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A federal judge in California says a carrier that insures and administers an employee benefit plan should give clear information about fighting denials, especially if the plan offers only one level of appeal.

U.S. District Judge Dean Pregerson has agreed to review a denial decision in Los Angeles from scratch, rather than looking only for abuse of discretion, because, he says, the initial denial letter tended to show a conflict of interest that breached the carriers fiduciary obligations to the beneficiary.

To comply with the Employee Retirement Income Security Act, “the initial denial letter must be precise, unambiguous, and clearly articulate any procedural or medical reasons for the denial,” Pregerson writes in an opinion on the case, Olive vs. American Express Long Term Disability Benefit Plan, et al.

The ruling deals only with procedural issues and not with the merits of the case.

The plaintiff in the case, Ruth Olive, belonged to a group long-term disability insurance plan insured and administered by an affiliate of MetLife Inc., New York.

Olive filed an LTD claim in 1999, after she underwent abdominal surgery and suffered a serious infection.

An October 1999 initial denial letter told Olive that she would have to be unable to perform any and every duty of her own occupation, and require the regular care of a doctor, to qualify for benefits.

The letter told Olive that her surgeon would not fill out any paperwork; that her primary care physician said he was not seeing her; and that it did not have information indicating she was unable to work.

Olive filed an unsuccessful appeal in December 1999.

MetLife reviewed and rejected her claim a third time, even though it said the plan offered only one level of appeals, and a fourth time, after Olive reported she had qualified for Social Security disability benefits.

The February 2000 letter explaining the denial of the first appeal was better than the initial denial letter, because it included a critique of medical records and an explanation of the evidence necessary to show evidence of disability, but MetLife should have included that information in the first letter, Pregerson writes.

“As far as reasonably possible, the first denial notice must provide a measure of precision that is commensurate with that of any final notice denying a claim,” the judge writes.

Otherwise, he says, a plan would have an incentive to send members “marginal” initial letters.

Representatives for MetLife declined to comment.

Allen Ball, a Venture, Calif., lawyer who helped represent Olive, welcomed the ruling. “I think its a ruling just based on the applicable law,” Ball says.

Many insurers and employers now seem to be avoiding any appearance of a conflict of interest by using independent third-party administrators, rather than insurers, to administer ERISA benefit plans, Ball says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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