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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

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.

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.

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.

J.J. Conway has been named a 2017 SuperLawyer by Thomson Reuters.  J.J. has been listed as SuperLawyer or SuperLawyer Rising Star on ten occasions. SuperLawyers is a “rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer-recognition and professional achievement.” The selection process “includes independent research, peer nominations, and peer evaluations.” www.superlawyers.com.

For more information and to view J.J.’s Superlawyer profile, please visit:
J.J. Conway’s SuperLawyer Profile.

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 benefit matters. Based on Royal Oak, Michigan, the firm represents clients throughout the United States in ERISA and employee benefits matters, including complex benefit class action cases.

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.

J.J. Conway has been named a 2017 “Top Lawyer” by dbusiness magazine in its annual Top Lawyers Issue.  According to dbusiness magazine, “For our 2017 Top Lawyers peer review survey, we polled 19,000 attorneys in Wayne, Oakland, Macomb, Washtenaw, and Livingston counties. Each attorney was asked to nominate lawyers among 48 legal specialties.  More information about the peer reviewing rating process may be found by visiting the magazine’s website, dbusiness.

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, including complex benefit class action cases.

How would you describe your typical client?

Our clientele is quite diverse.  We represent as broad a range of clients as you can imagine. Since our litigation practice focuses on employee benefits — like disability insurance disputes – we serve people of all ages and backgrounds. Presently, we are handling the disability insurance claims of everyone from line-workers  to senior management of corporations. We represent managers, nurses, clerical support, and just about every occupation you can imagine. We also represent executives and professionals such lawyers, doctors, nurses, and college professors who have had health issues and problems with their disability insurance contracts.

Who is your success rate in disability insurance cases?

We enjoy a high percentage of cases resolved to our clients’ satisfaction. We want our clients satisfied. “Client satisfaction” is the standard by which we measure our success.  Sometimes this means achieving a courtroom victory. Sometimes, it means helping achieve a fair settlement.

Our success level is attributable to two primary factors.  First, our cases are directly affected by level of preparation devoted to them.  Most litigation cases do settle. The difference in settlement values is based on the level of preparation. The more preparation time spent on a case, the better the result.

The second factor is based on our singular focus on winning the case. We have heard successful college basketball coaches use an expression that pretty much sums up our litigation philosophy, we “hate losing more than we enjoy winning.” We have returned millions of dollars to our clients through judgments, verdict, and settlements. This was based on preparation, hard work, and a dedication and knowing the case inside and out.

Is there something to which you attribute your success?  Can you provide some examples?

First, we listen.  When we speak, we try to ask the right questions. Second, we are totally accessible to our clients thanks to the state of technology today. All email messages and telephone calls are returned in a day.  We try to educate our clients about the law, what it says, and what it means to their case.  We firmly believe that a client should never be in doubt as to where their case stands.  We insure this by emailing  copies of all documents filed or received in a given case.  We prepare regular email messages with updates on settlement talks. The clients receive their own copies of court rulings in their cases.

What may a client expect if you take the case?

In its most basic form, the legal relationship is a partnership. That is why I like that our firm’s motto is “conquer tomorrow.” We need to achieve our future desired result together.  We do ask that clients be involved in the process by supplying us with timely documentation and evidence gathering.  When the client is involved, the case tends to be more a more fulfilling experience.  We would never presume to know the facts better than our clients. Our clients will notice that we will be constantly rechecking or confirming of facts to make sure we have it right. . .every time.

Do most cases really settle?

Yes.  It is a reality in law that both sides typically want to control the outcome and not leave a major legal claim to chance.  The problem is we never know which cases will settle and which cases will not.  Take the case of DeLisle v. Sun Life.   In our view, Ms. DeLisle had an extremely strong claim against her insurer for ERISA disability benefits.  This insurance company, however, fought her claims before two different federal judges, losing before both judges.  The company then appealed the decision to the Sixth Circuit Court of Appeals, and having lost there, asked the entire Court of Appeals to overturn the case which it refused to do. In the process the insurance company hired two different huge law firms to fight this claim.  Delisle took seven seven years.  Who could have imagined this? And, yet in another case, the claim could be paid in 45 days.  The only way to firmly address this reality is prepare every case as if it is going to judgment. There is no substitute for this level of preparation.

Can individuals file administrative appeals on their own?

The short answer is ‘yes.’ The answer should be ‘no.’ While an individual may file his or her own ERISA or LTD appeal, they should be represented by legal counsel.  The reason is that, if a lawsuit is eventually filed, the lawsuit is about appeal.  The court case will focus on the contents of the appeal.  So, whether it is with our firm or another law firm, we believe an administrative appeal should be prepared by legal counsel.

What evidence is needed for a successful appeal?

The medical file is obviously the most important evidence. There is also other information, expert reports, vocational assessments, and the proper presentation of administrative agency decisions, such as Social Security.  The appeal should address, directly, the reasons the claim was denied in the first place.

What is the standard fee charged to your clients for their representation?  Is the fee the same for everyone?

Each case is customized based on the needs, goals, and objectives of the client. We are a people-centered firm which happens to practice law. That means we look at the situation the same way we would wish to be treated if we needed professional services.

Let’s break this down a bit further.

In the typical case, we are able to estimate what the damages might be.  A client who is unable to work because of their health may need to have the legal services rendered on a contingency-fee basis.  This is sometimes called the “no-win, no-fee” arrangement. In these cases, the firm is paid an agreed upon percentage of any financial recovery based a judgment, settlement, or the securing of a monthly benefit.On the other hand, a client who is able to afford the case on an hourly basis may look at the damages and see that paying by the hour is more suitable.   Either way, we strive to make it work for the client.

What distinguishes you from other law firms practicing in the area of disability insurance?

I think we bring a unique set of skills to a case that other firms may not possess.  First, my personal litigation background in law is rooted in complex commercial litigation and employment law. With this background training, I have been able to see the overlap among employment, employee benefits and contract law. I was trained in the commercial litigation context.  Given my background in employment law, I learned about the different occupational demands of positions in the workplace – often because the cases required a precise analysis of job duties. These three areas  come together in disability contract and ERISA disability cases.

What do you expect of your clients?

Two things in every case.  Honesty and patience.  We need to know everything, completely and honestly at the beginning.   We also need to ask for a bit of patience.  The legal process can be challenging, but in the end, if we keep pushing, we usually end up in the right place.

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.