Worst Case Scenarios from the Files of an Employee Benefit Plan Litigator — The Good, the Bad and the Ugly
WESTPORT, CT, June 1, 2007 — When it comes to employee benefit plans, decisions should consider worst case scenarios. “How you write and administer your plan will ultimately affect your ability to ensure that your decisions about the validity of employee claims hold up in court,” says employee benefit plan litigator Patrick Begos, a partner in the Westport, CT practice of Begos Brown & Green LLP.
Those worst case scenarios need to come into play from the moment the plan is written. “The language of the plan can have an enormous effect on whether a court decides a claim is going to be upheld or rejected,” says Begos, who has been representing employers and plan administrators on employee benefit claim for ten years. “When we’re defending plans, we see all the ‘warts’ in them. If our client has a ‘good’ plan and good administrative records, we usually win. If the client has a poorly written plan, it’s more difficult to come out on top.” Begos goes on to say: “The same is true for claim procedures. The best-written plan can be worthless if the administrator doesn’t establish claim-handling procedures, doesn’t follow the procedures it has established, or doesn’t create a paper trail that shows what it did.”
Begos advises those setting up employee benefit programs to spend some time contemplating the likelihood that a decision on a claim for benefits will be challenged in the future. “We litigators deal in the world of worst case scenarios every day and we know that a well-written plan and proper claim procedures can add value to the process. When employers decide to establish an employee benefit, they naturally, focus most on the costs of the plan, and the range of benefits the plan provides to employees. The thought of disputes over claim decisions seems remote. But unless the employer, or the consultant drafting the plan, considers and addresses the worst case scenarios, a plan that is beautiful from a financial perspective could end up being a disaster when a claim decision is disputed.”
Attorney Begos offers these suggestions for drafting and administering plans to maximize the likelihood that the administrator’s claim decisions will be upheld:
- The plan should specify that the claim administrator has discretion to interpret the plan and determine claims. Begos refers to these as the “magic words.” He continues: “This is probably the most significant thing you can say in a plan,” Begos says. “It’s one little sentence, but it can often make the difference between a lengthy claim dispute and a short one, or even between victory and defeat. If the plan grants discretion to the administrator, then the court has to give deference to the administrator’s decisions on claims. This may sound obvious but it effects how the court reviews disputed claims.” He offers this scenario to illustrate this point: “We defended a claim decision where the judge made it clear that he was not convinced that the administrator’s determination was the correct one. However, the judge acknowledged that the decision was reasonable. He said he had to uphold it, because the plan gave the administrator discretion to determine claims. This is a case we might have lost if the plan didn’t have the magic words.”
- Make sure that there’s a record kept of what the administrator considered in reviewing a claim. If and when you go to court, the judge will want to make sure the record is complete. “Judges decide whether to uphold your decision by looking at the evidence you’ve compiled in the file, often called the ‘administrative record’. If it’s not in the record, it might as well not exist,” reminds Attorney Begos. “I love it when a client asks me to defend a claim decision, and hands me a complete claim file, including copies of everything the claimant submitted, all the documents and information the administrator considered, any opinions it received from its consultants, and letters to the claimant explaining the decision. When you can show the court that you gathered all the evidence you have a much easier time showing the court that the decision is the correct one. On the flip side I’ve seen claim files where you can’t tell what happened. There’s no paper trail showing what the administrator considered, and why he or she denied the claim. When you can’t show the court what happened, it’s hard to convince the court that the decision was correct, or even reasonable.”
- When you have professionals provide opinions as part of the claim process, you should include a summary of their credentials in the file. For example, if an administrator has a doctor review a health claim, make sure the file has some documentation of the physician’s board certifications and specialties. If not, the doctor’s specialty can’t be verified and his opinion might be discounted in court.
- Make sure your decision on a claim is based solely on the evidence. This is an obvious one. Courts are vigilant about guarding against claim decisions affected by outside influences. For example, suppose if the claim administrator is the head of your company’s human resources department, and she has a bad history with the person whose claim she’s reviewing. In this case, a court may decide to subject the decision to a closer review, especially if there’s reason to believe that the “bad blood” affected the decision.
- Follow timetables for taking specific actions. These timetables should be in the plan and should meet with regulations. For example, for some types of claims, you have a specific amount of time to make the decision. If you don’t decide within that time and the claimant goes to court, you may lose the deferential review that the “magic words” in your plan otherwise would have given you. “This is an evolving area of the law,” cautions Attorney Begos. “Review your plan regularly with your professional advisors to make sure it takes into account the ever-changing regulations.”
- Consider the benefits of having a staff member dedicated to determining claims. “It’s always better to have a professional staff person who is dedicated to making decisions on claims. If you have a retirement plan, and the president of the company is making the claim determinations, he may not know what to look at to determine if the claim is allowed under the plan,” suggests Attorney Begos. “Professionals who review claims know how to write up their decisions and how to deal with time limits. Chances are your claim’s decision will be upheld if professionals make them.”
Attorney Begos offers this final caution: “You can’t anticipate every possible problem that might arise in the future while drafting a plan, but once it’s written you can make sure to follow the plan to protect yourself and your company. Plans are complicated and sometimes have unintended consequences. That’s why attorneys get involved. My hope for my clients is that they protect themselves as well as possible so that disputed claims can be resolved quickly and in their favor.”