The U.S. Department of Labor defines “fiduciary duty” as a responsibility of employers (Plan Administrators) to administer disability Plans solely in the best interests of the participants and to decide indeterminable issues in favor of the claimant. The entity that has a fiduciary duty is called the “fiduciary” and the person to whom the duty is owed is called a “participant” or “beneficiary.
Employers and Plan Administrators have a fiduciary responsibility to Plan participants (claimants) to act solely in the interest of the participants.
To summarize, the typical, duties of a disability claim fiduciary are:
- Duty of care – Plan Administrators must inform themselves of all of the material information reasonably available to them. (In reality, most group STD/LTD Plans require claimants to provide all proof of claim at their own expense.)
- Duty of loyalty – Plan Administrators must avoid “conflicts of interest” and decide claim issues in the best interests of Plan participants. (In reality, it is impossible not to have a “conflict of interest” when insurers are both reviewers and payers of claims.)
- Duty to act fairly – Plan Administrators have a duty to administer the plan the Plan in an equitable and objective manner. (In reality, all disability insurers have review strategies for the purpose of denying claims rather than paying them.)
- Duty of confidentiality – Administrators must take all necessary steps for the protection of the confidentiality of health, financial and occupational records in its care. (In reality, disability insurers are not covered entities in HIPAA law. Confidentiality and disclosure is not infinitely protected.)
- Duty of good faith and fair dealing – Insurers must act in good faith and administer claims through the process of review in an equitable and objective manner. (In reality, most insurers deliberately “target” and “work” claims through review systems that misrepresent proof of claim in the insurer’s favor.)
- Duty of full disclosure – Plan Administrators must provide information in “all candor” by disclosing all information that was relied upon to render adverse decisions. (In reality, much information is withheld from disclosure by not including it in the Administrative Record at all.)
Basically, ERISA requires fiduciaries to act prudently, abide by the terms of the Plan document and ensure the terms are consistent with ERISA. Finally, fiduciaries are required to avoid conflicts of interest. The fiduciary relationship between employer and Plan participants implies “trust”, and is regarded as the highest standard of care.
In my experience as an expert in disability claims management, and contrary to common definitions of fiduciary duty, it is apparent that the majority of disability claim denials involve a “breach of fiduciary duty” to some extent. Breach of fiduciary duty is a very complex issue and should be explored by the ERISA attorney who accepts your case on appeal.
Nearly all group STD/LTD Plans have some sort of language that allows ERISA insurers “discretionary authority” to interpret the provisions of the Plan and resolve factual disputes as they see fit.
Here is one example of a discretionary clause from an Unum Plan:
“The Plan Administrator delegates to Unum and its affiliate Unum Group discretionary authority to make benefit determinations under the Plan. Unum and Unum Group may act directly or through their employees and agents or further delegate their authority through contracts, letters or other documentation or procedures to other affiliates, persons or entities. Benefit determinations include determining eligibility for benefits and the amount of any benefits, resolving factual disputes, and interpreting and enforcing the provisions of the Plan. All benefit determinations must be reasonable and based on the terms of the Plan and the facts and circumstances of each claim.”
Discretionary clauses in STD/LTD Plans make it more difficult to overturn claim denials on appeal. As of the date of this writing there are twenty states that have banned or now prohibit “discretionary authority” in ERISA Plans. These states are MN, OR, NY, MI, CA, CT, HI, ID, IL, IN, KY, ME, MD, NJ, SD, TX, UT, VT, OR and WA. (This information is constantly changing, but you get the idea.)
Many attorneys and other state ERISA advocates continue their fight to remove “discretionary authority” even though there are wealthy and powerful insurance lobby groups fighting to keep the privilege in ERISA Plans.
Although the National Association of Insurance Commissioners (NAIC) recommended a ban on all discretionary authority provisions many years ago, there remain states that continue to support the insurers rights to determine claim decisions on their own.
In my opinion, it is extremely unfair to claimants for ERISA to legislate “good faith and fair dealing” at the federal level while at the same time allowing the states to permit “discretionary authority” thereby allowing “conflicts of interest.” It just doesn’t jive and it isn’t fair to claimants.
Simply put, ERISA gives claimants the “right” of appeal and disclosure once a claim is terminated or denied. Claimants have 180 days to “perfect” an appeal, meaning they can submit additional information in support of continuing benefits. If the claimant files an appeal, but the insurer fails to make a decision within 45 days, the claimant (or his/her attorney) can file a lawsuit on day 46.
Although ERISA allows disclosure of all information the insurer relied upon in making the denial decisions and sets time limits on decision-making, the laws of pre-emption are not favorable to claimants. ERISA claimants cannot sue for “bad faith” in state court and be awarded punitive damages; federal judges must adhere to certain “standards of review” including “arbitrary and capricious” or “de novo” decisions. There is no opportunity for a jury trial and the best outcome of any ERISA lawsuit is reinstatement of benefits with court awarded attorney fees.
Due to the fact that ERISA’s federal pre-emption is so disadvantageous to claimants, most insurance disability defense lawyers will file motions to remove any cases filed in state courts to federal courts.
Are you beginning to get the idea that STD/LTD employer provided ERISA Plans aren’t the best protection for future financial security? If you are leaning in that direction you would be right since most of the protections ERISA initially provided have now been eroded to favor the insurance industry.
Your attorney can provide you with more detailed information should you decide to engage in ERISA litigation. It is only important for you to remember here that ERISA federal jurisdiction pre-empts the claimant’s rights to seek restoration of benefits under state laws and consumer protection acts pertaining to insurance.