A T T O R N E Y S A T L A W

December 8, 2017

Deputy Assistant Hauser

Office of Regulations and Interpretations,

Employee Benefits Security Administration

R o o m M - 5 6 5 5

U.S. Dept. of Labor

2 0 0 C o n s t i t u t i o n Av e n u e N W

Washington D.C. 20210

Rc.- Ke-Examination of Claims Procedure Keguiations for Plans Providing

Disability Benefits

K I N N o . : 1 2 1 0 - A B 3 9

Regulation: 29 CF.K §2560.503

Deput}' Assistant Secretar)'^ Hauser:

I am writing to oppose modification or further delay in implementing the

final disability claims regulations (Final Regulation on Claims Procedure for Plans

Providing Disability Benefits, 81 Fed. Reg. 92316 (Dec. 19, 2016)) (the "Final

Rules") scheduled to go into effect on April 1, 2018.

1 have been in practice for 22 years, but base my comments on my last 17

years of law practice, which have focused on representing disabilit)' claimants under

ERISA. My current firm's pracdce includes helping the disabled obtain Social

Security disability benefits and long-term disability benefits. I represent ERISA

claimants in the administrative appeal process, Arizona District Court, the United

States Court of Appeals for the Ninth Circuit, and successfully opposing a petition

for certiorari to the United States Supreme Court.

I appreciate the opportunity to comment on the Department's ("DOL's")

reexamination of the Final Rules, but the mdustn''s concerns are not new. The

objections are the same concerns raised and reviewed related the merits of the Final

Rules. Those rules are based on policy developed by Congress, the DOL, and

federal courts interpreting the Employee Retirement Income Security Act of 1974

("ERISA"). Revisiting and reexarnining the merits is unnecessar)'. But, on behalf of

the claimants whom ERISA is intended to benefit, 1 will comment.

Executive Order 13777 directs agencies to evaluate existing regulations to

make them less burdensome. The Final Rule does that for people affected by

FIRISA. While the Final Rule makes certain burdens imposed on Plans explicit, it

does not impose any new burdens. The Final Rule only clarifies what information

Plans should have been providing claimants all along.

T h e F i n a l R u l e s W i l l N o t C a u s e A n I n c r e a s e I n P r e m i u m s O r D e c r e a s e

Access To Disability Benefits.

An agency is not required to "conduct a formal cost-benefit analysis in

which each advantage and disadvantage is assigned a monetary value." Aiicbigan v.

Bnvi/vnmental P/vtection Ageny, 135 S. Ct. 1699, 2711 (2015). Nevertheless, during
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the original comment period, the DOL balanced the interests of claimants and the

industry and concluded that costs would not outweigh the benefits.

The DOL sought data related to costs increases after the 2002 changes to

the rules became effective. The Bureau of Labor Statistics supplied information the

DOL can rely, https://www.bls.gov/opub/btn/volumc-4/disability-insuranceplans.htm. The data shows that access and participation in employer-based

disabilit)' insurance has between 1999 and 2014, despite an increase in

employment in the ser\nce industr)', which is least likely to provide employer-based

disabilit)' coverage. The increase occurred despite the changes to the regulations

and court decisions imposing requirements on plans, e.g., accounting for structural

conflicts of interests, "deemed exhausted" administrative processes, having to

discuss and explain adverse benefits decisions including rejection of treating

physician opinions and Social Securit}' Administration ("SSA") determination, and

requiring diat participants be permitted to respond to new evidence presented by

plans or insurers during the administrative appeal process. Industry generated data

that suggests a result contrar)' to the DOL's data is pure speculation. The DOL's

data also shows that even as states banned discretionary clauses (Arkansas Admin.

Code 054.00.101-4 (2013); Gal. Ins. Code §10110.6 (2012); Colo. Rev. Stat. §16-3-

1116 (2008); 50 lU. Admin. Codes 2001.3 (2005); Md. Code Ann. Ins. §12-211;

Mich. Admin. Codes. R. 500.2201-2202 (2007); R.I. Gen. Law §§ 27-18-79; Tex.

Admin. Code §3.1202-1203; Tex. Ins. Code §1701.062, §1701.002 (2011); WAC

§284-96-012 (2009)) participadon in disabilit)' plans increased. During the same

timeframe, UNUM and CIGNA, who have a significant market share, entered into

Regulator)' Settlement Agreements that required more careful claims

administradon. And, access and pardcipadon sdll increased.

The evidence shows past industr)' speculadon about cost increases was

wrong. I urge the DOL not to change the Final Rules in response to the industry's

purported concerns about cost and access to benefits.

The Benefits Of The Rules Outweigh Potential Costs.

The DOL is not required to avoid all reguladons that affect die market.

Mkt. Synei'g^ Gtp. v. United States Dep'to/Labor^ 2016 U.S. Dist. LEXIS 163663, 2016

WL 6948061 (D. Kan. 11/28/2016). And, even if the market is affected, the costs

of the Final Rules are not likely to outweigh the benefits. The purpose of the Final

Rules is, as the DOL has stated, to make sure claims are fairly adjudicated and to

prevent unnecessary financial and emodonal hardship. The industry is inviting the

DOL to abandon that purpose. That invitadon is contrar)' to the express purpose

o f E R I S A .

Under ERISA, claimants appealing denials of disability benefits face a

process less favorable than available under state laws. ERISA handicaps claimants

in the following ways: (1) no jur)' trials; (2) a closed "administrative"' record

' Although the record on appeal is frequently referred to as an "administrative"

record, that record is not a true administrative record because it is not developed by

a governmental administradve agency with expertise in a pardcular area. Rather, the

record is developed and maintained by a party with a vested financial interest in the
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controlled by an adverse party, with virtually no chance of supplementing; (3) an

unfavorable standard of review, and (4) no penalties for a plan's unfair claim

handling or self-serving practices. The playing field is never level and will remain

tilted in favor of the industry even after the Final Rules become effective. United

States P. Aegerion Pharmaceuticals, Im\, 2017 WL 5586728, at *7 (D.Mass. 11/20, 2017)

("The insurance industry found it could largely immunize itself from suit due to the

Employee Retirement Income Security Act ("ERISA").) Even with the Final Rules

in place, plan participants wiU not have achieved the "higher-than-marketplace

standards" that the Supreme Court insists arc required in processing ERISA claims.

MetUfe V. Glenn, 554 U.S. 105, 115 (2008). The DOL should consider this "higherthan-marketplace" expectadon in reaching a decision.

Illusory disability benefits are worse than no benefits because claimants will

forego other protccdons in reliance on employer sponsored plans. In the Ninth

Circuit, where I pracdce, "[P]rotecdng the reasonable expectadons of insured,

appropriately scrt'cs the federal policies underlying ERISA." Saltarelli v. Boh Baker

Grp. Med. Trust, 35 F.3d 382, 386 (9th Cir. 1994) (citing 29 U.S.C. § 1001). In my

state, a "policy may not be interpreted so as to defeat the reasonable expectadons

of the insured." Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d

388, 394-95 (Ariz. 1984). But diat is not always the case under ERISA because of

the procedural hurdles that favor plans and insurers. If the Final Rules align with

claimants' reasonable expectadons, the rules are correct.

Perhaps the most frequendy arising example of plans not meeting claimants' reasonable expectadons relates to Social Security Disabilit}' Insurance

("SSDI") benefits. Plans, almost universally, require claimants to apply for SSDI

benefits as a condidon of receiving the full benefit amount. Otherwise, the plan will

estimate the SSDI benefit and deduct it from the plan benefit. Claimants expect

that if they receive a favorable decision by the Social Securitt' Administration

("SSA"), which results in a huge savings for the plan's insurer, they will continue to

receive the plan benefits. This is pardcularly so because the SSA definidon of

disabled is almost always more difficult to meet that any plan's definidon. Potential

clients come to our office bewildered when a plan terminates benefits after the

claimant obtained SSDI benefits. Claimants cannot understand how the plan could

require them to seek SSDI benefits, often paying for a representadve to help them

obtain those benefits, and then terminate plan benefits asserdng the claimant is not

disabled. Claimants are perplexed the plans can help prove to the SSA that they are

disabled and then turn around and deny the claimant is disabled. It is reasonable for

a claimant to expect that if a plan requires the claimant to represent to the SSA that

the claimant is disabled, that when the SSA agrees, the plan will too. Claimants

should not have to bear the expense of convincing the plan that required them to

convince the SSA of disability, that the claimant is disabled. The burden and

expense of explaining a plan's rejection of an SSA decision should fall on the plan.

If the Final Rules provide the protection for plan participants ERISA is supposed

to provide, any associated costs appropriately born by the plan.

controversy. Giving virtual total control of the evidence drat will be available for

judicial review to an interested party and, in most cases, luniting the court to review that part}''s decision for abuse of discretion, are the greatest impediments to

achieving Congress's goal of promoting the interests of employees.
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Requiring Plans to Explain Reasons For Rejecting SSA Determination

Imposes Little Or No Cost.

The DOL has expressed doubt that requiring plans to explain reasons for

disagreeing with a favorable SSA decision imposes any costs on a plan. As noted

above, most disability plans require claimants to apply for SSA benefits and usually

provide representation to claimants to obtain those benefits. Plans provide their

own incentives to this because plans will offset the LTD benefits by the amount of

the SSDI benefits. Often, an award of SSDI benefits reduces the LTD benefit to

the minimum plan benefit. The industr}' cannot be serious that explaining its cost

savings is too expensive, because it is already required in many jurisdictions.

Montour V. Hartford Ufe ^Acc.Im Co., 588 F.3d 623, 635-637 (9th Cir. 2009);

Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 679 (9th Cir. 2011); bennett

V. Kemper Nat. Services Inc., 514 F.3d 547, 553-554 (6th Cir. 2008); brown v. Hartford

Ufe Ins. Co., 301 F. App'x 111, 776 (lO'"" Cir. 2008). The Supreme Court declared it

arbitrar)' and capricious for the claims administrator to advocate for SSDI benefits,

reap the benefit of the SSDI award by means of an offset, and then ignore the

SSA's determination. Metivpo/itan Ufe v. Glenn, 554 U.S. 105 (2008). Requiring an

explanation of the reasons for disagreeing with the SSDI decision imposes no new

burden and codifying the requirement will not increase costs. Even if this caused an

increase in the cost of disabilit}' insurance, it would not burden the government,

specifically not the SSA. The Bureau of Labor Statistics publication states:

It is important to note that expanding access to employer-provided

disabilit}' insurance would not necessarily relieve the burden on

SSDI. The ability to access disabilit}^ insurance does not affect a

worker's eligibilit)' for SSDI. People can receive SSDI benefits and

long-term disabilit}' payments, but the private disability insurance

payment is usually reduced by the amount of the SSDI payment.

https://www.bis.gov/opub/btn/volume-4/disability-insurance-plans.htm.

The result of uniformit}' and predictabilit}' in any process is usually a cost

saving. The Final Rules requirement of an explanation for disagreement with an

SSDI decision will increase uniformit}' and predictability in the process and is not

likely to increase costs.

The Deemed Exhausted Rule Will Not Noticeably Increase Costs.

Plans and insurers object to the new deemed exhaustion provision because

it "tilts the balance in court cases against plans and insurers." To be clear, it

requires plans and insurers to abide by regulator}' deadlines, which aligns with the

Congressional purpose of ERISA.

The industry seems to be concerned about increased costs associated with

ERISA litigadon if plaintiffs and their attorneys have earlier access to the court.

But, the litigation will turn on the record developed in the administrative process.

Racing to the courthouse before fully developing the record for litigation would be

shortsighted. Not only would it compromise the record for lidgation, but it would
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relinquish the opportunity to obtain benefits without litigation. Racing to the

courthouse will likely result in a remand to the plan administrator for proper

administration of the claim, putting the claimant back at square one. That is more

work than I would be willing to do on a contingency for no benefit to the claimant

and no return on my effort. I doubt I am the only plaintiffs law5'^er, who would do

that cost/benefit analysis. While the court may award fees in ERISA cases, whether

a court will award fees for a remand depends on the jurisdiction. The overriding

rule is a court will only award attorney fees for litigation where the plaintiff has

achieved some degree of success on the merits. Hard/ v. Reliance Standard Ufe Ins.

Co., 560 U.S. 242, 255 (2010). A remand is not always viewed as "success on the

merits." The deemed denied rule is not likely to entice plaintiffs' lawyers to make

fruidess trips to the courthouse. The proof is that the ERISA common law already

allows early access to the courts. See e.g. Brown v.J.B. HuntTransp. Servs., 586 F.3d

1079, 1085-86 (8th Cir. 2009) (failure to respond to request for documents excused

claims from exhaustion requirement because there was no full and fair review). It is

not likely that additional costs will result from this regulation. Hall v. National

Gypsum Co., 105 F.3d 225, 231-32 (5th Cir. 1997); LoAsmarn. Phelps Dodge Corp. Ufe,

605 F.3d 789 (10th Cir. 2010); Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98 (2d

Cir. 2005); Jebian v. Hewlett-Packard Co. Smployee. Benefits Org. Income Prot. Plan, 349

F.3d 1098 (9th Cir. 2003); Dunnigan v. Metropolitan Ufe Ins. Co., 277 F.3d 223, 231

n.5 (2d Cir. 2002). And, the industry is not complaining of a rush to litigation. This

change to the rule will not even cause a ripple in the way claims are handled.

Providing The Right To Review And Respond To New Evidence Or

Rationale From The Plan During The Appeal Review Is Not Costly.

Plan and insurers object to the right of claimants to review and respond to

new information or rationales raised after the claimants have appealed an adverse

benefit decision. But this does not change the landscape. Courts have always

rejected post hoc information or rationales raised after a claimant has exhausted

administrative remedies. See Gabriel v. Alaska Elec. Pension Fund, 773 F.3d 945, 963,

14 (9th Cir, 2014) (quotingv. Alta Health <&Ufe Ins. Co., 458 F.3d 955, 974

(9th Cir.2006)); Edgerton v. CNA Insurance Co., 215 F. Supp. 2d 541, 548 (E.D. Pa.

2002) (court will not defer to post hoc rationales for denying benefits generated

during litigation). Allowing Plans or insurers to insert new rationales post-appeal

completely defeats the purpose of the regulations claim and appeal processes

because the only reason for an adverse benefit decision that will be presented to a

district court will be one that escaped prior scrutiny. And, if the claim is not subject

to de now review, as is usually the case given tlie widespread practice of

incorporating discretionary language into plans and policies, a claimant will never

have a full and fair opportunity to have a claim reviewed by a disinterested

decisionmaker. Thus, the Final Rules are fundamental to full and fair review.

The industry's claim that barring it from presenting new evidence postappeal will increase costs is doubtful. Many plans and insurers already provide this

opportunit)' on a voluntary basis. That they would do so, if it was costly, is unlikely.

Many jurisdictions require this. The only difference is the timing. If the opportunit)'

is not provided during the administrative process, it is permitted in litigation when

it is likely to cost the plan more because of attorney involvement. The new reason

will be addressed no matter what. The claim of increased cost is false.
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The industrj^'s real objection is the removal of "sandbagging" from its

arsenal. No longer able to insert new evidence into the administrative record just

before litigation makes it more likely claims will be decided on a balanced record

rather than one the plan stacks in its favor. The Final Rules bring the playing field

c l o s e t o l e v e l .

I n t e r n a l L i m i t a t i o n s P e r i o d s S h o u l d B e D i s c l o s e d .

Plan's and insurer's concerns that the Final Rule will increase litigation no

doubt stem from clarifying their obligation to inform claimants of the deadline to

commence litigation, which was often missed because Plans or insurers included

contractual limitation periods shorter than state statutes of limitations, but did not

inform claimants of the shorter period. The Supreme Court in HeimscboJj'zoncXxxdcd

those shorter periods are enforceable. Any increase in litigation will be due to

claimants being fully informed of the limitations period. That is as it should be

given the Congressional purpose of ERISA to promote the interests of employees.

See V'irestone Tire and Knbber v. Bntcb, 489 U.S. 101, 101 (1989) (noting Congressional

purpose of ERISA is to promote the interests of employees).

Disclosure Of Internal Guidelines Is Already Required

The regulations already require disclosure of all "relevant" documents. 29

C.F.R. § 2560.503-1 (m)(8). Relevant documents include any document that

"demonstrates compliance with the adrninistrative processes and safeguards

required pursuant to paragraph (b)(5) of this section in making a benefit

determination." Id. Section (b)(5) requires procedures "designed to ensure and to

verify that benefit claims determinations are made in accordance with governing

plan documents and that, where appropriate, the plan provisions have been applied

consistently with respect to similarly situated claimants." 29 C.F.R. § 2560.503-

1(b)(5). Arguably, the disclosure of claims manuals and internal guidelines, which

often contain additional plan terms that are hidden from the ERISA participants,

fall within this scope. Making that explicit will ultimately cut down on litigation,

because discover}' of these documents will no longer be disputed. See Glista v. Unnm

Life Ins. Co. Of Am., 378 F.3d 113,123-125 (1" Cir. 2004); MniHns r. AT<LA' Corp.,

290 Fed. Appx. 642, 646 (4" Cir. 2008).

.Mthough the industr)*'s claim to need additional time to comment on the

Final Rule is, in my opinion, unwarranted, I stiU appreciate the DOL's

thoroughness and this opportunit}' to make comments. I hope that you find them

useful.

Sincerely,

K e v i n K o e l b e l