Substantial Compliance is Good Enough (Sometimes)

Saturday, May 6, 2006 | 0

By Bill Minick, President, PartnerSource, Inc.

In Lacy v. Fulbright & Jaworski, 405 F.3d 254 (5th Cir. 2005), a benefit plan's denial of coverage "substantially complied" with ERISA's claim regulations, so it was sufficient to trigger the time limits for the plan participant to file an appeal.

However...

Using New Basis for Benefit Denial Upon Appeal Provides Another Bite at the Apple

If you deny an injury benefit claim for one particular reason, and the employee appeals the benefit denial, the appeal must review the same basis for denial. If the appeals process results in benefit denial based on a NEW reason, then ERISA's "full and fair review" standard says that the employee must be given another opportunity to appeal based on that new reason for denial. Robinson v. Aetna Life Ins. Co., 2006 U.S. App. LEXIS 6148 (5th Cir. 2006). http://www.ca5.uscourts.gov/opinions/pub/05/05-50567-CV0.wpd.pdf

Does the Plan Document or SPD Control?

Everyone who drafts (or approves) employee benefit plans is (or should be) concerned with potential differences between the official benefit plan document and the Summary Plan Description that is distributed to employees. Moving from the formal, legalese of a plan document to the SPD (which must be "understandable by the average plan participant") has always been a challenge.

In the case Admin. Comm. of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Gamboa, 2006 U.S. Dist. LEXIS 9966 (W.D. Ark. 2006), the court confirmed that employees will virtually always win in a dispute involving differences between these two documents. It held that SPD terms will trump plan terms if the employee is harmed by relying on the SPD terms, but the plan terms will trump SPD terms if the plan terms are more beneficial to the employee. See also Heffner v. Blue Cross & Blue Shield of Alabama, Inc., 2006 U.S. App. LEXIS 7699 (11th Cir. 2006), http://www.ca11.uscourts.gov/opinions/ops/200415477.pdf (If SPD and plan document differ, participants must show reliance in order to enforce SPD terms).

These cases should make an employer very hesitant about issuing a brief SPD that is vague or ambiguous, omitting all of the benefit exclusions and limitations on benefits that are found in the official plan document.

Case Watch: Benefit Subrogation Rules Continue to Evolve

Nonsubscribers have a strong interest in being able to recover benefit payment from injured employees who later recover compensation from third parties through legal action. In 2001, the U.S. Supreme Court in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2001) ruled that recovery through a "constructive trust" is permissible so long as the funds sought are traceable to an identifiable fund. In the pending case of Sereboff v. Mid-Atlantic Services, Inc. (U.S. Supreme Court, No. 05-260, February 28, 2006), the U.S. Supreme Court will decide whether the money to be recovered is "traceable to an identifiable fund" even when the money is commingled with the injured employee's general assets. Stay tuned!

Article republished with the permission of PartnerSource.
Bill Minick, President
PartnerSource, Inc.

8117 Preston Road, Suite 530 Dallas, TX 75225
bminick@partnersource.com
www.partnersource.com
P: 214-239-4584 F: 214-239-4581 800-248-7599, ext. 4584

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