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Part I | Part II

How to Win Denial of Health Benefit Litigation
PART I: Appreciate the Burden – It is on You.

A Publication of Skidmore & Associates, A Legal Professional Association

By: Eric E. Skidmore, Esq.

We are fortunate in Northeast Ohio to have access to some of the finest health care providers and facilities in the world. The receipt of quality health care is not a problem, however, the payment of expenses is problematic to the patient, spouses and anyone responsible for the health care of another. If you do not have health insurance, your personal assets and income are at risk when there are unexpected health issues. If you do have health insurance, you may have to fight to enforce your heath benefit rights. When a claim is denied without justification, the insurer is profiting at the expense of your health.

Some employers provide health insurance coverage as a fringe benefit to their employees and their dependents. This helps the patient pay for quality health care they could not ordinarily afford. Most of us can afford to pay routine medical expenses albeit even mundane tasks or products cost hundreds of dollars. However, once health concerns become more severe, the cost can proliferate to tens of thousands of dollars. This creates an inherent friction between the patient receiving quality health care services and the insurer’s responsibility to pay. What happens if you or your dependents need critical health care services and the plan administrator denies the claim? Health could deteriorate while the claim is being administered or denied. In some instances, the enforcement of health benefits has become a life or death issue.1

The topic of how to win denial of health benefit litigation is presented in two parts. Part I, presented in this issue of Skidmore Script, provides a candid review of the burden placed upon participants to enforce health benefits and claims governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).2 It also sets forth the burden in claim denial litigation through the interpretive cases of the United States Sixth Circuit Court of Appeals (the “Sixth Circuit Court”). You must understand the burden before you can assume it.

Part II entitled “Assume the Burden – Turn the Tide” shall provide some practical guidelines to assume the burden of enforcing health benefit rights and satisfying the burden during denial litigation. It shall also provide explanations and examples of how you can generate and cultivate evidentiary materials at the administrative phase of benefit enforcement so it can be strategically used to reverse the denial of health benefits during the litigation phase. This shall be presented in Part II, which can be found in the next edition of Skidmore Script, Fall 2003.

I. What is ERISA?

ERISA governs and regulates pension plans and welfare plans.3 Health insurance plans fall within the definition of welfare plans. This article will concentrate on the enforcement of health benefit rights under ERISA. The adjudication of pension and disability claims are similar to health insurance claims, however, they are outside the scope of this article. ERISA is “a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee [health] benefit plans”.4 A uniform system of regulation was needed in 1974 because health benefit claims were being administered and enforced inconsistently throughout the different states.5 Congress intended to eliminate the problem by “federalizing” the regulatory scheme and mandating uniformity state to state. No doubt, the health insurance industry assisted in the authoring of ERISA, because the regulatory field is not level between the insurer and the insured.

II. Basics of ERISA

Health insurance plans are voluminous and complex. ERISA utilizes a special vocabulary to describe the roles people play in implementing health insurance plans.

A. Terminology: Persons Affiliated with Health Insurance Plans.

1. The Insured
A “participant” is the primary person the health insurance plan is to protect and benefit. ERISA defines “participant” as “…any employee or former employee…who is…eligible to receive a benefit from a [health insurance plan]…or whose beneficiaries may be eligible to receive any such benefit”.6 A “beneficiary” is a recipient of health care benefits because of their relationship or association with the participant. ERISA defines a “beneficiary” as a “person designated by a participant…who is or may become entitled to a [health] benefit…”7 ERISA empowers a participant and/or beneficiary with standing to bring suit to enforce health benefit rights.8

2. The Insurer
The “plan sponsor” is usually the employer of the participant. Sometimes the plan sponsor establishes an internal committee to administer the health insurance plans. That administrative body is called a “plan administrator”. The plan administrator may delegate the discretion to decide and review certain health benefit claims to a health insurance carrier (the “insurer”). The plan administrator and any delegatee or fiduciary has the “authority to control and manage the operation and administration of the plan”.9 The plan sponsor, plan administrator and all persons known to have played a role in the denial of health benefits (including the plan itself) should be considered as potential defendants in benefit denial litigation. To the extent the insurer has been delegated discretion, it too should be added as a defendant.

B. Key Documents Required by ERISA.

1. The Plan
Disclosure of information is a key element of ERISA and that burden rests upon the plan sponsor, plan administrator and insurer. ERISA requires that every employee health benefit plan establish and maintain a central comprehensive written document or “plan”.10 The plan discloses procedures for administering the plan; included and excluded health benefit coverages; procedures and claims; enrollment and appeals; deductibles and co-pays; and in-network and out-of-network policies. The plan is usually not distributed to participants because it is so voluminous, however, a copy can be acquired from the plan sponsor or plan administrator upon written request.

2. Summary Plan Description
ERISA requires the plan administrator to furnish each participant with a “Summary Plan Description” (SPD).11 The SPD must be accurate and comprehensive, and written in a manner understood by the average participant.12 The SPD is an abbreviated version of the plan. It is also the plan administrator’s primary vehicle for communicating with the participants and beneficiaries.

C. Reasonable Claims Procedure Requirement.13

ERISA requires that each health insurance plan establish and maintain a reasonable claims procedure for the administration and review of health benefit claims submitted by or on behalf of participants and their beneficiaries.14 This process is the administrative phase of claims review. ERISA requires a procedure for the filing of claims, written notification and appeal for denial of health benefit claims.15 The entire administrative process is to be plainly and succinctly described in the SPD.16 ERISA additionally requires that a health insurance plan provide a description of the procedure for informing participants of the time periods for their decisions on benefit claims and for making appeals and receiving decisions.17 Based upon time requirements under ERISA, 210 to 420 days can expire between the initial submission of a claim and the exhaustion of the administrative appeals process. In some instances, the plan may require two levels of mandatory appeal of an adverse benefit determination. By this time, a patient’s health or progress could deteriorate and in some instances, death could occur while waiting for the administration of a treatment claim.

III. The Playing Field is Not Level

A. ERISA Preempts State Law and State Law Claims that “Relate to” Employee Health Benefit Plans.

ERISA nullifies an insured’s access to State law claims and remedies. ERISA’s preemption clause states that it “shall supercede any and all State laws insofar as they may now or hereafter relate to any employee [health] benefit plan”.18 The Sixth Circuit Court has repeatedly held that virtually all State law claims relating to an employee benefit plan (including health) are preempted by ERISA.19 Breach of contract and bad faith claims arising out of a failure to provide insurance benefits are preempted.20 Promissory estoppel claims are preempted.21 Equitable estoppel claims are not recognized by ERISA and State law estoppel claims are preempted.22 State law claims for wrongful death, in proper denial of benefits, medical malpractice and insurance bad faith are preempted.23 The State law claim of negligent misrepresentation based upon denial of benefits is preempted by ERISA.24 Recently, the U.S. Supreme Court reiterated that any State law “provid[ing] a form of ultimate relief in a judicial forum that add[s] to the judicial remedies provided by ERISA…patently violates ERISA’s policy…”25 If an insured attempts to assert State law claims and remedies in benefit denial litigation, the causes of action will invariably be dismissed.

B. There is No Right to a Jury Trial to Enforce Health Benefit Rights.

The Sixth Circuit Court has examined the issue of whether jury trials are appropriate in ERISA cases and held that there is no right to a jury, because benefit claims are equitable and not legal in nature, therefore, there is no jury entitlement.26

C. Consequential and Punitive Damages are not Available under ERISA.

ERISA provides that an insured may bring a private action to enforce and recover health care benefits owing under an employee health care plan.27 However, other monetary damages are not recoverable.28 The U.S. Supreme Court held that punitive damages are not recoverable as a result of an insured’s unreasonable denial of benefits under ERISA.29 The Sixth Circuit Court has followed the reasoning of the U.S. Supreme Court that consequential and punitive damages are not recoverable under ERISA.30

D. Insured Must Exhaust Administrative Remedies Before Filing a Lawsuit to Enforce Health Care Benefits.

The primary purpose of ERISA is to protect the interests of the insured by requiring disclosure, reporting and a notification procedure. This creates an elaborate administrative process that is well intended but inefficient. The administrative process is laborious, time intensive and complicated. The health care provider, insured and insurer communicate between one another in the implementation of this administrative process. It is easy to get lost in the labyrinth of regulation and to become disenchanted at this phase of benefit enforcement. Two levels of administrative appeals often hamper and frustrate health benefit claimants, causing them to abandon claims. Despite this painstaking process, the Sixth Circuit Court requires the exhaustion of this procedure prior to bringing a civil action.31 If an insured fails to do so, the civil action could be dismissed (usually without prejudice) or enjoined until the administrative appeal process is completed.32

E. Attorney’s Fees are not Recoverable during the Administrative Phase of Benefit Enforcement.

ERISA provides that a Court has discretion to award reasonable attorney’s fees in benefit enforcement litigation.33 However, the enforcement of benefit rights will be underdeveloped at the litigation phase unless favorable evidence is cultivated at the administrative phase. Legal assistance at this juncture is imperative, however, the Sixth Circuit Court has held that attorney’s fees incurred during the administration of the claim are not recoverable.34 This provides a disincentive to retain legal counsel early on to develop an evidentiary record. Although attorney’s fees are discretionary at the litigation phase, the insured must prove (among other things) that the insurer acted with “bad faith” in denying a health benefit claim.35

F. The Standard of Review is Burdensome to the Insured.

ERISA provides an insured with an express private right of action to recover health benefits due them under the terms of their plan.36 Most courts, including the Sixth Circuit Court, apply an “arbitrary and capricious” standard to review an insurer’s decision denying health care benefits.37 This is called the “deferential standard” because it defers to the insurer’s discretion rather than the insured in determining health care benefit coverage. The Sixth Circuit Court will look to the specific language of the health care plan to determine if the plan gives the insurer discretionary authority to determine eligibility or to construe the plan’s terms.38 This deferential, “almost preferential,” treatment requires the courts to follow the insurer’s denial of the insured’s health benefits if the decision is rational.39 If it is possible to offer a reasoned explanation for the denial, the decision is upheld.40 This requires the insured to show an “abuse of discretion” before a court will disturb a denial of benefits. According to the Sixth Circuit Court, the insurer’s discretion is reviewed based upon the facts known and applied at the time the benefits claim decision is made at the administrative level.41 The insured will not be permitted to introduce evidence gathered after the plan administrator denies the claim.

G. The Claim Decision Maker is Permitted to have a Potential Conflict of Interest in Administering Benefit Claims.

Any potential conflict of interest should be a factor in the review of health benefits denied by a plan administrator. Potential conflicts can arise when the employer acts as a plan administrator or coverage decisions are made by an insurer who is paying claims out of its own assets.42 The Sixth Circuit Court does not automatically reverse a denial of benefits claim by a plan administrator when there is a perceived potential conflict of interest. A heightened level of scrutiny is not required and only when an insured is able to provide “significant evidence” that the insurer was motivated by self-interest will the potential conflict be reviewed.43

IV. Conclusion

It is plain to see that under ERISA the burden is upon the insured to establish an evidentiary record to enforce health benefit rights during the administrative level. Perhaps this is where the burden should be if you desire to have your medical expenses paid by someone else. The playing field is not level under ERISA. The plan administrator or insurer is given broad discretion to determine claim benefits and coverage. If you wait to litigate before you attempt to protect or enforce your benefit rights, you will have waited too long. The consequences are catastrophic if you do not respond immediately to a denial of health benefits.

The physical and emotional strain of poor health and confronting the claim denial process is excruciating. You must posture yourself in a manner to understand and play by the rules and regulations of ERISA. If you understand what is expected, you can direct your time and resources effectively. You must act timely, assertively, deliberately and consistently. The key is to cultivate and generate evidentiary materials to persuade the decision makers. Once you understand the burden, you can begin to build an evidentiary record. Quality of life and health are at stake – appreciate the burden of proof for it is on you.

  1. Dardinger v. Anthem Blue Cross, 98 Ohio St. 3d 77 (2002).
  2. 29 U.S.C. § 1001.
  3. 29 U.S.C. § 1002(1), 1002(2)(A) and 1002 (3).
  4. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983).
  5. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).
  6. 29 U.S.C. § 1002(7).
  7. 29 U.S.C. § 1002(8).
  8. 29 U.S.C. §§ 1132(a)(1)(B); 1132(a)(9). Tegardener v. Republic-Franklin, Inc. Pension Plan, 909 F. 2d 947, 951 (6th Cir. 1990).
  9. ERISA § 402(a).
  10. 27 U.S.C. § 1102(a)(1).
  11. 29 U.S.C. § 1024(b)(1).
  12. 29 U.S.C. § 1022(a)(1).
  13. On November 21, 2000, the U.S. Department of Labor promulgated revised regulations concerning minimum requirements for health benefit claims procedures. C.F.R. § 2560.503-1 will apply to new group health claims for plan years beginning on or after July 1, 2002 but in no event later than January 1, 2003. Some of these revisions will be covered in the next edition of Skidmore Script.
  14. 29 U.S.C. § 1133.
  15. 29 C.F.R. § 2560.503-1(b)(1)(i).
  16. 29 C.F.R. § 2560.503-1(b)(1)(ii).
  17. 29 C.F.R. § 2560.503-1(b)(1)(iv).
  18. 29 U.S.C. § 1144(a). Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987).
  19. Cromwell v. Equicor-Equitable HCA Corp., 944 F. 2d 1272 (6th Cir. 1991); Ruble v. UNUM Life Ins. Co., 913 F. 2d 295 (6th Cir. 1990); Davis v. Kentucky Finance Cos. Retirement Plan, 887 F. 2d 689 (6th Cir. 1989), cert. denied, 495 U.S. 905 (1990); McMahan v. New England Mut. Life Ins. Co., 888 F. 2d 426 (6th Cir. 1989); Firestone Tire & Rubber Co. v. Neusser, 810 F. 2d 550 (6th Cir. 1987).
  20. Pilot Life, 481 U.S. at 41.
  21. Daniel v. Eaton Corp., 839 F. 2d 263 (6th Cir.), cert. denied, 488 U.S. 826 (1988).
  22. Davis, 887 F. 2d at 689.
  23. Tolton v. American Biodyne, Inc., 48 F. 3d 937, 942 (6th Cir. 1995).
  24. Cromwell, 944 F. 2d at 1276.
  25. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379 (2002).
  26. Bair v. General Motors Corp., 895 F. 2d 1094 (6th Cir. 1990).
  27. ERISA § 502(a)(1)(B).
  28. Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 144-48 (1985).
  29. Russell, 473 U.S. 147-48.
  30. Farrell v. Automobile Club of Michigan, 870 F. 2d 1129 (6th Cir. 1989).
  31. Miller v. Metropolitan Life Ins. Co., 925 F. 2d 979 (6th Cir. 1991).
  32. Fallick v. Nationwide Mutual Insurance Company, 162 F. 3d 410 (6th Cir. 1998).
  33. 29 U.S.C. § 1132(g)(1).
  34. Anderson v. Proctor & Gamble Company, 220 F. 3d 449 (6th Cir. 2000).
  35. Tiemeyer v. Community Mutual Ins. Co., 8 F. 3d 1094 (5th Cir. 1993), cert. denied, 511 U.S. 1005 (1994).
  36. 29 U.S.C. § 1132(a)(1)(B).
  37. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989); University Hosps. of Cleveland v. Emerson Elec. Co., 202 F. 3d 839, 845 (6th Cir. 2000).
  38. Marquette General Hospital v. Goodman Forest Industries, 315 F. 3d 629 (6th Cir. 2003).
  39. University Hosps. of Cleveland, 202 F. 3d at 846 (quoting Yeager v. Reliance Standard of Life Ins. Co., 88 F. 3d 376, 381 (6th Cir. 1996)).
  40. Davis, 887 F. 2d at 693.
  41. Yeager, 88 F. 3d at 376.
  42. Varity Corp. v. Howe, 516 U.S. 489 (1996).
  43. Wages v. Sandler O’Neill & Partners, L.P., 2002 WL 339221 (6th Cir. 2002); Peruzzi v. Summa Medical Plan, 137 F. 3d 431, 433 (6th Cir. 1998); University Hospitals, 202 F. 3d at 846.