District Court Applies De Novo Standard of Review Due to Insurer Failing to Strictly Adhere to ERISA Claims Procedure Regulations

In Rhodes v. First Reliance Standard Life Insurance Company, No. 22 CIV. 5264 (AKH), 2023 WL 3099294 (S.D.N.Y. Apr. 26, 2023), New York Southern District Judge Alvin K, Hellerstein granted Plaintiff’s motion for a de novo standard of review, finding that First Reliance failed to “strictly adhere” to ERSIA claims procedure regulations because it (a) failed to consult with an appropriately qualified health care professional on appeal; (b) failed to afford Plaintiff the opportunity to respond to a physician addendum report; and (c) exceeded all possible deadlines on appeal.

Plaintiff was a former employee of Union Bank and was a participant in Union Bank’s ERISA long-term disability insurance plan administered and insured by First Reliance. Following a traumatic brain injury, First Reliance initially granted Plaintiff’s LTD claim, but later terminated benefits finding that Plaintiff no longer satisfied the applicable definition of “Total Disability” under the Plan. On March 2, 2021, Plaintiff wrote First Reliance expressing his disagreement with the denial. On May 13, 2021, Rhodes sent another letter, containing similar objections, in which he wrote: “This letter is a formal appeal to the letter I received … dated November 17, 2020.” First Reliance received this letter on May 19, 2021. On June 7, 2021, First Reliance notified Plaintiff it would require him to undergo an independent medical examination (“IME”) and invited him to submit any additional documentation he wished. The letter also purported to provide notice of First Reliance’s “intention to take beyond 45 days to make a final decision on your appeal, as we await the receipt of the above referenced physician’s review and the receipt of the above-requested information, if applicable.” The parties do not dispute that after sending this letter on June 7, 2021, First Reliance stayed its review of Plaintiff’s appeal until August 3, 2021. First Reliance scheduled and Plaintiff attended an IME on July 27, 2021, and did not receive the IME report until August 6, 2021, followed by an addendum reported dated December 22, 2021. First Reliance upheld its denial of benefits on January 7, 2022. The addendum report was not provided to Plaintiff until after First Reliance’s final benefit determination.

The Court agreed with Plaintiff’s first argument that First Reliance failed to “consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.” 29 C.F.R. § 2560.503-1(h)(3)(iii). First Reliance opted to retain a PhD trained neuropsychologist as opposed to a neurologist or other medical doctor, to review Rhodes’ records on appeal. The Court held, given the abundance of documentation of physical manifestations and abnormalities in the medical record, First Reliance’s failure to consult with a medical doctor during its appellate review constitutes a violation of ERISA’s full and fair review requirements under 29 C.F.R. § 2560.503-1(h)(3)(iii).

With regard to Plaintiff’s second point, First Reliance argued that it was not obligated to provide the addendum report before its final benefits determination because the addendum did not constitute “new or additional evidence” within the meaning of 29 C.F.R. § 2560.503-1(h)(4)(i). The Court found First Reliance’s argument unconvincing, noting that First Reliance sought the addendum report so that the neuropsychologist could review additional medical records. As such, the addendum report was a medical opinion regarding new medical evidence, and it was “considered” and “generated” by First Reliance regardless of whether the report affected its ultimate benefits determination on appeal. 29 C.F.R. § 2560.503-1(h)(4)(i). The Court found that First Reliance’s failure to provide Plaintiff with the addendum and an opportunity to respond to it prior to its final benefits determination constitutes a violation of claims procedure regulations.

Finally, the Court found that First Reliance violated its obligation to render a final determination on appeal within 45 days of Plaintiff’s submission. It was the Court’s view that “neither awaiting receipt of the IME report nor awaiting the ‘additional information from Plaintiff’ provided a valid basis for First Reliance to stay their review.” These events, the Court concluded, were not “special circumstances” warranting an extension. Moreover, the Court held that First Reliance had not adequately advised Mr. Rhodes that it intended to invoke the extension, nor did it provide him with a date by which it would render its final decision. Accordingly, here too First Reliance was found to have violated the claims regulations. For these reasons, the Court concluded that the de novo review standard should apply to its review of First Reliance’s denial of Plaintiff’s claim.

As this case demonstrates, it can be difficult to navigate disability claims, both during the administrative process on appeal and through litigation. If your insurer has denied or terminated your disability claim, contact us for assistance.