Federal Appeals Court Penalizes MetLife For Failure to Follow ERISA Claim Procedures
On April 12, 2016, the U.S. Second Circuit of Appeals issued a decision which significantly impacts how group insurance cases are assessed by courts. In Halo v. Yale Health, the court considered a situation where a health plan administrator failed to include all of the required information in its denial letter. The Department of Labor has regulations that require administrators to tell plan participants specific information. In the Halo case, the health plan failed to do that.
The result, according to the court, was to lessen the burden for a participant or beneficiary to win an appeal in court. Changing what is called the ERISA standard of review, the court held that a reviewing court does not have to defer to the decision of the administrator when it fails to follow procedures. This level of deference is called the “abuse of discretion” standard of review. It requires a plan participant to prove by overwhelming evidence that an administrator’s decision was completely unreasonable. Under that standard, a federal judge may not reverse the administrator just because they do not agree with the administrator’s decision. However, the Circuit Court said that an administrator that fails to follow procedures no longer gets the benefit of the abuse of discretion standard.
Instead, the Halo court ruled that the decision to deny benefits must be reviewed under the de novo standard of review. This is a very different way that a court reviews a denial. Under the de novo review, the Judge’s decision whether the administrator is right or wrong is what controls. The participant does not have to show that the administrator was unreasonable or show an overwhelming amount of evidence. In the court’s words:
Specifically, we hold that, when denying a claim for benefits, a plan’s failure to comply with the Department of Labor’s claims procedure regulation, 29 C.F.R. 2560.503-1, will result in the claim being reviewed de novo in federal court, unless the plan has otherwise established procedures in full conformity with the regulation and can show that its failure to comply with the regulation in the processing of a particular claim was inadvertant and harmless. (emphasis in original).
This is a big shift. Of course, the court gave the administrator/insurance company some wiggle room by adding the “inadvertent and harmless” option, but in the end, a de novo standard of review is much more like what you might see on television for a typical case. ERISA cases are usually not handled like a typical case because of the abuse of discretion standard of review. De novo review changes the playing field, making it fairer. It is fairer, because there disability insurance company’s decision does not survive only if it is reasonably like in most ERISA cases. Instead, in a de novo review case, the judge makes a decision based on the evidence, without giving any deference to the LTD insurer’s decision.
The Second Circuit decided that the ERISA claim regulations matter. An insured person – whether it is group health, group disability, group life, etc. – is entitled to be treated properly under the federal procedures, and a disability plan administrator has to follow the procedures. The Second Circuit’s decision requiring the de novo standard of review puts teeth in the the Department of Labor’s regulations.