The Regulation: 29 CFR § 2560.503-1 Claims procedure.
(h)Appeal of adverse benefit determinations -
(4)Plans providing disability benefits. The claims procedures of a plan providing disability benefits will not, with respect to claims for such benefits, be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless, in addition to complying with the requirements of paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this section, the claims procedures -
(i) Provide that before the plan can issue an adverse benefit determination on review on a disability benefit claim, the plan administrator shall provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) in connection with the claim; such evidence must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided under paragraph (i) of this section to give the claimant a reasonable opportunity to respond prior to that date; and
(ii) Provide that, before the plan can issue an adverse benefit determination on review on a disability benefit claim based on a new or additional rationale, the plan administrator shall provide the claimant, free of charge, with the rationale; the rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided under paragraph (i)of this section to give the claimant a reasonable opportunity to respond prior to that date.Under the newly revised ERISA benefit claims regulations, claimants will have a right to review and respond to new evidence considered, relied upon or generated during the appeal. That evidence must be provided to the claimant sufficiently in advance of the date by which the claimant must be notified of the decision to allow the claimant to respond prior to that date. 29 CFR 2560.503-1(h)(4)(i). Before a plan adjudicator can issue an adverse determination based on a new rationale, it must provide the rationale, again sufficiently in advance of the date by which the claimant must be notified of the decision to allow the claimant to respond prior to that date. 29 CFR 2560.503-1(h)(4)(ii).
The need for this rule is straightforward. The statute provides for a full and fair review of an initial adverse determination, and the notice of the adverse determinationd must set forth the reasons for the denial.
(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
29 U.S. Code § 1133. If a plan adjudicator bases a denial on appeal on either new evidence or a new rationale, then that new evidence or rationale obviously was not in the initial denial. That would render the initial denial did not comply with the ERISA statute set forth above. This revision of the regulation explicitly prohibits this practice by claims adjudicators.
The DOL, in its Supplementary Information to the new revisions, addressed the criticism of this provision that it could create an ‘endless loop’ of review and re-review that would be costly and time-consuming. Interestingly, this ‘criticism’ suggested that such an endless loop is a problem for the plan adjudicator. In practice it is a problem for the claimant. This is something that any lawyer who handles these claims has encountered: The lawyer refutes each and every reason given in an initial denial, only to have the plan adjudicator obtain a new third party review by a physician or other expert, and/or provide a reason for the denial on appeal that was nowhere in the initial denial. If the claims adjudicator gives an opportunity for a voluntary appeal, the lawyer is left with the prospect of spending more time and perhaps having to have the treating physician or other treating professional review and comment on the new third party report. Of course, the plan adjudicator can and almost invariably does just go and get yet another third party review which becomes the new basis for a denial of the voluntary appeal.
The DOL response to this plan criticism of the endless loop from the perspective of the plan adjudicator gets to the cynical nature of the ‘criticism’:
“The fiduciary obligation to pay benefits in accordance with the terms of the plan does not require a fiduciary to endlessly rebut credible evidence supplied by a claimant that, if accepted, would be sufficient to justify granting the claim. In fact, an aggressive claims processing practice of routinely rejecting or seeking to undermine credible evidence supplied by a claimant raises questions about whether a fiduciary, especially one operating under a conflict of interest, is violating the fiduciary’s loyalty obligation under ERISA to act solely in the interest of the plan’s participants and beneficiaries.” Federal Register/Vol. 81 No. 243 at 92326.
For lawyers handling these claims, this provision – and the commentary quoted here – should limit what those lawyers tend to think of as a game of whack-a-mole that is endlessly frustrating.
A note on the way the new provision would work. The DOL Supplementary Information describes the process as one in which the plan adjudicator would send any new evidence or rationales to the claimant once she determines that she is going to deny the claim on appeal based on the new information or rationale. This must be done during the 45 day review period or at most during the second 45 day period that a plan adjudicator may take under ‘special circumstances.’ 29 CFR 2560.503-1(i)(3)(i). This revision maintains the efficient adjudication of claims, but it also incentivizes plan adjudicators to provide all of its reasons for its decision in the initial denial and dissuades them from attempting to win a game of attrition in which they can always pay for one more third party opinion to justify a denial.
Disclaimer: The information you obtain in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship.