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Fourth Circuit Clarifies that an Employer/Plan Administrator/Named Fiduciary is Indeed an ERISA Fiduciaryby Andrew Whiteman

Fourth Circuit Clarifies that an Employer/Plan Administrator/Named Fiduciary is Indeed an ERISA Fiduciary

In the case of Dawson-Murdock v. National Consulting Group, Inc., an employer argued that it was not an ERISA fiduciary of its own group life insurance plan, even though the employer was designated as the “plan administrator” and “named fiduciary” in the plan documents. The United States District Court for the Eastern District of Virginia accepted the employer’s argument and ordered that the case be dismissed. Dawson-Murdock v. National Counseling Group, Inc., Case No. 3:18-cv-58, 2018 WL 3744020 (E.D. Va. August 7, 2018). The Fourth Circuit Court of Appeals reversed. Dawson-Murdock v. National Counseling Group, Inc., ___ F.3d ___, Case No. 18-1989, 2019 WL 338535 (4th Cir. July 24, 2019), clarified the meaning of the term fiduciary and held that a person named as the plan administrator and named fiduciary qualified as an ERISA fiduciary and could be sued for breach of statutory duties owed plan participants and beneficiaries.

The facts of the case are relatively straightforward. The plaintiff, Rema Dawson-Murdock, sought benefits under a group life insurance policy issued by Unum Life Insurance Company of America to her late husband’s employer, National Consulting Group, Inc. (“NCG”). After Ms. Dawson-Murdock made a claim for death benefits, a vice-president of NCG advised her that Unum had denied the claim but that NCG would pay the amount of the insurance benefit out of its own funds and would work with Unum to try to recoup the amount paid. Ultimately, after NCG’s discussions with Unum were unsuccessful, NCG reneged on its promise to pay Ms. Dawson-Murdock’s claim for death benefits.

The plaintiff’s husband, Wayne Murdock, worked full-time for NCG and elected employer-provided group life insurance coverage of $150,000. Mr. Murdock switched to part-time work on March 21, 2016. He did not return to full-time work and died on August 30, 2016. After Mr. Murdock’s death, Ms. Murdock submitted a death benefits claim to Unum. On October 24, 2016, NCG’s vice-president of human resources notified Ms. Dawson-Murdock that Unum had denied her claim. He further advised Ms. Dawson-Murdock that NCG would pay the claim amount while it Unum worked through the denial with Unum. The vice-president advised Ms. Dawson-Murdock that she would not have to deal further with Unum. A few days later, Ms. Dawson-Murdock received a denial letter from Unum. The letter stated that Mr. Murdock was not eligible for group life coverage when he died because he had switched to part-time work and had not exercised his option to convert or port his coverage. Ms. Dawson-Murdock did not submit an appeal of the denial decision to Unum because of the vice-president’s representations. Over the next several months, the vice-president repeatedly advised Ms. Dawson-Murdock that NCG was working on the payment, but in February 2017 he told her that NCG would not make the payment.

Ms. Dawson-Murdock sued NCG and the NCG life insurance plan in the United States District Court for the Eastern District of Virginia. She alleged claims under ERISA and state law. The ERISA claims were based on 29 U.S.C. § 1132(a)(3), which provides that a participant or beneficiary of an ERISA plan may sue to obtain “appropriate equitable relief” for violations of certain ERISA provisions or the terms of a plan. Ms. Dawson-Murdock claimed that NCG failed to notify her husband that his eligibility for the group life insurance plan changed after he switched to part-time work, even though he continued to pay premiums to NCG.

The decision in the case turned on whether NCG was a “fiduciary” of the NCG plan at the time the vice-president communicated with Ms. Dawson-Murdock. The district court ruled in that NCG was not a plan fiduciary because it did not meet the ERISA definition of “fiduciary” found in 29 U.S.C. § 1002(21)(A). That statute states that a person is a fiduciary with respect to a plan if (1) he exercises any discretionary authority or discretionary control regarding the management plan or the disposition of its assets, (2) renders investment advice for a fee with respect to plan assets, or (3) has any discretionary authority or discretionary responsibility in the administration of the plan. The district court ruled that collecting Mr. Murdock’s premiums and failing to notify him of his right to continue coverage under the policy’s portability or conversion provisions was not fiduciary activity. In support of this holding, the court relied on a regulation adopted by the Department of Labor, 29 C.F.R. § 2509.75-8 (D-2), which states that “a person who performs merely ministerial functions” for an employee benefit plan does not qualify as an ERISA fiduciary. The district court dismissed the ERISA because NCG was found not to be a fiduciary. The state law claims for negligence and breach of contract were found to be preempted by ERISA and were also dismissed.

The Fourth Circuit reversed. In Dawson-Murdock v. National Counseling Group, Inc., ___ F.3d ___, Case No. 18-1989, 2019 WL 338535 (4th Cir. July 24, 2019), the court held that NCG, as plan administrator and named fiduciary under the life insurance plan, could be sued as a fiduciary even if it did not meet the functional fiduciary test of 29 U.S.C. § 1002(21)(A). The court also held that Ms. Dawson-Murdock had adequately alleged that NCG was acting as a functional fiduciary in failing to inform her late husband regarding his eligibility and in advising Ms. Dawson-Murdock not to appeal the insurer’s denial.

In holding that NCG was a fiduciary, the Fourth Circuit relied in part on the plan’s summary plan description (“SPD”), which states that NCG is the “plan administrator” and “named fiduciary” of the plan and that ERISA imposes duties on those who operate the plan and that the people who operate the plan are called fiduciaries and have a duty to do so prudently and in the interest of plan participants and beneficiaries. The Fourth Circuit pointed out that ERISA contemplates two types of fiduciaries. The first type is a “named fiduciary” of a plan – a person named as a fiduciary in the plan documents is a fiduciary under 29 U.S.C. § 1102(a). The second type of fiduciary contemplated by ERISA is a “functional fiduciary” as defined in ERISA section 1002(21)(a). Thus, according to the court, “the concept of fiduciary under ERISA . . . includes not only those named as fiduciaries in the plan instrument, . . .  but [also] any individual who de facto performs specified discretionary functions with respect to the management, assets, or administration of a plan.” 2019 WL 3308535 at *5, quoting Custer v. Sweeny, 89 F.3d 1156, 1161 (4th Cir. 1996). The court noted that it had previously relied on a 1975 interpretive bulletin published by the Department of Labor in assessing whether a person or entity qualified as a fiduciary under ERISA. See 29 C.F.R. § 2509.75-8. The interpretive bulletin states that “a plan administrator . . . must [by] the very nature of his position, have discretionary authority or discretionary responsibility in the administration of the plan.” 2019 WL 3308535 at *5, citing 29 C.F.R. § 2509.75-8 (D-3). Consequently, “[p]ersons who hold such positions will . . . be fiduciaries.” Id. Thus, according to the court, the interpretive bulletin explained that “a plan administrator is a functional fiduciary with respect to plan administration, but a person or entity that is not a plan administrator and performs only ministerial functions in relation to a plan is not a functional fiduciary.” 2019 WL 3308535 at *5.

The court ruled for the first time in the Fourth Circuit that “a participant or beneficiary is generally not required to allege that the administrator and named fiduciary also satisfies the functional fiduciary test in order to state a plausible fiduciary breach claim against it under ERISA.” Id. at * 6. The court also ruled that Ms. Dawson-Murdock had adequately alleged her claims that NCG by failing to advise her husband that he had the option to convert or port his group life insurance coverage and acted in a fiduciary capacity when its vice-president advised her that she need not appeal Unum’s denial decision.

The Fourth Circuit decision in Dawson-Murdock is important for three reasons. It clarifies that plan administrators and named fiduciaries are ERISA fiduciaries. It validates claims based on the administrator’s failure to advise plan participants concerning their rights and options under ERISA plans. And it allows administrators to be sued for misrepresentations regarding the actions a beneficiary must take to preserve her rights under a plan.

© Andrew Whiteman 2019

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Whiteman Law Firm handles all types of cases involving employee benefits claims under ERISA. Click here for more information about our employee benefits practice. Please contact us for more information.

 

In LTD Cases, Tax Consequences Often Take a Huge Bite out of Lump-Sum Settlementsby Andrew Whiteman

Lump-sum settlements often carry significant adverse tax consequences for the claimant. Often the tax bite makes taking a lump sum settlement less attractive than receiving monthly benefits.

This can best be explained by an example. Consider a 45-year-old claimant whose gross LTD benefit is $2,750 and who is receiving Social Security disability benefits of $1,750 per month. Her net LTD benefit of $1,000 may be payable up to age 65, the policy’s maximum benefit age. The value of net benefits to age 65 is $240,000 ($1,000 per month times 240 months).

For this claimant, the Social Security disability income benefit of $1,750 per month is not taxable. Under Internal Revenue Code Section 86, an individual taxpayer’s Social Security benefits are subject to tax if the taxpayer’s total income, including half of the Social Security benefits, does not exceed $25,000. In this example, even if the taxpayer was receiving her $1,000 per month LTD payment, the Social Security benefits would still not be taxable. That is because one-half of her Social Security benefits plus $1,000 per month in LTD income would be $22,500, which is less than the $25,000 floor. In fact, the taxpayer’s total tax bill would be zero because the $12,000 in LTD benefits she received is less than the current standard deduction $12,000 that may be claimed by single persons.

Thus, if the claimant wins her lawsuit, her Social Security and monthly LTD benefits would be non-taxable. In contrast, assume the claimant settles her LTD lawsuit for $120,000, half of the value of back and future benefits. Under current tax law, she would be taxed on 100% of her LTD settlement and 85% of her Social Security benefits. The federal tax on $137,850 of gross income would be $24,441. North Carolina does not tax Social Security disability benefits, but the LTD settlement payment would result in $6,300 of state tax. Thus, a total of $30,741 of federal and state income taxes would be incurred as a result of the $120,000 settlement.

When discussing settlement of an LTD claim, either in the context of a buy-out offer or the settlement of a court case, LTD insurers typically present a calculation that reduces the stream of future benefits to present value. The discount factor applied by the carrier is typically 4% to 5%. The discounting of future benefits makes sense in the abstract. No one can argue with the general proposition that “a dollar today is worth more than a dollar in the future.” The idea is that a claimant can earn a return by investing the lump sum settlement. Discounting can make a huge difference in the value of the claim when the claimant is young. In the example noted above, using a rate of 5% per annum reduces the $240,000 of benefits for this 45-year-old claimant to $151,525. In settlement discussions, insurers present the discounted amount as the maximum case value and try to convince the claimant that her opening offer should be below that number.

The claimant is not required to accept the insurer’s 5% discount rate. If the justification for discounting is the earnings the claimant can earn from investing settlement funds, one must consider the rate of return the claimant could realistically earn on a safe investment. One-year certificates of deposit are currently paying around 2.7% per annum. Five-year CDs, 3.1%. However, interest on CDs is taxable. If a claimant has a combined federal and state income tax rate of 25%, the after-tax yields on the one-year and five-year CDs are 2.03% and 2.33%, respectively. A good argument can be made that a discount rate should be no greater than the after-tax rate of return offered by CDs or Treasury securities. In the example discussed above, using 2% rather than 5% for the discount rate results in a present value of $197,674.

Clients should be made aware of the adverse tax consequences of settlements. When negotiating with disability insurers, it is important to challenge the insurer’s present value calculation. In many cases, such as the example cited above, discounting a claim to present value makes no sense at all. Because of the tax bite, a taxable dollar received today may be worth far less than a non-taxable dollar received in the future. At a minimum, the income taxes the claimant will incur by settling should be considered in evaluating whether to settle or fight.

© Andrew Whiteman 2019

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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.

New ERISA Disability Claim Regulations – Part 9by Andrew Whiteman

New ERISA Disability Claim Regulations – Part 9

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 last 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.”

This post will address the new regulation’s expansion of the term “adverse benefit decision.”

I.     Summary of the Changes to the 503 Regulation

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H.     The Term “Adverse Benefit Determination” Expanded

Section 503-1(m)(4) expands the definition of “adverse benefit determination” to include a decision to rescind disability coverage with respect to a beneficiary or participant, whether or not, in connection with the rescission there is an adverse effect on any particular benefit at that time. “Rescission” includes a cancellation or discontinuance of coverage that has a retroactive effect, except for one that is attributable to a failure to timely pay required premiums or contributions.

© Andrew Whiteman 2019

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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.

New ERISA Disability Claim Regulations – Part 8by Andrew Whiteman

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

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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.

 

Tax Deduction of Attorney Fees in Employee Benefits Cases Remains Unchangedby Andrew Whiteman

Deductibility of Attorney Fees in Employee Benefits Cases Remains Unchanged

The Tax Cuts and Jobs Act of 2017 changed the tax treatment of attorney fee and other litigation-related expenses incurred by individuals. Congress suspended the deductibility of litigation expenses as “miscellaneous itemized deductions” through December 31, 2025. As a result, the costs and attorney fees associated with non-business-related litigation may no longer be deducted on a taxpayer’s Schedule A. Fortunately, however, plaintiffs who settle employee benefits cases may continue to exempt litigation expenses from their gross income in computing adjusted gross income. The Internal Revenue Code defines “unlawful discrimination” to include claims for employee benefits.

Likewise, the rule regarding the taxability of the plaintiff’s portion of a settlement payment remains the same. Whether the plaintiff’s portion of a settlement is taxable depends on who paid the cost of the benefit. If the employer paid the cost of the benefit, typically an insurance premium, the benefit received by the claimant, including any lump sum payment made to resolve a lawsuit, is taxable. On the other hand, if the plaintiff paid the cost of the coverage through payroll deduction or otherwise, the benefit is not taxable.

When a settlement payment is taxable, the plaintiff is required to report as income only the net amount the plaintiff received from the settlement, i.e. after the deduction of the attorney fee and costs. Internal Revenue Code Section 62(a) (20) (26 U.S.C. § 62(a) (20)) provides a deduction in determining adjusted gross income for attorney’s fees paid in connection with any claim of “unlawful discrimination” claim. Section 62(e) (18) defines an unlawful discrimination claim to include:

(18) Any provision of Federal, State, or local law, or common law claims permitted under Federal, State, or local law–
(i) providing for the enforcement of civil rights, or
(ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.

Thus, the taxpayer may deduct litigation expenses “in determining adjusted gross income,” meaning that a plaintiff should report on page 1 of his or her Form 1040 only what the plaintiff actually received from the settlement. This interpretation of the statutes is supported by Private Letter Ruling 200550004. This PLR, issued in 2005, involved a claim for pension benefits, rather than disability benefits, but there is no basis for distinguishing the two as both are employee benefits.

Clients should consult their accountant or tax attorney for specific advice and assistance regarding their personal tax returns. Please contact me if you have any questions.

Andrew Whiteman
aow@whiteman-law.com

© 2019 Andrew Whiteman

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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.

New ERISA Disability Claim Regulations – Part 6by Andrew Whiteman

New ERISA Disability Claim Regulations – Part 6

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 sixth 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 plan notifications be made in a “culturally and linguistically-appropriate manner.” This post will address the requirement that plans disclose new evidence and new rationales that they intend to rely upon to deny an appeal and provide the claimant a reasonable opportunity to respond before the plan issues a denial notice.

I.     Summary of the Changes to the 503 Regulation

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E.     Disclosure of New Evidence and New Rationales Prior to Denial on Review

1.     The Rule

Section 503-1(h)(4) requires that before a plan can issue an adverse benefit decision on review of a disability benefit claim, the plan must provide the claimant with (1) “any new or additional evidence considered, relied upon, or generated by” the person making the benefit determination, and (2) “any new or additional rationale” for denying the claim. The new or additional evidence or rationale must be provided:

as soon as possible and sufficiently in advance of the date on which the notice of adverse benefits determination on review is required to be provided . . . to give the claimant a reasonable opportunity to respond prior to that date.

  1. DOL Comments

The new requirements already apply to claims involving group health plans under the ACA.[1] The provision is intended to be limited to the appeal stage.[2] When the plan has decided it is going to deny the claim on appeal, it must furnish any new or additional evidence to the claimant.[3] “The provision does not require that the plan provide the claimant with information in a piecemeal fashion without knowing whether, and if so how, that information may affect the decision.”[4]

According to the DOL, the prior 503 Regulation already requires plans to provide claimants with new or additional evidence or rationales upon request and an opportunity to respond in certain circumstances.[5] The plan would have to furnish the new or additional evidence to the claimant before the expiration of the 45-day deadline, or 90 days if an extension is available.

The Regulation does not limit the types of evidence that claimants may submit.[6] Plans may not refuse to accept video, audio or other electronic media and may not “impose courtroom evidentiary standards” in determining whether to accept or consider a claimant’s evidence.

If the claimant’s response caused the plan to generate new or additional evidence, the plan would have to furnish the new or additional evidence to the claimant and allow the claimant a reasonable opportunity to respond to the new or additional evidence.[7]

The plan may not provide the claimant only evidence that supports the denial of the appeal while withholding evidence that supports the claim.[8]

Finally, if the new or additional evidence or rationale is received or determined by the plan so late that it would be impossible to provide it to the claimant in time for the claimant to have a reasonable opportunity to respond before the plan’s deadline for deciding the appeal expires, the period is tolled until such time as the claimant has had a reasonable opportunity to respond.[9]

  1. Implications

The new provisions will help provide for greater give and take between the claimant and the plan, provide the claimant with an opportunity to respond to new or additional evidence and rationales that the plan intends to use to justify denying the appeal, and avoid the necessity of second appeals in many cases.

© Andrew Whiteman 2019

[1] 81 Federal Register 243, p. 92324-92325.

[2] Id., p. 92325.

[3] Id., p. 92326.

[4] Id.

[5] Id., n.16.

[6] Id.

[7] Id., p. 92325.

[8] Id., n.21.

[9] Id., pp. 92326-92327.

New ERISA Disability Claim Regulations – Part 5by Andrew Whiteman

New ERISA Disability Claim Regulations – Part 5

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 fifth 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 disclose “specific internal rules, guidelines, protocols, standards or other similar criteria” the plan relied upon in making the adverse benefit determination or provide a statement that such rules, guidelines, etc. do not exist. This blog will discuss the requirement that notifications be made in a “culturally and linguistically-appropriate manner.”

I.     Summary of the Changes to the 503 Regulation

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D.      Notifications Must be Made in a “Culturally and Linguistically-Appropriate Manner”

The new Regulation requires that plan notices be provided in a “culturally and linguistically appropriate manner.” The guidance for this requirement is contained in Section 503-1(o) and requires oral language services (such as a customer telephone assistance hotline), assistance with completing claims and appeals, and written notices in applicable non-English languages. An “applicable non-English language” is determined by the county of the recipient and is one in which ten percent or more of the population residing in the recipient’s county is literate.

© Andrew Whiteman 2019

 

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.

New ERISA Disability Claim Regulations – Part 4by Andrew Whiteman

New ERISA Disability Claim Regulations – Part 4

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 fourth 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 disclose additional information in their denial notices. The following will discuss the third change to the regulation – the requirement that plans disclose “specific internal rules, guidelines, protocols, standards or other similar criteria” the plan relied upon in making the adverse benefit determination or provide a statement that such rules, guidelines, etc. do not exist.

I.     Summary of the Changes to the 503 Regulation

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C.     Disclosure of Plan Criteria

1.     The Rule

A plan’s adverse benefit notifications must set forth:

Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist.[1]

2.     DOL Comments

Plans may not refuse to disclose internal rules, guidelines, protocols, standards or other similar criteria on the basis that such material is confidential or proprietary.[2] The DOL does not believe that disclosure of such material would be unduly burdensome because “[e]ven under the existing claims procedure regulation, internal rules, guidelines, protocols, standards or similar criteria relied upon in denying the claim must be provided to the claimant upon request.”[3]

It is important to note that even under the prior rule, plans would be required upon request to verify that it has produced all the internal rules guidelines, etc. concerning the denied claim that were or should have been considered in deciding the claim.[4] The amendments did not change this requirement. The DOL comments emphasize that it may be important for the claimant to know that a claim was denied without the claims adjudicator having considered a rule, guideline, protocol, standard or other similar criteria that was intended to govern the determination of the claim.

Such criteria could include, for example, information that “demonstrates compliance with administrative processes and safeguards.”[5]

Indeed, the Department has taken the position that internal rules, guidelines, protocols, or similar criteria would constitute instruments under which a plan is established or operated within the meaning of section 104(b)(4) of ERISA and, as such, must be disclosed to participants and beneficiaries. See FAQs About The Benefit Claims Procedure Regulation, C-17 (www.dol.gov/sites/default/files/ ebsa/about-ebsa/our-activities/ programs-and-initiatives/outreach-andeducation/hbec/CAGHDP.pdf).[6]

3.     Implications

Under the guidance of the DOL, claims administrators should be required to produce their entire claims manuals or at least those portions that are “relevant” to the claim. Denial notices will be required to include a disclosure of any external guidelines that the plan or its consultants relied upon as part of the claim determination process. This would include, for example, the “MD Guidelines” often cited by the plan’s medical consultants and Dictionary of Occupation Titles material considered by vocational reviewers in defining the claimant’s occupation.

© Andrew Whiteman 2019

[1] Section 503-1(g)(1)(vii)(C) and (j)(6)(iii).

[2] 81 Federal Register 243, p. 92323.

[3] Id.

[4] Id.

[5] Id.

[6] Id., p. 92324.

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.

New ERISA Disability Claim Regulations – Part 3by Andrew Whiteman

New ERISA Disability Claim Regulations – Part 3

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 third in a series of nine blog posts that will summarize important features of 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.”

The last blog post discussed the provisions of the new regulation that are designed to insure the independence and impartiality of persons involved in making the claim decision, including the plan’s claims personnel and medical and vocational consultants. This week’s blog will discuss the second change to the regulation – the requirement that plans make additional disclosures in their denial letters.

I. Summary of the Changes to the 503 Regulation

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B. Additional Disclosures Required with Notices of Denial

1. Disclosure of Basis of Disagreements with Providers, Consultants, and the Social Security Administration

a. The Rule

The Regulation provides that in the case of an adverse benefit determination, whether on the claim or an appeal, the notification must include a discussion of the basis for disagreeing with or not following the views of the claimant’s health care professionals and vocational consultants, the views of the plan’s medical or vocational consultants, and a disability determination made by the Social Security Administration. The plan must provide:

(A) A discussion of the decision, including an explanation of 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.

b. DOL Comments

This amendment addresses a huge problem in ERISA disability cases – the plan’s medical experts and the plan itself almost never explain the basis for their rejection of the opinions of the claimant’s medical team. This is often a point of contention in litigation, and courts have criticized the plan’s medical consultants for failing to explain the basis of their disagreement with treating providers. See, e.g., Gorski v. ITT Long Term Disability Plan for Salaried Employees, 314 Fed. Appx. 540 (4th Cir. 2008) where the Court stated:

The problem with Dr. Soriano’s opinion is that Dr. Soriano never explained on what basis he doubted the veracity of Gorski, whom he had never examined. To the extent that he did not believe that Gorski’s physical problems would cause the intense pain of which she complained, he never revealed why he rejected the view of the other doctors that dislodged surgical hardware was irritating surrounding nerve tissue, resulting in debilitating pain for Gorski. . . . Without such a discussion, Dr. Soriano’s report is simply an unreasoned and unexplained rejection of the objective evidence in the record, Gorski’s claims regarding her level of pain and functionality, and the opinions of Drs. Huffmon and Faircloth that she was totally disabled.

314 Fed. Appx. at 547 (emphasis added).

Given the failure of plans historically to explain the basis for refusing to follow treating providers’ recommendations, it is a bit surprising to read that “commentators generally either supported or did not object to the requirement to explain a disagreement with a treating health care professional in adverse benefit determinations.”

The amended Regulation requires disclosure of the plan’s basis for not following advice provided by its own consultants. Interestingly, the DOL commented that its experience in enforcing the current regulation revealed instances of “expert shopping” by plans, “where claims adjudicators may consult several experts and deny a claim based on the view of one expert when advice from other experts who were consulted supported a decision to grant the claim.” Plans will be required to disclose materials related to such consultations in response to a “request for relevant documents.”

Importantly, the rule is not limited to a provider’s conclusions about whether a claimant is disabled.

In the Department’s view, to the extent the claims adjudicator disagrees with foundational information in denying a claim, the claimant has a right to know that fact to the same extent the claimant should be made aware that the claims adjudicator disagrees with an opinion from a medical or vocational expert that the claimant is disabled.

(emphasis added). Presumably, “foundational information” would include such things as the treating provider’s clinical observations and test results, the provider’s decision to credit the claimant’s descriptions of her symptoms, and the provider’s diagnosis. To require a discussion of the basis for any disagreements is a matter of “basic fiduciary accountability.”

The Regulation requires a discussion of the basis for disagreeing with or not following disability determinations of the SSA or other payors of disability benefits. This discussion must be more than “boilerplate text about possible differences in applicable definitions, presumptions, or evidence.” Regarding SSA disability determinations specifically, “a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.” Courts have criticized plans for failing to follow decisions of the SSA. See, e.g., Montour v. Hartford Life and Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (‘‘failure to explain why it reached a different conclusion than the SSA is yet another factor to consider in reviewing the administrator’s decision for abuse of discretion, particularly where, as here, a plan administrator operating with a conflict of interest requires a claimant to apply and then benefits financially from the SSA’s disability finding.’’); Brown v. Hartford Life Ins. Co., 301 F. App’x 772, 776 (10th Cir. 2008) (insurer’s discussion was ‘‘conclusory’’ and ‘‘provided no specific discussion of how the rationale for the SSA’s decision, or the evidence the SSA considered, differed from its own policy criteria or the medical documentation it considered.’’).

The DOL expressly declined to adopt a rule that required deference to a treating physician’s opinion because, inter alia, “a treating physician rule is not necessary to guard against arbitrary decision-making by plan administrators.”

c. Implications

The requirement that plans explain the basis for their disagreements with treating providers, the plan’s own consultants, and decisions of the SSA is a huge leap forward for claimants. The adequacy of the plan’s explanations of the basis for its disagreements with treating providers, consultants, and other disability providers will be the new battleground.

2. Explanation of Medical Necessity or Experimental Treatment Determinations

The Regulation now requires that if an adverse benefit determination is based on a medical necessity or experimental treatment limitation or exclusion, the denial notice must contain either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

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.

3.      Implications

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).

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