During its most recent term, the U.S. Supreme Court overturned a 40-year-old precedent that guided courts in addressing administrative agency interpretations of the laws they regulate. In Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc.,[1] the Supreme Court ruled in 1984 that when a statute is ambiguous or silent, courts should defer to an agency’s interpretative regulations.
In June, the Supreme Court’s ruling in Loper Bright Enterprises v.Raimondo[2] overturned Chevron, though, and held “[t]he deference that Chevron require[d] of courts reviewing agency action cannot be squared with the [Administrative Procedure Act]”[3] because the APA requires courts reviewing agency action “to ‘decide all relevant questions of law’ and ‘interpret… statutory provisions.'”[4]
Thus, following Loper Bright, courts considering agency interpretations of ambiguous statutes “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”[5]
A federal district court was recently called upon to determine the impact of Loper Bright on regulations issued by the U.S. Department of Labor regarding Employee Retirement Income Security Act claims and appeals.[6] On Nov. 22, in Rappaport v. Guardian Life Insurance Co. of America,[7] the U.S. District Court for the Southern District of New York overruled a disability insurer’s argument that those regulations were unenforceable.
The Rappaport ruling involved a challenge to a group disability insurance benefit denial. The court addressed several issues, but the most significant issue resolved by the court was its finding that Loper Bright does not affect how existing regulations apply in ERISA claim litigation. That issue is the focus of the following discussion.
A critical issue in ERISA benefit cases is the standard of judicial review applied by the courts. While the Supreme Court’s 1989 ruling in Firestone Tire & Rubber Co. v. Bruch[8] established the de novo standard as the default judicial standard of review of benefit denials, the inclusion of plan language granting discretion to plan and claim administrators to adjudicate claims triggers a deferential review standard. That standard is highly valued by plan administrators since, as the Rappaport ruling noted:
“[D]enials may be overturned … only if the decision is without reason, unsupported by substantial evidence or erroneous as a matter of law. ‘Substantial evidence’ is such evidence that a reasonable mind might accept as adequate to support the conclusion reached by the [administrator and] … requires more than a scintilla but less than a preponderance.”[9]
The court acknowledged that while the plan language at issue in the Rappaport case sufficed to trigger the deferential review standard, that did not end the inquiry. According to both the U.S. Court of Appeals for the Second Circuit’s 2016 ruling in Halo v. Yale Health Plan[10] and the regulations themselves,[11] noncompliance with the requirements of the ERISA claim regulations promulgated by the DOL results in a forfeiture of a plan administrator’s discretionary authority.
The regulations challenged by Guardian were issued in accordance with the authority granted to the DOL in ERISA Section 503.[12] The regulations include time frames for submitting appeals of denied claims, as well as deadlines for deciding claim appeals — 45 days to decide the appeal, although a 45-day extension is permitted if special circumstances exist.
The Rappaport ruling explained: “Before taking an extension, the plan administrator must provide written notice to the claimant ‘indicating the special circumstances requiring an extension of time and the date by which the plan expects to render the determination on review.'”[13]
Asserting that Guardian did not issue a decision in compliance with the regulations’ deadline, Jason Rappaport requested the court to find the de novo standard of review applied. In response, Guardian invoked Loper Bright, arguing the regulation was not entitled to judicial deference since the DOL was not authorized “to dictate or alter judicial review standards.” The court disagreed.
First, the court pointed out the regulations themselves do not contain, nor do they specifically alter judicial standards of review. The court further observed the Loper Bright ruling did not question the Second Circuit’s Halo decision, which was not based on Chevron but was derived from the Supreme Court’s 1997 ruling in Auer v. Robbins,[14] a doctrine that gives federal agencies discretion to interpret regulations they have promulgated, and which the court reinforced in a later ruling.[15]
Hence, the court concluded that based on Halo, it was required to find that Guardian forfeited its deferential authority by not complying with the ERISA claim regulations. Although Guardian notified Rappaport prior to the expiration of the 45-day period to decide his claim appeal that an extension was needed to perform a financial review, the court found there were no special circumstances justifying an extension. The court rejected Guardian’s argument that it needed additional time to perform a financial review, finding that excuse did not amount to special circumstances, which are permitted only for reasons beyond the plan’s control [16]
The facts presented also showed Guardian did not even retain a consultant to perform the financial review it claimed was needed until after the 45-day deadline had expired. Accordingly, the court ruled the case would be adjudicated under the de novo standard of review.
The Rappaport ruling joins Cogdell v. Reliance Standard Life Insurance Co.[17] — decided by the U.S. District Court for the Eastern District of Virginia in September — in rejecting a challenge to the DOL’s ERISA claim regulations based on Loper Bright, with both rulings advancing the same rationale. As both courts pointed out, and as the Supreme Court made clear in Firestone, there is no provision in the ERISA law dictating the judicial standard of review applicable in adjudicating benefit claim disputes.
Thus, under the authority granted by ERISA Section 503, the DOL was given broad latitude in defining what constitutes the statutorily required “full and fair review” of claim denials. Since those regulations do not impose any default rule against plans that would require the payment of benefits if there were noncompliance, the DOL did not exceed the authority granted to the agency by Congress. Instead, plans still receive their day in court but without a thumb on the scales of justice in their favor.
Rules are made for a purpose; and if there were no consequences for rule-breaking, rules would be pointless. The DOL has laid out a set of rules for ERISA claims and appeals that fulfill Congress’ purpose in granting benefit claimants a full and fair review of claim denials. Rappaport made it clear that those rules must be followed — or else the plan administrator is stripped of its discretionary authority.
Q&A to the Consequences of Delayed Claim Decisions in Disability Benefits Claims
What happens if an insurer delays a disability claim decision beyond the regulatory deadlines?
Under ERISA regulations, insurers must adhere to strict timelines for deciding claims and appeals. If they fail to comply, courts may strip insurers of their deferential review authority, applying a de novo standard instead. This exposes insurers to greater liability, as their decisions are no longer given the benefit of the doubt.
Why is timely decision-making so important in disability claims?
ERISA regulations are designed to ensure a “full and fair review” of claims. Delayed decisions undermine this purpose and can unfairly harm claimants. Courts like in Rappaport v. Guardian Life enforce these rules to protect claimants from procedural delays and arbitrary denials.
How can claimants protect themselves against delayed decisions?
Claimants should keep detailed records of all communications with insurers and monitor deadlines carefully. If deadlines are missed, they may be able to argue for a de novo review in court, which provides a fairer opportunity to contest a denial.
Mark DeBofsky is a shareholder at DeBofsky Law Ltd.
This article was first published by Law 360 on December 4, 2024.
[1] Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).
[2] Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 219 L. Ed. 2d 832 (2024).
[3] 144 S. Ct. at 2263.
[4] Id. at 2265 (quoting 5 U.S.C. § 706).
[5] Id. at 2273.
[6] 29 C.F.R. § 2560.503-1.
[7] Rappaport v. Guardian Life Insurance Company of America, 2024 U.S. Dist. LEXIS 212996, 2024 WL 4872736 (S.D.N.Y. November 22, 2024).
[8] Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).
[9] Citing inter alia Mayer v. Ringler Assocs. Inc., 9 F.4th 78, 89 (2d Cir. 2021).
[10] Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016).
[11] 29 C.F.R. § 2560.503-1(l)(2)(i) states:
In the case of a claim for disability benefits, if the plan fails to strictly adhere to all the requirements of this section with respect to a claim, the claimant is deemed to have exhausted the administrative remedies available under the plan, except as provided in paragraph (l)(2)(ii)of this section … [and] the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.
[12] 29 U.S.C. § 1133.
[13] Citing 29 C.F.R. § 2560.503-1(i)(1)(i).
[14] Auer v. Robbins, 519 U.S. 452 (1997).
[15] Kisor v. Wilkie, 588 U.S. 558, 568, 573, 139 S. Ct. 2400, 204 L. Ed. 2d 841 (2019).
[16] Citing Hughes v. Lincoln Nat’l Life Ins. Co., 2023 U.S. Dist. LEXIS 143931, 2023 WL 5310611, at *12 (D. Me. Aug. 17, 2023) and Rhodes v. First Reliance Std. Life Ins. Co., 670 F. Supp. 3d 119, 125 (S.D.N.Y. 2023).
[17] Cogdell v. Reliance Standard Life Insurance Company, 2024 U.S. Dist. LEXIS 165596, 2024 WL 4182589 (E.D. Va. September 11, 2024).
