New ERISA Disability Claim Regulations – Part 8

Disability Insurance Benefits

New ERISA Disability Claim Regulations – Part 8

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 eighth in a series of nine blog posts that will summarize important features of the new regulation. The new regulation amended 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.”

The last blog post discussed the requirement that plans notify the claimant of any contractual limitations deadline. This blog will analyze the next topic, the new regulation’s enhanced remedy if a plan fails to “strictly adhere” to the requirements of the new regulation.

I.     Summary of the Changes to the 503 Regulation


G.    Enhanced Consequences for a Plan’s Failure to “Strictly Adhere” to Rules

The new Regulation strengthens the “deemed exhaustion” provisions of the 2002 Regulation.

  1.       The Rule

a.      Remedy for Failure to “Strictly Adhere” to Regulation under Section 503-1(l)(2)(i)

The Regulation provides that in the case of a claim for disability benefits, “if the plan fails to strictly adhere to all the requirements of this section with respect to a claim, the claimant is deemed to have exhausted the administrative remedies available under the plan, except as provided in paragraph (l)(2)(ii) of this section.”[1] In such cases, the claimant will be “entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.” If the claimant decides to file suit under such circumstances, “the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.”

b.      De Minimus Exception under Section 503-1(l)(2)(ii)

The plan’s administrative remedies will not be deemed exhausted based on de minimus violations that do not cause, and are not likely to cause, prejudice or harm to the claimant, but only if certain conditions are met.[2] The plan must demonstrate that the violation was for good cause or due to matters beyond the control of the plan and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.

Even if the plan carries its burden of proof, the de minimus exception is not available if the violation is part of a pattern or practice of violations by the plan.

The claimant may request a written explanation of the violation from the plan, and the plan must provide such explanation within 10 days, including a specific description of its bases, if any, for asserting that the violation should not cause the administrative remedies available under the plan to be deemed exhausted.

If a court rejects the claimant’s request for immediate review under paragraph (l)(2)(i) of this section on the basis that the plan met the standards for the exception under this paragraph (l)(2)(ii), the claim will be considered as re-filed on appeal upon the plan’s receipt of the decision of the court. Within a reasonable time after the receipt of the decision, the plan must provide the claimant with notice of the resubmission.

  1.      DOL Comments 

The new rule mirrors the standard applicable to group health claims under the ACA.[3]

The DOL declined to establish a general rule regarding the level of deference that a reviewing court may choose to give a plan’s decision.[4] The “deemed denied” provision is meant “to define what constitutes a denial of a claim.”[5] The legal effect of the definition “may be that a court would conclude that de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.”[6]

  1.       Implications

The “strictly adhere” standard replaces the court-created doctrine of substantial compliance,[7] under which courts refused to alter the standard of review for minor violations of the Regulation. See Ellis v. Metropolitan Life Insurance Co., 126 F.3d 228, 235 (4th Cir.1997):

Substantial compliance with the spirit of the regulation is sufficient because “not all procedural defects will invalidate a plan administrator’s decision.”

126 F.3d at 235 (quoting Brogan v. Holland, 105 F.3d 158, 165 (4th Cir.1997)). Even when courts found a failure to substantially comply, the results varied. Compare Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 637 (10th Cir. 2003) (LINA’s failure to substantially comply with ERISA regulations resulted in a remand for application of the de novo standard of review) with Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978, 985 (9th Cir. 2005) (procedural violations of ERISA do not alter the standard of review unless violations are “flagrant”) and Gagliano v. Reliance Standard Life Ins. Co., 547 F.3d 230, 236-37 (4th Cir. 2008) (failure to give notice of appeal rights did not meet “substantial compliance” standard but reversing district court’s award of benefits to the claimant and remanding the claim to the insurer).

© Andrew Whiteman 2019

[1] 29 C.F.R. 2560-503.1(l)(2(i).

[2] 29 C.F.R. 2560-503.1(l)(2(ii).

[3] 81 Federal Register 243, p. 92327.

[4] Id.

[5] Id., at p. 92328.

[6] Id.

[7] Id., at p. 92327.

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.


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