Source: https://www.whiteman-law.com/category/disability-insurance-benefits/
Timestamp: 2019-04-21 12:06:15+00:00

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The last blog post discussed the requirement that plans notify the claimant of any contractual limitations deadline. This blog will analyze the next topic, the new regulation’s enhanced remedy if a plan fails to “strictly adhere” to the requirements of the new regulation.
The new Regulation strengthens the “deemed exhaustion” provisions of the 2002 Regulation.
The plan’s administrative remedies will not be deemed exhausted based on de minimus violations that do not cause, and are not likely to cause, prejudice or harm to the claimant, but only if certain conditions are met. The plan must demonstrate that the violation was for good cause or due to matters beyond the control of the plan and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.
Even if the plan carries its burden of proof, the de minimus exception is not available if the violation is part of a pattern or practice of violations by the plan.
The claimant may request a written explanation of the violation from the plan, and the plan must provide such explanation within 10 days, including a specific description of its bases, if any, for asserting that the violation should not cause the administrative remedies available under the plan to be deemed exhausted.
If a court rejects the claimant’s request for immediate review under paragraph (l)(2)(i) of this section on the basis that the plan met the standards for the exception under this paragraph (l)(2)(ii), the claim will be considered as re-filed on appeal upon the plan’s receipt of the decision of the court. Within a reasonable time after the receipt of the decision, the plan must provide the claimant with notice of the resubmission.
The new rule mirrors the standard applicable to group health claims under the ACA.
126 F.3d at 235 (quoting Brogan v. Holland, 105 F.3d 158, 165 (4th Cir.1997)). Even when courts found a failure to substantially comply, the results varied. Compare Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 637 (10th Cir. 2003) (LINA’s failure to substantially comply with ERISA regulations resulted in a remand for application of the de novo standard of review) with Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978, 985 (9th Cir. 2005) (procedural violations of ERISA do not alter the standard of review unless violations are “flagrant”) and Gagliano v. Reliance Standard Life Ins. Co., 547 F.3d 230, 236-37 (4th Cir. 2008) (failure to give notice of appeal rights did not meet “substantial compliance” standard but reversing district court’s award of benefits to the claimant and remanding the claim to the insurer).
 81 Federal Register 243, p. 92327.
The Tax Cuts and Jobs Act of 2017 changed the tax treatment of attorney fee and other litigation-related expenses incurred by individuals. Congress suspended the deductibility of litigation expenses as “miscellaneous itemized deductions” through December 31, 2025. As a result, the costs and attorney fees associated with non-business-related litigation may no longer be deducted on a taxpayer’s Schedule A. Fortunately, however, plaintiffs who settle employee benefits cases may continue to exempt litigation expenses from their gross income in computing adjusted gross income. The Internal Revenue Code defines “unlawful discrimination” to include claims for employee benefits.
Likewise, the rule regarding the taxability of the plaintiff’s portion of a settlement payment remains the same. Whether the plaintiff’s portion of a settlement is taxable depends on who paid the cost of the benefit. If the employer paid the cost of the benefit, typically an insurance premium, the benefit received by the claimant, including any lump sum payment made to resolve a lawsuit, is taxable. On the other hand, if the plaintiff paid the cost of the coverage through payroll deduction or otherwise, the benefit is not taxable.
(ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.
Thus, the taxpayer may deduct litigation expenses “in determining adjusted gross income,” meaning that a plaintiff should report on page 1 of his or her Form 1040 only what the plaintiff actually received from the settlement. This interpretation of the statutes is supported by Private Letter Ruling 200550004. This PLR, issued in 2005, involved a claim for pension benefits, rather than disability benefits, but there is no basis for distinguishing the two as both are employee benefits.
Clients should consult their accountant or tax attorney for specific advice and assistance regarding their personal tax returns. Please contact me if you have any questions.
The last blog post discussed the requirement that plan notifications be made in a “culturally and linguistically-appropriate manner.” This post will address the requirement that plans disclose new evidence and new rationales that they intend to rely upon to deny an appeal and provide the claimant a reasonable opportunity to respond before the plan issues a denial notice.
as soon as possible and sufficiently in advance of the date on which the notice of adverse benefits determination on review is required to be provided . . . to give the claimant a reasonable opportunity to respond prior to that date.
According to the DOL, the prior 503 Regulation already requires plans to provide claimants with new or additional evidence or rationales upon request and an opportunity to respond in certain circumstances. The plan would have to furnish the new or additional evidence to the claimant before the expiration of the 45-day deadline, or 90 days if an extension is available.
The Regulation does not limit the types of evidence that claimants may submit. Plans may not refuse to accept video, audio or other electronic media and may not “impose courtroom evidentiary standards” in determining whether to accept or consider a claimant’s evidence.
If the claimant’s response caused the plan to generate new or additional evidence, the plan would have to furnish the new or additional evidence to the claimant and allow the claimant a reasonable opportunity to respond to the new or additional evidence.
The plan may not provide the claimant only evidence that supports the denial of the appeal while withholding evidence that supports the claim.
Finally, if the new or additional evidence or rationale is received or determined by the plan so late that it would be impossible to provide it to the claimant in time for the claimant to have a reasonable opportunity to respond before the plan’s deadline for deciding the appeal expires, the period is tolled until such time as the claimant has had a reasonable opportunity to respond.
The new provisions will help provide for greater give and take between the claimant and the plan, provide the claimant with an opportunity to respond to new or additional evidence and rationales that the plan intends to use to justify denying the appeal, and avoid the necessity of second appeals in many cases.
 81 Federal Register 243, p. 92324-92325.
The new Regulation requires that plan notices be provided in a “culturally and linguistically appropriate manner.” The guidance for this requirement is contained in Section 503-1(o) and requires oral language services (such as a customer telephone assistance hotline), assistance with completing claims and appeals, and written notices in applicable non-English languages. An “applicable non-English language” is determined by the county of the recipient and is one in which ten percent or more of the population residing in the recipient’s county is literate.
The last blog post discussed the requirement that plans disclose additional information in their denial notices. The following will discuss the third change to the regulation – the requirement that plans disclose “specific internal rules, guidelines, protocols, standards or other similar criteria” the plan relied upon in making the adverse benefit determination or provide a statement that such rules, guidelines, etc. do not exist.
Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist.
It is important to note that even under the prior rule, plans would be required upon request to verify that it has produced all the internal rules guidelines, etc. concerning the denied claim that were or should have been considered in deciding the claim. The amendments did not change this requirement. The DOL comments emphasize that it may be important for the claimant to know that a claim was denied without the claims adjudicator having considered a rule, guideline, protocol, standard or other similar criteria that was intended to govern the determination of the claim.
Indeed, the Department has taken the position that internal rules, guidelines, protocols, or similar criteria would constitute instruments under which a plan is established or operated within the meaning of section 104(b)(4) of ERISA and, as such, must be disclosed to participants and beneficiaries. See FAQs About The Benefit Claims Procedure Regulation, C-17 (www.dol.gov/sites/default/files/ ebsa/about-ebsa/our-activities/ programs-and-initiatives/outreach-andeducation/hbec/CAGHDP.pdf).
Under the guidance of the DOL, claims administrators should be required to produce their entire claims manuals or at least those portions that are “relevant” to the claim. Denial notices will be required to include a disclosure of any external guidelines that the plan or its consultants relied upon as part of the claim determination process. This would include, for example, the “MD Guidelines” often cited by the plan’s medical consultants and Dictionary of Occupation Titles material considered by vocational reviewers in defining the claimant’s occupation.
 81 Federal Register 243, p. 92323.
1. Conflicts of interest involving claims adjudicators and medical and vocational consultants.
2. Additional disclosures required with denial notices.
3. Disclosure of plan criteria.
5. Disclosure of new evidence and new rationales prior to denial on review.
6. Disclosure of contractual limitations period deadline.
7. Enhanced remedy for a plan’s violation of the regulation.
The last blog post discussed the provisions of the new regulation that are designed to insure the independence and impartiality of persons involved in making the claim decision, including the plan’s claims personnel and medical and vocational consultants. This week’s blog will discuss the second change to the regulation – the requirement that plans make additional disclosures in their denial letters.
(iii) A disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration.
The problem with Dr. Soriano’s opinion is that Dr. Soriano never explained on what basis he doubted the veracity of Gorski, whom he had never examined. To the extent that he did not believe that Gorski’s physical problems would cause the intense pain of which she complained, he never revealed why he rejected the view of the other doctors that dislodged surgical hardware was irritating surrounding nerve tissue, resulting in debilitating pain for Gorski. . . . Without such a discussion, Dr. Soriano’s report is simply an unreasoned and unexplained rejection of the objective evidence in the record, Gorski’s claims regarding her level of pain and functionality, and the opinions of Drs. Huffmon and Faircloth that she was totally disabled.
314 Fed. Appx. at 547 (emphasis added).
Importantly, the rule is not limited to a provider’s conclusions about whether a claimant is disabled.
In the Department’s view, to the extent the claims adjudicator disagrees with foundational information in denying a claim, the claimant has a right to know that fact to the same extent the claimant should be made aware that the claims adjudicator disagrees with an opinion from a medical or vocational expert that the claimant is disabled.
The Regulation requires a discussion of the basis for disagreeing with or not following disability determinations of the SSA or other payors of disability benefits. This discussion must be more than “boilerplate text about possible differences in applicable definitions, presumptions, or evidence.” Regarding SSA disability determinations specifically, “a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.” Courts have criticized plans for failing to follow decisions of the SSA. See, e.g., Montour v. Hartford Life and Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (‘‘failure to explain why it reached a different conclusion than the SSA is yet another factor to consider in reviewing the administrator’s decision for abuse of discretion, particularly where, as here, a plan administrator operating with a conflict of interest requires a claimant to apply and then benefits financially from the SSA’s disability finding.’’); Brown v. Hartford Life Ins. Co., 301 F. App’x 772, 776 (10th Cir. 2008) (insurer’s discussion was ‘‘conclusory’’ and ‘‘provided no specific discussion of how the rationale for the SSA’s decision, or the evidence the SSA considered, differed from its own policy criteria or the medical documentation it considered.’’).
The requirement that plans explain the basis for their disagreements with treating providers, the plan’s own consultants, and decisions of the SSA is a huge leap forward for claimants. The adequacy of the plan’s explanations of the basis for its disagreements with treating providers, consultants, and other disability providers will be the new battleground.
The Regulation now requires that if an adverse benefit determination is based on a medical necessity or experimental treatment limitation or exclusion, the denial notice must contain either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.
This is the second in a series of nine blog posts that will summarize important features of the new regulation. The last blog post discussed the history of DOL’s regulation of the disability claim process under ERISA, the rationale for revising the existing regulation, and the types of plans that are covered by the new regulation.
This blog post will cover the new provisions relative to conflicts of interest involving the plan’s claims adjudicators and medical and vocational consultants.
29 C.F.R. § 2560.503-1(b)(7) prohibits a plan from providing financial incentives to its claim adjudicators and medical and vocational consultants.
(b) * * * (7) In the case of a plan providing disability benefits, the plan must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) must not be made based upon the likelihood that the individual will support the denial of benefits.
In the Department’s view, the text of paragraph (b)(7) is clear that the independence and impartiality requirements are not limited to persons responsible for making the decision.
The Rule is not limited “to individuals the plan directly hires.” Thus, the independence and impartiality rules govern apply to consultants hired and compensated by third-party service providers, as is typically the case.
Similarly, a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications.
During the rule-making process, commentators questioned whether the independence and impartiality requirements would result in claimants requesting discovery into “statistics and other information on cases in which the medical expert expressed opinions in support of denying rather than granting disability benefits” and, more generally, the “reputation” of the consultant. In response, the DOL stated that its preamble statement concerning consultants being hired based on historical outcomes of their cases rather than qualifications, a so-called “reputation” hire, represents one way that the independence and impartiality rules could be violated.
or do the independence and impartiality requirements in the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination.
The impartiality of the plan’s medical consultants is a huge issue in ERISA disability litigation. The treating provider rule does not apply. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003). Instead, courts have held that it is not an abuse of discretion for a plan to rely on the opinions of its own consulting physician, even if the consultant never examined the claimant. Black & Decker, 538 U. S. at 834. Cf. Boyd v. Liberty Life Assurance Co., 362 F.Supp.2d 660, 669 (W.D.N.C. 2005). (a treating physician’s “opinion as to the severity of the impairment and the interference to the patient’s ability to work that such an impairment causes, generally should not be rejected ‘unless the adjudicator can point to persuasive, contradictory medical evidence.’”).
However, the information Hartford has been ordered to produce – statistics concerning claims referred to Dr. Fuchs and MES by Hartford, the number of cases in which Dr. Fuchs found claimants to be suffering from restrictions preventing work, and any agreements or guidelines pursuant to which MES operated – goes to potential bias within Hartford’s referral process, which may be relevant on the question of its structural conflict of interest. The Court will therefore overrule Defendant’s objection regarding third-party vendors.
Bruce v. Hartford, 21 F. Supp. 3d 590, 598 (E.D. Va. 2014).
Whiteman Law Firm supports adoption of a state law that would outlaw discretionary clauses in health and disability insurance policies.
Whiteman Law Firm has asked the North Carolina Department of Insurance to indicate whether it will support adoption of NAIC model legislation that would prohibit so-called “discretionary clauses” in employer-sponsored health and disability insurance policies.
Most employer-sponsored health and disability benefits policies contain provisions that grant discretionary authority to the insurance company to interpret plan terms and to determine eligibility for benefits. The inclusion of a discretionary clause in the policy means that a federal court that is asked to review an insurer’s benefits decision must give deference to the insurer’s determination. Under the abuse of discretion standard, the decision of an insurance company to deny benefits will be upheld “if it is the result of a deliberate, principled reasoning process and if it is supported by substantial evidence.” DuPerry v. Life Insurance Company of North America, 632 F.3d 860, 869 (4th Cir. 2011). The quantum of evidence necessary to sustain the insurer’s decision is “more than a scintilla but less than a preponderance,” Newport News Shipbuilding & Dry Dock Co. v. Cherry, 326 F.3d 449, 452 (4th Cir. 2003), and has been described alternatively as “evidence which a reasoning mind would accept as sufficient to support a particular conclusion,” LeFebre v. Westinghouse Elec. Corp., 747 F.2d 197, 208 (4th Cir. 1984). The parties are not entitled to a jury trial, and the court’s review is generally limited to the record that was before the insurer at the time it made its final benefits decision.
Thus, the abuse of discretion standard is far more restrictive than the standard that applies in a breach of contract case. If the claimant purchases a private (not an employee benefit) insurance policy, a jury will determine whether the insurer breached the terms of the policy without giving deference to the insurer’s determination of the claim. Furthermore, in a non-ERISA case, the court construes ambiguous policy terms in favor of coverage and against the insurance company. North Carolina Farm Bureau Mutual Insurance Co. v. Mizell, 138 N.C. App. 530, 532, 530 S.E.2d 93, 95 (2000).
The abuse of discretion standard results in a serious handicapping of the case in favor of the insurance company. Due to the conflict of interest that exists between the insurer’s dual roles as claims adjudicator and payor of benefits, there is a financial disincentive for the insurance company to fairly adjudicate claims.
The National Association of Insurance Commissioners is an association of the chief insurance regulators from each of the 50 U.S. states and its six territories. In 2006, the NAIC proposed a model statute titled Prohibition on the Use of Discretionary Clauses Model Act. Under the NAIC’s Model Act, discretionary clauses in health and disability insurance policies would be outlawed. According to the NAIC’s website, 26 states have adopted the Model Act or some version of it by statute or regulation. Various courts have upheld the state laws against an ERISA preemption challenge. See e.g. Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, Plan No. 625, 856 F.3d 686, 695 (9th Cir. 2017). The North Carolina Legislature and the Department of Insurance have not acted.
The NAIC Model Act is a sensible legislative solution to a serious problem that affects claimants covered by employer-sponsored health and disability insurance policies. The question for our lawmakers is why North Carolina’s citizens should not be afforded the same protections as other states’ residents.

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