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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.
- Dardinger v. Anthem Blue Cross, 98
Ohio St. 3d 77 (2002).
- 29 U.S.C. § 1001.
- 29 U.S.C. § 1002(1), 1002(2)(A)
and 1002 (3).
- Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 90 (1983).
- Fort Halifax Packing Co. v. Coyne,
482 U.S. 1, 9 (1987).
- 29 U.S.C. § 1002(7).
- 29 U.S.C. § 1002(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).
- ERISA § 402(a).
- 27 U.S.C. § 1102(a)(1).
- 29 U.S.C. § 1024(b)(1).
- 29 U.S.C. § 1022(a)(1).
- 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.
- 29 U.S.C. § 1133.
- 29 C.F.R. § 2560.503-1(b)(1)(i).
- 29 C.F.R. § 2560.503-1(b)(1)(ii).
- 29 C.F.R. § 2560.503-1(b)(1)(iv).
- 29 U.S.C. § 1144(a). Pilot
Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987).
- 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).
- Pilot Life, 481 U.S. at 41.
- Daniel v. Eaton Corp., 839
F. 2d 263 (6th Cir.), cert. denied, 488 U.S. 826 (1988).
- Davis, 887 F. 2d at 689.
- Tolton v. American Biodyne, Inc.,
48 F. 3d 937, 942 (6th Cir. 1995).
- Cromwell, 944 F. 2d at 1276.
- Rush Prudential HMO, Inc. v.
Moran, 536 U.S. 355, 379 (2002).
- Bair v. General Motors Corp.,
895 F. 2d 1094 (6th Cir. 1990).
- ERISA § 502(a)(1)(B).
- Massachusetts Mutual Life Ins.
Co. v. Russell, 473 U.S. 134, 144-48 (1985).
- Russell, 473 U.S. 147-48.
- Farrell v. Automobile Club of
Michigan, 870 F. 2d 1129 (6th Cir. 1989).
- Miller v. Metropolitan Life Ins.
Co., 925 F. 2d 979 (6th Cir. 1991).
- Fallick v. Nationwide Mutual
Insurance Company, 162 F. 3d 410 (6th Cir. 1998).
- 29 U.S.C. § 1132(g)(1).
- Anderson v. Proctor & Gamble
Company, 220 F. 3d 449 (6th Cir. 2000).
- Tiemeyer v. Community Mutual
Ins. Co., 8 F. 3d 1094 (5th Cir. 1993), cert. denied,
511 U.S. 1005 (1994).
- 29 U.S.C. § 1132(a)(1)(B).
- 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).
- Marquette General Hospital v.
Goodman Forest Industries, 315 F. 3d 629 (6th Cir. 2003).
- 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)).
- Davis, 887 F. 2d at 693.
- Yeager, 88 F. 3d at 376.
- Varity Corp. v. Howe, 516
U.S. 489 (1996).
- 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.
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