Disability Insurer’s Failure to Issue Decision Brings Consequences

A recent decision from the U.S. District Court for the Eastern District of Virginia highlights what can happen when a disability insurer fails to decide an employee’s appeal in a timely manner. See Rupprecht v. Reliance Standard Life Ins. Co., No. 1:21-01260 (AJT/JFA), 2022 WL 3702086 (E.D. Va. Aug. 26, 2022).  In Rupprecht, an employee was insured under a long-term disability insurance plan through his employer. Like insurers often do, at first the employee’s disability claim was approved, however, over time the insurer reversed course and denied coverage.

The insurer, Reliance Standard, denied the claim arguing that the employee was able to work in a number of sedentary jobs including an “informational clerk.”  This ran contrary to the employee’s doctor who concluded the employee suffered from significant chronic pain and instructed the employee to avoid prolonged sitting and standing to help control his symptoms. 

The employee appealed the insurer’s denial of his disability claim. In response to the appeal, Reliance sent a letter acknowledging the appeal and stated that it was going to have the employee undergo an independent medical examination before the insurer would close its review of the case. The letter also advised the employee that Reliance planned to take longer than the allowed 45 days to decide the employee’s appeal.

The employee deemed Reliance’s letter a denial of his claim and filed suit against Reliance claiming he was entitled to benefits under the policy. In court filings, the employee argued that Reliance’s failure to decide his appeal within the prescribed 45-day period constituted an exhaustion of his administrative remedies. The court agreed.

Under 29 CFR 2560.5031(i)(3)(i), a claim administrator (i.e., the insurer) has 45 days after a claimant files an appeal and this can only be extended by an additional 45 days in “special circumstances.”  Reviewing the facts of the case, the court found that Reliance failed to provide a decision on the employee’s appeal within the 45-day deadline. The court further found that Reliance failed to establish “special circumstances” that warrant extending the deadline by an additional 45 days.

The insurer’s failure to issue a decision meant that the court was not required to grant the insurer greater discretion when reviewing the insurer’s decision. As the court explained, when an insurer commits a procedural violation, it loses the benefit of deference and is instead subject to a less deferential “de novo” standard of review. Under such a standard, the court decides whether the insurer’s decision was correct, not reasonable.  Based on the medical evidence and the language of the policy, the court found the record showed the employee was totally disabled under the policy and awarded the employee benefits.