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The Wagner Law Group

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 


Established in 1996, The Wagner Law Group has 22 attorneys engaged exclusively in employee benefits, estate planning and employment law. Six of our attorneys are AV rated by Martindale-Hubbell as having very high to preeminent legal abilities and ethical standards. The firm is among the largest ERISA boutiques in the country. Our practice is national in scope, with clients in more than 40 states and several foreign countries.





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The Wagner Law Group


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April 21, 2016


 Health and Welfare Law Alert




Second Circuit Addresses Situation

Where Plan Fails to Follow

DOL's Claims-Procedure Regulation




In Halo v. Yale Health Plan, the U.S. Court of Appeals for the Second Circuit addressed the consequences when an ERISA-covered group health plan fails to comply with the DOL's claims-procedure regulation in denying a benefit claim. In Halo, the Second Circuit ruled that a plan's failure to comply with the DOL's claims-procedure regulation when denying a claim means the claim will be reviewed de novo in federal court, unless the plan has otherwise established procedures that fully comply with the regulation and can show that its failure to comply with the regulation when processing the claim was inadvertent and harmless.


Applicable Law. The DOL's claims-procedure regulation requires plan administrators to provide a notice of adverse benefit determination to a participant whose claim for a benefit is denied. This notice must include: (i) the specific reason for the denial; (ii) reference to the specific plan provisions on which the determination was based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material is necessary; and (iv) a description of the plan's review procedures and applicable time limits, including a statement about the claimant's right, under ERISA, to file a lawsuit to contest the adverse decision.


Background. The participant's claim related to surgical procedures performed outside the plan's network. The plan provided that out-of-network surgery would only be covered if it was either an emergency or if the participant had obtained preauthorization. The participant's surgery was not an emergency and she had not obtained prior authorization.


After the plan rejected the participant's claim on the basis that the services were not authorized, she sued the plan in federal district court under ERISA. Specifically, the claimant contested the timing and the content of the plan's benefits denial notice. For example, one of the plan's benefit denial letters cryptically stated that the service was not authorized.


Upon reviewing the matter, the district court determined that the plan had substantially complied with the DOL's claims-procedure regulation. As a result, the district court reviewed the claim using the more deferential "arbitrary and capricious" standard of review


NOTE: An arbitrary and capricious standard of review means that the plan's decision will only be overturned by the court if it is "without reason, unsupported by substantial evidence or erroneous as a matter of law." By contrast, a de novo review means that a court will independently review a claim and not defer to the plan administrator's, or insurer's, decision.


Second Circuit Review. The Second Circuit rejected the district court's holdings, noting that only plans that comply with the claims regulation receive the benefit of the arbitrary and capricious standard of review. Specifically, the Second Circuit held that a plan's failure to follow the DOL's claims-procedure regulation in denying a benefit claim generally results in the claim being reviewed in federal court under the less deferential de novo standard. However, the Second Circuit did note that an exception to this general rule exists where a plan: (i) has established procedures that fully conform with the DOL's claims-procedure regulation; and (ii) can demonstrate that its failure to comply with the regulation in reviewing a particular claim was inadvertent and harmless.


Interestingly, the Second Circuit noted that a district court may consider a plan's failure to comply with the claims-procedure regulation as justification for allowing a claimant to introduce evidence outside the administrative record. While the court acknowledged that district courts typically limit their review to the plan's administrative record at the time of the benefit denial, an exception to this general rule would exist where a plan's failure to follow the claims-procedure regulation adversely impacted the development of the administrative record.


Takeaway for Employers. In the wake of Halo, plan sponsors in the Second Circuit must be sure that they strictly adhere to the internal claims and appeals requirements outlined in the DOL's claims-procedure regulation, as failure to do so may result in a district court reviewing the claim denial under the much less deferential de novo standard of review. Accordingly, employers should carefully review their internal claims and appeals procedures as well as all correspondence regarding adverse benefit determinations (i.e., benefit denial letters) to confirm that each meets the requirements provided in the DOL's claims-procedure regulation.




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