Appealing Benefit Denials with the Plan: Law, Regulations and Practice

By: David Rintoul

(This article was prepared for a December 3, 2003 ERISA Seminar before the Connecticut Employment Lawyers Association. It was prepared for attorneys who have some background in ERISA, but the article should be informative for a lawyer or non-lawyer with some knowledge of ERISA benefit claims)

I. Introduction Your client comes into your office with a great case: the long-term disability insurer for the employer's plan denied disability benefits to a brain surgeon who has Parkinson's. You are all ready to file suit, planning on getting a third of the $7,000 a month benefits and attorneys' fees. Before you can collect on this payday, however, you have to go back to the same people who unjustly denied the benefits in the first place to ask them to reverse the decision. Under ERISA, you have to exhaust the plan's procedures for appealing a benefit denial prior to bringing the case to court. The plan's appeal procedures are rarely any substantive help. Not surprisingly, plans rarely reverse themselves. An effective and timely plan appeal is crucial, however, in prevailing in any suit to recover benefits under ERISA. These materials are intended to guide you through the legal and some of the practical aspects of conducting a plan appeal. These materials discuss the following:

• The law of the plan appeal process, including what claims must be appealed and exceptions to the exhaustion rule.
• The regulations governing time limits and the process of the administrative appeal. A copy of the regulations is attached.
• What to do and resources for presenting an effective appeal of a benefit denial.

II. Statutes and Cases on the Administrative Appeal Process ERISA requires that all plans must "afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." 29 U.S.C. § 1133(2). While ERISA does not require administrative exhaustion, courts have uniformly interpreted this provision to impose an administrative exhaustion requirement on persons making claims for ERISA benefits. Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993) Chapman v. Choicecare Long Island Term Disability Plan, 288 F.3d 506, 511 (2d Cir. 2002).

A. Why Is the Administrative Appeal Procedure Important?

1. General Rule: nothing is admissible in court that was not presented during the administrative process The administrative appeal procedure is crucial to any subsequent litigation of the claim because you are may not to get any evidence admitted in the district court that you had not presented during the administrative appeal process. Muller v. First Unum, 341 F.3d 119 (2d. Cir. 2003); Zervos v. Verizon N.Y., Inc., 277 F.3d 635, 647 (2d. Cir. 2002). For instance, if the plan disputes the extent of cognitive impairment in a long-term disability claim, you may not be able to present a neuropsychological exam in court if you did not submit it during the administrative process. In conducting the administrative appeal, therefore, you should try to the greatest extent possible to put everything in during the administrative process that you might want to present at trial. While this rule is stricter in a arbitrary and capricious review case, it is also applied in de novo review cases. DeFelice v. American Int'l Life Assurance Co, 112 F.3d 61, 66 (2nd Cir. 1997) (even in de novo review cases, court "ought not" to consider evidence outside the record). You should also take the administrative appeal process seriously because while not common, plans do reverse their decisions on appeal, particularly in appeals involving initial denials, rather than a decision to stop benefits. 2. Exceptions to the Rule Excluding Non-Record Evidence Clients may come to you who have already completed the administrative process, and you may be stuck with whatever administrative record they prepared. If the client recently finished the appeal process, and have any doubts about whether the record is complete, immediately send the plan a letter asking for an additional thirty to sixty days to submit additional information. If you are stuck with an existing record, there are exceptions to the rule if you can show good cause for why it was not presented at the administrative level. DeFelice v. Am. Int'l Life Ins. Co., 112 F.3d 61, 67 (2d Cir. 1997). Good cause includes: a) Evidence to show a conflict of interest in a de novo review case, and possibly in an arbitrary and capricious case. A common interest between the administrator and the entity paying the claim is a sufficient conflict to establish good cause for obtaining and using non-record evidence when the standard of review is de novo. DeFelice, 112 F.3d at 66 (when there is a conflicted administrator "courts must exercise fully their power to review de novo and to be substitute administrators" emphasis in original); Locher v. UNUM Life Ins. Co., 126 F.Supp.2d 769, 773 (S.D.N.Y. 2001); Keiser v. CDC Investment Management Corp, 160 F.Supp.2d 512, 518 (S.D.N.Y. 2001). b) Evidence regarding the proper interpretation of the plan. Masella v. Blue Cross & Blue Shield of Conn., 936 F.2d 98, 104(2d. Cir. 1991) (allowing testimony regarding the nature of TMJ and its treatment to establish that the claim was for medical benefits rather than excluded dental treatment). c) The administrative record is inadequate, and the party seeking to add the information was not at fault (Masella, 936 F.2d at104 (when plan gave few reasons for the benefit denials and stated it would not change its decision, claimant allowed to submit additional evidence in the district court). d) The case involves a complicated medical questions. Quesinberry v. Life Insurance Company of North America, 987 F.2d 1017, 1027 (4th Cir. 1993) (live testimony allowed at trial, not presented during the administrative process, in resolving complicated issue of whether the insured's death was accidental).

B. Do All ERISA Claims Require Administrative Exhaustion?

1. Benefit Claims Claims for benefits pursuant to ERISA § 503(a)(1)(B) always require administrative exhaustion, unless one of the general exceptions applies discussed below. 2. Fiduciary Duty Claims As the court in Smith v. Sydnor, 184 F.3d 356, 364 (4th Cir. 1999) discusses below, there is a split in the circuits regarding the necessity for exhaustion prior to bringing breach of fiduciary duty claims: While the courts of appeals are in near unanimity that exhaustion of administrative remedies is required before a plaintiff can bring an ERISA action in federal court to recover benefits under a plan, see Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 418 & n.4 (6th Cir. 1998) (listing cases), they are in sharp disagreement as to whether a plaintiff must exhaust administrative remedies before bringing an action in federal court to assert a violation of an ERISA statutory provision, such as a claim for breach of fiduciary duty. Compare Lindemann v. Mobil Oil Corp., 79 F.3d 647, 649-50 (7th Cir. 1996) (holding that district court has discretion to require exhaustion for ERISA § 510 claim); Mason v. Continental Group, Inc., 763 F.2d 1219, 1226-27 (11th Cir. 1985) (holding that exhaustion is required for ERISA § 510 claim and claims for breach of fiduciary duties), with Chailland v. Brown & Root, Inc., 45 F.3d 947, 950-51 (5th Cir. 1995) (holding that exhaustion is not required for ERISA § 510 claim where plan is incapable of providing a remedy); Richards v. General Motors Corp., 991 F.2d 1227, 1235 (6th Cir. 1993) (holding that exhaustion is not required for ERISA § 510 claim); Horan, 947 F.2d at 1416 n.1 ("The exhaustion requirement applies to plaintiffs' benefits claim, but does not apply to the plaintiffs' fiduciary breach claim because this claim alleges a violation of the statute, ERISA, rather than the Plan."); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1204-05 (10th Cir. 1990) (holding that exhaustion is not required for ERISA § 510 claim); Molnar v. Wibbelt, 789 F.2d 244, 250 n.3 (3d Cir. 1986) (stating in dicta that exhaustion is not required for claim for breach of fiduciary duty). 3. 510 Claims Administrative exhaustion is generally not required for Section 510 claims. Novak v. TRW, Inc., 822 F. Supp. 963, 969 (E.D.N.Y. 1993); Lawford v. New York Life Ins. Co., 739 F. Supp. 906, 912 (S.D.N.Y. 1990); Zipf v. American Telephone & Telegraph Co., 799 F.2d 889, 891-92 (3d Cir. 1986); MacKay v. Rayonier, Inc., 25 F. Supp. 2d 47, 50 (D. Conn, 1998). 4. Should I Pursue Administrative Remedies Anyway? Even if you are sure that the administrative exhaustion requirement does not apply to your claim, you should do it anyway. Administrative exhaustion in the case of a 510 or fiduciary duty claim is likely to involve a single letter to the plan and a rejection of the claim. Doing this will avoid any fight in future litigation whether you have satisfied the administrative exhaustion requirement. Further, if you bring a breach of fiduciary duty claim without exhausting administrative remedies, the court might recast your complaint as a claim for benefits, and dismiss the case for failure to exhaust. D'Amico v. CBS Corp., 297 F.3d 287, 292 (4th Cir. 2002).

C. Is Administrative Exhaustion Ever Excused? If an attorney is involved with a claim from the beginning, there should never be a problem with not pursuing administrative remedies. Even if you believe the law is clear that administrative exhaustion is not required, you should still do it to avoid the inevitable motion for summary judgment that will result from failure to pursue administrative remedies. Clients will come to you, however, after time periods to appeal have expired. There are some limited exceptions to the requirement of administrative exhaustion.

1. Pursuing the administrative appeal process would have been futile. Sometimes, if the plan has made its position clear in the pending litigation, such that its disposition of any administrative claim is clear, the claim will not be remanded to the plan for an administrative review. Brunoli v. Fred Brunoli & Sons, 993 F. Supp. 66, 72 (D.Conn. 1997). Judge Squatrito discussed the "futility doctrine" at length in Cole v. Aetna Life and Cas, 2002 U.S. Dist. LEXIS 19656, *45 (March 28, 2002): The 'futility doctrine' frees a claimant from the exhaustion requirement if he makes a "clear and positive showing" that exhausting his administrative remedies would have been futile. Kennedy, 989 F.2d at 594; Barnett v. I.B.M. Corp., 885 F. Supp. 581, 588 (S.D.N.Y. 1995). A plaintiff invoking this doctrine has a heavy burden, however. It is not enough for the plaintiff to argue that a claim would have been denied. Barnett, 885 F. Supp. at 588-89. Instead, there must be a "clear and positive" indication of futility. Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410 (6th Cir. 1998). For example, the plaintiff must "show that it is certain that [his] claim will be denied on appeal," or that the plan made some affirmative failure that denied him full access to the administrative procedure. Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397 (7th Cir. 1997). For example, a plan's failure to inform a claimant of his appeal right, refusal to respond to a request for review, or engagement in some other irregularity has established that a further review would have been futile. Id.; see also Ludwig v. NYNEX, 838 F. Supp. 769, 781-82 (S.D.N.Y. 1993). 2. The plan language does not sufficiently advise the claimant of the existence of the administrative appeal procedure or that the claimant must pursue the process before bringing suit. Burke v. Kodak Retirement Income Plan, 336 F.3d 103, 108 (2003) (where denial letter did not discuss the administrative procedure or refer the claimant to the section of the SPD that discussed the procedure, administrative exhaustion was excused); Watts v. Bellsouth Telcomms., 316 F.3d 1203 (2003) (claimant's interpretation of the SPD as giving her the option of either pursuing and administrative appeal or filing suit was reasonable, so failure to pursue required second-level appeal was excused.) 3. If the plan's administrative procedures don't comply with the regulations, then the claimant is excused from pursuing the administrative process, and may proceed directly to file suit. 29 C.F.R. § 2560.503-1(l). 4. The plan fails to comply with the time deadlines for making a decision. Gilbertson v. Allied Signal, 328 F.3d 625 (10th cir. 2003) 5. Attorneys' fees for the administrative appeal. While the courts require exhaustion of plan appeal procedures, they don't award fees incurred during the process. Peterson v. Continental Cas. Co., 282 F.3d 112, 120 (2nd Cir. 2002) Anderson v. P&G, 220 F.3d 449, 453 (6th Cir. 2000).

D. What to Do With A Claim: Regulations Governing the Claims and Appeal Process, and Practical Considerations This section discusses the claim procedure and the regulations applicable to it. The Department of Labor has issued new requirements for claims procedures for benefit plans. 29 C.F.R. § 2560.503-1 (all section references below are to this regulation). A copy of the regulations is attached. Most of the matters summarized below are discussed in more detail in the regulations, so you should review the regulations each time you take an administrative appeal. The procedures apply for all claims filed on or after January 1, 2002. Sec (o). The regulations deal with many aspects of the claims process, particularly time deadlines. The first thing you should do in dealing with any benefit claim, whether as an initial application or a denial, is get the plans documents and the summary plan description (the "SPD"). A form letter to request these, and the other information you are entitled to in response to a benefit denial, is attached. Once you get the plan and the SPD, you want to first determine the following:

• What standard of disability applies? After an employee has received benefits for twenty-four month, plans commonly change the definition of disabled from an "own occupation" standard, where the employee is disabled if he cannot perform his occupation, to an "any occupation" standard, in which a claimant is only disabled if he cannot perform any occupation to which he is suited by education or experience.
• Does the plan require the claimant to be disabled from all of the material duties of the position, or just be unable to perform some of them. Hersee v. First Allmerica Fin. Life Ins. Co., 28 Employee Benefits Cas. (BNA) 1623 (D. Mass. 2002) ("each and every duty" means the claimant cannot perform any of the material duties); cites McClure v. Life Ins. Co. of North America, 84 F.3d 1129 (9th Cir. 1996) ("every duty" means claimant is disabled if can't perform any single material duty of the position).
• Does the plan reserve sufficient discretion to interpret the plan and make factual determinations such that a court will apply an arbitrary and capricious standard of review rather than a de novo standard of review? Is the language just in the SPD but not in the plan, in which case the de novo standard of review will apply. Clark v. Bank of New York, 801 F.Supp. 1182 (S.D.N.Y. 1992); Reinertsen v. The Paul Revere Life Ins. Co., 127 F.Supp. 2d 1021 (N.D. Ill. 2001) Carter v. General Electric Co., 2001 U.S. Dist. LEXIS 1724 (N.D. Ill. 2001).
• What is the exact benefit to which the claimant is entitled?
• Are their material differences between the SPD and the plan document, and which provides greater benefits?

1. Filing the Claim The regulations define a "claim for benefits" as a request for plan benefits "made by the claimant in accordance with a plan's reasonable procedure for filing benefit claims." Reg § (e). Each plan has a timetable and procedure for applying for benefits that you will have to follow. With long-term disability benefits, there is often an automatic process where the short-term disability administrator will submit the request directly to the long-term disability administrator. 2. Decision on the Claim A chart with all the deadlines involved in filing and appealing a benefit claim is attached. The time deadlines differ depending on the type of claim. 3. Claim Processing and Appeal Regulations Assuming that you client's claim for benefits was denied, you will receive a benefit denial letter. The contents of the denial letter will frame most of what goes on in the administrative appeal process. The letter is important, because the insurer is unlikely to be permitted to present a reason for the denial that is not contained in the denial letter. Vizcaino v. Microsoft Corp., 120 F.3d 1006, 1016 (9th Cir. 1997) Section (g) requires that the claim denial letter contain the following:

• A specific reason or reasons for the denial;
• Reference to the specific plan provision on which the denial is based;
• A description of any additional material or information necessary for the claimant to perfect the claim, and an explanation of why the information is necessary;
• A description of the plan's review procedures; and
• If the claim involves a group health or disability benefit claim, the letter must describe any internal procedure or protocol used, and if the decision is based on lack of medical necessity or an experimental treatment limitation, the letter must describe the clinical judgment made, or offer to provide it.

Frequently, the denial letter will not satisfy these requirements, and will generically state something like "No objective evidence of the existence of the disability has been presented." If there are any deficiencies in the denial letter, you should point them out in your appeal to preserve your right to contest the deficiencies in any subsequent suit. Appealing the Denial Time deadlines for filing an appeal are listed on the chart below. Plans commonly give extensions if you need more time to assemble the information for the appeal. You should not wait to file the appeal until you have all your information together. File a letter immediately, stating that you are appealing, and requesting a copy of the claim file and the other information you are entitled to. The form of an appeal letter is attached. In the letter you will state that you will submit other information in support of your appeal. As soon as the client hires you, start working to get the medical records. Have the client sign several HIPAA-compliant releases, even though many physicians will require their own, and give you names and addresses of their physicians. Getting the records in a timely manner is a nightmare, so have your secretary or paralegal start following up a week after you send the requests. Grounds to Appeal the Denial Google is invaluable in locating medical and vocational information to respond to a denial of benefits. No matter how obscure an illness or treatment, I have always found extensive information on the web. Health Benefit Claims. Getting approval for denied treatments or out-of-network providers depends on the cooperation of the treating physicians, and you should work with the doctor's office in coming up with grounds for appeal. Search the name of the particular procedure in Google, and you should be able to come up with useful information, including articles and advocacy groups. Most new treatments or medical procedure have some drug-company financed group behind them, and their information will be on the web. Sources of Medical Information. A useful resource for introductory information on a medical procedure or condition, or to get definitions of unfamiliar words, is www.webmd.com. Once you wade through the weight-loss ads, you can get a quick introduction to the medical issues involved. A great source for more comprehensive information, including on-line treatises and Medline, the medical periodical index, is www.skolarmd.com. You can get a free ten-day trial, which is plenty of time to download everything you need for a given condition. The UConn Med School library is useful too, but I have never found the librarians to be very helpful. Disability Benefit Denials Disability claims are typically denied for one or more of the following:

• The medical records do not support the diagnosis.
• Whether or not the diagnosis is proper, there is not sufficient "objective medical evidence" of the claimed restrictions and limitations in the medical records.
• The claimant can still perform the job, even if the restrictions and limitations are valid. Medical Records Disability benefit claims rise and fall on the quality of the medical records. You should make sure your clients tell their doctors the problems their conditions cause in their daily life, and that they ask for the information to be included in the record. Also, they should ask the doctor to put his own observations of impairments in the records. While the disability insurers refuse to recognize this fact, doctors do not use medical records to document disability. If the patient does not ask them to, they might not include the information. Observations of impairment recorded by a doctor in medical records are worth far more than any statement that you prepare to have the doctor sign. Diagnosis and Evidence of Impairment Go to the websites referred to above, and conduct a Google search of condition involved in your case so you can make your own determination if the medical records support the diagnosis. Additional Medical Evidence Statements the lawyer prepares for doctors to sign seem to have little influence in the administrative process. The main reason to have them is to establish your record for subsequent litigation. It is difficult to get some doctors to sign them, and some have required large payments to sign them. They are necessary to fill in any holes in the medical records prior to bringing suit. You may consider having additional medical tests done. The most common in my practice is a neuropsychological exam. Disability insurers will rarely accept claims of cognitive impairment unless there is a neuropsych exam to substantiate them. Try to get a treater to subscribe one, because they cost $1,500 to $2,000. You need to examine and research each of the reasons stated in the denial letter. For instance, if the claimant reports cognitive problems with a complicated job like accounting, UNUM may try to cast doubt on the validity by stating that no doctor performed a "mini mental status exam" of the claimant. As you can see on a web site describing it, mini_mental_status_examination.htm, the purpose of the exam is to test for dementia. The test seeks to find out whether the patient is oriented as to time place and person and can follow simple written and oral instruction, and has little to say whether a executive could perform a high-powered job. Ability to Perform Position - Vocational Information You should get the client's job description. Most plans define disability in terms of the claimant's "regular occupation," which the Second Circuit interprets to mean that the claimant must be disabled from performing her occupation as it exist in the general labor force, not the particular job she performed. Kinstler v. First Reliance Standard Life, 181 F.3d 243, 253 (2nd Cir. 1999) (court does need to look at the actual job to make sure it uses the proper occupation). A great source for vocational information is http://online.onetcenter.org. It is an on-line version of the Department of Labor's Dictionary of Occupational Classifications. It has detailed ranked lists of skills and abilities required for thousands of job. For example, go to . You can compare the list to the claimant's disabilities to establish that she is unable to perform the most important functions of the position. If you have a claim that is subject to the "any occupation" standard (see page 6), you may need to contest the insurer's claim that your client can perform certain jobs. One way to address this is to obtain a statement from a recruiter experience in placing people in the types of jobs the insurer claims your client could do that your client would not be a viable candidate for placement in such a position.

  How Many Levels of Appeal to Take The plan cannot require more than two levels of appeal (sub§(c)(2)). The plan can have a voluntary third level of appeal, including arbitration. One of the appeal levels can be a "mandatory" arbitration process, but no fees can be imposed on the claimant, and the process must not preclude a suit under ERISA. While two levels of appeal are commonly required, you can submit more information more than two times. Particularly if the client comes to you after pursuing the required two levels of appeal, you should ask for the opportunity to submit additional information to you can make sure the record is complete. Immediately request the claim file and ask for an additional sixty days to submit additional information. I have never been denied permission to do this. Concluding the Administrative Process Send a letter state you consider the administrative process to be exhausted, and that unless you hear from the insurer, you will file suit within thirty days. Time Limits Governing Appeals With respect to all these time limitations, the regulations require that the notification be within a reasonable time, but no more time than provided in the regulations. If you have a claim that needs to be decided in less time than provided in the regulations, you can argue that quicker notification is required. The time limits start when the claim is submitted, not when all the information in support of the claim is received.