The U.S. District Court for the Southern District of New York, in Rhodes v. First Reliance, has ruled that an insurer’s denial of a long-term disability (“LTD”) claim must be reviewed under the de novo standard because of several violations of the Department of Labor’s (“DOL’s”) claims procedure regulations.
Facts. An employee suffered a traumatic brain injury, and submitted a claim under his employer’s LTD plan. The insurer, which had been appointed as claims administrator, initially approved the employee’s claim but later found that he no longer satisfied the applicable definition of “Total Disability” under the plan. The employee appealed the decision and, after another denial, sued in federal court.
Law. Every ERISA-covered pension or welfare benefit plan must establish claims procedures for determining benefits claims and appeals of denied claims. In general, a plan is required to establish and maintain “reasonable” claims procedures, which:
- must be described (or, if provided in another document, referenced) in the plan’s SPD;
- must not be administered in any way that would interfere with making or processing a claim;
- must permit a participant’s authorized representative to pursue a claim;
- must inform participants, in writing and in a timely fashion, of the time limits for filing benefit claims and requesting reviews of denied claims; and
- must contain administrative safeguards to ensure consistency.
The default standard for a court to use in reviewing benefit denials under an ERISA-covered plan is the de novo standard of review, which means that the court will independently review a claim and not defer to the claims administrator’s (or insurer’s) decision. However, if the plan document (or insurance policy) grants discretionary authority to determine benefit entitlement to the administrator, the court will apply a less demanding “abuse of discretion” standard of review, under which the administrator’s decision will be upheld unless it is determined to be “without reason, unsupported by substantial evidence or erroneous as a matter of law.”
When denying a claim for benefits, a plan’s failure to comply with the DOL’s claims procedure regulations will result in that claim being reviewed de novo in federal court, unless the plan has otherwise established claims procedures in full conformity with the regulations and can show that its failure to comply with the regulations in the processing of a particular claim was inadvertent and harmless.
Court Decision. The employee claimed the insurer violated the DOL’s claims procedure regulations because it failed to: (i) consult with an appropriately qualified health care expert on appeal; (ii) give the employee the opportunity to respond to the conclusions from the insurer’s expert; and (iii) comply with regulatory time limits for claims appeals.
The court noted that under the DOL’s claims procedure regulations: “[I]n deciding an appeal of any adverse benefit determination that is based in whole or in part on a medical judgment…the appropriately named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.” The health care professional must be “sufficiently qualified to evaluate all of plaintiff’s medical conditions and to provide an opinion regarding plaintiff’s functional capacity based on all of the objective medical evidence and clinical data.” The employee claimed that the insurer failed to meet this requirement because it retained a PhD-trained neuropsychologist rather than a neurologist or other medical doctor as an expert to review the employee’s records.
On this issue, the court ruled in favor of the employee, saying that the insurer offered no precedent that would support a finding that a neuropsychologist or any other individual who is not a medical doctor would be a sufficiently qualified expert who could satisfy the “full and fair review” requirement under the DOL’s regulations.
Additionally, the DOL’s claims procedure regulations require a claims administrator to provide a claimant with any “new or additional evidence considered, relied upon, or generated by the plan” as well as a reasonable opportunity to respond to this new evidence. However, in this case, the insurer never provided the employee with a copy of the neuropsychologist’s report or gave him an opportunity to respond until after it rendered a final benefit determination. The insurer claimed that because the report remained unchanged from the initial claims denial, there were no new medical opinions and no new or additional information that it was required to provide to the employee.
Again, the court agreed with the employee, noting the neurophysiologist’s report was a medical opinion regarding new medical evidence, and it was “considered” and “generated” by the insurer, regardless of whether the report affected its ultimate benefits determination. Therefore, the insurer’s failure to provide the employee with the new report and provide an opportunity to respond to it prior to its final benefits determination constitutes a violation of the DOL regulations.
Finally, the DOL’s claims procedure regulations obligate a claims administrator to render a determination on appeal within 45 days of submission, with an additional 45 days if the administrator requests additional information from the claimant necessary to decide the claim or if the administrator demonstrates “special circumstances” requiring an extension of time for processing the claim. If the administrator determines that an extension is necessary, written notice of the extension must be provided to the claimant prior to the termination of the initial 45-day period.
Here, the court ruled that the insurer had violated this requirement because it: (i) had not made a determination within 45 days; (ii) had improperly tolled the benefit determination period for 57 days; and (iii) had not informed the employee of any extension. It merely told the employee: “Please be advised that it is ultimately your responsibility to provide us with any information you wish to have considered. As such, should you have any other medical or vocational information you wish to be considered, please let us know.”
The insurer argued that it demonstrated “special circumstances” warranting a 45-day extension because it was “waiting on documents to be provided by” the employee. However, the court ruled that the insurer merely invited the employee to submit additional documents he “wish[ed] to have considered.” Moreover, the court observed that even if special circumstances did exist, the plan had failed to provide sufficient notice to invoke the extension. Accordingly, the court found that the insurer’s failure to meet the required deadlines constitutes a violation of the DOL claims procedure regulations.
In light of the foregoing series of violations, the court ultimately concluded that the de novo standard of review was appropriate for it to use in reviewing the employee’s claim for benefits.