Insurers Can't Tie Up Claimants Indefinitely
ERISA’s claims procedure regulation, 29 CFR §2560.503-1, outlines specific time limits within which ERISA fiduciaries must carry out both the initial claims determination and a review of an appeal of a denied claim. Under the regulations in place before 2002, the time frame within which fiduciaries must review and decide the appeal of a denied disability claim was a maximum of 120 days. The regulations have since reduced that time frame to 90 days.
In any event, it is not uncommon that insurers and other ERISA fiduciaries fail to comply with these time limits. As a result, the pre-litigation appeal process can stretch on and on while claimants die on the financial vine. What remedies does ERISA provide when this occurs? The pre-2002 claims regulations state that the failure to render a decision within the 120 day time frame results in a claim being “deemed denied.” But what does this mean?
Bonny Rafel, accomplished ERISA claimants’ counsel out of New Jersey, obtained a ruling from the U.S. District Court for New Jersey last week in the case of Ziesemer v. First UNUM, 2007 U.S. Dist. LEXIS 52603 (D. N. J. 2007). It holds that once the 120 day appeal period expires without a decision from the insurer, a claimant is free to pursue her case in litigation and the insurer loses the ability to divest the claimant of that right. You can find the Ziesemer decision in the website library here.
Lana Ziesemer was a commodities trader in New York. She developed neurotoxic poisoning in 1999 and was unable to continue in her own occupation. She applied for and received disability benefits through March, 2004. At that time, First UNUM, the disability insurer for her group policy, denied continued claims.
Ziesemer immediately appealed the denial of benefits. However, the insurer never provided a response to the appeal. Finally, Ziesemer filed suit. After an initial round of briefing and a decision by the court that ERISA applied to the case, the insurer asked the court to dismiss Ziesemer’s case on the grounds that she had not exhausted her pre-litigation appeal obligations or, in the alternative, to send the case back to First UNUM for its additional consideration of, and decision on, the pre-litigation appeal on which it had never issued a final decision. The court denied both requests.
First, the court found it undisputed that no decision had been provided on Ziesemer’s appeal within the 120 days the regulations required. About 90 days into the 120 period, Ziesemer’s attorney wrote the insurer and indicated that if a decision on the appeal was not provided within the time frame the regulations required, she would prepare for litigation. Despite this, about a week before the expiration of the 120 day time frame, First UNUM sent a letter to Ziesemer’s counsel indicating it was still waiting for the results of a request for an outside expert to provide the insurer with review of the file. It went on to state that in light of the fact that Ziesemer had not initiated litigation, the insurer would continue its review of the appeal.
Approximately two weeks later, and about a week after the 120 days had expired, the insurer wrote Ziesemer’s counsel and requested additional medical records. About a week after that, Ziesemer’s counsel wrote the insurer and revoked previous medical information authorizations Ziesemer had provided to the insurer. Two days later Ziesemer filed suit.
In responding to First UNUM’s motion to dismiss or, in the alternative, motion to remand the case to the insurer, Ziesemer argued that because the insurer had blown the 120 day time frame, the “deemed denied” language of the regulation meant that she had exhausted all pre-litigation appeal requirements under ERISA. The insurer presented a variety of arguments as to why Ziesemer had failed to exhaust her pre-litigation appeal remedies. Initially, it argued that the 120 days was tolled because it was continuing its investigation of the claim. Second, the insurer argued that it had substantially complied with the requirements of ERISA’s claims procedure regulations and, thus, it was improper for the court to strictly hold it to the 120 day time frame.
In rejecting these arguments Judge Stanley R. Chesler ruled that equitable tolling did not apply without some showing of fault on Ziesemer’s part that contributed to First UNUM’s inability to comply with the 120 day requirement. Rather, the facts indicated that the insurer simply failed to satisfy ERISA’s deadline despite Ziesemer’s letter before the 120 days expired warning of litigation if the decision was not provided within the required time frame.
As for the substantial compliance argument, the court ruled that it was difficult to see how the insurer had even substantially complied with the claims procedure requirement. After all, as of the date of the court ruling, three years after Ziesemer’s pre-litigation appeal was filed, First UNUM had not yet issued a decision on it!
Next, Judge Chesler pointed out that other courts discussing this issue had done so in the context of ruling that where an insurer had substantially complied with ERISA’s claims procedure requirements, grounds did not exist for an automatic reversal of a decision to deny benefits. But that was a different issue than Ziesemer’s case presented. Here the court refused to use the doctrine of substantial compliance as a basis to rule that the claimant had not exhausted her pre-litigation appeal requirements:
“. . . if the doctrine of substantial compliance is allowed to delay accrual of the right to sue, it permits plan administrators to indefinitely tie up claimants with ongoing requests for information. While substantial compliance may be a useful doctrine when reviewing an administrator’s decision, . . . it cannot be used to delay accrual of the right to commence litigation.”
Finally, the court made quick work of the insurer’s argument that the court should remand the case to the insurer for additional consideration of Ziesemer’s claim. The argument failed “as a matter of common sense.” The right of a claimant to proceed into litigation would be meaningless if an insurer was able to get a court to order the claim be remanded for an additional wait at the hands of the insurer. “Having accrued the right to sue, and having commenced suit in this Court, there can be no question that Plaintiff has the right to have her controversy adjudicated in this Court.”