United States: An ERISA Claim Check: 9 Tips For Effective And Compliant Claims Procedures

Last Updated: November 21 2017
Article by Lori Jones

Section 503 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), requires a plan to establish claims procedures whereby a participant must receive written notice of a denial of plan benefits and be afforded a reasonable opportunity for a full and fair review of such denial. If the plan document grants discretion to a plan fiduciary to determine eligibility for benefits and the plan establishes and follows ERISA-compliant claims procedures, any denial of benefits by the plan will be granted deference by a court in the event of a lawsuit. In such circumstances, a denial of benefits will be overturned by a court only if the court deems the denial to be "arbitrary and capricious."

Background

The Department of Labor (DOL) issued regulations under ERISA Section 503 in 1977, 2000, and 2016 which set forth specific requirements for claims procedures. DOL Regulation §2560.503-1(l) provides that if a plan fails to establish or follow claims procedures in accordance with Section 503, a participant may immediately file suit under ERISA Section 502(a) to recover plan benefits because the plan has failed to provide reasonable procedures for a review of the merits of the participant's claim. The preamble to the 2000 regulations clarifies that a decision that fails to comply with the ERISA claims procedures is not entitled to deference by a court, that is, the court will review the claim for benefits "de novo." This means that the court will exercise its own discretion in reviewing the participant's claim with no deference for any prior decision issued by the plan.

Participant lawsuits have increased in the last decade. In addition, over the last few years, the Department of Labor and some courts have applied a stricter standard of compliance for plan claims' procedures. As a result, some plans are losing the benefit of the arbitrary and capricious standard of review. 

Tips for drafting and implementing plan claims procedures

Following are nine tips for drafting and implementing plan claims procedures that may help minimize liability under Section 502(a) and increase the likelihood that any claim denials challenged by participants will be upheld by a court.

Tip No. 1: Amend your ERISA plans to provide a limitation on the period during which a participant may file suit under ERISA Section 502(A)(1)(B).

ERISA has no statute of limitations for a participant lawsuit under ERISA Section 502(a)(1)(B) to recover plan benefits. Instead a federal court will apply the most analogous statute of limitations under state law, typically the statute of limitations applicable under state contract law. It is permissible, however, for a plan document to establish a shorter limitation period for filing a lawsuit to recover plan benefits. In Heimeshoff v. Hartford Life & Accident Insurance, Co., the U.S. Supreme Court upheld a plan provision imposing a three-year limitation period on a participant's right file suit under ERISA Section 502(a)(1)(B), holding that such plan provisions are permissible as long as the limitation period is reasonable. Although there is no set standard of reasonableness, case law would suggest that a one-year limitation period measured from the date the claims procedures are exhausted should be reasonable.

Note: The three-year limitation period in Heimeshoff commenced when proof of loss was due, which resulted in the participant having one-year after exhaustion of the claims procedures in which to file suit. In Barriero v. N.J. BAC Health Fund, the U.S. District Court for New Jersey upheld a three-year limitation that commenced after the year in which services were rendered even though the participant had only nine months to bring suit after exhaustion of the claims procedures.

If a plan document includes such a time limitation, it is important to disclose the limitation in the formal claims procedures and the summary plan description (SPD) for a plan, as well as in the letter denying a claim or appeal or a court may not enforce it.

Tip No. 2: Amend your plan to specify the federal court, or venue, in which a lawsuit to recover plan benefits must be filed.

ERISA Section 502(e)(2) provides that a lawsuit filed under ERISA may be brought in the district in which the plan is administered, where the breach took place, or whether the defendant resides. In Smith v. Aegon Companies Pension, the U.S. Court of Appeals for the Sixth Circuit upheld a plan provision limiting the court in which a participant's claim for benefits could be filed to the federal district court in which the plan is administered. Although the Sixth Circuit stated that a plan can choose any venue limitation, it is advisable to draft such a plan provision within the choices set forth in ERISA Section 502(e)(2), for example, limit lawsuits to the district court in which the plan is administered. It should be noted that the DOL does not approve of these provisions and may support a participant seeking to void such a provision. 

It is important to disclose the venue limitation in the formal claims procedures and the SPD for a plan, as well as in the letter denying a claim or appeal or a court may not enforce it.

Tip No. 3: The requirement that a participant exhaust the administrative claims procedures before filing suit under ERISA Section 502 is not universal.

In Hitchcock v. Cumberland University 403(b) DC Plan, the U.S. Court of Appeals for the Sixth Circuit held that the requirement to exhaust the claims procedures before filing a lawsuit will not apply if a participant files a lawsuit alleging a violation of his or her statutory rights under ERISA, such as a breach of fiduciary duty claim (as opposed to a lawsuit alleging a violation of the terms of the plan). 

In so holding, the Sixth Circuit joined six other circuits (Third, Fourth, Fifth, Ninth, Tenth, and D.C. Circuits[1]) in declining to require a participant to exhaust the plan's claim procedures before filing a suit alleging a violation of statutory rights under ERISA. Only the U.S. Court of Appeals Seventh and Eleventh Circuits have held that the requirement to exhaust a plan's claims procedures applies to all lawsuits filed by a participant.[2] 

Tip No. 4: Participant claims come in many forms.

It is critical to review each communication from a participant, for example, emails, to ascertain whether you have received a claim that triggers the formal ERISA claims procedures. If the participant communication is not clear on this point, it is advisable to clarify in the response how the plan is treating a particular communication. For example, the plan should indicate in a response letter if it is treating a letter or email as a claim for benefits under ERISA or merely a request for information. 

If the plan determines that a participant is merely seeking additional information regarding benefits, the plan may consider including in its response a reference to the participant's right to file a formal claim under ERISA. This will make it clear to the participant that the plan does not consider the request as a formal claim. As a precaution, the plan should always respond to participant requests within the claims procedures deadline to avoid adverse consequences should the participant allege that the request for information is a formal claim.

Tip No. 5: Make sure the plan complies with all of the DOL claims procedure regulations, including the applicable deadline for responding to a participant's request or review or appeal of a claim denial.

In Halo Yale Health Plan, the U.S. Court of Appeals for the Second Circuit rejected the holding of the district court that the arbitrary and capricious standard of review applies if a plan is in "substantial compliance" with the DOL claims procedure regulations. In the case, the participant challenged the timing of the plan's claim denial and further argued that the plan's minimal response "Service not covered" did not satisfy the regulatory requirements regarding the content of a claim denial. The Second Circuit stated that a plan's failure to comply with the claims regulations will result in de novo review in federal court unless the plan (1) has established compliant claims procedures and (2) can demonstrate that any failure to comply with the claims procedure regulations was "inadvertent and harmless." 

In Smith v. Reliance Standard Life Ins. Co.,  the U.S. Court of Appeals for the Ninth Circuit vacated a district court's decision to uphold a denial of short-term and long-term disability benefits because the district court applied the arbitrary and capricious standard of review. The Ninth Circuit held that, because the insurer failed to provide a denial within the 90-day time limit under the ERISA claims procedures, the district court should have applied a de novo standard of review.

Tip No. 6: Extensions of the deadline for responding to a participant's request for review or appeal are not automatic.

If more time is needed to decide a claim, the claims procedure regulations permit a limited extension of time if the claimant is notified in advance. Such extensions are not automatic however. In Salisbury v. Prudential Insurance Co., the U.S. District Court for the Southern District of New York applied a de novo standard of review to the denial of a long-term disability claim because the insurer did not provide adequate justification for its extension of the deadline for responding to the participant's claim. Although Prudential had timely notified the participant of the extension, the extension letter merely stated that the extension was required due to the need for physician and vocational review.

The Court noted that DOL regulations require a plan to notify the participant of the "special circumstances" requiring the time extension. The Court stated that the preamble to the 2000 claims procedure regulations indicated that "too much work" was not an adequate rationale. The circumstances must reflect a situation beyond the control of the plan. The Court concluded that physician and vocational review is required in all disability claims and was a foreseeable circumstance that did not warrant an extension.

Tip No. 7: Respond to all arguments raised by a participant and address all supplemental information provided by the participant with respect to a claim.

A participant's written request for review and appeal, the plan's written responses, and supporting information and documents will serve as the administrative record should the participant file suit to recover benefits under ERISA Section 502. The record generally may not be supplemented by either party after the claims procedures have been exhausted. Therefore, any participant arguments or supplemental information that is not refuted by the plan during the claims process may cause a court to rule in favor of the participant.

Tip No. 8: The best defense is a good offense.

Draft all participant communications under the assumption that the participant will ultimately file a lawsuit under ERISA Section 502. To the extent possible, refrain from any admissions of fault. Similarly, beware of gratuitous statements that could be used against the plan by the participant's legal counsel. Before sending a communication relating to a claim to the participant's legal counsel, it is advisable to have the plan's legal counsel review it.

A close corollary is to be professional in all internal communications with respect to participant claims or requests. It is difficult to predict what communications may fall within a discovery request in a Section 502 lawsuit. Therefore, refrain from personal opinions regarding the participant or the claim. Do not say anything you would not want repeated in open court or in a published court opinion.

Tip No. 9: The DOL issued regulations in December 2016 that revise the claims procedures applicable to disability claims. The new requirements are effective for claims filed on or after January 1, 2018.

In light of the previous tips, it is advisable for plan sponsors and plan administrators to closely review existing claims procedures to determine whether updates are advisable.

Footnotes

[1] Zipf v. AT&T, 799 F.2d 889 (3rd Cir 1986); Smith v. Sydnor, 184 F.3d 356 (4th Cir. 1999); Galvan v. SBC Pension Benefit Plan, 204 Fed. Appx 335 (5th Cir. 2006); Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197 (10th Cir. 1990); Stephens v. PBGC, 755 F.3d 959 (D.C. Cir. 2014).

[2] Kross v. Western Electric Co., 701 F.2d 1238 (7th Cir. 1983); Mason v. Continental Group, 763 F.2d 1219 (11th Cir. 1986.

Reprinted with permission of the Employee Benefit Plan Review – September 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions