Seventh Circuit Holds Claim Must Be Determined by Rules Effective on the Benefit Termination Date

On January 19, 2023, in Zall v. Standard Insurance Co., the US Court of Appeals for the Seventh Circuit determined that the version of ERISA regulations in effect at the time of the termination of plaintiff’s disability benefits applied in a dispute between the plaintiff and the defendant.

The plaintiff in this case, Eric Zall, sued Standard Insurance Company (Standard) for payment of retroactive disability benefits and a declaration that Standard continued to owe him those benefits. Zall worked as a dentist until chronic pain in his neck and arm prevented him from working. Standard insured and administered a disability benefit through a plan subject to ERISA. In 2013, Zall applied to Standard for disability benefits. The version of the ERISA regulations in effect at the time he applied for benefits required Standard to provide Zall, upon request, with copies of all documents and records that it considered, generated or relied upon if Standard denied benefits to him. Although Standard paid the benefits for six years, the insurer denied those benefits in 2019, asserting that the nature of the disability allowed for only 24 months of disability payments. At the time Standard denied those benefits, the regulations had been amended to require the insurer provide copies of documents and records upon which it relied in denying the benefits whether Zall asked for them or not. Standard did not provide Zall with copies of those documents and records during the administrative review of his claim, specifically an expert report which provided the basis for Standard’s denial.

Zall filed suit, asserting that Standard had “denied him a full and fair review” by failing to give him a copy of the report upon which Standard relied when it denied him further benefits, which the 2019 rules required. Zall also asserted that the evidence did not support Standard’s decision to deny him benefits. The district court did not agree with Zall, reading the regulations in effect in 2019 to apply only to claims filed after April 2018. Since Zall filed his disability claim in 2013, the district court reasoned that the original regulations applied, and the insurer was under no obligation to provide the documentation unless he asked for it. In addition, the district court found that the expert report provided a sufficient basis for Standard’s decision to deny the benefits.

Zall appealed, and the Seventh Circuit found that the regulations in effect in 2019 applied to Zall’s case. Although the 2019 regulations provided some exceptions, which did not apply in this case, the Seventh Circuit determined that the 2019 regulations applied to all claims filed after 2002. The Circuit made this determination based on a plain reading of the regulations. Since the relevant regulations affected the process that Standard followed to review the claim, rather than the substance of any claim consideration, there was no prohibition against applying them retroactively. Although the Circuit ruled that Standard should have provided Zall with the documents that the insurer relied upon to deny benefits, the Circuit did not weigh in on the substantive issue of whether the insurer had sufficient basis for denying the benefit. The Circuit remanded the case back to district court in order to give Zall an opportunity to challenge the expert report and other documentation.

While this case focused on regulatory interpretation, it serves as a cautionary example of what happens when insurers or employers adjudicate claims without sufficient regard for the relevant regulation. Employers and insurers should be aware of which regulations apply, in consultation with counsel, and make sure that they follow those regulations.

Zall v. Standard Insurance Co »