ERISA, the federal law governing most employer-sponsored benefits (e.g., health, disability or life insurance, or pension or retirement benefits) gives participants the right to appeal the Plan or insurer’s denial of payment or benefits (in legalese, an “adverse benefit determination”). Plans and insurers are required to be transparent about participants’ appeal rights. Unfortunately, adverse benefit determination notices often fail to adequately explain participants’ appeal rights and important deadlines.
Below is a “cheat sheet” listing some of the issues relevant to participants’ rights to appeal an adverse benefit determination under ERISA:
You must appeal before filing suit. ERISA generally requires participants to exhaust their administrative remedies before filing suit. This requires going through the Plan or insurer’s internal appeal process before bring a lawsuit. If you sue before exhausting the appeal process, the court will likely dismiss the lawsuit and your claim could be barred. Note that ERISA typically requires only one appeal – while Plans often provide for multiple levels of appeal, participants are generally free to file suit after the first appeal is denied. Indeed, in most cases, successive rounds of appeal serve no purpose other than to permit the Plan or insurer to bolster its position with several rounds of supposedly “independent” review that typically rubber-stamp the original adverse benefit determination.
You must appeal within the deadline. Once the Plan or insurer renders an adverse benefit determination, the deadline starts running in which to appeal the decision. The deadline is often short, depending on the details of the Plan documents. Failure to timely appeal will often irrevocably destroy your right to dispute the adverse benefit determination or file a lawsuit.
Your appeal must contain all relevant information. If the appeal is denied and the participant files a lawsuit, the evidence that can be presented in the lawsuit is often limited to the information submitted to the Plan or insurer during the appeal process. Thus, it is critical to submit all potentially relevant information during the appeal process. Even information that might seem irrelevant at first could potentially become relevant in a lawsuit.
Your appeal must account for the Plan documents and the Plan or insurer’s investigation. Despite federal regulations requiring transparency in ERISA claims, adverse benefit determination notices often fail to contain important information relevant to the dispute. This includes the full Plan documents setting forth participants’ rights under the Plan. It also includes the Plan’s or insurer’s claim file, which often contains internal notes or other evidence reflecting the true basis for the adverse benefit determination. Acquiring this information and addressing it with rebuttal evidence is critical to prevailing in any appeal or lawsuit challenging the denial of payment or benefits.
ERISA appeals can be complex, and failure to follow the appropriate procedures can be fatal to participants’ rights to coverage or benefits. It is critical to carefully scrutinize all correspondence with the Plan or insurer, the governing Plan documents, and the applicable evidence before submitting an appeal.
When language in one part of your ERISA policy says your claim is covered, can the company rely on language elsewhere in the policy to deny your claim? The Ninth Circuit Court of Appeals recently answered “no.” In Dowdy v. Metropolitan Life Ins. Co., the court ruled the conflicting language about what caused the insured’s loss did not preclude coverage.
Mr. Dowdy’s leg was amputated following a car crash. He made a claim under his ERISA-governed Accidental Death & Dismemberment insurance policy with MetLife, purchased through Mrs. Dowdy’s employer.
MetLife denied coverage, claiming the amputation was excluded because it was complicated by Mr. Dowdy’s diabetes. MetLife relied on language in the policy requiring the loss to be the “direct result of the accidental injury, independent of other causes,” and excluding injuries for losses related to “illness or infirmity” or “infection occurring in an external accidental wound.” Under this language, MetLife claimed the right to deny coverage for any amputation “contributed to” or “complicated by” diabetes.
The court ruled the language could be read two ways, but that the Dowdys prevailed under either interpretation. Under one interpretation, coverage existed if the injury was the “predominate or proximate cause,” while under the more stringent interpretation, coverage was barred as long as the excluded condition (diabetes) “substantially contributed” to the loss.
While agreeing diabetes was “a factor” in the injury leading to the amputation, the court determined there was no evidence diabetes “substantially” contributed to the injury. The court relied on definitions of “substantial” requiring “a significant magnitude of causation” demonstrating the diabetes was “more than merely related to the injury.”
Since Mr. Dowdy’s medical records established only that diabetes “complicated” Mr. Dowdy’s wound, the court determined diabetes did not “substantially” contribute to the injury. The car crash caused a severe injury that nearly severed Mr. Dowdy’s leg. The subsequent infection and wound issues were complicated by diabetes, but did not cause Mr. Dowdy’s amputation.
Because this type of language frequently appears in Accidental Death & Dismemberment policies as well as health and disability policies, the Dowdy ruling is helpful for many ERISA participants seeking coverage.
Who decides whether a person’s entitled to coverage under an ERISA plan? Given ERISA gives plan participants the right to take the company to court to dispute coverage denials, you might think the judge decides. But the answer’s not that simple. Often, the insurer itself can decide whether you’re covered under the terms of the plan, and the judge in a lawsuit is not always allowed to tell the company it was wrong.
Most ERISA benefit plans contain language in which the plan gives itself (or the administrator it hires) unlimited discretion to decide who’s entitled to benefits. These are called “discretionary clauses.” For example, employer-sponsored health coverage might only cover surgery or prescriptions that are “medically necessary” and give the plan itself the unlimited right to decide what is “medically necessary.” These provisions effectively allow your insurance plan to decide you aren’t entitled to coverage “because we said so,” even if a judge decides the weight of the evidence shows you’re entitled to coverage.
That’s because the U.S. Supreme Court decided, in the Firestone Tire & Rubber Co. v. Bruch case, that “discretionary clauses” mean the judge in an ERISA lawsuit must defer to the company’s decision – even if the judge decides the company was wrong – unless the decision was so badly made that it was “arbitrary and capricious.” For instance, if the company decides the surgery your doctor recommended isn’t “medically necessary,” even though six physicians say you need the surgery and only one says it’s unnecessary, the court can’t say the company got it wrong. Where there’s a discretionary clause, the court can only disagree with the company’s decision if the company’s decision was not just wrong but “arbitrary and capricious.”
Surprising nobody, after the Firestone decision, every ERISA plan promptly added discretionary clauses making it easier for the company to deny claims.
Fortunately for plan participants, voters in many states, including Washington State, responded by enacting legislation prohibiting discretionary clauses.
The upshot is plan participants in states like Washington where discretionary clauses are unlawful have a significantly better chance at obtaining coverage for surgery, prescriptions, disability benefits or other ERISA-governed benefits because the company can’t deny claims simply “because we said so.”
Aetna, the country’s third largest health insurer, is under investigation by state insurance regulators following Aetna’s admission that it routinely denies medical treatment coverage without reviewing the insured’s medical records. Aetna’s admission surfaced in a lawsuit by a California man who claimed Aetna improperly denied coverage for his medical treatment. The insured has a rare autoimmune disorder requiring monthly dosages of an expensive medication.
Aetna’s physician admitted in the course of the lawsuit that he routinely denied coverage for insured’s treatment without reviewing the insured’s medical records. Aetna’s training, the physician testified, permitted him to simply follow the recommendations of Aetna’s nurses.
Since the physician claimed to have followed Aetna’s normal procedures, other Aetna insureds may similarly have had coverage for necessary treatment erroneously denied by reviewing physicians who failed to examine their medical records.
Insurance coverage for chronic conditions has become a hot-button issue. In recent years, patients with rare chronic diseases have faced increasing challenges getting insurers to cover treatment. Insureds’ difficulty covering treatment for chronic diseases is often complicated by pharmaceutical companies’ increasingly common practice of raising prices on chronic disease medications by several hundred percent in a single increase.
For insureds, ERISA (which governs most employer-sponsored insurance) has a serious downside. Insureds and plan participants who dispute the company’s denial of their claims for coverage or benefits must submit to ERISA’s administrative appeal process before they can file a lawsuit challenging the company’s decision. This can disadvantage the participant because failure to dot i’s and cross t’s in the administrative appeal can cause the participant to lose important rights in litigation. Moreover, because ERISA excludes many traditional state-law remedies such as punitive or exemplary damages and gives no right to a jury trial, even plan participants who successfully navigate the administrative appeals process and make it to court often face an uphill battle.
Accordingly, insurance companies spent several decades designing their benefit plans and policies to leverage ERISA against the insured. One recently-published internal memo recommended the company get as many policies as possible covered by ERISA to reduce the money the company had to pay to its insureds. The memo did a test study of 12 non-ERISA cases in which the company paid of a total of $7.8 million, estimating that ERISA’s application would have reduced the company’s liability in those cases to $0 to $0.5 million. The author concluded “the advantages of ERISA coverage in litigious situations are enormous.”
Wallace Falls, Central Cascades.
Recognizing that ERISA can favor the company over the insured or participant, the federal Department of Labor promulgated a regulation aimed at leveling the playing field, which became effective on April 1, 2018. Because the Department of Labor concluded the majority of ERISA disputes arise in disability and health plans, the new rule focuses on these types of benefits specifically. The rule’s upshot is:
Insurers can no longer pay their employees more, or promote them, or threaten to fire them, based on how many claims they deny;
Claimants under disability policies must receive a clear and detailed explanation of why their claim was denied, and, particularly, the company must explicitly address its disagreement with opinions about the claimant’s condition by treating physicians or Social Security;
Clearly state any deadlines by which the insured or participant must file a lawsuit challenging the denial of benefits;
Disability claimants must also receive a clear statement of their rights to appeal a denial of a benefit claim;
If the company upholds its claim denial based on new information, the company must permit the insured or participant to review and respond to the new information before the denial becomes final;
Claimants must be specifically advised of their right to examine the insurer’s entire claim file to permit them to evaluate the basis for the claim denial; and
Notices must be written in a culturally and linguistically appropriate manner if the situation warrants.
Importantly, violations of the new rule can permit the insured or participant to bypass the administrative appeal process and sue in court directly. This reduces the risk that an insured or participant loses rights in litigation through technicalities in the appeal process.
Hopefully, the Department of Labor’s new rule will go a long way towards leveling the playing field for ERISA policyholders and plan participants.