ERISA requires that beneficiaries whose claims have been denied appeal the denial to a named fiduciary of the ERISA plan before bringing suit. This gives the claimant and the fiduciary, usually an insurer, an opportunity to exchange relevant information, air their differences and try to resolve those conflicting perspectives without bothering federal judges who are busy doing other things. This appeal process becomes especially critical because generally the federal judiciary defers to the pre-litigation decision-maker in ERISA cases. The mandatory pre-litigation appeal is usually the best shot an employee has to get his claim paid. Claimants who don’t recognize the importance of presenting complete and high quality information to the insurer before filing suit will usually dramatically reduce their chances of success in litigation. Recognizing this, the Department of Labor has developed and implemented extensive regulations to govern the claims procedure process for ERISA. Those regulations, found at 29 C.F.R. §2560.503-1, provide a framework for claimants and insurers to work together to assure a “full and fair review” of denied claims. Courts state that this pre-litigation appeal process must involve a meaningful dialogue between the parties and seek to get to the truth of whether a claim is meritorious. All this is background to the Tenth Circuit decision in Metzger v. UNUM Life, ___ F.3d ___ (10th Cir. 2007), 2007 U.S. App. LEXIS 3755 from last week. Sarah Metzger filed a disability claim with UNUM. The insurer denied it arguing that Metzger was not under the regular care of a doctor and did not qualify as disabled under the terms of the insurance policy. She appealed the denial and submitted additional medical records in support of her claim. In response, UNUM sent the file out for review to an MD and a vocational consultant. Both concluded that UNUM’s original decision was correct and maintained denial of Metzger’s claim. Metzger’s attorney had requested that UNUM send to him a copy of any new reports from experts UNUM consulted before making its final decision in order that he and Metzger could respond to information from those experts. However, UNUM failed to do this. In litigation, Metzger argued that UNUM had improperly denied her claim and that it had failed to provide her with a full and fair pre-litigation review as required by ERISA. Specifically she asserted that the claims procedure regulations required UNUM to inform her of the information it obtained in evaluating her appeal and give her a chance to respond to that information before UNUM made its final appeal decision. The trial court rejected this argument and ruled that Metzger had failed to prove she was disabled. Metzger appealed to the Tenth Circuit and that court affirmed the trial court’s ruling. The Tenth Circuit held that ERISA’s claims procedure regulations require an insurer to provide, upon request, access to information it relied on in making its decision at only two times in the pre-litigation period: after the initial denial but before the appeal process begins and after a final decision on appeal. To require disclosure of these materials during the appeal process and before making a final decision, “. . . would set up an unnecessary cycle of submission, review, re-submission, and re-review. . . . So long as appeal-level reports analyze evidence already known to the claimant and contain no new factual information or novel diagnoses, this two-phase disclosure is consistent with ‘full and fair review’ [as mandated by ERISA].” I have three thoughts. First, this language provides important limitations on the scope of the Tenth Circuit holding that disclosure is mandated at only two points in the pre-litigation process. The information the insurer is evaluating on appeal must already be known to the claimant. In addition, if the insurer bases its decision on appeal on a different reason to deny the claim (as opposed to different facts supporting the same reason initially presented), the limitations on disclosure do not apply. Given these restrictions, the holding of Metzger is quite limited. It is an unusual appeal in which the insurer does not either obtain evidence not previously known to the claimant or provide different reasons for maintaining denial from those presented when the claim was initially considered. Often the insurer does both these things on appeal. Second, and more fundamental, the rationale the court relies on for not giving the claimant a chance to respond to information gathered by the insurer in considering the pre-litigation appeal is unpersuasive. Metzger acknowledges that providing a full and fair review requires giving the claimant the opportunity to 1) know what evidence the decision-maker relies on, 2) address the accuracy and reliability of that evidence and 3) present evidence the claimant wants to decision-maker to consider on appeal. For example, suppose an insurer obtains a review of an appealed claim from a physician without knowing that the reviewing doctor had his license to practice medicine revoked ten years earlier. If the identity of the reviewing physician is not made available to the claimant upon request, how can the claimant ever bring this salient fact to the insurer’s attention before the insurer makes a final decision and the appeal process ends? It’s not hard to play out many other scenarios where the refusal to provide relevant information to the claimant during the pre-litigation appeal process may result in the insured being deprived of her right to a full and fair review. Finally, the endless review cycle bogeyman the decision describes is simply made of straw. Attorneys and judges deal with the same practical problem every day in how they handle the examination of witnesses. The scope of the examination is limited by drawing ever tighter circles around the subject matter of the examination. Rarely do rounds of direct and cross examination exceed two or three cycles. Projected onto the ERISA pre-litigation claim and appeal process, the same paradigm would effectively limit both the time and cost of the appeal procedure. The due process protections of ERISA’s mandated pre-litigation review would also be preserved rather than undermined as is the effect of Metzger. What’s not to like? Sure, there is the prospect that a few claims that are currently being improperly denied may get paid. But in so doing, justice will be served.
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