Originally scheduled to take effect on January 1, 2018, the Department of Labor finalized new ERISA regulations which govern, among other things, long-term disability claims. The regulation went into effect on April 1 of this year. I previously discussed these coming regulations in a blog last year (see my blog here).
While these new regulations provide additional protection to claimants, they also create opportunities for insurance companies and claims/plan administrators to engage in conduct during the claims process that will cause delay and greater expense to disabled individuals who are in desperate need of their benefits. Highlights of the new regulations are set forth below.
The regulations are specific about not allowing persons involved in the claims process to be incentivized to do anything other than evaluate and determine claims on their merits. Specifically, the regulations require that all claims and appeals for disability benefits must be adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, decisions regarding hiring, compensation, termination, promotion, and other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) must not be made based upon the likelihood that the individual will support the denial of benefits.
I certainly agree that decisions concerning a claimant’s entitlement to their long-term disability benefits should not be infected by financial or other incentives. So, this is a noble statement. Unfortunately, most insurance companies responsible for the payment of long-term disability benefits who engage in this conduct, or have done so in the past, do so secretively and in a manner designed to ensure that claimants cannot or will not find out about it. In addition, the regulations contain no penalty or significant remedial measure to punish those who engage in such conduct. As a result, I don’t expect that this provision is going to change the landscape in any significant way.
Information Contained in Denial or Termination Letters
Known as an adverse benefit determination, the regulation provides many specific requirements that the insurance company or plan administrator must put in their letter if they are going to terminate, deny, or otherwise limit the benefits to which the claimant is entitled. This is a positive development which has been augmented since the last set of regulations.
For purposes of this blog, I will highlight one aspect of this requirement. The regulation states that any such determination must include an explanation of the basis for disagreeing with or not following:
- The views presented to the plan by the claimant of health care professionals who treated him or her and vocational professionals who evaluated him or her;
- The views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination or termination, without regard to whether the advice was relied upon in making the benefit determination; and
- A disability determination by the Social Security Administration regarding the claimant presented by him or her to the plan.
The positive aspects of this part of the regulation are that the adverse benefit determination or termination needs to be specific in explaining why the insurance company or plan administrator disagrees with the claimant’s supportive physicians, vocational professionals, or the positive findings by the Social Security Administration. They have to explain their decision and why those types of a claimant’s supportive proof of disability should be rejected or ignored.
These requirements will allow claimants and their counsel to better determine what steps they need to take to protect their disabled clients.
Contractual Limitations Period (Statute of Limitations)
While most people think of the time within which to bring a lawsuit as a statute of limitations, almost all of these disability policies contain a time limit within which to bring a lawsuit. These contractual time limits often are different than the actual statute of limitations in any given state. In addition, these contractual limitations periods are enforced by courts.
There has been great confusion in interpreting these contractual limitation periods, confusion that has resulted in courts rendering unclear and unfair interpretations, to the severe detriment of claimants. This new section specifically requires insurance companies and plan administrators to tell claimants, in writing, how much time they have to bring a lawsuit. This is a very positive and helpful change in the regulation.
Stripping Away Discretionary Authority from Insurance Companies and Plan Administrators
I have previously blogged about the impact of the insurance company or plan administrator having discretionary authority to interpret the terms of the policy and make benefit determinations (see my prior blog here). Specifically, when a claimant’s benefits are terminated or denied and the policy gives that discretionary authority to the insurance company or plan administrator, the disabled claimant is going to have an extraordinarily difficult time prevailing in court, because the court will defer to the determination made by the insurance company or plan administrator. This becomes an incredibly challenging and unfair hurdle for claimants to overcome in court.
The new regulations expressly state that insurance companies and plan administrators lose their discretionary authority if they fail to strictly adhere to all claims and appeals requirements contained in the regulations. This is an extremely important tool for claimants and their attorneys. Attorneys need to understand when violations of the regulations occur and what to do when they, and especially you, the claimant, need to take your case to court.
Changing Reasons for the Adverse Benefit Determination on Appeal
This amendment to the regulation is the most difficult and disturbing of all the amendments. It basically allows the insurance company or plan administrator, during an appeal, to come up with new information and new reasons to support their adverse benefit determination.
Under the old regulations, the insurance company or plan administrator possessed no such rights, and the courts ruled that coming up with new reasons to deny, terminate, or otherwise limit claimants’ benefits was illegal.
Now, the new regulation makes it clear that insurance companies and plan administrators can change their reasons during the appeal. As part of this nightmare, the regulation provides the claimant with an opportunity to further address the new reasons.
Not only does this rule unnecessarily and unreasonably lengthen the claims process for a disabled claimant, it also requires a great deal of additional work, time, expense, and legal fees, an already extraordinary burden for claimants in desperate need of their benefits.
Unfortunately, this is purgatory for claimants.
On balance, the regulations are a mixed bag. They help claimants in some instances, but simultaneously create more hurdles for them. My hope for those stricken with disabling conditions is that they will get more help than hurt from these changes. We shall see.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack