Posted By Mark E. Hancock || 11-Jan-2023



Mark E. Hancock

The Employee Retirement Income Security Act of 1974 (“ERISA”) is federal law that governs claims for disability coverage under many plans and policies that employees have by virtue of their employment. From the perspective of such employee/claimants, it is not really great law for a number of reasons. For example, it doesn’t allow for the recovery of emotional distress and/or punitive damages for having to fight for benefits and it usually means that cases have to be litigated in federal court against defense firms often located near those courts.

ERISA does contain one feature that, one would think, is nice for claimants. It allows for an appeal before (and without) litigation. Hypothetically, if you win your appeal, you do not have to sue. Sounds great, and would seem to reduce the need for litigation in order to get benefits, right? Well, yes and no.

It’s “No,” because there are traps for the unwary that can not only force a lawsuit but handicap you in one. One trap is that there is a limited time (shorter than most state statutes of limitation) to submit the appeal.

Another reason it’s “No,” is that you may be limited to the record you make on the appeal. If you don’t hire a lawyer and make arguments and submit things that could be supportive of your appeal - at the time of your appeal - it may then be too late for you and any lawyer you then hire to submit such things - after the appeal is decided. In other words, if you try to handle the appeal yourself and wait to get legal input on all the arguments you could make and on all the evidence you could submit that would support your disability, until after your appeal is denied, it may be too late to submit and have those things considered. So, trying to economize and to do the appeal yourself (before hiring a lawyer) may not be helping your cause. This is a trap for the unwary, because of the natural inclination of people to try to save money and the seeming proclivity of insurance companies to pick on the weak and defenseless.

If this is how it is for employee claimants, should it not also be for plans and insurance companies? If the idea behind appeals is to allow claimants and plans and insurers to get it all out there, to have full and fair discussions and meaningful dialogues about claims, and to achieve fair resolutions, without litigation, then shouldn’t insurers and plans have to lay out all their cards on the table in the appeal process too? Or should insurers get to go to their lawyers to come up with additional arguments to deny claims after-the-fact (and deprive claimants the opportunity to address those arguments in the appeal)? Lawyers, after all, are trained and good at coming up with arguments.

I contend the law and fundamental fairness support a resounding “No” to a different standard for insurance companies. What is good for the goose is good for the gander.

Insurance companies don’t seem to be getting the point however. They are quick to argue that the record is closed for claimants who contest denials, but they keep trying to make new arguments for themselves. Let’s look at the law on this.

Mitchell v. CB Richard Ellis Long Term Disability Plan, et. al. (9th Cir. 2010) 611 F.3d 1192 is not new law. It was decided over a decade ago. In that case, the District Court stated that Met-Life would not be heard to argue, after the appeal, that it shouldn’t have to pay the claimant because the onset of his disability was allegedly before their coverage started, an argument they didn’t make in the appeal process. The District Court held this was a waiver, i.e., they could have, but did not, bring that up before, so they lost the right. It should be noted that the doctrines of waiver and estoppel have been held to apply to ERISA disability cases. The 9th Circuit affirmed, adding that the language of their policy didn’t support that argument in any event.

In addition to the arguments of waiver and estoppel [and of closing of the record at the determination of the appeal], there is also the language of the ERISA regulations as well.

29 CFR §2560.503-1(g) regulates the manner and content of plan/insurer notifications of adverse benefit determinations. Among other things, it provides that: the specific reason or reasons for the adverse determination shall be set forth, the decision shall be discussed and explained and the plan and/or insurer must describe any additional material or information necessary for the claimant to perfect the claim. Query, how does a claimant address and counter an adverse benefit determination on appeal if he or she doesn’t even know of the argument being made – precisely because it hasn’t been made yet?

29 CFR §2560.503-1(h) provides for an appeal of adverse benefit determinations. Among other things, it provides that there is to be “a full and fair review of the claim and the adverse benefit determination.” How can there be a full and fair review of an argument allegedly supporting an adverse benefit determination if the plan and/or insurer has not made it - yet?

Further, as to appeals in disability cases, the administrator shall provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan and/or insurer so as to give the claimant a reasonable opportunity to respond. This expressly acknowledges that full and fair review means the claimant gets to see and respond – in the appeal - to everything, including any “new or additional evidence.” In other words, an insurance company or administrator can't rely on any new or additional evidence unless it is given to the claimant and the claimant is given the opportunity to respond - in the appeal.

Yet, despite case law and regulations that seem clear and unambiguous, insurers keep trying. In the recent case of Collier v. Lincoln Life Assurance Company of Boston (9th Cir., 2022), the 9th Circuit had to reverse because the District Court erred in relying on new rationales to affirm the denial of benefits that Lincoln did not assert during the administrative (i.e., adverse determination and appeal) process.

Lincoln's desire to come up with new rationales and supplemental "evidence" to try to defend its denial of benefits is not hard to understand, given that it originally tried to deny based on a record review, with no actual exam, by a doctor it hired, who determined that Collier could work full-time without restrictions. How a doctor who has never examined, much less even met, the claimant can determine her functionality, or credibility is an excellent question. Moreover, how the opinion of record-reviewing doctor, as to the matter of a patient's credibility, would be better than that of treating doctors who have seen the patient many times, is another excellent question. Collier sued.

In that lawsuit, Lincoln's lawyers contended, for the first time, that Collier was supposedly not credible and had failed to supply objective medical evidence in support of her claim, things that Lincoln had not argued in the appeal process. Despite that, and the law mentioned above, the District Court relied on those new rationales in holding that Lincoln had properly denied benefits to Ms. Collier.

The Court of Appeal stated this deprived Collier of the right to respond to those claims and of her right to a full and fair review of the reason(s) for the denial of her claim. [Parenthetically, there are often arguments to be made in response to the oft-repeated insurance company mantra that conditions, restrictions and limitations (allegedly and always) have to be supported by “objective evidence.”]

In its opinion, the 9th Circuit Court of Appeals stated (or restated) several important things, including:

"[W]e have repeatedly stated that ERISA is remedial legislation that should be construed liberally to protect participants...."

"[A] plan administrator undermines ERISA and its implementing regulations when it presents a new rationale to the district court that was not presented to the claimant as a specific reason for denying benefits during the administrative process." and

"[A] district court cannot adopt post-hoc rationalizations that were not presented to the claimant...during the administrative process."

It should be noted here that Lincoln also scheduled a so-called "IME" after Collier's appeal was already submitted. I would submit that the insurer practice of only doing defense medical exams after the participant's appeal has been submitted violates the holding in Collier and is wrongful for all of the above-mentioned reasons. The main insurer motivation appears to be to not spend the money until and unless the insured/plan participant puts up a good fight and the insurance company realizes its shaky denial won't stand as-is. The problem, however, is that such a sand-bagging tactic deprives the participant, any lawyer helping him or her, and the treating doctors of the ability to review, respond to and counter the insurer's DME report in the appeal process. That frustrates the appeal right and undermines ERISA.

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