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Life Health > Life Insurance

Labor’s disability claim proposal firestorm: Where the explosions are

By Allison Bell

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The Employee Benefits Security Administration (EBSA) has brought out eruptions of fury with a proposed revamp of group disability insurance claim standards.

See also: Disability claimants may get quick access to courts

Claimants and their lawyers have praised the EBSA proposal, saying the current rules give insureds little ability to contest unfair claim rejections.

Insurers, insurer groups and employer groups say the EBSA proposal is unrealistic and, if implemented as written, could lead to absurd new gushers of litigation.

EBSA, an arm of the U.S. Department of Labor, opened up the volcano in November, when it published draft group disability regulations in the Federal Register. 

See also: High Court Backs Administrator In ERISA Case

The Employee Retirement Income Security Act of 1974 (ERISA) governs the group benefit claim process, including the process for group short-term disability (STD) insurance and group long-term disability (insurance) plans. The courts have held that ERISA preempts state disability insurance claim laws. Under ERISA, claimants can sue for payment of benefits, but they can’t sue for additional damages. That normally limits the ability of the claimants to sue for enough damages to get the attention of lawyers who get paid by collecting a percentage of a client’s recoveries.

In the proposed regulations, EBSA suggested that it would develop group disability claim standards based on Patient Protection and Affordable Care Act (PPACA) internal appeal and external review standards.

EBSA also said it would:

  • Set group disability benefit denial notice standards.

  • Let claimants respond to new information while reviews were in progress.

  • Set new claim review impartiality standards.

  • Require notices to be culturally and linguistically appropriate.

  • Let claimants deem the plan’s claim review process to be exhausted and file lawsuits immediately if plan administrators made any claim review errors other than errors that qualify for a “minor errors exception.”

The proposed regulations attracted at least 143 comments, including many emotional comments from disability claimants.

For a taste of what commenters said, read on.

Young adults

1. Consumers, patient groups and claimants’ lawyers:

One unnamed commenter reports having devastating health issues due to a rare genetic condition documented by university medical centers in California.

The process of filing an LTD claim “has been complicated, painful and unfair,” the commenter says. “My doctors and myself have been harassed for information repeatedly, information which is then conveniently ‘lost’ or ‘not received,’ and it has been made clear to me that my credibility and that of my doctors is constantly being doubted.”

Laurie Martinelli, executive director of the National Alliance on Mental Illness (NAMI), says she likes the proposed regulations and would like EBSA to add them, by, for example, requiring plans to notify insureds that they have the right to hire lawyers to represent them in claim appeals.

Bridget O’Ryan, an Indianapolis ERISA claimants’ lawyer who has been an in-house counsel at a large insurer, says that, when she began representing the claimants, she “was absolutely astounded at the gross iniquity for claimants’ plaintiffs who had disability benefits subject to ERISA jurisprudence.”

She says EBSA should apply the “deemed exhaustion” provision both to claims and appeals, not just claims.

If EBSA wants the regulation to allow claimants who go to court to have the court review their claims from scratch, then EBSA has to make that very clear, O’Ryan says. 

See also: Court pans group disability plan wording

Time clock

2. Employer groups and employers’ lawyers:

Brian Marcotte, president of the National Business Group on Health (NBGH), says employers have a stake in making group disability plans work as smoothly and efficiently as possible. 

The proposed requirement that notices be culturally and linguistically appropriate could be complicated and expensive, and limit employers’ flexibility to meet their own employees’ specific needs, Marcotte says.

NBGH members like the idea of EBSA protecting plan insureds’ rights to adequate notice and full and fair claim reviews, but the “deemed exhaustion” provision is vague and could lead to many early lawsuits, even when no claim review error has occurred, Marcotte says.

Laura Proctor of DRI — The Defense Bar, a group for defense lawyers — says DRI has found many problems in the proposal.

She notes, for example, that the deemed exhaustion provision calls for courts to ignore a plan’s determinations if the plan has made errors, other than minor errors, in the review process.

“DRI has serious doubts about the [Labor] Department’s authority to regulate judicial standards of review,” Proctor says.

That provision also would conflict with the goal of ERISA, which is to reduce the cost and complexity of providing employee benefits, Proctor says.

See also: 5 changes ushered in by ERISA

Corporate office

3. Insurers:

Carriers that have submitted comments include Sun Life Financial, Guardian Life’s Reed Group unit and Unum Group Inc. 

Debra Conner writes on behalf of Sun Life that the deemed exhausted provision would “give rise to a volume of litigation not previously seen in the ERISA disability benefits realm.”

Under the current language, disputes could arise over whether a claim review violation was minor, whether the violation could cause actual harm, whether the harm would be to the claimant, whether the plan made the error for good cause or due to matters beyond its control, and whether the violation occurred during an “ongoing, good faith exchange of information between the plan and the claimant.”

Conner goes on to describe more potential flashpoints.

“In sum,” she says, “the proposed amendments would create disputes that may otherwise not exist, or have no effect on the claim process, and lead to a tsunami of interlocutory litigation that no one wants.” 

George Breter of Unum says the current version of the deemed exhausted provision is a “recipe for long, drawn-out litigation.”

“The department should let the claim process be completed before the parties end up in court,” he says.

See also: 

California Bans Discretionary Clauses in Life, Disability Policies

Claims Denials and the Court: What the MetLife Decision Means to You

 

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