New Litigation Rules Will Affect Claims Processing
By Gregory L. Ash,
Esq.
Spencer Fane Britt & Browne LLP, Overland Park, KS
Changes to the federal rules governing civil litigation will affect
the way that benefit claims and appeals are processed. While
third-party claims administrators will be most directly affected, plan
sponsors and their human resources staff should also be aware of the
new rules. Failure to abide by them could make it more difficult to
succeed if claim decisions are challenged in court.
The changes to the Federal Rules of Civil Procedure, which went
into effect on December 1, 2006, relate to the manner in which
electronically stored information (ESI) is treated in federal court
litigation. The new rules generally permit greater access to ESI by
adverse parties in the early stages of a lawsuit (called
“discovery”). ESI includes e-mails, spreadsheets, word
processing documents, databases, voicemail, instant messages, and data
stored on hard drives.
At the beginning of each federal lawsuit, parties and their counsel
must now address the scope of their ESI, its location, the format in
which it is stored, how long it is stored, and--most
importantly--whether it is reasonably accessible. When parties learn
about pending or threatened litigation, they must promptly suspend any
automatic document destruction procedures and preserve all relevant
ESI.
Although the new rules were probably not drafted with litigation
over employee benefits in mind, they will nevertheless affect how
entities that process benefit claims and appeals operate. In order to
put themselves in the best position to prevail if a claim decision is
challenged in court, these entities will need to evaluate now
how they will preserve and produce their ESI if and when litigation
ensues. Similarly, plan sponsors who maintain electronic records--such
as personnel files--that relate to a participant's eligibility for
benefits or the amount of those benefits may be affected by the new
discovery rules, and should plan accordingly.
Why should claims administrators and plan sponsors worry about
these rules if only a small minority of claim decisions are ever
litigated? For two reasons: First, a substantial portion of the data
that will support a claim denial is likely to be maintained
electronically. This data could include the participant's employment
record (evidencing hours worked, contributions made, etc.), which
could affect the participant's eligibility for a benefit (e.g., his or
her vested status) and the amount of that benefit; internal
spreadsheets or computer programs through which benefit amounts are
calculated; correspondence with consulting or treating physicians
concerning the participant's claim; and plan documents, procedures,
and SPDs. Thus, any litigation over a claim denial is almost certain
to involve substantial ESI discovery.
Second, one of the principal protections added by the new rules may
not be available if the claims administrator and plan sponsor fail to
take early, pre-litigation steps to preserve relevant ESI. Parties are
generally required to implement document retention policies whenever
litigation is filed, threatened, or “reasonably
anticipated.” Although there is no clear standard concerning
when litigation should be reasonably anticipated, in the context of
benefit claims that point could come when the claims administrator or
plan sponsor informs the claimant that his or her appeal has been
denied, and that he or she has a right to bring suit under ERISA.
The amendments to the Federal Rules of Civil Procedure create a new
safe harbor provision to protect litigants in the event that they
accidentally lose ESI, but only if the litigants have implemented
good-faith measures to preserve relevant information. Evidence of such
good-faith measures includes steps the litigant took to suspend
routine document destruction activities when litigation was reasonably
anticipated. This kind of “litigation hold” includes
informing key personnel of the need to retain potentially relevant
ESI. Parties that comply with this safe harbor may not be subjected to
court sanctions for failing to produce ESI that is lost. Taking
prompt, affirmative measures to ensure that relevant ESI is preserved
is the first step in making this safe harbor available.
In view of these rules changes, third-party claims administrators
and plan sponsors that administer claims and appeals should evaluate
how ESI is maintained, and how they will respond in the event it is
subpoenaed. They also should develop litigation hold procedures that
can be quickly implemented in the event a lawsuit is threatened or
filed. Taking these steps now could prevent headaches and
reduce legal fees later.
For more information, in the Tax Management Portfolios, see
Wagner, Bianchi, and Marathas, 374 T.M., ERISA -- Litigation,
Procedure, Preemption and Other Title I Issues, and in Tax Practice
Series, see ¶5530, Fiduciary Duties and Prohibited
Transactions.
|
