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One of the more notable observations of the responsibility of plan administrators to provide full and fair reviews consistent with 29 U.S.C. § 1133 appeared two decades ago in Univ. Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 848 n. 7 (6th Cir. 2000).  There, Judge Gerald Rosen, former chief U.S. district judge for the Eastern District of Michigan, sitting by designation, resolved a provider-plan dispute under ERISA, holding:

[I]t strikes us as problematic to, on one hand, recognize an administrator’s discretion to interpret a plan by applying a deferential “arbitrary and capricious” standard of review, yet, on the other hand, allow the administrator to “shore up” a decision after-the-fact by testifying as to the “true” basis for the decision after the matter is in litigation, possible deficiencies in the decision are identified, and an attorney is consulted to defend the decision by developing creative post hoc arguments that can survive deferential review. The concerns inherent in this scenario are even more pronounced where, as here, the administrator has a financial incentive to deny benefits.  Id.

Seventeen years later, the Sixth Circuit reaffirmed this notion in Corey v. Sedgwick Claims Mgt. Services, Inc., 858 F.3d 1024, 1028 (6th Cir. 2017).  The Court held:

The Administrator’s response leans heavily on the plan’s grant of interpretive discretion. But the record leaves us guessing as to how the Administrator interpreted the plan’s objective-findings definition. The Administrator’s denial letters simply quote the plan language and then conclude Corey’s evidence fails to suffice. Although the Administrator enjoys interpretive latitude, we defer only to its actual interpretations—it can’t issue a conclusory denial and then rely on an attorney to craft a post-hoc explanation. Id. (citing Univ. Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839, 848 n.7 (6th Cir. 2000)).

These cases advance the notion that although ERISA cases still function as adversarial proceedings, claims under the statute are required to be evaluated differently than most other disputes.  The plan’s administrators are fiduciaries, tasked with fiduciary standards of conduct, not partisan advocates.  These rulings do not mean that a claimant seeking benefits must win, far from it.  They do require, however, that ERISA participants must, by law, be given a fair shot at presenting their claims.  Evaluation of their claims must not be outcome-determinative or results-oriented. Courts continue to frown upon denials which are the product of lawyerly arguments rather than the type of independent decision-making ERISA requires.

Insurance companies administering ERISA long-term disability claims may be facing new rules.  In 2012 the U.S. Department of Labor’s ERISA Advisory Council undertook a study on issues relating to managing disability claims in the ERISA administrative review context. The Advisory Council recommended that the USDOL review the current claims regulation and recommend specific updates and modifications.

After taking comments, the final rule was published on December 19, 2016, and is set to take effect January 1, 2018.[1]  One of the main aims of the final rule is to “alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.”[2]

The main “Claims Regulation” under which ERISA disability claims have been administered and adjudicated since 2002 – 29 C.F.R. § 2560.503-1 – will be revised and updated to include the following:

1. Conflicts of Interest are to be Avoided.

Claims and appeals are to be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the benefit determination. Decisions regarding hiring, compensation, termination, promotion, or other similar matters are not be based upon the likelihood that the individual will support the denial of benefits.

2. The Disclosure Requirements are Expanded.

Under the final rule, benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision.  This includes the basis for disagreeing with the views of the claimant’s health care professionals, vocational professionals or with disability determinations made by the Social Security Administration.

Plans can no longer disagree with a treating health care professional “merely by stating that the plan or a reviewing physician disagrees with the treating physician….”[3]  The final rule requires that the adverse benefit determination include a discussion of the basis for disagreeing with the health care professional’s views.

The same standard also applies to a denial which disagrees with a Social Security Administration finding of disability. Disagreement with the determination must be accompanied by “more detailed justification….”[4]  The final rule also requires an administrator to notify a claimant of an alleged deficiency in the record and provide an opportunity to supplement the record, particularly if the administrator is not in possession of an applicable Social Security Administration ruling.

3. Timely Disclosure of New Evidence and Rationale Supporting a Denial Must Be Produced

Under the final rule, claimants must be given timely notice of their right to access their entire claim file, as well as other relevant documents, and be guaranteed the right to present evidence and testimony in support of their claim during the review process.  The Department took the position that claimants

have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal and to fully and fairly present their case at the administrative appeal level, as opposed to merely having a right to review such information on request only after the claim has already been denied on appeal.[5]

Any evidence or rationale provided must be turned over 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, to allow the claimant a reasonable opportunity to respond to the new evidence.  Rather than viewing this as a ‘new’ requirement, the DOL took the position that it simply hones the prior requirements under 29 C.F.R. § 2560.503-1 to clarify exactly what, and when, information should be provided to claimants.

4. Deemed Exhaustion of Claims and Appeals Processes

Under the final rule, plans cannot prohibit a claimant from seeking judicial review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements.  A “minor error” is the only exception to this new provision, although the DOL noted that this standard is “stricter than a mere ‘substantial compliance’ requirement.”[6]

5. Amending the Definition of “Adverse Benefit Determination”

Under the final rule, certain rescissions of coverage are to be treated as “adverse benefit determinations” triggering the plan’s appeals procedures. For plans providing disability benefits, a rescission of coverage that has a retroactive effect now constitutes an adverse benefit determination.  Under the USDOL’s analysis, if a plan provides for the payment of disability benefits for a pre-determined, fixed period, the termination of benefits at the end of the specified period would not constitute an adverse benefit determination under the regulation, but rather a new claim.

6. The Applicable Statute of Limitations Must Be Disclosed

Under the final rule, the USDOL specified that it:

does not believe that a claims procedure would satisfy the statutory requirement if the plan included a contractual limitations period that expired before the review was concluded… A limitations period that expires before the conclusion of the plan’s internal appeals process on its face violates ERISA section 503’s requirement of a full and fair review process.  A process that effectively requires the claimant to forego the right to judicial review and thereby insulates the administrator from impartial judicial review falls far short of the statutory fairness standard and undermines the claims administrator’s incentives to decide claims correctly.[7]

The USDOL seems to suggest that any limitation time-period shorter than a year after the final claims decision does not allow a reasonable period after the conclusion of the appeal in which to bring a lawsuit and is accordingly unenforceable.  Additionally, “in addition to such traditional remedies, plans that offer appeals or dispute resolution beyond what is contemplated in the claims procedure regulations must agree to toll the limitations provision during that time.”[8]

 

[1] See Claims Procedure for Plans Providing Disability Benefits, 81 Fed. Reg. 92316 (December 19, 2016).

[2] Id. at 92317.

[3] Id. at 92321.

[4] Id. at 92322.

[5] Id. at 92324.

[6] Failure to comply constitutes a “minor error” if the violation was (1) de minimis, (2) non-prejudicial, (3) attributable to good cause or matters beyond the plan’s control, (4) in the context of an ongoing good-faith exchange of information, or (5) not reflective of a pattern or practice of non-compliance.  Id. at 92327.

[7] Id. at 92330.

[8] Id. at 92331.

In twenty years of handling employee benefit disputes, I have made a few observations of the ways to keep a long-term disability insurance claim in “approved status” or “open” as insurance companies say. A disability claimant’s medical file should include accurate and documented history of disability and should always be up to date. A disability claimant should avoid common pitfalls that can doom an otherwise valid claim.

Employees who file for disability insurance benefits have legitimate and provable claims. Many wait until their medical situations become unbearable before beginning the disability claims process. So why are so many claims denied by disability insurance companies? The reason is simple.

The filing of a long-term disability claim is an adversary process, and given this reality, appearances matter.

The claims departments of long-term disability insurers are populated with adjusters who believe that people seeking disability benefits do not want to work. In some of the most serious medical cases our firm has handled, the insurers have denied the claims for patently absurd reasons, bred of a kind of cynicism rather than objective factual consideration. A claimant seeking disability benefits cannot make the insurance company’s job easier. The interests are adverse. It is best to accept this, not fight it, and to adjust to avoid common claims filing mistakes.

What can a claimant do to make the process smoother?

1.Stop Using Social Media Now. Searching social media sites is the new weapon of choice in disability claims departments. Online searches are replacing surveillance as the preferred form of “gotcha” by the nation’s insurer. Claims files now regularly contain public images downloaded from Facebook or Instagram that are cited as evidence that a disabled claimant is essentially leading a normal life and should be able to work. We have written before about this before in the Summit. (See Long-Term Disability Insurance Update: An Online ‘Friend You May Not ‘Like’.)  Often, claimants do not heed the warning. Social media in this context is misleading. Unless a post is time-tagged, it is difficult to determine whether a posted picture of the claimant was taken recently (i.e., while claiming disability benefits) or years earlier. Sometimes insurers do not produce these materials until after a long-term disability appeal is filed, to deny the claimant the opportunity to explain the images or provide some context such as, ‘this photo was actually taken before I became sick.’ We can longer recommend a middle ground, sign off social media until the claim is over.

2. Reasonable Requests for Information Are Reasonable. Many claimants have experienced long delays in payment after they initiated a claim. Once the claim is approved, they are surprised when the insurer then asks for subsequent medical updates. Providing updates every year is likely to be found to be reasonable by a court unless there are some unique circumstances. By contrast, requesting monthly or bimonthly is likely to be found to be excessive.

3. Keep All Doctor Appointments.  A doctor’s appointment has a primary and secondary function.  The primary function is obviously to address and care for your medical condition. The secondary function is  to document (medically) the history of restrictions and limitations.  A claimant must be candid and forthcoming with treating doctors about how a condition is affecting one’s life.  Having a contemporaneous record of one’s health struggles will greatly assist in both the approval and continuation of a claim.

4. If You Can Work, Work. Many policies provide for partial or rehabilitative disability benefits. This means that if a claimant returns to work on a part-time basis, the insurer will make up the financial difference between the amount of the monthly disability benefit and the pay received from part-time employment.

5. Two Wrongs Don’t Make a Right: Just Because Disability Insurers Lie, Never Stop Telling the Truth. Honesty is at the heart of any successful disability claim.  Honesty requires the truthful explanation of what limits a claimant’s ability to work. A claimant need not exaggerate any symptoms, but simply explain why a condition prevents performing the duties of a certain job.  For example, a cashier with a serious wrist injury can easily explain how that condition (loss of movement) prevents the regular performance of an essential job duty (counting back change).

These are but a few suggestions for taking a practical approach a disability claims and minimizing the adversity that exists between claimant and insurance company during the process.

The State Bar of Michigan has published an article authored by J.J. Conway, Esq. discussing the judicially mandated administrative claims process required by ERISA Section 503, 29 U.S.C. 1133.  The article, published in the Michigan Bar Journal, discusses ways that claimants may use the pretrial process more effectively. The article is entitled,”The Private Resolution of Employee Benefit Disputes: Section 503 and the Meaning of Evidentiary Materials in ERISA Cases”  (Sept. 2016). The article is available here.

The United States District Court for the Eastern District of Michigan has held that an insurer must advise a long-term disability claimant of its internal appeal requirement within the actual plan document in order to establish a failure to exhaust defense.

In Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, No. 16-cv-10625 (E.D. Mich. January 18, 2017), Reliance-Standard Life Insurance Company moved to dismiss the plaintiff’s complaint on the basis that she failed to exhaust her internal administrative remedies prior to filing suit.  The court denied the motion, holding, in part, that Reliance Standard had not included an appeal requirement within the express terms of its disability insurance contract. A statement advising of a right to appeal a denied claim in a letter is insufficient to secure a dismissal, according to the court. The court cited the opinion of another federal court in Montoya v. Reliance Standard Life Ins. Co., No. 14-cv-02740 (N.D. Cal. Mar. 2, 2015) which also found Reliance Standard’s long-term disability form contract lacking any requirement of an internal appeal. The Wallace court held:

Having reviewed the Reliance policy, which Plaintiff attached to her Amended Complaint, this Court finds no discussion of an exhaustion requirement. The only requirement for bringing a legal action set forth in the policy reads: “No legal action may be brought against us to recover on this Policy within sixty (60) days after written proof of loss has been given as required by this Policy.” The policy does not incorporate the terms of any other document. To the contrary, it expressly states that the policy represents “the entire contract.” Nevertheless, even if this Court construed the denial of benefits letter as a plan document, it would hold that the letter did not mandate exhaustion as a prerequisite to bringing suit.

 

The court’s ruling in Wallace underscores the importance of carefully reviewing a claimant’s long-term disability contract for a disability insurer’s own compliance with ERISA when an exhaustion defense is raised.  The court’s ruling also increases access to disabled employees whose claims for disability benefits have been wrongfully denied or terminated.

We have all been there at some point in our lives.  A promise is made.  A promise is broken.  We feel cheated, and maybe even a little hurt.  When you feel that you operate from a place of honesty, and others do not, the entire experience can be disillusioning.  In their simplest form, disability insurance contracts are promises.

In several years of assisting clients with their disability insurance claims, we have made a few observations.  Our clients are responsible. Our clients work hard.  They made choices about their financial future they believed were correct. They played by the rules.

It is not you. It is the insurers. Insurers change the rules.  It has almost become part of the insurance industry’s normal operating procedures. Often times, that is why an insurance company’s sales department is separated from its claims department. Promises made by one part of the organization may be more easily broken by another part of the company. Here, the law serves a purpose.  The law is here to hold insurers accountable.   Nothing more.   Nothing less, either.

Disability insurance cases involve two of the most emotional issues that many of us will ever face. Disability insurance cases involve the intersection of health and finances. Our firm understands this, and we approach these cases with this firmly in mind.

Below are a list of our firm’s guiding principles:

Total Investment.  Our approach is spend considerable time at the outset, getting to know our clients and the individual facts of their case.  While we are selective in the number and types of cases that we litigate at any one time, this is because once we sign on, we are fully invested.

Winning Your Case.  We strive win cases. We cannot guarantee legal outcomes, of course, because a host of different factors may affect a case’s outcome.  That fact does not change our focus.   We want to win on the quality of our written and public presentations.  We routinely face major corporate law firms with plenty of resources and armies of lawyers.  We want our presentations to win because we are on the right side of the issues and the law.  We are committed to submit quality presentations on behalf of our clients.  Every time.  No exceptions.

Individualized Service.  We strive to provide the individual level of client service that our clients have come to expect of us through the years. We are in constant communication with our clients.   We return all phone calls and email messages within one day. We are proud of our courtroom record, and we regularly review the hundreds of letters that we’ve received from satisfied clients to keep us focused on our commitment.  Most of these inspiring letters say the same thing — what was promised in the beginning is what was delivered at the end.  You should know, as our clients have attested, that once we sign on, there is no hand-wringing.  We are with you.  That is our commitment to you.

We look forward to serving you.

The Sixth Circuit Court of Appeals has cited the “spirit of ERISA” in reversing a district court decision granting summary judgment against an employee pursuing a disability claim.  In Waskiewicz v. Unicare Life & Health Ins. Co., 802 F.3d 851 (6th Cir. 2015) the plaintiff-employee was suffering from mental illness when she was discharged by her employer.  At the time of the discharge, Ms. Waskiewicz was insured through a long-term disability insurance plan established by her employer.   Ms. Waskiewicz did not timely file her claim, in part owing to her medical condition. The district court dismissed her claim, finding that she had failed to comply with her disability plan’s notice of claim requirements.

The Sixth Circuit reversed the district court finding that, given the claimant’s mental condition, the court’s reading of the language appearing in her disability contract was too strict.  The Court held:

While she did not comply with the notification deadlines outlined in Section 4.02 of the Plan, that failure is not surprising given that she was suffering from severe mental illness and was unable to comply due to the very disability for which she sought coverage.

An insurance policy can hardly be said to provide employee disability “insurance” at all if it protects against sudden disability but not if the employer immediately discharges the employee because of the disability before she gets a chance to apply for the benefits.  Waskiewicz, 802 F. 3d at 855-866 (emphasis in the original).

Notably, the Court held:

Common sense convinces us that the denial of benefits in this case runs contrary to the spirit of ERISA, which is designed to protect employee benefits, not subject them to arbitrary termination—in this case retroactive termination—after the benefit has otherwise accrued.  Id., 856.

The Court’s holding recognizes the unique role that an ERISA plan plays in the financial planning of employees. The Court’s recognition of the “spirit” of the ERISA law may require a court to consider the law’s intended purpose – the financial protection of employees through their employee benefits.  Occasionally, this may require a court to look past strict contractual interpretation and focus on the aims of ERISA.

10 Practical Considerations for the Long Term Disability Claimant Considering a Lump Sum Settlement of an Insurance or ERISA Claim

A beloved client who suffered from a serious and debilitating illness finally seemed to get a break. After years of pursuing his claim, including time spent in active and aggressive opposition in a federal court, the defense offered to settle. The insurer agreed to pay the client a lump sum settlement in order to resolve the matter in exchange for a release of further liability. The client was relieved. The battle was ending, and there was financial relief on the way.

As with most settlements, there is a delay between an agreement to resolve a dispute and funds being received. Typically, the lag is a month, perhaps a bit longer. During this time, the client seemed anxious, but patient. He inquired frequently about the status of his check, but he was always patient, courteous, and appreciative. Finally, the big day arrived. The check was in. He let us know he would leave his house and be coming to the office right away. Driving was extremely difficult for him, if not inadvisable, but he was undeterred.

We met in the office, went over the formalities, and he collected a sizable check representing the entire settled value of his claim. We asked if he needed any assistance getting back home, or whether he was sure he could drive himself. He said we had nothing to worry about. He would not be going too far.

The next morning, there were several messages in my voicemail box. They were from a family member of the client, each with increasing urgency and anxiousness. I had a slightly sinking feeling. Before I could call back, the family member called again. He was exasperated. He told me that the client had taken the funds to a newly opened casino in Canada and spent every last penny of his settlement gambling. He revealed the client did not have the $2 dollar toll for the bridge to return to the U.S.  Now, the client was calling family and friends to pick him up and bring him back over the border. We never knew the client had a gambling problem.

Three words come to mind: shocking, true, and preventable. While admittedly this is an extreme example, it is instructive for our clients and for us when dealing with large sums of money that come from large disability settlements.  Here are ten practical considerations when thinking about whether to take a lump sum:

1.  Consideration hiring a legal expert to understand the release agreement.

A lump sum payment in a long term disability case will involve settlement paperwork. Settlement documents fully resolving a disability claim are critically important documents and must be carefully reviewed to insure that their terms are not overly broad or release other types of benefits not covered by the release. Often times, the settlement documents are prepared as general releases, meaning they extend to claims beyond the specific insurance contract.  These documents must be revised in order to ensure that the release is properly limited.

2.  Consider the income tax consequences of a large settlement.

Sometimes, a lump sum long term disability settlement will have no adverse income tax consequences.   Other times, there are potentially significant income tax consequences.  In such cases, there are steps that may be taken to lessen the tax burden. Consult an experienced professional to see exactly which steps may be taken to minimize the income tax implications of a large settlement. There are strict rules that must be followed to insure that a claimant may be able pay income taxes over time, rather than at the time of the lump sum.  Even a large tax liability may be made more manageable with proper settlement drafting and financial planning.

3.  Consider the hardship in the claims administration process.

Long term disability insurance companies have contracts or benefit plan provisions requiring a claimant to submit “continuing proof of loss” or “proof of continuing disability.” These “proofs” are likely standardized forms requiring a claimant to set forth the activities of daily living and also forms for completion by attending physicians. One of the advantages of a lump sum settlement of a large long term disability claim is that this process will come to an end.

4.   Consider your own financial tendencies and habits.

Prior to being placed on long term disability, consider whether you were  a spender, a saver, or somewhere in between.  The challenge with a large settlement or a lump sum buyout is that there is a significant amount of money which is easily accessible. Disability claimants who receive buyouts typically do not purchase new cars or homes. Their behavior may change in more subtle, yet expensive ways. For example, if a refrigerator breaks, rather than paying for a service call, a claimant may opt to purchase a brand new appliance. Over time, these changes in behavior can eat away at the proceeds. The key inquiry is whether a claimant can responsibly handle large funds in a disciplined way.

5.   Consider what would happen if somehow you lost it all.

A long term disability claimant receiving a monthly disability income replacement check has likely figured out a way to live off of that sum. A claimant has been living on a fixed income. The monthly disability checks are used to pay housing expenses, clothing, groceries, prescription and physician copays, and the like. With a lump sum settlement, those costs do not cease.  Instead, they must be paid from some other source such as the settlement funds, an annuity, divided income, or even some form of new employment.  Consider how you would live if the proceeds of the lump sum were used up entirely.  How would you pay your bills? Some claimants may be able to answer that they would attempt to work in a very sedentary capacity. Others might not be able to answer the question at all.  It is well worth considering.

6.   Consider how you will handle the settlement funds when they are received.

Before ever receiving a settlement check, a long term disability claimant should know how the settlement funds will be handled.  Will the settlement funds be immediately placed into a structured settlement like an annuity, or will they be invested with an investment firm, or will they simply be placed into a savings account of some type? These considerations should be made well before any large settlement is ever reached.

7.   Consider your response to “loan” requests from family members and friends.

A long term disability insurance claimant should be aware that even though they are addressing their own serious health issues and financial challenges, upon learning of a large settlement, others may actually approach the claimant seeking personal loans. This, too, can eat away at a large settlement. A good way to avoid this situation is to tell others that the resolution of the matter cannot be disclosed owing to confidentiality.

8.   Consider how your life would be different if the disability claim were resolved.

Long term disability is one of the most stressful events in all of life. It is the intersection of health and finance, and neither are working out well. Adding to the stress is the regular interactions with claims adjusters, insurers, and examiners.  One of the great advantages of a settlement is that this process will be removed from your life and you may be better able to focus on the future.

9.   Consider your current state of health.

A long term disability claimant should give consideration as to the cause of the disability. If claimant’s state of health is precarious, and there is a possibility that full amount of benefits may not be collected, this should be given due consideration. Conversely, if the disability claimant’s condition is chronic, but unlikely to be life-threatening, the issue of how many years of disability remain is an important consideration. A lump sum settlement may not be in the claimant’s best interests.

10.  Consider how the funds will be invested.

A claimant should give proper consideration how the a large settlement will be invested and by whom. A claimant’s receipt of a substantial sum of money tends to be followed by offers from financial advisors. A large settlement must last for several years, if not decades. A large settlement can appear much smaller when the number of years it covers is actually considered. Proper financial planning is key to having a successful resolution of a long term disability claim on a lump sum basis.

What is ERISA?

“ERISA” is an acronym standing for the Employee Retirement Income Security Act of 1974 which went into effect on January 1, 1975. The statute was designed to protect employee pensions and other employee benefits. 29 U.S.C. §1001 et seq.

The statute changed the landscape of employee benefits law by requiring that all benefit plans be regulated by the federal statute instead the laws of the 50 states. ERISA is comprised of four titles: Title I regulates the dissemination of information to the plan participants. Title II covers the tax laws related to employee benefits. Title III covers the administrative and legal enforcement provision of ERISA. Title IV created the Pension Benefit Guaranty Company (PBGC), an insurance program that provides insurance coverage for certain types of pension plans acts somewhat like the FDIC, or Federal Deposit Insurance Corporation.

Download the ERISA Guide

In celebration of its sixteenth year of service to the public, J.J. Conway Law announced that the firm has received trademark approval for its motto, “Conquer Tomorrow.” The United States Patent and Trademark Office awarded the firm trademark protection for exclusive use of the words, “Conquer Tomorrow.” The firm’s motto will now bear the ® trademark symbol.

J.J. Conway, the firm’s owner, stated, “We are so grateful to the wonderful creative professionals and intellectual property counsel who helped us with this process. The words ‘Conquer Tomorrow’ represent the aspirational approach to law for which our firm stands. We want to be there with our clients every step of the way as we solve their legal concerns, moving together from place of challenge to a future of hope.” Conway added, “The creative team was so helpful and our legal counsel so dedicated, we cannot thank them enough for what they have done for our practice.”

J.J. Conway Law is an employee benefits law firm representing clients in the matters involving ERISA, pension, long-term disability insurance, healthcare, life insurance, as well as other benefits matters. Based on Royal Oak, Michigan, the firm represents clients throughout the United States in ERISA and employee benefits matters.