Fifth Circuit Joins Sister Circuits by Overruling Default Deferential Standard of Review

In Ariana M. v. Humana Health Plan of Tex., 2018 U.S. App. LEXIS 5227, *5, 2018 WL 1096980 (March 1, 2018) (“Ariana M. II”), a majority of judges of the U.S. Court of Appeals for the Fifth Circuit, in an en banc decision, recently overturned its quarter century old holding in Pierre v. Connecticut General Life Insurance Company, 932 F.2d 1552 (5th Cir. 1991), which held that the factual determinations of ERISA benefit plan claim administrators are entitled to deference, regardless of whether the plan includes a grant of discretionary authority. Under Pierre, the Fifth Circuit has long held that such factual determinations can only be overturned if they are found to be arbitrary and capricious. In overturning its holding in Pierre, the Fifth Circuit joined nine sister circuits in ruling that all aspects of ERISA benefit denials will be reviewed de novo unless the governing plan delegates discretionary authority to the claim administrator. Continue Reading

New DOL Disability Regulations Now Effective

Significant changes to the Department of Labor’s (“DOL”) rules regulating disability claims procedures are now in force.  These new rules apply to claims filed on or after April 1, 2018.

ERISA directs the Secretary of Labor to establish and maintain rules which ensure that plan fiduciaries and insurance providers fully and fairly review claims for ERISA-governed benefits.  The DOL’s rules regulating claims procedures are set forth at 29 C.F.R. §  2560.503-1, which contains detailed direction as to the claims handling process for both group health plans and disability plans.  Historically, 29 C.F.R. §  2560.503-1 imposed similar obligations on group health plans and disability plans.  That changed in 2010, however, with the implementation of the Affordable Care Act, under which claims procedures for group health plans were significantly modified, while procedures for disability plans remained untouched.

In the years that followed, the DOL concluded that disability claim regulations should be modified as well, and proposed an initial set of enhanced regulations in November 2015.  Previous posts detailing the administrative development of the DOL’s new disability claim regulations may be found here, here, here and here.

Among the DOL’s more substantive revisions are a series of requirements mandating that:

  • Adverse benefit and appeal determinations must provide an “explanation of the basis for disagreeing with or not following” the “views” of treating and consulting medical and vocational specialists. 29 C.F.R. § 2560.503-1(g)(1)(vii)(A), (j)(6)(i).
  • Adverse benefit and appeal determinations must provide: “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.” 29 C.F.R. § 2560.503-1(g)(1)(vii)(B), (j)(6)(ii).
  • Adverse benefit and appeal determinations must provide an “explanation of the basis for disagreeing with or not following” SSDI determination. 29 C.F.R. § 2560.503-1(g)(1)(vii)(A), (j)(6)(i).
  • Before making an adverse appeal determination, the plan must disclose to the claimant “any new or additional evidence considered, relied upon, or generated” by the plan “in connection with the claim”, as well as any “new or additional rationale.” These materials must be disclosed “as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required … to give the claimant a reasonable opportunity to respond prior to that date[.]” 29 C.F.R. § 2560.503-1(h)(4).
  • Appeal decision letters must “describe any applicable contractual limitations period that applies to the claimant’s right to bring such an action, including the calendar date on which the contractual limitations period expires for the claim.” 29 C.F.R. § 2560.503-1(j)(4)(ii).

In addition, the DOL has clarified that “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.”  29 C.F.R. § 2560.503-1(b)(7).  The DOL has stated that this rule covers “consulting experts” and “individuals hired or compensated by third parties engaged by the plan with respect to claims.”

Perhaps most notable, however, is the DOL’s new “deemed exhausted” rule, under which a claimant is deemed to have exhausted the administrative remedies available under a plan – and is therefore permitted to proceed immediately to litigation – if a plan fails to strictly adhere to any of the claims procedures outlined in 29 C.F.R. §  2560.503-1.  An exception to this rule exists if the plan can show all of the following:  (i) the violation is de minimis; and (ii) the violation does not cause, and is not likely to cause, prejudice or harm to the claimant; and (iii) the violation was for good cause or due to matters beyond the control of the plan; and (iv) the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.  29 C.F.R. § 2560.503-1(l)(1) and (l)(2).  Moreover, if a claimant requests an explanation from the plan for why it failed to follow the plan’s claims procedures, the plan must respond in writing in ten (10) days or less. 29 C.F.R. § 2560.503-1(l)(2)(ii).  If the court finds that the exception applies, the claim will be remanded to the plan and considered as re-filed on appeal. 29 C.F.R. § 2560.503-1(l)(2)(ii).

The foregoing selections are illustrative – not exhaustive – of the significant change to the regulatory landscape of ERISA-governed disability claims now in effect.

Interestingly, the DOL states it was in part motivated to implement these changes based on the concern that “disability cases dominate the ERISA litigation landscape today.”  Yet, it is hard to see how these changes will reduce litigation of disability claims, or minimize the complexity of issues raised in litigation.

The Fate of the Department of Labor Fiduciary Rule Could Be Uncertain

On May 22, 2017, Department of Labor (DOL) Secretary Alexander Acosta announced in an op-ed in the Wall Street Journal that the DOL would not issue another delay of the “fiduciary rule,” and that it was set to generally become effective on June 9, 2017. As we now know, certain provisions of the fiduciary rule went into effect on that date, with others being delayed until July 1, 2019. However, the fiduciary rule remains under attack in the courts. Two notable appellate court decisions were issued within days of one another, and both were decided by three judge panels. One case upheld narrow provisions of the fiduciary rule, and the other effectively completely invalidated the rule. Shortly after the second decision, the Department of Labor announced that it would not enforce the fiduciary rule “pending further review.” Continue Reading

A stock plan is not necessarily an ERISA plan

In the world of ERISA litigation, one of the safest bets is usually that, if an employer establishes something that it calls a “plan,” and the plan allows a significant number of its employees to obtain money after retirement, ERISA is going to govern. Sure, there are situations where the employer is exempt from ERISA (it may be a governmental entity or affiliated with a church), but those exceptions are generally easy to spot.

However, Pasternack v. Shrader, 863 F.3d 162 (2d Cir. 2017), is a reminder of the risks of drawing such automatic conclusions, because sometimes a plan is just a plan. Pasternack essentially held that, when the primary purpose of a stock ownership plan was something other than deferring income or providing retirement income, ERISA may not govern.  Though the Court asserted that the distinction between a pension plan and one that offered present benefits was “crisp and unambiguous,” one might be forgiven for harboring doubt that the line is as well-defined as the Court believed. Continue Reading

No Fooling: U.S. Department of Labor Confirms That The Disability Claims Regulations Will Go Into Effect on April 1, 2018 Without Further Delay or Modification

In a recent news release, the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor confirmed that its final rule amending the disability claims procedure requirements applicable to ERISA-covered employee benefit plans (the “Final Rule”) will go into effect on April 1, 2018.

Continue Reading

EBSA Formally Extends Applicability Date of Disability Claims Regulations to April 1, 2018; Time to Comment on the Regulations Ends Soon

In today’s Federal Register, the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor has published its notice delaying, by 90 days, the applicable date of its final rule amending the disability claims procedure requirements applicable to ERISA-covered employee benefit plans (the “Final Rule”). The new claims procedures had initially been set to become applicable on January 1, 2018.  That date has now been delayed to April 1, 2018.

The new claims procedures of the Final Rule apply to all ERISA plans that provide disability benefits, which include not only short-term and long-term disability plans but also other types of ERISA plans with disability provisions, such as many retirement plans. The purpose of the delay is to provide EBSA with time to consider the Final Rule’s impact on the group disability insurance market, in light of President Trump’s Executive Order 13777 directing federal agencies to evaluate regulations (with input from affected entities) with an eye toward reducing regulatory burden and expense. Continue Reading

Second Circuit Clarifies New York Anti-Subrogation Law Prohibits Offsets For Settlements; Declares Plan’s Choice-of-Law Provisions May Not Govern Offset And Subrogation Rights

The U.S. Court of Appeals for the Second Circuit has ruled that New York’s anti-subrogation statute, N.Y. Gen. Oblig. Law § 5-335(a), applies both to “offsets” for prospective benefit payments and to reimbursements for prior benefit disbursements.  In so holding, the Second Circuit ruled that a Plan’s choice-of-law provisions may not be dispositive of which jurisdiction’s anti-subrogation statute will apply to govern disbursement and/or recovery of that Plan’s assets.

The case, Arnone v. Aetna Life Ins. Co., 860 F.3d 97 (2d Cir. 2017), arose after the plaintiff-appellant, Salvatore Arnone, a New York resident, was injured while working in New York at the site of a customer of his employer.   Arnone filed for, and received, disability benefits through an ERISA-governed plan (“Plan”) insured and administered by Aetna.  Arnone also commenced a personal injury action in New York state court against his employer’s customer.  Arnone eventually settled the personal injury suit for a lump-sum payment. Continue Reading

Department of Labor Proposes to Delay Implementation of Disability Claim Regulations

On October 6, 2017, the Department of Labor signed a proposed Rule “to delay for ninety (90) days – through April 1, 2018 – the applicability of the Final Rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits.”

Specifically, the DOL proposes:

Section 2560.503-1 is amended by removing “on or after January 1, 2018” and adding in its place “after April 1, 2018” in paragraph (p)(3) and by removing the date “December 31, 2017” and adding in its place “April 1, 2018” in paragraph (p)(4).

The proposed rule is scheduled to be officially published on October 12, 2017. There will be a 15-day period for comments on the proposal to extend the applicability date. There will also be a 60-day period to submit “comments providing data and otherwise germane to the examination of the merits of rescinding, modifying, or retaining the rule[.]” Continue Reading

ERISA § 502(c)(1) Claim for Statutory Penalties is Barred by One-Year Statute of Limitations, Second Circuit Holds

Deciding an issue of first impression, the U.S. Court of Appeals for the Second Circuit recently held that a plaintiff’s claim under ERISA § 502(c)(1) was barred by Connecticut’s one-year statute of limitations for an action seeking to collect a statutorily-imposed civil penalty. Brown v. Rawlings Fin. Servs. LLC, (2d. Cir., 8/22/17) (Jacobs, Leval, Raggi, Js.).

Plaintiff, a plan participant, had filed suit against Rawlings, Aetna, and the William W. Backus Hospital claiming that they had failed to timely respond to her request for documents concerning her healthcare benefit plan. The defendants moved to dismiss her complaint on the ground that the suit was not timely filed, and the District Court granted the motion. Plaintiff thereafter appealed to the Second Circuit, arguing that the District Court had applied the incorrect limitations period. Continue Reading

DOL Seeks to Extend Transition Period under the Fiduciary Rule

The U.S. Department of Labor (DOL) has filed a proposal with the Office of Management and Budget (OMB) to delay implementation of the following exemptions under the fiduciary rule from January 1, 2018 to July 1, 2019:

  • Best Interest Contract Exemption (PTE 2016-01)
  • Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02)
  • Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)

This development was publicized by the DOL in a notice of administrative action submitted by its attorneys to the U.S. District Court for the District of Minnesota in one of several antifiduciary rule cases currently pending. Notification of the submission to the OMB becomes publicly available the morning following the submission, which will bring additional details to this delay.

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