ERISA Archives - Page 41 of 56 - McKennon Law Group

When and Why Government Plans are not Governed by ERISA

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

Determining what law governs your health, life, or disability insurance claim is the first step in the process of defending a wrongfully denied claim. Generally speaking, if you have a denied life, disability or health insurance claim, especially if you live in California, you are better off if the Employment Retirement Income Security Act of 1974, otherwise known as “ERISA,” does not apply. That is because California and other states have laws governing these types of claims that are very favorable to insurance claimants that allow them to sue an insurer for breach of contract, insurance bad faith and punitive damages. These claims are not available in ERISA. Emotional distress damages and other damages caused by insurance company’s bad faith may be recoverable in a state law governed claim but are not recoverable in ERISA cases. How do you determine whether ERISA applies to your claim? As discussed in earlier blogs, ERISA does not apply to specific types of employer benefits plans such as “church plans” or “government plans.” In this blog, we delve into detail as to why and when ERISA’s excludes such government plans, including some variations on that exclusion based on how the plan was funded.

Why does ERISA exclude government plans?

To determine why Congress excluded government plans from ERISA, we first need to explore the history of ERISA. When Congress crafted ERISA, it sought to reduce abuses in the system for private employee pensions. At first, Congress imagined an ERISA that included government plans. However, Congress ultimately decided that regulation of such government plans was better left in the hands of state and local governments. For example, in Gualandi v. Adams, 385 F.3d 236 (2d Cir. 2004), Ms. Gualandi taught at a New York public school and the “Plan” at issue was a fund for the benefit of public school teachers like Ms. Gualandi. In determining whether ERISA or state law governed the Plan, the Court explored the reasons why Congress chose to differentiate between private and government plans. As the Gualandi Court noted, Congress reasoned that state and local governments should be allowed to make their own determination as to the best way to protect the rights of state and local employees.

When does ERISA exclude government plans?

As noted above, Title I of ERISA specifically removes from its coverage any employee benefit plan that qualifies as a government plan. 29 U.S.C. § 1003(b). Under ERISA, a government plan means any plan established or maintained by the federal government, a state government or political subdivision, or by any agency or instrumentality of any of the foregoing. 29 U.S.C. § 1002(32). This brings us to the next question: is the plan “established or maintained” by a government entity? Over time, the courts have broadly construed the “established or maintained” provision of ERISA. To be established, the plan does not need to be created by a specific law or local ordinance. The courts have defined established to include plans created pursuant to a collective bargaining agreement between a government unit and a union. See Feinstein v. Lewis, 477 F. Supp 1256 (D.C.N.Y. 1979). However, the question becomes more complicated when addressing how the plan is funded.

How is the plan funded?

Exclusive government funding is enough to constitute a plan established by the government for the purposes of ERISA. To return to the earlier example used in the Gualandi, the Plan in that case was funded by a school district’s contributions pursuant to a collective bargaining agreement and related settlement. In Gualandi, the Court found that the plan was a government plan excluded from ERISA. However, the answer to whether the plan is funded by the government is less clear when the plan is funded by payroll deductions (money from each employee’s individual paycheck). For example, in Graham v. Hartford Life & Acc. Ins. Co., 589 F.3d 1345 (10th Cir. 2009), the Tenth Circuit held that a plan funded by payroll deductions did not amount to a government plan exempt from ERISA. However, in Montoya v. ING Life Ins. and Annuity Co., 653 F.Supp.2d 344 (S.D.N.Y. 2009), the court found a plan is funded by a government entity even if it is the result of payroll deductions. Further, the question becomes even more complicated when the funding is mixed private and public funding or when a government agency or instrumentality joins with a public entity to form a public-private partnership.

Determining whether a matter is governed by ERISA can be a complex undertaking and the above are just a few considerations to keep in mind when a plan may be established or maintained by the government and therefore not subject to ERISA.

Having an experienced disability, health and life insurance attorney matters. If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

How Insurers Deny Legitimate Health Insurance Claims

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. This is the third in a series of articles on How Insurance Companies Deny Claims. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

The U.S. Department of Labor estimates that about one claim in seven made under the employer health plans that it oversees is initially denied – about 200 million claims per year. In our article entitled “The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought,” we referenced a recent column in the Los Angeles Times that lends support for the proposition that health insurers frequently deny legitimate claims as a business practice to maximize profits (as do disability insurers and life insurers). The LA Times column stated this about denied health insurance claims:

Insurance companies are playing the odds . . . They’re counting on people not having the stamina to challenge every denied claim, even when there’s a valid medical reason for a drug or treatment being covered.

(See January 17, 2017 article “How to fight back when an insurer denies your healthcare claim”). The LA Times column cites a study by the Government Accountability Office which “found that of the relatively small percentage of denied claims that are challenged, about half ended up being reversed.” That means health insurers routinely make the wrong decision and hope that their insureds do not pursue these claim denials. Indeed, former Kansas Insurance Commissioner Sandy Praeger says, “We think some companies are probably denying claims, counting on the hassle factor, [so] that people will just go ahead and pay out of their own pockets.” The LA Times agrees:

“Insurers make money when you pay in through premiums and copays, and they lose money when they pay out,” said Chuck Idelson, a spokesman for the California Nurses Assn., which supports a Medicare-for-all insurance system. “So they do everything possible to deny claims.”

* * * *

Try not to lose your cool. The system is designed to wear you down and to weed out the weak from the strong. An insurer has nothing to lose and everything to gain from putting barriers in your path.

Something to keep in mind: Insurers are so unhappy about paying claims that the percentage of premiums received they have to pay back to policyholders is known as the “medical loss ratio.” Seriously. To them, covering your healthcare is considered a financial loss.

Health Insurance Claim Denials

How do insurers deny valid health insurance claims, whether they are governed by federal law, the Employee Retirement Income Security Act (“ERISA”), or state insurance bad faith laws? One way they do it is by rigidly denying broad categories or types of claims without taking the time to evaluate whether the specific claim is covered under their plan or policy. For example, an insurer may automatically deny any claim for laser hair removal as cosmetic and medically unnecessary. But what if the plan participant suffers from a severe case of recurrent folliculitis, an extremely painful condition where one’s hair follicles become infected and inflamed and develop into benign cysts? The medically accepted treatment for extreme cases is laser hair removal. When the participant submits a claim for that treatment, the insurer may “rubber-stamp” the claim denied, wrongly assuming to its advantage the treatment is purely cosmetic. In short, the insurer “buries its head in the sand” and avoids learning the facts hoping the claim will be dropped. Without a skilled attorney representing the patient, health insurers are incentivized to deny claims even when they clearly fall within the policy’s coverage. Faced with a denial, many patients will accept the insurer’s decision and pay the bills themselves, increasing their profits.

There are many other tricks that health insurers use to deny valid claims. For example, they often claim a medical procedure is experimental, even when doctors disagree. Or, they deny on a technicality simply because your doctor put in the wrong diagnostic or procedure code. Insurers use auditing software often dubbed “denial engines” because their intent is to lower the amount of money paid to physicians and hospitals. These auditing programs work by finding technical errors in billing codes that all doctors, hospitals and clinics, among others, submit for payment.

Additionally, health insurers bank on the fact that health insurance contracts are incredibly complex. They know that patients usually will not take the time to understand them (or cannot even if they read them), leaving them at a distinct disadvantage when appealing a claim denial. In the words of one commentator, insurance contracts “may as well be written in hieroglyphics. They are nearly impossible to decipher, [with] one incomprehensible clause after another.” In trying to make sense of insurance contracts in a South Carolina case, the State Supreme Court concluded, “insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.” S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 489 S.E.2d 200, 206 (S.C. 1997).

In addition, many large health insurers have been accused of illegally canceling, retroactively, policies of people whose conditions are expensive to treat, leaving them to pay for crippling medical bills while they face fatal health conditions such as cancer. In one such case, Los Angeles City attorneys sued Anthem Blue Cross to try to stop the company from this practice. The City’s attorneys claimed that “[t]he company has engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most.” Anthem Blue Cross eventually settled for $10 million while maintaining its innocence.

In a somewhat similar situation, our client had a health insurance policy covering her dying child. The medical expenses were so great that the insurer decided to start denying all claims, asserting it could rescind the policy because our client allegedly committed criminal fraud but refused to state how she committed fraud. There was no fraud – it was completely made up as an excuse to deny the rest of her claims.

Here are some of the other common reasons that health insurers deny claims:

Procedure is not medically necessary
Not covered by the policy
Untimely claim
Procedure is experimental
Lack of prior authorization or referral
Inaccurate physician coding
Incomplete or inaccurate insurance information

Our Take

These are just some of the ways health insurers find ways to deny legitimate claims. If you have a health insurance claim that was improperly denied, you need an experienced ERISA health or bad faith attorney, such as the lawyers at McKennon Law Group PC, on your side. As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). You cannot count on your insurer acting in good faith or doing the right thing. The Department of Labor statistics and other empirical data show that often they will not pay a claim unless credibly threatened by an insured with a highly effective and experienced lawyer. Let us try to get your insurer to listen. We have successfully done it for decades.

The California Insurance and Life, Health, Disability Blog at mslawllp.com/news-blog/ and at mslawllp.com
All rights reserved

How Do Insurers Deny Valid Disability Insurance Claims?

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law. This is the second in a series of articles on How Insurance Companies Deny Claims. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at www.mckennonlawgroup.com and complete a free consultation form.

In our recent article entitled “The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought,” we explained that the U.S. Department of Labor estimates that a whopping 75 percent of long-term disability claims are denied, and that it is so concerned about the alarming number that, in December 2016, it published new regulations governing disability benefit claim denials. (See our article in the Daily Journal re-published on our website.) The regulations require disability insurers to ensure independence and impartiality in their decision-making process, and explain more thoroughly the reasons for their benefits decision.

This article, the second in a series of articles on the prevalence of insurer claim denials, explains how disability insurers deny legitimate long-term disability and short-term disability claims. Stay tuned for our next two articles in the series which will explain how insurance companies deny legitimate health insurance claims and life insurance claims.

Long-Term and Short-Term Disability Claim Denials

Disability insurance cases dominate the ERISA (Employee Retirement Income Security Act) litigation landscape today. According to the DOL, from 2006 to 2010, long-term disability claims accounted for 64.5 percent of ERISA employee 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.

How do insurers deny valid disability insurance claims when they are governed by federal law, ERISA? First, they draft a plan term that gives them (the entity funding the plan’s disability benefits), complete discretion to interpret the plan/policy language and decide whether a disability benefits claim is valid or not under the plan/policy terms. In other words, the same entity that is legally responsible to pay your benefits has the final say whether your claim is valid. In many states, but not in California, courts are required to give deference to the insurer’s benefits decision under these discretionary plan provisions unless the insurer “abuses its discretion.” Under the abuse of discretion standard, an insurer’s decision is only reversed if the claimant can demonstrate that the insurer’s actions were “arbitrary and capricious,” a difficult standard for insureds to overcome. In sum, disability insurers are sometimes able to get away with denying valid claims by drafting extremely one-sided plan/policy terms that benefit them at the expense of ERISA plan participants and their beneficiaries.

ERISA disability and life insurance claims can be the most difficult for insureds because this heavily slanted, pro-insurer practice is permitted. While some states, including California, recently enacted statutes prohibiting such discretionary provisions in disability and life insurance plans, most states do not have such claimant-friendly statutes. Because disability insurers are large national corporations, they make company-wide policy and practice decisions on a national level. Thus, even in California, these insurers still decide claims with the understanding that it may be difficult for a court to overturn their benefits decision.

To attempt to insulate themselves from a court finding they acted arbitrarily, disability insurers hire biased medical consultants to review a claimant’s medical records without examining or speaking to the claimant. (Not surprisingly, these medical consultants usually conclude that the claimant is not disabled.) Insurers hire the same doctors, over and over. The doctors implicitly understand their work will dry up if they come to the “wrong” conclusion too often. It is both easy and lucrative for these insurance industry doctors to spend a few hours reviewing a claimant’s file, typically without ever examining the claimant or speaking to them or to their doctors, and then write a boilerplate report that the claimant is not disabled based upon their review of the medical records. Insurers then point to and rely upon the “expert’s” opinion as evidence that they acted within their discretion to deny the claim. Fortunately, in California, these pro-insurer discretionary provisions are in most situations no longer legal and so, with an excellent ERISA lawyer, a claimant has strong grounds to fight back against an invalid claim denial.

There are many other tricks that disability insurers use to deny seemingly valid claims. For example, they review social media of their insureds to see if they can find anything there to support a claim denial. They also regularly hire private investigators to follow and secretly videotape their insureds whenever they venture outside their home, whether to take the trash out, go to the grocery store or to a doctor’s appointment. Insurers use the surveillance to assert that their insureds can work and are not entitled to disability benefits, often overstating the level of activity depicted on tape and the conclusions that can be drawn from it. Courts have ruled that an overstatement of a claimant’s activities in surveillance is improper, and warn that activities observed for a short amount of time do not necessarily translate into full-time work capacity. For example, in Thivierge v. Hartford Life, 2006 WL 823751, *11 (N.D. Cal. Mar. 28, 2006), the district court held that activities observed “for a couple of hours on five out of six days she was under surveillance does not mean that Plaintiff is able to work an eight-hour a day job.” Similarly, in Leick v. Hartford Life & Accident Ins. Co., 2008 WL 1882850, at *7-8 (E.D. Cal. April 24, 2008), the court concluded that surveillance depicting the insured running errands for a few hours during one of her “good days” does not establish her ability to perform full-time consistent work.

Once a policy converts from an “own occupation” to “any occupation” standard for disability – typically after two years – insurers often hire a vocational consultant to analyze the insured’s training, education and work experience. Often, the vocational consultant is an insurance company employee, and thus has a financial incentive to cater to his employer and find the insured capable of working. With very little analysis, the consultant usually determines the insured, despite physical/medical limits that prevent him working in his own occupation, can perform other similar occupations available in the local area for which he could qualify by his education, training and experience. In arriving at this conclusion, the vocational consultant often overstates the insured’s training and overlooks practical marketplace factors that will prevent the insured from realistically obtaining those other jobs (such as age and a significant absence from the workforce). Even if minimally qualified to do another occupation, an employer is unlikely to hire, for example, a 59-year-old that has been out of the workforce for two years and has no direct experience. But disability insurers and their biased vocational consultants simply ignore critical facts like these to achieve their goal of getting another person off claim to make the company more profitable.

Our Take

These are just some of the ways disability insurers find ways to deny legitimate claims. If you have a long-term disability or short-term disability insurance claim that was improperly denied, you need an experienced ERISA disability or bad faith attorney, such as the lawyers at McKennon Law Group PC, on your side. As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). You cannot count on your insurer acting in good faith or doing the right thing. The Department of Labor statistics and other empirical data show that often they will not unless credibly threatened from an insured with a highly effective and experienced lawyer. Let us try to get your insurer to listen. We have successfully done it for decades.

The California Insurance and Life, Health, Disability Blog at mslawllp.com/news-blog/ and at mslawllp.com
All rights reserved

The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought

The U.S. Department of Labor estimates that a whopping 75 percent of long-term disability claims are denied. With over six decades of collective experience representing both insurers and their policyholders, the lawyers at McKennon Law Group PC have seen insurers routinely deny valid claims. But that DOL statistic shocked even us! Irrespective of the precise percentage, one thing is certain: life, health and disability insurers often deny valid benefit claims. They deny claims at such an astounding level it leaves reasonable people wondering – is it an ingrained business practice aimed at maximizing insurer profits?

There is empirical support. According to a recent column in the Los Angeles Times about denied health insurance claims:

Insurance companies are playing the odds . . . They’re counting on people not having the stamina to challenge every denied claim, even when there’s a valid medical reason for a drug or treatment being covered.

(See January 17, 2017 article “How to fight back when an insurer denies your healthcare claim”). The DOL is so concerned about the alarming number of claim denials that, in December 2016, it published new regulations governing disability benefit claim denials. (See our article in the Daily Journal re-published on our website). The regulations require disability insurers to ensure independence and impartiality in their decision-making process, and explain more thoroughly the reasons for their benefits decision.

It has been our experience in litigating hundreds of life, health and disability claims that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insureds being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages). Absent a realistic threat of potential liability via a looming bad faith judgment or an attorney’s fees award (attorney’s fees are potentially available under California law or under the Employee Retirement Income Security Act (“ERISA”)), insurers prefer to earn interest income on your policy benefits rather than promptly pay, or better yet, not pay at all what they rightfully owe under the policy. Absent a credible extra-contractual threat from an insured with a very good lawyer, life, health and disability insurers would rather delay paying benefits, hold on to your money and hope you give up. The lesson: hire experienced and aggressive lawyers like McKennon Law Group PC to handle your denied life, health or disability insurance claims.

This article is in a series of articles from McKennon Law Group PC that will be followed by additional articles explaining how insurance companies deny long-term disability and short-term disability insurance claims, health insurance claims and life insurance claims.

The California Insurance and Life, Health, Disability Blog at mslawllp.com/news-blog/ and at mslawllp.com.
All rights reserved

Demystifying an ERISA Disability Insurance Claim: A Timeline for a Misunderstood Employee Benefit

The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law. To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949) 387-9595 for a free consultation or go to our website at mslawllp.com and complete the free consultation form.

Disability insurance provides you with income in the unfortunate circumstance that your earnings are halted by disability. Employers often offer disability insurance in the benefits packages they provide to their employees, but many employees fail to take advantage of the benefit. The Employment Retirement Income Security Act of 1974, otherwise known as ERISA, governs most employer-sponsored benefit plans, including disability insurance plans. The legislature enacted ERISA to protect employees from abuse of their employer-sponsored benefits. As such, ERISA requires that the plan administrator, which is usually the insurance company, employer, or both, adhere to a strict standards and deadlines. This blog post demystifies the general timeline of a disability insurance claim under ERISA. First, we briefly explain the basics of a disability benefits plan and when a disability benefits plan will be governed by ERISA. Next, we cover the life of a disability insurance claim under ERISA, including some of the important deadlines that apply.

What is a disability insurance plan and when is it governed by ERISA?

First, what is a disability insurance plan? Generally, long-term disability insurance covers a portion of your income when a disability permanently halts your ability to work. Long-term disability insurance pays a portion of your previous monthly salary, subject to certain offsets for state and federal disability benefits. Before the provider pays the benefits, disabled employees must satisfy certain eligibility requirements. For many disabled employees, the following requirements typically apply:

a minimum length of service;
a minimum waiting period before benefits begin; and,
qualifies under the plan’s definition of total disability.

The next question to address is whether the disability insurance plan is governed by ERISA? When making a disability claim, you will first want to determine whether ERISA applies to your claim. Just like health insurance, employers often provide disability insurance as part of an employee’s benefits package. Unlike purchasing an individual plan directly from the insurance company, ERISA usually governs such employer-sponsored benefit plans. However, it is important to keep in mind that ERISA does not apply to some employers, such as government entities or a churches.

Some of the Important Dates and Deadlines in an ERISA Case.

If ERISA applies to your long-term disability or short-term disability insurance plan, the following timeline is generally applicable after you file your initial claim.

The Initial Claim

Within forty-five days of receipt, a claim should be approved or denied. 29 C.F.R. § 2560.503-1 (f)(3).
But, the plan may extend the forty-five-day time frame by up to thirty days. The insurer must inform the insured of its request for an extension within the initial forty-five-day period. That request for an extension must also explain why the insurer needs additional time, what additional time or information is necessary, whether there are unresolved matters, and when a final decision will be made. 29 C.F.R. § 2560.503-1 (f)(3).
If the insurer requests new or additional information, the insured has forty-five days to respond to the request. 29 C.F.R. § 2560.503-1 (f)(3).
Once the insured has provided the requested information, the claim should be decided no later than thirty days or as required by the plan, whichever date comes first. See 29 C.F.R. § 2560.503-1 (f)(3).

Appeal of the Initial Claim

If the insurer rejects your request for disability benefits, you have 180 days following receipt of a notification of an adverse benefit determination to file an appeal. 29 C.F.R. § 2560.503-1 (h)(3)(i). If you fail to adhere to this time limit, you may have no avenue to further pursue your claim.
An appeal should be decided within forty-five days of receipt by the insurer. 29 C.F.R. § 2560.503-1 (i)(3).
In special cases, review of the appeal request may require additional time. The plan may request up to an additional forty-five days, but must provide an explanation of the circumstances and an expected date when the decision will be rendered. 29 C.F.R.§ 2560.503-1 (i)(3). Additionally, some plans may allow for a second appeal.

The Statute of Limitations to File Suit

If your appeal is denied and once you have exhausted all available administrative remedies, you may file suit in court. However, your ability to file suit is also subject to a separate time limit that is important to keep in mind. If you fail to adhere to this time limit, you may have no avenue to pursue your claim.

Prior to the Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident Insurance Co., 134 S. Ct. 604 (2013), California ERISA lawsuits could be brought up to four years after the denial on appeal. After the Supreme Court’s ruling, an ERISA plan may impose a shorter time frame on an ERISA claim so long as the time frame is reasonable and no controlling statute prevents the limitations period from taking effect. For disability insurance claims in California, it is likely that California Insurance Code Section 10350.11’s three-year time limit will apply and override any shorter limitations period. Section 10350.11 applies a statute of limitations of three years after you are required to provide written proof of loss to the insurer.

How the Department of Labor’s New Regulations may affect the timeline

The Department of Labor (the “Department”) regulates disability and health insurance claims subject to ERISA. Recently, the Department finalized new regulations codified at 29 C.F.R. § 2560.503-1 and discussed at 81 Fed. Reg. 92316. The regulations hope to reduce the potential for a conflict of interest in managing an ERISA plan and better inform the insured as to why their disability benefits were denied. As far as the timeline goes, the following four points are important to remember.

The regulations only apply to claims for disability benefits filed on or after January 1, 2018.
Per the new regulations, the insured may file suit when a claim is “deemed denied” even if the administrative remedies have not been exhausted. The regulations outline that a claim is “deemed denied” once the plan fails to comply with the appropriate regulations.
The regulations also outline the insured’s ability to request the administrator’s written rationale for the alleged violation. The administrator must respond to such a request within ten days, including a written explanation addressing the alleged violation.
Finally, the new regulations require that the final denial adequately describe any applicable contractual limitations period, including the specific date that the statute of limitations to file ends.

For a full discussion of the Department’s new regulations, see our article in the Daily Journal, available at https://mslawllp.com/robert-mckennon-and-scott-calvert-publish-article-in-the-los-angeles-daily-journal-new-regulations-will-benefit-claimants-in-disability-insurance-cases/.

Robert McKennon and Scott Calvert Publish Article in the Los Angeles Daily Journal: “New Regulations Will Benefit Claimants in Disability Insurance Cases”

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.

Long-Term and Short-Term Disability Claim Denials

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New Regulations Will Benefit Claimants in Disability Insurance Cases

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