By: Ian Morrison & Jules Levenson

Seyfarth Synopsis: The 7th Circuit recently held that insurers and administrators must provide claimants an opportunity to respond to new information relied on for adverse benefit determinations, even if the claim predated the enactment of the relevant regulation.

In Zall v. Standard Ins. Co., 58 F.4th 284 (7th Cir. 2023), the Seventh Circuit Court of Appeals considered whether amendments to DOL claims procedure regulations that went into effect in 2018 applied to a claim for LTD benefits first filed in 2013. The Court of Appeals answered yes and reversed the insurer’s win in the district court because it had failed to provide the claimant with a copy of a medical evaluation with enough time for the claimant to respond before the insurer issued its final decision on the claim.

Zall, a former dentist, filed a claim for LTD benefits in 2013. After initially denying the claim, Standard granted it on appeal. In 2015, Standard began to review the claim to determine if a 24-month limitation for applied, but it did not make a determination and kept paying benefits until 2018. In 2018, it requested and reviewed updated medical records and determined that the 24-month limit applied. It stopped paying benefits in 2019. Zall appealed and Standard obtained a medical review but did not provide a copy to Zall before rendering its appeal decision in which it affirmed the denial (and only informed him that the review existed 9 days before that determination).

Zall sued, claiming that he was denied a full and fair review based on Standard’s failure to comply with the 2018 claims procedure regulations.  He lost in the district court, which found the new regulations only applied to claims first filed after April 1, 2018.

The Seventh Circuit reversed, holding that the plain language of the effective date provision of the 2018 regulations (29 C.F.R. Sec. 2560.503.1(p), which provides that the regulations generally apply to claims filed on or after January 1, 2002) dictated their application to all claims pending when the new regulations went into effect. Notably, the clarity of the regulatory language led the Court of Appeals to reject the argument that DOL rulemaking materials showed the regulations were not intended to apply to claims filed before April 1, 2018. The Court likewise held that there was no problem of retroactivity, as the new regulation had no impact on substantive rights, but instead addressed only the procedures for vindicating those rights (and that procedural changes generally do not present concerns about retroactivity). The Court distinguished other Circuit decisions reaching seemingly contrary results, stating that those cases involved pre-2018 conduct and did potentially present a retroactivity problem.

The Court of Appeals further determined that the plaintiff was prejudiced by the procedural violation (as he lost the opportunity to rebut the new negative medical review) and that he did not waive reliance on the violation, as it occurred only days before the adverse decision. The Court of Appeals thus remanded the matter to the administrative process to permit a full and fair review of the claim in compliance with the 2018 regulations.

The precise issue directly raised in Zall is of limited duration and scope, as it is only relevant to benefit claims filed between 2002 and 2018 that are still pending after 2018 and in which insurers and administrators are operating under the old regulations. For entities that have chosen to utilize a single process for all claims (both pre- and post-2018), the decision will likely have few immediate impacts. Perhaps the bigger importance going forward, though, is that the logic of Zall appears to authorize a broad swath of retroactive regulations, so long as they are procedural in nature. Insurers and administrators should be sure to track ongoing regulatory developments to ensure an appropriate response to any changes, taking into account the Seventh Circuit’s position in Zall.