What Lawyers Need to Know Re:ERISA Adverse Benefit Appeal Decisions

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Imagine a system of law in which insurance adjusters are called “plan administrators;” insurance policies are called “plans;” and  an  insurer’s claim file is called “an administrative record.”

Imagine a hybrid system of trust and contract law in which an insurer responsible for paying valid claims is designated a “fiduciary” with respect to its own assets, payable to policyholders who are called “plan beneficiaries.”

Imagine a system of law with terms and procedures borrowed from administrative law, but where there is no governmental  agency  involved in any administration of justice; a system where the only available “administrative appeal” of  a denied  insurance claim  is an appeal to another adjuster from the same company that would be responsible for payment, if the claim were allowed.

Imagine that such appeal  process  is called “full and fair review” and that failure to request such review within one hundred eighty days (180)  of an initial denial is called a “failure to exhaust administrative remedies;” a mistake that would result in an absolute bar to any judicial review.

Consider that this system of law is like no other. It is sui generis. The administrative appeal involves the submission of additional documents by the policyholder; the company may then supplement the file with what it needs to support the original denial, including reports from consultants either within the company or outside the company. The file, organized by the company, is then reviewed by a company employee, a decision to accept or deny the claim is made. The reasons for a denial are carefully crafted; a final denial letter is sent to the policyholder, and the insurer’s file is then considered a closed “administrative record.”

Imagine that the only judicial process available to an aggrieved  claimant who has been denied benefits after “exhausting” the “administrative remedy” of an appeal to a second insurance adjuster  is a  review of this closed “administrative record” by a federal district court judge.

Consider a “civil action” under the federal rules of civil procedure where, absent extraordinary circumstances, there is no discovery. Consider a process where under typical circumstances no evidence can be submitted which is outside the “administrative record,” no witnesses testimony, no depositions and  no cross-examination.

Imagine the strange circumstance of going into a summary judgment proceeding where disputed facts are not resolved in favor of the non-moving party, and where summary judgment is merely a vehicle to efficiently dispose of the claim.

Try to imagine that in this federal system of judicial review the standard is  whether or not the insurance company abused its discretion. Imagine that courts freely recognize that there is a conflict of interest, but hold that it is merely a “structural conflict.” Imagine that you practice in a jurisdiction where the justices in the highest courts believe that market forces and incentives are a sufficient check and balance on the conflicted interest of the insurer. Well, you have entered the world of employee benefit claims and appeals under the ERISA law.

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