In this several part Blog Series entitled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health and disability claim, from navigating a claim, handling a claim denial and through preparing a case for litigation. In Part Three of this Series, we discuss the roles of various Administrators, the administrative record and the laws requiring Administrators to provide their records to a claimant.
Two different entities manage an ERISA plan, the Plan Administrator and the Claims Administrator. Often times, the two roles are performed by different entities. The Plan Administrator manages and sponsors the plan and must ensure that the plan complies with applicable regulations. The Plan Administrator is often the participant’s employer. Aside from electing some initial benefits and payroll deductions, the participant rarely interacts with the employer in its capacity as the Plan Administrator.
Among its various duties, the Plan Administrator must maintain a Summary Plan Description (“SPD”). The SPD tells plan participants what benefits the plan provides, how to participate in the plan, how to claim benefits and other details of the plan’s operation. The Plan Administrator must also prepare a summary annual report. This report addresses the financial status of the plan.
The Supreme Court has held that a disclosure in the SPD can not necessarily be enforced as part of an ERISA plan. As the Supreme Court explained in CIGNA Corp. V. Amara, 563 U.S. 421, 437 (2011), “The syntax of [ERISA], requiring that participants and beneficiaries be advised of their rights and obligations ‘under the plan,’ suggests that the information about the plan provided by those disclosures is not itself part of the plan.” (Emphasis in original). This is a clear delineation between an SPD and a plan. The SPD is useful and necessary, but, when in doubt, a beneficiary needs to request a copy of a plan itself.
In contrast to the Plan Administrator, the Claims Administrator addresses the actual requests for benefits filed by plan participants. Participants contact the Claims Administrator when they seek their life insurance benefits, disability insurance benefits, death and dismemberment insurance benefits, etc. Usually, a third party that specializes in claims administration, like an insurance company, serves as the Claims Administrator.
Sometimes, the same entity serves as the funding source for claims and Claims Administrator or a Plan Administrator may self-fund a plan and hire a Claims Administrator or Third-Party Administrator to handle claims. If the two roles are performed by the same entity, then a conflict of interest may arise once a claim is made. For example, if an entity such an insurer is the funding source of the benefits and is given the ability and discretion to decide whether claims are payable, there will exist a conflict of interest. If a dispute over benefits arises, such a conflict may have ramifications in litigation and will often make a court disinclined to believe that the Administrator’s actions were in good faith.
The records maintained and developed by the Administrators serve a critical role in the ERISA context. Unlike most non-ERISA litigation, courts decide ERISA insurance and pension claims almost entirely on the administrative record. The administrative record consists of all documents in the Claims Administrator’s files on a particular beneficiary. These will include medical records, applications for coverage and benefits, a copy of the plan, internal notes from the Administrator’s employees, denial letters and other records relevant to the claim. A claimant must be careful to make certain that the administrative record contains all relevant documents. In lawsuits over ERISA benefits, there are rarely depositions or live testimony before a judge. Often times, the court will not even hold an oral argument. Each side simply submits its written briefs, and the judge rules. Given this reliance on the administrative record, a claimant must know what the record contains at each stage of the dispute. It is vitally important that a claimant include in the Administrative Record all appropriate documentation to support a claim. Hiring an experienced attorney is often important to make sure an ERISA appeal of a denied insurance claim is properly done.
ERISA law, 29 U.S.C. Section 1133, states that “every employee benefit plan shall – (1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant[.]” Once a beneficiary receives such a notice, they, or their attorney, should promptly request all documents applicable to their claim. The Administrators must furnish beneficiaries with virtually all documents relevant to a claim. 29 C.F.R. Section 2560.503-1(h)(2)(iii) states that: “a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” The requirement that Administrators provide a beneficiary with relevant documents is quite broad. At its broadest, a beneficiary could obtain copies of internal notations made by the Administrators’ employees, relevant emails, applications for benefits, plan documents, and most other documents that have a connection to the claim. The Ninth Circuit has even ruled that the attorney-client privilege, which usually shields communications between an attorney and client, does not apply to communications between an insurer and counsel before a claims decision is made based on the “fiduciary exception” to the attorney-client privilege in ERISA matters. See Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 930-931 (9th Cir. 2012) (“The duty of an ERISA fiduciary to disclose all information regarding plan administration applies equally to insurance companies as to trustees.”). The regulations allow the beneficiary to examine all aspects of the claims process. A Claims Administrator cannot simply deny a claim and then refuse to explain or provide its reasoning and basis.
If a Plan Administrator refuses to provide the documents in question, then it expose itself to potential civil penalties. 29 U.S.C. Section 1132(c)(1) requires that an Administrator mail a copy of the requested materials within 30 days of the request. If the Administrator fails to provide the documents, then the Administrator may become liable for $110 a day starting on the 31st day or the date the Administrator refuses to comply, whichever is sooner. Courts may also order other relief deemed proper. The $110 a day penalty provides only a minor incentive for an Administrators to provide the documents sought by the beneficiary. It provides enough of an incentive that egregious refusals to provide documents are rare. The documents sometimes arrive after the 30 day deadline but Administrators generally provide the majority of the documents requested.
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