Category Archive for ‘Disability Insurance Benefits’
New ERISA Disability Claim Regulations – Part 2by Andrew Whiteman
New ERISA Disability Claim Regulations – Part 2
On April 1, 2018, a new disability claim regulation came into effect. The regulation was promulgated by the United States Department of Labor (referred to herein as “DOL”) under the authority of the Employee Retirement Income Security Act of 1974 (“ERISA”) and applies to all employee benefit plans that provide disability benefits.
This is the second in a series of nine blog posts that will summarize important features of the new regulation. The last blog post discussed the history of DOL’s regulation of the disability claim process under ERISA, the rationale for revising the existing regulation, and the types of plans that are covered by the new regulation.
The new regulation amended the existing regulation in the following eight areas:
1. Conflicts of interest involving claims adjudicators and medical and vocational consultants.
2. Additional disclosures required with denial notices.
3. Disclosure of plan criteria.
4. Requires notifications to be made in a “culturally and linguistically-appropriate manner.”
5. Disclosure of new evidence and new rationales prior to denial on review.
6. Disclosure of contractual limitations period deadline.
7. Enhanced remedy for a plan’s violation of the regulation.
8. Expansion of the definition of “adverse benefit determination.”
This blog post will cover the new provisions relative to conflicts of interest involving the plan’s claims adjudicators and medical and vocational consultants.
I. Summary of the Changes to the 503 Regulation
A. Avoiding Conflicts of Interest
1. The Rule
29 C.F.R. § 2560.503-1(b)(7) prohibits a plan from providing financial incentives to its claim adjudicators and medical and vocational consultants.
(b) * * * (7) In the case of a plan providing disability benefits, the plan must 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. Accordingly, 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.
2. The DOL’s Comments
The independence and impartiality rules are not limited to persons responsible for making the decision:
In the Department’s view, the text of paragraph (b)(7) is clear that the independence and impartiality requirements are not limited to persons responsible for making the decision.
For example, the independence and impartiality rules apply to consulting experts who do not decide whether to allow the claim but who may “support the denial of benefits.”
The Rule is not limited “to individuals the plan directly hires.” Thus, the independence and impartiality rules govern apply to consultants hired and compensated by third-party service providers, as is typically the case.
The DOL’s final rule publication states:
Similarly, a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications.
During the rule-making process, commentators questioned whether the independence and impartiality requirements would result in claimants requesting discovery into “statistics and other information on cases in which the medical expert expressed opinions in support of denying rather than granting disability benefits” and, more generally, the “reputation” of the consultant. In response, the DOL stated that its preamble statement concerning consultants being hired based on historical outcomes of their cases rather than qualifications, a so-called “reputation” hire, represents one way that the independence and impartiality rules could be violated.
Regarding the issue of discovery, the DOL stated that the requirements of the rule do not expand the scope of “relevant documents” subject to the disclosure requirements of section 2560.503-1(g)(1)(vii)(C) and (h)(2)(iii) of the 503 Regulation. However, the DOL added:
or do the independence and impartiality requirements in the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination.
The impartiality of the plan’s medical consultants is a huge issue in ERISA disability litigation. The treating provider rule does not apply. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003). Instead, courts have held that it is not an abuse of discretion for a plan to rely on the opinions of its own consulting physician, even if the consultant never examined the claimant. Black & Decker, 538 U. S. at 834. Cf. Boyd v. Liberty Life Assurance Co., 362 F.Supp.2d 660, 669 (W.D.N.C. 2005). (a treating physician’s “opinion as to the severity of the impairment and the interference to the patient’s ability to work that such an impairment causes, generally should not be rejected ‘unless the adjudicator can point to persuasive, contradictory medical evidence.’”).
It seems likely that the DOL’s commentary will embolden claimants to request discovery in the “statistics” concerning the outcomes of claims referred to the plan’s consultants. Some courts have allowed such discovery under the 2002 Regulation:
However, the information Hartford has been ordered to produce – statistics concerning claims referred to Dr. Fuchs and MES by Hartford, the number of cases in which Dr. Fuchs found claimants to be suffering from restrictions preventing work, and any agreements or guidelines pursuant to which MES operated – goes to potential bias within Hartford’s referral process, which may be relevant on the question of its structural conflict of interest. The Court will therefore overrule Defendant’s objection regarding third-party vendors.
Bruce v. Hartford, 21 F. Supp. 3d 590, 598 (E.D. Va. 2014).
New ERISA Disability Claim Regulations – Part 1by Andrew Whiteman
New ERISA Disability Claim Regulations – Part 1
On December 19, 2016, the United States Department of Labor (referred to herein as “DOL”) revised the claims procedures for employee benefit plans that provide disability benefits under the Employee Retirement Security Act of 1974 (“ERISA”). The DOL’s new regulation strengthened the current rules primarily by applying to disability benefit claims the procedures and safeguards applicable to group health benefits under the Affordable Care Act. The effective date of the new regulation was extended from January 1, 2018, until April 1, 2018, to allow for an additional comment period.
This is the first of a series of blog posts that will summarize important features of the new regulation. The revision amended the existing regulation in the following eight areas:
- Conflicts of interest involving claims adjudicators and medical and vocational consultants.
- Additional disclosures required with denial notices.
- Disclosure of plan criteria.
- Requires notifications to be made in a “culturally and linguistically-appropriate”
- Disclosure of new evidence and new rationales prior to denial on review.
- Disclosure of contractual limitations period deadline.
- Enhanced remedy for a plan’s violation of the regulation.
- Expansion of the definition of “adverse benefit determination.”
Of equal importance to the amendments themselves, however, is the DOL’s extensive commentary, which may be found in section II. B of 81 Federal Register 243. The DOL’s views will be very helpful to practitioners and the courts in interpreting the new regulations, and it is likely that courts will defer to the agency’s official interpretive statements under the Chevron doctrine. See Christensen v. Harris County, 529 U.S. 576, 587 (2000) (An agency’s interpretation of a regulation that was arrived as part of a formal notice-and-comment rulemaking process should be entitled to deference.)
This blog post, the first of nine, will cover the history of the DOL’s regulation of the disability claim process under ERISA, the rationale for revising the existing regulation, and the types of plans that are covered by the new regulation. Subsequent blogs will cover the eight changes to the regulation.
- History of DOL Regulations
The Department of Labor published its first regulation in 1977 at 29 C.F.R. 2560.503-1. This codification has been referred to as the “503 Regulation.” It applied to all covered employee benefit plans. The DOL revised the 503 Regulation in 2000 by providing new time frames and improved requirements for notices and disclosures relative to group health and disability benefit claims. Although the 503 Regulation continued to be applicable to all employee benefit plans, the more robust procedural requirements applied to claims for group health and disability benefits. The 2000 revision became effective for claims filed on and after January 1, 2002.
The DOL published its proposed revision on November 18, 2015. The Department received 145 public comments in response to the publication. The new regulation and the Department of Labor’s extensive commentary were published on December 19, 2016, and may be found at 81 Federal Register No. 243 (2016).
On October 12, 2017, the DOL announced that it was seeking comments on a proposed 90-day delay of the applicability of the new regulations through April 1, 2018. This action followed the Trump administration’s Executive Order 13777, entitled Enforcing the Regulatory Reform Agenda, which required, inter alia, a review of existing regulations within each federal agency and input from persons significantly affected by the existing regulation. The DOL received 110 comments in response to the proposed delay. Most of the industry commentators – employers, plans, insurers, and plan service administrators – offered comments similar those made during the rule-making process. Accordingly, on November 29, 2017, the DOL announced that notwithstanding the stakeholders’ comments it would adopt the proposed new regulation without change. The effective date was revised to April 1, 2018.
2. Background of the Revision to the 2002 Regulation
The Department of Labor cited several reasons for reconsidering the 503 Regulation. Long-term disability cases dominate employee benefits litigation. Between 2006 and 2010, LTD cases accounted for 64.5% of benefits litigation, whereas cases involving health plans and pension plans accounted for only 14.4% and 9.3%, respectively. In addition, the DOL found that “[i]nsurers and plans looking to contain disability benefit costs may be motivated to aggressively dispute disability claims” and quoted from court cases to support its view.
The DOL’s ERISA Advisory Council was asked to reconsider the disability claims process and in December 2012 and produced a report titled Managing Disability Risks in an Environment of Individual Responsibility (herein, “Council Report”). The Council concluded:
Not all results have been positive for the participant under ERISA-covered plans and the implementing claim procedures regulations, even though these rules were intended to protect participants. The Council was made aware of reoccurring issues and administrative practices that participants and beneficiaries face when appealing a claim that may be inconsistent with the existing regulations.
The DOL’s determination to revise the claims procedures was influenced by industry practices:
The Department’s determination to revise the claims procedures was additionally affected by the aggressive posture insurers and plans can take to disability claims as described above coupled with the judicially recognized conflicts of interest insurers and plans often have in deciding benefit claims. In light of these concerns, the Department concluded that enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act were as important, if not more important, in the case of claims for disability benefits.
3. What Plans are Covered by the New Regulations
Any employee benefit plan that conditions the availability of a benefit upon a finding of disability by the plan provides a disability benefit that is subject to the special rules for disability claims under the 503 Regulation. Thus, a disability pension or early retirement benefit that is conditioned on a finding of disability by the plan would be considered a disability benefit. On the other hand, where a plan provides that a benefit is available upon on a finding of disability made by a party other than the plan, such as the Social Security Administration or another employer plan, a claim for such a benefit is not treated as a disability claim for purposes of the 503 Regulation.
The next blog post will cover topic 1 – conflicts of interest involving claims adjudicators and medical and vocational consultants.”
© Andrew Whiteman 2019
 81 Federal Register 243, at pp. 92319-21331.80 Federal Register 230 (2015).  82 Federal Register 196 (2017), available at https://www.gpo.gov/fdsys/pkg/FR-2017-10-12/pdf/2017-22082.pdf.  See 82 Federal Register 228, available at https://www.gpo.gov/fdsys/pkg/FR-2017-11-29/pdf/2017-25729.pdf.  See 81 Federal Register 243, n.6.  Available at http://www.dol.gov/sites/default/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2012ACreport2.pdf.  Council Report, p. 6.  81 Federal Register 243, p. 92317.  81 Federal Register 243, n.3.  Id., and see also Benefit Claims Procedure Regulation FAQs, A-9, available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/benefit-claims-procedure-regulation. (Caution: The FAQs have not been updated to reflect the 2018 claims procedures.)
Whiteman Law Firm specializes in cases involving claims for disability insurance and other employee benefits. These cases typically involve application of a federal law, the Employee Retirement Income Security Act of 1974, known by the acronym ERISA, and are usually resolved through the benefit plan’s appeal process or federal court. We have helped hundreds of individuals with their claims for short-term and long-term disability insurance benefits.
Contact us for more information about our ERISA disability benefits practice.
Whiteman Law Firm supports adoption of a state law that would outlaw discretionary clauses in health and disability insurance policies.by Andrew Whiteman
Whiteman Law Firm supports adoption of a state law that would outlaw discretionary clauses in health and disability insurance policies.
Whiteman Law Firm has asked the North Carolina Department of Insurance to indicate whether it will support adoption of NAIC model legislation that would prohibit so-called “discretionary clauses” in employer-sponsored health and disability insurance policies.
Most employer-sponsored health and disability benefits policies contain provisions that grant discretionary authority to the insurance company to interpret plan terms and to determine eligibility for benefits. The inclusion of a discretionary clause in the policy means that a federal court that is asked to review an insurer’s benefits decision must give deference to the insurer’s determination. Under the abuse of discretion standard, the decision of an insurance company to deny benefits will be upheld “if it is the result of a deliberate, principled reasoning process and if it is supported by substantial evidence.” DuPerry v. Life Insurance Company of North America, 632 F.3d 860, 869 (4th Cir. 2011). The quantum of evidence necessary to sustain the insurer’s decision is “more than a scintilla but less than a preponderance,” Newport News Shipbuilding & Dry Dock Co. v. Cherry, 326 F.3d 449, 452 (4th Cir. 2003), and has been described alternatively as “evidence which a reasoning mind would accept as sufficient to support a particular conclusion,” LeFebre v. Westinghouse Elec. Corp., 747 F.2d 197, 208 (4th Cir. 1984). The parties are not entitled to a jury trial, and the court’s review is generally limited to the record that was before the insurer at the time it made its final benefits decision.
Thus, the abuse of discretion standard is far more restrictive than the standard that applies in a breach of contract case. If the claimant purchases a private (not an employee benefit) insurance policy, a jury will determine whether the insurer breached the terms of the policy without giving deference to the insurer’s determination of the claim. Furthermore, in a non-ERISA case, the court construes ambiguous policy terms in favor of coverage and against the insurance company. North Carolina Farm Bureau Mutual Insurance Co. v. Mizell, 138 N.C. App. 530, 532, 530 S.E.2d 93, 95 (2000).
The abuse of discretion standard results in a serious handicapping of the case in favor of the insurance company. Due to the conflict of interest that exists between the insurer’s dual roles as claims adjudicator and payor of benefits, there is a financial disincentive for the insurance company to fairly adjudicate claims.
The National Association of Insurance Commissioners is an association of the chief insurance regulators from each of the 50 U.S. states and its six territories. In 2006, the NAIC proposed a model statute titled Prohibition on the Use of Discretionary Clauses Model Act. Under the NAIC’s Model Act, discretionary clauses in health and disability insurance policies would be outlawed. According to the NAIC’s website, 26 states have adopted the Model Act or some version of it by statute or regulation. Various courts have upheld the state laws against an ERISA preemption challenge. See e.g. Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, Plan No. 625, 856 F.3d 686, 695 (9th Cir. 2017). The North Carolina Legislature and the Department of Insurance have not acted.
The NAIC Model Act is a sensible legislative solution to a serious problem that affects claimants covered by employer-sponsored health and disability insurance policies. The question for our lawmakers is why North Carolina’s citizens should not be afforded the same protections as other states’ residents.
Contact us if you would like more information.
Andrew Whiteman will speak on new ERISA disability claim regulations on December 14, 2018.by Andrew Whiteman
The Department of Labor’s new ERISA disability claim regulations became effective on April 1, 2018. Mr. Whiteman will speak on this topic on December 14, 2018, at a continuing legal education program sponsored by the North Carolina Advocates of Justice.
Click here to see the program for the NCAJ Social Security Disability 2018 CLE
Contact us for more information about our ERISA disability benefits practice.