Late Appeal Decisions by Insurance Companies

At the O’Ryan Law Firm, we represent numerous clients who have become disabled and their disability claim was denied by their insurance company. We then represent the clients in the appeal process to appeal the denial of their disability benefits.  Lately, many of the insurance companies have be issuing late determination decisions on the appeals that we submit to those companies.  By law, an insurance company is required to issue a decision within 45 days of the date of receipt of the appeal unless an extension is warranted due to “special circumstances” but even then, a decision on the appeal must be rendered within 90 days at the latest.

The Supreme Court in Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115 (1989) held that de novo adjudication of employee benefit claims is the norm. Because the de novo standard of review is the default standard in an ERISA employee benefits case, the plan administrator or insurance company bears the burden of showing that the more deferential standard should apply. Fay v. Oxford Health Plan, 287 F.3d 96, 104 (2d Cir.2002)Marguez-Massas v. Squibb Mfg., Inc., 344 F.Supp.2d 315, 320 (D.P.R. 2004); McDonald v. Timberland Co. Group LTD Coverage Program, 2002 WL 122382, at *3 (D.N.H. Jan.23, 2002). Accordingly, once in litigation, a disability insurance company bears the burden of proving that their decision is entitled to deferential review by the Court.

The regulations governing ERISA disability claims require insurance companies to issue a decision on a claimant’s appeal within 45 days of the date that the insurance company received the appeal unless “special circumstances” warrant an extension of time for an additional 45 days; however, in “no event” shall the extension of time exceed 45 days. 29 C.F.R. §2560.503-1(i)(1), (i)(3), (i)(4).

The Department of Labor’s regulations specifically provide:

(h) Appeal of adverse benefit determinations—

 (1) In general. Every employee benefit plan shall establish and maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary of the plan, and under which there will be a full and fair review of the claim and the adverse benefit determination.

(i) Timing of notification of benefit determination on review—

(1) In general.

(i) Except as provided in paragraphs (i)(1)(ii), (i)(2), and (i)(3) of this section, the plan administrator shall notify a claimant in accordance with paragraph (j) of this section of the plan’s benefit determination on review within a reasonable period of time, but not later than 60 days after receipt of the claimant’s request for review by the plan, unless the plan administrator determines that special circumstances (such as the need to hold a hearing, if the plan’s procedures provide for a hearing) require an extension of time for processing the claim. If the plan administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 60-day period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the plan expects to render the determination on review.

 (3) Disability claims.

 (i) Except as provided in paragraph (i)(3)(ii) of this section, claims involving disability benefits (whether the plan provides for one or two appeals) shall be governed by paragraph (i)(1) of this section, except that a period of 45 days shall apply instead of 60 days for purposes of that paragraph.


(4) Calculating time periods. For purposes of paragraph (i) of this section, the period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the reasonable procedures of a plan, without regard to whether all the information necessary to make a benefit determination on review accompanies the filing. In the event that a period of time is extended as permitted pursuant to paragraph (i)(1), (i)(2)(iii)(B), or (i)(3) of this section due to a claimant’s failure to submit information necessary to decide a claim, the period for making the benefit determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information.


(l) Failure to establish and follow reasonable claims procedures.

In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

29 C.F.R. §2560.503-1(i).

The language of the regulations is not ambiguous—failure to meet the 45 day deadline, or 90 days under “special circumstances” with notification, results in the claim being deemed denied. Nichols v. Prudential Ins. Co. of America, 406 F.3d 98, 106 (2nd Cir. 2005)[1].  A plan administrator’s failure to adhere literally to the regulatory deadlines renders the claimant’s administrative remedies exhausted by operation of the law and permits the claimant to seek remedies in federal court without further delay. Id.  If either of the appeal deadlines passes without a determination by the claims administrator, the appeal is deemed denied and the plaintiff may pursue a civil action to contest the denial of benefits. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144 (1985) (applying the prior regulatory appeal deadlines).  “A plan’s failure to award benefits within the period specified by the Secretary’s regulations…permits a claimant to consider her claim as having been denied so that she is free to seek judicial review of the denial.” Dunnigan v. Metropolitan Life Ins. Co. 277 F.3d 223, 231 n. 5.  A plan’s failure to make a benefits denial within the regulatory deadlines constitutes a constructive denial permitting the claimant to bring a civil action to determine the merits of her claim. Stone v. Clarian Health Partners, Inc. Employee Benefit Plan, 1:05-cv-0341-JDT-WTL (S.D. Ind., December 12, 2005; J. Tinder).

As far as the appropriate standard of adjudication once the claim is deemed denied, the Supreme Court in Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115 (1989) held that de novo adjudication of employee benefit claims is the norm unless the plan sponsor delegates discretionary authority to the claims administrator.  However, even if the policy grants the insurance company discretionary authority[2], Reliance Standard failed to timely exercise that discretionary authority and therefore this case is adjudicated de novo. Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98, 109.  According to Nichols:

Firestone derived its holding from principles of trust law that “make a deferential standard of review appropriate when a trustee exercises discretionary powers.” 489 U.S. at 111, 109 S.Ct 948. The Supreme Court explicitly rejected the notion that the authorization of some set of discretionary powers of the plan administrator rendered all actions of the administrator discretionary. Id. at 113, 109 S.Ct 948.  In light of this reasoning, we conclude that we may give deferential review only to actual exercises of discretion.  A “deemed denied” claim is not denied by any exercise of discretion but by operation of law on the [45th] (or [90th]) day after the appeal is requested.  We therefore hold that a “deemed denied” claim is entitled to de novo review and place ourselves in harmony with Jebian, Gilbertson and Gritzer.

Id. Accordingly, an insurance company’s failure to timely exercise its discretion, within the 90 day regulatory deadline, renders the claim deemed denied and the Court adjudicates the case de novo without deference to the tardy determination.

In the preamble to the notice and comments explaining the purpose behind the ERISA regulations cited above, the Department of Labor confirms their intent to clarify that a plan administrator’s failure to comply with the procedural minimums laid out in the regulations waives the plan administrator’s rights to any deferential review by the courts. Specifically, the Department of Labor explained:

The proposal contained a provision setting forth the Department’s view of the consequences that ensue when a plan fails to provide procedures that meet the requirements of section 503 as set forth in regulations. The proposal stated that if a plan fails to provide processes that meet the regulatory minimum standards, the claimant is deemed to have exhausted the available administrative remedies and is free to pursue the remedies available under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim. The Department’s intentions in including this provision in the proposal were to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference. [emphasis added].

Employee Retirement Income Security Act of 1974, Rules and Regulations for Administration and Enforcement; Claims Procedures, 65 Fed Reg 70246, 70255 (Nov. 21, 2000) (codified at 29 C.F.R. pt. 2560). In addition, after discussing the comments by various responding organizations, the Department of Labor concluded:

Upon consideration, the Department has determined to retain this provision in paragraph (1) [deemed exhausted]. Inasmuch as the regulation makes substantial revisions in the severity of the standards imposed on plans, we believe that plans should be held to the articulated standards as representing the minimum procedural regularity that warrants imposing an exhaustion requirement on claimants.

 In the view of the Department, the standards in the regulation represent essential aspects of the process to which a claimant should be entitled under section 503 of the Act. A plan’s failure to provide procedures consistent with these standards would effectively deny a claimant access to the administrative review process mandated by the Act. Claimants should not be required to continue to pursue claims through an administrative process that does not comply with the law. At a minimum, claimants denied access to the statutory administrative review process should be entitled to take that claim to a court under section 502(a) of the Act for a full and fair hearing on the merits of the claim.

  Further, in promulgating the above referenced regulations, the Department of Labor discussed their goal in strengthening the internal appeals process, including shortening the time period to issue determinations on appeals, in part, because of economic hardships disabled claimants experience as a result of any unnecessary delay in receiving the replacement income that disability benefits are intended to provide:[3]


[1] 29 C.F.R. §2560.503-1 was significantly amended in 2000. Nichols interprets the prior regulations which allowed for 60 and 120 day deadlines for the appeal determinations.

[2] These discretionary clauses are now so abhorred, that almost half of the states have banned them in some form or fashion, including Indiana (as applied, unfortunately, to non-ERISA cases only).