Long-term and Short-Term Disability insurance cases dominate ERISA benefits litigation. According to the U.S. Department of Labor (“DOL”), the administrative agency given the authority to regulate employee benefits under, and to enforce the statutory provisions of, the Employee Retirement Income Security Act of 1974 (“ERISA”), disability insurance benefits claims account for almost two thirds of all benefits-related ERISA lawsuits and, based on rough estimates, these disability benefits claims are often denied. To protect disability claimants from having their benefits claims improperly denied, the DOL enforces and promulgates regulations to strengthen the employee protections found in ERISA. As a part of that process, the DOL recently issued a new set of regulations that greatly enhance the protections provided to disability claimants, codified at 29 C.F.R. Section 2560.503-1 and discussed at 81 Fed. Reg. 92316 (“Regulations”). We wrote an article about these Regulations, which you can read here. Importantly, the Regulations give teeth to existing protections, enhancing requirements for independent claims administration, information disclosure and consequences for administrators who fail to comply. Unfortunately, on November 24, 2017, the DOL announced a ninety-day delay in the effective date of the Regulations. Now, instead of applying to disability claims filed on or after January 1, 2018, the Regulations will not take effect until April 1, 2018, unless they are delayed again.
The DOL said that the decision to delay the effective date for the Regulations arose as a result of an executive order issued by President Trump on February 24, 2017 that directed federal agencies to do a regulatory review, and make recommendations, regarding regulations that could be repealed, replaced, or modified in a way that would make them less burdensome. Since then, the DOL said that it received comments from various stakeholders and members of Congress that implementation of the Regulations would increase the costs of administering disability benefit plans by, among other things, imposing new requirements when adjudicating claims, result in more litigation of claims for disability benefits, and make it more difficult for employers to prevail in such litigation and increase the costs of premiums for disability insurance plans.
The DOL’s decision to delay implementation is unfortunate for disability claimants because the Regulations do so much to strengthen the ERISA-provided protections. For example, they inject a regulatory mandate for impartiality and independence of all persons involved in the claims handling process. Often, we see purportedly “independent” medical experts give biased, poorly reasoned opinions in support of a predetermined goal: denial of the claim. While there is already a substantial body of case law that allows claimants to push back on these not-so-independent medical reviews, with these new Regulations, decisions regarding hiring, compensation, termination and promotion cannot be made on the likelihood that someone will support a disability benefits denial.
These new ERISA Regulations also fortify preexisting information disclosure requirements. In an ERISA disability case, the claims administrator gathers the information necessary to evaluate the initial claim. This may involve interviews with the claimants, retrieval of medical records and the “independent” medical reviews described above. The administrator then compiles this information in a claim file, which per ERISA, must be provided to disability claimants free of charge upon request. These new Regulations strengthen this requirement by making claims administrators provide any new evidence gathered during the review on appeal, as it is considered. This allows the claimant an opportunity to challenge additional information as part of the appeal process and build an equally compelling administrative record that fairly considers both sides.
As for information disclosure in denial letters, the Regulations also require that an ERISA disability claims administrator sufficiently state its denial and expressly address opinions to the contrary. Through these enhanced protections, an administrator may no longer ignore or dismiss conflicting findings of disability, including those from its own experts. For example, if the claims administrator disagrees with a finding of disability by the Social Security Administration or the plan participant’s treating physician, then it must rationally explain and support its opposite conclusion.
Finally, the Regulations incentivize compliance with these important procedural protections by formally acknowledging the legal consequences for failure to comply. Under these new DOL Regulations, a claimant may demand a written explanation of any asserted violation, which the administrator must provide within ten days. Further, when a claim is “deemed denied” because the administrator fails to render a decision within the applicable time-frame, a claimant will have exhausted his or her administrative remedies and can file a lawsuit under a de novo standard of review. A de novo standard of review is much more beneficial for the claimant because the court gives no deference to the administrator’s decision to deny benefits.
With these Regulations, the DOL took a strong stance in protecting disability claimants from wrongful denials by attempting to minimize conflicts of interest, promote an open and robust discussion of the claim and ensure that administrators strictly comply with procedural protections. Hopefully, the DOL will not decide to rescind, modify or further delay implementation of these Regulations, which now will apply to disability claims filed on or after April 1, 2018.
