By: Eric Buchanan, Chattanooga, Tennessee. eric@buchanandisability.com
Before filing a lawsuit, a claimant must exhaust the available remedies under the plan, so long as the plan’s procedures are reasonable. This typically means that a claimant must apply for benefits in accordance with the plan’s reasonable application procedures. If the claim is denied, the claimant must appeal under the plan’s appeal procedures. Also, if the plan requires it, the claimant can be required to appeal a second time. A claimant is required to “exhaust” his or her administrative remedies before filing an action in court, which usually means timely filing all the required appeals.
The plan procedures and appeal rights that apply pre-suit in ERISA benefits cases are controlled by the regulations issued by the U.S. Department of Labor, found at 29 C.F.R. § 2560.503-1. These regulations set out certain standards built on the foundation that every plan shall establish and maintain reasonable claims procedures.
In addition to that general mandate, the regulations spell out several baseline requirements that make a plan’s procedures “reasonable” in the first place: the procedures must comply with the rest of the claims regulations; the claims procedures must be described in the plan’s summary plan description; a plan may not “unduly inhibit or hamper” the filing or processing of a claim or appeal (for example, by charging a fee to do so); a plan must allow a claimant to act through an authorized representative; and benefit determinations must be made in accordance with the plan’s documents and applied consistently to similarly situated claimants. 29 C.F.R. § 2560.503-1(b)(1)-(5).
The regulations also cap how many times an insurance company or plan can make a claimant jump through the appeal hoop. For claims involving health insurance or long-term disability benefits, a plan may not require more than two mandatory appeals before the claimant is entitled to sue under ERISA § 502(a). 29 C.F.R. § 2560.503-1(c)(2). A plan may offer an additional, purely voluntary level of appeal beyond the two mandatory appeals, but only if several conditions are met: the plan must agree to waive any argument that the claimant failed to exhaust administrative remedies if the claimant declines the voluntary appeal; any contractual or other limitations period is tolled while the voluntary appeal is pending; the plan must disclose who will decide the voluntary appeal and whether that decision-maker has a financial or personal conflict of interest; and the plan may not charge any fee for the voluntary appeal. 29 C.F.R. § 2560.503-1(c)(3)(i)-(v). A plan cannot require mandatory arbitration of a claim, although arbitration may be offered as one of the two mandatory levels of appeal so long as it does not preclude judicial review under ERISA § 502(a). 29 C.F.R. § 2560.503-1(c)(3)-(4).
Unlike the regulations that apply to social security disability cases, the regulations applicable to ERISA LTD claims are very short and limited. While social security disability regulations fill up a huge portion of a Federal Social Security Laws book many of us use, the regulations applicable to ERISA benefits claims amount to less than 20 pages.
The primary ERISA regulations that apply to LTD claims (and other claims for benefits, such as life insurance, health insurance, dental insurance, etc. issued through work) are found at 29 C.F.R. § 2560.503-1. These regulations were first published in 1977, and have been amended several times. The most important amendments were in the early 2000′ and then most recently in 2016.
While the ERISA claims regulations still favor employers and insurance companies in many ways, most attorneys who represent plaintiffs in LTD cases agree that the changes to the ERISA Department of Labor claims regulations in the early 2000’s were a significant improvement over the previous claims regulations. Among the improvements were shortened time frames for insurance companies to make decisions, additional time for employees to appeal claims, and some specific requirements about what useful information must be in ERISA claims decisions.
In late 2016 the Department of Labor issued new amendments to the ERISA claims regulations. While the new amendments were technically “effective” January 18, 2017, most of the new provisions that govern claims for benefits, such as LTD benefits, only apply to claims filed after April 1, 2018.
“New” Regulations Issued in 2001
Among the changes in the early 2000’s, that apply to claims filed after January 1, 2002, (and that apply to most claims right now), are requirements that, for example, require that 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.”
The 2001 claims regulations also establish maximum time limits for an administrator to consider a claim and minimum time for a claimant to appeal. If a claimant does not appeal within the time limits, his claim will likely be denied for failure to exhaust administrative remedies. For a disability claim, the administrator must decide within 45 days; however, if the administrator determines that “special circumstances” require an extension of time” the administrator may take two extensions of 30 days each if it notifies the claimant in writing that it needs more time. 29 C.F.R. § 2560.503-1(f)(1) and (3). If the claim is denied, the time given to a claimant to file an appeal must be reasonable, but not less than 180 days. 29 C.F.R. § 2560.503-1(h)(4). After the appeal is made, the administrator must decide within 45 days, which can be extended by another 45 days, for a total of 90 days. 29 C.F.R. § 2560.503-1(i)(3)(i).
If the claimant fails to appeal during the time allowed by the plan, his or her claim is most likely over, because the failure to appeal on time will most likely be found to be a failure to exhaust. On the other hand, if the administrator fails to decide within the time required, the claimant’s claim is “deemed exhausted” and the claimant may file a complaint in court under ERISA § 502(a)(1)(B).
Deadlines Under the Old Pre-2002 Regulations
As noted above, a small but recurring category of cases still involves the pre-2002 claims regulations, because a claim filed before January 1, 2002, remains governed by the old rules even if the insurance company does not deny or terminate the claim until many years later. Under the old regulations, the administrator had to make an initial decision within 90 days, extendable by another 90 days. Old version of 29 C.F.R. § 2560.503-1(e)(3). The time to appeal had to be reasonable, related to the nature of the benefit, but not less than 60 days. Old version of 29 C.F.R. § 2560.503-1(g)(3). The decision on appeal had to be made within 60 days, extendable by another 60 days. Old version of 29 C.F.R. § 2560.503-1(h)(1). This is not merely academic: in one case, a claimant was found disabled and paid benefits beginning in 2000, only to be cut off in 2012; the insurance company argued the original, pre-2002 claim entitled the claimant to only 60 days to appeal the termination, even though it had actually given him 90. The court held that, because the plan had since been amended to allow 180 days to appeal, the claimant was entitled to the longer period. See Knight v. Provident Life & Acc. Ins. Co., No. 3:12-CV-01226, 2014 WL 1280278, at *9 (M.D. Tenn. Mar. 27, 2014).
Deadlines for Claims Other Than LTD or Health Care Claims
Practitioners should also remember that LTD deadlines are not universal; other ERISA welfare benefits, such as life insurance, are governed by a different, more generous set of default deadlines. For those claims, the general rule is that the plan has 90 days to make an initial decision, extendable by another 90 days upon written notice. 29 C.F.R. § 2560.503-1(f)(1). If denied, the claims procedures need only allow the claimant 60 days to appeal. 29 C.F.R. § 2560.503-1(h)(2)(i). Once an appeal is filed, the decision-maker has 60 days to decide, extendable by another 60 days. 29 C.F.R. § 2560.503-1(i)(1)(i). Health care claims have their own, more granular set of deadlines that vary by the urgency of the claim and are beyond the scope of this paper.
Practical Tips on Calculating and Protecting Deadlines
The regulations do not build in any grace period for mailing time, so, unless counsel can prove exactly when a denial letter was received, the safest practice is to calculate every deadline from the date printed on the letter itself. It is also worth remembering that 180 days is not the same as six months; 180 days from April 15, for example, expires on October 12, not October 15, so the math should always be run out explicitly rather than assumed.
On the insurance company’s side, an extension of time to decide a claim or appeal is only valid if the administrator notifies the claimant, before the original deadline runs, that the extension is necessary due to matters beyond the plan’s control; that notice must explain the standards on which entitlement to the benefit is based, the unresolved issues preventing a decision, and what additional information is needed, and must give the claimant at least 45 days to provide it. 29 C.F.R. § 2560.503-1(f)(3). The clock for the administrator’s decision starts when the claim is filed, regardless of whether all necessary information has been submitted, but the clock is tolled from the date the administrator asks for missing information until the date the claimant responds. 29 C.F.R. § 2560.503-1(f)(4). As a practical matter, so long as the insurance company sends its extension letter before the original deadline expires, it gets the additional time; once the extended deadline also lapses without a decision, the claim is deemed exhausted and the claimant may go to court.
A related practice tip: whenever a mandatory appeal deadline is running, use the actual word “appeal” in the correspondence (“we appeal,” “this letter is an appeal on behalf of my client,” or similar language) well before the deadline expires, even if additional evidence will follow later. Because voluntary appeals are not always available, and because the administrative record closes once the final appeal is decided, the better practice is to submit all favorable evidence with that timely appeal rather than counting on a later opportunity to supplement the record.
“New” New Regulations Issued in 2016
In late 2016 the Department of Labor issued new amendments to the ERISA claims regulations. While the new amendments were technically “effective” January 18, 2017, most of the new provisions that govern claims for benefits, such as LTD benefits, only apply to claims filed after April 1, 2018.
Several new rules will apply to those claims filed after April 1, 2018, such as a rule that is supposed to avoid bias by decision makers and against using biased experts. The new regulations require that plans ensure that claims are adjudicated in a way that ensures the “independence and impartiality of the persons involved in making the decision.” New 29 C.F.R. § 2560.503-1(b)(7). Under the new rule, “decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) must not be made based upon the likelihood that the individual will support the denial of benefits.” Id.
The new amendments to section 2560.503-1(g)(1) (vii)(A) (dealing with the required content in benefit determinations letters) have added several requirements that the decision maker must explain the reason for denying a claim. The “adverse benefit determination” must explain the “basis for disagreeing with or not following:”
(i) The views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant;
(ii) The views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and
(iii) A disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration.
Another new requirement is that the notification of an “an adverse benefit . . . shall be provided in a culturally and linguistically appropriate manner.” New 29 C.F.R. § 2560.503-1 (g)(1)(viii).
That requirement is fleshed out elsewhere in the regulations: a plan meets the “culturally and linguistically appropriate” standard only if, for any non-English language spoken by ten percent or more of the population of the county where the notice is sent, the plan (i) provides oral language assistance, such as a telephone hotline, that can answer questions and help with filing claims and appeals in that language; (ii) provides a written notice in that language upon request; and (iii) includes a prominent statement, in that language, on the English-language notice itself, explaining how to access the language assistance. 29 C.F.R. § 2560.503-1(o)(1)-(2).
New regulation 29 C.F.R. § 2560.503-1(h)(4)(i) requires that, when the plan obtains or generates new evidence, that evidence must be provided to the claimant “sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided.” Similarly, section 2560.503-1(h)(4)(ii) requires that, if the plan changes rationale, the plan to provide the claimant with the new rationale for the decision to deny benefits, and “the rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided.”
Another change in the new regulations will address the confusion regarding contractual periods of limitations. Courts have held that ERISA plans and insurance policies can shorten the statute of limitations. Also, in Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. 99 (2013) the Supreme Court held that the time to file suit can run while the claimant is still exhausting the administrative process. The Supreme Court explained that, absent a statute to the contrary, “a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.” However, this results in a lot of confusion about calculating the resulting deadline to file in court, especially when policies begin to run the time from some ambiguous provision such as “three years from when proof of loss is due;” and, proof of loss is due “90 days after the end of the elimination period.”
Therefore, the new regulations, thankfully, now have a requirement that the adverse determination letter, “shall . . . describe any applicable contractual limitations period that applies to the claimant’s right to bring such an action, including the calendar date on which the contractual limitations period expires for the claim.” New 29 C.F.R. § 2560.503-1(j)(4)(ii).
A Rescission of Coverage Now Counts as a Denial of Benefits
The 2018 amendments also close off a maneuver insurance companies sometimes used to sidestep the claims regulations altogether: retroactively rescinding coverage rather than denying a claim on the merits (for example, by later claiming the claimant withheld information or committed fraud on the application). The regulations now make clear that, for plans providing disability benefits, any retroactive cancellation or discontinuance of coverage, whether or not it has an immediate effect on a particular benefit, is itself an “adverse benefit determination” that triggers all the same procedural protections — unless the rescission is simply for failure to timely pay premiums. 29 C.F.R. § 2560.503-1(m)(4)(ii).
Perhaps the Most Significant Change: Real Consequences for Violating the Regulations
The 2018 amendments also gave the claims regulations some teeth. Previously, the only consequence spelled out in the regulations for a plan’s failure to follow reasonable claims procedures was that the claim would be deemed exhausted, letting the claimant go straight to court. 29 C.F.R. § 2560.503-1(l)(1). For disability claims, the amendments add a second, more powerful remedy, and change the standard plans must meet in the first place.
First, the standard: it is no longer enough for a plan to show that it “substantially complied” with the claims regulations, which had long been the insurance industry’s standard defense. For disability claims, a plan must now “strictly adhere to all the requirements” of the regulations; if it does not, the claimant is deemed to have exhausted administrative remedies and may proceed under ERISA § 502(a) — and, critically, when the claimant does so, the claim or appeal is treated as denied on review “without the exercise of discretion by an appropriate fiduciary,” which strips the plan of the deferential arbitrary-and-capricious standard of review and exposes the denial to de novo review in court. 29 C.F.R. § 2560.503-1(l)(2)(i).
Second, there is a narrow safety valve: a plan’s administrative remedies will not be deemed exhausted for violations that are truly de minimis — that is, violations that did not cause and are not likely to cause prejudice or harm to the claimant, so long as the plan shows the violation was for good cause or due to matters beyond its control, and that it occurred in the context of an ongoing, good-faith exchange of information with the claimant. That exception is unavailable if the violation is part of a pattern or practice by the plan. The claimant may (though the regulation does not say the claimant must) request a written explanation of the violation, which the plan must provide within 10 days. If a court later agrees the de minimis exception applies, the claim is treated as though it were simply re-filed on appeal, and the plan must give the claimant notice of that resubmission within a reasonable time. 29 C.F.R. § 2560.503-1(l)(2)(ii).
In practice, this plays out in stages: the claimant first shows a violation of the claims regulations; the insurance company can no longer defend itself by claiming “substantial compliance,” and instead must show the violation was de minimis under the standard above; and even where the plan makes that showing, the worst outcome for the claimant is that the claim is treated as freshly re-filed on appeal, not dismissed outright. Because this provision is still relatively new, there is not yet a substantial body of case law interpreting how strictly courts will police the “strict adherence” standard or how generously they will read the de minimis exception, and it is an area worth monitoring closely.
Obligation to Build the Record Before the Final Denial
In addition to understanding how the ERISA regulations apply to the administrative process, it is also crucial to understand that the record closes when the insurance company or ERISA administrator issues its final decision. Claimants must submit all the evidence they want considered during the administrative appeal process and may not submit new evidence regarding the merits of their claim once the case is in court.
The reason that courts will not consider new evidence is that most circuits have held that in district court these cases are treated more like a review of an administrative decision. For example, the Court of Appeals for the Sixth Circuit explained in Wilkins v. Baptist Healthcare Systems, Inc., 150 F.3d 609 (6th Cir. 1998) that during judicial review of an ERISA claim for plan benefits the district court’s review is “based on the record before the administrator.” Id. at 617–18. 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.
In other words, the basic rule is that the record closes when the insurance company makes its final denial, and it is almost always impossible to get in new evidence to the court that was not sent to the insurance company before they denied the claim. Most circuits agree with this rule; however, in the Fifth Circuit, the rule is that the court should consider all the evidence submitted to the administrator or insurance company at any time prior to filing the complaint. Vega v. Nat’l Life Ins. Servs., 188 F.3d 287, 300 (5th Cir. 1999).