As you know, on April 1, 2018 new regulations from the U.S. Department of Labor’s governing Employee Retirement Income Security Act of 1974 (ERISA) disability benefit claims became effective.
How will these new regulations affect litigation? New issues will develop new analysis, but in our continuing effort to flag new litigation issues, here are two quick ones:
1. The new regulations may affect standard of review, but that may not be all bad. As you know, many plans confer discretionary review, giving the claims decision-maker more deference in the claim decision. The new regulations allow for the court to substitute de novo review in cases where an insurer failed to strictly adhere to the regulations.
A. What’s the difference between “substantial compliance” and “strict adherence”? Under the old rules, the court assessed whether the claims administrator failed to substantially comply with the ERISA procedural requirements. See, e.g., Hill v. Hartford Life Ins. Co., 527 F. Supp. 2d 495, 503 (W.D. Va. 2007).
Under the new regulations, “if a plan fails to strictly adhere to all the requirements…the claimant is deemed to have exhausted the administrative remedies.” Price v. Unum Life Ins. Co. of Am., 2018 WL 1352965, fn 12 (D. Maryland March 14, 2018).
So what is the difference? The Court in Price entered summary judgment in favor of the insurer despite procedural errors in handling the claim. Under the substantial compliance standard, the court looked to whether the record “creates a concern regarding the overall adequacy and integrity of the …decision making process.” Op. at 8.
The Court noted, however, that the new regulations call for “strict adherence,” leaving the impression that the new regulation, if applicable, might cause a different result. Id., at fn 12.
B. Going de novo isn’t all bad. There are several strategic advantages to agreeing to de novo review, depending on your administrative file.
First, some courts impose extra duties upon the insurer under discretionary review. For example, if abuse of discretion applies, some courts will expect the claim administrator to conduct a physical examination, rather than rely solely on medical record reviews. See, e.g., Helfman v. GE Grp. Life Assurance Co., 573 F.3d 383, 393 (6th Cir. 2009) (when abuse of discretion standard applies, the failure to conduct a physical examination, where the Plan document gave the plan administrator the right to do so, “raises questions about the thoroughness and accuracy of the benefits determination.”)
Second, de novo review can cut off expensive discovery, and may keep extrinsic evidence out of the record.
You already know that in ERISA life, health and disability claim determinations, “‘[i]n most cases…the district court should only look at the evidence that was before the plan administrator at the time of the determination.’” (There are many exceptions.) Sometimes during the later lawsuit, the claimant may seek to supplement the administrative record. For example,…
See, e.g., Reetz v. Hartford Life & Accident Ins. Co., No. C17-0084JLR, 2017 WL 5176705, at *3 (W.D. Wash. Nov. 8, 2017)).
2. The new regulations narrow the “failure to exhaust administrative remedies” defense, so you may be in court sooner. The original Department of Labor regulations implementing ERISA provided that a claim or appeal was “deemed denied” if it was not decided within the specified time period. E.g., 29 C.F.R. § 2560.503-1(h)(4) (1998). The United States Supreme Court ruled that this “deemed denied” regulation merely permitted a claimant to commence a civil action without first exhausting his or her administrative remedies. Mass. Mat. Life Ins. Co. v. Russell, 473 U.S. 134, 144, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985).
Under the new regulations, if the claims administrator fails to adhere to the new claims regulations, the claimant does not have to exhaust administrative remedies unless, among other requirements, the error was minor and nonprejudicial.
If a claimant chooses to file suit, the regulations provide that the claimant’s claim or appeal is deemed denied on review “without the exercise of discretion by an appropriate fiduciary.” So, if the court determines the claims handling errors were not minor, then the de novo standard will apply.
If a claimant chooses to file suit, the insurer can argue the regulatory violation was “minor” and, in theory, the trial court could remand the matter for an appeal determination.