And the regulations also make it clear that when insurers and plans utilize vendors to supply expert consultants, that the service providers must also take steps to avoid conflicts.
Further, the regulations now require that when there is a disagreement with one of the claimant's experts, it is not enough to indicate a disagreement; the regulations 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. The regulations also require disclosure of the opinions from all experts with whom the plan has consulted regardless of whether the expert's opinion was relied upon in order to avoid situations where the plan receives several opinions but only follows those that support a benefit denial and ignore contrary findings. Such provisions are described as being consistent with the notion of "fiduciary accountability" required by ERISA.
Along the same lines, although the regulations do not require deference to "a favorable SSA determination, a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan." But the Department of Labor did not see the need to impose a rule requiring deference to a treating doctor's opinion comparable to the Social Security treating physician rule contained in 20 C.F.R. § 404.1527.
Despite industry opposition, the Department of Labor also chose to require "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 added that such information may not be withheld on grounds of confidentiality or that such information is proprietary.
The keystone of the regulations, though, is the requirement to allow the claimant to have the last word in the claims process and thus have the right to respond to adverse information developed during the claim appeal process. The Department of Labor explained, "It was and continues to be the view of the Department that claimants are deprived of a full and fair review, as required by 503 of ERISA, when they are prevented from responding, at the administrative stage level, to all evidence and rationales." The regulations are also intended to permit claimants to submit supporting evidence regardless of whether such evidence meets "courtroom evidentiary standards." With respect to timing, the regulations mandate that the claimant be provided adverse information when the plan has decided that it would deny the claim on appeal so that the claimant has sufficient time and opportunity to address the information even if it might somewhat delay the claim decision on appeal.
The new regulations also clarify the "deemed exhaustion" provisions of the existing regulations and provide that a violation of the claim regulations is sufficient to establish a deemed exhaustion unless the violation is de minimus, non-prejudicial, or not attributable to the plan's conduct. The regulations also suggest that when a deemed exhaustion occurs, 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."
Another critical feature of the regulations is that the Department of Labor took into consideration several comments it received regarding limitations periods. In the wake of Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604, 611 (2013), which has engendered confusion regarding contractual limitations requirements, the regulations now require that limitations cannot expire before review is completed. Denial notices must now also specify a date within which suit must be filed.
The regulations are effective for all claims filed on or after January 1, 2018.