The Western Kentucky District Court recently reviewed a long-term disability (“LTD”) claim denial de novo rather than using an abuse of discretion standard, despite the policy containing language authorizing the plan administrator to use discretion in interpreting the plan and making claims decisions. In Smith v. Reliance Std. Ins. Co., 2024 WL 647395 (W.D. Ky. 2024), the court entered judgment in favor of the plaintiff and granted her leave to request attorney’s fees after determining under a de novo standard of review that her inherently subjective pain symptoms rendered her disabled under the terms of the policy.

When a disability insurance policy contains language permitting the plan administrator to use discretion in interpreting the plan’s terms and deciding whether to approve or deny a claim for benefits, typically a court will determine the outcome of the case by deciding whether the administrator abused its discretion in denying a claim. Alternatively, where a policy does not grant discretion to the administrator, the court will review the decision de novo, which means the court reviews the evidence and decides whether the plaintiff is disabled under the policy without giving any deference to the plan administrator’s denial. In Smith, a third party reviewed and denied the plaintiff’s claim. The court found that despite the policy language granting the plan administrator discretion, the plan administrator had not actually exercised any discretion, but instead had contracted out to the third party, Matrix Absence Management, Inc., to interpret the plan and deny the plaintiff’s LTD claim and the third party “exercised ultimate decision-making responsibility for the policy determination.” The court cannot determine whether the plan administrator abused its discretion if the plan administrator did not exercise discretion. Therefore, the court held that it could review the LTD claims determination de novo. The court explained that:

Reliance Standard responds to [to the argument that it did in fact exercise discretion in denying the claim] by pointing out that the April 26, 2021 letter is written to Smith from Reliance Standard. [] Although that letter is on Reliance Standard letterhead, it is signed by Norden, and it does not change the fact that Norden was employed by Matrix and exercised ultimate decision-making responsibility for the policy determination. []. This alone is sufficient to show that Reliance Standard—although the policy clearly vested it with discretionary authority—did not actually exercise that discretionary authority itself. As a result, the Court must review the claims determination de novo. See, e.g., Davidson v. Liberty Mut. De novo. Co., 998 F. Supp. 1, 9 (D. Me. 1998) (applying de novo review where “[No portion] of the LTD plan … expressly permits delegation of the duties of the plan administrator” and “the Court cannot assume that the LTD plan permitted delegation of the duties of the plan administrator[.]”); Belheimer v. Fed. Express Corp. Long Term Disability Plan, 2012 U.S. Dist. LEXIS 168882, at *20 (D.S.C. De novo. 28, 2012) (“[A]s Federal Express delegated its final decision-making authority to Aetna, and the LTD Plan did not contemplate or authorize such a delegation, this Court will review the decision to deny Plaintiff’s long-term disability benefits claim de novo.”).

Id. at *4.

For a plaintiff, overcoming an abuse of discretion standard is usually more difficult than the court determining as a first impression whether the evidence favors the plaintiff’s disability claim under the de novo standard of review. Thus, for the court in Smith to review the LTD denial de novo rather than using an abuse of discretion standard could well have been the difference between receiving LTD benefits and the court upholding the denial. The court’s decision to review the LTD denial de novo was therefore a significant victory for the plaintiff.

Aside from having her LTD benefits reinstated, the court’s decision also meant that the plaintiff had achieved success on the merits. Had the court decided the case using an abuse of discretion standard, the plaintiff may not have succeeded on the merits and therefore would not have been given leave to request attorney’s fees. Because the court overturned the denial of LTD benefits and approved LTD claim, it gave the plaintiff the ability to recover significant attorney’s fees possibly based on the distinction between the plan administrator making a claims decision itself on one hand or contracting out with a third party on the other. This nuance illustrates the need for knowledgeable, experienced counsel when challenging an insurance company’s claim denial. Finding experienced ERISA disability insurance attorneys to handle your denied disability insurance claim is critical. The attorneys at McKennon Law Group PC have been immensely successful handling matters like Smith involving complex nuance.

An Oregon Federal District Court  recently issued a decision that helps illuminate the issues related to the requirement that a claimant exhaust administrative remedies prior to filing suit, specifically, when a long-term disability (“LTD”) claimant can consider a claim to be denied, when he exhausts his administrative remedies and when an insurer may properly extend deadlines and delay issuing a decision. In Witt v. Intel Corporation Long-Term Disability Plan, 2024 WL 687928, at *7, 10 (D. Or. Feb. 16, 2024), the claimant filed suit before the Plan had issued a decision on his appeal of his previously denied LTD claim. The Plan, who was the Defendant, hired ReedGroup to administrator the claims. The Plan moved to compel exhaustion of administrative remedies and argued that the claimant had filed suit prematurely because it had not issued a decision on the appeal of his LTD denial. Plaintiff responded that he had exhausted administrative remedies because the Plan had failed to issue a decision within the time required by the Employee Retirement Income Security Act of 1974 (ERISA). The court denied the Plan’s motion and concluded that plaintiff had exhausted his administrative remedies.

For disability plans, the claims regulations that govern ERISA allow a claimant to consider his administrative remedies to be exhausted if the plan violates its requirements. A plan generally has 45 days to issue a decision of a claimant’s appeal; it may take up to an additional 45 days, but it must provide plaintiff with written notice of the extension before the expiration of the 45-day period, and the extension must be warranted by “special circumstances.” In Witt, plaintiff had faxed his appeal, then also mailed it, so ReedGroup received it once by fax, then again in the mail several days later. ReedGroup acknowledged that it had received the earlier, faxed copy of the appeal. ReedGroup then sent plaintiff a letter stating that it required additional time to issue a decision because the medical reviews had to be corrected based on the Plan provisions for medical evidence. ReedGroup sent the letter after 45 days had passed since plaintiff’s faxed appeal but less than 45 days since it received the mailed appeal.

The Plan argued that because 45 days had not passed since it received plaintiff’s mailed appeal, its notice to plaintiff that it needed additional time to issue a decision did not violate the ERISA requirement. However, that argument failed because ReedGroup had previously acknowledged receipt of the earlier faxed appeal.

The Plan relied on Peck v. Aetna Life Insurance Company, 495 F.Supp.2d 271 (D. Conn. 2007), for the proposition that submission of additional materials to support an appeal tolls the appeal decision deadline. The court found the case distinguishable as it found that the defendant plan administrator’s request for an extension of time was a “special circumstance” because it requested the extension after plaintiff submitted additional materials that the plan had requested. Id. at 276-77. Although the appeal deadline may be tolled when an extension is requested “due to a claimant’s failure to submit information necessary to decide the claim,” or when a plan administrator requests additional information, that was not the case in Witt. 29 C.F.R. § 2560.503-1(i)(4). ReedGroup never requested additional information from plaintiff, nor did ReedGroup indicate that it needed the extension because plaintiff failed to submit necessary information. Plaintiff’s appeal was effectuated on May 25, 2023, making the 45-day determination deadline July 10, 2023. In turn, ReedGroup’s July 12, 2023 extension request was not timely. Therefore, the court concluded that ReedGroup committed a procedural violation by requesting an extension after the 45-day deadline to issue a determination had passed.

The Plan argued that there were “special circumstances” present because it needed time to correct the medical reports it had received. The court reviewed numerous cases and determined that there were no “special circumstances” present because medical reviews occur in almost all disability cases and ReedGroup engaged in a 29-day delay to initiate the medical review.  ReedGroup itself had created its need for more time to decide on plaintiff’s appeal and therefore, its need for more time did not meet the statute’s requirement of being warranted by “special circumstances.”

Next, the Plan argued that while it had waited longer than 45 days to send written notice to plaintiff of its need for more time, it was only two days and therefore was a de minimus violation of the claims regulations that should not impact plaintiff’s requirement to exhaust administrative remedies. The Plan also argued that it was required by ERISA to issue a decision on the proper evidence, so it needed to be sure that the medical records were correct. The court noted that 29 C.F.R. § 2560.503-1(l)(2)(ii) states that de minimis violations that do not prejudice or harm the claimant will not deem administrative remedies exhausted so long as the plan demonstrates that the violation was for good cause or due to matters beyond the control of the plan. The court explained that:

Read as a whole, this sentence indicates that, even if a violation does not prejudice or harm a claimant, the de minimis exception does not apply unless the plan demonstrates that the violation was for good cause or due to matters beyond its control.

Witt can serve as a reminder to insurers that ERISA time requirements are to be taken seriously and they may not get away with simply coming up with any feasible reason for extending the time it takes to issue an appeal decision on an LTD claim. For claimants and their attorneys, Witt is a reminder to be diligent and closely examine the insurer’s actions and motivations for an extension. In this case, diligence paid off and plaintiff’s case moved forward more quickly and efficiently than it otherwise might have. McKennon Law Group PC has made similar arguments in numerous disability and accidental death insurance cases to the great benefit of its clients.

Ninth Circuit Clarifies Standing of Medical Providers in ERISA Lawsuits

The Ninth Circuit Court of Appeals in S. Coast Specialty Surgery Ctr. v. Blue Cross of Cal., __ F. 4th __, 2024 WL 105317 (9th Cir. Jan. 10, 2024) (Before Circuit Judges Graber, Mendoza, Jr., and Desai), recently clarified a longtime standing issue in the law that a healthcare provider may sue an insurance company under ERISA to recover from the insurance company benefits that otherwise might otherwise be recoverable only by the patient. South Coast Specialty Surgery Center, Inc. (“South Coast”) brought an ERISA action against Blue Cross of California dba Anthem Blue Cross (“Blue Cross”) to recover benefits on behalf of patients who had been treated by South Coast and who had assigned their benefits to South Coast. The district court dismissed South Coast’s lawsuit on the basis that South Coast lacked authority to bring an ERISA action, as South Coast was neither a beneficiary nor a plan participant. The district court construed this assignment as giving South Coast the right to receive direct payment from Blue Cross but not the right to sue for nonpayment of benefits.

South Coast appealed the dismissal of its suit and argued to the Ninth Circuit that because each of its patients, who were beneficiaries, had signed an Assignment of Benefits agreeing to allow South Coast to receive benefits from Blue Cross, the patients had effectively assigned their right to sue under ERISA to South Coast. The Ninth Circuit had little trouble holding that South Coast’s patients had validly assigned their right to benefits to South Coast, and that such an assignment included the right to sue for nonpayment of benefits.

The Ninth Circuit’s reasoning was based partly on ERISA’s stated purpose of effectuating “a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans.” Concluding that South Coast had no authority to sue despite its patients having assigned it their rights to receive benefits would leave South Coast with no legal recourse after essentially “fronting” the costs of its patients’ care. The court noted that not allowing South Coast to sue “stymies Congress’s purpose in enacting ERISA.” The court concluded that: “[c]onstruing an assignment of benefits as including the right to sue for non-payment thus increases patient access to healthcare and transfers any responsibility of litigating unpaid claims to the provider-an entity that is much better positioned to pursue those claims in the first place.” A nice place to end the decision and begin the year. Therefore, so long as an ERISA beneficiary has validly assigned his right to receive benefits, the provider to which he assigned that right also has the right to bring an ERISA action against the insurer for nonpayment of benefits.

What Is ERISA?

ERISA is an acronym for the Employee Retirement Income Security Act of 1974. It is federal legislation that originally became law in 1974. The main goal of ERISA is to provide protection for individuals who receive employer-sponsored insurance and retirement employee benefits.

One specific goal is to help ensure that employees of private employers will have the insurance benefits when they need them and the retirement income they expect when they retire. Such benefits typically include disability insurance, life insurance, health insurance, accidental death insurance, and pension benefits. To that end, ERISA sets forth numerous fiduciary duties owed by ERISA plan fiduciaries.

What Are Fiduciary Duties and Who Is Responsible for Them?

The fiduciary responsibilities under ERISA include managing plans with the interests of beneficiaries and participants first and foremost. Trustees, plan administrators, insurance companies and other fiduciaries involved in making claim decisions or managing assets under an ERISA plan cannot make decisions that place the interests of the employer or themselves before the plan participants or their beneficiaries. Some examples of specific requirements include:

• Acting prudently. Fiduciaries would breach their fiduciary duties by managing investments or asset pools recklessly and/or unreasonably.
• Diversifying. It is typically considered in the best interest of participants and beneficiaries if the value of the assets is stable, and stable investments tend to be diversified in nature.
• Following plan documents. Employers and other plan fiduciaries must in most cases follow the documents that detail how the plan works and what benefits should be paid out. They cannot change their mind about benefits later and simply pay at a different rate that is not defined by the plan. There are exceptions to this rule that include making sure that they act consistently with their representations made to plan participants even if later they determine the representations were false.
• Avoiding conflicts of interest. Fiduciaries cannot engage in activities concerning the plan in an attempt to benefit the employer or other fiduciaries or partners.
• Acting on the direction of plan participants. In cases where plan participants have a say in how their own retirement assets are invested, they have the final word on the matter. If they instruct a fiduciary to invest their assets in a certain manner, the fiduciary must typically follow through on that request.
• Do not misrepresent the plan terms. Plan fiduciaries must communicate honestly and accurately about the plan and the plan benefits.

Anyone who is involved in managing the funds or who makes claims decisions with respect to the plan benefits related to employer-sponsored benefits plans will act in a fiduciary role. Under ERISA, individuals are fiduciaries if any of the following are true:

• They have a certain level of control in managing the assets of the plan
• They can buy or sell assets on behalf of the plan at their own discretion
• They provide any type of investment advice related to the assets within the plan
• They decide claims by exercising discretion in making claims decisions

Signs That Fiduciary Duties Under ERISA May Have Been Breached

Sometimes there are signs of a fiduciary breach, such as someone refusing to follow through on your requests or your benefits payments not being paid. However, that is not always the case, so it is important to review your retirement account statements regularly and look for any potential irregularities and it is important to critically review claim denials for benefits payable under a plan.

Some examples of signs that fiduciary duty might have been breached include:

• Inconsistencies with pension or other retirement account reporting, or statements arriving late or not at all.
• Contributions being withheld from your paycheck are not transferred to your retirement accounts promptly.
• Your statements reflect investments that you did not authorize.
• You notice new, excessive, or confusing fees and other withdrawals.
• You receive a denial of a claim for benefits you have made under an insurance policy covered by your plan.
• You receive a denial of a claim for benefits you have made under your pension or retirement plan.
• You are told that the amount of benefits you are to receive from your pension plan is inconsistent with representations that plan fiduciaries have previously made to you.

Understanding Your Options if Fiduciary Duties Are Breached

The term fiduciary means to involve a high level of trust. Often, fiduciary relationships exist when there are financial matters at stake and there are parties that manage the finances on behalf of and for the benefit of others. For example, if you create a conservatorship and have a trustee manage it on behalf of a disabled individual, the trustee has a fiduciary duty to manage the assets for the benefit of that person.

ERISA creates a fiduciary relationship between pensioned employees and others with employer-sponsored benefits and the entities that operate those plans and make discretionary decisions regarding those plans. If the insurance companies or plan administrators involved act in bad faith or otherwise breach their fiduciary duties, employees and plan participants may have options for seeking compensation for any related losses. Working with an experienced ERISA lawyer can help you understand your rights and what options you have for enforcing them.

Steps to Take if You Believe Fiduciary Duties Have Been Breached

If you believe that you are the victim of a fiduciary breach of duty related to an ERISA-covered plan, there may be remedies available to you. You can pursue an ERISA appeal and/or file an ERISA lawsuit that may help you recover any losses related to the breach. Fiduciaries who breach their duties can be required to make good on any losses contemplated by the ERISA plan.

Start by reaching out to an experienced ERISA legal team. Provide them with as many details as possible so they can evaluate your case and help you understand if you have cause for a lawsuit. You may want to begin collecting documentation and information as soon as you believe a breach of duty is possible. Some information you might want to gather includes copies of investment and benefits statements related to your plan, claim denial letters, your claim forms and appeal letters, your plan documents, your claim file/administrative record, all communications between you and the insurer/ERISA fiduciary and any notes you can make about the signs you have noticed.

For help fighting for your ERISA benefits, call McKennon Law Group PC. Call us at 949-504-5381 to find out more about how we can help with your ERISA claims, including your breach of fiduciary duty claim.