By Norris A. Adams II
and Caitlin H. Walton

In the final installment of our three-part series on ERISA’s new disability claim-processing procedures, we will wrap up our discussion by providing a run-down of the remaining changes to the regulations. Click here to read part one and here to read part two.

Independence and impartiality

This change is arguably Part Two worthy, but we had to incentivize you to come back. The Final Rule explicitly provides that disability plans “must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.”

In other words, hiring, firing, promotion, bonus, and compensation decisions of claims adjudicators can no longer be made based upon the likelihood that the individual reviewing the claim will support the denial of disability benefits. This rule also applies when plans contract with outside medical and vocational reviewers. And it applies whether they are hired directly by the plan or through third parties. No longer may plans utilize reviewers based upon reputation for expected outcomes.

This might all sound pretty obvious, but conflict of interest discovery and admissions obtained by law firms across the country over the past several years, particularly since Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S. Ct. 2343 (2008), have revealed that these practices are prevalent throughout the industry. By way of example, plans have been routinely found to pay compensation to claims adjusters based upon denying a certain number or percentage of claims, while others have received promotions for similar behavior. Additionally, many medical reviewers have gained notorious reputations across the country based upon their tendency for routinely denying claims, being found to receive a disproportionately high percentage of their income from one party (such as a particular insurance company or plan administrator), or maintaining a statistically inconsistent rate of siding with the plan. No more.

Better basic disclosure requirements

This is another important change. Denials must now contain a more complete “discussion of the decision,” including why the plan denied the claim and the standards it utilized in reaching that adverse decision. If the denial is based upon medical necessity, experimental treatments, or similar exclusions or limits, the scientific or clinical judgment for the determination must be provided.

Plans must also inform claimants that they are entitled to receive the entire claim file and other relevant documents, upon request, at the initial claim denial stage, whereas the former regulations only required those disclosures after an adverse benefit determination on appeal. You would probably be surprised by just how many unrepresented claimants do not even know to ask for their claim file from plans that are vague or obstructive about the process and the claimant’s access rights.

This new disclosure requirement includes providing the “specific rules, guidelines, protocols, standards or other similar criteria” relied upon by the plan in denying the claim. The commentary makes it clear that plans are not shielded by simply stating that they did not “rely” upon documents in order to avoid producing them. Rather, the DOL makes it clear that if such rules and guidelines exist, they are relevant. As such, plans are now required to make an affirmative statement that no such rules or guidelines exist. If they do exist, they must be produced. However, in the short time these new regs have been in effect, we have already seen some plans state that they did not rely upon any specific rules, guidelines, etc. That’s simply not the same as saying they do not exist and is not in compliance with the new regs. It is also important to note that the commentary states that plans may not conceal any such information by claiming that it is proprietary or confidential business information. In the past, this has been a very common practice by the industry. It will also be interesting to see how this change impacts plans’ arguments that protective orders must be entered by the court prior to production. In our view, if plans have an affirmative obligation to produce these documents during the pre-litigation claim review process, the argument for requiring protective orders to be put in place during litigation is specious.

While some of these disclosure rules arguably already existed, in our experience, the level of compliance with ERISA regulatory disclosure requirements varied widely across plans and largely depended upon the interpretation by each particular plan or their decision-makers and counsel. In fact, we already had a practice in place of requesting these documents in every appeal and yet, we rarely received them. As such, even where there may be some overlap in what the new regulations require of plans from what they were already required to do, it is valuable overlap, instructive, and should make it more difficult for plans to ignore these lawful requests. As the commentary to the Final Rule states: “the Department believes that expressly setting forth additional requirements in the regulation, even if some may already apply under the current rule, is an appropriate way of reinforcing the need for plan fiduciaries to administer the plan’s claims procedure in a way that is transparent and that encourages an appropriate dialogue between a claimant and the plan regarding adverse benefit determinations that ERISA and the current claims procedure regulation contemplate.”

Statute of Limitations

The Final Rule requires plans to provide claimants with the contractual limitations periods that are applicable to their claims and the dates on which they will expire. Interestingly, the commentary to the Final Rule suggests that these requirements should apply to other benefits claims beyond disability: “Although the final rule provision is technically applicable only to disability benefit claims, as explained above, the Department believes that notices of adverse benefit determinations on review for other benefit types would be required to include some disclosure about any applicable contractual limitations period.”

In our view, this is a very important and incredibly valuable change for most ERISA claimants (and their lawyers). Following the U.S. Supreme Court’s decision in Heimeshoff v. Hartford Life & Accid. Ins. Co., 567 U.S. 310, 134 S. Ct. 604 (2013), ascertaining a claimant’s statute of limitations for judicially challenging a plan’s denial of benefits has become unnecessarily complicated and antithetical to ERISA’s stated purpose of accessibility to workers. Indeed, the Supreme Court’s reasoning in Heimeshoff is based largely upon esoteric, if technically correct, principles of trust law, but it fails to realistically consider the actual, real-world consequences these onerous interpretations can have upon ERISA claimants. Indeed, Heimeshoff permits an ERISA plan to prescribe not only the length of the limitations period (as opposed to applying the closest analogous state law contractual limitations period as was formerly the standard), but also when that period commences (as opposed to once all mandatory administrative appeals were exhausted). The result is that a plan can actually start the statute of limitations running against a claimant long before the claimant ever has the right to file suit. How’s that for access to the courts? Such a result can and has had drastic consequences on claimants’ ability to pursue their disability benefit claims in spite of the otherwise substantive viability of their claims. Now, the DOL has made it clear that the time for filing suit cannot expire prior to concluding the mandatory administrative appeal process.

Moreover, many plans are set up as sadistic choose-your-own-adventures with the applicable limitations period waiting at the end, just beyond the swinging ax. For example, a plan may start its contractual limitations period running from the earlier of when the plan receives or is “required to be given” Notice of Claim or Proof of Claim or Proof of Loss or Proof or Satisfactory Proof  or Continuous Proof — all defined plan terms — or some combination thereof. So, the claimant must be able to determine both dates and what each of the terms mean and when they’re each due. Sometimes the plan terms trigger off other defined plan terms such as the end of the Elimination Period, the length of which is also set in the plan, and may begin on the first day of Disability, another defined term (which the plan is charged with determining, so figure that out), and be satisfied by a set number of days, or upon the conclusion of short-term disability payments, or when the required number of days is accumulated within a period which does not exceed x times the Elimination Period, with the exception of any statutory disability benefits, accumulated sick time, salary continuation program sponsored by the employer, or any number of other moving targets. Dizzy yet?

Moreover, these hurdles to ascertaining when it will be too late for a claimant to file suit must also take into account the fact that if a claimant files suit too early, their claim is subject to dismissal by the court for failure to exhaust administrative remedies.

In other words, it’s not at all hard for an ERISA practitioner to see why the Final Rule’s seemingly innocuous procedural change is much more important than that. The Supreme Court’s decision in Heimeshoff and the industry’s objections during this regulatory process to providing this important information to claimants misunderstand or ignore what claimants actually face just to get their day in court. As such, the Final Rule appropriately places this burden back where it belongs — on the plans who crafted these unnecessarily onerous provisions and who are in a far better position to determine the date of expiration for their own concocted limitations periods.

One final note. The regs clearly require plans to calculate the actual statute of limitations expiration dates and convey those dates to claimants in the adverse determination letters. However, in the short time since the regulations went into effect, we are finding that some plans are doing somewhat less than what is required, such as stating that the limitations period expires “one year from the date of the denial.” To be clear, that does not meet their obligations under the new regs. They must state the actual date.

Coverage rescissions

With the exception of failing to timely pay premiums or make contributions to the cost of coverage, rescissions of coverage that have a retroactive effect are now considered adverse benefit determinations, subject to the regulated appeal procedures. This includes situations where the rescission is due to an alleged misrepresentation of fact, such as an error in the application for coverage.

Culturally and linguistically appropriate notices.

The Final Rule essentially adopts the ACA’s standard for providing group health benefit notices in setting the standard for plans providing adverse disability benefit determinations. Plans are now required to provide adverse benefit determinations in a “culturally and linguistically appropriate manner” if the claimant’s address is located in a county where 10% or more of the population are literate only in the same non-English language based upon U.S. Census data. For those claimants, adverse benefit determinations must include a prominent one-sentence statement in the relevant non-English language about the availability of language services and that the notice will be provided in the other language upon request. The Final Rule also requires verbal customer assistance (such as a telephone hotline) in the non-English language. We have started seeing some denial letters that contain notices at the end in a half dozen languages or more. It may be that rather than making individual linguistic determinations, some plans will take a shotgun approach to the languages in which it will provide required notices.

Allowable evidence

The Final Rule also clarifies that evidence submitted to the plan by claimants in support of their claims or appeals is not limited by courtroom evidentiary standards. As such, illustrative or demonstrative exhibits such as timelines, medical drawings, diagrams, and the like, as well as audio, video, and/or any other form of electronic media is allowable. In our experience, while evidence such as video recordings may not be appropriate or feasible in every case, it is absolutely critical in some cases to better illustrate the reality of a claimant’s condition and/or their daily struggles in a way that is not otherwise demonstrable on paper.

So that’s it. For claims filed after April 1, the new regs are in place and ready to get to work. While some ERISA advocates had hoped the DOL would go even further with the Final Rule, there really is no question that ERISA disability claimants are better protected now. In time, we expect that talented and creative plan attorneys will start to develop new strategies and defenses that will test just how far the Final Rule’s new procedural protections go. In the meantime, it will be interesting to see just how these changes are implemented and rolled out by plans and insurers, as well as how they are interpreted by the courts.