Introduction to ERISA welfare benefits claims

By: Eric Buchanan

Introduction

The Employment Retirement Income Security Act of 1974 (ERISA) is a comprehensive Federal statute that applies to many claims related to employee benefits.  If your client has a problem getting his medical insurance to cover a claim, or is covered for life insurance or long-term disability insurance at work, and has been denied benefits, the claim is likely covered by ERISA.  ERISA is a complicated area of the law that throws up many hurdles that stand between employees (and their attorneys) and their employee benefits.

ERISA was passed in response to a significant perceived problem, that employee benefits were subject to varying, and often conflicting state laws, and that employee's rights were not adequately protected by state laws.  Employees often had significantly different rights depending on the state in which they worked, while large, multi-state companies often had conflicting obligations.

Congress also perceived problems involving possible corruption and self-dealing involving large pension plans.  In order to provide Federal oversight of employee pensions and uniform national standards, Congress enacted ERISA to regulate employee pension plan.  At the last minute, ERISA was amended to include other employee benefits, including such employee welfare benefits as health care coverage, long-term disability insurance, life insurance and other similar benefits provided to employees by private employers.  Thus, ERISA applies to two broad categories of employment benefits, pension benefits and welfare benefits.

The intent of Congress in enacting ERISA was to protect the "interest of participants in employee benefit plans . . . by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts. ."  29 U.S.C. § 1001(b).  The language of the ERISA statute draws heavily from trust law as well as contract law. Congress instructed the courts to develop a common law of ERISA, using both trust and contract principals. The Department of Labor also has authority to issue regulations governing the processing of ERISA claims.

After nearly 30 years of case law, ERISA welfare benefits litigation has become a dangerous landscape, with pitfalls and mine fields full of traps for the unwary.  For example, ERISA preempts almost all disputes over benefits that are provided by private employers.  ERISA limits the remedy of a claim in a benefits case to the benefits that should have been paid under the plan, plus maybe attorneys' fees, but precludes other state law remedies, such as claims for bad faith failure to pay an insurance claim, or fraud and precludes punitive damages or other state law remedies.

ERISA also lives in its own world of civil procedure, where ordinary rules do not ordinarily apply.  For example, a claimant must first present all evidence to the insurance company and appeal all of the insurance policies internal appeals before filing a suit.  Once a suit is filed, a claimant may not submit more evidence to be considered, and no discovery is permitted regarding the merits of the claim; the Court instead reviews only those documents that were before the plan administrator.

Additionally, when reviewing the limited record, most claims are reviewed by the court under a standard of review that is deferential to the decision made by the insurance company.

ERISA Preemption

ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ... ." 29 U.S.C. § 1144(a). A saving clause then provides that some state laws are not preempted: "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A). 

In broad strokes, the case law holds that laws that provide additional remedies or causes of action outside of ERISA are still preempted, while state laws that regulate insurance in other ways may not be.

ERISA preemption means that almost all employee benefits plans that provide such benefits as health insurance, life insurance or disability insurance are preempted by Federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA.  29 U.S.C. § 1004(b).  If ERISA applies, most claims should be filed in federal court (except for claims that are limited to claims for benefits over which state courts have concurrent jurisdiction), and if a plaintiff files a claim that is properly preempted by ERISA, the defendant may remove the claim to federal court without regard to the well-pled complaint rule. 29 U.S.C. § 1132(e).

ERISA Procedures Pre-litigation

Before filing a law suit, a claimant must exhaust the available remedies under the plan, so long as the plan's procedures be reasonable.  Following ERISA's enactment in 1974, the Secretary of Labor issued a set of regulations describing reasonable claims procedures. 29 C.F.R § 2560.503-1, as published at 42 Fed. Reg. 27426 (May 27, 1977).  The regulations were recently overhauled, and "new" claims regulations were published. 65 Fed. Reg. 70265 (Nov. 21, 2000), with minor amendments published at 66 Fed.Reg. 35887 (July 9, 2001).  In regards to claims for disability benefits, the "old" regulations apply to claims filed prior to January 1, 2002, and the "new" regulations apply to claims filed after that date; the regulations have a later effective date for health care claims.
The claims regulations requires that every plan shall establish and maintain reasonable claims procedures.  29 C.F.R. § 2560.503-1.  At a minimum, a reasonable claims procedure must be described in the summary plan description, and must not be administered in a manner that unduly inhibits or hampers the filing or processing of claims. Pursuant to a "written request," plan procedures must allow claimants to "review pertinent documents" and "submit issues and comments in writing."

A claimant may submit a written request for plan documents; if the administrator does not provide the documents within 30 days, the claimant may seek a penalty of up to $110 per day after the 30 days. 29 U.S.C. § 1132(c)(1).  At any time a participant may request copies of any summary plan descriptions, insurance policies and other documents under which the plan is established or operated.  29 U.S.C. § 1024(b)(4).  If there has been an adverse claim determination, the claims regulations require that all the documents pertinent or relevant to the claim should be provided to the claimant.

The claims regulations also establish maximum time limits for an administrator to consider a claim and minimum time for a claimant to appeal.
Under 29 CFR 2560.503-1, to be reasonable, claims procedures that apply to disability claims under the new DOL claims regulations (claims filed after January 1, 2002) require:

The plan must provide reasonable claims procedures. 

After the initial claim is filed, the plan/claim administrator must make a decision within 45 days, which may be extended 30 days then by another 30 days.

If denied, the time to file an appeal must be reasonable, but not less than 180 days.

The decision on appeal must be made within 45 days, which may be extended 45 days.

Under 29 CFR 2560.503-1, to be reasonable, claims procedures that apply to disability claims under the old DOL claims regulations (for claims filed before January 1, 2002) require:

The plan must provide reasonable claim procedures.

An initial decision must be made within 90 days after the application, which can be extended by 90 days.

The time to file an appeal must be reasonable and related to the nature of the benefit but not less than 60 days.

The decision on appeal must be made within 60 days, which can be extended another 60 days.

If a claimant does not appeal within the time limits, his claim may be denied for failure to exhaust administrative remedies. If the administrator does not make a decision within the required time limit, the claim may be deemed denied.

ERISA Litigation Procedures

The Court of Appeals for the Sixth Circuit has established procedures to guide courts in considering such claims in Wilkins v. Baptist Healthcare Systems, Inc., 150 F.3d 609 (6th Cir. 1998). Under Wilkins, the Court of Appeals explained that during judicial review of an ERISA claim for plan benefits the district court's review is "based on the record before the administrator." Wilkins at 617-8. The Court of Appeals held that such cases are neither properly resolved using a bench trial, nor by ordinary summary judgment procedures, but rather by means of judicial review of the record, wherein a district court issues a judgment on the record, considering the evidence before the decision-maker, the ERISA documents, and counsel's arguments. 

Standard of Review

A plan participant is entitled to seek judicial review if a plan fails to pay plan benefits.  29 U.S.C. § 1132(a)(1)(B).  For such claims, the Court of Appeals explained in Wilkins, at 613:      

With respect to review of the plan administrator's denial of benefits, both the district court and this court review de novo the plan administrator's denial of ERISA benefits, unless the benefit plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).  

The Supreme Court explained in Firestone Tire, at 110,

ERISA abounds with the language and terminology of trust law. See, e.g., 29 U.S.C. § §  1002(7) ("participant"), 1002(8) ("beneficiary"), 1002(21)(A) ("fiduciary"), 1103(a) ("trustee"), 1104 ("fiduciary duties"). ERISA's legislative history confirms that the Act's fiduciary responsibility provisions, 29 U.S.C. § §  1101-1114, "codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts."   H.R.Rep. No. 93-533, p. 11 (1973), U.S.Code Cong. & Admin.News 1974, pp. 4639, 4649. . . In determining the appropriate standard of review for actions under § 1132(a)(1)(B), we are guided by principles of trust law. Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985).
.  
The Supreme Court's analysis in Firestone Tire explains that,

ERISA was enacted "to promote the interests of employees and their beneficiaries in employee benefit plans," Shaw v. Delta Airlines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983), and "to protect contractually defined benefits," Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S., at 148, 105 S.Ct., at 3093.   See generally 29 U.S.C. §  1001 (setting forth congressional findings and declarations of policy regarding ERISA).

Id at 113.  Because of that, and other reasoning found in the Court's decision, the Court held that the presumed standard of review to be applied by district courts under § 1132 (a)(1)(B) is de novo.

However, the Court further explained that because plan administrators are "trustees" or otherwise can act in a fiduciary capacity, that the de novo standard does not apply if the "plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id, at 115.  Thus "a deferential standard of review appropriate when a trustee exercises discretionary powers." Id, at 111. 

In reality, this has become the exception that has swallowed the rule.  Very quickly after Firestone Tire was decided, plan documents were amended to include language granting discretion to the administrator; now almost every plan claims that its decisions should be reviewed under the arbitrary and capricious standard of review.  To make matters worse, in the Sixth Circuit, almost any language giving authority to an administrator to make a determination has been interpreted to be grant of discretion.

Since almost every plan contains magic language that creates a deferential standard of review, the issue that courts must address is whether an administrator's decision should be given less deference if the administrator acted under a conflict of interest.  The Court of Appeals has recently explained:

We note, however, that our deferential review of the benefit denial at issue here is tempered by . . . the fact that the Plan is funded largely by Defendant/Appellee Emerson Electric, and that the EBC is appointed by Emerson's Board of Directors. The "possible conflict of interest" inherent in this situation "should be taken into account as a factor in determining whether the [EBC's] decision was arbitrary and capricious." Davis [v. Kentucky Finance Cos. Retirement Plan], 887 F.2d [689], 694; see also Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1069 (6th Cir.1998).

University Hospitals of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 846-7 (6th Cir 2000).  "There is an actual, readily apparent conflict here, not a mere potential for one" when the insurance company/plan administrator is the insurer that ultimately pays the benefits. Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 527 (6th Cir. 2003), quoting from Killian v. Healthsource Provident Adm'rs, Inc., 152 F.3d 514, 521 (6th Cir .1998).

When a plan administrator regularly relies on the same medical experts, this also shows the insurance company is acting with a conflict of interest.  Those medical experts have an incentive to help a plan administrator deny claims in order to save the plan administrator money and in turn continue to be paid to review cases.  As the Court of appeals explained in Darland v. Fortis Benefits Ins. Co., 317 F.3d 516, 528 (6th Cir. 2003):

As the plan administrator, Fortis had a "clear incentive" to contract with a company whose medical experts were inclined to find in its favor that Darland was not entitled to continued LTD benefits. Regula v. Delta Family-Care Disability Survivorship Plan, 266 F.3d 1130, 1143 (9th Cir.2001) (noting "the conflict of interest inherent when benefit plans repeatedly hire particular physicians as experts" since "these experts have a clear incentive to make a finding of 'not disabled' in order to save their employers money and to preserve their own consulting arrangements"). Accordingly, the existence of an apparent conflict of interest must be taken into account as a "factor in determining whether there is an abuse of discretion." Firestone Tire & Rubber Co., 489 U.S. at 115.

"Under principles of equity, a trustee bears an unwavering duty of complete loyalty to the beneficiary of the trust, to the exclusion of the interests of all other parties. Restatement (Second) of Trusts § 170 (1) (1957); 2 A. Scott, Law of Trusts § 170 (1967). To deter the trustee from all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with "uncompromising rigidity." Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (Cardozo, C. J.). A fiduciary cannot contend "that although he had conflicting interests, he served his masters equally well or that his primary loyalty was not weakened by the pull of his secondary one." Woods v. City National Bank & Trust Co., 312 U.S. 262, 269." 

In Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct. 2151 (2002), the Supreme Court noted that:

[i]n Firestone Tire itself, we noted that review for abuse of discretion would home in on any conflict of interest on the plan fiduciary's part, if a conflict was plausibly raised. That last observation was underscored only two Terms ago in Pegram v. Herdrich, 530 U.S. 211 (2000), when we again noted the potential for conflict when an HMO makes decisions about appropriate treatment, see id., at 219-20. It is a fair question just how deferential review can be when the judicial eye is peeled for conflict of interest.

Rush Prudential, 536 U.S. at 384 fn. 15. 

However, even though most plan's decisions are now reviewed under an "arbitrary and capricious" or "abuse of discretion" standard of review, the Supreme Court recently held in Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) that when courts consider cases where the ERISA decisionmaker also has a financial interest in the case, such as when an insurance company both makes a decision and would pay any benefits due out of its own funds, that this creates a conflict of interest.  The Supreme Court explained that courts should consider the  "dual role" of an entity as an ERISA plan administrator and payer of plan benefits as a factor in determining whether the plan administrator has abused its discretion in denying benefits, with the significance of the factor depending upon the circumstances of the particular case.

Other issues:

Disability benefits are often reduced by an offset for other benefits, such as social security benefits, worker's compensation benefits or other benefits paid on account of disability; read the plan documents carefully.  If your client is paid disability benefits under an ERISA plan, and later is awarded social security or worker's compensation benefits, the insurance company may claim an overpayment. Your client may or may not have to repay the "overpayed" benefits, but you need to be familiar with ERISA law to address this.

Your client may have other benefits available at work that are payable based on a finding of disability under the company LTD plan or the benefits may require a seprerate application (a waiver of life insurance premiums is common).  Be sure you ask the employer/plan administrator whether such other benefits are available and what should be done to apply for them.

Generally, there is no treating physician rule in ERISA claims, rather the terms of the plan apply.  Read the plan carefully to see what mistakes the insurance company made.  For example, many denials state the reason for the denial is a lack of objective evidence, while the actual plan does not require "objective evidence" to establish disability.

Mistakes to avoid:

1. Do not assume you can add more evidence later; submit all your evidence early to ensure it will be before the court.
2. Do not ignore the insurance company's or plan administrator's deadlines.
3. Do not file suit until you have exhausted all your remedies.
4. Do not assume your client's treating doctor's conclusory opinion or a worker's compensation rating is enough to establish disability; you must establish restrictions and limitations to support that your client cannot work.
5. Ensure you submit vocational evidence such as proof your client cannot do his own job as it is described in his job description or the Dictionary of Occupational Titles.  If your client needs to show he is totally disabled, submit the opinion of a vocational expert that his restrictions would preclude work under the definition of disability in the plan.
6. Screen your cases carefully-the standard of review gives a huge advantage to the insurance company.
7. Do not ignore the plan's contractual statute of limitations; it may be shorter than the regular statute of limitations, but a court will likely uphold it.