CMS Announcements on Fixed Percentage Option for Settlements of $5,000 or less, $300 Threshold Limit for Reimbursement, and Identification of Contractor for Medicare Secondary Payer Recovery

DRI’s Life Health, Disability and ERISA Claims Seminar returns to Chicago and offers practical guidance for claims and legal professionals. This seminar provides unparalleled presentations by distinguished inside and outside counsel, as well as a member of the judiciary and medical experts. The expert faculty will focus on practical pointers, checklists and best practices that can be utilized daily. The 2010 seminar offers more continuing legal education than ever before. The first day of this program includes three parallel tracks of focused programming (Life, Health and ERISA). Attendees may choose to attend one track or move between them at one-hour increments. Networking opportunities will abound. Join colleagues for dine-arounds led by in-house counsel and committee leadership in some of Chicago’s finest restaurants. Nine insurance companies plan to hold invitation-only counsel meetings in conjunction with this seminar. Meet the chief counsel for the Illinois Department of Insurance, who will speak at a breakfast meeting for inside counsel. Walk away having attended the preeminent seminar for the life, health and disability industry.

Click here for brochure: http://tinyurl.com/yg3889t

What is all the talk about the Medicare Secondary Payer Statute and the Medicare, Medicaid and SCHIP Extension Act (MMSEA)?  Do you and your clients know what is required of you?  DRI has established a Task Force which is putting together educational and practical tools for DRI members to help make sure that you and your clients are prepared to comply with the requirements imposed by this statute and the regulations. 
 
As a first step, DRI has put together three part webcast to educate you about the statute and regulations, their impact on litigating personal injury claims, the data reporting elements and requirements mandated in the MMSEA, and a final comprehensive educational overview of the statute and the challenges the regulations present.  Each webcast will address a different topic.  They are scheduled for August 26, September 10 and September 17, 2009.  You can register for these webcasts at DRI.org.
 
The Task Force is also preparing a presentation and materials to be made available for SLDOs to use to educate their members, a Best Practices Guide, and working with the Medicare Advocacy Recovery Coalition (MARC) on the national legislative level to try and modify some of the requirements to allow for a more reasonable approach to determining lien payments. 
 
Two articles addressing the statute and regulations have been published in the May and June, 2009 FTD and you should look for more to come.
 
If you would like more information about the DRI MSP Task Force, please contact

It is a well-established principle of insurance law that state law claims relating to employee benefits plans covered by ERISA are preempted. An equally-well recognized legal principle, though not often encountered in the area of insurance defense, is the Younger abstention doctrine, which provides that, in certain circumstances, a federal court should abstain from exercising jurisdiction over a matter if there are related, ongoing state proceedings. Younger v. Harris, 401 U.S. 37 (1971). These two principles are pitted against each other in the case of Colonial Life & Accident Ins. Co. v. Massachusetts Comm’n Against Discrimination (MCAD), 584 F.Supp.2d 368 (D. Mass. 2008).

In Colonial Life v. MCAD, the District Court of Massachusetts was faced with the question of whether the Younger doctrine should apply where the ongoing state proceedings involve a state agency investigating whether short-term disability coverage, offered as part of an ERISA employee-benefits plan, failed to comply with state anti-discrimination laws. The facts were as follows: Colonial Life issued a short-term disability policy to Carolyn Calderon, an employee of UMass Memorial Health Care. The policy was offered to and acquired by Ms. Calderon as part of UMass Memorial’s employee benefits package. Ms. Calderon submitted a claim for disability benefits based on a mental disability, which claim was denied on the basis of an express exclusion in the policy for disabilities caused by psychological or psychiatric conditions. Ms. Calderon filed a Charge of Discrimination with the Massachusetts Commission Against Discrimination (MCAD), alleging that Colonial Life and UMass Memorial had violated state disability discrimination laws by virtue of this express exclusion in the policy.

Colonial Life and UMass Memorial filed suit in Federal District Court, seeking to enjoin the MCAD from pursuing its investigation on the grounds that Calderon’s claims were preempted by ERISA. The MCAD responded with a motion to dismiss the case, on grounds of Younger abstention. And so the District Court set to work to determine which of two competing core legal principles – ERISA preemption or Younger abstention – would prevail in this case.

Younger abstention is a judge-made doctrine that arises from the case of Younger v. Harris, decided three years before the enactment of ERISA. In Younger, the defendant was charged with violation of California’s Criminal Syndicalism Act, based upon conduct that allegedly promoted socialism. The defendant had successfully obtained an injunction in the District Court, halting the pending state criminal proceedings on the grounds that his prosecution violated his Constitutional rights under the First and Fourteenth Amendments. The Supreme Court reversed, holding that because the defendant could have raised his Constitutional defense in the state proceedings, he had an adequate remedy and no injunction was necessary. The Supreme Court further held that comity dictated that the federal court permit the state to continue with its prosecution. Summarizing the holding, Younger abstention applies where there are ongoing state proceedings: (1) that are judicial in nature; (2) that implicate important state interests; and (3) that provide an adequate opportunity to raise federal constitutional challenges.

Numerous cases following Younger have attempted to interpret the applicability of the abstention doctrine. In New Orleans Public Service, Inc. v. New Orleans, 491 U.S. 350 (1989) (NOPSI), the Supreme Court identified a limitation on the scope of abstention. NOPSI involved an energy company’s efforts to prevent a local agency from countermanding a requirement of the Federal Energy Regulatory Commission by denying its rate request that would permit it to comply with those requirements. The lower federal courts held that abstention was proper and the case was appealed to the United States Supreme Court. The Supreme Court reversed, holding that the District Court should not have abstained in this matter. Although its ultimate holding was based upon a determination that the proceeding was not judicial in nature, the Court addressed the reach of the abstention doctrine, discussing an exception to abstention where preemption is “facially conclusive.”

In Colonial Life v. MCAD, Colonial Life and UMass Memorial relied upon the facially conclusive preemption exception to the abstention doctrine, which the First Circuit embraced in Chaulk Services, Inc. v. Mass. Comm’n Against Discrimination, 70 F.3d 1361, 1368 (1st Cir. 1995). The court in Chaulk adopted the language of NOPSI, holding that abstention is inappropriate where the claim of preemption is “facially conclusive” or “readily apparent.” The court reasoned, “no significant state interests are served when it is clear that the state tribunal is acting beyond the lawful limits of its authority.”

In light of this exception, the pivotal issue in the case became whether ERISA preemption was “facially conclusive” or “readily apparent.” Answering this question involved not only an analysis of the benefit plan at issue in this case, but also required consideration of whether the Americans with Disabilities Act (ADA) prohibits insurance companies from differentiating between physical and psychological conditions. This is so because, pursuant to its own terms, ERISA does not preempt state laws that are consistent with the mandates of federal law. As such, although Calderon’s claim before the MCAD was that Colonial Life and UMass Memorial had violated state anti-discrimination laws, the Court had to determine whether federal law, specifically in this case the ADA, would prohibit a benefit plan from making such distinctions. The First Circuit, however, had not ruled on this issue. The MCAD argued that because there was no definitive statement from the First Circuit, this was a novel legal question, and therefore preemption could not be “facially conclusive.” The MCAD’s position was that the Younger abstention doctrine prohibited the district court from even reaching the question of whether the ADA prohibits such a provision in an insurance policy, because to do so would be exercising jurisdiction over the matter.

The court declined to adopt the MCAD’s position with respect to facially conclusive preemption, noting that it “must not shirk its responsibility” to decide legal questions “simply because the law is complicated or novel.” The court found that the ADA does not bar entities from offering different benefits for mental disabilities than for physical ones, and therefore found it was facially conclusive that the claims asserted by Ms. Calderon were preempted by ERISA. As such, the court denied the MCAD’s motion to dismiss, and granted Colonial Life and UMass Memorial’s motion for injunctive relief.

This case is presently on appeal to the First Circuit.

Jessica H. Munyon
Mirick O’Connell
Worcester, Massachusetts
jmunyon@mirickoconnell.com

DRI's annual Life, Health, Disability and ERISA Claims Seminar law program will be in New York next week. It is not too late to sign-up. I have the honor of being Vice-Chairing the program which is loaded with a star-studded faculty. Topics from agent misconduct to annuity class actions will be covered. 7 companies are having counsel meetings, inlcuding Hartford and Aegeon. The networking opportunities are bar none with a luncheon Thursday and dine-arounds that night. There will be a special guest from at the coporate counsel breakfast - Marty Schwatzman, Head of the NYS Dept of Insurance Life Bureau will provide a few comments. I hope to see you there.

Daniel W. Gerber

Preemption (pree-emp-Shen), n. The principle (derivedfrom the Supremacy Clause) that a federal law can supersede or supplant anyinconsistent state law or regulation.

In a very recent 6-3 decision, turning on federal preemption of state law, theSupreme Court held in Wyeth v. Levine that state law consumer safety tortclaims are not preempted by the Federal Drug Administration’s approval of awarning label for the drug and regulations prohibiting changing the label toconform with state law.

In Wyeth, a Vermont jury found that the petitioner, Wyeth, the manufacturer ofthe drug Phenergan, had failed to provide an adequate warning of the riskinjecting the drug via “I.V.-push method” and awarded damages to Diana Levineto compensate her for the infection, and subsequent amputation of her arm. Thejury determined that Levine’s injury would not have occurred if Phenergan’slabel included an adequate warning. Notably, the label clearly warnedpractitioners to use "extreme care" when injecting the drug andexplaining that resultant gangrene requiring amputation are likely” to occurwith the IV-push method.

Wyeth’s attorney’s argued that Levine’s failure-to-warn claims were preemptedby federal law. Phenergan’s labeling had been approved by the FDA. The SupremeCourt rejected Wyeth’s arguments, holding that the agency’s “changes beingeffected” (CBE) regulation permits certain pre-approval labeling changes thatadd or strengthen a warning to improve drug safety, and there was no evidenceto suggest the FDA would have denied Wyeth's request to include a strongerwarning label. The Court also held that requiring Wyeth to comply with astate-law duty to provide a stronger warning does not interfere with Congress’purpose of entrusting an expert agency with drug labeling decisions because thehistory of the FDCA shows that Congress did not intend to preempt state lawfailure-to-warn actions.

In his dissent, Justice Alito noted, “This case illustrates that tragic factsmake bad law.” The jury was presented with the injury to the Plaintiff and notthe benefits to the untold numbers of individuals helped by the drug. Accordingto Justice Alito, “the real issue is whether a state tort jury can countermandthe FDA’s considered judgment that Phenergan’s FDA-mandated warning labelrenders its intravenous (IV) use ‘safe.’” Justice Alito’s dissent urged thatthis case represents, at most, a medical-malpractice claim, and should not be a“’frontal assault’ on the FDA’s regulatory regime for drug labeling” upsetting“the well-settled meaning of the Supremacy Clause and conflict pre-emptionjurisprudence.”

Some see this case as representing a potential increase in products liabilitycases against drug manufacturers. Whereas previously manufacturers could sell adrug with FDA approval under the assumption that the approval provided themsome liability protection, this case has the effect of nullifying thisprotection. Others see this case as a “strategic loss” for the drug companies .However, a ruling by the Supreme Court giving drug companies federal immunityfrom suits under state laws could have provoked a drastic, and worse, responsefrom the Democrat-controlled Congress. 

Golden Gate Association v. City and County of San Francisco (Case No. 07-17372, 9th Cir. March 9, 2009) involves a challenge on ERISA preemption grounds to a San Francisco law requiring all employers in the City to make mandatory contributions toward employee healthcare costs. The 9th Circuit reversed a District Court ruling that the law is preempted by ERISA. In denying Golden Gate's en banc rehearing petition eight Circuit Court Judges dissented from the court's decision not to rehear this matter en banc and issued a long opinion discussing why the majority is wrong. There's also a concurring opinion defending the majority's decision not to rehear the case. This decision creates a circuit split with the 4th Circuit's decision in Retail Industry Leaders v. Fielder case preemption issue holding that a Maryland state law imposing a similar employer mandate (albeit, only on employers of 10,000 or more employees in the state) was preempted by ERISA. Now that the Circuit Court denied rehearing, the matter is ripe for a petition for certiorari to the U.S Supreme Court.

In Creel v. Wachovia,2009 U.S. App. Lexis 1733(11th Cir. Fla. Jan. 27, 2009), the Eleventh Circuit reversed the grant of summary judgment in favor of Wachovia on the grounds that the plan did not specify the exact type of objective evidence required to support a claim of disability even though the plan provided a list of evidence required including "other forms of objective" evidence."

According to the Eleventh Circuit, Creel provided chart notes, diagnoses, and lab reports from multiple doctors identifying her migraines as physically-based, all of which were valid forms of OME under the plan and could serve as a basis for a diagnosis of migraines. Those documents, particularly those from two doctors, indicated she suffered from debilitating headaches, which had a neurological basis. Creel’s headache diary, as requested by Wachovia, corroborated the diagnosis of migraines and chronicled the degree to which they incapacitated her at regular albeit unpredictable, intervals. In addition, Wachovia never requested an independent medical examination (“IME”).

In assessing the reasonableness of the denial of benefits that involve some subjective elements such as migraines, the Eleventh Circuit Court explained that if the plan has no requirement that claimants provide a specific type of OME, the Court evaluates the reasonableness of the decision in light of the sufficiency of the claimant’s subjective evidence and the administrator’s actions. If the claimant has put forth ample subjective evidence, the Court looks at what efforts the administrator made to evaluate the veracity of the claim, with particular focus on whether the administrator identified any OME that would have proved the claim and on types of IMEs conducted.

The grant of summary judgment based on the conclusion that the plan permitted the administrator to require the claimant to produce objective evidence of her migraines was vacated and the case was remanded. Although, the Court found reversal was proper; it also determined that the record was insufficient to determine whether the migraines prevented Creel from performing any work. On remand, the district court could examine the extent to which the claimant was limited by her headaches.

In these uncertain economic times, people are looking closely at all aspects of their finances, including the management of their retirement plans.  Not only are plan participants concerned with their account balances, they and plaintiffs’ counsel are examining the underlying management and administrative practices of the plans themselves.  Occasionally, this examination leads to litigation and the accompanying discovery process, as participants seek to obtain recovery for perceived wrongs. It is here that the so-called “fiduciary exception” to the attorney-client privilege may come into play. 

Background

Communications between clients and attorneys are generally confidential, and cannot be divulged to outside parties without the client’s consent. Thanks to this protection, clients are encouraged to speak freely with their attorneys, knowing that the discussion is protected from discovery by one of the strongest privileges allowed under United States law. Attorney-client privilege is not without exception, however, and there are times when the client may have unknowingly waived privilege, or when the privilege simply does not apply. In the benefit plan world, an understanding of how the fiduciary exception to the attorney-client privilege works is essential.  ERISA plan fiduciaries and their counsel need to know what types of communications qualify for the privilege and which ones they can expect to be shared with plan participants and beneficiaries.  Accordingly, this article examines who is an ERISA fiduciary, what the fiduciary exception is, and when the exception may apply.

Who Is A Fiduciary?

The fiduciary exception to the attorney-client privilege affects those who act in a fiduciary capacity.  A fiduciary under ERISA is a person who 1) exercises discretionary authority or discretionary control over an employee benefit plan or over the management and disposition of a plan’s assets, 2) provides investment advice for a fee or other compensation, or has the authority or responsibility to do so, or 3) has discretionary administrative authority or responsibility over the plan.  A fiduciary’s primary responsibility is to act in the best interests of the plan and the plan’s beneficiaries.  The fiduciary is not to make decisions that are based on what would be best for the business, or for the fiduciary personally, while acting in a fiduciary capacity.  This requirement to act for the plan and the plan’s beneficiaries provides the underpinning for the fiduciary exception.

The Fiduciary Exception Defined

The fiduciary exception prevents communications between a plan fiduciary and counsel “in the execution of fiduciary duties” from being privileged against plan participants and beneficiaries.  Wachtel v. Health Net, 482 F.3d 225, 226 (2d Cir. 2007) (contains a good brief history of the development of the fiduciary exception).  The theory for the exception is that counsel is, in fact, representing plan participants when advising a fiduciary in the exercise of its duties.

The sticking point is determining who the attorney is representing at the time the conversation occurred, and it is helpful to consider the role of the employer vis-à-vis the plan.  An employer may act as a fiduciary in matters of plan administration and management, but the employer does not act as a fiduciary when engaged in plan design activities.  Becher v. LILC, 129 F.3d 268, 268 (2d Cir. 1997).  Accordingly, if a fiduciary consults counsel on a matter of plan administration, the fiduciary may not claim privilege against participants.  The participants are the rightful clients of the attorney for purposes of that conversation. If, however, the fiduciary consults with the attorney on a matter of plan design, termination, or other business matters, the fiduciary exception would not apply. The plan and its participants are no longer the clients at that point, because the matter under discussion involves business decisions and is not related to plan management or administration.  In such a case, the business entity is the client and retains the privilege.

There is no bright-line rule for when the fiduciary exception may be applied.  That said, it is fair to say that when counsel is being properly paid from the plan—as opposed to the plan sponsor—the fiduciary exception will most likely apply.  It is otherwise a case-by-case examination, based on the content, timing, and the impetus for each communication. “It is not the terms of an engagement letter, but rather the nature of the particular attorney-client communication that is dispositive.”  United States v. Mett, 178 F.3d 1058, 1064 (9th Cir. 1999).  A key distinction should be noted: a person’s fiduciary status is not constant and unchanging. An employer may meet with counsel for the purposes of discussing the investment performance of the funds in the plan, but change the topic to the possibility of plan termination.  At which point does the employer change from discussing a fiduciary matter to discussing a settlor (business) matter? Evaluating plan investment performance is a fiduciary function.  Thus, in the first half of the conversation described above, the employer seeks advice on behalf of the plan, but for the benefit of the plan beneficiaries.  Therefore, counsel’s true clients are the plan’s participants and beneficiaries. The communication would likely fall under the fiduciary exception and would not be privileged against the participants. In contrast, the second half of the conversation involves matters of plan design.  The employer was acting on behalf of the business and likely may claim attorney-client privilege against plan participants for that portion of the conversation.

The Fiduciary Exception in Practice

As discussed above, the fiduciary exception is applicable when the true client is not the fiduciary, but the plan participants and beneficiaries.  It does not apply when the advice given falls within the settlor functions of a plan sponsor.  Further, the exception may not apply when a fiduciary is seeking advice for his or her own protection in anticipation of litigation.

A good example of how the fiduciary exception to attorney-client privilege can work to compel document production through discovery is found in Fischel v. Equitable Life Assurance, 191 F.R.D. 606 (N.D. Ca. 2000).  The plaintiffs, former employees of the defendant, sought to compel the defendant employer to disclose various documents from meetings with the company’s inside and outside counsel by invoking the fiduciary exception.   The court used a test that examined not only the advice given, but the intended recipient of the advice, as well as the underlying reasons for seeking it.  Id. at 609.  As a result, the court allowed production of memoranda examining documents that were intended to educate plan beneficiaries about changes in their plan benefits.  The court found that the documents were primarily focused on communicating information about plan changes that had already been made, as opposed to advising whether the changes were desirable.  As such, the intended beneficiaries of the advice were the plan participants, not the employer.  With the participants thus established as the actual clients, the work fell within the fiduciary exception to the attorney-client privilege and was discoverable.  Id. at 610.

The fiduciary exception does not apply when the fiduciary is engaged in settlor functions.  In Tatum v. R.J. Reynolds Tobacco Company, 247 F.R.D. 488 (M.D.N.C. 2008), the defendant employer eliminated two stocks from the company’s 401(k) plan investment lineup as part of an overall plan restructuring.  A beneficiary filed suit, claiming that the elimination of the stock constituted a breach of fiduciary duties.  In the course of discovery, the plaintiff sought to compel production—among other documents—of certain memoranda and notes that he claimed fell within the fiduciary exception.

The court began its analysis by reviewing the premise that attorney-client privilege may be asserted “when the communications [between the administrator and counsel] relate to plan sponsor or ‘settlor’ functions of adopting, amending, or terminating a plan.” Id.  at 493.  The court reviewed the documents in question to determine which were fiduciary in nature, and which were related to plan settlor functions, based on the “context and content” of each communication in question.  Id. at 495 (quoting United States v. Mett, 178 F.3d 1048, 1064 (9th Cir. 1999).   The court determined that the documents reflecting legal advice as to the adoption of plan amendments and legal services related to the amendments constituted settlor functions, and were therefore subject to attorney-client privilege. In contrast, a certain redaction in a draft communication to participants was determined to be advice on how plan changes should be communicated to the participants.  Communicating plan changes to participants is a fiduciary function, not a settlor function, and therefore is subject to the fiduciary exception.  Tatum, 247 F.R.D. at 496.

In United States v. Mett, the Ninth Circuit found that a plan fiduciary can properly assert attorney-client privilege when seeking advice in anticipation of litigation.   178 F.3d 1058.  In  Mett, business owners—who were also the company pension plan administrators—withdrew a significant amount of money from the plan to cover general operating expenses. The defendants solicited advice from their counsel about potential criminal and civil sanctions that could result from their actions, and received two memoranda detailing the various penalties to which they could be subjected.  The plaintiffs successfully obtained those memoranda through the pre-trial discovery process, citing the fiduciary exception as their basis.  The Ninth Circuit held that the fiduciary exception to attorney-client privilege did not apply based on the actual content of the memoranda.  “[The memoranda are] devoted entirely to advising [defendants] regarding their own personal civil and criminal exposure. . . .”  Id.  at 1064.  Therefore, the defendants were acting in their own interests, not those of the plan participants, and the fiduciary exception did not apply.

The Ninth Circuit rejected the government’s argument that the scope of the fiduciary exception should be extended to include matters broadly related to the administration of the plan.  The court stated that broadening the scope of the fiduciary exception ran the risk of effectively eliminating attorney-client privilege for all ERISA trustees and administrators; almost any conversation an administrator may have with counsel could relate to the plan’s administration in however tangential a manner.  The court also recognized that giving legal advice to an ERISA trustee about his or her own liability is not advice being sought for the benefit of the plan or its beneficiaries.  By definition, that advice could not fall under the fiduciary exception, as the individual is not acting in a fiduciary capacity at that time.  Id. at 1065.

The court provided an additional practical basis against broadening the scope of the fiduciary exception.  Trustees and administrators who need to seek legal advice for non-fiduciary matters may not do so if they fear that their conversations with counsel may no longer be privileged.  They may choose not to serve on a plan administrative or investment committee, or, if so, may only consult their attorneys when things begin to fall apart, as opposed to being proactive.  Id. The court went on to say that when there is a difficult question of privilege, the dispute should be resolved in favor of nondisclosure.  In a precedential legal system, it is often better to preserve the privilege’s integrity rather than establish a dangerous precedent that could be used to defeat the original intent of the privilege.  Id.

Conclusion

Whether a particular conversation or communication fits the fiduciary exception to the attorney-client privilege can be a complicated determination.  If the communication relates to a fiduciary function such as evaluating plan investment performance, then it fits within the fiduciary exception and is not privileged against the plan participants or beneficiaries.  If the communication relates to a settlor function such as plan or design, then it is not fiduciary in nature, the exception does not apply and the attorney-client privilege may be invoked.  If the communication is for the fiduciary’s own benefit in anticipation of potential litigation against him or her, then the fiduciary is the true client for that communication and attorney-client privilege may be asserted.  As a practical matter, in order to preserve the privilege, it is best for counsel to view his or her role as one involving service to the fiduciary or business entity in a manner related to their liability risk.  It should be noted that the application of the fiduciary exception may vary from jurisdiction to jurisdiction, and counsel is always wise to check the law of the relevant jurisdiction before acting.

Michael F. Tomasek
Ungaretti & Harris
Chicago, IL
mtomasek@uhlaw.com

In ERISA Cases, Who Gets the Last Word on the Evidence in the Administrative Record?
By William A. Chittenden III and Joseph R. Jeffery
Chittenden, Murday, & Novotny LLC, Chicago, Illinois

Every lawyer likes to have the last word. It is not surprising, therefore, that plaintiffs in ERISA benefit-denial cases increasingly assert they are entitled to have the “last word” on the evidence that goes into the administrative record for their benefit claims. According to these plaintiffs, an individual who appeals the denial of a claim for benefits is entitled, before the plan makes its final benefits decision, to review and rebut any new evidence gathered by the plan during the appeal. They argue that any plan failing to afford a claimant the right to rebut that evidence denies the claimant a “full and fair review” of her claim as required by ERISA. Three circuit courts have considered this issue and are split as to whether claimants are entitled to rebut their plans’ medical opinion evidence prior to a final decision on appeal. However, decisions from one of the two circuits that hold a claimant is not entitled to supplement medical opinion evidence also suggest claimants may be entitled to rebut newly obtained factual evidence when it is material to a claimant’s appeal.

In the typical ERISA benefit-denial case, a participant in an employee benefit plan sues the plan for denial of benefits. The lawsuit usually follows an administrative appeals process in which the plan denies the plaintiff’s initial claim for benefits and the plaintiff appeals pursuant to the plan’s internal review procedures. The plaintiff may have submitted additional evidence as part of the appeal and the plan, after reviewing the newly submitted evidence, may have gathered additional evidence of its own before upholding its denial of the plaintiff’s claim. The materials gathered and relied upon by the plan administrator throughout the administrative process comprise the administrative record. In most cases, a plaintiff does not have the opportunity to review or comment on the evidence the plan gathered during the appeal. In fact, most plaintiffs probably do not learn about the evidence until they receive a letter explaining why their appeals were denied. By that time, the administrative remedies are exhausted and the only option is to sue in federal court and ask the court to supplement the administrative record with the rebuttal evidence.

An important consideration in any benefit-denial case is whether the court will limit its review of the plan’s decision to the evidence in the administrative record. Where it does, the court reviews the plan’s decision based on the plan’s unrebutted evidence.

ERISA requires plans to establish a process by which claimants are afforded a “full and fair review” of the denial of their claims. 29 U.S.C. §1133. Among the procedures required for a full and fair review is the ability to address the accuracy and sufficiency of the evidence considered by a plan in denying benefits. A plaintiff arguing for the right to rebut newly-gathered materials usually founds her argument on the right to a “full and fair review.”

The Eighth, Tenth, and Eleventh Circuits are the only circuits to have addressed this issue. The Eighth Circuit in Abram v. Cargill, Inc., 395 F.3d 882 (8th Cir. 2005), held that the plan administrator’s refusal to allow the plaintiff to review and rebut the opinion of the plan’s independent medical examiner denied her a “full and fair review” of her claim. According to the court, to constitute a “full and fair review” under ERISA, the administrator had to give the plaintiff an opportunity to review and respond to the plan’s medical opinion evidence before issuing its final ruling on the plaintiff’s appeal. Id. at 886.

More recently, the Tenth and Eleventh Circuits ruled that ERISA’s regulations reserve to plans the “last word” on an administrative record’s medical opinion evidence. Metzger v. UNUM Life Ins. Co. of Am., 476 F.3d 1161 (10th Cir. 2007); and Glazer v. Reliance Std. Life Ins. Co., 524 F.3d 1241 (11th Cir. 2008). In Metzger, the Tenth Circuit observed that ERISA regulations require plans to consult with an appropriate health care professional any time the outcome of an appeal turns in whole or in part on a medical judgment. Thus, if the plaintiff were given the opportunity to submit additional medical evidence that rebutted the plan’s medical evidence, the plan would, under the regulations, have to obtain another set of medical opinions from another qualified health care professional. Thus, the plaintiff’s approach would create “an unnecessary cycle of submission, review, re-submission, and re-review” that “would undoubtedly prolong the appeal process” and unnecessarily increase the costs of appeals. Id. at 1166-67. Accordingly, the court concluded the plan administrator was not required to make available for review and rebuttal the medical reports it relied on to decide the plaintiff’s appeal.

Notwithstanding Metzger’s holding as to medical evidence, claimants may have a right to comment on new factual evidence relied upon by plans during appeals. The Metzger court observed in dicta that the plan need not give claimants an opportunity to rebut the plan’s evidence “[s]o long as appeal-level reports analyze evidence already known to the claimant and contain no new factual information or novel diagnoses.” Id. at 1167. The Tenth Circuit clarified the extent of that exception in Forrester v. Met. Life Ins. Co., 232 Fed. Appx. 758 (10th Cir. 2007). In that case, the court determined that the exception only applied where the plaintiff’s inability to address the new facts materially prejudiced the viability of her claim. Id. at 760-61. If the plaintiff’s claim was so prejudiced, the record should be supplemented and the matter remanded for reconsideration by the plan. Id. at 761.

One possible exception to this rule is waiver. It seems likely that a claimant who withholds relevant evidence on appeal could waive her right to rebut new factual evidence gathered by her plan during her appeal. It is, after all, the claimant’s burden to supply her plan with evidence establishing her right to plan benefits. Ruttenberg v. United States Life Ins. Co., 413 F.3d 652, 663 (7th Cir. 2005). Thus, if the plan’s original letter denying benefits put the claimant on notice of the type of factual information needed to establish her right to benefits and the claimant failed to submit that evidence on appeal, the claimant may have waived the right to rely on the evidence in a subsequent lawsuit against the plan.

The foregoing cases explain the state of the law as it exists today. Due to the significance in benefit-denial cases of limiting court review to the administrative record, one can safely predict that parties and the courts will continue to litigate this issue for the foreseeable future.

William A. Chittenden III (wchittenden@cmn-law.com) 
Joseph R. Jeffery (jjeffery@cmn-law.com)
Chittenden, Murday, & Novotny LLC
Chicago, Illinois