1. Know the Difference Between individual policies and group policies.
When you ask or when it comes up that a claimant has a disability insurance policy, the first question is: is it a group policy or an individual policy?
If it is a plan offered by an employer or an employee organization like a union, it is a group policy. These group plans are considered employee benefits and are governed by ERISA unless the plan falls into one of a few narrow exceptions.
If your claimant purchased a policy directly from an insurer, then it is an individual policy, which means it’s just a state law contract subject to state law and insurance regulations.
2. If it’s a group plan, try to determine if it may be exempt from ERISA.
Generally, private employer sponsored or endorsed plans are ERISA governed. ERISA applies to employee benefits created by employers or employee organizations or both. § 1003. This covers almost any entity that would create and offer a plan.
There are five kinds of entities that are exempt from ERISA, only three of which typically come up: church plans, government plans and salary continuation plans.
ERISA defines government plans in its definitions section at 29 U.S.C. § 1002(32). The principle definition is a “plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” Whether an entity is an agency or instrumentality of a government requires the application of a multi-factor test that is beyond the scope of this guide.
If your claimant works for an organization like a hospital that is run as a religious non-profit, a new Supreme Court found that the pension plan of such a hospital is a church plan exempt from ERISA. Advocate Health Care Network v. Stapleton, 137 S.Ct. 1652 (2017). But it is not clear from the opinion how far-reaching the decision will be. You can read our case digest on this opinion here: https://www.lowandcanata.com/new-blog/2018/11/1/advocate-health-care-network-v-stapleton-cite-2017nbsp.
There is also an exception for wage or salary continuation programs. 29 CFR § 2510.3-1(b)(2). This typically applies to short term disability plans.
With respect to employee organizations, that language refers to such entities as unions and the like. But there are organizations that look like employee organizations but are not, and there are employee organizations that are not subject to ERISA, basically because they are not endorsing or administrating the insurance, just making it available to union or organization members. This must be analyzed under case law that is beyond the scope of this guide.
3. Know the ERISA statute and the regulations.
29 U.S.C. 18 Employee Retirement Income Security Program: https://www.law.cornell.edu/uscode/text/29/chapter-18
The regulations most pertinent relate to claims procedure, which can be found at 29 CFR 2560.503:
4. ERISA procedures and litigation is unlike any other.
ERISA is unlike any other area of law. The ERISA litigation procedures spelled out in the regulations do not require discovery, or a hearing, or depositions, or the other aspects of litigation that lawyers take for granted in every other kind of litigation, including administrative agency hearings.
In ERISA, the administrative process for all intents and purposes IS the hearing. The insurer or plan administrator simply makes a benefit decision based on the documents and other information in the claimant’s claim file. There is no hearing or trial. You simply submit what you want to submit during the appeal period (rules of evidence do not apply), and the administrator reviews it and makes a determination.
If your claimant is denied benefits and has exhausted the administrative process, then he or she can file suit in federal court. But you don’t get discovery or a trial there either. Whatever is submitted during the appeal process is part of the record that a federal judge will review. Anything not submitted, with few exceptions, will not be made part of the record later.
If suit is filed you get no trial and basically no discovery. The litigation essentially consists of a review of the administrative record by the judge.
Also, in all likelihood there is a so-called discretionary clause in the policy, which administrators write into the policy. These clauses grant the administrator discretion to interpret the plan and make decisions. If that is the case, the judge’s review is not de novo. It is just a review for an abuse of discretion by the plan administrator.
5. The Stages in the ERISA Claims Process
A person who wants to be awarded LTD benefits under an ERISA policy must first apply for benefits. The claimant will fill out forms, sign releases and gather certain information, while the insurer obtains the claimant’s medical records and reviews the application. The insurer will then make an initial determination, by way of a letter that explains the determination, the reasons for the determination and how your claimant can appeal. Once your claimant appeals, the insurer will again review the claim, including all additional information gathered and submitted by the claimant and the insurer itself. It will then make a decision on appeal. That decision is usually final, leaving the claimant only the option of filing suit in federal court if there is an adverse determination. There is sometimes a voluntary level of appeal that, as the name implies, is optional.
If your claimant has received an adverse determination, you should look at the end of the letter, which should state either that the claimant has 180 days to appeal, if it’s an initial denial, or that your claimant can file a federal suit under ERISA to challenge the adverse decision, if it was a final denial or a denial on appeal.
Here are some tips about each step of the process:
Applying for benefits
Usually the policy says you must file within a certain amount of time (90 days) from the end of the ‘elimination period,’ which is usually the time period for STD benefits. If that is past, file a claim anyway. Remember, these insurer/administrators are fiduciaries and are required to be reasonable.
Everything that goes into the claim file, including answers to questions on phone calls, poorly worded answers to question by the claimant, or worse, their doctors, will become part of the record that a judge would see if the matter ends up in litigation. A person with a valuable claim would be well advised to retain an ERISA litigation attorney to assist with submitting a powerful and complete application.
Most LTD policies do not provide for benefits right away. They have an ‘elimination period,’ usually 90 or 180 days. There is often a short term disability policy that works in conjunction with the LTD and provides for benefits during the elimination period.
Often STD policies are actually paid by the employer, and only administered by the insurer. If so, the STD is NOT governed by ERISA, if it falls within the wage or salary continuation exception.
If a claimant’s STD application is denied, she should still apply for LTD benefits. The time allowed for filing for LTD is usually not related to the plan administrator’s decision to grant or deny STD benefits, so don’t get caught up on the STD and forget to file LTD.
Also, there may be a separate application for LTD or the insurer may automatically open an LTD claim. Claimants should find out from his or her employer.
Dealing with an initial adverse determination
A denial will be in letter form, advising the claimant of the decision, the reasons for the decisions and what the claimant can do to challenge an adverse determination. This is ground zero for analyzing any ERISA benefits denial or termination.
If the claimant has received an adverse determination, is the adverse determination a denial of benefits or a termination of benefits?
When a person first becomes disabled, he or she submits an application for benefits. If the insurer denies the application, then this is called a denial. If the insurer accepts the claim and pays for some period of time and then stops payment, it is called a termination of benefits. The procedure for appealing is the same, but the issues are different. Most importantly a termination may relate to a change in definition in the policy, or may simply be because the insurer cooked up some reason to say that the claimant is no longer disabled.
If the claimant has received an adverse determination, she needs to know if the adverse determination is an initial determination or a decision on appeal.
This is an important question to ask early. If the adverse determination is an initial determination, then the claimant can appeal it, taking the time to submit powerful evidence of disability, including affidavits, sworn statements of the claimant, treating physicians, friends and family, benefit awards and files from social security or other agencies, IMEs, neuropsychological evaluations, etc. If it is an adverse, or final determination, then the claimant’s only remedy is filing suit in federal court, where a judge will make a decision based, with few exceptions, on a review of the insurer’s claim file and decision.
If it is an initial denial, the claimant MUST submit a timely appeal or she will be forever barred from seeking judicial review of the adverse determination.
The regulation at 29 CFR 2560.503-1(h)(4) provides that the claims procedure of a plan providing disability benefits will not be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless the claims procedures comply with the requirement of 29 CFR 2560.503-1(h)(3)(i).
That regulation in turn requires a plan to provide claimants at least 180 days following receipt of a notification of an adverse benefit determination within which to appeal the determination. Because of these regulations, virtually all ERISA-governed disability plans contain a provision that an appeal must be filed within 180 days of receipt of an adverse benefit determination.
The federal circuits have uniformly decided that they do not have jurisdiction over ERISA actions in which the claimant has failed to file a timely appeal. The courts have reasoned that a claimant must first exhaust her administrative remedies before repairing to the federal courts in search of a remedy. Since submitting a timely appeal is the remedy for a claim that has been denied, a claimant who has failed to appeal her claim has not exhausted her administrative remedies. So she cannot go back to the insurer because she has failed to appeal in time, but she can’t get relief at court because she has not exhausted her appeal. Her claim is dead.
If it is a final determination
If a claimant has already been denied or terminated and has handled the appeal without a lawyer, this is very problematic. The record is closed and the insurer will no longer accept any more documents or other information, and it is extremely unlikely that the claimant has packed the claim file with enough ammunition to file a lawsuit and win a reversal. A lawyer reviewing the case for possible litigation would need to obtain a copy of the claim file from the insurer and would need to analyze it in order to determine if there is any chance for success at court.
6. Determining the Monthly Benefit Rate
The benefit rate is the amount of the monthly benefit a claimant would be entitled to receive if disabled under the policy. It’s typically 60% of his or her monthly earnings. There may be an alternative minimum amount and maximum amount.
Most disability policies offset many other kinds of monthly disability benefits. Often this makes a very good claim not worth pursuing financially. If the benefit rate is $2,400 a month but the claimant has SSDI benefits of $2,300 a month, then the policy is only worth $100 a month. SSDI benefits are almost always an offset. Moreover, the claimant almost always is obligated to apply for SSDI. Most policies provide for an estimate and will deduct from LTD benefit of SSDI even if they haven’t gotten it. We get many potential claimants with low paying jobs who are receiving SSDI and as a result their LTD policy is all but worthless.
Workers’ Compensation benefits are also almost always an offset. These benefits may completely offset the LTD benefit (except for any monthly minimum), since both are likely to be set at 60% of the workers’ earnings. Most policies also address the treatment of any workers’ compensation settlement. The policy should address how that is calculated. Often the award is prorated over the life of the policy to determine a monthly offset rate. Obviously there needs to be strategy around this issue if a claimant has both a workers’ compensation claim and a LTD claim.
7. Limitations and Exclusions
Most policies limit the award of benefits to two years for disabilities caused or contributed to by a mental illness. Others limits benefits to two years for diseases like fibromyalgia or chronic fatigue syndrome, or disabilities caused or contributed to by drug or alcohol abuse.
Some policies exclude coverage for self-inflicted injuries, occur during a terrorist attack, or is the result of drug or alcohol abuse.
Most policies also provide for reimbursement for any third party recovery.
Most policies allow the insurer to recover any money received through an action against a third party. This is the subject of a number of Supreme Court cases and must be evaluated in a way that is beyond the scope of this guide.
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