Western Michigan University-Cooley Law Review has published an article authored by J.J. Conway, Esq. and Trever M. Sims analyzing the Wilkins v. Baptist Healthcare Systems decision and its impact on ERISA benefits dispute resolution within the Sixth Circuit. The article, published in WMU-Cooley Law Review’s Summer 2018 issue, serves in part as a 20-year retrospective of what was, at the time, a concurring opinion in a seemingly routine disability benefits dispute. The article is entitled “Refining Wilkins: A 20-Year Look at the Recurring Factors Used in the Sixth Circuit’s Resolution of Disability Claims Under ERISA Section 502(a)(1)(B).”
The typical scenario in a benefits claim works something like this: An employee becomes ill or injured. An employee takes a medical leave of absence. If the employer has sponsored a disability program, a claim for benefits is filed. If there is a short-term disability plan, that benefit program may or may not be ERISA-qualified. If the condition continues past the short-term period, then a claim would normally be expected to transition into a long-term disability claim. Often, the short-term disability claims administrator is also the administrator (and perhaps the insurer) for the long-term program.
In practice however, the rules and regulations applicable to disability claims tend to complicate matters. If, for example, the short-term disability claim is denied or prematurely terminated, an appeal period is triggered. The appeal period runs 180 days, which can overlap with the commencement of the long-term disability coverage.
This is where trouble can start.
Sometimes a plan is written so there is a seamless transition from short-term to long-term disability. The long-term disability benefit period will not start until the short-term benefit claim has been exhausted or paid out in full. In other words, the filing of the short-term application will preserve an employee’s right to long-term disability benefits. Sometimes, an application must be filed, regardless.
That is what the disability claimant in Kennedy v. Life Ins. Co. of North America, 718 Fed. Appx. 409, 410 (6th Cir. 2018) found out, the hard way, in a recent Sixth Circuit Court of Appeals decision. In Kennedy, the claimant was receiving short-term disability benefits but had yet to file a claim for long-term disability benefits. According to the Court, the “the first time” long-term disability was ever mentioned was in a demand letter, not an application. As a consequence, in a terse opinion, the Court affirmed the claim’s dismissal. Writing for the majority, Judge Thapar wrote:
The district court was right: Kennedy never applied for long-term benefits. The first time he even mentioned long-term benefits was in his attorney’s letters—both of which came long after any such claim was due under the plan’s terms. Kennedy therefore failed to exhaust LINA’s administrative process.” Id. (citing Garst v. Wal-Mart Stores, Inc., 30 Fed. Appx. 585, 593 (6th Cir. 2002)).
Bottom line: always file the long-term disability application or secure a written confirmation from the plan that the long-term disability claim is preserved while the short-term claim is being evaluated or appealed.
The Tort Trial & Insurance Practice Section of the American Bar Association has published an article authored by J.J. Conway, Esq. discussing the history and usage of Social Security Disability Insurance awards in long-term disability insurance cases. The article, published in the Health and Disability Law Committee Newsletter, discusses the interplay between Social Security Disability Insurance Benefits and ERISA long-term disability benefits from both a financial and evidentiary standpoint. The article is entitled, “Tracing the Evidentiary Path of Social Security ‘Other Income’ Offsets in Disability Cases Through Statutes, Case Law, and Regulations.” (Winter 2017). The article is available here, Tracing the Evidentiary Path of Social Security Other Income Offsets in Disability Cases
The Litigation Section of State Bar of Michigan has published an article authored by J.J. Conway, Esq. discussing the importance of developing a theory of the case early in the litigation process. The article, published in the The Litigation Journal, discusses ways that litigators should formulate a theory of the case early in the pretrial process in order to litigate more effectively. The article is entitled, “A Strong Theory of the Case: The Faster It Is Developed, The Better The Results” (Fall 2017). The article is available here, The Litigation Journal (Fall 2017) – A Strong Theory of the Case
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. 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.”
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….” 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….” 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.
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.”
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.
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.”
 See Claims Procedure for Plans Providing Disability Benefits, 81 Fed. Reg. 92316 (December 19, 2016).
 Id. at 92317.
 Id. at 92321.
 Id. at 92322.
 Id. at 92324.
 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.
 Id. at 92330.
 Id. at 92331.
J.J. Conway was a featured speaker at the State Bar of Michigan’s Annual Meeting and NEXT lawyer development conference held in the Cobo Convention Center in Detroit, Michigan on Friday, September 29, 2017. Conway made presentation to new attorneys and those interested in self-employment in a presentation entitled, Hanging Out Your Shingle in 2017. Conway has presented similar lectures to the State Bar Annual Meeting’s attendees in Grand Rapids, Lansing, and Detroit at prior annual meetings. He has also written on the topic for various legal publications.
The Michigan Court of Appeals has held that, for the purposes of a claim under the Court of Claims Act, the statute of limitations may begin to run prior to any actual deprivation of financial benefit.
In Bauserman v. Unemployment Insurance Agency, No. 333181 (Mich. Ct. App. Jul. 18, 2017), the Michigan Unemployment Insurance Agency (defendant) appealed a trial court’s decision denying the defendant’s motion for summary disposition. The Court of Appeals held that a violation of the Court of Claims Act did exist, reversing the trial court’s decision.
The dispute centered on the defendant’s use of an automated decision-making system to both “detect and adjudicate suspected instances of employment benefit fraud.” Id. at 1. Once the system ‘detected’ an instance of benefit fraud, it would issue a notice and questionnaire in regards, either to the employee’s home address or an online unemployment portal which was rarely, if ever, accessed by employees. Following the notice, defendant would routinely “intercept” tax refunds, garnish wages and initiate collection activity through a court of law. Id. at 2.
Plaintiffs alleged that the Unemployment Insurance Agency’s use of “an automated decision-making system for the detection and determination of fraud cases, whereby the computer code in the automated decision-making process contains the rules that are used to determine a claimant’s guilt, and those rules change the substantive standard for guilt or are otherwise inconsistent with the requirements of due process.” Id. at 8.
The Court of Claims Act, MCL 600.6431(1), provides, in relevant part, that “[n]o claim may be maintained against the state unless the claimant, within 1 year after such claim has accrued, files in the office of the clerk of the court of claims either a written claim or a written notice of intention to file a claim against the state or any of its departments….” In actions for property damage or personal injuries, the claimant only has “6 months following the happening of the event giving rise to the cause of action” to file a written claim. MCL 600.6431(3).
The court identified the determinative question as “what event gave rise to [the plaintiffs’] cause of action.” Bauserman at 5. The triggering event was either when the defendant issued notices informing the plaintiffs they were disqualified from receiving unemployment benefits or when the defendant actually seized the plaintiffs’ property. Id.
In McCahan v. Brennan, the court held that MCL 600.6431 is to be “understood as a cohesive whole. Subsection (1) sets forth the general rule, for which subsection (2) sets forth additional requirements and which subsection (3) modifies for particular classes of cases that would otherwise fall under the provisions of subsection (1).” 492 Mich. 730, 742 (2012). Thus, while subsection (1) of MCL 600.6431 may provide a longer time frame to file a notice with the Court of Claims, subsection (3) shortens the time period for applicable claims to six months after the plaintiff’s cause of action accrues, or “when the wrong on which they base their claims was done.” Bauserman at 7.
The Bauserman plaintiffs alleged a violation of the Michigan Constitution, Article 1, § 17, which provides that “[n]o person shall be… deprived of life, liberty or property, without due process of law….” Specifically, the plaintiffs alleged that the defendant failed to “follow the minimum due process standards required under federal law with respect to the collection of unemployment debts, including overpayment and penalties.” Id. at 8.
The court held that while the plaintiffs claimed “the wrong on which their claims are based took place when defendant intercepted federal and state tax refunds, garnished their wages and forced repayment of unemployment benefits[,]” the alleged wrong actually took place “when defendant issued notices informing plaintiffs of its determination that plaintiffs had engaged in fraudulent conduct, and they were not given the requisite notice and opportunity to be heard.” Id. at 9. Therefore, the “economic deprivation” encountered by the plaintiffs was a secondary result of the original deprivation of due process, and not the proper point to adjudge the applicable statute of limitations. Id. Therefore, it was the notification of the deprivation of unemployment benefits, not the actual seizure of said benefits, which constituted the statutory point of claim accrual.
The Bauserman court cited Frank v. Linkner, a 2017 Sixth Circuit decision, which held in part that a plaintiff’s claims could accrue prior to a plaintiff incurring “calculable financial injury….” 894 NW2d 574 (2017) (Docket No. 151888), slip op at 14.
Following this decision, it is clear that a plaintiff’s pre-suit inquiry into the possible statute of limitations for claims arising against the State of Michigan must not be limited simply to the date the actual harm accrued, but should also account for any conduct preceding the harm which may have actually triggered the statutory cause of action.
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.
Everything we do is centered on effectively and promptly resolving our clients’ benefits disputes whether in the courtroom or at the bargaining table. We focus on successfully litigating and resolving employee benefit and contractual disputes involving private contracts of insurance and claims brought under the Employee Retirement Income Security Act of 1974 (“ERISA.”)