New ERISA Regulations: “Deemed Exhausted”

Unfortunately, the world doesn’t stop turning once you or your loved one becomes disabled. The bills keep coming, and great financial and emotional hardship follows quickly if there is no money available to pay them. Having your claim for disability benefits denied by the insurance company inevitably complicates things even further. The Department of Labor (“DOL”) has recently modified the regulations governing ERISA disability claims. One of the updated claim procedures permits claimants to bypass the administrative process and immediately proceed to litigation if the plan administrator is not playing by the rules.

Under ERISA, a claimant may not file suit until all administrative remedies have been exhausted under the Policy. When a claimant is denied benefits, they are required to “exhaust” the plans internal administrative review process prior to pursuing litigation. This typically involves going through an internal administrative appeal process with the same plan administrator that just denied your benefits. Depending on the governing plan, some claimants may have to appeal more than once prior to pursuing litigation. This ideally allows the plan administrator the opportunity to correct a mistake and prevents unnecessary disputes from overflowing into the court system. However, if the plan administrator is not playing fair, the appeals process can be time-consuming, confusing, stressful, and ultimately lead nowhere. The length of this process can be exacerbated when the plan fails to adhere to the claims procedures set forth by the DOL.

To protect claimants, the DOL has now created the “deemed exhausted” rule. This rule provides that a claimant will be considered to have constructively exhausted his or her administrative remedies and is permitted to proceed to litigation when the plan does not adhere to the claims procedures outlined in 29 CFR § 2560.503-1. Under this new rule, if a disability plan administrator fails to comply with the DOL’s claims procedure requirements, the claimant cannot be prohibited from filing suit on a denied claim. This is true even when the appeals process has not yet been exhausted. In addition to permitting a claimant to immediately pursue litigation, the new regulations also take away one of the plan administrators most powerful weapons: the discretionary standard of review.

To protect its deferential standard of review, the plan administrator will likely argue the doctrine of “substantial compliance” should apply. If the court decides that the plan administrator “substantially complied with the regulations” and that “the process as a whole fulfills the broader purposes of ERISA and its accompanying regulations,” its failure to meet the DOL’s procedural requirements could be overlooked.

Although the new regulations may permit a claimant to bypass a seemingly fruitless appeal process and provide for a more favorable standard of review, one must proceed with caution. The “deemed exhausted” rule may not apply if the plan can show:

• The violation was de minimis (“minor”).
• The violation does not cause, nor is likely to cause, prejudice or harm to the claimant.
• The violation was for a good cause or due to matters beyond the control of the plan.
• AND (iv) the violation had occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.

If the court decides the plan administrator either did not fail to adhere to the claim procedures or said violation was “minor” and “non-prejudicial” to the claimant, the new regulations provide it will be remanded (“sent back”) to the plan administrator for review and treated as re-filed on appeal. This means the claimant must go through the appeal process again and submit evidence of disability to the same company responsible for withholding benefits in the first place. Under this scenario, the road to financial recovery will be significantly longer than it could have been, increasing the financial burden placed on the claimant.

ERISA claims are complex and require thoughtful consideration and strategy at every step of the process. Capitan Law is focused on putting disability benefits back into the hands of deserving claimants. From start to finish, regardless of where your claim is at in the process, the experienced disability attorneys at Capitan Law can help you protect your rights and fight for the benefits you are entitled to. For a free legal consultation, please contact our law offices today by dialing 1-800-689-1056.