E. CONFRONTING DENIAL OF ERISA DISABILITY CASES
ERISA is the shortened version of Employee Retirement Income Security Act. Although its original intent was to protect employees and allow multi state employers to work with one set of national rules, it has failed to achieve either goal. Instead it has become a labrynith that has been used by insurance companies to restrict or revoke benefits that seemingly have been granted by employers. The devil truly is in the details and the administration of ERISA plans has frequently favored insurance company plan administrators who administer the details. This is particularly true with regard to ERISA long term disability benefits. Some of the issues that may arise in the administration of an ERISA long term disability benefit include:
1. FAILURE TO NOTIFY CLAIMANT OF DENIAL
A typical employer plan provides that the ERISA Disability Carrier must notify an employee if her claim is denied within 90 days. Only under special circumstances may that period be extended to 180 days. In some cases the ERISA Disability Carrier exceeds both the 90 day and the 180 day time-frame. In these situations the ERISA Disability Carrier may not have provided Employee with any reason for the denial of benefits, nor notified her of steps she may take to have the decision reviewed. This conduct constitutes violation of the plan and the Employee Retirement and Income Security Act (“ERISA”). See 29 U.S.C. § 1133 (requiring notification to beneficiary of denial of claim); 29 C.F.R. § 2560.503-1(f).
2. FAILURE TO PROVIDE REASONABLE CLAIMS PROCEDURE
The ERISA Disability Carrier must provide a reasonable claims procedure as required by ERISA regulations and case law. 29 C.F.R. § 2560.503-1(b); Grossmuller v. Auto Workers, 715 F. 2d 853 (3d Cir. 1983). Often the ERISA Disability Carrier’s requests for plaintiff’s medical records and the time-constrained demands upon Employee to procure such records are not part of any claims procedure described in the Plan. ERISA Disability Carriers may also fail to provide the employee with timely information regarding her claim.
3. FAILURE TO PROVIDE FULL AND FAIR REVIEW
The ERISA Disability Carrier must, but may not have, provided the employee with a reasonable procedure to appeal the denial of her claim. 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1(g).
4. A PRE-EXISTING CONDITION EXCLUSION MIGHT NOT BE ENFORCEABLE AND MAY NOT APPLY
A purported preexisting exclusion provision in a Plan may be confusing and require a coordinated reading of several separate definitions. Accordingly, the provision may not be enforceable. Saltarelli v. Bob Baker Group Medical Trust, 35 F.3d 382 (9th Cir. 1994) (rejecting exclusion where found only in the midst of the “Definitions” chapter, and requiring a coordinated reading of three separate definitions); see also McClure v. Life Ins. Co. of North America, 84 F.3d 1129 (9th Cir. 1996); Henry v. Home Ins. Co. 907 F.Supp. 1392 (C.D. CA 1995)(other citations omitted).
5. STANDARDS COURTS USE TO REVIEW CLAIMS OF IMPROPER DENIAL OF BENEFITS
Section 502(a)(1)(B) of ERISA [29 U.S.C. § 1132(a)(1)(B)] establishes a cause of action for participants or beneficiaries under any welfare plan to recover benefits due under the terms of the plan, to enforce rights under the terms of the plan, or to clarify rights to future benefits under the terms of the plan. Section 502(a)(3) of ERISA [29 U.S.C. § 1132(a)(3)] establishes a cause of action for injunctive or other equitable relief to redress violations of ERISA or to enforce the terms of any employee benefit plan.
If the ERISA Disability Carrier has no rational basis for denying the employee’s claim, and the employee is clearly entitled to benefits, the ERISA Disability Carriers termination/denial of Employee’s benefits may be considered arbitrary, capricious, made in bad faith, not supported by substantial evidence, and/or erroneous on questions of law. SeeMalhiot v. Southern Cal. Retail Clerk’s Union, 735 F.2d 1133 (9th Cir. 1984).
Further evidence, and confirmation, of this wrongful denial would be the ERISA Disability Carrier’s failure to comply with the Plan’s and ERISA notice, claims procedure, and appellate review provisions. The ERISA Disability Carrier’s conduct may result in a Court awarding an employee long-term disability benefits. SeeKrohn v. Huron Memorial Hospital, 173 F. 3d 542 (6th Cir.1999) (holding Plan liable for LTD benefits where plan fiduciaries acted negligently); Schleibaum v. K-Mart Corporation, 153 F. 3d 496 (7th Cir. 1998)(failure to follow benefit claims and appeals procedures can result in liability for benefits).
The United States Supreme Court has held that a denial of benefits “is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (“Firestone Tire “). When a plan unambiguously gives the plan administrator discretion to determine eligibility or construe the plan’s terms, a deferential abuse of discretion standard is applicable. See Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir.2006) (en banc).
Even more recently, the Supreme Court set forth a framework considering whether the dual role of administering and funding an ERISA plan creates a conflict of interest, and if so, how that conflict should be considered in evaluating whether a plan administrator has abused its discretion. Metropolitan Life Ins. Co. v. Glenn, — U.S. —-, 128 S.Ct. 2343, 2346, 171 L.Ed.2d 299 (2008) ( “MetLife “). The Court noted that “[i]n ‘determining the appropriate standard of review,’ a court should be ‘guided by principles of trust law’ ” and that “[i]f ‘a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion.’ ” Id. at 2347-48 (emphases in the original) (citing Firestone Tire, 489 U.S. at 115, 109 S.Ct. 948).
The Court further stated: [The answer is clear that there is a conflict of interest] where it is the employer that both funds the plan and evaluates the claims. In such a circumstance, “every dollar provided in benefits is a dollar spent by … the employer; and every dollar saved … is a dollar in [the employer’s] pocket.” The employer’s fiduciary interest may counsel in favor of granting a borderline claim while its immediate financial interest counsels to the contrary. Thus, the employer has an “interest … conflicting with that of the beneficiaries,” the type of conflict that judges must take into account when they review the discretionary acts of a trustee of a common-law trust. Id. at 2348 (quoting Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 144 (3rd Cir.1987) (“Bruch “); Restatement § 187, Comment d)
Having concluded that a conflict of interest existed where an insurer both funded and administered an ERISA LTD plan, the Court then discussed how that conflict should be considered in evaluating the insurer’s exercise of its discretion. The Court noted that the abuse of discretion standard of review still applied despite the structural conflict of interest. Id. The reviewing court, however, must: take account of the conflict when determining whether the trustee, substantively or procedurally, has abused his discretion… [C]onflicts are but one factor among many that a reviewing judge must take into account…. [T]he word ‘factor’ implies, namely, that when judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one.… In such instances, any one factor will act as a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending upon the tiebreaking factor’s inherent or case-specific importance.
6. NOTICE OF APPEAL OF DENIAL OF BENEFITS
Many plans provide that if an ERISA Disability Carrier does not respond to an employee’s claim, she should treat the claim as denied and begin the appeal process. If the ERISA Disability Carrier has failed to respond to the employee’s claim, however, it has also failed to notify her of, or provide, appellate review.
This right may be expressly invoked to ensure that Employee does not waive any possible right to review; however, Employee should reserve her right to proceed with a civil action based on the ERISA Disability Carrier’s failure to provide appellate review, and based on the futility of any such review. In connection with this notice of appeal, the Employee should request notification of the appeal procedure, request a hearing, and request additional time to submit medical information and argument.
7. REQUEST FOR STATUS REPORT
Employee should also demand written notification of the status of her claim
8 REQUEST FOR CLAIMS FILE AND PERTINENT INFORMATION
Employee should also request a complete copy of her entire claims file(s), including any and all documents upon which ERISA Disability Carrier, or any agent, employee or subdivision thereof, relied upon in making any determination or decision with respect to her short-term disability and/or long-term disability benefit claims.
9. DEMAND FOR BENEFITS
Employee also should demand that the ERISA Disability Carrier immediately confirm approval of her long-term disability benefits claim, and award her retroactive benefits from the date such benefits became due.
Lee S. Harris is a partner at Goldstein, Gellman, Melbostad, Harris & McSparran based in San Francisco including the North and South Bay Areas. He has represented injury and insurance clients in numerous disaster claims. He has also served as chair of the American Association for Justice, Insurance and Bad Faith Litigation groups and serves on the board of Consumer Attorneys of California.