In the January 12, 2017 edition of the Los Angeles Daily Journal, Robert McKennon and Scott Calvert of the McKennon Law Group PC published an article summarizing the new U.S. Department of Labor disability insurance claims regulations aimed at reducing the inherent conflicts of interest present when ERISA plan administrators review long-term disability and short-term disability insurance benefit claims. In the article entitled “New Regulations Will Benefit Claimants in Disability Insurance Cases,” Mr. McKennon and Mr. Calvert explain that the new regulations require that insurance companies and ERISA plan administrators keep individual claimants much more informed throughout the claim process, which the Department of Labor believed was necessary to ensure a full and fair review of short-term disability and long-term disability claims.
The article is posted below with the permission of the Los Angeles Daily Journal.
New Regulations Will Benefit Claimants in Disability Insurance Cases
By Robert J. McKennon and Scott E. Calvert
Disability insurance cases dominate the Employee Retirement Income Security Act litigation landscape today. According to the U.S. Department of Labor, ERISA employee benefits litigation from 2006 to 2010 involving long-term disability claims accounted for 64.5 percent of benefits litigation, whereas lawsuits involving health care plans and pension plans accounted for only 14.4 and 9.3 percent, respectively. It is no secret that insurers and plans looking to contain disability benefit costs are motivated to aggressively dispute disability claims. Indeed, the DOL estimates that roughly 75 percent of long-term disability claims are denied.
The DOL is charged with promulgating new regulations governing disability insurance and health insurance benefit claims that are governed by ERISA. In late December 2016, the DOL finalized new regulations, codified at 29 C.F.R. Section 2560.503-1 and discussed at 81 Fed. Reg. 92316, aimed at minimizing the conflicts of interest inherent in the administration of ERISA plans and providing individual claimants with additional information regarding the reasons why their disability claim was denied. The DOL indicated that the regulations were “necessary to ensure that disability claimants receive a full and fair review of their claims, as required by ERISA section 503.”
The new regulations must be followed by plan and claim administrators when reviewing disability insurance benefit claims submitted by plan participants and their beneficiaries. The regulations take effect on Jan. 18, 2017, but only apply to claims for disability benefits that are filed on or after Jan. 1, 2018.
The primary change is to reinforce and strengthen the rules designed to avoid conflicts of interest. Paragraph (b)(7) of the rule is designed to “ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.” The rule requires that decisions regarding hiring, compensation, termination and promotion must not be made based upon the likelihood that a person will support the denial of disability benefits. For example, a plan is not permitted to hire an “independent” medical expert based on that expert’s reputation for providing administrator-favored reports.
The biggest change is the expansion of what information must be disclosed and included in any denial letter.
First, a denial letter must specially include the bases for disagreeing with any disability determination by the Social Security administration. It requires that a denial letter explain why the plan agreed or disagreed with the conclusions reached by the Social Security administration after it evaluated the same disabling conditions, medical evidence, and job duties.
Similarly, a denial letter must now also include a discussion as to why the denial decision differs from the opinions offered by a claimant’s treating physician. This is important because, typically, a claimant’s treating physicians support the claim for disability benefits. By forcing the administrator to specifically address the contrary positions offered by the treating physicians, the administrator will be forced to confront and refute this significant evidence supporting the claim.
Additionally, the denial letter must include the internal rules, guidelines, protocols, standards, or other similar criteria that were relied upon in denying the claim. Providing a claimant with this information will allow him or her to specially address those rules and standards in seeking to overturn a claim denial.
The final disclosure requirement imposed by the new regulations is that the plan administrator must explain its basis for disagreeing with any experts whose advice was initially sought but not followed. This requirement was added to prevent “intentional expert shopping” by a claims administrator. That is, when an insurance company “may consult several experts and deny a claim based on the view of one expert when advice from other experts who were consulted supported a decision to grant the claim.” By forcing the administrator to acknowledge and explain why it did not follow the recommendation of its hired experts, the DOL seeks to prevent the hiring of multiple experts until an administrator-favorable opinion is secured.
Another significant change to the regulations, codified at paragraph (h)(4), requires the plan administrator to provide claimants, free of charge, any new or additional evidence considered or relied upon when making the benefit determination, thus giving the claimant the right to review and respond to new information even before the final claim decision is made. The new evidence must be provided to a claimant as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination is required, thus giving the claimant a reasonable opportunity to address the new evidence or rationale prior to the denial decision being made. This important new rule will allow claimants to augment the Administrative Record because they will have another opportunity to present evidence in support of their claim.
Other changes relate to when a claim is “deemed denied,” freeing a claimant to initiate litigation despite the fact that his or her administrative remedies were not yet exhausted. If a claim for benefits is denied, the claimant is required to appeal that decision before initiating litigation.
Under the new regulations, if a plan fails to adhere to all the requirements in the claims procedure regulations, the claim is “deemed denied” without the exercise of discretionary authority. This gives the claimant the right to file a lawsuit without further delay and will allow a court to decide the merits of the claim de novo, without any deference to the fiduciary who violated the rules. Thus, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance.
The regulations also include a provision that allows a claimant to request a written explanation of any asserted violation. The administrator is required to respond to such a request within 10 days and include a specific description as to why the violation should not render the claim “deemed denied.” However, if a court finds the violation to be “de minimis,” then the matter would be remanded back to the plan administrator for further review.
Importantly, the regulations require a final denial to describe “any applicable contractual limitations period that applies to the claimant’s right to bring … an action [under ERISA], including the calendar date on which the contractual limitations period expires for the claim.” The DOL clearly states in the preamble to the new regulations its belief that any contractual limitations period that expires before the final denial is issued (or even less than a reasonable amount of time thereafter) is per se impermissible.
Finally, the claims procedures apply to any “adverse benefit determination,” which now specifically includes any rescission of disability coverage (unless it was caused by a failure to pay required premiums or contributions on time).
With these regulations, the DOL has acted to protect claimants from ERISA administrators by attempting to minimize their conflicts of interest, promoting an open and robust discussion of the claim, and ensuring that administrators strictly comply with the regulations. These are positive steps for ERISA claimants who file claims for short-term and long-term disability benefits.
As a whole, these changes will greatly benefit claimants and should make it easier to understand the claim review process and the reasons for denial, as well as make it easier to provide documents to support their claims. Indeed, the regulations finally “give some teeth” to the long-standing requirement that administrators engage in a “meaningful dialogue” with disability claimants.