The U.S. Department of Labor issued proposed rules revising the existing ERISA claim regulations pertaining to disability benefits that may be found at 80 Fed.Reg. 72014 (November 18, 2015). In addition to meeting the stated goal of enhancing the fairness of administration of disability claims, the proposed regulations were designed to align with the protections afforded by the Affordable Care Act.Specifically, the goals of the news regulations are to assure the fairness and impartiality of the claim adjudicators, that notices of decision better explain the reasons for claim denials and the standards behind the denials, to assure access to the claim file documentation and allow evidence to be presented during the claim process, to give claimants an opportunity to respond to new evidence in advance of a final claim determination being issued, to prevent final claim denials from being based on new reasons or new evidence unless the claimant is given a reasonable opportunity to respond, to clarify the “deemed denial” provisions of the regulations, which occurs when claim procedures are not followed, to treat certain rescissions of benefits as adverse benefit determinations in order to trigger claim appeal rights, and  to make sure that notices are written in a “culturally and linguistically appropriate manner.”

In summarizing the proposed regulations, one of the goals enunciated by the Department of Labor is to ensure that persons involved in claim determinations not have financial motivations to deny claims such as payment of bonuses for number of claims denied or contracting with medical experts based on the consultant’s reputation for denying claims.In addition, claim denial determinations are now required to explain the “basis for disagreeing with any disability determination by the Social Security Administration (SSA), by a treating physician, or other third party disability payor, to the extent that the plan did not follow those determinations presented by the claimant.” Internal guidelines, rules, protocols, standards and similar criterial utilized in claim decisions must also be provided to the claimant or the insurer would need to disclose that no standards were applied.

One of the key additions to the regulations is a requirement giving the claimant the “last word” in the appeal process.The notice of proposed rulemaking cited several rulings that upheld plans’ refusal to disclose or give claimants an opportunity to respond to new adverse evidence developed during the claim appeal.The regulations require “automatic” timely disclosure of the new evidence and an opportunity for the claimant to respond before the appeal decision deadline expires; and that if the response triggers another round of point/counterpoint, the claimant must be furnished with new evidence and given an opportunity to respond even if it means tolling the time to decide the appeal until the claimant responds.

The Department of Labor also clarified what is meant by a deemed denial to allow the claimant to go to court and receive de novo judicial review for violations of the claim regulations except as to “minor errors.”The proposed regulations also contain a safe harbor to permit a claimant who erroneously believes that appeals are deemed exhausted to return to the claim process if a court finds the belief was mistaken and that the error was minor.The notice of proposed rulemaking reiterated that “a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference.” 

The notice further defines a rescission as any decision that has retroactive effect.Rescissions trigger the right to a claim review in the same manner as any other adverse benefit determinations.Finally, the rules require that notices be written in a manner designed to be understood by the claimant, taking into account cultural and linguistic barriers to understanding.

One issue not addressed by the proposed regulations has to do with contractual limitations periods.The Department of Labor is soliciting comments as to whether the final claim determination needs to include a clear and definite statement as to any applicable limitations period and its expiration date.

ANALYSIS:  The proposed regulations go a long way toward closing gaps in the prior regulations, especially in relation to giving claimants an opportunity to respond to new evidence or a newly advanced rationale during the claim process.  The NPRM cites a number of court rulings but omitted a critical decision, Grossmuller v. Int’l Union, United Auto. Aerospace & Agric. Implement Workers of Am., U.A.W., Local 813, 715 F.2d 853, 858 n.5 (3d Cir. 1983), which captured the essence of the “full and fair review” requirement by finding: “[T]he persistent core requirements of review intended to be full and fair include knowing what evidence the decision-maker relied upon, having an opportunity to address the accuracy and reliability of that evidence, and having the decision-maker consider the evidence presented by both parties prior to reaching and rendering his decision.”

One glaring issue that is not addressed by the regulations is where a policy limitation is invoked to limit the duration of benefit payments, such as in cases involving mental and nervous disorders or for “self-reported” illnesses.The proposed language should be expanded to encompass any situation where a limitation is invoked so that the claimant can immediately appeal.Many insurers defer the right to appeal until the date the benefits end, which imposes significant economic hardship on claimants who may then be deprived of benefits for several months while appeals proceed.

The limitations issue is another issue on which there should be a regulation, especially after the confusion engendered by the Supreme Court’s ruling in Heimeshoff v. Hartford Life and Acc. Ins. Co., 134 S.Ct. 604 (2013).That ruling raises the specter of a limitations period expiring before the claimant can even appeal and the ruling does not allow for tolling of a limitations period during the claim appeal.A regulation may easily be issued amending 29 C.F.R. § 2560.503-1(j) to provide: A statement that all applicable limitations periods are tolled during the claim appeal.  The claim administrator must also include in its final denial notification a statement setting forth the date calculated by the claim administrator on which the relevant limitations period expires.

Finally, while the proposed regulations impose a requirement that insurers must furnish a rationale for disagreeing with the treating doctor or with the findings of the Social Security Administration, the Supreme Court handed the Department of Labor an opportunity to issue a treating physician regulation. In Black & Decker v. Nord, 538 U.S. 822 (2003), the Supreme Court rejected an argument that plan administrators should give discretion to opinions rendered by treating doctors, much as the Social Security Administration has issued a regulation requiring such deference. 20 C.F.R. § 404.1527(d). However, the Court stated:

If the Secretary of Labor found it meet [sic] to adopt a treating physician rule by regulation, courts would examine that determination with appropriate deference. See Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984).The Secretary has not chosen that course, however, and an amicus brief reflecting the position of the Department of Labor opposes adoption of such a rule for disability determinations under plans covered by ERISA.See Brief for United States as Amicus Curiae 7-27.

538 U.S. at 832. 

Hence, there is no reason why the DOL cannot adopt the same rule as the one used in Social Security cases, 20 C.F.R. § 404.1527(c), which provides for deference to the treating doctor if that doctor is a specialist, has treated the claimant for a significant length of time, and furnishes opinions that are consistent with clinical and laboratory findings and with the record as a whole.Given the specific requirements necessary before a treating doctor’s opinion is given deference according to the quoted regulation, a similar rule in disability insurance cases, which is simply a reflect of common sense, can only enhance the process. 

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