Amending Plan after submission of claim

[Guest PALAWYER]

I may be missing the boat on this one, but please help. May a Plan Sponsor amend his disability plan to redefine the term Total Disability after a claim is submitted and apply the new definition to the pending claim? I say no..but why? Would the answer change if it was in a Defined Benefit Plan ( ie would 411(d)(6) apply to the definition? Can you apply the new amendment to claims already submitted if the claim has not been decided and was just recently submitted?

[Wessex]

Although I am not sure on what basis, I agree that a change in the definition of Total Disability should not apply to a pending claim. If the basis on which claims would be paid under any kind of plan/policy could be changed for pending claims, few expensive claims would ever be paid. Seems to me that doing this is just asking to get sued.

In the context of a defined benefit plan, whether Section 411(d)(6) would apply depends on whether under the plan the disability benefit is part of the accrued benefit or is an ancillary benefit.

Regardless of whether or not the disability benefit is ancillary, if disability is a full vesting event, changing the definition of disability would probably be a change in the vesting schedule, giving participants with 3 or more years of service the right to elect to use the prior vesting schedule (i.e., total disability definition.)

[KIP KRAUS]

I am assuming that you are talking about an insured short-term or LTD plan? If so, usually contractually, when a person first becomes disabled that person is coverd by the contract provisions at his date of disability. Unless such disabled person returns to active work, I don't think the employer or insurer can subject him to retroactive plan changes. State insurance law should provide some insight if the plan is an insured plan.

[This message has been edited by KIP KRAUS (edited 10-08-98).]

[Guest rsmelson]

You may want to consider whether this plan is covered by ERISA, and if a plan amendment to an ERISA can be given retroactive effect. Probably not. See Confer v. Custom Engineering, 952 F 2d 41 (1991). Also, if the SPD is not also amended then another basis for a claim exists.

[Brigid Anderson]

The pension concepts of vesting and accrued benefits do not apply, as a matter of statute or regulation, to welfare plans such as the disability plan in discussion here. However, the courts have applied the concept of "contractual" vesting to welfare plans. As one of the messages indicates, the Confer case held that the medical plan in effect at the time the plaintiff incurred accidental injuries controlled notwithstanding a later, attempted amendment.

Another recent case, Member Services Life Ins. Co. v. American National Bank and Trust Co, 1997 U.S. App LEXIS 35102 (10th Cir. 1997), held that a health plan could not retroactively add a subrogation clause to reach damages awarded for injuries incurred before the clause was adopted. This case discusses contractual vesting of welfare benefits in some detail. It concluded that the right of the plan beneficiaries in question to receive benefit payments—free of any subrogation claim—vested at least as early as the date the underlying medical expenses were incurred and perhaps as early as the date the treated medical condition arose.

I don’t know, off the top of my head, of a case that deals with when disability benefits vest. However, applying the reasoning of the Member Services case, it is likely that such benefits would be held to vest once the covered person satisfies the plan definition of disability. Therefore, provided such a person makes a timely request for benefits and satisfies any other procedural requirements for getting benefits, he or she would be entitled to receive the benefits. A plan amendment that changes the definition for the future but that is adopted after the date the person satisfies the prior disability definition would probably be held ineffective as to such vested benefits.

In addition, one message raises the issue of whether the disability plan is an ERISA plan. I really don’t think it would make much difference because similar principles regarding contractual vesting would probably apply in either event.