Is De Novo Review Correct Standard When AIG Failed to Comply with ERISA Regulations in Terminating LTD Benefits?

In Brian McConnell v. American General Life Insurance Company (AIG), Plaintiff, who had received long term disability (LTD) benefits for 10 years was suddenly informed by AIG that his benefits were terminated. Plaintiff appealed, but AIG rejected his appeal and upheld the termination of benefits. Plaintiff then filed this ERISA lawsuit in the United States District Court for the District of Alabama, Southern Division.

Pursuant to Plaintiff’s administrative appeal, AIG obtained an independent medical review of Plaintiff’s medical records. In February 2019, AIG used the report as the basis for rejecting Plaintiff’s appeal but admitted it failed to disclose the reviewer’s report to Plaintiff.

According to the Department of Labor (DOL) regulations applicable to ERISA claims, when an insurance company makes an adverse benefit termination, “the plan administrator shall provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination.” The purpose is to give the claimant a reasonable opportunity to respond.

In the District Court, Plaintiff asserted that since AIG failed to comply with ERISA regulations, the Court should review the termination of his LTD benefits de novo. AIG argued that the regulation Plaintiff relied on was not applicable to his disability case, which was originally filed in 2009, so the correct standard of review should be arbitrary and capricious. AIG further argued that even if the Regulation applied to Plaintiff’s case, AIG’s failure to comply with it should still not trigger de novo review.

The standard of review in a disability case can make the difference in whether the Court rules in favor of Plaintiff or the insurance company. If the Court reviews the case de novo, it means that the Court reviews the entire record as though looking at it for the first time and decides whether the Plaintiff is entitled to LTD benefits. The Court is not required to give deference to the decision made by the plan administrator.

If the arbitrary and capricious standard is applied, the Court must give deference to the Plan Administrator’s decision to terminate benefits and uphold the decision if the Administrator articulated a reasonable or rational basis for the decision to terminate benefits. This is true even if the Plaintiff presents a better argument for maintaining the benefits, and even if the Court believes the Plaintiff is entitled to benefits.

The Regulation in Question Applies to Plaintiff’s Claim

AIG argued that the relevant regulation, 29 C.F.R. § 2560.503-1(h)(4)(i) (2019), requiring the adverse report to be provided to Plaintiff did not apply to Plaintiff’s claim, since the relevant portion, subsection (h)(4)(i) was revised in 2016 so did not apply to Plaintiff’s claim filed in 2009.

The Court conducted an intensive review of the regulation and all its subsections to determine if AIG’s interpretation was correct. It was a complicated analysis which required the Court to determine if any of the various subdivisions of § 2560.502 exempted subsection (h)(4)(i) from applying to Plaintiff’s case.

After its thorough review and analysis of each subdivision, the Court disagreed with AIG and held that the subsection in question applied to Plaintiff’s claim and that AIG “violated subsection (h)(4)(i) when it rejected Plaintiff’s appeal without complying with that provision.”

The question then facing the Court was “one of identifying the consequences of the defendant’s violation.”

Consequence for AIG for Violating the ERISA Regulation Was for the Court to Apply De Novo Review

AIG argued that the violation of the regulation did not require de novo review, that the Eleventh Circuit Court of Appeals rejected de novo review in a similar case, and that the arbitrary and capricious standard of review should still apply.

The District Court took issue with AIG’s argument and found it did not present any analysis to support its conclusion that de novo review was rejected by the Eleventh Circuit. In fact, the Court found, the Eleventh Circuit has, to date, “not foreclosed de novo review under the circumstances, and because the defendant offers no other argument in favor of an arbitrary and capricious standard of review, this action will be governed by de novo review.”

The Court concluded, “The applicable standard of review in this case, whether it is ultimately resolved by settlement, dispositive motion, or trial, is de novo.”

This case was not handled by our office, but we believe it can be instructive to those whose claims for LTD benefits have been terminated without an explanation of why from their insurance company. If you have any questions about this case, or any concern about your disability claim for either STD or LTD benefits, contact one of our disability attorneys at Dell & Schaefer for a free consultation.

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