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In Challenge to LTD Benefit Termination, Court Looks to Claims Procedure Regulations From Time of Initial Claim



Smith v. Hartford Life and Acc. Ins. Co., 2019 WL 5105321 (E.D. Ky. 2019)

After ceasing work due to health issues in 2001, a participant received benefits under her employer’s long-term disability (LTD) plan until 2018, when the plan administrator terminated payments following a periodic evaluation of the participant’s disabled status. When the participant appealed, the plan administrator notified her that it was extending the appeal review period, and ultimately upheld the termination. The participant sued, contesting the denial of continued benefits and asserting that the court should review the administrator’s decision under the “de novo” standard of review rather than the deferential “arbitrary and capricious” standard. Although the plan contained language granting the administrator discretionary authority (necessary for application of the deferential standard), the participant argued that the extension notice did not meet the timing or content requirements of the DOL’s claims procedure regulations, thus triggering de novo review.

The participant highlighted that the regulations applicable to disability claims filed after April 1, 2018 (see our Checkpoint article), provide that if a plan administrator fails to strictly comply with the requirements, the participant is deemed to have exhausted the plan’s claims procedures. Moreover, the claim is deemed denied without the exercise of discretion by an appropriate fiduciary. Since deferential review applies only to decisions made with discretionary authority, such a deemed denial would be subject to de novo review. The plan administrator countered that, although the denial occurred after April 1, 2018, the court should follow an older version of the regulations since the original claim was made earlier.

The court agreed, explaining that, after an initial claim is filed, subsequent interactions are claims only when they are new requests for benefits—which was not the case here. Accordingly, the court looked to the regulations in effect in 2001. Those regulations provided that failure to furnish a timely decision resulted in a deemed denial, but did not specify that the denial was deemed made without the exercise of discretionary authority. And, according to the court, case law applying those regulations held that the “deemed denied” language did not affect the standard of review. Despite recognizing the logic of the view that failure to comply with the claims procedure rules should result in the forfeiture of deferential review, the court declined to overturn that precedent, and ordered that the arbitrary and capricious standard be applied.

EBIA Comment: The outcome for the plan administrator was favorable, but the case demonstrates the difficulties inherent in the fact that old regulations continue to apply, depending on when a claim was initiated. For more information, see EBIA’s ERISA Compliance manual at Sections XXXV.B (“Compliance Considerations and Consequences of Noncompliance”) and XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”). You may also be interested in our upcoming webinar, “Claims & Appeals Rules for Group Health and Disability Plans: Translating Rules into Best Practices(live on 11/21/19).

Contributing Editors: EBIA Staff.

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