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April 11, 2005
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2005-06A
ERISA Sec. 503
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Larry Brand
Mahoney & Associates
2455 East Sunrise Boulevard, Suite 300
Fort Lauderdale, FL 33304
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Dear: Mr. Brand:
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This is in response to your request regarding the
applicability of the claims procedure regulations under the Employee
Retirement Income Security Act of 1974 (ERISA) to certain accidental death
and dismemberment (“AD&D”) insurance benefits. Specifically, you ask
whether the AD&D benefits you describe are subject to the requirements
in 29 C.F.R. § 2560.503-1 for “disability benefits” or whether they are
“other” welfare benefits subject to the general claims procedure
provisions of 29 C.F.R. § 2560.503-1.
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The correspondence and materials you forwarded contain
the following facts and representations. Mahoney & Associates is an
insurance brokerage firm and also provides benefits management and
consulting services to employers that sponsor ERISA-covered employee welfare
benefit plans. You state that a significant number of your clients provide
basic and supplemental life insurance, AD&D and other additional welfare
benefits to their employees through the purchase of insurance. The insurance
policies that are the subject of your request provide active full-time
employees with AD&D benefits. The policies define AD&D as “death
or dismemberment resulting from accidental bodily injury which is
unintended, unexpected, and unforeseen.” To be covered, the death or
dismemberment must occur within a specified time frame from the day of an
eligible accident. The AD&D benefit is based on a percentage of the
basic and supplemental life insurance for which an employee has been insured
under the policies. The life insurance may be a flat figure (e.g., $15,000),
an amount based on the covered employee’s annual earnings, or a
combination. The insurance policies include a schedule listing percentages
paid for death, for total and irrecoverable loss of sight, speech or
hearing, and for severed limbs. Benefits are paid in a lump sum upon written
proof of a covered loss meeting the conditions of the policy. Proof of a
claim may include, but is not limited to, police accident reports, autopsy
reports, laboratory results, hospital records, x-rays, and narrative
reports. The insurer reserves the right to have the claimant medically
examined or to have an autopsy performed.
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The term “employee welfare benefit plan” is defined,
in pertinent part, in section 3(1) of ERISA as “any plan, fund, or program
. . . established or maintained by an employer or by an employee
organization, or by both, to the extent that such plan, fund, or program was
established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or
otherwise, (A) medical, surgical, or hospital care or benefits, or benefits
in the event of sickness, accident, disability, death or unemployment, or
vacation benefits, apprenticeship or other training programs . . . .”(1)
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Employee benefit plans covered by Title I of ERISA must
establish and maintain reasonable procedures governing the filing of benefit
claims, notification of benefit determinations, and appeal of adverse
benefit determinations. The Department of Labor (“Department”) issued a
final regulation on November 21, 2000, that amended and updated the minimum
requirements for employee benefit plan claims procedures under Title I of
ERISA.(2) The
final regulation established special rules for group health plans and plans
providing disability benefits regarding, among other things, notices of
benefit determinations and appeals of adverse benefit determinations. See 29
C.F.R. §§ 2560.503-1(f)(2), (h)(3) and (i)(2)(group health plans) and 29
C.F.R. §§ 2560.503-1(f)(3), (h)(4) and (i)(3)(disability benefits).
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As to the dismemberment benefits described in your
submission, we note that “common types of [disability insurance] coverage
(1) provide for the payment of a lump sum where the insured suffers a
specified injury (a form of coverage which includes ‘dismemberment’
insurance), and (2) provide for periodic payments where the insured suffers
a total or partial disability.” 10 Couch on Insurance § 146:1. The
dismemberment benefits you describe also fall squarely within the ERISA
section 3(1) concept of benefits in the event of “accident.” Although
there may be some overlap among the types of benefits listed in section
3(1), we do not believe the special disability benefit rules in the claims
procedure regulation apply to all accident benefits. Rather, the Department
issued guidance in question and answer format on the claims procedure
regulation which, in Q&A 9, explains what are “disability benefits”
subject to the regulation’s special rules for disability claims:
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A benefit is a “disability benefit” under the
regulation, subject to the special rules for disability claims, if the
plan conditions its availability to the claimant upon a showing of
disability. It does not matter how the benefit is characterized by the
plan or whether the plan as a whole is a pension plan or a welfare plan.
If the claims adjudicator must make a determination of disability in order
to decide a claim, the claim must be treated as a “disability claim”
for purposes of the regulation. As the Department stated in the preamble
to the regulation, 65 FR at 70247, n.4, “where a single plan provides
more than one type of benefit, it is the Department's intention that the
nature of the benefit should determine which procedural standards apply to
a specific claim, rather than the manner in which the plan itself is
characterized.”(3)
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Accordingly, whether the AD&D benefits you describe
are “disability benefits” under the claims procedure regulation depends
on whether the claims adjudicator must make a “determination of disability”
in order to decide a claim.
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In the Department’s view, a “determination of
disability” for purposes of the claims procedure regulation involves a
determination regarding an individual’s ability to engage in gainful
activity due to a physical or mental impairment. In the case of the
accidental dismemberment benefits under the insurance policies you describe,
the decision on the claim for benefits does not relate to a claimant’s
ability to engage in gainful activity. Further, although the plan may
reserve the right to have a medical examination conducted, the exam does not
involve such a determination. Therefore, based upon your submission and
representations, the Department would not consider the accidental
dismemberment benefits under the policies you described to be subject to the
special rules for “disability benefits” in 29 C.F.R. § 2560.503-1.
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Similarly, the benefits in the event of death described
in your submission do not involve a “determination of disability” for
purposes of the claims procedure regulation. Thus, the special disability
benefit rules in 29 C.F.R. § 2560.503-1 also would not apply to the death
benefits under the AD&D insurance policies described above.
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This letter constitutes an advisory opinion under ERISA
Procedure 76-1, and is issued subject to the provisions of that procedure,
including section 10 thereof relating to the effect of advisory opinions.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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Nothing in the materials you submitted
suggests that the AD&D benefits would be pension benefits under
section 3(2) of ERISA, and, therefore, this letter does not address
section 3(2).
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The final rule was published in the
Federal Register at 65 Fed. Reg. 70246 (Nov. 21, 2000). The final rule
is effective with respect to benefit claims filed on or after January 1,
2002, under all plans other than group health plans. For claims filed
under a group health plan, the final rule is effective beginning on the
first day of the first plan year that begins on or after July 1, 2002,
but in no event later than January 1, 2003. See 66 Fed. Reg. 35886 (July
9, 2001).
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The questions and answers can be
viewed as a set of “FAQs about the Benefit Claims Procedure
Regulation” on EBSA’s Web site at www.dol.gov/ebsa/faqs.
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