The circumstances are different, but the principal is the same. Claimants have only a very limited right to know how benefit denial decisions are made. These limits contribute to an already difficult situation for denied disability appeals. These decisions continue to raise questions about fairness of judicial review in benefit denial cases.
Why fight about an internal claims manual? It seems like a sideshow, but it is all about how LTD claimants get to court. Claimants have to get evidence in front of a judge to win.
How denied disability claimants get in front of a judge
Before LTD plaintiffs can bring a long term denied disability lawsuit, they must exhaust all administrative remedies outlined in the plan. This seems to be reasonable approach to conserving judicial resources, but it is time-consuming and usually just confirms the original decision.
What happens in the next phase of the appeal varies slightly among federal circuits. It used to be uniformly true that courts would examine only whether a plan administrator had followed proper procedures in handling the decision and appeal. Benefit claimants generally lost there, too.
But this rule has begun to fracture. In the Ninth Circuit, for example, courts will now examine the underlying medical evidence to determine whether a long term disability claim might have been wrongly denied by the plan administrator in the first place. Other jurisdictions, like Florida, where Perera was heard, hang on to the old rule, however.
Once litigation begins, it proceeds through predictable steps. The first choice of ERISA litigators is to show a violation of federal law. Step two is to show a violation of state law, where state law supersedes federal law. Step three is to show that an insurance company or plan administrator (and they are often the same) broke its own rules.
Step three involves getting information from an insurance company about its internal rules for processing claims. Insurance companies are often not forthcoming. Step three is where it gets messy because there is an inherent conflict of interest. Those in charge of administering the claims process have an obvious economic incentive to deny claims. They have less interest in revealing the standard techniques they use to do so.
Disability insurance trade secrets vs. claim payments
The argument advanced by the LTD claimant in Brooks v. Metropolitan Life Insurance Co., the case on which Perera relies, was that the court’s review of the plan’s administrative decision to deny benefits should have included MetLife's Claims Management Guidelines, an internal corporate database offering general guidance to claims-processing personnel.
In Brooks, MetLife argued, somewhat improbably, that the Case Management Guidelines were only general principles and had not been specifically consulted in the rejection of Ms. Brooks claim. In Perera, MetLife further objected that, even had the plan consulted its own background principles for adjudicating claims, those guidelines were confidential, proprietary information or trade secrets.
To say that something is proprietary implies that it is the proverbial secret sauce that enables the company to make money. Businesses have a legitimate intellectual property interest in protecting their own trade secrets. But one way that insurance companies turn a profit is by not paying benefits whenever possible. In cases like Perera andBrooks, those trade secrets may include fundamental background methodologies and rationales used to thwart claims.
ERISA requires plan administrators to explain why a claim is denied. In Perera, Ms. Perera argued that the explanation was incomplete. She argued that she and the court hearing her appeal should have had the opportunity to review the background documents establishing claim processing principles as well as the rules immediately applicable to the denial.
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How to unscramble a conflict of interest in a denied disability claim
LTD claimants face the frustration of not being able to discover and present evidence that may show systemic bias. Plan administrators have, so far, been successful in maintaining that this evidence, even if it were discoverable, would be irrelevant.
The problem is the plan administrators’ fundamental conflict of interest. The remedy may be to move beyond the defendant-friendly standard that limits legal inquiry to the process by which claims are decided. The Ninth Circuit may have stumbled on the solution -- permitting courts to re-examine the substantive medical evidence on which the original decision was made.