08/16/96 VAOPGCPREC 6-96

Subj: Issues Related to Floyd v. Brown, 9 Vet. App. 88 (1996)

QUESTIONS PRESENTED:

a\. Under what circumstances must the Board of Veterans\' Appeals
(Board) address the issue of entitlement to an extraschedular rating
under 38 C.F.R. s 3.321(b)(1) or 38 C.F.R. s 4.16(b) in reviewing claims
for an increased evaluation for a service-connected disability or a
total disability rating for compensation based on individual
unemployability?

b\. In circumstances where the issue of entitlement to an extraschedular
rating under section 3.321(b)(1) or 4.16(b) must be addressed, what
procedure should the Board follow when the issue was not addressed by
the regional office (RO)? Does the Board have jurisdiction over
extraschedular claims raised for the first time by the record or the
appellant before the Board?

c\. Is the issue of entitlement to an extraschedular evaluation
inextricably intertwined with the underlying claim for an increased
evaluation or a total disability rating based on individual
unemployability, such that the issues may not be separated by the Board
for purposes of taking final action on appeal?

d\. If the appellant or the representative raises the issue of a rating
under section 3.321(b)(1) or 4.16(b) but submits no argument or
evidence, and the record on appeal contains no evidence that would make
such a claim plausible, may the Board dismiss the claim as not
well-grounded or conclude that the RO\'s failure to address the issue of
an extraschedular evaluation was harmless error because the claim is not
plausible?

DISCUSSION:

1\. In Floyd v. Brown, 9 Vet. App. 88, 95 (1996), the CVA held that the
Board may not assign an extraschedular disability rating under 38 C.F.R.
s 3.321(b)(1) in the first instance, because section 3.321(b)(1)
establishes a specific procedure requiring all claims under that
provision to be referred to the Under Secretary for Benefits or the
Director of VA\'s Compensation and Pension Service for initial decision.
However, the CVA held that the Board may be required to consider the
applicability of section 3.321(b)(1) when the issue had been raised
before the Board. Specifically, the CVA stated that \"the regulation
does not preclude the Board from considering whether referral to the
appropriate first-line officials is required\" and \"\[t\]he procedural
requirements of 38 C.F.R. s 3.321(b)(1) do not derogate from the ability
or obligation of the Board to seek out all issues which are reasonably
raised from a liberal reading of the documents or oral testimony
submitted prior to the \[Board\'s\] decision.\" Id. at 95-96. The court
further stated that \"the correct course of action for the Board in
extraschedular consideration cases such as this one is to raise the
issue and remand it for the proper procedural actions outlined in 38
C.F.R. s 3.321(b)(1).\" Id. at 95; see also id. at 96 (\"the Board is in
fact obligated to consider the applicability of the extraschedular
rating regulation, but must then refer the matter for decision in the
first instance by the appropriate VA officials.\"). In a July 15, 1996,
order, the CVA denied VA\'s motion for reconsideration and en banc
review in Floyd.

2\. You have raised a number of questions regarding the effect of Floyd
on the Board\'s procedures with respect to issues concerning
extraschedular disability ratings under 38 C.F.R. s 3.321(b)(1) and
total disability ratings based on individual unemployability (TDIU
ratings) under 38 C.F.R. s 4.16(b). At the outset, it is necessary to
distinguish the types of extraschedular ratings available for purposes
of service-connected disability compensation. Under 38 C.F.R. s
3.321(b)(1), the Under Secretary for Benefits and the Director of VA\'s
Compensation and Pension Service, upon field station submission, are
authorized to assign extraschedular disability ratings \"commensurate
with the average earning capacity impairment due exclusively to the
service-connected disability or disabilities\" when the evaluations in
VA\'s rating schedule are found to be inadequate. Under 38 C.F.R. s
4.16(a), a rating board may assign a total disability rating based on
individual unemployability for compensation purposes, without referral
to any other official, if the claimant has one service-connected
disability rated at least 60- percent disabling or, in cases of multiple
service- connected disabilities, one disability rated at least
40-percent disabling and a combined rating of at least 70-percent, and
is unable to secure or follow a substantially gainful occupation as the
result of such disability or disabilities. Under 38 C.F.R. s 4.16(b), if
a claimant\'s service-connected disabilities do not meet the percentage
requirements of section 4.16(a), but the claimant is unable to secure
and follow a substantially gainful occupation by reason of such service-
connected disability, the rating board must submit the case to the
Director of VA\'s Compensation and Pension Service for consideration of
entitlement to a TDIU rating. Although Floyd dealt only with ratings
under section 3.321(b)(1), the analysis in that opinion would appear to
apply also to TDIU ratings under section 4.16(b), in view of that
section\'s similar requirement of referral to the Director of VA\'s
Compensation and Pension Service and CVA precedents requiring
consideration of section 4.16(b) when the issue is raised in an
increased-rating case. See Stanton v. Brown, 5 Vet. App. 563, 570
(1993); Fanning v. Brown, 4 Vet. App. 225, 229 (1993).

3\. You have asked whether the Board must address the issue of
entitlement to a rating under section 3.321(b)(1) or 4.16(b) in all
cases (by which we presume you mean all rating-increase cases) and, if
not, what circumstances would require the Board to consider entitlement
under those provisions. We do not believe that the Board would be
required to address the issue of extraschedular entitlement in all
rating- increase claims. As explained below, the governing regulations
and CVA precedents establish that 38 C.F.R. s 3.321(b)(1) applies only
in \"exceptional\" cases where the ratings in VA\'s Schedule for Rating
Disabilities (rating schedule) are inadequate to compensate for the
average loss of earning capacity attributable to specific disabilities.
In the absence of evidence or an assertion by the claimant that the
schedular ratings are inadequate, the Board would not be required to
address the applicability of section 3.321(b)(1). Further, 38 C.F.R. s
4.16(b) applies only where a claimant is unable to secure or follow a
substantially gainful occupation by reason of service-connected
disability. In the absence of evidence or an assertion by the claimant
that he or she is unemployable due to service- connected disability, VA
would not be required to address section 4.16(b).

4\. VA is required by statute to adopt and apply a schedule of
disability ratings \"based, as far as practicable, upon the average
impairments of earning capacity resulting from \[injuries\] in civil
occupations.\" Accordingly, the rating assigned to a claimant\'s
disability generally must be based on VA\'s objective determinations, as
reflected in the ratings schedule, of the average impairments resulting
from such disability in civil occupations. See 38 C.F.R. ss 3.321(a)
(\"The 1945 Schedule for Rating Disabilities will be used for evaluating
the degree of disabilities), and 4.1 (\"Generally, the degrees of
disability specified are considered adequate to compensate for
considerable loss of working time from exacerbations or illnesses
proportionate to the severity of the several grades of disability.\").
Section 3.321(b)(1) states that the ratings provided in the schedule
will sometimes be inadequate to compensate for the average impairments
in earning capacity due to certain disabilities and that VA must from
time to time readjust the rating schedule in accordance with experience.
Section 3.321(b)(1) further provides:

To accord justice, therefore, to the exceptional case where the
schedular evaluations are found to be inadequate, the Chief Benefits
Director or the Director, Compensation and Pension Service, upon field
station submission, is authorized to approve on the basis of the
criteria set forth in this paragraph an extra-schedular evaluation
commensurate with the average impairment of earning capacity due
exclusively to the service-connected disability or disabilities. The
governing norm in these exceptional cases is: A finding that the case
presents such an exceptional or unusual disability picture with such
related factors as marked interference with employment or frequent
periods of hospitalization as to render impractical the application of
regular schedular standards.

Section 3.321(b)(1), therefore, makes clear that extraschedular ratings
are warranted only in \"exceptional\" circumstances and only where the
schedular ratings are inadequate to compensate for the \"average\"
impairment of earning capacity due to a particular disability. The fact
that some other circumstance specific to a particular veteran, such as
lack of education, may cause the effects of a service-connected
disability to be more profound in that veteran\'s case ordinarily would
not provide a basis for awarding an extraschedular rating under section
3.321(b)(1). Rather, an extraschedular rating under that provision is
warranted only where the disability picture presented by the veteran
would, in the average case, produce impairment of earning capacity
beyond that reflected in VA\'s rating schedule or would affect earning
capacity in ways not addressed in the schedule, such as by requiring
frequent hospitalization or otherwise interfering with employment.

5\. Section 4.16(b) provides for a TDIU rating when a veteran, whose
service- connected disabilities do not meet the percentage requirements
of 38 C.F.R. s 4.16(a), is rendered unable to engage in a substantially
gainful occupation by reason of such service-connected disabilities. In
contrast to section 3.321(b)(1), section 4.16(b) does not require a
finding that the schedular ratings are inadequate to compensate for the
average impairments in earning capacity caused by particular
disabilities, but requires only a finding that the service-connected
disabilities render a particular veteran unemployable.

6\. As the CVA stated in Floyd, the Board must address all issues which
are reasonably raised from a liberal reading of the documents or oral
testimony submitted prior to the Board\'s decision. Floyd at 95- 96
(citing EF v. Derwinski, 1 Vet. App. 324, 326 (1991), and Myers v.
Derwinski, 1 Vet. App. 127, 129 (1991)). Accordingly, where the claimant
has not expressly raised the issue of entitlement to a rating under
section 3.321(b)(1) or section 4.16(b), the Board will be required to
address the issue only if the evidence and argument before the Board
reasonably indicate that those regulations are potentially applicable.
With regard to extraschedular ratings under 38 C.F.R. s 3.321(b)(1), the
CVA has indicated that the Board is required to address the issue only
where there is evidence of circumstances which the appropriate VA
officials might find so \"exceptional or unusual\" as to warrant an
extraschedular rating. Shipwash v. Brown, 8 Vet. App. 218, 227 (1995);
see also Stanton, 5 Vet. App. at 566 (failure to address s 3.321(b)(1)
is harmless error where no exceptional or unusual circumstances are
presented); Fisher v. Principi, 5 Vet. App. 57, 60 (1993) (same).
Accordingly, when a claimant does not raise the issue of extraschedular
entitlement and there is no evidence of potentially exceptional or
unusual circumstances, the Board is not required to address the issue.

7\. In determining whether the issue of extraschedular entitlement under
section 3.321(b)(1) is raised by the record, the provisions of that
paragraph, in connection with the provisions of the rating schedule, may
provide guidance. Section 3.321(b)(1) applies when the ratings schedule
is inadequate to compensate for the average impairment of earning
capacity from a particular disability. The \"governing norm\" for such
cases requires an exceptional or unusual disability picture with such
factors as marked interference with employment or frequent
hospitalization so as to render impractical application of the ratings
schedule. Where a claimant asserts that he or she meets the schedular
requirements for a higher rating, section 3.321(b)(1) is not implicated.
On the other hand, when a claimant submits evidence that his or her
service-connected disability affects employability in ways not
contemplated by the rating schedule, the Board should consider the
applicability of section 3.321(b)(1). For example, if the schedular
ratings for a musculoskeletal disability are based solely on range of
motion, but the evidence indicates that the claimant\'s musculoskeletal
disability impairs earning capacity by requiring frequent
hospitalization or because medication required for that disability
interferes with employment, it may be necessary to address section
3.321(b)(1). In Fanning, 4 Vet. App. at 229, the CVA held that the Board
was required to consider extraschedular entitlement under section
3.321(b)(1) where the record contained evidence that the veteran\'s
disability (hernia residuals rated under diagnostic codes 7338 and 8630)
required frequent hospitalization and bed rest which interfered with
employability. In Moyer v. Derwinski, 2 Vet. App. 289, 293 (1992), the
CVA held that the Board was required to address the applicability of
section 3.321(b)(1), as well as a TDIU rating under section 4.16(b),
where the rating schedule prohibited assignment of higher than an
80-percent combined rating for the veteran\'s disabilities, but evidence
indicated that the disabilities may have rendered the veteran
unemployable.

8\. Although section 3.321(b)(1) identifies \"marked interference with
employment\" as a potentially \"exceptional or unusual\" circumstance
which may warrant an extraschedular rating, the mere assertion or
evidence that a disability interferes with employment would not in all
cases require consideration of section 3.321(b)(1). The rating schedule
is itself based upon the average impairment of earning capacity due to
diseases, and application of the schedule clearly recognizes that the
rated disabilities interfere with employment. 38 U.S.C. s 1155.
Accordingly, the fact that a disability interferes with employment
generally would not constitute an \"exceptional or unusual\"
circumstance rendering application of the rating schedule impractical.
Rather, the provisions of section 3.321(b)(1) would be implicated only
where there is evidence that the disability picture presented by a
veteran would, in the average case, produce impairment of earning
capacity beyond that reflected in VA\'s rating schedule or would affect
earning capacity in ways not addressed in the schedule. Although the
Board would not be required to address section 3.321(b)(1) based on a
mere assertion that a disability affects employability, it may be
advisable in individual cases where such assertions are raised to state
that the ratings in VA\'s rating schedule provide an adequate basis for
assessing the effects of the disability upon the claimant\'s earning
capacity.

9\. Further, the mere fact that a claimant seeks a TDIU rating would not
require consideration of extraschedular entitlement under section
3.321(b)(1). As noted above, entitlement to an extraschedular rating
under section 3.321(b)(1) and a TDIU rating under section 4.16(b) are
based on different factors. See Kellar v. Brown, 6 Vet. App. 157, 161
(1994). A claimant\'s assertion that he or she is unemployable due to
service-connected disability within the purview of section 4.16(b) would
not inherently implicate an assertion that the schedular ratings are
inadequate to compensate for the average impairment of earning capacity
due to the claimant\'s disabilities. Rather, section 4.16(b) merely
requires a determination that the particular claimant is rendered unable
to secure or follow a substantially gainful occupation by reason of his
or her service-connected disabilities.

10\. In determining whether a TDIU claim under section 4.16(b) is raised
by the record, the primary consideration is whether the record contains
assertions or evidence that the claimant is unable to secure or follow a
substantially gainful occupation due to his or her service-connected
disabilities. Examples of evidence which may require consideration under
section 4.16(b) include physician\'s statements that a veteran is
unemployable due to service-connected disability, VA documents
indicating that vocational rehabilitation is infeasible due to
service-connected disability, see James v. Brown, 7 Vet. App. 495, 497
(1995), and a veteran\'s testimony that he or she is unable to obtain
employment due to service-connected disability, see Stanton, 5 Vet. App.
at 570. In cases where there is evidence that the claimant may be
unemployable, but it is not clear whether he or she may be unemployable
due solely to service-connected conditions, it may be necessary to
consider carefully whether the evidence reasonably raises a claim for a
TDIU rating under section 4.16(b).

11\. You have requested our views concerning the procedural requirements
and jurisdictional limitations affecting the Board\'s actions in cases
where the RO did not address the issue of extraschedular entitlement
under section 3.321(b)(1) or TDIU ratings under section 4.16(b). The
CVA\'s precedents indicate that in an appealed claim for an increased
rating, the Board would have jurisdiction to address the questions of
entitlement to an extraschedular rating or a TDIU rating even though the
RO did not expressly address those questions. Under 38 U.S.C. s 7104(a),
the Board has jurisdiction to address all \"questions\" in a \"matter\"
which has been decided by the RO and appealed to the Board. In Bernard
v. Brown, 4 Vet. App. 384 (1993), the CVA held that the Board has
jurisdiction to address questions which were not addressed by the RO,
but which pertain to the same \"matter\" decided by the RO. See also
VAOPGCPREC 16-92 (O.G.C. Prec. 16-92). In Floyd, the CVA held that the
question of extraschedular entitlement under section 3.321(b)(1) is part
of the same \"matter\" as a general claim for an increased rating and
the Board, therefore, may consider the question of extraschedular
entitlement in cases where the RO did not address that question. Floyd,
9 Vet. App. at 96; see also Bagwell v. Brown, No. 95-238, slip op. at 4
(Vet. App. July 3, 1996). Although some CVA opinions refer to separate
\"claims\" for increased ratings, extraschedular ratings, and TDIU
ratings, Floyd indicates that when the issue of extraschedular
entitlement is raised in the context of an appealed increased-rating
claim, it should be viewed as a component of the increased- rating claim
rather than a separate claim.

12\. The CVA has not expressly indicated whether a TDIU claim pertains
to the same \"matter\" as an underlying claim for an increased rating
within the meaning of Bernard and VAOPGCPREC 16-92. However, the CVA has
held that the Board is required to address the issue of entitlement to a
TDIU rating under section 4.16(b) when it is reasonably raised by the
record before the Board on a claim for an increased rating. See Caffrey
v. Brown, 6 Vet. App. 377, 382 (1994); Fanning, 4 Vet. App. at 229. In
VAOPGCPREC 16-92, we stated that, in considering appealed \"issues,\"
such as entitlement to service connection, the Board has authority to
consider \"subissues,\" such as whether service connection may be
granted on a particular basis, that were not addressed by the RO. In the
present context, where the appealed \"issue\" concerns entitlement to an
increased rating for a service-connected disability, we believe the
Board would have jurisdiction to address, as a \"subissue,\" the
question of whether an increased rating may be warranted on a particular
basis, including an extraschedular rating under section 3.321(b)(1) or a
TDIU rating under section 4.16(b). The question of entitlement to a TDIU
rating for a particular service- connected disability is in many
respects similar to the question of entitlement to an extraschedular
rating for such disability, although the questions are governed by
separate regulations and different standards. Both questions concern
entitlement to an increased rating for a service-connected disability on
a basis other than the evaluations provided in VA\'s ratings schedule.
Accordingly, the question of entitlement to a TDIU rating, when properly
raised, may be considered a component of an increased-rating claim to
the same extent that the question of extraschedular entitlement may be.
We note, however, that the question of TDIU entitlement may be
considered a component of an appealed increased-rating claim only if the
TDIU claim is based solely upon the disability or disabilities which are
the subject of the increased-rating claim. If the veteran asserts
entitlement to a TDIU rating based in whole or in part on other
service-connected disabilities which were not the subject of the
appealed RO decision, the Board would lack jurisdiction over the TDIU
claim except where appellate jurisdiction is assumed in order to grant a
benefit, pursuant to 38 C.F.R. s 19.13(a).

13\. Because the Board would have jurisdiction over the question of
entitlement to an extraschedular rating or a TDIU rating for a
particular disability or disabilities raised in connection with a claim
for an increased rating for such disability or disabilities, the proper
method of returning the case to the RO for any required further action
would be by remand rather than referral. See Godfrey v. Brown, 7 Vet.
App. 398, 409 (1995); In cases where the Board would not have
jurisdiction over a TDIU claim, such as where the claim involves
service-connected disabilities which were not the subject of the
appealed claim, referral to the RO, rather than remand, would be the
appropriate action.

14\. You have asked whether the issue of entitlement to an
extraschedular rating is \"inextricably intertwined\" with the
underlying issue of an increased evaluation or a TDIU rating such that
the Board would be precluded from remanding the extraschedular-rating
issue while taking final action on the increased-rating or TDIU issue.
The concept of \"inextricably intertwined\" claims has been employed by
the CVA to describe a limitation on its own jurisdiction. In Harris v.
Derwinski, 1 Vet. App. 180, 182-83 (1991), the CVA held that when an
issue decided by the Board is \"inextricably intertwined\" with another
claim which remains pending before VA, the Board decision is not
\"final\" for purposes of CVA\'s jurisdiction under 38 U.S.C. ss 7252(a)
and 7266(a) until the related claim has been finally decided. However,
nothing in Harris or other CVA decisions concerning inextricably
intertwined claims imposes a limit on the Board\'s authority to issue
final decisions on certain questions and remanding distinct but related
questions for further development. To the contrary, the CVA has
indicated that it is reasonable for the Board, in issuing final
decisions, to remand to the RO any questions which were not previously
decided by the RO. See Holland v. Brown, 6 Vet. App. 443, 447 (1994) (in
adjudicating increased-rating claim, it was not inappropriate for Board
to \"refer\" TDIU claim to RO for further adjudication); Kellar v.
Brown, 6 Vet. App. 157, 160 (1994) (same). Accordingly, the fact that
two claims or questions may be \"inextricably intertwined\" for purposes
of the CVA\'s jurisdiction would not necessarily preclude the Board from
separating the claims or questions for purposes of remanding one and
issuing a final decision on another, if there is a reasonable basis for
doing so. Although the questions of an increased schedular rating, an
extraschedular rating, and a TDIU rating may be viewed as pertaining to
the same claim or appealed \"matter\" for purposes of the Board\'s
jurisdiction, we are not aware of any statute or regulation precluding
the Board from issuing a final decision on one of those questions and
remanding the other questions to the RO.

15\. Further, the CVA\'s precedents suggest that a claim for an
extraschedular rating would not be \"inextricably intertwined\" with an
underlying claim for an increased schedular rating or a TDIU rating. In
Kellar, 6 Vet. App. at 162, the CVA held that a claim for an
extraschedular rating for a particular disability is not inextricably
intertwined with a claim for a TDIU rating for the same disability.
Further, the CVA has held that the issue of entitlement to a TDIU rating
is not \"inextricably intertwined\" with the issue of entitlement to an
increased schedular evaluation and that, therefore, the CVA had
jurisdiction to review the increased-rating issue even though the TDIU
issue remained pending before VA. Parker v. Brown, 7 Vet. App. 116, 118
(1994); Vettese v. Brown, 7 Vet. App. 31, 34-35 (1994); Holland, 6 Vet.
App. at 446-47; but see Holland, 6 Vet. App. at 446 (CVA would not have
jurisdiction to review TDIU claim if increased-rating claim remained
pending before VA). In Holland, 6 Vet. App. at 446-47, the CVA explained
that the question of a TDIU rating is distinct from the question of a
higher schedular evaluation, since a TDIU rating is based on the
assertion that the rating schedule is inadequate to determine whether a
veteran is totally disabled due to service-connected disability. For
similar reasons, we believe that the question of entitlement to an
extraschedular rating under section 3.321(b)(1) would not be
inextricably intertwined with the question of entitlement to a higher
schedular rating. In Bagwell, slip op. at 5, the CVA stated, without
reference to the above-cited precedents, that the issue of the
appellant\'s entitlement to an increased rating was \"inextricably
intertwined\" with the issues of an extraschedular rating or a TDIU
rating. However, the CVA\'s conclusion in Bagwell was expressly based on
the \"unique circumstances presented\" by that case and, therefore,
should not be construed to overrule the above-cited precedents.

16\. You have asked whether, when an appellant raises the issue of an
extraschedular rating or a TDIU rating but presents no evidence or
argument which would render the claim plausible, the Board may dismiss
the claim as not well grounded or conclude that the RO\'s failure to
address the issue of an extraschedular evaluation was harmless error.
The doctrine of harmless error, applicable to the CVA under 38 U.S.C. s
7261(b), generally provides that an appellate court should not reverse a
decision of a lower court or administrative body due to error which was
not prejudicial. Accordingly, the CVA will affirm a Board decision which
contains only nonprejudicial error. See e.g., Edenfield v. Brown, 8 Vet.
App. 384, 390 (1995). Unlike the CVA, however, the Board does not merely
affirm or reverse RO decisions. Rather, except in cases it remands, the
Board is required to decide all material issues presented in a claim and
enter an order granting or denying the benefits sought or dismissing the
appeal. 38 C.F.R. s 19.7(b). Accordingly, where the issue of entitlement
to an extraschedular rating or a TDIU rating is raised on the record
before the Board, the Board must either remand the matter to the RO or
reach a decision on that issue. The conclusion that the RO committed
harmless error in failing to address the issue does not clearly state a
decision as to the merits of the issue. Therefore, the Board should not
dispose of extraschedular or TDIU rating issues solely by concluding
that the RO\'s failure to address the issue was harmless error.

17\. In Fisher, 4 Vet. App. at 60, the CVA stated that \"in the absence
of exceptional or unusual circumstances, the failure to deal with s
4.16(b) would at the most be harmless error, as there would be no
well-grounded claim.\" Although that statement would appear to justify
the Board in disposing of appropriate cases on the ground that there is
no well-grounded claim for an extraschedular rating or a TDIU rating, we
do not believe it would be appropriate to rely on that rationale in the
types of cases contemplated by your opinion request. As noted above,
Floyd, 9 Vet. App. at 96, indicates that when the question of
extraschedular or TDIU rating arises in connection with a claim for an
increased rating, that question is considered a component of the
increased-rating claim, rather than as a separate claim. See also
Bagwell, slip op. at 4. If the underlying increased-rating claim is well
grounded, there would be no apparent basis for dismissing the component
question of extraschedular or TDIU entitlement as not well grounded, if
those issues do not constitute distinct claims. There may be
circumstances where a claim for an extraschedular rating or TDIU rating
will constitute a distinct claim subject to the requirement of well
groundedness, such as when a claimant files a specific claim for an
extraschedular rating. However, when those issues are raised in the
context of a well-grounded claim for an increase, the Board should not
dispose of the question on the basis that it is not well grounded.

18\. When the claimant has raised the issue of entitlement to an
extraschedular rating or TDIU rating and the record contains no evidence
that would make such a claim plausible, the Board may conclude that
there is no evidence of exceptional or unusual circumstances which could
support an extraschedular rating or no evidence of unemployability due
to the service- connected disability or disabilities at issue which
could support a TDIU rating. In Bagwell, slip op. at 4, the CVA stated:
\"we do not read \[section 3.321(b)(1)\] as precluding the BVA from
affirming an RO conclusion that a claim does not meet the criteria for
submission pursuant to 38 C.F.R. s 3.321(b)(1) or from reaching such a
conclusion on its own.\" (Emphasis added.) Bagwell held that it was
proper for the Board to determine, in the first instance, that the
veteran had not presented evidence warranting referral for consideration
of an extraschedular rating, although the CVA remanded for a more
complete statement of reasons or bases. In Shipwash, 8 Vet. App. at 227,
the CVA held that the Board is not required to address the issue of
extraschedular entitlement when the record presents no evidence of
exceptional or unusual circumstances which would support such
entitlement. See also Stanton, 5 Vet. App. at 566 (failure to address
issue is harmless error); Fisher, 4 Vet. App. at 60. Those precedents
further support the conclusion that the Board may determine that there
is no evidence warranting remand for referral to the appropriate
officials for consideration of an extraschedular rating or a TDIU
rating. We do not believe that such a determination would be
significantly different from a determination that the claim is not well
grounded. See Edenfield, 8 Vet. App. at 390 (determination that claim is
not well grounded may be viewed as disallowance on the merits based on
insufficiency of evidence). As indicated in Bagwell, however, the Board
would be required to ex plain the basis for determining that the record
presents no evidence warranting referral.

19\. Further, before determining in the first instance that there is no
evidence warranting referral, the Board must consider, in accordance
with VAOPGCPREC 16- 92 and Bernard, whether the claimant would be
prejudiced by the Board considering the issue in the first instance.
Floyd, 9 Vet. App. at 96. The central inquiry in that determination is
\"whether the claimant has been given adequate notice of the need to
submit evidence or argument on that question and to address the question
at a hearing and, if not, whether the claimant will be prejudiced
thereby.\" Bernard, 4 Vet. App. at 394. We have stated that \"if the
appellant has raised an argument or asserted the applicability of a law
or \[CVA\] analysis, it is unlikely that the appellant could be
prejudiced if the Board proceeds to decision on the matter raised.\"
VAOPGCPREC 16-92 at 7- 8. In Bagwell, slip op. at 4, the CVA held that
the appellant was not prejudiced by the Board\'s initial consideration
of section 3.321(b)(1) because the appellant had the full opportunity to
present his increased-rating claim before the RO, the appellant raised
the issue of extraschedular entitlement to the Board and presented
evidence to the Board regarding that issue. Accordingly, where the
appellant has raised the issue of an extraschedular rating or TDIU
rating and had the opportunity to submit evidence relating to that
issue, he or she generally would not be prejudiced by the Board\'s
consideration of that issue or its determination that the evidence does
not warrant referral.

20\. Finally, we note the CVA\'s holding in Floyd that the Board may not
award extraschedular ratings, is based upon the regulatory language in
section 3.321(b)(1) providing that such ratings may be assigned by the
Under Secretary for Benefits or the Director of the Compensation
purposes upon field station submission. Similar requirements are stated
in section 4.16(b) with regard to certain TDIU ratings. In his dissent
from the CVA\'s July 15, 1996, order denying reconsideration and en banc
review in Floyd, Judge Steinberg suggested that VA could revise its
regulations to provide that the referral procedures specified therein
apply only to decisions at the RO level and do not preclude the Board
from assigning extraschedular ratings in cases before the Board. We have
recommended to the Compensation and Pension Service informally that it
revise sections 3.321(b)(1) and 4.16(b) to address the issue raised in
Floyd.

HELD:

a\. The Board is required to address the issue of entitlement to an
extraschedular rating under 38 C.F.R. s 3.321(b)(1) only in cases where
the issue is expressly raised by the claimant or the record before the
Board contains evidence of \"exceptional or unusual\" circumstances
indicating that the rating schedule may be inadequate to compensate for
the average impairment of earning capacity due to the disability. The
Board is required to address the issue of entitlement to a total
disability rating based on individual unemployability (TDIU rating)
under 38 C.F.R. s 4.16(b) only in cases where the issue is expressly
raised by the claimant or the record before the Board contains evidence
that the appellant may be unable to secure or follow a substantially
gainful occupation due to his or her service-connected disability.

b\. When the issue of entitlement to an extraschedular rating or a TDIU
rating for a particular service- connected disability or disabilities is
raised in connection with a claim for an increased rating for such
disability or disabilities, the Board would have jurisdiction to
consider that issue. If the Board determines that further action by the
RO is necessary with respect to the issue, the Board should remand that
issue.

c\. When the issue of entitlement to an extraschedular rating or a TDIU
rating arises in connection with an appeal in an increased rating case,
the Board is not precluded from issuing a final decision on the issue of
an increased schedular rating and remanding the extraschedular-rating or
TDIU- rating issue to the RO.

d\. Where the appellant has raised the issue of entitlement to an
extraschedular rating or a TDIU rating but the record contains no
evidence which would render the claim plausible, the Board may, subject
to the considerations expressed in VAOPGCPREC 16-92 and Bernard v.
Brown, determine that the referral to the appropriate officials for
consideration of an extraschedular rating or a TDIU rating is not
warranted.

VETERANS ADMINISTRATION GENERAL COUNSEL