By Norris A. Adams II
and Caitlin H. Walton

In the second installment of our three-part series on ERISA’s new disability claim-processing procedures, we will focus on what we believe are the five most significant changes to the regulations. Read part one here.

1. Plans must allow claimants to review and respond to new information.

The Final Rule prohibits plans from denying benefits on appeal based upon new or additional evidence or rationales not included when the disability claim was initially denied without providing the claimant with notice and a fair opportunity to respond. This includes any evidence or rationale “considered, relied upon, or generated by” the plan (or at the direction of the plan). The “considered, relied upon, or generated by” language should prove important to preventing plans from refusing to provide certain information because they unilaterally claim not to have relied upon it in reaching the adverse benefit determination (such as evidence supportive of disability). Moreover, the new evidence or rationale must be provided by the plan as soon as possible and sufficiently in advance of the applicable deadline for the claimant to appeal.It is not sufficient for the plan to simply notify the claimant that new evidence was relied upon and provide them with the opportunity to request it. Rather, the commentary makes it clear that the plan must automatically provide the new evidence or rationale to the claimant. Failure to do so will bar the plan from relying upon that evidence or rationale in support of the denial. Once the claimant has had a chance to review and respond to the new evidence or rationale, the plan must then fully consider the claimant’s response. If that consideration generates new evidence or rationale, again, the claimant must be provided the chance to respond. The DOL did not change the timing requirements that govern consideration of these appeals to account for these possible additional steps in the consideration of disability claims, so it will be interesting to see how this plays out during the current regulatory timeframes.This new procedural protection of claimants actually getting to respond to the evidence gathered against them (a basic Constitutional right in other forums) will be critical to ensuring ERISA’s promise of a “full and fair review.” Sandbagging new rationales until there is no further opportunity for the claimant to be heard undermines the system and deprives claimants of basic due process and the Final Rule brings that practice to a halt.

2. Plans must explain disagreement with claimants’ treating physicians and vocational consultants.

As part of expanding plans’ disclosure requirements, the Final Rule requires that plans provide an explanation when they disagree with the views of a claimant’s treating physicians or vocational consultant. This change is critical because in our experience, plans simply took the position that they are not required to provide any special weight to treating providers’ opinions, as they are in Social Security cases. While that arguably remains true under current Supreme Court precedent, plans seemed to interpret that to mean they had carte blanche to totally discount treating providers’ opinions by summarily stating that they (or their reviewer) disagree with the finding. No more. The commentary to the Final Rule explicitly states that this requirement “would not be satisfied merely by stating that the plan or a reviewing physician disagrees with the treating physician or health care professional.” This change also applies to vocational consultants. Importantly, this requirement does not just apply to the treating providers’ ultimate determination of disability. The commentary makes it clear that it also applies to all foundational information utilized by the reviewer in reaching that ultimate determination.

3. Plans must explain disagreement with the plan’s own reviewers and consultants.

Thanks to the new regulations, Plans must not only explain their disagreement with the reviewers and consultants that are put forward by the claimant, but they must also explain any disagreement with their own reviewers and consultants. Having access to the reasoning utilized when a plan takes to undermining its own consultants’ opinions will not only give claimants better access to a full and fair review, but should also help to show plan inconsistencies across multiple cases with respect to the same or similar opinions by its medical reviewers. Plans must do so regardless of whether the plan actually claims that it relied upon the information in reaching its adverse determination. This is important because in our experience (and even as pointed out in the commentary to the Final Rule), many plans engage in “expert shopping,” which means that the plan solicits opinions until it gets one that it likes. In other words, the plan hires a medical reviewer or vocational consultant, and if they find that the claimant is disabled, the plan simply shelves that opinion and obtains another one (and another and another) until it finds an opinion that supports denial. This is another area where the former regulations arguably already required plans to make such disclosures, but there is no longer any gray area.

4. Plans must explain disagreement with Social Security decisions.

The Final Rule’s expanded disclosure requirements also require plans to discuss their basis for disagreeing with a disability determination made by the Social Security Administration (“SSA”). This change is consistent with what many courts have held, particularly where plans are operating under structural financial conflicts of interest, which is most of the time.

In our experience, many plans discount a claimant’s disability finding by the SSA by concluding that the finding is irrelevant because the SSA applied different standards than those required in the policy. This is so even where the plan’s disability standard is less demanding than the SSA’s standard, such as when the plan requires a finding of disability from one’s “own occupation,” whereas the SSA’s requires a finding of disability from “any occupation,” a much higher threshold. It is illogical to dismiss a more exacting disability definition as irrelevant, just as it is illogical to dismiss comparable disability definitions. The commentary addresses that logical fallacy by stating that “a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.” The commentary also makes it clear that boilerplate language about possible differences in definitions, presumptions, and evidence is insufficient. Rather, discussion of the actual differences is required.

This rule makes further sense given that most disability plans provide a dollar for dollar offset for Social Security disability benefits. It is a sad state of affairs that plans who stand to benefit financially from a claimant’s disability finding by the SSA, can totally discount that same SSA disability finding in their own reviews. No longer may they have their cake and eat it too.

5. Deemed exhausted.

If plans fail to strictly adhere to all claims processing rules, the claimant is deemed to have exhausted their administrative remedies (which is typically required prior to a claimant having the right to file a lawsuit) and is free to seek judicial review. The Final Rule does provide certain exceptions for “minor errors,” including “where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance.” Importantly also, if the court rejects the claimant’s request for review and dismisses the suit (for example, based upon one of the above exceptions), the plan must treat the claim as refiled on appeal upon receipt of the court’s decision. This protection relieves the claimant from engaging in an otherwise mandatory process in which the decision-maker (who is often conflicted) fails to follow the rules. After all, why should a claimant be required to comply with the regulations when the plan is not?

This protection is important for claimants for another critical reason. In typical ERISA cases, where the plan has granted itself discretionary authority, the standard under which the court reviews the claim (abuse of discretion) is highly deferential to the plan. This is so because trust principles, which are foundational elements to ERISA, are based on the premise that the fiduciary is not acting in conflict with the goals and purposes of the plan or its participants over which it is entrusted. As such, where a plan gives itself discretion as a fiduciary, that discretion is typically upheld unless the specific exercise of which is found to be unreasonable. Of course, in reality, many ERISA fiduciaries are not typical trustees, but rather are conflicted, profit-maximizing insurance companies, plans, and for-hire third party administrators. As such, because a claimant may lawfully proceed to court following a substantive violation of ERISA’s regulations, that discretionary authority is effectively eliminated, as it has not been exercised, and the court should review the claim de novo without deference to the plan’s decision, i.e., like any other case not artificially manipulated by decades of ERISA jurisprudence. While the Final Rule does not expressly state that de novo applies in all deemed denied situations, the commentary does state that courts may well find that “de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.” Application of de novo review under this scenario makes sense because the only reason these otherwise conflicted fiduciaries are given discretionary authority in the first place is because of the trust law presumption that they are acting in the best interests of the claimants and the plan. If they violate DOL regulations and claims processing guidelines, they are not acting in those best interests and, as such, are no longer entitled to any such deference.

In Part Three, we’ll conclude our discussion of the new disability regulations and provide a run-down of the remaining rule changes that will benefit disability claimants.