LTD Carrier That Exceeds 45 Day Review Period is Held to Stricter Standard

After a claimant for long-term disability benefits is denied by the insurer and brings suit under the Employee Retirement Income Security Act of 1974 (“ERISA”), the parties often contest the standard of review that the court should adopt in reviewing the insurer’s actions. The court’s review under the de novo standard allows the court to supplant its own reasoning for that used by the insurer in denying benefits. In contrast, the arbitrary and capricious standard requires the court to give more deference to the insurer’s decision to deny LTD benefits. A denial of LTD benefits is normally to be reviewed under a de novo standard unless there is specific language in the LTD insurance policy that gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. There is an exception to this rule, however, when the LTD insurer does not render its decision on the claimant’s appeal in a timely fashion.

Pursuant to the Department of Labor regulations of ERISA, a plan administrator initially has 45 days in which to decide an appeal of a denial of disability benefits. A plan administrator may also extend the period of time by sending the claimant a written notice that includes an explanation of the “special circumstances” requiring an extension. In enacting the new regulations, the Department of Labor expressly rejected making “good faith compliance … the measure for requiring administrative exhaustion,” and stated that “[t]he Department’s intentions in including this provision in the proposal were to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference.” At least one district court has held that, in light of the Department of Labor’s commentary regarding its new regulations, no “substantial compliance” exception should be read into the regulations. In another court it was noted, “an administrator who fails to render a timely decision can only be in substantial compliance with ERISA’s procedural requirements if there is ongoing productive evidence-gathering process in which the claimant is kept reasonably well-informed as to the status of the claim and the kinds of information that will satisfy the administrator.”

ERISA regulations are designed to make sure that a claimant for disability benefits receives an expedient review of his or her claim. A timely review is critical at such a time when the claimant will rely on the disability income to purchase necessities and pay bills.

Absent a delay-causing exchange, for example, about the need to have the claimant subjected to an independent medical examination, or tardiness on the part of the claimant or an independent medical professional, the insurer must strictly comply with the 45 day deadline in rendering its decision. Failure to do so will give the claimant the advantage of an easier standard to show the court his or her entitlement to LTD benefits under ERISA.

Alan Olson writes this web-log to provide helpful information regarding long-term disability cases. He practices long-term disability law throughout the United States from his offices in New Berlin, Wisconsin. Attorney Olson may be contacted at [email protected] with questions about the information posted here or for advice on specific disability benefit claims.


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