This article is not intended to be a comprehensive discussion on Employee Retirement Income Security Act (ERISA) or the employee benefit claim process. Rather, the focus of this article is to highlight the limitations surrounding an employee benefit claim. They are significant. A word of caution for non-ERISA practitioners: these claims are not your run-of-the-mill insurance or contract claims.
Employers are content to contract for what they believe are quality employee benefit plans and to leave the details of plan coverage and administration up to the insurers or administrators. Welfare benefit plans such as health care disability benefit, life insurance, and long-term care plans are typically insured plans and are drafted and administered by insurers with no vested interest in the employer’s work force. Insurers offer little give and take in the drafting process. As a result, employers may not be aware of the nuances of the specific language contained in these plans. In the end, employees may be left with a large bill that they did not expect or without income they did expect, and employers may be faced with claims from employees for failing to better inform them of plan limitations.
With the exception of governmental and church plans, most employee benefit arrangements are covered by the Employee Retirement Income Security Act of 1974. ERISA was enacted to protect the interest of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation by fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to federal courts. 29 U.S.C. § 1001(b). Nevertheless, a review of the case law that has developed since ERISA was enacted shows that this purpose has not been met. Most ERISA practitioners would acknowledge that ERISA has not served to further the interest of participants and beneficiaries, especially with regard to welfare benefit plans. The remedies available to claimants have been significantly limited, and courts have been more than eager to take advantage of plan language giving administrators discretionary authority. However, some of our judiciary are quite appalled at the stance of ERISA: Judge William Acker, U.S. district judge for the Northern District of Alabama, writes:
ERISA is beyond redemption. No matter how hard the courts have tried, and they have not tried hard enough, they have not been able to elucidate ERISA in ways that will accomplish the purposes Congress claimed to have in mind.1
Similarly, Judge Richard Cudahy of the Seventh Circuit remarks:
Sometimes it feels as if the only thing that purchasing insurance actually ensures is that one will eventually have an unpleasant dispute with the insurer over payment on a claim.2
Are Your Plans Worth the Price?
Employee benefit plans may contain many limitations that will reduce the coverage for employees. For example, long-term disability plans may limit coverage for certain types of illnesses, such as chronic fatigue syndrome or musculoskeletal disorders, and almost always limit coverage for mental illnesses to 24 months. Employees may be astonished to learn that the monthly gross benefit, which is typically 60 percent of salary, is reduced by other disability-related income, and may leave a claimant with a minimum benefit of only $50 or $100 per month. Employees may find disturbing the fact that what is considered “medically necessary” for purposes of health care benefits is not determined by the physician treating their illness, but rather by the plan administrator who has never evaluated the patient. The employee is then stuck with the choice of foregoing a medical procedure or drug or paying for it.
Due Process or No Process?
ERISA requires plans to have internal review procedures that afford a reasonable opportunity to any participant whose claim for benefits has been denied a full and fair review. 29 U.S.C. § 1133(2) (2000). Nevertheless, while ERISA benefit cases are treated as review proceedings by the courts, this review process is not akin to the due process afforded under the Administrative Procedure Act. For example, ERISA does not require administrators to offer claimants an opportunity to present live evidence before a disinterested body. Nevertheless this review process is vitally important to claimants, as it is their only opportunity to present evidence. The only process available to claimants is typically a paper review by the same entity that denied the claim in the first place. At least with regard to health care and disability benefit plans, a review on appeal must not afford deference to the initial adverse benefit determination and may not be reviewed by a health care professional who was involved with the adverse determination. However, that provides little comfort to claimants, as those reviewers still are either employed or hired by the administrator.
ERISA regulations require administrators to explain what is needed to perfect a claim when giving notice of a benefit denial, among other requirements, but administrators often fail to do this or may simply provide boilerplate suggestions. Unfortunately for claimants, courts do not require absolute technical requirements with the content of the denial notice. Instead, substantial compliance appears to be sufficient.3 As a result, claimants are often left without a good understanding of what is needed to overturn a denial and ultimately may be left with a deficient record with no way to cure it. In court, both parties are limited from adding evidence to the record. All supportive evidence going to the merits of the claim must be presented during the claims process. As such, the internal claims process should be treated like the evidentiary trial they’ll never get in court.
Once an appeal has been decided by the claims administrator there is no requirement that the administrator consider any additional arguments. However, the Eighth Circuit has recognized an exception to this general rule: A claimant may not be “sandbagged” by post-hoc justifications and must be given an opportunity to respond to new reasons for denial of benefits.4
A claimant is not allowed to skip the appeal process and proceed to court. Exhaustion of internal remedies is a prerequisite to filing a lawsuit for denial of benefits under ERISA.5 Not only must a claimant exhaust those remedies, but must do so timely.An administrator’s refusal to consider an untimely appeal is equivalent to a plaintiff’s failure to exhaust internal remedies, and, thus, forecloses the ability to have the claim litigated. The Eighth Circuit has recognized two exceptions to this exhaustion requirement, however. The first is when resort to the claim procedures would be futile, which is a difficult burden to meet.6 The second exception is where the administrator failed to provide proper notice of the review process in the denial letter.7
In summary, it is critical for employees to exercise diligence throughout the claims process. The more information employees are given about the process, the fairer the process will be.
ERISA Broadly Preempts State Law
ERISA broadly preempts all state laws that “relate to” an employee benefit plan, with some limited exceptions.8 “Some courts call it ‘super preemption.’ I call it ‘super-duper preemption,’” writes Judge Acker.9 With few exceptions, this suggests that any type of claim, which is in any way related to an employee benefit plan, will be limited to the remedies available under ERISA. The few remedies available are limited to two main types: the contractual benefit owing for benefit due claims and equitable relief for fiduciary breach claims. Recovery in fiduciary breach cases is limited “classic” equitable remedies such as injunctive or restitutionary relief.10 Attorneys’ fees are recoverable, although in most circuits there is no presumption in favor of awarding fees to the prevailing party.
Most courts have no trouble finding a claim preempted despite the fact that ERISA either affords no remedy or a woefully inadequate one. However, Judge Mark Bennett of the U.S. District Court for the Northern District of Iowa expressed concerns about the limited remedies available to plaintiffs:
Thus, often it is the case that “persons adversely affected by ERISA-proscribed wrongdoing cannot gain make-whole relief,” and a finding of preemption under ERISA, as is the case here, severely limits the type of remedies a claimant may seek. As such, ERISA, which was enacted to safeguard the interests of employees and their beneficiaries, has metastasized into what is essentially a
shield of immunity that protects health insurers and others managed care entities from liability for the consequences of their allegedly wrongful actions.11
In an oft-quoted phrase, the Second Circuit has characterized this situation as “Betrayal Without Remedy.”12
Has Glenn Saved the Day?
In 1989 the Supreme Court rejected the arbitrary and capricious standard of review and pronounced that consistent with trust law, ERISA should be reviewed under a de novo standard unless the plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to continue the terms of the plan.13 ERISA plans are virtually always professionally drafted instruments. Drafters routinely seize upon Firestone’s invitation to add magical language granting discretionary authority to a fiduciary. As such, most benefit due cases are decided under an abuse-of-discretion standard, which presents a monumental hurdle for claimants.
To succeed, a plaintiff must show that the decision was unreasonable or not supported by substantial evidence. A decision will be considered reasonable if a reasonable person could have reached a similar decision, not that a reasonable person would have reached that decision.14 It doesn’t have to be the right decision. However, even when a plan grants discretion to the administrator, Firestone instructs that an administrator’s conflict of interest is a factor to consider in determining whether the administrator abused its discretion. Unfortunately, the Court did not provide any discretion in how a conflict should be weighed. As a result, the courts of appeal have analyzed a conflict in several ways.
Some courts, including the Eighth Circuit, have adopted a sliding scale of deference, where deference given by the court decreases as the level of conflict increases. The Eighth Circuit has adopted a sliding scale of deference in which heightened scrutiny is applied by the court only if a claimant shows (1) a palpable conflict of interest exists or serious procedural irregularities occurred that (2) caused a serious breach of the plan administrator’s fiduciary duty to the claimant.15 Thus, a plaintiff must not only show a conflict of procedural irregularity occurred, but that there was a causal connection between the conflict or procedural irregularity and the claim determination. Even against this burden, the Eighth Circuit and lower courts have been reluctant to allow claimants to conduct discovery to uncover bias and conflicts of interest.16
Then along came Metropolitan Life Insurance Co. v. Glenn, the first Supreme Court decision to squarely address an administrator’s conflicted status. The Supreme Court granted certiorari in Glenn to revisit the judicial standard of review for benefit claims decided in Firestone. The Supreme Court considered two issues: (1) whether a plan administrator that both evaluates and pays claims operates under a conflict of interest, and (2) how a conflict should be taken into account on judicial review. The Court followed its prior decision in Firestone and left the standard of review intact. However, the Court held that an administrator who acts as decision maker and payor is automatically conflicted and that conflict must be taken into account, regardless of the existence or lack of existence of any proof that the conflict had any particular effect on the decision-making process. The Supreme Court stressed that ERISA’s duty of loyalty imposes “higher-than-marketplace quality standards on insurers” and a “special” standard of care to act solely in the interest of the participants and beneficiaries of the plan.17
The Court went on to decide what Firestone did not: how that conflict should be taken into account on judicial review. The Court held that Firestone’s requirement that a conflict be taken into account should not change the standard of review from deferential to de novo, but it requires the reviewing judge to take account of the conflict when determining whether the trustee, substantively or procedurally, has abused its discretion. The Court did not apply the customary reasonableness or substantial evidence test. Rather, the Court approved of the Sixth Circuit’s combination-of-factors method of review which requires a court to apply the conflict as a factor among other factors, in considering whether the administrator abused its discretion. Other factors to be considered include biased behavior, emphasizing a certain medical report that favors a denial of benefits while deemphasizing certain other reports that suggest a contrary conclusion. The Court instructed that the conflict of interest should be given more weight in circumstances where the administrator has a history of biased claims administration, and given less weight where the administrator has taken active steps to reduce potential bias or to promote accuracy.
The Court’s holding that a conflict becomes part of the abuse of discretion analysis calls into question the continued validity of the Eighth Circuit’s sliding scale of review under Woo.18 Nevertheless, the Eighth Circuit, which issued the first circuit court decision following Glenn, continued to apply the Woo sliding scale of review.19 Rather than factoring in the insurer’s conflict status as both the payor and decision maker in reviewing the determination case as a whole, the court bifurcated its review and considered the conflict only against the procedural irregularities argued by Wakkinen. The court did not consider the insurer’s conflict in determining whether it had abused its discretion and continued to apply the substantial evidence test, rather than a combination-of-factors test. However, a later decision appears to have rejected the Woo analysis. In Jones v. Mountaire Corporation Long-Term Disability Plan, the Eighth Circuit remanded back to the district court to review the benefit determination under a combination-of-factors method review pursuant to Glenn. The district court had reviewed the benefit decision pre-Glenn under the Woo analysis, finding that both a conflict of interest and procedural irregularities required a de novo review.20
Whether a “combination-of-faith” analysis differs much from a sliding scale of review remains to be seen. But, one thing is certain, an insurer’s conflict or procedural irregularity must be given more weight than was given pre-Glenn. Both the Second and Fourth Circuits have weighed in on the effect of Glenn, and both have abandoned their prior standard of review analysis.21
The biggest effect Glenn may have on benefit cases is the ability of plaintiffs to conduct discovery. Pre-Glenn, the Eighth Circuit indicated that limited discovery for the purpose of determining the appropriate standard of review does not run afoul of the general prohibition on admitting evidence outside the record under ERISA.22 In spite of this decision, district courts often required a plaintiff to make a showing of good cause, which included demonstrating a conflict of interest.23 Glenn instructs that the courts increase the level of scrutiny in every case in which there is a conflict. Thus, based on this logic, in cases where the administrator is both the decisionmaker and payor of benefits, and thus is automatically conflicted under Glenn, discovery should be permitted to help the court determine how that conflict may have affected the decision making. Only through discovery can a plaintiff determine an administrator’s claims history or bias. Obviously, administrators have no incentive to fill the record with evidence demonstrating their bias.
The significance of Glenn would be lost if plaintiffs were not allowed to conduct discovery. The Eighth Circuit has not yet ruled on the issue. However, the Western District of Missouri has held that Glenn’s holding would be meaningless if plaintiffs were not permitted to engage in some meaningful amount of discovery on the conflict issue.24
What Advice Should Attorneys Give Their Clients?
Employers can take steps not only to better protect themselves from liability, but also to foster good relations among their work force. The more disclosure and understanding the employer and employee have regarding employee benefit plans and the benefit claim process, the better off both parties will be. Employers can decrease their risk of liability from claims brought by employees for failure to disclose material plan information or for misrepresentation concerning plan coverage.
Advice for employers:
· When contracting with an insurer for an employee benefit plan, have a good understanding of the plan coverage and limitations and the insurer’s track record. Employers serve in a fiduciary capacity when selecting an insurer or claims administrator.25
· Prepare and distribute to employees a Summary Plan Description (SPD) for the employee benefit plan that explains all material terms of coverage and limitations and other provisions required by ERISA. An employee may have a claim against the employer on the basis of faulty a SPD.26 If the plan contains a clause granting discretionary authority, be sure to state that in the SPD as well.27
· Be certain that the SPD and the plan documents are consistent. The SPD will control if there are discrepancies between the two.28
· Provide plan documents to employees upon request. Failure to do so may subject an employer to a penalty of up to $110 per day.29
· Offer regular benefit meetings to update employees on benefit changes.
· Require employees to refer all benefit questions to a benefit specialist or qualified human resource representative.
· If you do not have an experienced ERISA attorney, the best advice is to refer all ERISA compliance and benefit claim questions to an ERISA practitioner.
Advice for employees:
· Before filing a claim, request a copy of plan documents and review it for plan limitations.
· In submitting a claim, provide all supportive information; do not count on the claims administrator gathering it even if you sign a release authorizing the claims administrator to obtain relevant records.
· Retain an experienced ERISA attorney EARLY in the claims process; do not wait until after an appeal has been denied.
1 Honorable William M. Acker, Jr., Can the Courts Rescue ERISA? 29 Cumb. L. Rev. 285, 285-286 (1998-1999).
2 Great West Casualty Co. v. National Casualty Co., 385 F.3d 1094, 1094 (7th Cir. 2004).
3 See Lacy v. Fullbright & Jaworsk Limited Liability Partnership Long-Term Disability Plan, 405 F.3d 254, 257 n.5 (8th Cir. 2005) (collecting cases).
4 Abram v. Cargill, Inc., 395 F.3d 882, 886 (8th Cir. 2005).
5 Wert v. Liberty Life Assur. Co. of Boston, Inc., 447 F.3d 1060, 1065 (8th Cir. 2006).
6 See Union Pacific R. Co. v. Beckham, 138 F.3d 325, 332 n.4 (8th Cir. 1998).
7 Conley v. Pitney Bowes, 34 F.3d 714, 717-18 (8th Cir. 1994).
8 Antolik v. Saks, Inc., 463 F.3d 796, 803 (8th Cir. 2006).
9 Can the Court Rescue ERISA? 29 Cumb. L. Rev. at 287.
10 Knieriem v. Group Health Plan, Inc., 434 F.3d 1058, 1061 (8th Cir. 2006).
11 Van Natta v. Sara Lee Corp., 439 F.Supp.2d 911, 941 (N.D. Iowa 2006) (Becker, J., concurring).
12 Degan v. Ford Motor Co., 869 F.2d 889 (5th Cir. 1989).
13 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).
14 Woo v. Deluxe Corp., 144 F.3d 1157, 1162 (8th Cir. 1998).
15 Woo v. Deluxe Corp., 144 F.3d 1157, 1161-62 (8th Cir. 1998).
16 Farley v. Arkansas Blue Cross and Blue Shield, 147 F.3d 774, n.4 (8th Cir. 1998).
17 Glenn, 128 S. Ct. at 2350.
18 See Kalp v. Life Insurance Company of North America, No. 08-1005, 2009 WL 261189, at *3 (W.D. Pa. Feb. 4, 2009).
19 See Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008).
20 Jones v. Mountaire Corp. Long Term Disability, No. 4:06CV01578, 2007 WL 2351012 at *6 (E.D. Ark. Aug. 16, 2007).
21 See McCauley v. First Unum Life Ins. Co., 551 F.3d 125, 128 (2nd Cir. 2008); Champion v. Black & Decker (U.S.) Inc., 550 F.3d 353, 355 (4th Cir. 2008).
22 Farley v. Arkansas Blue Cross and Blue Shield, 147 F.3d 774, 776 n.4 (8th Cir. 1998).
23 See Abram v. Cargill, Inc., No. 01CV1656, 2003 WL 1956218, at *1, n.3 (D.Minn. Feb. 10, 2003).
24 Green v. Union Security Insurance Company, No.4:08-CV-0186-DGK, (W.D. Mo. Dec. 10, 2008).
25 See Glenn, 128 at 2349-2350.
26 Greeley v. Fairview Health Services, 479 F.3d 612 (8th Cir. 2007).
27 See Hartranft v. Hartford Life & Accident Ins. Co., No. 3:01CV1870, 2004 WL 2377228 (D. Conn. 2004) (policy amendments not contained in the SPD were ineffective to create a deferential standard of review); Member Services Life Ins. Co. v. American Nat’l Bank, 130 F.3d 950 (10th Cir. 1997) (a beneficiary will not be bound to terms of the policy of which he had no notice).
28 Antolik v. Sakes, 463 F.3d 796 (8th Cir. 2006).
29 29 U.S.C. 1132(c).
